Princeton Bancorp, Inc 10-Q for FY2023 Q3
Princeton Bancorp, Inc. (BPRN)
About this 10-Q
Princeton Bancorp, Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $7.6M
- up 8.9% from net income of $6.98M a year earlier
- Diluted EPS
- $1.19
- up 9.2% from $1.09 a year earlier
Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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 | ||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
TABLE OF CONTENTS
Table of Contents
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 Reorganization, 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.
Table of Contents
September 30, 2023 |
December 31, 2022 |
|||||||
ASSETS |
||||||||
Cash and due from banks |
$ | $ | ||||||
Interest-earning bank balances |
||||||||
Federal funds sold |
||||||||
Total cash and cash equivalents |
||||||||
Securities available-for-sale, |
||||||||
Securities held-to-maturity |
||||||||
Loans receivable, net of deferred fees and costs |
||||||||
Less: allowance for credit lossess |
( |
) | ( |
) | ||||
Loan receivable, net |
||||||||
Bank-owned life insurance |
||||||||
Premises and equipment, net |
||||||||
Accrued interest receivable |
||||||||
Restricted investment in bank stock |
||||||||
Deferred taxes, net |
||||||||
Goodwill |
||||||||
Core deposit intangible |
||||||||
Mortgage servicing rights |
||||||||
Operating lease right-of-use |
||||||||
Other assets |
||||||||
TOTAL ASSETS |
$ | |
$ | |
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
LIABILITIES |
||||||||
Deposits: |
||||||||
Non-interest-bearing |
$ | $ | ||||||
Interest-bearing |
||||||||
Total deposits |
||||||||
Borrowings |
||||||||
Accrued interest payable |
||||||||
Operating lease liability |
||||||||
Other liabilities |
||||||||
TOTAL LIABILITIES |
||||||||
STOCKHOLDERS’ EQUITY: |
||||||||
Common stock, |
||||||||
Paid-in capital |
||||||||
Treasury stock, at cost |
( |
) | ||||||
Retained earnings |
||||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
TOTAL STOCKHOLDER’S EQUITY |
||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | $ | ||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
INTEREST AND DIVIDEND INCOME |
||||||||||||||||
Loans receivable, including fees |
$ | |
$ | $ | $ | |||||||||||
Securities available-for-sale: |
||||||||||||||||
Taxable |
||||||||||||||||
Tax-exempt |
||||||||||||||||
Securities held-to-maturity |
||||||||||||||||
Other interest and dividend income |
||||||||||||||||
TOTAL INTEREST AND DIVIDEND INCOME |
||||||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Deposits |
||||||||||||||||
Borrowings |
||||||||||||||||
TOTAL INTEREST EXPENSE |
||||||||||||||||
NET INTEREST INCOME |
||||||||||||||||
(Credit) provision for credit losses |
( |
) | ||||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES |
||||||||||||||||
NON-INTEREST INCOME |
||||||||||||||||
(Loss) gain on call/sale of securities available-for-sale |
( |
) | ( |
) | ||||||||||||
Income from bank-owned life insurance |
||||||||||||||||
Fees and service charges |
||||||||||||||||
Loan fees, including preypayment penalties |
||||||||||||||||
Gain on bargain purchase |
||||||||||||||||
Gain on sale of other real estate owned |
||||||||||||||||
Other |
||||||||||||||||
TOTAL NON-INTEREST INCOME |
||||||||||||||||
NON-INTEREST EXPENSE |
||||||||||||||||
Salaries and employee benefits |
||||||||||||||||
Occupancy and equipment |
||||||||||||||||
Professional fees |
||||||||||||||||
Data processing and communications |
||||||||||||||||
Federal deposit insurance |
||||||||||||||||
Advertising and promotion |
||||||||||||||||
Office expense |
||||||||||||||||
Other real estate expenses |
||||||||||||||||
Core deposit intangible |
||||||||||||||||
Acquisition-related expenses |
( |
) | ||||||||||||||
Other |
||||||||||||||||
TOTAL NON-INTEREST EXPENSE |
||||||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
||||||||||||||||
INCOME TAX EXPENSE |
||||||||||||||||
NET INCOME |
$ | $ | $ | |
$ | |||||||||||
Earnings per common share-basic |
$ | $ | $ | $ | ||||||||||||
Earnings per common share-diluted |
$ | $ | $ | $ | ||||||||||||
Dividends declared per common share |
$ | $ | $ | $ | ||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
NET INCOME |
$ | $ | $ | |
$ | |||||||||||
Other comprehensive income (loss) |
||||||||||||||||
Unrealized losses arising during period on securities available-for-sale |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Reclassification adjustment for losses (gains) realized in income 1 |
( |
) | ||||||||||||||
Net unrealized loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Tax effect |
||||||||||||||||
Total other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
COMPREHENSIVE INCOME |
$ | $ | $ | $ | ||||||||||||
| 1 | Amounts are included in gain on call/sale of securities available-for-sale non-interest income. There was |
Three Months Ended September 30, 2023 and 2022 |
Common Stock |
Paid-in Capital |
Treasury Stock |
Retained Earnings |
Accumulated Other Comprehensive (Loss) Income |
Total |
||||||||||||||||||
Balance, July 1, 2022 |
$ | |
$ | |
$ | ( |
) | $ | |
$ | ( |
) | $ | |||||||||||
Net income |
— | — | — | — | ||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
Stock options exercised ( |
— | — | — | |||||||||||||||||||||
Dividends declared $ |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Purchase of treasury stock ( |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||
Dividend reinvestment plan ( |
— | ( |
) | — | ||||||||||||||||||||
Balance, September 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||
Balance, July 1, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Net income |
— | — | — | — | ||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
Stock options exercised ( |
— | — | — | — | ||||||||||||||||||||
Dividends declared $ |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Dividend reinvestment plan ( |
— | ( |
) | — | ||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
Balance, September 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Nine Months Ended September 30, 2023 and 2022 |
Common stock |
Paid-in Capital |
Treasury Stock |
Retained Earnings |
Accumulated Other Comprehensive (Loss) Income |
Total |
||||||||||||||||||
Balance, January 1, 2022 |
$ | $ | $ | ( |
) | $ | |
$ | $ | |||||||||||||||
Net income |
— | — | — | — | ||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
Stock options exercised ( |
— | — | — | |||||||||||||||||||||
Restricted stock ( |
— | — | — | |||||||||||||||||||||
Dividends declared $ |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Purchase of treasury stock ( |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||
Dividend reinvestment plan ( |
— | ( |
) | — | — | |||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
Balance, September 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||
