UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
 
FORM
10-Q
 
 
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March
31
, June 30, 2023
Or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:
001-41589
 
 
PRINCETON BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Pennsylvania
 
88-4268702
(State or other jurisdiction of

incorporation or organization)
 
(I.R.S. Employer
Identification No.)
183 Bayard Lane, Princeton, New Jersey 08540
(Address of principal executive offices) (Zip Code)
(609)
921-1700
(Registrant’s telephone number, including area code)
 
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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  
Yes
     
☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
  
Yes
     
☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated
filer
   Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).     Yes
   
☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of MayAugust 8, 2023, there were 6,261,5696,287,252 outstanding shares of the issuer’s common stock, no par value.
 


TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

 

PART I FINANCIAL INFORMATION

Item 1

 Financial StatementsStatements  
 Unaudited Consolidated Statements of Financial Condition—March 31,Condition - June 30, 2023 and December 31, 2022.2022   1 
 Unaudited Consolidated Statements of Income—Income - Three and Six Months Ended March 31,June 30, 2023 and 2022.2022   2 
 Unaudited Consolidated Statements of Comprehensive Income—Income - Three and Six Months Ended March 31,June 30, 2023 and 2022.2022   3 
 Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Equity - Three and Six Months Ended March 31,June 30, 2023 and 2022.2022   4 
 Unaudited Consolidated Statements of Cash Flows—ThreeFlows - Six Months Ended March 31,June 30, 2023 and 2022.2022   5 
 Notes to Unaudited Consolidated Financial Statements   6 

Item 2

 Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations   2428 

Item 3

 Quanitative and Qualitative Disclosure about Market Risk.Risk   3441 

Item 4

 Controls and Procedures.Procedures   3441 

PART II OTHER INFORMATION

Item 1

 

Legal Proceedings.Proceedings

   3542 

Item 1A

 Risk Factors.Factors   3542 

Item 2

 

Unregistered Sale of Equity Securities and Use of Proceeds.Proceeds

   3542 

Item 3

 

Defaults Upon Senior Securities.Securities

   3642 

Item 4

 

Mine Safety Disclosures.Disclosures

   3642 

Item 5

 

Other Information.Information

   3642 

Item 6

 

Exhibits.Exhibits

   3643 


Explanatory Note

On January 10, 2023 (the “Effective Date”), Princeton Bancorp, Inc., a Pennsylvania corporation (the “Company”) acquired all of the outstanding stock of The Bank of Princeton, a New Jersey state-chartered bank (the “Bank”), (the “Reorganization”) pursuant to the terms of an Agreement and Plan of Reorganization and Merger dated February 23, 2022 (the “Plan”). Pursuant to the Reorganization, shares of the Bank’s common stock were exchanged for shares of the Company’s common stock on a one-for-one basis. As a result, the Bank became the sole direct wholly owned subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company.

Before the Effective Date, the Bank’s common stock was registered under Section 12(b) of the 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.


PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 
  
June 30,
 
December 31,
 
  
March 31,
2023
 
December 31,
2022
   
2023
 
2022
 
ASSETS
      
Cash and due from banks  $10,083  $12,161   $16,100  $12,161 
Interest-earning bank balances   7,941   13,140    1,815   13,140 
Federal funds sold   —     28,050    125,086   28,050 
              
Total cash and cash equivalents   18,024   53,351    143,001   53,351 
              
Securities
available-for-sale,
at fair value
   84,512   83,402    87,172   83,402 
Securities
held-to-maturity
(fair value $199 and $200, at March 31, 2023 and December 31, 2022, respectively)
   199   201 
Securities
held-to-maturity
(fair value $196 and $200, at June 30, 2023 and December 31, 2022, respectively)
   197   201 
Loans receivable, net of deferred costs   1,388,575   1,370,368    1,499,691   1,370,368 
Less: allowance for credit lossess   (16,507  (16,461   (17,970  (16,461
              
Loan receivable, net   1,372,068   1,353,907    1,481,721   1,353,907 
Bank-owned life insurance   52,906   52,617    53,202   52,617 
Premises and equipment, net   11,662   11,722    14,616   11,722 
Accrued interest receivable   4,865   4,756    5,575   4,756 
Restricted investment in bank stock   3,295   1,742    1,385   1,742 
Deferred taxes, net   7,784   7,599    12,672   7,599 
Goodwill   8,853   8,853    8,853   8,853 
Core deposit intangible   1,690   1,825    1,662   1,825 
Mortgage servicing rights   1,623   —   
Other real estate owned   33   —   
Operating lease
right-of-use
asset
   15,707   16,026    23,050   16,026 
Other assets   3,755   5,778    8,264   5,778 
              
TOTAL ASSETS
  $ 1,585,320  $ 1,601,779   $1,843,026  $1,601,779 
              
LIABILITIES AND STOCKHOLDERS’ EQUITY
      
LIABILITIES      
Deposits:      
Non-interest-bearing
  $218,709  $265,078   $258,014  $265,078 
Interest-bearing   1,073,391   1,082,652    1,314,884   1,082,652 
              
Total deposits   1,292,100   1,347,730    1,572,898   1,347,730 
Borrowings   44,500   10,000    —     10,000 
Accrued interest payable   2,160   1,027    6,174   1,027 
Operating lease liability   16,466   16,772    23,805   16,772 
Other liabilities   4,821   6,649    11,250   6,649 
              
TOTAL LIABILITIES   1,360,047   1,382,178    1,614,127   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 
Common stock, no par value; 15,000,000 shares authorized, 6,279,479 shares issued and outstanding at June 30 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    97,103   81,291 
Treasury stock, at cost 663,805 shares at December 31, 2022   —     (19,452   —     (19,452
Retained earnings   135,425   131,488    140,310   131,488 
Accumulated other comprehensive loss   (7,032  (8,273   (8,514  (8,273
              
TOTAL STOCKHOLDER’S EQUITY   225,273   219,601    228,899   219,601 
              
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $1,585,320  $1,601,779   $1,843,026  $1,601,779 
              
See accompanying notes to unaudited consolidated financial statements.
 
1

PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
  
Three Months Ended
March 31
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
  
2023
   
2022
   
2023
   
2022
   
2023
   
2022
 
INTEREST AND DIVIDEND INCOME
              
Loans receivable, including fees  $19,894   $16,492   $21,517   $16,768   $41,411   $33,260 
Securities
available-for-sale:
              
Taxable   278    223    292    234    570    457 
Tax-exempt
   284    303    284    293    568    596 
Securities
held-to-maturity
   3    3    2    3    5    6 
Other interest and dividend income   153    57    919    158    1,072    215 
                        
TOTAL INTEREST AND DIVIDEND INCOME   20,612    17,078    23,014    17,456    43,626    34,534 
                        
INTEREST EXPENSE
              
Deposits   3,865    1,224    7,321    1,169    11,186    2,393 
Borrowings   86    —      32    —      118    —   
                        
TOTAL INTEREST EXPENSE   3,951    1,224    7,353    1,169    11,304    2,393 
                        
NET INTEREST INCOME
   16,661    15,854    15,661    16,287    32,322    32,141 
Provision for credit losses   265    —      2,463    —      2,728    —   
                        
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES   16,396    15,854    13,198    16,287    29,594    32,141 
                        
NON-INTEREST
INCOME
              
Gain on call/sale of securities
available-for-sale
   —      2    —      2 
Income from bank-owned life insurance   290    282    295    283    585    565 
Fees and service charges   448    475    464    497    912    972 
Loan fees, including prepayment penalties   351    95 
Loan fees, including preypayment penalties   1,030    303    1,381    398 
Gain on bargain purchase   9,696    —      9,696    —   
Other   285    194    80    27    365    221 
                        
TOTAL
NON-INTEREST
INCOME
   1,374    1,046    11,565    1,112    12,939    2,158 
                        
NON-INTEREST
EXPENSE
              
Salaries and employee benefits   5,399    4,901    5,776    4,908    11,175    9,809 
Occupancy and equipment   1,341    1,478    1,705    1,429    3,046    2,907 
Professional fees   465    561    556    582    1,021    1,143 
Data processing and communications   1,300    1,035    1,318    1,056    2,618    2,091 
Federal deposit insurance   190    264    253    275    443    539 
Advertising and promotion   110    119    126    120    236    239 
Office expense   97    54    178    62    275    116 
Other real estate expenses   —      9    1    2    1    11 
Loss on sale of other real estate owned   —      101    —      101 
Core deposit intangible   135    154    127    145    262    299 
Acquisition-related expenses   7,026    —      7,026    —   
Other   735    693    748    748    1,483    1,441 
                        
TOTAL NON-INTEREST EXPENSE   9,772    9,268    17,814    9,428    27,586    18,696 
                        
INCOME BEFORE INCOME TAX EXPENSE   7,998    7,632    6,949    7,971    14,947    15,603 
INCOME TAX EXPENSE   1,901    1,611    161    1,644    2,062    3,255 
                        
NET INCOME
  $6,097   $6,021   $6,788   $6,327   $12,885   $12,348 
                        
Earnings per common share-basic  $0.97   $0.93   $1.08   $1.00   $2.06   $1.93 
Earnings per common share-diluted  $0.95   $0.91   $1.07   $0.98   $2.02   $1.89 
Dividends declared per common share  $0.30   $0.25   $0.30   $0.25   $0.60   $0.50 
See accompanying notes to unaudited consolidated financial statements.
 
2
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
 
    
  
Three Months Ended
March 31,
   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
  
2023
 
2022
   
2023
 
2022
 
2023
 
2022
 
NET INCOME
  $6,097  $6,021   $6,788  $6,327  $12,885  $12,348 
Other comprehensive income (loss)        
Unrealized gains (losses) arising during period on securities
available-for-sale
   1,739   (6,113
Unrealized losses arising during period on securities
available-for-sale
   (2,074  (3,616  (335  (10,081
Reclassification adjustment for gains realized in income
1
   —     (2  —     (2
             
Net unrealized loss   (2,074  (3,618  (335  (10,083
Tax effect   (498  1,591    592   774   94   2,717 
                    
Total other comprehensive income (loss)   1,241   (4,522   (1,482  (2,844  (241  (7,366
                    
COMPREHENSIVE INCOME
  $7,338  $1,499   $5,306  $3,483  $12,644  $4,982 
                    
1
Amounts are included in gain on call/sale of securities
available-for-sale
on the Consolidated Statements of Income as a separate element within total
non-interest
income. There was no income tax benefit for the three months and six months ended June 30, 2022.
See accompanying notes to unaudited consolidated financial statements.
 
