| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
September 30, 2022☐
__________333-263313
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered or to be 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, no par value | BPRN | The Nasdaq Global Market |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ | |||||
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Explanatory Note
EXPLANATORY NOTE
On January 10, 2023 (the “Effective Date”), Princeton Bancorp, Inc., a Pennsylvania corporation (the “Company”), was formed to serve as acquired all of the holding company foroutstanding stock of The Bank of Princeton, a New Jersey state-chartered bank (the “Bank”), as part of a reorganization (the “Reorganization”) whereby each sharepursuant to the terms of outstanding Bankan Agreement and Plan of Reorganization and Merger dated February 23, 2022 (the “Plan”). Pursuant to the Reorganization, shares of the Bank’s common stock will bewere exchanged for one shareshares of the Company’s common stock.stock on a one-for-one basis. As a result, the Bank became the sole direct wholly owned subsidiary of the date of this Quarterly Report on Form 10-Q (this “Report”),Company, the Reorganization had not been completed. Accordingly, as of September 30, 2022,Company became the holding company for the Bank and the datestockholders of this Report, the Company had no assets or liabilities, and had not conducted any business other than thatBank became stockholders of an organizational nature.the Company.
For informational purposes,Before the Effective Date, the Bank’s Quarterly Report on Form 10-Q forcommon stock was registered under Section 12(b) of the quarter ended September 30, 2022,Securities Exchange Act of 1934 (the “Exchange Act”), and the Bank was subject to the information requirements of the Exchange Act and, in accordance with Section 12(i) thereof, filed quarterly reports, proxy statements and other information with the Federal Deposit Insurance Corporation (“FDIC”). As of the Effective Date, pursuant to Rule 12g-3 under the Exchange Act, the Company is the successor registrant to the Bank, the Company’s common stock is deemed to be registered under Section 12(b) of the Exchange Act, and the Company has become subject to the information requirements of the Exchange Act and files reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).
Prior to the Effective Date, the Company conducted no operations other than obtaining regulatory approval for the Reorganization. Accordingly, the consolidated financial statements for periods prior to the Effective Date, discussions of those financial statements, and market data and all other information presented herein for periods prior to the Effective Date, are those of the Bank.
In this report, unless the context indicates otherwise, references to “we,” “us,” and “our” refer to the Company and the Bank. However, if the discussion relates to a period before the Effective Date, the terms refer only to the Bank.
March 31, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
| Cash and due from banks | $ | 10,083 | $ | 12,161 | ||||
| Interest-earning bank balances | 7,941 | 13,140 | ||||||
| Federal funds sold | — | 28,050 | ||||||
| Total cash and cash equivalents | 18,024 | 53,351 | ||||||
Securities available-for-sale, | 84,512 | 83,402 | ||||||
Securities held-to-maturity | 199 | 201 | ||||||
| Loans receivable, net of deferred costs | 1,388,575 | 1,370,368 | ||||||
| Less: allowance for credit lossess | (16,507 | ) | (16,461 | ) | ||||
| Loan receivable, net | 1,372,068 | 1,353,907 | ||||||
| Bank-owned life insurance | 52,906 | 52,617 | ||||||
| Premises and equipment, net | 11,662 | 11,722 | ||||||
| Accrued interest receivable | 4,865 | 4,756 | ||||||
| Restricted investment in bank stock | 3,295 | 1,742 | ||||||
| Deferred taxes, net | 7,784 | 7,599 | ||||||
| Goodwill | 8,853 | 8,853 | ||||||
| Core deposit intangible | 1,690 | 1,825 | ||||||
Operating lease right-of-use | 15,707 | 16,026 | ||||||
| Other assets | 3,755 | 5,778 | ||||||
TOTAL ASSETS | $ | 1,585,320 | $ | 1,601,779 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Deposits: | ||||||||
Non-interest-bearing | $ | 218,709 | $ | 265,078 | ||||
| Interest-bearing | 1,073,391 | 1,082,652 | ||||||
| Total deposits | 1,292,100 | 1,347,730 | ||||||
| Borrowings | 44,500 | 10,000 | ||||||
| Accrued interest payable | 2,160 | 1,027 | ||||||
| Operating lease liability | 16,466 | 16,772 | ||||||
| Other liabilities | 4,821 | 6,649 | ||||||
| TOTAL LIABILITIES | 1,360,047 | 1,382,178 | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Common stock, no par value; 15,000,000 shares authorized, 6,261,629 shares issued and outstanding at March 31, 2023; at December 31, 2022, par value $5.00 per share, 6,909,402 shares issued and 6,245,597 shares outstanding | — | 34,547 | ||||||
Paid-in capital | 96,880 | 81,291 | ||||||
| Treasury stock, at cost 663,805 shares at December 31, 2022 | — | (19,452 | ) | |||||
| Retained earnings | 135,425 | 131,488 | ||||||
| Accumulated other comprehensive loss | (7,032 | ) | (8,273 | ) | ||||
| TOTAL STOCKHOLDER’S EQUITY | 225,273 | 219,601 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,585,320 | $ | 1,601,779 | ||||
Three Months Ended March 31 | ||||||||
2023 | 2022 | |||||||
INTEREST AND DIVIDEND INCOME | ||||||||
| Loans receivable, including fees | $ | 19,894 | $ | 16,492 | ||||
Securities available-for-sale: | ||||||||
| Taxable | 278 | 223 | ||||||
Tax-exempt | 284 | 303 | ||||||
Securities held-to-maturity | 3 | 3 | ||||||
| Other interest and dividend income | 153 | 57 | ||||||
| TOTAL INTEREST AND DIVIDEND INCOME | 20,612 | 17,078 | ||||||
INTEREST EXPENSE | ||||||||
| Deposits | 3,865 | 1,224 | ||||||
| Borrowings | 86 | — | ||||||
| TOTAL INTEREST EXPENSE | 3,951 | 1,224 | ||||||
NET INTEREST INCOME | 16,661 | 15,854 | ||||||
| Provision for credit losses | 265 | — | ||||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | 16,396 | 15,854 | ||||||
NON-INTEREST INCOME | ||||||||
| Income from bank-owned life insurance | 290 | 282 | ||||||
| Fees and service charges | 448 | 475 | ||||||
| Loan fees, including prepayment penalties | 351 | 95 | ||||||
| Other | 285 | 194 | ||||||
TOTAL NON-INTEREST INCOME | 1,374 | 1,046 | ||||||
NON-INTEREST EXPENSE | ||||||||
| Salaries and employee benefits | 5,399 | 4,901 | ||||||
| Occupancy and equipment | 1,341 | 1,478 | ||||||
| Professional fees | 465 | 561 | ||||||
| Data processing and communications | 1,300 | 1,035 | ||||||
| Federal deposit insurance | 190 | 264 | ||||||
| Advertising and promotion | 110 | 119 | ||||||
| Office expense | 97 | 54 | ||||||
| Other real estate expenses | — | 9 | ||||||
| Core deposit intangible | 135 | 154 | ||||||
| Other | 735 | 693 | ||||||
| TOTAL NON-INTEREST EXPENSE | 9,772 | 9,268 | ||||||
| INCOME BEFORE INCOME TAX EXPENSE | 7,998 | 7,632 | ||||||
| INCOME TAX EXPENSE | 1,901 | 1,611 | ||||||
NET INCOME | $ | 6,097 | $ | 6,021 | ||||
| Earnings per common share-basic | $ | 0.97 | $ | 0.93 | ||||
| Earnings per common share-diluted | $ | 0.95 | $ | 0.91 | ||||
| Dividends declared per common share | $ | 0.30 | $ | 0.25 | ||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
NET INCOME | $ | 6,097 | $ | 6,021 | ||||
| Other comprehensive income (loss) | ||||||||
Unrealized gains (losses) arising during period on securities available-for-sale | 1,739 | (6,113 | ) | |||||
| Tax effect | (498 | ) | 1,591 | |||||
| Total other comprehensive income (loss) | 1,241 | (4,522 | ) | |||||