Balance, January 1, 2023 |
$ | $ | |
$ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||
Net income |
— | — | — | — | ||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
Adoption of CECL |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Formation of Princeton Bancorp, Inc. |
( |
) | — | — | — | |||||||||||||||||||
Stock options exercised ( |
— | — | — | |||||||||||||||||||||
Dividends declared $ |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
Dividend reinvestment plan ( |
— | ( |
) | — | — | |||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
Balance, September 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Nine Months Ended September 30, |
||||||||
2023 |
2022 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for credit losses |
||||||||
Depreciation and amortization |
||||||||
Stock-based compensation expense |
||||||||
Amortization of premiums and accretion of discount on securities |
||||||||
Accretion of net deferred loan fees and costs |
( |
) | ( |
) | ||||
Loss (gain) on call/sale of securities available-for-sale |
( |
) | ||||||
Income earned from small business investment company (“SBIC”) investment |
( |
) | ( |
) | ||||
Increase in cash surrender value of bank-owned life insurance |
( |
) | ( |
) | ||||
Deferred income tax (benefit) |
( |
) | ( |
) | ||||
Amortization of core deposit intangible |
||||||||
Bargain purchase gain |
( |
) | ||||||
Gain on sale of other real estate owned |
( |
) | ||||||
Write down on other real estate owned |
||||||||
Decrease in accrued interest receivable and other assets |
||||||||
Increase (decrease) in accrued interest payable and other liabilities |
( |
) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchases of available-for-sale |
( |
) | ( |
) | ||||
Principal repayments of securities available-for-sale |
||||||||
Maturities and calls of securities available-for-sale |
||||||||
Maturities, calls and principal repayments of securities held-to-maturity |
||||||||
Net decrease (increase) in loans |
( |
) | ||||||
Cash paid for acquisition |
( |
) | ||||||
Cash received from acquisition |
||||||||
Purchases of premises and equipment |
( |
) | ( |
) | ||||
Purchases of bank-owned life insurance |
( |
) | ||||||
Sales of restricted bank stock |
||||||||
Proceeds from other real estate owned |
||||||||
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES |
( |
) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net increase (decrease) in deposits |
( |
) | ||||||
Repayment of overnight borrowings |
( |
) | ||||||
Cash dividends |
( |
) | ( |
) | ||||
Dividend reinvestment program |
||||||||
Purchase of treasury stock |
( |
) | ||||||
Proceeds from exercise of stock options |
||||||||
Release of restricted stock units |
||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
( |
) | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
( |
) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | $ | ||||||
SUPPLEMENTARY CASH FLOWS INFORMATION: |
||||||||
Interest paid |
$ | $ | ||||||
Income taxes paid |
$ | $ | ||||||
Reclass of paid-in capital related to holding company formation |
$ | $ | ||||||
Reclass of treasury stock related to holding company formation |
$ | $ | ||||||
Reclass of common stock related to holding company formation |
$ | ( |
) | $ | ||||
Net assets acquired from Noah Bank 1 |
$ | $ | ||||||
Net liabilities assumed from Noah Bank 1 |
$ | $ | ||||||
1 |
For details of assets acquired and liabilities assumed—See Note 2. |
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 |
||||
Purchase price per share assigned to cash consideration |
$ | |||
Cash consideration |
$ | |||
Assets Acquired: |
||||
Cash and cash equivalents |
$ | |||
Securities available-for-sale |
||||
Loans receivable, net of allowance |
||||
Core deposit intangible |
||||
Premises and equipment |
||||
Operating leases right-of-use |
||||
Deferred tax assets |
||||
Other assets |
||||
Fair value of assets acquired |
||||
Liabilities Assumed: |
||||
Deposits |
||||
Operating lease liability |
||||
Other liabilities assumed |
||||
Fair value of liabilities assumed |
||||
Total identifiable net assets |
||||
Bargain purchase gain |
$ | ( |
) | |
Three months ended September 30, |
||||||||
2023 |
2022 |
|||||||
Net income applicable to common stock |
$ | $ | ||||||
Weighted average number of common shares outstanding |
||||||||
Basic earnings per share |
$ | $ | ||||||
Net income applicable to common stock |
$ | $ | ||||||
Weighted average number of common shares outstanding |
||||||||
Dilutive effect on common shares outstanding |
||||||||
Weighted average number of diluted common shares outstanding |
||||||||
Diluted earnings per share |
$ | $ | ||||||
Nine months ended September 30, |
||||||||
2023 |
2022 |
|||||||
Net income applicable to common stock |
$ | $ | ||||||
Weighted average number of common shares outstanding |
||||||||
Basic earnings per share |
$ | $ | ||||||
Net income applicable to common stock |
$ | $ | ||||||
Weighted average number of common shares outstanding |
||||||||
Dilutive effect on common shares outstanding |
||||||||
Weighted average number of diluted common shares outstanding |
||||||||
Diluted earnings per share |
$ | $ | ||||||
Three months ended September 30, |
||||||||||||||||
2023 |
2022 |
|||||||||||||||
| Options | Weighted Ave Exercise Price |
Options | Weighted Ave Exercise Price |
|||||||||||||
Options to purchase |
$ | $ | ||||||||||||||
Anti-dilutive |
$ | $ | ||||||||||||||
Nine months ended September 30, |
||||||||||||||||
2023 |
2022 |
|||||||||||||||
| Options | Weighted Ave Exercise Price |
Options | Weighted Ave Exercise Price |
|||||||||||||
Options to purchase |
$ | $ | ||||||||||||||
Anti-dilutive |
$ | $ | ||||||||||||||
September 30, 2023 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Available-for-sale |
(In thousands) | |||||||||||||||
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) |
$ | $ | $ | ( |
) | $ | ||||||||||
U.S. government agency securities |
( |
) | ||||||||||||||
Obligations of state and political subdivisions |
( |
) | ||||||||||||||
Small business association (SBA) securities |
( |
) | ||||||||||||||
Subordinated debentures |
||||||||||||||||
Small business investment company securities |
( |
) | ||||||||||||||
Total |
$ | $ | $ | ( |
) | $ | ||||||||||
December 31, 2022 |
||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Available-for-sale |
(In thousands) | |||||||||||||||
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) |
$ | $ | $ | ( |
) | $ | ||||||||||
U.S. government agency securities |
( |
) | ||||||||||||||
Obligations of state and political subdivisions |
( |
) | ||||||||||||||
Small business investment company securities |
||||||||||||||||
Total |
$ | $ | $ | ( |
) | $ | ||||||||||
Less than 12 Months |
More than 12 Months |
Total |
||||||||||||||||||||||