3
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except per share data)
 
  
Common
Stock
 
Paid-in

Capital
   
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive

(Loss) Income
 
Total
             
Accumulated
   
Three Months Ended March 31, 2023 and 2022
      
Balance, December 31, 2021  $34,100  $ 80,220   $(10,032 $ 111,451  $839  $216,578 
            
Other
   
  
Common
 
Paid-in
   
Treasury
 
Retained
 
Comprehensive
   
Three Months Ended June 30, 2023 and 2022
  
Stock
 
Capital
   
Stock
 
Earnings
 
(Loss) Income
 
Total
 
Balance, April 1, 2022  $34,181  $80,576   $(13,647 $115,813  $(3,683 $213,240 
Net income   —     —      —     6,021   —     6,021    —     —      —     6,327   —     6,327 
Other comprehensive loss   —     —      —     —     (4,522  (4,522   —     —      —     —     (2,844  (2,844
Stock options exercised (6,450 shares)   32   73    —     —     —     105 
Directors compensation (4,019 shares)   44   165    —     —     —     209 
Stock options exercised (29,951 shares)   153   266    —     —     —     419 
Dividends declared $0.25 per share   —     —      —     (1,668  —     (1,668   —     —      —     (1,599  —     (1,599
Purchase of treasury stock (124,440 shares)   —     —      (3,615  —     —     (3,615
Dividend reinvestment plan (802 shares)   5   10    —     9   —     24 
Purchase of treasury stock (140,901 shares)   —     —      (4,185  —     —     (4,185
Dividend reinvestment plan (931 shares)   4   26    —     (54  —     (24
Stock-based compensation expense   —     108    —     —     —     108    —     15    —     —     —     15 
                                        
Balance, March 31, 2022  $34,181  $80,576   $(13,647 $115,813  $(3,683 $213,240 
Balance, June 30, 2022  $34,338  $80,883   $(17,832 $120,487  $(6,527 $211,349 
                    
Balance, April 1, 2023  $—    $96,880   $—    $135,425  $(7,032 $225,273 
Net income   —     —      —     6,788   —     6,788 
Other comprehensive loss   —     —      —     —     (1,482  (1,482
Dividends declared $0.30 per share   —     —      —     (1,876  —     (1,876
Dividend reinvestment plan (1,083 shares)   —     27    —     (27  —     —   
Stock-based compensation expense   —     196    —     —     —     196 
                    
Balance, June 30, 2023  $—    $97,103   $—    $140,310  $(8,514 $228,899 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                    
 
Balance, December 31, 2022  $34,547  $81,291   $(19,452 $131,488  $(8,273 $219,601 
            
Accumulated
   
            
Other
   
  
Common
 
Paid-in
   
Treasury
 
Retained
 
Comprehensive
   
Six Months Ended June 30, 2023 and 2022
  
stock
 
Capital
   
Stock
 
Earnings
 
(Loss) Income
 
Total
 
Balance, January 1, 2022  $34,100  $80,220   $(10,032 $111,451  $839  $216,578 
Net income   —     —      —     12,348   —     12,348 
Other comprehensive loss   —     —      —     —     (7,366  (7,366
Stock options exercised (36,401 shares)   185   339    —     —     —     524 
Restricted stock (8,741 shares)   44   165    —     —     —     209 
Dividends declared $0.50 per share   —     —      —     (3,267  —     (3,267
Purchase of treasury stock (265,341 shares)   —     —      (7,800  —     —     (7,800
Dividend reinvestment plan (1,733 shares)   9   36    —     (45  —     —   
Stock-based compensation expense   —     123    —     —     —     123 
                    
Balance, June 30, 2022  $34,338  $80,883   $(17,832 $120,487  $(6,527 $211,349 
                    
Balance, January 1, 2023  $34,547  $81,291   $(19,452 $131,488  $(8,273 $219,601 
Net income   —     —      —     6,097   —     6,097    —     —      —     12,885   —     12,885 
Other comprehensive loss   —     —      —     —     1,241   1,241    —     —      —     —     (241  (241
Adoption of CECL   —     —      —     (284  —     (284   —     —      —     (284  —     (284
Formation of Princeton Bancorp, Inc.   (34,547  15,095    19,452   —     —     —      (34,547  15,095    19,452   —     —     —   
Stock options exercised (16,307 shares)   —     297    —     —     —     297    —     272    —     —     —     272 
Dividends declared $0.30 per share   —     —      —     (1,843  —     (1,843
Dividend reinvestment plan (958 shares)   —     33    —     (33  —     —   
Dividends declared $0.60 per share   —     —      —     (3,719  —     (3,719
Dividend reinvestment plan (2,041 shares)   —     60    —     (60  —     —   
Stock-based compensation expense   —     164    —     —     —     164    —     385    —     —     —     385 
                                        
Balance, March 31, 2023  $—    $96,880   $—    $135,425  $(7,032 $225,273 
Balance, June 30, 2023  $—    $97,103   $—    $140,310  $(8,514 $228,899 
                                        
See accompanying notes to unaudited consolidated financial statements.
 
4
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
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
securities
   (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  —   
   
Six Months Ended June 30,
 
   
2023
  
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES
   
Net income  $12,885  $12,348 
Adjustments to reconcile net income to net cash provided by operating activities:         
Provision for credit losses   2,728   —   
Depreciation and amortization   670   648 
Stock-based compensation expense   385   123 
Amortization of premiums and accretion of discount on securities   19   24 
Accretion of net deferred loan fees and costs   (1,005  (3,139
Gain on call/sale of securities
available-for-sale
   —     (2
Income earned from small business investment company (“SBIC”) Investment   (191  (87
Increase in cash surrender value of bank-owned life insurance   (585  (564
Deferred income tax (benefit)   (752  3 
Amortization of core deposit intangible   262   300 
Bargain purchase gain

   (9,696  —   
Proceeds from other real estate owned   —     125 
Write down on other real estate owned   —     101 
Decrease in accrued interest receivable and other assets   10,501   1,002 
Decrease in accrued interest payable and other liabilities   (2,416  (2,220
          
NET CASH PROVIDED BY OPERATING ACTIVITIES
   12,805   8,662 
          
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchases of
available-for-sale
securities
   (345  (4,306
Principal repayments of securities
available-for-sale
   3,198   4,208 
Maturities and calls of securities
available-for-sale
   830   3,002 
Maturities, calls and principal repayments of securities
held-to-maturity
   4   4 
Net decrease (increase) in loans   56,082   (57,649
Cash paid for acquisition   (25,414  —   
Cash received from
acquisition
   23,181   —   
Purchases of premises and equipment   (1,069  (477
Purchases of restricted bank stock   357   40 
          
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES
   56,824   (55,178
          
CASH FLOWS FROM FINANCING ACTIVITIES
         
Net increase (decrease) in deposits   33,468   (55,095
Repayment of overnight borrowings   (10,000  —   
Cash dividends   (3,779  (3,312
Dividend reinvestment program   60   45 
Purchase of treasury stock   —     (7,800
Proceeds from exercise of stock options   272   524 
Release of restricted stock units   —     209 
          
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
   20,021   (65,429
          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   89,650   (111,945
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   53,351   158,716 
          
CASH AND CASH EQUIVALENTS, END OF PERIOD  $143,001  $46,771 
          
SUPPLEMENTARY CASH FLOWS INFORMATION:
         
Interest paid  $6,157  $2,868 
Income taxes paid  $3,455  $1,245 
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 $—   
Net assets acquired from Noah Bank
1
  $239,451  $—   
Net liabilities assumed from Noah Bank
1
  $204,341  $—   
1 For details of assets acquired and liabilities assumed - See Note 2.
See accompanying notes to unaudited consolidated financial statements.

5

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 1 – Summary of Significant Accounting Policies
Organization and Nature of Operations
The Bank of Princeton (the “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation (“FDIC”). The area served by the Bank, through its 2330 branches, is generally an area within an approximate
50-mile
radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has three retail branches and conducts loan origination activities in select areas of New York.
The Bank offers traditional retail banking services,
one-to-four-family
residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. As of
March 31, 2023
, the Company had 
179 total employees and 176 full-time equivalent employees.
On January 10, 2023, Princeton Bancorp, Inc., a Pennsylvania corporation formed by the Bank (the “Company”), acquired all of the outstanding stock of the Bank.Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company.
As of June 30, 2023, the Company had
212
total employees and 
209
full-time equivalent employees.
On OctoberMay 19, 2022,2023, the Bank entered into an Agreement and PlanCompany completed the acquisition of Merger (the “Merger Agreement”) with Noah Bank, a Pennsylvania-charteredPennsylvania chartered state bank (“Noah”). Pursuant toheadquartered in Elkins Park, Pennsylvania that primarily served the termsPhiladelphia, North New Jersey and conditions set forth inNew York City markets. On that date the Merger Agreement, Noah will merge with and into TBOP Acquisition company, a newly-formed wholly owned subsidiaryCompany acquired 100% of the outstanding common stock, for cash, of Noah Bank withand Noah surviving (the “Merger”). The Company plans to merge NoahBank was merged with and into the Company immediately after the Merger. The Merger Agreement has been approved by the boards of directors of each of the Company and Noah and by Noah’s shareholders.Bank.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, the Bank and its wholly owned subsidiaries: Bayard Lane, LLC, Bayard Properties, LLC, 112 Fifth Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and the FDIC. Accordingly, they do not include all the information and disclosures required by GAAP for annual financial statements. In management’s opinion, the unaudited consolidated financial statements contain all adjustments, which include normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These unaudited consolidated financial statements should be read in conjunction with the Company’s annual report on
Form 10-K
for the year ended December 31, 2022.
Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, the valuation of acquired assets and liabilities, and evaluation of the potential impairment of goodwill.
6

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 1 – Summary of Significant Accounting Policies (continued)
Management believes that the allowance for credit losses is adequate as of March 31,June 30, 2023 and December 31, 2022. While management uses current information to recognize losses on loans, future additions to the allowance for credit losses may be necessary based on changes in economic conditions in the market area or other factors.
6

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 1 – Summary of Significant Accounting Policies (continued)
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to effect certain changes that result in additions to the allowance based on their judgments about information available to them at the time of their examinations.
Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.
Recently issued accounting standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2020-04,
“Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or
re-measurements
of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU
2020-04
also provides numerous optional expedients for derivative accounting. ASU
2020-04
is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU
2020-04
for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and March 31,June 30, 2023 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and we do not anticipate any material impacts to the financial statements.
Recently adopted accounting standards
Effective January 1, 2023 the Company adopted the FASB issued ASU
2016-13,
Financial Instruments—Credit Losses,
(“CECL”)(CECL) which amends the Board’s guidance on the impairment of financial instruments, using the modified retrospective method. The amended guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Upon adoption of the new CECL standard, effective January 1, 2023, the Company recorded a
one-time
decrease, net of tax, in retained earnings of $284,000,$284 thousand, a reduction to the allowance for credit losses of $301,000$301 thousand and an increase in the reserve for unfunded liabilities of $695,000.$695 thousand.
 
7

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 2 – Business Combinations
On May 19, 2023, the Company completed its acquisition of Noan Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100% of the outstanding common stock of Noah Bank and Noah Bank was merged with and into the Bank.
In accordance with the terms of the acquisition agreement, the Company paid $6.00 per share of Noah’s common stock outstanding on the closing date.
The acquisition of Noah Bank was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair value as of the acquisition. The $9.7 million below was recorded as a “Bargain Purchase” in
non-interest
income on the Consolidated Statement of Income. This item was not taxable for the recording of income taxes on the Consolidated Statement of Income.
The following table summarizes the purchase price calculation and bargain purchase gain resulting from acquisition:
   
Fair Value
 
(Dollars in thousands except per share data)
    
Purchase Price Consideration in Cash for Noah Bank’s Outstanding Shares
  
Noah Bank number of common shares outstanding   4,235,666 
Purchase price per share assigned to cash consideration  $6.00 
     
Cash consideration  $25,414 
     
Assets Acquired:
  
Cash and cash equivalents  $23,181 
Securities
available-for-sale
   6,454 
Loans receivable, net of allowance   185,891 
Core deposit intangible   99 
Premises and equipment   2,495 
Operating leases
right-of-use
   10,523 
Deferred tax assets   4,308 
Other assets   6,500 
     
Fair value of assets acquired   239,451 
     
Liabilities Assumed:
  
Deposits   191,700 
Operating lease liability   10,523 
Other liabilities assumed   2,118 
     
Fair value of liabilities assumed   204,341 
     
Total identifiable net assets   35,110 
     
Bargain purchase gain  $(9,696
     
The Company recorded merger-related expenses of $7.0 million, consisting of $3.7 million for termination of a branch lease, $1.7 million related to termination of data processing contract, $437 thousand for legal related expenses, $243 thousand for investment banker services, $184 thousand in severance payments, $115 thousand in professional services provided and $621 thousand in other miscellaneous related expenses. In addition, the Company recorded a $1.7 million provision for the
non-purchase
credit deteriorated loans in connection with the acquisition.
8

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 2 – Business Combinations (continued)
While the valuation of the acquired assets and liabilities is substantially complete, fair value estimates related to the assets and liabilities from Noah Bank are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, investments, loans and deposits as management continues to review the estimated fair value and evaluate the assumed tax position. When the valuation is final, any changes to the preliminary valuation could result in adjustments of bargain purchase recorded. The following is a description of the fair value methodologies used to estimate the fair values of major categories of assets acquired.
Cash and due from banks:
The estimated fair values of cash and due from banks approximated their state value.
Investment securities:
The acquired portfolio had a fair value of $6.5 million, primarily consisting of mortgage-backed securities and small business administration securities.
Loans:
The Company recorded $185.9 million of acquired loans that were initially at their fair values as of the date of the acquisition. Fair values for loans were based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default (“PD”), loss given default (“LGD”), exposure of default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The Company determined that $37.3 million of the acquired loans were purchased credit deteriorated (“PCD”) of which $34.5 million were performing and $2.6 million were
non-performing
at the time of the acquisition.
Allowance for credit losses
: The acquisition resulted in the addition of $2.3 million in the allowance for credit losses, including $537 thousand identified for purchase credit deteriorated loans.
Other assets
: The Company acquired $2.5 million of premises and equipment and $10.5 million of operating lease
right-of-use
assets and recorded the assets at fair value.
Time deposits:
Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to similar instruments. The valuation adjustment of $407 thousand will be accreted to expense over a five-year period.
9