COMPREHENSIVE INCOME | $ | 7,338 | $ | 1,499 | ||||
Common Stock | Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total | |||||||||||||||||||
Three Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 34,100 | $ | 80,220 | $ | (10,032 | ) | $ | 111,451 | $ | 839 | $ | 216,578 | |||||||||||
| Net income | — | — | — | 6,021 | — | 6,021 | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (4,522 | ) | (4,522 | ) | ||||||||||||||||
| Stock options exercised (6,450 shares) | 32 | 73 | — | — | — | 105 | ||||||||||||||||||
| Directors compensation (4,019 shares) | 44 | 165 | — | — | — | 209 | ||||||||||||||||||
| Dividends declared $0.25 per share | — | — | — | (1,668 | ) | — | (1,668 | ) | ||||||||||||||||
| Purchase of treasury stock (124,440 shares) | — | — | (3,615 | ) | — | — | (3,615 | ) | ||||||||||||||||
| Dividend reinvestment plan (802 shares) | 5 | 10 | — | 9 | — | 24 | ||||||||||||||||||
| Stock-based compensation expense | — | 108 | — | — | — | 108 | ||||||||||||||||||
| Balance, March 31, 2022 | $ | 34,181 | $ | 80,576 | $ | (13,647 | ) | $ | 115,813 | $ | (3,683 | ) | $ | 213,240 | ||||||||||
| Balance, December 31, 2022 | $ | 34,547 | $ | 81,291 | $ | (19,452 | ) | $ | 131,488 | $ | (8,273 | ) | $ | 219,601 | ||||||||||
| Net income | — | — | — | 6,097 | — | 6,097 | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | 1,241 | 1,241 | ||||||||||||||||||
| Adoption of CECL | — | — | — | (284 | ) | — | (284 | ) | ||||||||||||||||
| Formation of Princeton Bancorp, Inc. | (34,547 | ) | 15,095 | 19,452 | — | — | — | |||||||||||||||||
| Stock options exercised (16,307 shares) | — | 297 | — | — | — | 297 | ||||||||||||||||||
| Dividends declared $0.30 per share | — | — | — | (1,843 | ) | — | (1,843 | ) | ||||||||||||||||
| Dividend reinvestment plan (958 shares) | — | 33 | — | (33 | ) | — | — | |||||||||||||||||
| Stock-based compensation expense | — | 164 | — | — | — | 164 | ||||||||||||||||||
| Balance, March 31, 2023 | $ | — | $ | 96,880 | $ | — | $ | 135,425 | $ | (7,032 | ) | $ | 225,273 | |||||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 6,097 | $ | 6,021 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Provision for credit losses | 265 | — | ||||||
| Depreciation and amortization | 305 | 317 | ||||||
| Stock-based compensation expense | 164 | 108 | ||||||
| Amortization of premiums and accretion of discount on securities | 11 | 16 | ||||||
| Accretion of net deferred loan fees and costs | (534 | ) | (1,853 | ) | ||||
| Income earned from small business investment company (“SBIC”) Investment | (181 | ) | — | |||||
| Increase in cash surrender value of bank-owned life insurance | (290 | ) | (282 | ) | ||||
| Deferred income tax benefit | (793 | ) | (20 | ) | ||||
| Amortization of core deposit intangible | 136 | 155 | ||||||
| Decrease in accrued interest receivable and other assets | 2,233 | 1,972 | ||||||
| Decrease in accrued interest payable and other liabilities | (227 | ) | (1,797 | ) | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 7,186 | 4,637 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of available-for-sale | (345 | ) | (4,318 | ) | ||||
Principal repayments of securities available-for-sale | 839 | 2,453 | ||||||
Maturities and calls of securities available-for-sale | 305 | 450 | ||||||
Maturities, calls and principal repayments of securities held-to-maturity | 2 | 2 | ||||||
| Net increase in loans | (18,840 | ) | (58,105 | ) | ||||
| Purchases of premises and equipment | (245 | ) | (250 | ) | ||||
| Purchases of restricted bank stock | (1,553 | ) | (12 | ) | ||||
NET CASH USED IN INVESTMENT ACTIVITIES | (19,837 | ) | (59,780 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net decrease in deposits | (55,630 | ) | (4,598 | ) | ||||
| Proceeds from overnight borrowings | 34,500 | — | ||||||
| Cash dividends | (1,876 | ) | (1,668 | ) | ||||
| Dividend reinvestment program | 33 | 24 | ||||||
| Purchase of treasury stock | — | (3,615 | ) | |||||
| Proceeds from exercise of stock options | — | 105 | ||||||
| Release of restricted stock units | 297 | 209 | ||||||
NET CASH USED IN FINANCING ACTIVITIES | (22,676 | ) | (9,543 | ) | ||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (35,327 | ) | (64,686 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 53,351 | 158,716 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 18,024 | $ | 94,030 | ||||
SUPPLEMENTARY CASH FLOWS INFORMATION: | ||||||||
| Interest paid | $ | 2,818 | $ | 1,597 | ||||
| Income taxes paid | $ | 653 | $ | 435 | ||||
Reclass of paid-in capital related to holding company formation | $ | 15,095 | — | |||||
| Reclass of treasury stock related to holding company formation | $ | 19,452 | — | |||||
| Reclass of common stock related to holding company formation | $ | (34,547 | ) | — | ||||
Three months ended March 31, | ||||||||
2023 | 2022 | |||||||
| Net income applicable to common stock | $ | 6,097 | $ | 6,021 | ||||
| Weighted average number of common shares outstanding | 6,257 | 6,465 | ||||||
Basic earnings per share | $ | 0.97 | $ | 0.93 | ||||
| Net income applicable to common stock | $ | 6,097 | $ | 6,021 | ||||
| Weighted average number of common shares outstanding | 6,257 | 6,465 | ||||||
| Dilutive effect on common shares outstanding | 129 | 149 | ||||||
| Weighted average number of diluted common shares outstanding | 6,386 | 6,614 | ||||||
Diluted earnings per share | $ | 0.95 | $ | 0.91 | ||||
Three months ended March 31, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
| Options | Weighted Ave Exercise Price | Options | Weighted Ave Exercise Price | |||||||||||||
| Options to purchase | 374,496 | $ | 22.01 | 343,570 | $ | 16.62 | ||||||||||
| Anti-dilutive | — | $ | — | 95,750 | $ | 32.45 | ||||||||||
March 31 , 2023 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Available-for-sale | (In thousands) | |||||||||||||||
| Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) | $ | 40,677 | $ | 3 | $ | (5,981 | ) | $ | 34,699 | |||||||
| U.S. government agency securities | 6,260 | — | (1,025 | ) | 5,235 | |||||||||||
| Obligations of state and political subdivisions | 44,844 | 67 | (2,627 | ) | 42,284 | |||||||||||
| Small business investment company securities | 2,587 | — | (293 | ) | 2,294 | |||||||||||
| Total | $ | 94,368 | $ | 70 | $ | (9,926 | ) | $ | 84,512 | |||||||
December 31, 2022 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Available-for-sale | (In thousands) | |||||||||||||||
| Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) | $ | 41,515 | $ | 2 | $ | (6,602 | ) | $ | 34,915 | |||||||
| U.S. government agency securities | 6,260 | — | (1,175 | ) | 5,085 | |||||||||||
| Obligations of state and political subdivisions | 45,161 | 8 | (3,828 | ) | 41,341 | |||||||||||
| Small business investment company securities | 2,061 | — | — | 2,061 | ||||||||||||
| Total | $ | 94,997 | $ | 10 | $ | (11,605 | ) | $ | 83,402 | |||||||
Less than 12 Months | More than 12 Months | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
March 31, 2023 | (In thousands) | |||||||||||||||||||||||
| Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) | $ | 6,557 | $ | (195 | ) | $ | 27,940 | $ | (5,786 | ) | $ | 34,497 | $ | (5,981 | ) | |||||||||
| U.S. government agency securities | — | $ | — | 5,235 | (1,025 | ) | 5,235 | (1,025 | ) | |||||||||||||||
| Obligations of state and political subdivisions | 10,642 | (144 | ) | 22,499 | (2,483 | ) | 33,141 | (2,627 | ) | |||||||||||||||
| Small business investment company securities | 2,294 | (293 | ) | — | — | 2,294 | (293 | ) | ||||||||||||||||