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
September 30, 2023 |
(In thousands) | |||||||||||||||||||||||
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs) |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
U.S. government agency securities |
( |
) | ( |
) | ||||||||||||||||||||
Obligations of state and political subdivisions |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Small business association (SBA) securities |
( |
) | ( |
) | ||||||||||||||||||||
Small business investment company securities |
( |
) | ( |
) | ||||||||||||||||||||
Total |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
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) |
$ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
U.S. government agency securities |
( |
) | ( |
) | ||||||||||||||||||||
Obligations of state and political subdivisions |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||
Amortized Cost |
Fair Value |
|||||||
| (In thousands) | ||||||||
Due in one year or less |
$ | $ | ||||||
Due after one year through five years |
||||||||
Due after five years through ten years |
||||||||
Due after ten years |
||||||||
Mortgage-backed securities (GSEs) |
||||||||
Small business association (SBA) securities |
||||||||
SBIC securities |
||||||||
| $ | $ | |||||||
September 30, 2023 |
December 31, 2022 |
|||||||
| (In thousands) | ||||||||
Commercial real estate |
$ | $ | ||||||
Commercial and industrial |
||||||||
Construction |
||||||||
Residential first-lien mortgage |
||||||||
Home equity/consumer |
||||||||
Total loans |
||||||||
Deferred fees and costs |
( |
) | ( |
) | ||||
Loans, net |
$ | $ | ||||||
September 30, 2023 |
December 31, 2022 |
|||||||
| (In thousands) | ||||||||
Allowance for credit losses—loans |
$ | ( |
) | $ | ( |
) | ||
Allowance for credit losses—off balance sheet |
( |
) | ( |
) | ||||
| $ | ( |
) | $ | ( |
) | |||
September 30, 2023 |
December 31, 2022 |
|||||||||||||||
With a Related Allowance |
Without a Related Allowance |
With a Related Allowance |
Without a Related Allowance |
|||||||||||||
| (In thousands) | ||||||||||||||||
Commercial real estate |
$ | $ | $ | $ | ||||||||||||
Commercial and industrial |
||||||||||||||||
Construction |
||||||||||||||||
Residential first-lien mortgage |
||||||||||||||||
Total nonaccrual loans |
$ | $ | $ | $ | ||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
>90 Days Past Due |
Total Past Due |
Current |
Total Loans Receivable |
Loans Receivable >90 Days and Accruing |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Commercial real estate |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Commercial and industrial |
||||||||||||||||||||||||||||
Construction |
||||||||||||||||||||||||||||
Residential first-lien mortgage |
||||||||||||||||||||||||||||
Home equity/consumer |
||||||||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Greater than 90 days |
Total Past Due |
Current |
Total Loans Receivable |
Receivable >90 Days and Accruing |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Commercial real estate |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Commercial and industrial |
||||||||||||||||||||||||||||
Construction |
||||||||||||||||||||||||||||
Residential first-lien mortgage |
||||||||||||||||||||||||||||
Home equity/consumer |
||||||||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans |
Total | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
Commercial real estate |
||||||||||||||||||||||||||||||||
Pass |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Special mention |
||||||||||||||||||||||||||||||||
Substandard |
||||||||||||||||||||||||||||||||
Total commercial real estate |
||||||||||||||||||||||||||||||||
Current-period gross charge-offs |
||||||||||||||||||||||||||||||||
Commercial and industrial |
||||||||||||||||||||||||||||||||
Pass |
||||||||||||||||||||||||||||||||
Special mention |
||||||||||||||||||||||||||||||||
Substandard |
||||||||||||||||||||||||||||||||
Total commercial and industrial |
||||||||||||||||||||||||||||||||
Current-period gross charge-offs |
||||||||||||||||||||||||||||||||
Construction |
||||||||||||||||||||||||||||||||
Pass |
||||||||||||||||||||||||||||||||
Special mention |
||||||||||||||||||||||||||||||||
Substandard |
||||||||||||||||||||||||||||||||
Total construction |
||||||||||||||||||||||||||||||||
Current-period gross charge-offs |
||||||||||||||||||||||||||||||||
Residential first-lien mortgage |
||||||||||||||||||||||||||||||||
Performing |
||||||||||||||||||||||||||||||||
Nonperforming |
||||||||||||||||||||||||||||||||
Total residential first-lien mortgage |
||||||||||||||||||||||||||||||||
Home equity/consumer |
||||||||||||||||||||||||||||||||
Performing |
||||||||||||||||||||||||||||||||
Nonperforming |
||||||||||||||||||||||||||||||||
Total home equity/consumer |
||||||||||||||||||||||||||||||||
Total loans receivable |
||||||||||||||||||||||||||||||||
Pass |
||||||||||||||||||||||||||||||||
Special mention |
||||||||||||||||||||||||||||||||
Substandard |
||||||||||||||||||||||||||||||||
Total loans receivable |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Pass |
Special Mention |
Substandard |
Doubtful |
Total |
||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Commercial real estate |
$ | $ | $ | $ | $ | |||||||||||||||
Commercial and industrial |
||||||||||||||||||||
Construction |
||||||||||||||||||||
Residential first-lien mortgage |
||||||||||||||||||||
Home equity/consumer |
||||||||||||||||||||
Total with no related allowance |
$ | $ | $ | $ | $ | |||||||||||||||
Commercial real estate |
Commercial and industrial |
Construction |
Residential first-lien mortgage |
Home equity/ consumer |
Unallocated |
Total |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Allowance for credit losses: |
||||||||||||||||||||||||||||
| Beginning balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Provision 1 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Charge-offs |
||||||||||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending Balance: |
||||||||||||||||||||||||||||
| Individually evaluated |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Collectively evaluated |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
1 |
The credit provision for credit losses on the Consolidated Statement of Income is a credit of $ |
Commercial real estate |
Commercial and industrial |
Construction |
Residential first-lien mortgage |
Home equity/ consumer |
Unallocated |
Total |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Loans: |
||||||||||||||||||||||||||||
| Ending balance: |
||||||||||||||||||||||||||||
| Individually evaluated |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Collectively evaluated |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial real estate |
Commercial and industrial |
Construction |
Residential first-lien mortgage |