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 2 –3 - Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding for the period adjusted to include the effect of outstanding stock options, if dilutive, using the treasury stock method. Shares issued during any period are weighted for the portion of the period they were outstanding.
The following schedule presents earnings per share data for the three-month periods ended March 31,June 30, 2023 and 2022 (in thousands, except per share data):
 
  
Three months ended

March 31,
   
Three months ended
June 30,
 
  
2023
   
2022
   
2023
   
2022
 
Net income applicable to common stock  $6,097   $6,021   $6,788   $6,327 
Weighted average number of common shares outstanding   6,257    6,465    6,270    6,305 
                
Basic earnings per share
  $0.97   $0.93   $1.08   $1.00 
 
 
 
 
 
 
 
 
 
 
        
Net income applicable to common stock  $6,097   $6,021   $6,788   $6,327 
Weighted average number of common shares outstanding   6,257    6,465    6,270    6,305 
Dilutive effect on common shares outstanding   129    149    95    132 
                
Weighted average number of diluted common shares outstanding   6,386    6,614    6,365    6,437 
                
Diluted earnings per share
  $0.95   $0.91   $1.07   $0.98 
                
The following schedule presents earnings per share data for the
six-month
periods ended June 30, 2023 and 2022 (in thousands, except per share data):
   
Six months ended
June 30,
 
   
2023
   
2022
 
Net income applicable to common stock  $12,885   $12,348 
Weighted average number of common shares outstanding   6,263    6,385 
          
Basic earnings per share
  $2.06   $1.93 
          
Net income applicable to common stock  $12,885   $12,348 
Weighted average number of common shares outstanding   6,263    6,385 
Dilutive effect on common shares outstanding   112    141 
          
Weighted average number of diluted common shares outstanding   6,375    6,526 
          
Diluted earnings per share
  $2.02   $1.89 
          
10

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 3 - Earnings Per Share (continued)
The following schedule presents stock options granted but not exercised and the amount of share that were anti-dilutive because the weighted average exercise price equaled or exceeded the estimated fair value of our common stock for the three-month three- and
six-month
periods ended March 31,June 30, 2023 and 2022:
 
  
Three months ended June 30,
 
  
Three months ended March 31,
   
2023
   
2022
 
  
2023
   
2022
       Weighted Ave       Weighted Ave 
  Options   Weighted Ave
Exercise Price
   Options   Weighted Ave
Exercise Price
   Options   Exercise Price   Options   Exercise Price 
Options to purchase   374,496   $22.01    343,570   $16.62    276,704   $19.56    328,021   $17.65 
Anti-dilutive   —     $—      95,750   $32.45    95,750   $32.45    95,750   $32.45 
   
Six months ended June 30,
 
   
2023
   
2022
 
       Weighted Ave       Weighted Ave 
   Options   Exercise Price   Options   Exercise Price 
Options to purchase   280,732   $19.49    333,753   $16.31 
Anti-dilutive   95,750   $32.45    95,750   $32.45 
 
8
11
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 34 – Investment Securities
The following summarizes the amortized cost and fair value of securities
available-for-sale
at March 31,June 30, 2023 and December 31, 2022 with gross unrealized gains and losses therein:
 
  
March 31 , 2023
   
June 30, 2023
 
  
Amortized
Cost
   
Gross

Unrealized

Gains
   
Gross
Unrealized
Losses
   
Fair Value
       
Gross
   
Gross
     
                  
Amortized
   
Unrealized
   
Unrealized
     
Available-for-sale
      (In thousands)     
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs)  $40,677   $3   $(5,981  $34,699 
  
Cost
   
Gains
   
Losses
   
Fair Value
 
                
Available
-for-sale
  (In thousands) 
Mortgage-backed securities - U.S. government sponsored enterprises (GSEs)  $42,035   $6   $(6,502  $35,539 
U.S. government agency securities   6,260    —      (1,025   5,235    6,260    —      (1,079   5,181 
Obligations of state and political subdivisions   44,844    67    (2,627   42,284    44,311    6    (3,779   40,538 
Small Business Association (SBA) securities   3,362    1    —      3,363 
Subordinated debentures   450    —      —      450 
Small business investment company securities   2,587    —      (293   2,294    2,684    —      (583   2,101 
                                
Total  $94,368   $70   $(9,926  $84,512   $99,102   $13   $(11,943  $87,172 
                                
 
  
December 31, 2022
   
December 31, 2022
 
  
Amortized
Cost
   
Gross

Unrealized

Gains
   
Gross
Unrealized
Losses
   
Fair Value
       
Gross
   
Gross
     
                  
Amortized
   
Unrealized
   
Unrealized
     
Available-for-sale
      (In thousands)     
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs)  $41,515   $2   $(6,602  $34,915 
  
Cost
   
Gains
   
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    6,260    —      (1,175   5,085 
Obligations of state and political subdivisions   45,161    8    (3,828   41,341    45,161    8    (3,828   41,341 
Small business investment company securities   2,061    —      —      2,061    2,061    —      —      2,061 
                                
Total  $94,997   $10   $(11,605  $83,402   $94,997   $10   $(11,605  $83,402 
                                
 
9
12

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 34 – Investment Securities (continued)
 
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities
available-for-sale
at March 31,June 30, 2023 and December 31, 2022 are as follows:
 
  
Less than 12 Months
 
More than 12 Months
 
Total
   
Less than 12 Months
 
More than 12 Months
 
Total
 
  
Fair

Value
   
Unrealized

Losses
 
Fair

Value
   
Unrealized

Losses
 
Fair
Value
   
Unrealized
Losses
   
Fair
   
Unrealized
 
Fair
   
Unrealized
 
Fair
   
Unrealized
 
                      
Value
   
Losses
 
Value
   
Losses
 
Value
   
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
                    
June 30, 2023
  (In thousands) 
Mortgage-backed securities - U.S. government sponsored enterprises (GSEs)  $1,713   $(77 $31,480   $(6,425 $33,193   $(6,502
U.S. government agency securities   —     $—     5,235    (1,025  5,235    (1,025   —     $—     5,181    (1,079  5,181    (1,079
Obligations of state and political subdivisions   10,642    (144  22,499    (2,483  33,141    (2,627   12,409    (367  23,814    (3,412  36,223    (3,779
Small business investment company securities   2,294    (293  —      —     2,294    (293   2,101    (583  —      —     2,101    (583
                                            
Total  $19,493   $(632 $55,674   $(9,294 $75,167   $(9,926  $16,223   $(1,027 $60,475   $(10,916 $76,698   $(11,943
                                            
 
  
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
                      
   
Less than 12 Months
  
More than 12 Months
  
Total
 
   
Fair
   
Unrealized
  
Fair
   
Unrealized
  
Fair
   
Unrealized
 
   
Value
   
Losses
  
Value
   
Losses
  
Value
   
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
                            
  $52,026   $(5,235 $25,574   $(6,370 $77,600   $(11,605
                            
The amortized cost and fair value of securities
available-for-sale
at March 31,June 30, 2023 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
  
Amortized
     
  
Amortized

Cost
   
Fair Value
   
Cost
   
Fair Value
 
                
  (In thousands)   (In thousands) 
Due in one year or less  $675   $675   $150   $150 
Due after one year through five years   4,719    4,641    4,987    4,876 
Due after five years through ten years   26,436    25,263    26,903    24,914 
Due after ten years   19,274    16,940    18,531    15,779 
Mortgage-backed securities (GSEs)   40,677    34,699    42,035    35,539 
Small Business Association (SBA) securities   3,362    3,363 
Subordinated debentures   450    450 
SBIC securities   2,587    2,294    2,684    2,101 
                
  $94,368   $84,512   $99,102   $87,172 
                
13

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 4 – Investment Securities (concluded)
Proceeds from calls and maturities of
available-for-sale
securities amounted to $525 thousand for the three-month period ended June 30, 2023, for which there was no gain recorded. Proceeds from calls and maturities of
available-for-sale
securities amounted to $830 thousand for the
six-month
period ended June 30, 2023
for
which there was no gain recorded. There were no sales of securities
available-for-sale
or proceeds from calls for the three-month periods
six-month
period ended March 31, 2023 and March 31,June 30, 2022.
On January 1, 2023, the Company adopted ASU
2016-13
and implemented the CECL methodology for allowance for credit losses on its investment securities
available-for-sale.
The new CECL methodology replaces the other-than-temporary impairment model that previously existed. The company did not have a CECL day 1 impact attributable to its investment securities portfolio and did
not
have an allowance for credit losses on its investment securities available for sale as of March 31,June 30, 2023.
10

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 3 – Investment Securities (concluded)
The Company’s securities primarily consist of fourthe following types of instruments; U.S. guaranteed mortgage-backed securities, U.S guaranteed agency bonds, state and political subdivision issued bonds, and one small business investment company security guaranteed by the U.S. government.government and a subordinate debenture acquired from Noah Bank. We believe it is reasonable to expect that the securities with a credit guarantee of the U.S. government, will have a
zero-credit
loss. Therefore, no reserve was recorded for U.S. guaranteed securities or bonds at March 31,June 30, 2023. The state and political subdivision securities carry a minimum investment rating of A. Some of the smaller municipalities also have insurance to cover the Company in the event of default. Therefore, the Company expects to have a
zero-credit
loss and no reserve was recorded as of March 31,June 30, 2023.
At March 31,June 30, 2023, the Comapny’sCompany’s
available-for-sale
and
held-to-maturity
investment securities portfolio consisted of approximately 206219 securities, of which 113129
available-for-sale
securities were in an unrealized loss position for more than twelve months and 6165
available-for-sale
securities were in a loss position for less than twelve months. The
available-for-sale
securities in a loss position for more than twelve months consisted of 77 municpal81 municipal securities aggregating $22.5$23.8 million with a loss of $2.5$3.4 million, 3244 mortgage-backed
securities-GSE
aggregating $27.9$31.5 million with a loss of $5.8$6.4 million and four agency securities aggregating $5.2 million with a loss of $1.0$1.1 million. The Company does not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. No OTTI charges were recorded for the three and six months ended March 31,June 30, 2023 and 2022.
There are no securities pledged as of March 31,June 30, 2023 and December 31, 2022.
Note 45 – Loans Receivable
Loans receivable, net at March 31,June 30, 2022 and December 31, 2022 were comprised of the following:
 
  
June 30,
   
December 31,
 
  
March 31,

2023
   
December 31,

2022
   
2023
   
2022
 
                
  (In thousands)   (In thousands) 
Commercial real estate  $864,497   $873,573   $1,022,954   $873,573 
Commercial and industrial   30,916    28,859    46,022    28,859 
Construction   442,693    417,538    383,615    417,538 
Residential first-lien mortgage   42,566    43,125    40,244    43,125 
Home equity/consumer   7,535    7,260    8,029    9,729 
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    1,500,864    1,372,824 
Deferred fees and costs   (1,948   (2,456   (1,173   (2,456
                
Loans, net  $1,388,575   $1,370,368   $1,499,691   $1,370,368 
                
TheExcept as discussed in Note 2 regarding the Noah Bank acquisition, the Company did not purchase any loans during the three and six months ended March 31,June 30, 2023 and 2022, respectively.
14

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 5 – Loans Receivable (continued)
Upon adoption of CECL the Company has elected to use the discounted cash flow methodology in determining the appropriate quantitative adjustments, which projects future losses, based on historical loss data, as part of the allowance for credit losses (“ACL”) reserve. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an
assessment
of the lending environment, including underwriting standards and other factors affecting credit quality.
11

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 4 – Loans Receivable (continued)
The following table presents the components of the allowance for credit losses:
 
   
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
           
   
June 30,
   
December 31,
 
   
2023
   
2022
 
         
   (In thousands) 
Allowance for credit losses - loans  $(17,970  $(16,461
Allowance for credit losses - off balance sheet   (699   (332
           
   $(18,669  $(16,793
           
The following table presents nonaccrual loans by segment of the loan portfolio as of March 31,June 30, 2023 and December 31, 2022:
 
  
June 30, 2023
   
December 31, 2022
 
  
With a
   
Without a
   
With a
   
Without a
 
  
March 31, 2023
   
December 31, 2023
   
Related
   
Related
   
Related
   
Related
 
  
With a
Related
Allowance
   
Without a
Related
Allowance
   
With a
Related
Allowance
   
Without a
Related
Allowance
   
Allowance
   
Allowance
   
Allowance
   
Allowance
 
                                
  (In thousands)   (In thousands) 
Commercial real estate  $—     $6,193   $—     $—     $—     $4,485   $—     $—   
Commercial and industrial   —      2,232    —      —   
Construction   148    —      148    —      —      2,925    148    —   
Residential first-lien mortgage   —      114    —      118    —      111    —      118 
                                
Total nonaccrual loans  $148   $6,307   $148   $118   $—     $9,753   $148   $118 
                                
The calculation of the allowance for credit losses does not include any accrued interest receivable. The Company’s policy is to write off any interest not collected after 90 days. During the
six-month
period ending June 30, 2023, the Company wrote off
$228
thousand
in accrued interest receivable for loans.
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loan receivables by the length of time a recorded payment is past due. The following table presents the segments of the loan portfolio, excluding PPP loans, summarized by the past due status as of March 31,
2023June 30, 2023:
:
 
   
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 
                                   
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.
                           