| Total | $ | 19,493 | $ | (632 | ) | $ | 55,674 | $ | (9,294 | ) | $ | 75,167 | $ | (9,926 | ) | |||||||||
Less than 12 Months | More than 12 Months | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
December 31, 2022 | (In thousands) | |||||||||||||||||||||||
| Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) | $ | 15,605 | $ | (1,778 | ) | $ | 19,137 | $ | (4,824 | ) | $ | 34,742 | $ | (6,602 | ) | |||||||||
| U.S. government agency securities | — | — | 5,085 | (1,175 | ) | 5,085 | (1,175 | ) | ||||||||||||||||
| Obligations of state and political subdivisions | 36,421 | (3,457 | ) | 1,352 | (371 | ) | 37,773 | (3,828 | ) | |||||||||||||||
| Small business investment company securities | — | — | — | — | — | — | ||||||||||||||||||
| $ | 52,026 | $ | (5,235 | ) | $ | 25,574 | $ | (6,370 | ) | $ | 77,600 | $ | (11,605 | ) | ||||||||||
Amortized Cost | Fair Value | |||||||
| (In thousands) | ||||||||
| Due in one year or less | $ | 675 | $ | 675 | ||||
| Due after one year through five years | 4,719 | 4,641 | ||||||
| Due after five years through ten years | 26,436 | 25,263 | ||||||
| Due after ten years | 19,274 | 16,940 | ||||||
| Mortgage-backed securities (GSEs) | 40,677 | 34,699 | ||||||
| SBIC securities | 2,587 | 2,294 | ||||||
| $ | 94,368 | $ | 84,512 | |||||
March 31, 2023 | December 31, 2022 | |||||||
| (In thousands) | ||||||||
| Commercial real estate | $ | 864,497 | $ | 873,573 | ||||
| Commercial and industrial | 30,916 | 28,859 | ||||||
| Construction | 442,693 | 417,538 | ||||||
| Residential first-lien mortgage | 42,566 | 43,125 | ||||||
| Home equity/consumer | 7,535 | 7,260 | ||||||
| Paycheck protection program (PPP) -phase I | 1,239 | 1,307 | ||||||
| Paycheck protection program (PPP) -phase II | 1,077 | 1,162 | ||||||
| Total loans | 1,390,523 | 1,372,824 | ||||||
| Deferred fees and costs | (1,948 | ) | (2,456 | ) | ||||
| Loans, net | $ | 1,388,575 | $ | 1,370,368 | ||||
March 31, 2023 | December 31, 2022 | |||||||
| (In thousands) | ||||||||
| Allowance for credit losses—loans | $ | (16,507 | ) | $ | (16,461 | ) | ||
| Allowance for credit losses—off balance sheet | (949 | ) | (332 | ) | ||||
| $ | (17,456 | ) | $ | (16,793 | ) | |||
March 31, 2023 | December 31, 2023 | |||||||||||||||
With a Related Allowance | Without a Related Allowance | With a Related Allowance | Without a Related Allowance | |||||||||||||
| (In thousands) | ||||||||||||||||
| Commercial real estate | $ | — | $ | 6,193 | $ | — | $ | — | ||||||||
| Construction | 148 | — | 148 | — | ||||||||||||
| Residential first-lien mortgage | — | 114 | — | 118 | ||||||||||||
| Total nonaccrual loans | $ | 148 | $ | 6,307 | $ | 148 | $ | 118 | ||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 days | Total Past Due | Current | Total Loans Receivable | Loans Receivable >90 Days and Accruing | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Commercial real estate | $ | — | $ | — | $ | 6,193 | $ | 6,193 | $ | 858,304 | $ | 864,497 | $ | — | ||||||||||||||
| Commercial and industrial | — | — | — | — | 30,916 | 30,916 | — | |||||||||||||||||||||
| Construction | — | — | 148 | 148 | 442,545 | 442,693 | — | |||||||||||||||||||||
| Residential first-lien mortgage | — | — | — | — | 42,566 | 42,566 | — | |||||||||||||||||||||
| Home equity/consumer | — | — | — | — | 7,535 | 7,535 | — | |||||||||||||||||||||
PPP Phase I & II 1 | 171 | 171 | 2,145 | 2,316 | 171 | |||||||||||||||||||||||
| Total | $ | — | $ | — | $ | 6,512 | $ | 6,512 | $ | 1,384,011 | $ | 1,390,523 | $ | 171 | ||||||||||||||
| 1 | PPP loans that are classified as past due in the table above, have applied for or are in the process of requesting loan forgiveness from the SBA. |
30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 days | Total Past Due | Current | Total Loans Receivable | Loans Receivable >90 Days and Accruing | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Commercial real estate | $ | — | $ | 6,193 | $ | — | $ | 6,193 | $ | 867,380 | $ | 873,573 | $ | — | ||||||||||||||
| Commercial and industrial | — | — | — | — | 28,859 | 28,859 | — | |||||||||||||||||||||
| Construction | — | — | 148 | 148 | 417,390 | 417,538 | — | |||||||||||||||||||||
| Residential first-lien mortgage | 1,292 | — | 118 | 1,410 | 41,715 | 43,125 | — | |||||||||||||||||||||
| Home equity/Consumer | — | — | — | — | 7,260 | 7,260 | — | |||||||||||||||||||||
PPP Phase I & II 1 | 255 | 184 | 439 | 2,030 | 2,469 | 184 | ||||||||||||||||||||||
| Total | $ | 1,547 | $ | 6,193 | $ | 450 | $ | 8,190 | $ | 1,364,634 | $ | 1,372,824 | $ | 184 | ||||||||||||||
| 1 | PPP loans that are classified as past due in the table above, have applied for or are in the process of requesting loan forgiveness from the SBA. |
2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||||||
| Pass | $ | 1,690 | $ | 205,254 | $ | 74,625 | $ | 52,319 | $ | 149,358 | $ | 366,663 | $ | 5,547 | $ | 855,457 | ||||||||||||||||
| Special mention | — | — | — | — | — | 2,848 | — | 2,848 | ||||||||||||||||||||||||
| Substandard | — | — | — | — | — | 6,193 | — | 6,193 | ||||||||||||||||||||||||
| Total commercial real estate | 1,690 | 205,254 | 74,625 | 52,319 | 149,358 | 375,704 | 5,547 | 864,497 | ||||||||||||||||||||||||
Commercial and industrial 1 | ||||||||||||||||||||||||||||||||
| Pass | 803 | 3,127 | 1,309 | 560 | 5,831 | 3,289 | 15,488 | 30,408 | ||||||||||||||||||||||||
| Special mention | — | — | — | — | — | 508 | — | 508 | ||||||||||||||||||||||||
| Substandard | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Total commercial and industrial | 803 | 3,127 | 1,309 | 560 | 5,831 | 3,797 | 15,488 | 30,916 | ||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||
| Pass | — | 6,904 | 142,187 | 9,718 | — | 14,301 | 266,510 | 439,620 | ||||||||||||||||||||||||
| Special mention | — | — | — | 2,925 | — | — | — | 2,925 | ||||||||||||||||||||||||
| Substandard | — | — | — | — | — | 148 | — | 148 | ||||||||||||||||||||||||
| Total construction | — | 6,904 | 142,187 | 12,643 | — | 14,450 | 266,510 | 442,693 | ||||||||||||||||||||||||
Residential first-lien mortgage | ||||||||||||||||||||||||||||||||
| Performing | — | 1,053 | 6,075 | 2,910 | 1,594 | 30,820 | — | 42,452 | ||||||||||||||||||||||||
| Nonperforming | — | — | — | — | — | 114 | — | 114 | ||||||||||||||||||||||||
| Total residential first-lien mortgage | — | 1,053 | 6,075 | 2,910 | 1,594 | 30,934 | — | 42,566 | ||||||||||||||||||||||||
Home equity/consumer | ||||||||||||||||||||||||||||||||
| Performing | 164 | 814 | 367 | 5 | — | 2,588 | 3,598 | 7,535 | ||||||||||||||||||||||||
| Nonperforming | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Total home equity/consumer | 164 | 814 | 367 | 5 | — | 2,588 | 3,598 | 7,535 | ||||||||||||||||||||||||
| Total Loans | $ | 2,657 | $ | 217,153 | $ | 224,563 | $ | 68,436 | $ | 156,784 | $ | 427,472 | $ | 291,143 | $ | 1,388,207 | ||||||||||||||||
| 1 | Due to the guarantee by the Small Business Association the PPP loans were not included in this table. |
Pass | Special Mention | Substandard | Doubtful | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Commercial real estate | $ | 864,497 | $ | 2,883 | $ | 6,193 | $ | — | $ | 873,573 | ||||||||||
| Commercial and industrial | 28,350 | 509 | — | — | 28,859 | |||||||||||||||
| Construction | 417,390 | — | 148 | — | 417,538 | |||||||||||||||
| Residential first-lien mortgage | 43,007 | — | 118 | — | 43,125 | |||||||||||||||
| Home equity/consumer | 7,260 | — | — | — | 7,260 | |||||||||||||||