Home equity/ consumer |
Unallocated |
Total |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Beginning balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Provision |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Charge-offs |
( |
) | ( |
) | ||||||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Commercial real estate |
Commercial and industrial |
Construction |
Residential first-lien mortgage |
Home equity/ consumer |
Unallocated |
Total |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Allowance for credit losses: |
||||||||||||||||||||||||||||
| Beginning balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| CECL adoption |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| CECL day 1 provision |
||||||||||||||||||||||||||||
| Purchased credit deteriorated loans |
||||||||||||||||||||||||||||
| Provision 1 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Charge-offs |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
1 |
The provision for credit losses on the Consolidated Statement of Income is $ non-PCD loans acquired, a $ |
Commercial real estate |
Commercial and industrial |
Construction |
Residential first-lien mortgage |
Home equity/ consumer |
Unallocated |
Total |
||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Beginning balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Provision |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Charge-offs |
( |
) | ( |
) | ||||||||||||||||||||||||
| Recoveries |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
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 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Collectively evaluated for impairment |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Ending Balance: |
||||||||||||||||||||||||||||
| Individually evaluated for impairment |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Collectively evaluated for impairment |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
September 30, 2023 |
December 31, 2022 |
|||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Demand, non-interest-bearing checking |
$ | % | $ | % | ||||||||||||
Demand, interest-bearing checking |
% | % | ||||||||||||||
Savings |
% | % | ||||||||||||||
Money market |
% | % | ||||||||||||||
Time deposits, $ 250,000 and over |
% | % | ||||||||||||||
Time deposits, other |
% | % | ||||||||||||||
| $ | % | $ | % | |||||||||||||
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 September 30, 2023 |
||||||||||||
| (In thousands) | ||||||||||||||||
Mortgage-backed securities -U.S. government sponsored enterprise (GSEs) |
$ | — | $ | $ | — | $ | ||||||||||
U.S. government agency securities |
— | — | ||||||||||||||
Obligations of state and political subdivisions |
— | — | ||||||||||||||
Small Business Association (SBA) securities |
— | — | ||||||||||||||
Subordinated debentures |
— | — | ||||||||||||||
SBIC securities |
— | |||||||||||||||
Securities available-for-sale |
$ | — | $ | $ | $ | |||||||||||
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) |
$ | — | $ | $ | — | $ | ||||||||||
U.S. government agency securities |
— | |||||||||||||||
Obligations of state and political subdivisions |
— | — | ||||||||||||||
SBIC securities |
— | |||||||||||||||
Securities available-for-sale |
$ | — | $ | $ | $ | |||||||||||
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 September 30, 2023 |
||||||||||||
| (In thousands) | ||||||||||||||||
Collateral dependent loan |
$ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
Description |
September 30, 2023 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Discount | % | |||||||||||||||
Collateral dependent loan |
$ | Collateral | 1 |
adjustment | ( |
%) | ||||||||||
1 |
Value based on third party offer to purchase note from the Bank. |
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 |
$ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
Description |
Fair Value December 31, 2022 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Discount | % | |||||||||||||||
Impaired loans |
$ | Collateral | 1 |
adjustment | ( |
%) | ||||||||||
| 1 | Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. |
September 30, 2023 |
||||||||||||||||||||
Carrying Amount |
Estimated Fair Value |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Securities available-for-sale |
— | |||||||||||||||||||
Securities held-to-maturity |
— | — | ||||||||||||||||||
Loans receivable, net |
— | — | ||||||||||||||||||
Restricted investments in bank stock |
— | — | ||||||||||||||||||
Accrued interest receivable |
— | — | ||||||||||||||||||
Financial Liabilities: |
||||||||||||||||||||
Deposits |
$ | $ | $ | — | $ | $ | — | |||||||||||||
Accrued interest payable |
— | — | ||||||||||||||||||
December 31, 2022 |
||||||||||||||||||||
Carrying Amount |
Estimated Fair Value |
Level 1 |
Level 2 |
Level 3 |
||||||||||||||||
| (In thousands) | ||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | $ | $ | $ | — | $ | — | |||||||||||||
Securities AFS |
— | |||||||||||||||||||
Securities HTM |
— | — | ||||||||||||||||||
Loans receivable, net |
— | — | ||||||||||||||||||
Restricted bank stock |
— | — | ||||||||||||||||||
Accrued interest receivable |
— | — | ||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||
Deposits |
— | |||||||||||||||||||
Borrowings |
||||||||||||||||||||
Accrued interest payable |
— | — | ||||||||||||||||||
Statement of Financial Condition Location |
September 30, 2023 |
December 31, 2022 |
||||||||
| (In thousands) | ||||||||||
Operating Lease Right of Use Asset: |
||||||||||
Gross carrying amount |
$ | $ | ||||||||
Increased asset from new leases |
||||||||||
Accumulated amortization |
( |
) | ( |
) | ||||||
Net book value |
Operating lease right-of-use |
$ | $ | |||||||
Operating Lease Liability: |
||||||||||
Lease liability |
Operating lease liability | $ | $ | |||||||
Twelve months ended September 30, |
||||
2024 |
$ | |||
2025 |
||||
2026 |
||||
2027 |
||||
2028 |
||||
Thereafter |
||||
Total future operating lease payment |
||||
Amounts representing interest |
( |
) | ||
Present value of net future lease payments |
$ | |||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
Lease cost: |
||||||||||||||||
Operating lease |
$ | $ | $ | $ | ||||||||||||
Short-term lease cost |
||||||||||||||||
Total lease cost |
$ | $ | $ | $ | ||||||||||||
Other information: |
||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
$ | $ | $ | $ | ||||||||||||
Goodwill |
Core Deposit Intangible |
|||||||
| (In thousands) | ||||||||
Balance at December 31, 2022 |
$ | $ | ||||||
Acquisition of Noah Bank |
— | |||||||
Amortization expense |
— | ( |
) | |||||
Balance at September 30, 2023 |
$ | $ | ||||||
2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
Total |
$ | |||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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, 2022.