Loans
 
   
30-59
   
60-89
   
>90
               
Receivable
 
   
Days
   
Days
   
Days
   
Total
       
Total
   
>90 Days
 
   
Past
   
Past
   
Past
   
Past
       
Loans
   
and
 
   
Due
   
Due
   
Due
   
Due
   
Current
   
Receivable
   
Accruing
 
                             
   (In thousands) 
Commercial real estate  $539   $—     $4,485   $5,024   $1,017,930   $1,022,954   $—   
Commercial and industrial   45    —      2,232    2,277    43,745    46,022    —   
Construction   —      —      2,925    2,925    380,690    383,615    —   
Residential first-lien mortgage   495    —      111    606    39,638    40,244    —   
Home equity/consumer   —      —      —      —      8,029    8,029    —   
                                    
Total  $1,079   $—     $9,753   $10,832   $1,490,032   $1,500,864   $—   
                                    
 
12
15
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 45 – Loans Receivable (continued)
 
The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2022:
 
                          
Loans
 
  
30-59
   
60-89
                   
Receivable
 
  
Days
   
Days
   
Greater
   
Total
       
Total
   
>90 Days
 
  
Past
   
Past
   
than
   
Past
       
Loans
   
and
 
  
Due
   
Due
   
90 days
   
Due
   
Current
   
Receivable
   
Accruing
 
  
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)               (In thousands) 
Commercial real estate  $—     $6,193   $—     $6,193   $867,380   $873,573   $—     $—     $6,193   $—     $6,193   $867,380   $873,573   $—   
Commercial and industrial   —      —      —      —      28,859    28,859    —      —      —      —      —      28,859    28,859    —   
Construction   —      —      148    148    417,390    417,538    —      —      —      148    148    417,390    417,538    —   
Residential first-lien mortgage   1,292    —      118    1,410    41,715    43,125    —      1,292    —      118    1,410    41,715    43,125    —   
Home equity/Consumer   —      —      —      —      7,260    7,260    —      255    —      184    439    9,290    9,729    184 
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   $1,547   $6,193   $450   $8,190   $1,364,634   $1,372,824   $184 
                                                        
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.
The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis and assigns one of the following ratings;ratings: pass, special mention, substandard and doubtful. The Company engages a third party to review its assessment on a semiannual basis. The Company classifies residential and consumer loans as either performing or nonperforming based on payment status.
status
.
There were no loans charged off during the three months ended March 31, 2023 that would require additional disclosure.
 
13
16

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 45 – Loans Receivable (continued)
 
The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of March 31, 2023:June 30, 2023.
 
   
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 
                                         

   2023   2022   2021   2020   2019   Prior  Revolving
Loans
   Total 
                                
   (Dollars in thousands) 
Commercial real estate
                                       
Pass  $6,260   $235,799   $88,066   $54,349   $174,659   $450,916  $5,608   $1,015,657 
Special mention   —      —      —      —      —      2,812   —      2,812 
Substandard   —      —      —      —      —      4,485   —      4,485 
                                        
Total commercial real estate   6,260    235,799    88,066    54,349    174,659    458,213   5,608    1,022,954 
Commercial and industrial
                                       
Pass   1,771    4,054    2,466    2,298    16,367    2,674   13,139    42,769 
Special mention   —      —      —      —      —      697   —      697 
Substandard   —      —      —      —      —      2,556   —      2,556 
                                        
Total commercial and industrial   1,771    4,054    2,466    2,298    16,367    5,927   13,139    46,022 
Construction
                                       
Pass   —      6,904    141,342    38,117    48    10,837   183,442    380,690 
Special mention   —      —      —      —      —      —     —      —   
Substandard   —      —      —      2,925    —      —     —      2,925 
                                        
Total construction   —      6,904    141,342    41,042    48    10,837   183,442    383,615 
Residential first-lien mortgage
                                       
Performing   —      1,006    5,707    2,886    1,578    28,956   —      40,133 
Nonperforming   —      —      —      —      —      111   —      111 
                                        
Total residential first-lien mortgage   —      1,006    5,707    2,886    1,578    29,067   —      40,244 
Home equity/consumer
                                       
Performing   —      948    415    67    —      2,980   3,619    8,029 
Nonperforming   —      —      —      —      —      —     —      —   
                                        
Total home equity/consumer   —      948    415    67    —      2,980   3,619    8,029 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
   
  
    
  
    
  
    
  
    
  
    (1,868  
  
    (1,868
Current period recoveries
   
  
    
  
    
  
    
  
    
  
    30   
  
    30 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
Total
net-charge-off
   
  
    
  
    
  
    
  
    
  
    (1,838  
  
    (1,838
Total
                                       
Pass   8,031    248,711    237,996    97,717    192,652    496,363   205,808    1,487,278 
Special mention   —      —      —      —      —      3,509   —      3,509 
Substandard   —      —      —      2,925    —      7,152   —      10,077 
                                        
Total loans  $8,031   $248,711   $237,996   $100,642   $192,652   $507,024  $205,808   $1,500,864 
                                        
Due to the guarantee by the Small Business Association the PPP loans were not included in this table.
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2022:
 
      
Special
             
  
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
   
Pass
   
Mention
   
Substandard
   
Doubtful
   
Total
 
                                        
  (In thousands)   (In thousands) 
Commercial real estate  $864,497   $2,883   $6,193   $—     $873,573   $864,497   $2,883   $6,193   $—     $873,573 
Commercial and industrial   28,350    509    —      —      28,859    28,350    509    —      —      28,859 
Construction   417,390    —      148    —      417,538    417,390    —      148    —      417,538 
Residential first-lien mortgage   43,007    —      118    —      43,125    43,007    —      118    —      43,125 
Home equity/consumer   7,260    —      —      —      7,260    9,729    —      —      —      9,729 
PPP   2,469    —      —      —      2,469 
                                        
Total with no related allowance  $1,362,973   $3,392   $6,459   $—     $1,372,824   $1,362,973   $3,392   $6,459   $—     $1,372,824 
                                        
 
14
17
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 45 – Loans Receivable (continued)
 
The following table presents the allowance for credit losses on loans receivable at and for the three months ended March 31,June 30, 2023:
   
Commercial
  
Commercial
and
     
Residential
first-lien
  
Home equity/
        
   
real estate
  
industrial
  
Construction
  
mortgage
  
consumer
  
Unallocated
   
Total
 
            (In thousands)           
Allowance for credit losses:
                              
Beginning balance  $10,037  $214  $5,349  $654  $253  $—     $16,507 
Non-purchased
credit deteriorated loans
   1,586   105   —     16   —     —      1,707 
Purchased credit deteriorated loans   498   103   —     —     —     —      601 
Provision
1
   1,697   (19  (672  (7  (3  —      996 
Charge-offs   (1,718  —     (148  (2  —     —      (1,868
Recoveries   23   4   —     —     —     —      27 
                               
Total  $12,123  $407  $4,529  $661  $250  $—     $17,970 
                               
Ending Balance:                              
Individually evaluated  $—    $—    $—    $—    $—    $—     $—   
Collectively evaluated   12,123   407   4,529   661   250   —      17,970 
                               
   $12,123  $407  $4,529  $661  $250  $—     $17,970 
                               

1
The provision for credit losses on the Consolidated Statement of Income is $2.5 million comprising $1.7 million related to
non-PCD
loans acquired, a $996 thousand increase to the allowance for credit losses on loans and a $240 thousand reduction to the reserve for unfunded liabilities.
The
   
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 
                                    

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.
The following table presents the recorded investment in loans receivable at March 31,June 30, 2023:

   
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
       
Residential
             
   
Commercial
   
and
       
first-lien
   
Home equity/
         
   
real estate
   
industrial
   
Construction
   
mortgage
   
consumer
   
Unallocated
   
Total
 
               (In thousands)             
Loans:
                                   
Ending balance:                                   
Individually evaluated  $4,485   $2,232   $2,925   $111   $—     $—     $9,753 
Collectively evaluated   1,018,469    43,790    380,690    40,133    8,029    —      1,491,111 
                                    
Ending balance  $1,022,954   $46,022   $383,615   $40,244   $8,029   $—     $1,500,864 
                                    
The following table presents the allowance for loan losses on loans receivables at and for the three months ended MarchJune 30, 2022:
   
Commercial
real estate
  
Commercial
and
industrial
   
Construction
  
Residential
first-lien
mortgage
  
Home equity/
consumer
   
Unallocated
   
Total
 
             (In thousands)            
Allowance for loan losses:
                                
Beginning balance  $7,088  $266   $8,034  $262  $46   $958   $16,654 
Provision   1,583   13    (1,604  (3  4    7    —   
Charge-offs   (200  —      —     —     —      —      (200
Recoveries   212   —      —     —     —      —      212 
                                 
Total  $8,683  $279   $6,430  $259  $50   $965   $16,666 
                                 
18

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 5 – Loans Receivable (continued)
The following table presents the allowance for credit losses on loans receivable at and for the six months ended June 30, 2023:
                                                                                                                        
   
Commercial
real estate
  
Commercial
and
industrial
  
Construction
  
Residential

first-lien
mortgage
  
Home equity/
consumer
   
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
CECL day 1 provision   1,586   105   —     16   —      —     1,707 
Purchased credit deteriorated loans   498   103   —     —     —      —     601 
Provision
1
   1,693   (3  (343  (17  10    —     1,340 
Charge-offs   (1,718  —     (148  (2  —      —     (1,868
Recoveries   26   4   —     —     —      —     30 
                               
Total  $12,123  $407  $4,529  $661  $250   $—    $17,970 
                               
1
The provision for credit losses on the Consolidated Statement of Income is $2.7 million comprising $1.7 million related to
non-PCD
loans acquired, a $1.3 million increase to the allowance for credit losses on loans and a $319 thousand reduction to the reserve for unfunded liabilities.
The
following table presents the allowance for credit losses on loans receivable at and for the six months ended June 30, 2022:
   
              
   
              
   
              
   
              
   
              
   
              
   
              
   
              
 
   
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   1,179   (434  (798  (8  2    —      59    —   
Charge-offs   (200  —     —     —     —      —      —      (200
Recoveries   246   —     —     —     —      —      —      246 
                                     
Total  $8,683  $279  $6,430  $259  $50   $—     $965   $16,666 
                                     
The following table presents the recorded investment of loans receivables and allowance for loan losses at December 31, 2022:

   
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
   
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    9,658    —      1,360,447 
                                    
Ending balance  $873,573   $28,859   $417,538   $43,125   $9,729   $—     $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 
                                    
At June 30, 2023,
non-performing
assets totaled $9.8 million, an increase of $9.5 million, when compared to the amount at December 31, 2022. This increase was due to the delinquency of a $4.5 million commercial real estate loan after recording a $1.7 million
charge-off,
as well as $2.9 million of construction loans and $2.5 million of
non-performing
loans acquired from Noah Bank. The $1.7 million
charge-off
of the $4.5 million commercial real estate loan’s balance was based on recent third party offers to purchase the note received by the Bank. The property securing this loan is located in New York City.