| PPP | 2,469 | — | — | — | 2,469 | |||||||||||||||
| Total with no related allowance | $ | 1,362,973 | $ | 3,392 | $ | 6,459 | $ | — | $ | 1,372,824 | ||||||||||
Commercial real estate | Commercial and industrial | Construction | Residential first-lien mortgage | Home equity/ consumer | PPP | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 8,654 | $ | 271 | $ | 6,289 | $ | 236 | $ | 45 | $ | — | $ | 966 | $ | 16,461 | ||||||||||||||||
| CECL adoption | 1,384 | (73 | ) | (1,269 | ) | 428 | 195 | — | (966 | ) | (301 | ) | ||||||||||||||||||||
Provision 1 | (4 | ) | 16 | 329 | (10 | ) | 13 | — | — | 344 | ||||||||||||||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Recoveries | 3 | — | — | — | — | — | — | 3 | ||||||||||||||||||||||||
| Total | $ | 10,037 | $ | 214 | $ | 5,349 | $ | 654 | $ | 253 | $ | — | $ | — | $ | 16,507 | ||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||||||||||
| Individually evaluated | $ | — | $ | — | $ | 118 | $ | — | $ | — | $ | — | $ | — | $ | 118 | ||||||||||||||||
| Collectively evaluated | 10,037 | 214 | 5,231 | 654 | 253 | — | — | 16,389 | ||||||||||||||||||||||||
| $ | 10,037 | $ | 214 | $ | 5,349 | $ | 654 | $ | 253 | $ | — | $ | — | $ | 16,507 | |||||||||||||||||
| 1 | The provision for credit losses on the Consolidated Statement of Income is $265,000 comprising a $344,000 increase to the allowance for credit losses on loans and a $79,000 reduction to the reserve for unfunded liabilities. |
Commercial real estate | Commercial and industrial | Construction | Residential first-lien mortgage | Home equity/ consumer | PPP | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||||||||||
| Individually evaluated | $ | 6,685 | $ | 11 | $ | 248 | $ | 121 | $ | 80 | $ | — | $ | — | $ | 7,145 | ||||||||||||||||
| Collectively evaluated | 857,812 | 30,905 | 442,445 | 42,445 | 7,455 | 2,316 | — | 1,383,378 | ||||||||||||||||||||||||
| Ending balance | $ | 864,497 | $ | 30,916 | $ | 442,693 | $ | 42,566 | $ | 7,535 | $ | 2,316 | $ | — | $ | 1,390,523 | ||||||||||||||||
Commercial real estate | Commercial and industrial | Construction | Residential first-lien mortgage | Home equity/ consumer | PPP | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 7,458 | $ | 713 | $ | 7,228 | $ | 267 | $ | 48 | $ | — | $ | 906 | $ | 16,620 | ||||||||||||||||
| Provision | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Recoveries | 34 | — | — | — | — | — | — | 34 | ||||||||||||||||||||||||
| Total | $ | 7,492 | $ | 713 | $ | 7,228 | $ | 267 | $ | 48 | $ | — | $ | 906 | $ | 16,654 | ||||||||||||||||
Commercial real estate | Commercial and industrial | Construction | Residential first-lien mortgage | Home equity/ consumer | PPP | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 12,030 | $ | 10 | $ | 148 | $ | 118 | $ | 71 | $ | — | $ | — | $ | 12,377 | ||||||||||||||||
| Collectively evaluated for impairment | 861,543 | 28,849 | 417,390 | 43,007 | 7,189 | 2,469 | — | 1,360,447 | ||||||||||||||||||||||||
| Ending balance | $ | 873,573 | $ | 28,859 | $ | 417,538 | $ | 43,125 | $ | 7,260 | $ | 2,469 | $ | — | $ | 1,372,824 | ||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||
| Ending Balance: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | — | $ | — | $ | 118 | $ | — | $ | — | $ | — | $ | — | $ | 118 | ||||||||||||||||
| Collectively evaluated for impairment | 8,654 | 271 | 6,171 | 236 | 45 | — | 966 | 16,343 | ||||||||||||||||||||||||
| $ | 8,654 | $ | 271 | $ | 6,289 | $ | 236 | $ | 45 | $ | — | $ | 966 | $ | 16,461 | |||||||||||||||||
March 31, 2023 | December 31, 2022 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Demand, non-interest-bearing checking | $ | 218,709 | 16.93 | % | $ | 265,078 | 19.67 | % | ||||||||
| Demand, interest-bearing checking | 244,889 | 18.95 | % | 269,737 | 20.01 | % | ||||||||||
| Savings | 173,502 | 13.43 | % | 190,686 | 14.15 | % | ||||||||||
| Money Market | 263,874 | 20.42 | % | 283,652 | 21.05 | % | ||||||||||
Time deposits, $ 250,000 and over | 88,378 | 6.84 | % | 83,410 | 6.19 | % | ||||||||||
| Time deposits, other | 302,748 | 23.43 | % | 255,167 | 18.93 | % | ||||||||||
| $ | 1,292,100 | 100.00 | % | $ | 1,347,730 | 100.00 | % | |||||||||
Description | (Level 1) Quoted Price in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | Total Fair Value March 31, 2023 | ||||||||||||
| (In thousands) | ||||||||||||||||
Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) | $ | — | $ | 34,699 | $ | — | $ | 34,699 | ||||||||
| U.S. government agency securities | — | 5,235 | — | 5,235 | ||||||||||||
| Obligations of state and political subdivisions | — | 42,284 | — | 42,284 | ||||||||||||
| SBIC securities | — | — | 2,294 | 2,294 | ||||||||||||
Securities available-for-sale | $ | — | $ | 82,218 | $ | 2,294 | $ | 84,512 | ||||||||
Description | (Level 1) Quoted Price in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | Total Fair Value December 31, 2022 | ||||||||||||
| (In thousands) | ||||||||||||||||
Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) | $ | — | $ | 34,915 | $ | — | $ | 34,915 | ||||||||
| U.S. government agency securities | 5,085 | — | 5,085 | |||||||||||||
| Obligations of state and political subdivisions | — | 41,341 | — | 41,341 | ||||||||||||
| SBIC securities | — | — | 2,061 | 2,061 | ||||||||||||
Securities available-for-sale | $ | — | $ | 81,341 | $ | 2,061 | $ | 83,402 | ||||||||
Description | (Level 1) Quoted Price in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | Total Fair Value March 31, 2023 | ||||||||||||
| (In thousands) | ||||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 30 | $ | 30 | ||||||||
| $ | — | $ | — | $ | 30 | $ | 30 | |||||||||
Description | March 31, 2023 | Valuation Technique | Unobservable Input | (Weighted Average) | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Discount | 6.0 | % | ||||||||||||||
| Impaired loans | $ | 30 | Collateral | 1 | adjustment | (6.0 | %) | |||||||||
| 1 | Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. |
Description | (Level 1) Quoted Price in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | Total Fair Value December 31, 2022 | ||||||||||||
| (In thousands) | ||||||||||||||||
| Impaired loans | $ | — | $ | — | $ | 30 | $ | 30 | ||||||||
| $ | — | $ | — | $ | 30 | $ | 30 | |||||||||
Description | Fair Value December 31, 2022 | Valuation Technique | Unobservable Input | Range (Weighted Average) | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Discount | 6.0 | % | ||||||||||||||
| Impaired loans | $ | 30 | Collateral | 1 | adjustment | (6.0 | %) | |||||||||
| 1 | Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. |
March 31, 2023 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 18,024 | $ | 18,024 | $ | 18,024 | $ | — | $ | — | ||||||||||
| Securities AFS | 84,512 | 84,512 | — | 82,218 | 2,294 | |||||||||||||||
| Securities HTM | 199 | 199 | — | 199 | — | |||||||||||||||
| Loans receivable, net | 1,372,068 | 1,373,440 | — | — | 1,373,440 | |||||||||||||||
| Restricted bank stock | 3,295 | 3,295 | — | 3,295 | — | |||||||||||||||
| Accrued interest receivable | 4,865 | 4,865 | — | 4,865 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
| Deposits | 1,292,100 | 1,204,237 | — | 1,204,237 | — | |||||||||||||||
| Borrowings | 44,500 | 44,500 | — | 44,500 | — | |||||||||||||||
| Accrued interest payable | 2,160 | 2,160 | — | 2,160 | — | |||||||||||||||
December 31, 2022 | ||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 53,351 | $ | 53,351 | $ | 53,351 | $ | — | $ | — | ||||||||||