Cautionary Statement Regarding Forward-Looking Statements
The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission, in its reports to stockholders and in other communications by the Company (including this press release), which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The most significant factors 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, supply chain disruptions, labor shortages, additional interest rate increases by the Federal Reserve and the economic and market impacts of the military conflicts in Ukraine and the Middle East. 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 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 acquisition of Noah; 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; the ability to recruit and retain qualified employees and implement adequate succession planning to mitigate the loss of key members of our senior management team; 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, and in Part II, Item 1A of our quarterly report on Form 10-Q for the 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
Princeton Bancorp, Inc. is the holding company for The Bank of Princeton, a community bank founded in 2007. The Bank is a New Jersey state-chartered commercial bank with 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, Monroe, New Brunswick, Palisades Park, Pennington, Piscataway, Princeton Junction, Quakerbridge and Sicklerville. There are also five branches in the Philadelphia, Pennsylvania area and two in the New York City metropolitan area. The Bank of Princeton is a member of the Federal Deposit Insurance Corporation (“FDIC”).
28
Table of Contents
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 Russia’s war with Ukraine. However, the unemployment rate in New Jersey is below the national average.
Comparison of Financial Condition at September 30, 2023 and December 31, 2022
General
Total assets were $1.91 billion at September 30, 2023, an increase of $311.3 million, or 19.4% when compared to $1.60 billion at the end of 2022. The primary reason for the increase in total assets was the 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 $128.1 million, an increase in cash and cash equivalents of approximately $153.6 million, an increase in its right of use asset of $8.1 million, an increase of $6.3 million in deferred tax assets and an increase in other assets of $1.5 million. The increase in the Company’s net loans consisted of a $206.7 million increase in commercial real estate loans and a $23.3 million increase in commercial and industrial loans, partially offset by a decrease of $96.7 million in construction loans.
Cash and cash equivalents
Cash and cash equivalents increased $153.6 million, or 287.9%, to $206.9 million at September 30, 2023 compared to December 31, 2022. This increase was primarily due to loan payoffs during the period, which caused a reduction in total loans of $57.8 million (not including the loans acquired in connection with the Noah transaction), and an increase in outstanding deposits of approximately $98.5 (not including the deposits assumed from the Noah acquisition).
Investment securities
Total available-for-sale investment securities increased slightly to $88.1 million at September 30, 2023 compared to $83.4 million at December 31, 2022. This increase was primarily the result of approximately $6.5 million added to the available-for-sale securities portfolio due to the Noah acquisition.
29
Table of Contents
Loans
Loans, net of deferred loan fees and costs, increased $128.1 million, or 9.4%, to $1.50 billion at September 30, 2023 compared to $1.37 billion at December 31, 2022. This increase was primarily due to the $186.0 million of loans acquired from Noah Bank, partially offset by payoffs and principal repayments. Including the loans acquired, the following changes occurred within individual loan segments: commercial real estate loans increased by $206.7 million, commercial and industrial loans increased by $23.3 million, and construction loans decreased by $96.7 million.
Net recoveries for the third quarter of 2023 were $22 thousand and net charge-offs for the nine months ended September 30, 2023 were $1.8 million. For the three-month and nine-month periods ended September 30, 2022, the Bank recorded net charge-offs of $200 thousand and $154 thousand. With the adoption of CECL, the Bank 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 third quarter and the first nine months of 2023, the Bank reduced the reserve for unfunded liabilities by $183 thousand and $510 thousand, respectively. The coverage ratio of the allowance for credit losses to period end loans was 1.20% at both September 30, 2023 and December 31, 2022.
At September 30, 2023, non-performing assets totaled $6.8 million, an increase of $6.5 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, in addition to $2.5 million of non-performing loans acquired from Noah Bank.
With the adoption of CECL, 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. There were no loan modifications during the nine months ended September 30, 2023.
Deferred Taxes
Deferred taxes increased $6.3 million at September 30, 2023 compared to December 31, 2022. The increase was primarily due to purchase accounting entries and net operating loss carryforwards related to the Noah acquisition.
Deposits
Total deposits at September 30, 2023 increased $290.2 million, or 21.5%, when compared to December 31, 2022. The primary reasons for the increase in total deposits were the $191.7 million in deposits acquired from Noah Bank and a $98.5 million increase from existing operations. When comparing deposit products between the two periods, certificates of deposit increased $298.7 million and money market deposits increased $65.9 million. Partially offsetting these increases were decreases in savings deposits of $43.6 million and interest-bearing demand deposits of $29.8 million for the nine months ended September 30, 2023.
At September 30, 2023, the Company had approximately $533.1 million in uninsured deposits, consisting of $74.4 million in non-interest-bearing demand deposits, $171.4 million in interest-bearing demand deposits, $102.9 million in money market accounts, $20.0 million in savings deposits and $164.4 million in certificates of deposits.
Borrowings
The Company had no outstanding borrowings at September 30, 2023 compared to $10.0 million at December 31, 2022.
Stockholders’ equity
Total stockholders’ equity at September 30, 2023 increased $12.6 million or 5.7% when compared to the end of 2022. The increase was primarily due to the $14.5 million increase in retained earnings, consisting of $20.5 million in net income partially offset by $5.7 million of cash dividends recorded during the period. The ratio of equity to total assets at September 30, 2023 and at December 31, 2022, was 12.1% and 13.7%, respectively. The current period ratio decrease was primarily due to the Noah Bank acquisition.
30
Table of Contents
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 real estate loan collateral, and a $60.0 million line of credit with the FHLB supporting municipal deposits, the Company had the ability to borrow $183.4 million as of September 30, 2023.