15
19
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 45 – Loans Receivable (concluded)
 
The following table presentsManagement took a conservative approach and reduced the recorded investmentloan balance although no formal commitment had been executed as of loans receivables and allowance for loan losses at December 31, 2022:this date.
   
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 
                                         
At March 31, 2023,
non-performing
assets totaled $6.5 million, an increaseWith the adoption 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.
The Company classifies certain loans asCECL, performing troubled debt restructuringrestructurings (“TDR”TDRs”) loans when credit terms to a borrower in financial difficulty are modified. Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction, or some combination of the concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications. Effective January 1, 2023, performing 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.
Note 56 – Deposits
The components of deposits were as follows:
 
  
June 30,
 
December 31,
 
  
March 31,
2023
 
December 31,
2022
   
2023
 
2022
 
                    
      (Dollars in thousands)           (Dollars in thousands)     
Demand,
non-interest-bearing
checking
  $218,709    16.93 $265,078    19.67  $258,014    16.40 $265,078    19.67
Demand, interest-bearing checking   244,889    18.95  269,737    20.01   224,328    14.26  269,737    20.01
Savings   173,502    13.43  190,686    14.15   152,695    9.71  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
Money market   321,840    20.46  283,652    21.05
Time deposits, $250,000 and over   142,674    9.07  83,410    6.19
Time deposits, other   302,748    23.43  255,167    18.93   473,347    30.10  255,167    18.93
                              
  $1,292,100    100.00 $1,347,730    100.00  $1,572,898    100.00 $1,347,730    100.00
                              
Note 67 – Borrowings
At March 31,June 30, 2023, the Company had no overnight borrowings outstanding. At December 31, 2022, the Company had $10.0 million of overnight borrowings outstanding in the amount of $44.5 million at a rate of 4.99% and $10.0 million at a rate of 4.61% at December 31, 2022..
16

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 78 – Fair Value Measurements and Disclosures
The Company follows the guidance on fair value measurements now codified as FASB ASC Topic 820,
Fair Value Measurement
(“Topic 820”)
.
Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective
period-end
and have not been
re-evaluated
or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each
period-end.
The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level
 1
: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level
 2
: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
20

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 8 – Fair Value Measurements and Disclosures (continued)
Level
 3
: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31,June 30, 2023 were as follows:
 
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
at fair value
  $—     $82,218   $2,294   $84,512 
                     
17

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 7 – Fair Value Measurements and Disclosures (continued)
   
(Level 1)
Quoted Price
in Active
Markets for
Identical
Assets
   
(Level 2)
Significant
Other
Observable
Inputs
   
(Level 3)
Significant

Unobservable
Inputs
   
Total Fair
Value
June 30,
2023
 
                 
Description
      (In thousands)     
Mortgage-backed securities
-U.S.
government sponsored enterprise (GSEs)
  $—     $35,539   $—     $35,539 
U.S. government agency securities   —      5,181    —      5,181 
Obligations of state and political subdivisions   —      40,538    —      40,538 
Small Business Association (SBA) securities   —      3,363    —      3,363 
Subordinated debentures   —      450    —      450 
SBIC securities   —      —      2,101    2,101 
                    
Securities
available-for-sale
at fair value
  $—     $85,071   $2,101   $87,172 
                    
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy, used at December 31, 2022 were as follows:
 
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
at fair value
  $—     $81,341   $2,061   $83,402 
                     
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023, were as follows:
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 
                     
The following table presents quantitative information using Level 3 fair value measurements at March 31, 2023.
Description
  
March 31,
2023
   
Valuation
Technique
   
Unobservable
Input
   
(Weighted
Average)
 
                 
       (Dollars in thousands)     
              Discount    6.0
Impaired loans  $30    Collateral   adjustment    (6.0%) 
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
   
(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
 
                 
Description
      (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
at fair value
  $—     $81,341   $2,061   $83,402 
                    
 
1821

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 78 – Fair Value Measurements and Disclosures (continued)
 
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2023, were as follows.
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
June 30,
2023
 
                 
       (In thousands)     
Other real estate owned  $—     $—     $33   $33 
Collateral dependent loan   —      —      4,485    4,485 
                     
   $—     $—     $4,518   $4,518 
                     
The following table presents quantitative information using Level 3 fair value measurements at June 30, 2023.
Description
  
June 30,
2023
   
Valuation
Technique
   
Unobservable
Input
   
Range
(Weighted
Average)
 
                 
       (Dollars in thousands)     
              Discount    0.0
Other real estate owned
1
  $33    Collateral   adjustment    (0.0%) 
              Discount    0.0
Collateral dependent loan  $4,485    Collateral   adjustment    (0.0%) 
1
Other real estate owned was written down to the estimated net realizable value.
2
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
3
Value based on third party offer to purchase note from the Bank.
For
assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2022, were as follows:

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 
                     
22

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 8 – Fair Value Measurements and Disclosures (continued)
The following table presents quantitative information using Level 3 fair value measurements at December 31, 2022.
 
      
Fair Value
           
Range
 
      
December 31,
   
Valuation
   
Unobservable
   
(Weighted
 
Description
  
Fair Value
December 31,
2022
   
Valuation
Technique
   
Unobservable
Input
   
Range
(Weighted
Average)
 
Description
   
2022
   
Technique
   
Input
   
Average)
 
                                    
      (Dollars in thousands)               (Dollars in thousands)     
         Discount    6.0            Discount    6.0
Impaired loans  $30    Collateral   adjustment    (6.0%)      $30    Collateral   adjustment    (6.0%) 
1
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
There
were no transfers between fair value hierarchy levels during the threesix months ended March 31,June 30, 2023 and 2022. The Company’s policy is to recognize transfers between levels as of the end of the reporting period.
The following methods and assumptions were used by the Company in estimating fair value disclosures:
Investment Securities
The fair value of securities
available-for-sale
(carried at fair value) and
held-to-maturity
(carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry.industry and not adjusted by management. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Level 3 securities are securities with no observable market prices. The SBIC fund’s underlying collateral is valued using prices obtained from pricing vendors or brokers, typically using at least two pricing vendors for the subject or similar securities. When vendor pricing is not available, a fair value is composed of quotes for the subject or quotes for similar securities from broker dealers.
Impaired loans (generally carried at fair value)
Impaired loans carried at fair value are those impaired loans in which the Company has measured impairment generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
 
19
23

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 78 – Fair Value Measurements and Disclosures (continued)
 
The carrying amounts and estimated fair value of financial instruments at March 31,June 30, 2023 are as followsfollows.
 
  
March 31, 2023
   
June 30, 2023
 
  
Carrying
Amount
   
Estimated
Fair Value
   
Level 1
   
Level 2
   
Level 3
   
Carrying
   
Estimated
             
                      
Amount
   
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
          (In thousands)                   (In thousands)         
Financial Assets:
                              
Cash and cash equivalents  $18,024   $18,024   $18,024   $—     $—     $143,001   $143,001   $143,001   $—     $—   
Securities AFS   84,512    84,512    —      82,218    2,294 
Securities HTM   199    199    —      199    —   
Securities
available-for-sale
at fair value
   87,172    87,172    —      85,071    2,101 
Securities
held-to-maturity
   197    196    —      196    —   
Loans receivable, net   1,372,068    1,373,440    —      —      1,373,440    1,481,721    1,483,203    —      —      1,483,203 
Restricted bank stock   3,295    3,295    —      3,295    —   
Restricted investments in bank stock   1,385    1,385    —      1,385    —   
Accrued interest receivable   4,865    4,865    —      4,865    —      5,575    5,575    —      5,575    —   
Financial Liabilities
               
Financial Liabilities:
               
Deposits   1,292,100    1,204,237    —      1,204,237    —     $1,572,898   $1,469,087   $—     $1,469,087   $—   
Borrowings   44,500    44,500    —      44,500    —   
Accrued interest payable   2,160    2,160    —      2,160    —      6,174    6,174    —      6,174    —   
The carrying amounts and estimated fair value of financial instruments at December 31, 2022 are as follows:
 
  
December 31, 2022
   
December 31, 2022
 
  
Carrying
Amount
   
Estimated
Fair Value
   
Level 1
   
Level 2
   
Level 3
   
Carrying
   
Estimated
             
                      
Amount
   
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
          (In thousands)                   (In thousands)         
Financial Assets:
               
Financial assets:
               
Cash and cash equivalents  $53,351   $53,351   $53,351   $—     $—     $53,351   $53,351   $53,351   $—     $—   
Securities AFS   83,402    83,402    —      81,341    2,061    83,402    83,402    —      81,341    2,061 
Securities HTM   201    200    —      200    —      201    200    —      200    —   
Loans receivable, net   1,353,907    1,347,137    —      —      1,347,137    1,353,907    1,347,137    —      —      1,347,137 
Restricted bank stock   1,742    1,742    —      1,742    —      1,742    1,742    —      1,742    —   
Accrued interest receivable   4,756    4,756    —      4,756    —      4,756    4,756    —      4,756    —   
Financial Liabilities
                              
Deposits   1,347,730    1,225,087       1,225,087    —      1,347,730    1,225,087       1,225,087    —   
Borrowings   10,000    10,000       10,000       10,000    10,000       10,000    
Accrued interest payable   1,027    1,027    —      1,027    —      1,027    1,027    —      1,027    —   
The fair value of cash and cash equivalents, restricted bank stock, accrued interest receivable, and accrued interest payable are measured at the Company’s carrying amount.
The fair value of loans and deposits are measured on a discounted basis using similar rates and terms.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
 
20
24

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 78 – Fair Value Measurements
and
Disclosures (concluded)
Limitations
The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all the financial instruments were offered for sale. This is due to the fact that no market exists for a sizable portion of the loan, deposit and
off-balance
sheet instruments.
In addition, the fair value estimates are based on existing on and
off-balance
sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be practical due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
Note 89 – Leases
Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use asset (“ROU”) and a lease liability for all leases with terms longer than 12 months. The Company is obligated under 2026 operating lease agreements for 1925 branches and its corporate offices with terms extending through 2039. The Company’s lease agreements include options to renew at the Company’s discretion. The extensions are reasonably certain to be exercised, therefore they were considered in the calculations of the ROU asset and lease liability.
The following table represents the classification of the Company’s right of use and lease liability:liability.
 
  
Statement of Financial

Condition Location
   
March 31, 2023
   
December 31, 2022
   
Statement of Financial

Condition Location
   
June 30, 2023
   
December 31, 2022
 
                        
      (In thousands)       (In thousands) 
Operating Lease Right of Use Asset:
                  
Gross carrying amount     $16,026   $17,919      $16,026   $17,919 
Increased asset from new leases      8,067    —   
Accumulated amortization      (319   (1,893      (1,043   (1,893
                      
Net book value   
Operating lease right-of-use asset
   $15,707   $16,026    
Operating lease right-of-use asset
   $ 23,050   $ 16,026 
                      
Operating Lease Liability:
                  
                      
Lease liability   Operating lease liability   $16,466   $16,772    Operating lease liability   $23,805   $16,772 
                      
As of March 31,June 30, 2023, the weighted-average remaining lease
terms
for operating leases was 11.112.6 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.54%3.35%. The Company used FHLB fixed rate advances or at the time the lease was placed in service for the term most closely aligning with remaining lease term.
 