| Securities AFS | 83,402 | 83,402 | — | 81,341 | 2,061 | |||||||||||||||
| Securities HTM | 201 | 200 | — | 200 | — | |||||||||||||||
| Loans receivable, net | 1,353,907 | 1,347,137 | — | — | 1,347,137 | |||||||||||||||
| Restricted bank stock | 1,742 | 1,742 | — | 1,742 | — | |||||||||||||||
| Accrued interest receivable | 4,756 | 4,756 | — | 4,756 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
| Deposits | 1,347,730 | 1,225,087 | 1,225,087 | — | ||||||||||||||||
| Borrowings | 10,000 | 10,000 | 10,000 | |||||||||||||||||
| Accrued interest payable | 1,027 | 1,027 | — | 1,027 | — | |||||||||||||||
Statement of Financial Condition Location | March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | ||||||||||||
Operating Lease Right of Use Asset: | ||||||||||||
| Gross carrying amount | $ | 16,026 | $ | 17,919 | ||||||||
| Accumulated amortization | (319 | ) | (1,893 | ) | ||||||||
| Net book value | Operating lease right-of-use asset | $ | 15,707 | $ | 16,026 | |||||||
Operating Lease Liability: | ||||||||||||
| Lease liability | Operating lease liability | $ | 16,466 | $ | 16,772 | |||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
| (In thousands) | ||||||||
Lease cost: | ||||||||
| Operating lease | $ | 665 | $ | 700 | ||||
| Short-term lease cost | 2 | 24 | ||||||
| Total lease cost | $ | 667 | $ | 724 | ||||
Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 585 | $ | 573 | ||||
| Twelve months ended March 31, | ||||
| 2024 | $ | 2,227 | ||
| 2025 | 2,074 | |||
| 2026 | 2,000 | |||
| 2027 | 1,795 | |||
| 2028 | 1,499 | |||
| Thereafter | 10,014 | |||
| Total future operating lease payment | 19,609 | |||
| Amounts representing interest | (3,143 | ) | ||
| Present value of net future lease payments | $ | 16,466 | ||
Goodwill | Core Deposit Intangible | |||||||
| (In thousands) | ||||||||
| Balance at December 31, 2022 | $ | 8,853 | $ | 1,825 | ||||
| Amortization expense | — | (135 | ) | |||||
| Balance at March 31, 2023 | $ | 8,853 | $ | 1,690 | ||||
| 2023 | $ | 357 | ||
| 2024 | 415 | |||
| 2025 | 338 | |||
| 2026 | 261 | |||
| 2027 | 183 | |||
| Thereafter | 136 | |||
| Total | $ | 1,690 | ||
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Not applicable. Please see the Explanatory Note.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Not applicable. PleaseYou should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Form 10-K as of and for the year ended December 31, 2022
Cautionary Statement Regarding Forward-Looking Statements
The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission, in its reports to stockholders and in other communications by the Company (including this press release), which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The most significant factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the ongoing impact of higher inflation levels, higher interest rates and general economic and recessionary concerns, all of which could impact economic growth and could cause a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations, our ability to manage liquidity in a rapidly changing and unpredictable market, suppy chain disruptions, labor shortages and additional interest rate increases by the Federal Reserve. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following factors: the impact of any future pandemics or other natural disasters; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area, the strength of the United States economy in general and the strength of the local economies in which the Company and the Bank conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; market volatility; the value of the Bank’s products and services as perceived by actual and prospective customers, including the features, pricing and quality compared to competitors’ products and services; the willingness of customers to substitute competitors’ products and services for the Bank’s products and services; credit risk associated with the Bank’s lending activities; risks relating to the real estate market and the Bank’s real estate collateral; the impact of changes in applicable laws and regulations and requirements arising out of our supervision by banking regulators; other regulatory requirements applicable to the Company and the Bank; and the timing and nature of the regulatory response to any applications filed by the Company and the Bank; technological changes; acquisitions including the Company’s pending acquisition of Noah; ability to meet other closing conditions to that acquisition; delay in closing the acquisition; difficulties and delays in integrating the businesses of Noah and the Bank or fully realizing cost savings and other benefits; changes in consumer spending and saving habits; those risks set forth in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors,” and the success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company, except as required by applicable law or regulation.
Throughout this document, references to “we,” “us,” or “our” refer to the Company and the Bank.
Executive Overview
The Company was incorporated on February 23, 2022 under the laws of the Commonwealth of Pennsylvania and became the holding company of the Bank on January 10, 2023. The Bank is a New Jersey state-chartered bank that commenced operations on April 23, 2007. The Bank is a full-service bank providing personal and business lending and deposit services. The Bank has 20 branches in New Jersey, including three in Princeton and others in Bordentown, Browns Mills, Chesterfield, Cream Ridge, Deptford, Hamilton, Lambertville, Lawrenceville, Lakewood, Monroe, New Brunswick, Pennington, Princeton Junction, Quakerbridge and Sicklerville. There are also four branches in the Philadelphia, Pennsylvania area. The Bank of Princeton is a member of the FDIC. The Bank also conducts loan origination activities in select areas of New York.
24
Since we commenced operations, we have grown through both de novo branching and acquisitions. In April 2023, the Company opened a new branch in Kingston, New Jersey.
On October 19, 2022, the Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Noah Bank, a Pennsylvania-chartered bank (“Noah”). Pursuant to the terms and conditions set forth in the Merger Agreement, Noah will merge with and into TBOP Acquisition company, a newly-formed wholly owned subsidiary of the Bank, with Noah surviving (the “Merger”). The Bank plans to merge Noah with and into the Bank immediately after the Merger. The Company has received the requisite approvals of the Merger Agreement from the Federal Deposit Insurance Corporation, and the Pennsylvania and New Jersey state bank regulators. The Company anticipates that the Merger will close in the second quarter of 2023.
The Company’s common stock trades on the “Nasdaq Global Select Market” under ticker symbol, “BPRN.”
Critical Accounting Policies and Estimates
Princeton Bancorp has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the consolidated financial statements included in the 2022 Annual Report on Form 10-K. Except the changes related to the Company’s adoption of CECL as noted in Note 1 to the unaudited notes to the consolidated interim financial statements, there have been no changes to the Critical Accounting Estimates since the Company filed its Annual Report on Form 10-K for the year ended December 31, 2022.
New Accounting Pronouncements
Refer to Note 1 to the consolidated financial statements included in the 2022 Annual Report on Form 10-K and Note 1- Summary of Significant Accounting Policies in this document.