The bank failures that occurred in early 2023 caused significant disruption in the United States banking industry. The closures of these banks triggered a surge in deposit outflows and stock price volatility at many banks. In response to these bank failures, the Federal Reserve announced the Bank Term Funding Program, which offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral valued at par. Under this program, the Bank has access to $101.5 million in borrowing capacity.
The Company is also a shareholder of Atlantic Community Bancshares, Inc., the parent company of Atlantic Community Bankers Bank (“ACBB”). As of September 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 September 30, 2023.
We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.
Capital Resources
Regulatory Capital Requirements. Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement and a Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement.
In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain additional common equity in excess of the minimum requirements. This excess is referred to as a capital conservation buffer. At September 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 September 30, 2023, that the Bank meets all capital adequacy requirements to which it is subject and is “well capitalized” under applicable regulations.
31
Table of Contents
The Bank’s actual capital amounts and ratios and the regulatory requirements at September 30, 2023 and December 31, 2022 are presented below:
| Actual | For capital conservation buffer requirement |
To be well capitalized under prompt corrective action provision |
||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| September 30, 2023: |
||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
$ | 250,865 | 14.959 | % | $ | 176,081 | 10.500 | % | $ | 167,696 | 10.000 | % | ||||||||||||
| Tier 1 capital (to risk-weighted assets) |
$ | 232,873 | 13.887 | % | $ | 142,542 | 8.500 | % | $ | 134,157 | 8.000 | % | ||||||||||||
| Common equity tier 1 capital (to-risk weighted assets |
$ | 232,873 | 13.887 | % | $ | 117,387 | 7.000 | % | $ | 109,003 | 6.500 | % | ||||||||||||
| Tier 1 leverage capital (to average assets) |
$ | 232,873 | 12.380 | % | $ | 122,268 | 6.500 | % | $ | 94,052 | 5.000 | % | ||||||||||||
| December 31, 2022: |
||||||||||||||||||||||||
| Total capital (to risk-weighted assets) |
$ | 233,657 | 15.309 | % | $ | 160,256 | 10.500 | % | $ | 152,625 | 10.000 | % | ||||||||||||
| Tier 1 capital (to risk-weighted assets) |
$ | 217,196 | 14.231 | % | $ | 129,731 | 8.500 | % | $ | 122,100 | 8.000 | % | ||||||||||||
| Common equity tier 1 capital (to-risk weighted assets |
$ | 217,196 | 14.231 | % | $ | 106,838 | 7.000 | % | $ | 99,206 | 6.500 | % | ||||||||||||
| Tier 1 leverage capital (to average assets) |
$ | 217,196 | 13.474 | % | $ | 104,775 | 6.500 | % | $ | 80,596 | 5.000 | % | ||||||||||||
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022
General
The Company reported net income of $7.6 million, or $1.19 per diluted common share, for the third quarter of 2023, compared to net income of $7.0 million, or $1.09 per diluted common share, for the third quarter of 2022. The increase in net income for the third quarter of 2023 compared to the same period in 2022 was primarily due to an increase of $700 thousand in non-interest income, a $600 thousand decrease in income tax expense and a $400 thousand reduction in its provision for credit losses, partially offset by a $1.0 million decrease in net interest income.
Interest income
Interest income increased $7.9 million for the three months ended September 30, 2023 compared to the same period in 2022. Interest income on loans increased $5.2 million due to increases in both the average balance of loans of $78.2 million and the yield of 112 basis points. Other interest and dividend income increased $2.6 million due to an increase in average balance of $173.5 million and an increase in the yield of 298 basis points. Interest on taxable available-for-sale securities increased $116 thousand due to a 100-basis-point increase in yield and a $318 thousand increase in the average balance of taxable available-for-sale securities.
Interest expense
Interest expense on deposits increased $8.9 million to $10.3 million for the three-month period ended September 30, 2023, due to increases in both the rate paid on interest-bearing deposits of 251 basis points and in the average balance of interest-bearing deposits of $260.9 million over the same prior year period.
Interest expense on borrowings was not significant during the three-month periods ended September 30, 2023 and 2022.
32
Table of Contents
Provision for credit losses
The Company reduced its allowance for credit losses by $182 thousand during the three months ended September 30, 2023 and increased its allowance for credit losses by $200 thousand during the three months ended September 30, 2022. The credit recorded in the current quarter was the result of a reduction in the reserve for unfunded liabilities in the amount of $182 thousand. The provision for credit losses on loans was zero. Net recoveries during the three-month period ended September 30, 2023 were $22 thousand. Net charge-offs of $200 thousand were recorded during the three-month period ended September 30, 2022.
Non-interest income
Total non-interest income of $2.4 million for the third quarter of 2023 increased $696 thousand, when compared to the quarter ended September 30, 2022. The increase over the third quarter of 2022 was due to an increase in loan fees of $334 thousand and the gain on sale of other real estate owned of $203 thousand during the third quarter of 2023.
Non-interest expense
Total non-interest expense for the third quarter of 2023 was almost the same as the third quarter of 2022. During the third quarter of 2023, $1.4 million of merger costs associated with the Noah acquisition that were expensed in the second quarter were reversed. The amounts reversed were primarily the result of a lease termination cost that was lower than the original estimate based on a negotiated settlement of the remaining lease on a Noah branch office and a legal reserve of $150 thousand. The expenses reversed in 2023 were offset by increases in salaries and employee benefits and occupancy and equipment expenses of $735 thousand and $603 thousand, respectively, over the prior-year period associated with the Noah acquisition.
Provision for income taxes
For the three-month period ended September 30, 2023, the Company recorded an income tax expense of $1.5 million, resulting in an effective tax rate of 16.6%, compared to an income tax expense of $2.1 million resulting in an effective tax rate of 23.2% for the three-month period ended September 30, 2022. The effective tax rate for the current period was reduced as a result of the year-to-date impact of the non-taxable bargain purchase gain related to the Noah acquisition.
33
Table of Contents
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 have been annualized. Tax-exempt incomes and yields have not been adjusted to a tax-equivalent basis.