21
25

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 89 – Leases (continued)
 
   
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 
           
Future minimum payments under operating leases with terms longer than 12 months are as follows at March 31,June 30, 2023 (in thousands):
 
Twelve months ended March 31,   
Twelve months ended June 30,  
2024  $2,227   $3,401 
2025   2,074    3,115 
2026   2,000    3,009 
2027   1,795    2,794 
2028   1,499    2,531 
Thereafter   10,014    17,546 
        
Total future operating lease payment   19,609    32,396 
Amounts representing interest   (3,143   (8,591
        
Present value of net future lease payments  $16,466   $ 23,805 
        
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2023
   
2022
   
2023
   
2022
 
                 
   (In thousands)   (In thousands) 
Lease cost:
        
Operating lease  $ 930   $ 705   $ 1,595   $ 1,405 
Short-term lease cost   63    10    65    34 
                    
Total lease cost  $993   $715   $1,660   $1,439 
                    
Other information:
        
                    
Cash paid for amounts included in the measurement of lease liabilities  $696   $577   $1,281   $1,244 
                    
Note 910 – Goodwill and Core Deposit Intangible
On May 17, 2019, the Bank acquired five branches which were accounted for under FASB ASC 805,
Business Combinations
.
In accordance with ASC 805, the Bank recorded $8.9 million of goodwill along with $4.2 million of core deposit intangible assets. The intangible assets are related to core deposits and are being amortized over 10 years, using the sum of the year’s digits. For tax purposes, goodwill totaling $8.9 million is tax deductible and will be amortized over 15 years straight line. Except as set forth below, GAAP requires that goodwill be tested for impairment annually (with the annual evaluation occurring on May 31 of each year) or more frequently if impairment indicators arise. The reporting unit was determined to be our community banking operations, which is our only operating segment.
ASC Topic
350-20
requires an at least annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not likely that (less than 50% probability) the fair value of the Reporting Unit is less than Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired. After performing the qualitative factor test, the result was the Company determined that it was not more likely than not that the fair value of the Reporting Unit is less than the Carrying Value; therefore a quantitative test would be performed at May 31, 2023, primarily due to the Company’s common stock trading at 68.0% of book value and a reduction in return on assets for the first five months of 2023 compared to the same period of 2022. Based on the results of the quantitative impairment test the Company’s goodwill was not requiredimpaired as of May 31, 2022.2023.
 
22
26

PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 910 – Goodwill and Core Deposit Intangible (continued)
 
The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows:
 
      
Core Deposit
 
  
Goodwill
   
Core Deposit
Intangible
   
Goodwill
   
Intangible
 
                
  (In thousands)   (In thousands) 
Balance at December 31, 2022  $8,853   $1,825   $8,853   $1,825 
Acquisition of Noah Bank   —      99 
Amortization expense   —      (135   —      (262
                
Balance at March 31, 2023  $8,853   $1,690   $8,853   $1,662 
                
As of March 31,June 30, 2023, the remaining current fiscal year and future fiscal periods amortization for the core deposit intangible is (in thousands):
 
2023  $357   $243 
2024   415    432 
2025   338    353 
2026   261    274 
2027   183    195 
Thereafter   136    165 
        
Total  $1,690   $1,662 
        
Note 1011 – Subsequent Event
On April 19,July 20, 2023, the Board of Directors declared a cash dividend of $0.30 per share of common stock to shareholders of record on MayAugust 9, 2023, payable on May 26,August 31, 2023.
Note 1112 – Risk and Uncertainties
The occurrence of events which adversely affect the global, national and regional economies may have a negative impact on our business. Like other financial institutions, our business relies upon the ability and willingness of our customers to transact business with us, including banking, borrowing and other financial transactions. A strong and stable economy at each of the local, federal and global levels is often a critical component of consumer confidence and typically correlates positively with our customers’ ability and willingness to transact certain types of business with us. Local and global events outside of our control which disrupt the New Jersey, Pennsylvania, New York, United States and/or global economy may therefore negatively impact our business and financial condition.
Government economic programs intended to backstop and bolster the economy through the pandemic, such as the PPP have ended, and the nation’s economy has entered an inflationary phase. The Consumer Price Index has risen at levels not experienced since the 1980s while the labor market remains very tight, contributing additional inflationary pressure. To address the inflation problem, the Federal Reserve has reversed course on its previously accommodative monetary policies and aggressively increased short-term interest rates. These actions are intended to slow overall economic activity and risk entering the economy into a recession. The conflict between Russia and Ukraine has exacerbated pandemic-related supply chain issues, upset numerous global markets including energy and certain raw materials, and generally added to economic uncertainty and geopolitical instability. Any or all could have negative downstream effects on the Company’s operating results, the extent of which is indeterminable at this time.
 
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations

You 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, 20222022.

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 factorfactors 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, suppysupply 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 under the heading “Risk Factors” set forth in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2022, underand in Part II, Item 1A of our quarterly report on Form 10-Q for the heading “Risk Factors,”quarter-ended March 31, 2023, 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 becamePrinceton Bancorp, Inc. is the holding company for The Bank of the Bank on January 10, 2023.Princeton, a community bank founded in 2007. The Bank is a New Jersey state-chartered commercial 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 20with 22 branches in New Jersey, including three in Princeton and others in Bordentown, Browns Mills, Chesterfield, Cream Ridge, Deptford, Fort Lee, Hamilton, Kingston, Lakewood, Lambertville, Lawrenceville, Lakewood, Monroe, New Brunswick, Palisades Park, Pennington, Piscataway, Princeton Junction, Quakerbridge and Sicklerville. There are also fourfive branches in the Philadelphia, Pennsylvania area and three in the New York City metropolitan area. The Bank of Princeton is a member of the FDIC. The Bank also conducts loan origination activities in select areas of New York.Federal Deposit Insurance Corporation (“FDIC”).

 

2428


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 and the changes related to the acquisition of Noah Bank as noted in Note 2 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 ofRussia’s war with Ukraine. However, the unemployment rate in New Jersey is below the national average.

Comparison of Financial Condition at March 31,June 30, 2023 and December 31, 2022

General

Total assets were $1.59$1.84 billion at March 31,June 30, 2023, a decreasean increase of $16.5$241.2 million, or 1.0%15.1% when compared to $1.60 billion at the end of 2022. The primary reason for the decreaseincrease in total assets was a decreasethe acquisition of Noah Bank on May 19, 2023, which had approximately $239.4 million in assets at closing. When looking at specific components of the balance sheet, including acquired assets, the Company recorded an increase in net loans of $129.3 million, an increase in cash and cash equivalents of approximately $35.3$89.7 million, partially offset byan increase in its right of use asset of $7.3 million, an increase of $18.2$4.9 million due to Noah Bank’s deferred tax assets and an increase in net loans.other assets of $2.5 million. The increase in the Company’s net loans consisted of a $25.2$149.4 million increase in constructioncommercial real estate loans and a $2.1$17.2 million increase in commercial and industrial loans, partially offset by a decrease of $9.1$33.9 million in commercial real estate loansconstruction loans.

Cash and cash equivalents

Cash and cash equivalents decreased $35.3increased $89.7 million, or 66.2%168.0%, to $18.0$143.0 million at March 31,June 30, 2023 compared to December 31, 2022. This decreaseincrease was primarily due to the funding of neta reduction in total loans of $18.2$58.5 million, not including the loans acquired in connection with the Noah transaction, and a reductionan increase in outstanding deposits of approximately $55.6 million.$33.5, not including the deposits assumed from the Noah acquisition. The reduction in loans was related to loan payoffs during the period.

Investment securities

Total available-for-sale investment securities increased slightly to $84.5$87.2 million at March 31,June 30, 2023 compared to $83.4 million at December 31, 2022. This increase was aprimarily the result of approximately $1.7$6.5 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.portfolio due to the Noah acquisition.

25


Loans

Loans, net of deferred loan fees, increased $18.2$129.3 million to $1.39$1.50 billion at March 31,June 30, 2023 compared to $1.37 billion at December 31, 2022, or 1.3%9.4%. This increase was primarily due to a $25.2the $186.0 million increaseof loans acquired from Noah Bank, partially offset by payoffs and principal repayments. Including the loans acquired, the following changes occurred within individual loan segments: increases in constructioncommercial real estate loans and a $2.1of $149.4 million increase inand commercial and industrial loans of $17.2 million, partially offset by a $9.1$33.9 million reductiondecrease in commercial real estateconstruction loans.

The Company recorded a provision for credit losses of $265 thousand during the three months ended March 31, 2023.

29


Net recoveriescharge-offs for the three-month periodand six-month periods ended March 31,June 30, 2023 were $3$1.8 million for both periods. For the three-month and six-month periods ended June 30, 2022, the Bank recorded net recoveries of $12 thousand and $34$46 thousand, forrespectively. With the three-month period ended March 31, 2022. Upon adoption of CECL, the Current Expected Credit Losses (“CECL”) method of calculating the allowance for credit losses on January 1, 2023, the CompanyBank 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 firstsecond 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 toBank reduced the reserve for credit losses on unfunded liabilities.liabilities by $240 thousand. The coverage ratio of the allowance for credit losses to period end loans was 1.19%1.20% at March 31,both June 30, 2023 compared to 1.20%and at December 31, 2022.

At March 31,June 30, 2023, non-performing assets totaled $6.5$9.8 million, an increase of $6.2$9.5 million, when compared to the amount at December 31, 2022. This increase was due to the delinquency of a $6.2$4.5 million commercial real estate loan.loan after recording a $1.7 million charge-off, as well as $2.9 million of construction loans and $2.5 million of other non-performing loans acquired from Noah Bank. The loan is sufficiently secured$1.7 million charge-off of the $4.5 million commercial real estate loan’s balance was based on recent third party offers to purchase the note received by a mixed-usethe Bank. The property comprising two buildings each with retail units and residential apartments. The propertysecuring this loan is located in New York City. Management took a conservative approach and reduced the loan balance although no formal commitment had been executed as of this date.

UponWith 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$5.1 million at March 31,June 30, 2023 compared to December 31, 2022. The increase was primarily due to a $550 thousand transfer to federal income taxes payable, a $111 thousand increasepurchase accounting entries and net operating loss carryforwards 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.Noah acquisition.

Deposits

Total deposits at March 31,June 30, 2023 decreased $55.6increased $225.2 million, or 4.1%16.7%, when compared to December 31, 2022. The increase was primarily due to $191.7 million of deposits assumed from Noah Bank. When comparing deposit products, including deposits assumed, between the two periods, certificates of deposit increased $277.4 million and money market deposits increased $38.2 million. Partially offsetting these increases were decreases in interest-bearing demand deposits of $45.4 million and savings deposits of $38.0 million.

At June 30, 2023, the Company had approximately $393.9 million in uninsured deposits, consisting of $59.0 million in non-interest-bearing demand deposits, decreased $46.4$3.7 million in interest-bearing demand deposits, decreased $24.8,$244.2 million in money market deposits decreased $19.8accounts, $19.5 million andin savings deposits decreased $17.2 million. Certificatesand $67.5 million in certificates of deposit increased $52.5 million, partially offsetting these decreases.deposits.

Borrowings

The Company had $44.5 million inno outstanding borrowings at March 31,June 30, 2023 an increase fromcompared to $10.0 million at December 31, 2022.

Stockholders’ equity

Total stockholders’ equity at March 31,June 30, 2023 increased $5.7$9.3 million or 2.6%,4.2% when compared to the end of 2022. ThisThe increase was primarily due to the $3.9$8.8 million increase in retained earnings, consisting of $6.1$12.9 million ofin net income less $1.9partially offset by $3.8 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.period. The ratio of equity to total assets at March 31,June 30, 2023 and at December 31, 2022, was 14.2%12.4% and 13.7%, respectively. The current period ratio decrease was primarily due to the Noah Bank acquisition.

 

2630


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$60.0 million line of credit with the FHLB supporting municipal deposits, the Company had the ability to borrow $122.6$181.4 million as of March 31,June 30, 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,June 30, 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,June 30, 2023.

We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.

Capital resourcesResources

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,June 30, 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,June 30, 2023, that the Bank meets all capital adequacy requirements to which it is subject and is “well capitalized” under applicable regulations.