Economy
The US economy is showing signs of stress with inflation hitting a 40-year high, an increase in energy prices, specifically home-heating costs, higher interest rates set by the Federal Open Market Committee (impacting the real estate market) and uncertainties resulting from the Russian invasion of Ukraine. However, the unemployment rate in New Jersey is below the national average.
Comparison of Financial Condition at March 31, 2023 and December 31, 2022
General
Total assets were $1.59 billion at March 31, 2023, a decrease of $16.5 million, or 1.0% when compared to $1.60 billion at the end of 2022. The primary reason for the decrease in total assets was a decrease in cash and cash equivalents of approximately $35.3 million, partially offset by an increase of $18.2 million in net loans. The increase in net loans consisted of a $25.2 million increase in construction loans and a $2.1 million increase in commercial and industrial loans, partially offset by a decrease of $9.1 million in commercial real estate loans
Cash and cash equivalents
Cash and cash equivalents decreased $35.3 million, or 66.2%, to $18.0 million at March 31, 2023 compared to December 31, 2022. This decrease was primarily due to the funding of net loans of $18.2 million and a reduction in outstanding deposits of approximately $55.6 million.
Investment securities
Total available-for-sale investment securities increased slightly to $84.5 million at March 31, 2023 compared to $83.4 million at December 31, 2022. This increase was a result of approximately $1.7 million related to unrealized losses in the available-for-sale securities portfolio resulting from the recent rate changes, $839 thousand in principal payments and $305 thousand in called or matured securities, partially offset by $345 thousand in new purchases added to the available-for-sale securities portfolio.
25
Loans
Loans, net of deferred loan fees, increased $18.2 million to $1.39 billion at March 31, 2023 compared to $1.37 billion at December 31, 2022, or 1.3%. This increase was due to a $25.2 million increase in construction loans and a $2.1 million increase in commercial and industrial loans, partially offset by a $9.1 million reduction in commercial real estate loans.
The Company recorded a provision for credit losses of $265 thousand during the three months ended March 31, 2023. Net recoveries for the three-month period ended March 31, 2023 were $3 thousand and $34 thousand for the three-month period ended March 31, 2022. Upon adoption of the Current Expected Credit Losses (“CECL”) method of calculating the allowance for credit losses on January 1, 2023, the Company recorded a one-time decrease, net of tax, in retained earnings of $284 thousand, a reduction to the allowance for credit losses of $301 thousand and an increase in the reserve for unfunded liabilities of $695 thousand. During the first quarter of 2023, the Company recorded a provision for credit losses of $265 thousand in total representing a $344 thousand increase in the allowance for credit losses and a $79 thousand reduction to the reserve for credit losses on unfunded liabilities. The coverage ratio of allowance for credit losses to period end loans was 1.19% at March 31, 2023, compared to 1.20% at December 31, 2022.
At March 31, 2023, non-performing assets totaled $6.5 million, an increase of $6.2 million, when compared to the amount at December 31, 2022. This increase was due to the delinquency of a $6.2 million commercial real estate loan. The loan is sufficiently secured by a mixed-use property comprising two buildings each with retail units and residential apartments. The property is located in New York City.
Upon the adoption of the CECL method of calculating the allowance for credit losses effective January 1, 2023, performing troubled debt restructurings (“TDRs”) are no longer reported for the current period. At December 31, 2022 there were three loans classified as TDR loans totaling $5.9 million and each of these loans was performing in accordance with the agreed-upon terms.
Deferred Taxes
Deferred taxes increased $185 thousand to $7.8 million at March 31, 2023 compared to December 31, 2022. The increase was primarily due to a $550 thousand transfer to federal income taxes payable, a $111 thousand increase related to the adoption of CECL, partially offset by a $498 thousand decrease due to the reduction in unrealized losses on available-for-sale securities.
Deposits
Total deposits at March 31, 2023 decreased $55.6 million, or 4.1%, when compared to December 31, 2022. When comparing deposit products between the two periods, non-interest-bearing demand deposits decreased $46.4 million, interest-bearing demand deposits decreased $24.8, money market deposits decreased $19.8 million and savings deposits decreased $17.2 million. Certificates of deposit increased $52.5 million, partially offsetting these decreases.
Borrowings
The Company had $44.5 million in outstanding borrowings at March 31, 2023 an increase from $10.0 million at December 31, 2022.
Stockholders’ equity
Total stockholders’ equity at March 31, 2023 increased $5.7 million, or 2.6%, when compared to the end of 2022. This increase was primarily due to the $3.9 million increase in retained earnings consisting of $6.1 million of net income less $1.9 million of cash dividends recorded during the period, and a $1.2 million reduction in the accumulated other comprehensive loss on the available-for-sale investment portfolio associated with a decrease in unrealized losses. The ratio of equity to total assets at March 31, 2023 and at December 31, 2022, was 14.2% and 13.7%, respectively.
26
Liquidity
Our liquidity, represented by cash and cash equivalents, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.
As a member of the FHLB we are eligible to borrow funds in an aggregate amount of up to 50% of the Company’s total assets, subject to its collateral requirements. Based on available eligible securities and qualified commercial real estate loan collateral, and a $80.0 million line of credit with the FHLB supporting municipal deposits, the Company had the ability to borrow $122.6 million as of March 31, 2023.
The Company is also a shareholder of Atlantic Community Bancshares, Inc., the parent company of Atlantic Community Bankers Bank (“ACBB”). As of March 31, 2023, the Company had available borrowing capacity with ACBB of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. No amounts were outstanding under our line of credit with ACBB at March 31, 2023.
We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.
Capital resources
Regulatory Capital Requirements. Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement and a Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement.
In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain additional common equity in excess of the minimum requirements. This excess is referred to as a capital conservation buffer. At March 31, 2023, the required capital conservation buffer is 2.50%.
Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. Management believes, as of March 31, 2023, that the Bank meets all capital adequacy requirements to which it is subject and is “well capitalized” under applicable regulations.
27
The Bank’s actual capital amounts and ratios and the regulatory requirements at March 31, 2023 and December 31, 2022 are presented below:
| Actual | For capital conservation buffer requirement | To be well capitalized under prompt corrective action provision | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in the thousands) | ||||||||||||||||||||||||
March 31, 2023: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 238,269 | 15.563 | % | $ | 160,751 | 10.500 | % | $ | 153,096 | 10.000 | % | ||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 221,762 | 14.485 | % | $ | 130,132 | 8.500 | % | $ | 122,477 | 8.000 | % | ||||||||||||
Common equity tier 1 capital (to-risk weighted assets) | $ | 221,762 | 14.485 | % | $ | 107,167 | 7.000 | % | $ | 99,512 | 6.500 | % | ||||||||||||
Tier 1 leverage capital (to average assets) | $ | 221,762 | 14.084 | % | $ | 102,351 | 6.500 | % | $ | 78,731 | 5.000 | % | ||||||||||||
December 31, 2022: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 233,657 | 15.309 | % | $ | 160,256 | 10.500 | % | $ | 152,625 | 10.000 | % | ||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 217,196 | 14.231 | % | $ | 129,731 | 8.500 | % | $ | 122,100 | 8.000 | % | ||||||||||||
Common equity tier 1 capital (to-risk weighted assets) | $ | 217,196 | 14.231 | % | $ | 106,838 | 7.000 | % | $ | 99,206 | 6.500 | % | ||||||||||||
Tier 1 leverage capital (to average assets) | $ | 217,196 | 13.474 | % | $ | 104,775 | 6.500 | % | $ | 80,596 | 5.000 | % | ||||||||||||
Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022
General
The Company reported net income of $6.1 million, or $0.95 per diluted common share, for the first quarter of 2023, compared to net income of $6.0 million, or $0.91 per diluted common share, for the first quarter of 2022. Although net income for the first quarter of 2023 was only slightly higher than the net income for same period in 2022, net interest income was $807 thousand above the first quarter of 2022 and non-interest income was also higher by $328 thousand. Increases of $504 thousand in non-interest expense and $265 thousand in the provision for credit losses almost entirely offset the increases in income from the first quarter of 2022 to the same period in 2023.