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Average Balance |
Interest | Average Yield/Rate |
Average Balance |
Interest | Average Yield/Rate |
|||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Loans receivable |
$ | 1,464,798 | $ | 23,503 | 6.37 | % | $ | 1,386,589 | $ | 18,336 | 5.25 | % | ||||||||||||
| Securities |
||||||||||||||||||||||||
| Taxable available-for-sale |
46,599 | 357 | 3.06 | % | 46,281 | 241 | 2.06 | % | ||||||||||||||||
| Tax-exempt available-for-sale |
40,118 | 285 | 2.84 | % | 42,220 | 286 | 2.68 | % | ||||||||||||||||
| Held-to-maturity |
196 | 3 | 5.28 | % | 204 | 2 | 3.92 | % | ||||||||||||||||
| Federal funds sold |
199,350 | 2,702 | 5.38 | % | 35,081 | 183 | 2.28 | % | ||||||||||||||||
| Other interest-earning assets |
10,506 | 150 | 5.67 | % | 1,322 | 43 | 5.85 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total interest-earning assets |
1,761,567 | $ | 27,000 | 6.08 | % | 1,511,697 | $ | 19,091 | 5.01 | % | ||||||||||||||
| Other non-earnings assets |
127,682 | 115,159 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 1,889,249 | $ | 1,626,856 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Demand |
$ | 243,359 | $ | 1,031 | 1.68 | % | $ | 240,948 | $ | 174 | 0.29 | % | ||||||||||||
| Savings |
149,215 | 788 | 2.10 | % | 217,133 | 173 | 0.32 | % | ||||||||||||||||
| Money market |
337,491 | 2,979 | 3.50 | % | 350,901 | 376 | 0.43 | % | ||||||||||||||||
| Certificates of deposit |
629,082 | 5,518 | 3.48 | % | 289,274 | 669 | 0.92 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total deposits |
1,359,147 | 10,316 | 3.01 | % | 1,098,256 | 1,392 | 0.50 | % | ||||||||||||||||
| Borrowings |
— | — | N/A | 391 | 3 | 2.65 | % | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total interest-bearing liabilities |
1,359,147 | $ | 10,316 | 3.01 | % | 1,098,647 | $ | 1,395 | 0.51 | % | ||||||||||||||
| Non-interest-bearing deposits |
255,775 | 285,665 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total cost of funds |
1,614,922 | 2.53 | % | 1,384,312 | 0.40 | % | ||||||||||||||||||
| Other liabilities |
45,923 | 28,136 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total liabilities |
1,660,845 | 1,412,448 | ||||||||||||||||||||||
| Stockholders’ equity |
228,404 | 214,408 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total liabilities and stockholder’s equity |
$ | 1,889,249 | $ | 1,626,856 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Net interest-earnings assets |
$ | 402,420 | $ | 413,050 | ||||||||||||||||||||
| Net interest income; interest rate spread |
$ | 16,684 | 3.07 | % | $ | 17,696 | 4.50 | % | ||||||||||||||||
| Net interest margin |
3.76 | % | 4.64 | % | ||||||||||||||||||||
| Net interest margin FTE 1 |
3.81 | % | 4.71 | % | ||||||||||||||||||||
| 1 | Includes federal and state tax effect of tax exempt securities and loans. |
34
Table of Contents
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 September 30, 2023 vs 2022 Increase (Decrease) Due to |
||||||||||||
| Rate | Volume | Net | ||||||||||
| (In thousands) | ||||||||||||
| Interest and dividend income: |
||||||||||||
| Loans receivable, including fees |
$ | 998 | $ | 4,169 | $ | 5,167 | ||||||
| Securities available-for-sale |
||||||||||||
| Taxable |
82 | 34 | 116 | |||||||||
| Tax-exempt |
32 | (33 | ) | (1 | ) | |||||||
| Securities held-to-maturity |
1 | — | 1 | |||||||||
| Federal funds sold |
511 | 2,008 | 2,519 | |||||||||
| Other interest and dividend income |
(2 | ) | 109 | 107 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total interest and dividend income |
$ | 1,622 | $ | 6,287 | $ | 7,909 | ||||||
|
|
|
|
|
|
|
|||||||
| Interest expense |
||||||||||||
| Demand |
$ | 828 | $ | 29 | $ | 857 | ||||||
| Savings |
1,487 | (872 | ) | 615 | ||||||||
| Money markets |
2,834 | (231 | ) | 2,603 | ||||||||
| Certificates of deposit |
634 | 4,215 | 4,849 | |||||||||
| Borrowings |
— | (3 | ) | (3 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total interest expense |
$ | 5,783 | $ | 3,138 | $ | 8,921 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in net interest income |
$ | (4,161 | ) | $ | 3,149 | $ | (1,012 | ) | ||||
|
|
|
|
|
|
|
|||||||
Comparison of Operating Results for the Nine Months Ended September 30, 2023 and 2022
General
For the nine-month period ended September 30, 2023, the Company recorded net income of $20.5 million, or $3.21 per diluted common share, compared to $19.3 million, or $2.98 per diluted common share for the same period in 2022. The increase was primarily due to an increase of $11.5 million in non-interest income and a $1.8 million decrease in income tax expense, partially offset by an $8.9 million increase in non-interest expense, and a $2.3 million increase in its provision for credit losses.
35
Table of Contents
Interest income
Interest income increased $17.0 million for the nine months ended September 30, 2023 compared to the same period in 2022. Interest income on loans increased $13.3 million due to increases in both the average balance and yield earned on loans of $49.5 million and 107 basis points, respectively. Other interest and dividend income increased $3.5 million due to an increase in the average balance of $21.0 million and an increase in the yield of 455 basis points. Interest on taxable available-for-sale securities increased $229 thousand due to an 82-basis-point increase in yield, partially offset by a $3.1 million decrease in the average balance of taxable available-for-sale securities.
Interest expense
Interest expense on deposits increased $17.7 million to $21.5 million for the nine-month period ended September 30, 2023, due primarily to a 195-basis-point increase in the rate on interest-bearing deposits, and an increase in the average balance of interest-bearing deposits of $71.0 million over the same prior-year period.
Interest expense on borrowings was not significant during the nine-month periods ended September 30, 2023 and 2022.