 

2731


The Bank’s actual capital amounts and ratios and the regulatory requirements at March 31,June 30, 2023 and December 31, 2022 are presented below:

 

  Actual For capital conservation
buffer requirement
 To be well capitalized
under prompt corrective
action provision
               To be well capitalized 
      Amount       Ratio Amount   Ratio Amount   Ratio         For capital conservation under prompt corrective 
  

(Dollars in the thousands)

   Actual buffer requirement action provision 

March 31, 2023:

          
  Amount   Ratio Amount   Ratio Amount   Ratio 
                    
        (Dollars in thousands)       

June 30, 2023:

          

Total capital (to risk-weighted assets)

  $238,269    15.563 $160,751    10.500 $153,096    10.000  $244,868    14.604 $176,060    10.500 $167,676    10.000

Tier 1 capital (to risk-weighted assets)

  $221,762    14.485 $130,132    8.500 $122,477    8.000  $226,898    13.532 $142,524    8.500 $134,141    8.000

Common equity tier 1 capital (to-risk weighted assets)

  $221,762    14.485 $107,167    7.000 $99,512    6.500

Common equity tier 1 capital (to-risk weighted assets

  $226,898    13.532 $117,373    7.000 $108,989    6.500

Tier 1 leverage capital (to average assets)

  $221,762    14.084 $102,351    6.500 $78,731    5.000  $226,898    13.426 $109,848    6.500 $84,499    5.000

December 31, 2022:

                    

Total capital (to risk-weighted assets)

  $233,657    15.309 $160,256    10.500 $152,625    10.000  $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  $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

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  $217,196    13.474 $104,775    6.500 $80,596    5.000

Comparison of Operating Results for the Three Months Ended March 31,June 30, 2023 and 2022

General

The Company reported net income of $6.1$6.8 million, or $0.95$1.07 per diluted common share, for the firstsecond quarter of 2023, compared to net income of $6.0$6.3 million, or $0.91$0.98 per diluted common share, for the firstsecond quarter of 2022. AlthoughThe increase in net income for the firstsecond quarter of 2023 was only slightly higher thancompared to the net income for same period in 2022 net interest income was $807 thousand above the first quarterprimarily due to an increase of 2022 and$10.5 million in non-interest income was also higherand a $1.5 million decrease in income tax expense, partially offset by $328 thousand. Increases of $504 thousandan $8.4 million increase in non-interest expense, and $265 thousanda $2.5 million increase in the provision for credit losses almost entirely offset the increasesand a $626 thousand decrease in income from the first quarter of 2022 to the same period in 2023.net interest income.

Interest income

Interest income increased $3.5$5.6 million for the three months ended March 31,June 30, 2023 compared to the same period in 2022. Interest income on loans increased $3.4$4.7 million due to increases in both the average balance of loans of $29.1$40.7 million and the yield of 89118 basis points. Other interest and dividend income increased $96$761 thousand due to an increase in the yield of 445432 basis points, partially offset by a decrease in the average balance of $110.7$3.0 million, and interest on taxable available-for-sale securities increased $55$58 thousand due to an increasesincrease in yield of 9370 basis points, partially offset by a decrease in the average balance of $10.0$3.9 million.

Interest expense

Interest expense on deposits increased $2.6$6.2 million to $3.9$7.3 million for the three-month period ended March 31,June 30, 2023, due to an increaseincreases in both the rate paid on interest-bearing deposits of 102203 basis points partially offset by a reduction of $76.8 millionand in the average balance of interest-bearing deposits of $52.9 million over the same prior year period.

Interest expense on borrowings was $86$32 thousand during the three-month period ended March 31,June 30, 2023 and there was no interest expense on borrowings during the same period in 2022.

 

2832


Provision for loancredit losses

The Company recorded a provision for credit losses of $265 thousand$2.5 million during the three months ended March 31,June 30, 2023 and no provision for the three months ended March 31,June 30, 2022. The provision of $2.5 million recorded in the current quarter consisted of $2.7 million associated with the Company’s loan portfolio offset by a credit to the provision of $240 thousand associated with unfunded commitments. Included in the Company’s provision was $1.7 million related to non-purchased credit deteriorated loans resulting from the Noah Bank acquisition. Net recoveries forcharge-offs during the three-month periodsperiod ended March 31,June 30, 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 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.$1.8 million.

Non-interest income

Total non-interest income of $1.4$11.6 million for the firstsecond quarter of 2023 increased $328 thousand,$10.5 million, or by 31.4%940.0%, when compared to the quarter ended March 31,June 30, 2022. The increase over the firstsecond quarter of 2022 was primarily due to a $256 thousand increase in loan fees and a $91 thousand increase in other non-interest income.the $9.7 million gain on bargain purchase from the Noah Bank acquisition.

Non-interest expense

Total non-interest expense for the firstsecond quarter of 2023 increased $504 thousand,$8.4 million, or 5.4%88.9%, when compared to the same period in 2022. This increase was primarily due to a $498 thousand increase$7.0 million of acquisition-related expenses associated with the Noah transaction as well as increases in salaries and employee benefits expenses and a $265of $868 thousand, increase in data processing and communications expenses, partially offset by decreases in occupancy and equipment expenses of $137 thousand, professional fees of $96$276 thousand and federal deposit insurance expensedata processing and communications of $74$262 thousand.

Provision for income taxes

For the three-month period ended March 31,June 30, 2023, the Company recorded an income tax expense of $1.9 million,$161 thousand, resulting in an effective tax rate of 23.8%2.3%, compared to an income tax expense of $1.6 million resulting in an effective tax rate of 21.1%20.6% for the three-month period ended March 31,June 30, 2022. The effective tax rate for the current period 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 increasedsubstantially reduced as a result of this legislation.the non-taxable bargain purchase gain related to the Noah acquisition.

 

2933


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 June 30, 
  

Three Months Ended March 31,

           2023         2022     
  2023 2022 Change 2023 vs 2022   Average       Average Average       Average 
  Average
Balances
   Income/
Expense
   Yield
Rates
 Average
Balances
   Income/
Expense
   Yield
Rates
 Average
Balances
 Yield
Rates
   Balance   Interest   Yield/Rate Balance   Interest   Yield/Rate 
                                                
  

(Dollars in thousands)

           (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  $1,432,680   $21,517    6.02 $1,391,937   $16,768    4.85

Securities

                        

Taxable available-for-sale

   42,235    278    2.66  52,221    223    1.73  (9,986  0.93   44,669    292    2.63  48,590    234    1.93

Tax exempt available-for-sale

   41,634    284    2.77  48,605    303    2.53  (6,971  0.24

Tax-exempt available-for-sale

   41,187    284    2.76  43,742    293    2.68

Held-to-maturity

   200    3    5.36  207    3    5.35  (7  0.01   198    2    5.28  205    3    5.29

Federal funds sold

   8,454    95    4.56  119,581    43    0.15  (111,127  4.41   65,383    842    5.16  72,786    135    0.74

Other interest earning-assets

   5,001    58    4.77  4,546    14    1.25  455   3.52

Other interest-earning assets

   5,691    77    5.31  1,307    23    7.06
  

 

   

 

    

 

   

 

    

 

    

 

   

 

    

 

   

 

   

Total interest-earning assets

   1,473,373   $20,612    5.67  1,571,893   $17,078    4.41  (98,520  1.26   1,589,808   $23,014    5.81  1,558,567   $17,456    4.49
    

 

      

 

     

Other non-earnings assets

   109,354       108,280       1,074     110,384       107,194     
  

 

      

 

      

 

    

 

      

 

     

Total assets

  $1,582,727      $1,680,173      $(97,446)    $1,700,192      $1,665,761     
  

 

      

 

      

 

    

 

      

 

     

Interest-bearing liabilities

                        

Demand

  $264,507   $551    0.84 $257,978   $160    0.25 $6,529   0.59  $242,667   $835    1.38 $273,114   $174    0.26

Savings

   182,763    417    0.92  232,136    136    0.24  (49,373  0.68   158,937    683    1.73  230,493    138    0.24

Money markets

   268,814    1,158    1.75  376,517    247    0.27  (107,703  1.48

Money market

   285,021    2,113    2.97  368,704    264    0.29

Certificates of deposit

   364,470    1,739    1.94  290,686    681    0.95  73,784   0.99   516,252    3,690    2.87  277,621    593    0.86
  

 

   

 

    

 

   

 

    

 

    

 

   

 

    

 

   

 

   

Total deposit

   1,080,554    3,865    1.45  1,157,317    1,224    0.43  (76,763  1.02

Total deposits

   1,202,877    7,321    2.44  1,149,932    1,169    0.41

Borrowings

   6,993    86    4.99  —      —      0.00  6,993   4.99   2,482    32    5.08  —      —      0.00
  

 

   

 

    

 

   

 

    

 

    

 

   

 

    

 

   

 

   

Total interest-bearing liabilities

   1,087,547   $3,951    1.47  1,157,317   $1,224    0.43  (69,770  1.04   1,205,359   $7,353    2.45  1,149,932   $1,169    0.41

Non-interest-bearing deposits

   235,423       278,963     
  

 

   

 

      

 

       

 

      

 

     

Non-interest-bearing deposits

   242,814       285,298       (42,484 

Total cost of funds

   1,440,782      2.04  1,428,895      0.33

Other liabilities

   28,587       20,505       8,082     32,232       23,534     
  

 

      

 

      

 

    

 

      

 

     

Total liabilities

   1,358,948       1,463,120       (104,172    1,473,014       1,452,429     

Stockholders’ equity

   223,779       217,053       6,726     227,178       213,332     
  

 

      

 

      

 

    

 

      

 

     

Total liabilities and stockholder’s equity

  $1,582,727      $1,680,173      $(97,446)    $1,700,192      $1,665,761     
  

 

      

 

      

 

    

 

      

 

     

Net interest-earnings assets

  $385,826      $414,576      $(28,750)    $384,449      $408,635     

Net interest income; interest rate spread

       4.20      3.98   0.22   $15,661    3.36   $16,287    4.08
    

 

      

 

    

 

  

Net interest margin

    $16,661    4.59   $15,854    4.09 $807   0.50       3.95      4.19
    

 

      

 

    

 

  

Net interest margin FTE1

       4.66      4.14   0.52       3.99      4.24

1

Includes federal and state tax effect of tax exempt securities and loans.

 

3034


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 June 30, 
      2023 vs. 2022     
  Three Months Ended March 31,
2023 vs . 2022
Increase (Decrease) Due to
   Increase (Decrease) Due to 
  Rate   Volume   Net   Rate   Volume   Net 
                        
  

(In thousands)

       (In thousands)     

Interest and dividend income:

            

Loans receivable, including fees

  $1,140   $2,262   $3,402   $1,610   $3,139   $4,749 

Securities avalable-for-sale

      

Securities available-for-sale

      

Taxable

   212    (157   55    147    (89   58 

Tax-exempt

   54    (73   (19   17    (26   (9

Securities held-to-maturity

   —      —      —      —      (1   (1

Federal funds sold

   908    (856   52    900    (193   707 

Other interest-earning assets

   28    16    44 

Other interest and dividend income

   (12   66    54 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest-earning assets

  $2,342   $1,192   $3,534 

Total interest and dividend income

  $2,662   $2,896   $5,558 
  

 

   

 

   

 

   

 

   

 

   

 

 

Interest expense:

      

Interest expense

      

Demand

  $332   $59   $391   $915   $(254  $661 

Savings

   555    (274   281    1,227    (682   545 

Money market

   1,753    (842   911 

Money markets

   2,822    (973   1,849 

Certificates of deposit

   211    847    1,058    (5,134   8,231    3,097 

Borrowings

   —      86    86    —      32    32 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest expense

  $2,852   $(125  $2,727   $(170  $6,354   $6,184 
  

 

   

 

   

 

   

 

   

 

   

 

 

Change in net interest income

  $(510  $1,317   $807   $2,832   $(3,458  $(626
  

 

   

 

   

 

   

 

   

 

   

 

 

Comparison of Operating Results for the Six Months Ended June 30, 2023 and 2022

General

For the six-month period ended June 30, 2023, the Company recorded net income of $12.9 million, or $2.02 per diluted common share, compared to $12.3 million, or $1.89 per diluted common share for the same period in 2022. Net income increased $537 thousand due to an increase in non-interest income of $10.8 million, a reduction in income tax expense of $1.2 million and an increase in net interest income of $181 thousand, partially offset by increases in non-interest expense of $8.9 million and provision for credit losses of $2.7 million.