Interest income
Interest income increased $3.5 million for the three months ended March 31, 2023 compared to the same period in 2022. Interest income on loans increased $3.4 million due to increases in both the average balance of loans of $29.1 million and the yield of 89 basis points. Other interest and dividend income increased $96 thousand due to an increase in the yield of 445 basis points, partially offset by a decrease in the average balance of $110.7 million, and interest on taxable available-for-sale securities increased $55 thousand due to an increases in yield of 93 basis points, partially offset by a decrease in the average balance of $10.0 million.
Interest expense
Interest expense on deposits increased $2.6 million to $3.9 million for the three-month period ended March 31, 2023, due to an increase in the rate paid on interest-bearing deposits of 102 basis points, partially offset by a reduction of $76.8 million in the average balance of interest-bearing deposits over the same prior year period.
Interest expense on borrowings was $86 thousand during the three-month period ended March 31, 2023 and there was no interest expense on borrowings during the same period in 2022.
28
Provision for loan losses
The Company recorded a provision for credit losses of $265 thousand during the three months ended March 31, 2023 and no provision for the three months ended March 31, 2022. Net recoveries for the three-month periods ended March 31, 2023 and 2022 were $3 thousand and $34 thousand, respectively. Upon adoption of the CECL method of calculating the allowance for credit losses on January 1, 2023, the Company recorded a one-time decrease, net of tax, in retained earnings of $284 thousand, a reduction to the allowance for credit losses of $301 thousand and an increase in the reserve for unfunded liabilities of $695 thousand. During the first quarter of 2023, the Company recorded a provision for credit losses of $265 thousand, representing a $344 thousand increase in the allowance for credit losses on loans and a $79 thousand reduction to the reserve for unfunded liabilities. The coverage ratio of allowance for credit losses to period end loans was 1.19% at both March 31, 2023 and at March 31, 2022. Refer to Note 4 – Loans of this document to see additional information regarding the Explanatory Note.Company’s adoption of CECL. See the section titled “Financial Condition —Allowance for Loan Losses” in our Form 10-K for the year ended December 31, 2022 for a discussion of our allowance for loan losses methodology, including additional information regarding the determination of the provision for loan losses.
Non-interest income
Total non-interest income of $1.4 million for the first quarter of 2023 increased $328 thousand, or by 31.4%, when compared to the quarter ended March 31, 2022. The increase over the first quarter of 2022 was primarily due to a $256 thousand increase in loan fees and a $91 thousand increase in other non-interest income.
Non-interest expense
Total non-interest expense for the first quarter of 2023 increased $504 thousand, or 5.4%, when compared to the same period in 2022. This increase was primarily due to a $498 thousand increase in salaries and benefits expenses and a $265 thousand increase in data processing and communications expenses, partially offset by decreases in occupancy and equipment expenses of $137 thousand, professional fees of $96 thousand and federal deposit insurance expense of $74 thousand.
Provision for income taxes
For the three-month period ended March 31, 2023, the Company recorded an income tax expense of $1.9 million, resulting in an effective tax rate of 23.8%, compared to an income tax expense of $1.6 million resulting in an effective tax rate of 21.1% for the three-month period ended March 31, 2022. The effective tax rate was impacted by legislation enacted by the Governor of the State of New York establishing an economic nexus threshold of $1.0 million in New York City (“NYC”) receipts for purposes of the NYC business corporation tax for tax years beginning on or after January 1, 2022. The Company’s effective tax rate increased as a result of this legislation.
29
Average Balances, Net Interest Income, and Yields Earned and Rates Paid
The following table shows for the three-month period indicated the total dollar amount of interest earned from average interest earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities and the resulting costs, expressed both in dollars and rates. Average yields and have been annualized. Tax-exempt incomes and yields have not been adjusted to a tax-equivalent basis.
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change 2023 vs 2022 | ||||||||||||||||||||||||||||||
| Average Balances | Income/ Expense | Yield Rates | Average Balances | Income/ Expense | Yield Rates | Average Balances | Yield Rates | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||
Loans receivable | $ | 1,375,849 | $ | 19,894 | 5.86 | % | $ | 1,346,733 | $ | 16,492 | 4.97 | % | $ | 29,116 | 0.89 | % | ||||||||||||||||
Securities | ||||||||||||||||||||||||||||||||
Taxable available-for-sale | 42,235 | 278 | 2.66 | % | 52,221 | 223 | 1.73 | % | (9,986 | ) | 0.93 | % | ||||||||||||||||||||
Tax exempt available-for-sale | 41,634 | 284 | 2.77 | % | 48,605 | 303 | 2.53 | % | (6,971 | ) | 0.24 | % | ||||||||||||||||||||
Held-to-maturity | 200 | 3 | 5.36 | % | 207 | 3 | 5.35 | % | (7 | ) | 0.01 | % | ||||||||||||||||||||
Federal funds sold | 8,454 | 95 | 4.56 | % | 119,581 | 43 | 0.15 | % | (111,127 | ) | 4.41 | % | ||||||||||||||||||||
Other interest earning-assets | 5,001 | 58 | 4.77 | % | 4,546 | 14 | 1.25 | % | 455 | 3.52 | % | |||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total interest-earning assets | 1,473,373 | $ | 20,612 | 5.67 | % | 1,571,893 | $ | 17,078 | 4.41 | % | (98,520 | ) | 1.26 | % | ||||||||||||||||||
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Other non-earnings assets | 109,354 | 108,280 | 1,074 | |||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Total assets | $ | 1,582,727 | $ | 1,680,173 | $ | (97,446) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||||||||||
Demand | $ | 264,507 | $ | 551 | 0.84 | % | $ | 257,978 | $ | 160 | 0.25 | % | $ | 6,529 | 0.59 | % | ||||||||||||||||
Savings | 182,763 | 417 | 0.92 | % | 232,136 | 136 | 0.24 | % | (49,373 | ) | 0.68 | % | ||||||||||||||||||||
Money markets | 268,814 | 1,158 | 1.75 | % | 376,517 | 247 | 0.27 | % | (107,703 | ) | 1.48 | % | ||||||||||||||||||||
Certificates of deposit | 364,470 | 1,739 | 1.94 | % | 290,686 | 681 | 0.95 | % | 73,784 | 0.99 | % | |||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||
Total deposit | 1,080,554 | 3,865 | 1.45 | % | 1,157,317 | 1,224 | 0.43 | % | (76,763 | ) | 1.02 | % | ||||||||||||||||||||
Borrowings | 6,993 | 86 | 4.99 | % | — | — | 0.00 | % | 6,993 | 4.99 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total interest-bearing liabilities | 1,087,547 | $ | 3,951 | 1.47 | % | 1,157,317 | $ | 1,224 | 0.43 | % | (69,770 | ) | 1.04 | % | ||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||
Non-interest-bearing deposits | 242,814 | 285,298 | (42,484 | ) | ||||||||||||||||||||||||||||
Other liabilities | 28,587 | 20,505 | 8,082 | |||||||||||||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||
Total liabilities | 1,358,948 | 1,463,120 | (104,172 | ) | ||||||||||||||||||||||||||||
Stockholders’ equity | 223,779 | 217,053 | 6,726 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total liabilities and stockholder’s equity | $ | 1,582,727 | $ | 1,680,173 | $ | (97,446) | ||||||||||||||||||||||||||
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Net interest-earnings assets | $ | 385,826 | $ | 414,576 | $ | (28,750) | ||||||||||||||||||||||||||
Net interest income; interest rate spread | 4.20 | % | 3.98 | % | 0.22 | % | ||||||||||||||||||||||||||
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Net interest margin | $ | 16,661 | 4.59 | % | $ | 15,854 | 4.09 | % | $ | 807 | 0.50 | % | ||||||||||||||||||||
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Net interest margin FTE1 | 4.66 | % | 4.14 | % | 0.52 | % | ||||||||||||||||||||||||||
| 1 | Includes federal and state tax effect of tax exempt securities and loans. |
30
Rate/Volume Analysis
The following table reflects the changes in our interest income and interest expense segregated into amounts attributable to changes in volume and in yields on interest-earning assets and interest-bearing liabilities during the periods indicated.