Interest income

Interest income increased $9.1 million for the six months ended June 30, 2023 compared to the same period in 2022. Interest income on loans increased $8.2 million due to increases in both the average balance and yield earned on loans of $35.0 and 105 basis points, respectively. Interest on other interest and dividend income increased $857 thousand due to an increase in yield of 465 basis points, partially offset by a reduction in the average balance of $56.5 million. Interest on taxable available-for-sale securities increased $113 thousand due to an 80 basis point increase in yield and partially offset by a $6.9 million decrease in the average balance of taxable available-for-sale securities.

 

3135


Interest expense

Interest expense on deposits increased $8.8 million to $11.2 million for the six-month period ended June 30, 2023, due primarily to a 156 basis point increase in the rate on interest-bearing deposits, partially offset by a decrease in the average balance of interest-bearing deposits of $11.5 million over the same prior-year period.

Interest expense on borrowings was not significant during the six-month periods ended June 30, 2023 and 2022.

Provision for credit losses

The Company recorded a $2.7 million provision for credit losses for the six-month period ended June 30, 2023 and recorded no provision for credit losses for the six-month period ended June 30, 2022. The $2.7 million provision for the six months ended June 30, 2023 includes $1.7 million related to non-purchased credit deteriorated loans acquired in the Noah Bank acquisition and was also a result of loan charge-offs of $1.8 million recorded during the period. 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 credit losses methodology, including additional information regarding the determination of the provision for credit losses.

Non-interest income

For the six-month period ended June 30, 2023, non-interest income increased $10.8 million or 499.6%, from the same six-month period in 2022, primarily due to the $9.7 million bargain purchase gain from the Noah acquisition and an increase of $983 thousand in loan fees.

Non-interest expense

For the six-month period ended June 30, 2023, non-interest expense was $27.6 million, compared to $18.7 million for the same period in 2022. This increase was primarily due to acquisition-related expenses of $7.0 million and increases in salaries and employee benefits of $1.4 million and data processing and communications of $527 thousand associated with the Bank’s expansion strategy.

Provision for income taxes

For the six-month period ended June 30, 2023, the Bank recorded an income tax expense of $2.1 million, resulting in an effective tax rate of 13.8%, compared to an income tax expense of $3.3 million resulting in an effective tax rate of 20.9% for the six-month period ended June 30, 2022. The effective tax rate was substantially reduced as a result of the non-taxable bargain purchase gain related to the Noah acquisition.

36


Average Balances, Net Interest Income, and Yields Earned and Rates Paid

The following table shows for the six-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 have been annualized. Tax-exempt incomes and yields have not been adjusted to a tax-equivalent basis.

   Six Months Ended June 30, 
   2023  2022 
   Average
Balance
   Interest   Average
Yield/Rate
  Average
Balance
   Interest   Average
Yield/Rate
 
                        
   (Dollars in thousands) 

Interest-earning assets:

           

Loans receivable

  $1,404,421   $41,411    5.95 $1,369,460   $33,260    4.90

Securities

           

Taxable available-for-sale

   43,459    570    2.63  50,396    457    1.83

Tax exempt available-for-sale

   41,409    568    2.75  46,160    596    2.60

Held-to-maturity

   199    5    5.28  206    6    5.32

Federal funds sold

   37,076    937    5.09  97,642    178    0.37

Other interest earning-assets

   5,348    135    5.06  1,330    37    5.61
  

 

 

   

 

 

    

 

 

   

 

 

   

Total interest-earning assets

   1,531,912    43,626    5.74  1,565,194    34,534    4.45

Other non-earnings assets

   126,444       94,643     
  

 

 

      

 

 

     

Total assets

  $1,658,356      $1,659,837     
  

 

 

      

 

 

     

Interest-bearing liabilities

           

Demand

  $253,527   $1,386    1.10 $265,588   $334    0.25

Savings

   170,785    1,100    1.30  231,310    274    0.24

Money markets

   276,962    3,271    2.38  372,575    511    0.28

Certificates of deposit

   440,780    5,429    2.48  284,118    1,274    0.92
  

 

 

   

 

 

    

 

 

   

 

 

   

Total deposit

   1,142,054    11,186    1.98  1,153,591    2,393    0.42

Borrowings

   4,725    118    5.01  —      —      0.00
  

 

 

   

 

 

    

 

 

   

 

 

   

Total interest-bearing liabilities

   1,146,779    11,304    1.99  1,153,591    2,393    0.42

Non-interest-bearing deposits

   239,098       278,269     
  

 

 

      

 

 

     

Total cost of funds

   1,385,877      1.63  1,431,860      0.34

Other liabilities

   46,991       15,565     
  

 

 

      

 

 

     

Total liabilities

   1,432,868       1,447,425     

Stockholders’ equity

   225,488       212,412     
  

 

 

      

 

 

     

Total liabilities and stockholder’s equity

  $1,658,356      $1,659,837     
  

 

 

      

 

 

     

Net interest-earnings assets

  $385,133      $411,603     

Net interest income; interest rate spread

       3.76      4.03

Net interest margin

    $32,322    4.25   $32,141    4.14

Net interest margin FTE 1

       4.35      4.20

1 Includes federal and state tax effect of tax exempt securities and loans.

37


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.

   Six Months Ended June 30,
2023 vs. 2022
Increase (Decrease) Due to
 
   Rate   Volume   Net 
             
   (In thousands) 

Interest and dividend income:

      

Loans receivable, including fees

  $5,484   $2,667   $8,151 

Securities available-for-sale

      

Taxable

   275    (162   113 

Tax-exempt

   58    (86   (28

Securities held-to-maturity

   —      (1   (1

Federal funds sold

   1,385    (626   759 

Other interest and dividend income

   (7   105    98 
  

 

 

   

 

 

   

 

 

 

Total interest and dividend income

  $7,195   $1,897   $9,092 
  

 

 

   

 

 

   

 

 

 

Interest expense:

      

Demand

  $1,172   $(120  $1,052 

Savings

   1,402    (576   826 

Money market

   3,822    (1,062   2,760 

Certificates of deposit

   (1,563   5,718    4,155 

Borrowings

   —      118    118 
  

 

 

   

 

 

   

 

 

 

Total interest expense

  $4,833   $4,078   $8,911 
  

 

 

   

 

 

   

 

 

 

Change in net interest income

  $2,362   $(2,181  $181 
  

 

 

   

 

 

   

 

 

 

How We Manage Market Risk.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.

38


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,June 30, 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,June 30, 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.

 

3239


  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)

          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 

Interest-earning assets: (1)

                

Investment securities

  $11,452  $3,530  $6,575  $7,213  $65,708  $(9,767 $84,711   $10,377  $3,128  $7,616  $8,714  $67,879  $(10,345 $87,369 

Loans receivable

   537,176   171,446   323,895   278,050   79,908   (18,407  1,372,068    474,949   275,635   330,455   349,103   69,136   (17,557  1,481,721 

Other interest-earnings assets (2)

   11,236   —     —     —     —     10,083   21,319    128,286   —     —     —     —     16,100   144,386 

Other non-interest assets

   —     —     —     —     —     107,222   107,222    —     —     —     —     —     129,550   129,550 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total interest-earning assets

  $559,864  $174,976  $330,470  $285,263  $145,616  $(18,091 $1,585,320   $613,612  $278,763  $338,071  $357,817  $137,015  $(11,802 $1,843,026 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Interest-bearing liabilities:

                

Checking and savings accounts

  $10,808  $407,583  $—    $—    $—    $—    $418,391   $8,732  $368,291  $—    $—    $—    $—    $377,023 

Money market accounts

   14,317   249,557   —     —     —     —     263,874    17,477   304,363   —     —     —     —     321,840 

Certificate accounts

   43,030   160,463   168,426   19,207   —     —     391,126    45,681   438,346   130,248   1,746   —     —     616,021 

Borrowings

   40,500   —     —     —     —     —     40,500    —     —     —     —     —     —     —   
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total interest-bearing liabilities

  $108,655  $817,603  $168,426  $19,207  $—    $—    $1,113,891   $71,890  $ 1,111,000  $130,248  $1,746  $—    $—    $ 1,314,884 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Interest-earning assets less interest-bearing liabilities

  $451,209  $(642,627 $162,044  $266,056  $145,616  $(18,091 $471,429   $541,722  $(832,237 $207,823  $356,071  $137,015  $(11,802 $528,142 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Cumulative interest-rate sensitivity gap (3)

  $451,209  $(191,418 $(29,374 $236,682  $382,298     $541,722  $(290,515 $(82,692 $273,379  $410,394   
  

 

  

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

  

 

   

Cumulative interest-rate gap as a percentage of total assets at March 31, 2023

   28.46  -12.07  -1.85  14.93  24.11  

Cumulative interest-rate gap as a percentage of total assets at June 30, 2023

   29.39  -15.76  -4.49  14.83  22.27  
  

 

  

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

  

 

   

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  

Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at June 30, 2023

   853.54  75.44  93.70  120.79  131.21  
  

 

  

 

  

 

  

 

  

 

     

 

  

 

  

 

  

 

  

 

   

 

(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.

40


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,June 30, 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
  Net Portfolio Value NPV as % of Portfolio
Value of Assets
 
Amonts   $ Change % Change NPV Ratio Change  Amounts   $ Change % Change NPV Ratio Change 
                           
  

(Dollars in thousands)

 
(Dollars in thousands)(Dollars in thousands) 

300

  $308,493   $(4,140  -1.32  -6.08  -5.49 $311,394   $(10,285  -3.20  -6.53  -5.37

200

  $317,135   $4,502   1.44  -4.02  -3.43 $322,677   $998   0.31  -4.53  -3.38

100

  $316,901   $4,268   1.37  -2.28  -1.70 $325,872   $4,193   1.30  -2.75  -1.60

Static

  $312,633   $—      -0.59  $321,679   $—      -1.16 

(100)

  $312,423   $(210  -0.07  0.85  1.43 $321,387   $(292  -0.09  0.24  1.39

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 About Market Risk.Risk

A smaller reporting company, such as the 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.Procedures

Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule l3a-l5 (e) promulgated under the Exchange Act) as of March 31,June 30, 2023. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of March 31,June 30, 2023 to ensure that the information required to be disclosed by the 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.

41


Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting identified during the quarter ended March 31,June 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

34


PART II–OTHER INFORMATION

Item 1. Legal Proceedings.Proceedings

None.

Item 1A. Risk Factors.Factors

The following represents aThere have been no material change in ourchanges to the risk factors from those disclosed inset forth under the Part I, – “Item 1A.Item 1.A. Risk Factors”Factors as set forth in the 2022Company’s Annual Report on Form 10-K.10-K

Recent negative developments for the year ended December 31, 2022, as amended by the risk factors set forth under the Part II, Item 1.A. Risk Factor set forth in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operationsCompany’s Quarterly Report on Form 10-Q.

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 for 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.quarter ended March 31, 2023.

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 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 in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee 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 of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds

None.

35


Item 3. Defaults upon Senior Securities.Securities

None.

Item 4. Mine Safety Disclosures.Disclosures

Not applicable.

Item 5. Other Information.Information

None.During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”.

Item 6. Exhibits.

42


Item 6.

Exhibits

 

Exhibit

Number

  

Description

10.1  The Bank ofAmended and Restated Employment Agreement Between Princeton Non-Employee Directors Deferred Compensation Plan*Bancorp, Inc.and Edward Dietzler Dated June 2023
10.2Amended and Restated Employment Agreement Between Princeton Bancorp, Inc.and Daniel O’Donnell Dated June 2023
10.3Amended and Restated Employment Agreement Between Princeton Bancorp, Inc.and George Rapp Dated June 2023
10.4Amended and Restated Change in Control Agreement Between Princeton Bancorp, Inc.and Jeffrey Hanuscin Dated June 2023
31.1  Rule 13a-14(a) Certification on the Principal Executive Officer
31.2  Rule 13a-14(a) Certification on the Principal Financial Officer
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)

 

3643


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: May 11,August 14, 2023  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)

 

3744