| Three Months Ended March 31, 2023 vs . 2022 Increase (Decrease) Due to | ||||||||||||
| Rate | Volume | Net | ||||||||||
(In thousands) | ||||||||||||
Interest and dividend income: | ||||||||||||
Loans receivable, including fees | $ | 1,140 | $ | 2,262 | $ | 3,402 | ||||||
Securities avalable-for-sale | ||||||||||||
Taxable | 212 | (157 | ) | 55 | ||||||||
Tax-exempt | 54 | (73 | ) | (19 | ) | |||||||
Securities held-to-maturity | — | — | — | |||||||||
Federal funds sold | 908 | (856 | ) | 52 | ||||||||
Other interest-earning assets | 28 | 16 | 44 | |||||||||
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Total interest-earning assets | $ | 2,342 | $ | 1,192 | $ | 3,534 | ||||||
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Interest expense: | ||||||||||||
Demand | $ | 332 | $ | 59 | $ | 391 | ||||||
Savings | 555 | (274 | ) | 281 | ||||||||
Money market | 1,753 | (842 | ) | 911 | ||||||||
Certificates of deposit | 211 | 847 | 1,058 | |||||||||
Borrowings | — | 86 | 86 | |||||||||
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Total interest expense | $ | 2,852 | $ | (125 | ) | $ | 2,727 | |||||
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Change in net interest income | $ | (510 | ) | $ | 1,317 | $ | 807 | |||||
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31
How We Manage Market Risk.
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee which is comprised of both Management and members of the Board of Directors. The Asset/Liability Committee meets on a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent and direction of shifts in interest rates are uncertainties that could have a negative impact on future earnings.
Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.
The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at March 31, 2023, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at March 31, 2023, based on contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans.
32
| 3 Months or less | More than 3 Months to 1 Year | More than 1 Year to 3 Years | More than 3 Years to 5 Years | More than 5 Years | Non-Rate Sensitive | Total Amount | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Interest-earning assets: (1) | ||||||||||||||||||||||||||||
Investment securities | $ | 11,452 | $ | 3,530 | $ | 6,575 | $ | 7,213 | $ | 65,708 | $ | (9,767 | ) | $ | 84,711 | |||||||||||||
Loans receivable | 537,176 | 171,446 | 323,895 | 278,050 | 79,908 | (18,407 | ) | 1,372,068 | ||||||||||||||||||||
Other interest-earnings assets (2) | 11,236 | — | — | — | — | 10,083 | 21,319 | |||||||||||||||||||||
Other non-interest assets | — | — | — | — | — | 107,222 | 107,222 | |||||||||||||||||||||
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Total interest-earning assets | $ | 559,864 | $ | 174,976 | $ | 330,470 | $ | 285,263 | $ | 145,616 | $ | (18,091 | ) | $ | 1,585,320 | |||||||||||||
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Interest-bearing liabilities: | ||||||||||||||||||||||||||||
Checking and savings accounts | $ | 10,808 | $ | 407,583 | $ | — | $ | — | $ | — | $ | — | $ | 418,391 | ||||||||||||||
Money market accounts | 14,317 | 249,557 | — | — | — | — | 263,874 | |||||||||||||||||||||
Certificate accounts | 43,030 | 160,463 | 168,426 | 19,207 | — | — | 391,126 | |||||||||||||||||||||
Borrowings | 40,500 | — | — | — | — | — | 40,500 | |||||||||||||||||||||
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Total interest-bearing liabilities | $ | 108,655 | $ | 817,603 | $ | 168,426 | $ | 19,207 | $ | — | $ | — | $ | 1,113,891 | ||||||||||||||
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Interest-earning assets less interest-bearing liabilities | $ | 451,209 | $ | (642,627 | ) | $ | 162,044 | $ | 266,056 | $ | 145,616 | $ | (18,091 | ) | $ | 471,429 | ||||||||||||
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Cumulative interest-rate sensitivity gap (3) | $ | 451,209 | $ | (191,418 | ) | $ | (29,374 | ) | $ | 236,682 | $ | 382,298 | ||||||||||||||||
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Cumulative interest-rate gap as a percentage of total assets at March 31, 2023 | 28.46 | % | -12.07 | % | -1.85 | % | 14.93 | % | 24.11 | % | ||||||||||||||||||
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Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2023 | 515.27 | % | 79.33 | % | 97.32 | % | 121.25 | % | 134.32 | % | ||||||||||||||||||
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| (1) | Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities. |
| (2) | Includes interest-bearing bank balances, FHLB Stock and Federal Funds Sold |
| (3) | Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities. |
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase.
Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of March 31, 2023 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
33
Change in Interest Rates In Basis Points (Rate Shock) | Net Portfolio Value | NPV as % of Portfolio Value of Assets | ||||||||||||||||||
| Amonts | $ Change | % Change | NPV Ratio | Change | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
300 | $ | 308,493 | $ | (4,140 | ) | -1.32 | % | -6.08 | % | -5.49 | % | |||||||||
200 | $ | 317,135 | $ | 4,502 | 1.44 | % | -4.02 | % | -3.43 | % | ||||||||||
100 | $ | 316,901 | $ | 4,268 | 1.37 | % | -2.28 | % | -1.70 | % | ||||||||||
Static | $ | 312,633 | $ | — | -0.59 | % | ||||||||||||||
(100) | $ | 312,423 | $ | (210 | ) | -0.07 | % | 0.85 | % | 1.43 | % | |||||||||
As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk.
Not applicable. Please seeA smaller reporting company, such as the Explanatory Note.Company, is not required to provide the information by this Item. Certain market risk disclosure is set forth in Item 2 above under “How We Manage Market Risk.”
Item 4. Controls and Procedures.
Under the supervisionDisclosure Controls and Procedures
Management, with the participation of our management, including the participation of ourCompany’s Chief Executive Officer and ourits Chief Financial Officer, we conducted an evaluationevaluated the effectiveness of ourthe design and operation of the Company’s disclosure controls and procedures as such term is(as defined in Rules 13a-15(e) and 15d-15(e)Rule l3a-l5 (e) promulgated under the Securities Exchange Act of 1934Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.March 31, 2023. Based on thatthis evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures wereare effective as of March 31, 2023 to ensure that the end ofinformation required to be disclosed by the period covered by this quarterly report.Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in FDIC rules and forms.
Changes in Internal ControlsControl Over Financial Reporting
There was no change in ourthe Company’s internal control over financial reporting that occurredidentified during the quarter ended September 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
34
PART II—II–OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
InvestingThe following represents a material change in sharesour risk factors from those disclosed in Part I – “Item 1A. Risk Factors” in the 2022 Form 10-K.
Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.
The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Company, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Company could face increased scrutiny or be viewed as higher risk by regulators and the investor community.
Rising interest rates have decreased the value of a portion of the Company’s common stock involves certain risks,securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.
As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the fair value of our securities classified as available for sale has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses embedded in other comprehensive income as a part of shareholders’ equity. If the Company were required to sell such securities to meet liquidity needs, including those identified and described in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s Registration Statementcapital, financial condition, and results of operations and require the Company to raise additional capital on Form S-4EF. There have beenunfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no material changesguarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk factors previously disclosedof potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in the Company’s Registration Statement on Form S-4EF filed with the Securities and Exchange Commission on March 4, 2022,addressing liquidity needs as amended by Amendment No. 1 to the Registration Statement on Form S-4/A filed with the Securities and Exchange Commission on March 18, 2022.they arise
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
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Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit
| Description | |
| 31.1 | Rule 13a-14(a) | |
| 31.2 | Rule 13a-14(a) | |
| 32 | Section 1350 Certifications | |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Princeton Bancorp, Inc. | ||||||||
| Date: | By: | /s/ Edward Dietzler | ||||||
| Edward Dietzler | ||||||||
| Chief Executive Officer and President | ||||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ George Rapp | |||||||
| George Rapp | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
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