Provision for credit losses
The Company recorded a $2.5 million provision for credit losses for the nine-month period ended September 30, 2023 and a $200 thousand provision for loan losses for the nine-month period ended September 30, 2022. The $2.5 million provision for the nine months ended September 30, 2023 consists of a $2.9 million provision associated with the Company’s loan portfolio, offset by a credit to the provision of $501 thousand associated with unfunded commitments. The provision for credit losses on loans 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 Note 1 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a discussion of the CECL methodology. See the section titled “Item 1. Business – Lending Activities —Analysis of 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 prior to our adoption of CECL on January 1, 2023, including additional information regarding the determination of the provision for loan losses.
Non-interest income
For the nine-month period ended September 30, 2023, non-interest income increased $11.5 million or 296.9%, from the same nine-month period in 2022, primarily due to the $9.7 million bargain purchase gain from the Noah acquisition and an increase of $1.3 million in loan fees over the same period in 2022.
Non-interest expense
For the nine-month period ended September 30, 2023, non-interest expense was $37.7 million, compared to $28.8 million for the same period in 2022. This increase was primarily due to merger-related expenses of $5.6 million, increases in salaries and employee benefits of $2.1 million, occupancy and equipment expenses of $742 thousand and data processing and communications of $726 thousand all primarily associated with the Noah Bank acquisition and general increases.
Provision for income taxes
For the nine-month period ended September 30, 2023, the Bank recorded an income tax expense of $3.6 million, resulting in an effective tax rate of 14.9%, compared to an income tax expense of $5.4 million resulting in an effective tax rate of 21.7% for the nine-month period ended September 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
Table of Contents
Average Balances, Net Interest Income, and Yields Earned and Rates Paid
The following table shows for the nine-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.
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Average Balance |
Interest | Average Yield/Rate |
Average Balance |
Interest | Average Yield/Rate |
|||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Loans receivable |
$ | 1,424,768 | $ | 64,914 | 6.09 | % | $ | 1,375,233 | $ | 51,596 | 5.02 | % | ||||||||||||
| Securities |
||||||||||||||||||||||||
| Taxable available-for-sale |
44,517 | 927 | 2.78 | % | 47,626 | 698 | 1.96 | % | ||||||||||||||||
| Tax exempt available-for-sale |
40,974 | 853 | 2.78 | % | 44,832 | 882 | 2.63 | % | ||||||||||||||||
| Held-to-maturity |
198 | 8 | 5.28 | % | 205 | 8 | 5.29 | % | ||||||||||||||||
| Federal funds sold |
91,761 | 3,639 | 5.30 | % | 76,559 | 361 | 0.68 | % | ||||||||||||||||
| Other interest earning-assets |
7,086 | 285 | 5.36 | % | 1,328 | 80 | 4.96 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-earning assets |
1,609,304 | 70,626 | 5.87 | % | 1,545,783 | 53,625 | 4.64 | % | ||||||||||||||||
| Other non-earnings assets |
114,545 | 112,573 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 1,723,849 | $ | 1,658,356 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Interest-bearing liabilities |
||||||||||||||||||||||||
| Demand |
$ | 250,100 | $ | 2,417 | 1.29 | % | $ | 257,284 | $ | 508 | 0.26 | % | ||||||||||||
| Savings |
163,516 | 1,888 | 1.54 | % | 226,532 | 447 | 0.26 | % | ||||||||||||||||
| Money markets |
297,360 | 6,251 | 2.81 | % | 374,571 | 887 | 0.34 | % | ||||||||||||||||
| Certificates of deposit |
504,237 | 10,946 | 2.90 | % | 285,855 | 1,943 | 0.91 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total deposit |
1,215,213 | 21,502 | 2.37 | % | 1,144,242 | 3,785 | 0.42 | % | ||||||||||||||||
| Borrowings |
3,133 | 118 | 5.01 | % | 132 | 3 | 2.65 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
1,218,346 | 21,620 | 2.37 | % | 1,144,374 | 3,788 | 0.45 | % | ||||||||||||||||
| Non-interest-bearing deposits |
244,718 | 280,761 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total cost of funds |
1,463,064 | 1.97 | % | 1,425,135 | 0.36 | % | ||||||||||||||||||
| Other liabilities |
34,312 | 18,680 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total liabilities |
1,497,376 | 1,443,815 | ||||||||||||||||||||||
| Stockholders’ equity |
226,471 | 214,541 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total liabilities and stockholder’s equity |
$ | 1,723,847 | $ | 1,658,356 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Net interest-earnings assets |
$ | 390,958 | $ | 401,409 | ||||||||||||||||||||
| Net interest income; interest rate spread |
$ | 49,006 | 3.50 | % | $ | 49,837 | 4.19 | % | ||||||||||||||||
| Net interest margin |
4.07 | % | 4.31 | % | ||||||||||||||||||||
| Net interest margin FTE 1 |
4.13 | % | 4.37 | % | ||||||||||||||||||||
| 1 | Includes federal and state tax effect of tax exempt securities and loans. |
37
Table of Contents
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.
| Nine Months Ended September 30, 2023 vs . 2022 Increase (Decrease) Due to |
||||||||||||
| Rate | Volume | Net | ||||||||||
| (In thousands) | ||||||||||||
| Interest and dividend income: |
||||||||||||
| Loans receivable, including fees |
$ | 10,214 | $ | 3,104 | $ | 13,318 | ||||||
| Securities available-for-sale |
||||||||||||
| Taxable |
306 | (77 | ) | 229 | ||||||||
| Tax-exempt |
64 | (93 | ) | (29 | ) | |||||||
| Securities held-to-maturity |
— | — | — | |||||||||
| Federal funds sold |
3,167 | 111 | 3,278 | |||||||||
| Other interest and dividend income |
6 | 199 | 205 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total interest and dividend income |
$ | 13,757 | $ | 3,244 | $ | 17,001 | ||||||
|
|
|
|
|
|
|
|||||||
| Interest expense: |
||||||||||||
| Demand |
$ | 1,983 | $ | (74 | ) | $ | 1,909 | |||||
| Savings |
2,091 | (650 | ) | 1,441 | ||||||||
| Money market |
6,406 | (1,042 | ) | 5,364 | ||||||||
| Certificates of deposit |
1,119 | 7,884 | 9,003 | |||||||||
| Borrowings |
— | 115 | 115 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total interest expense |
$ | 11,599 | $ | 6,233 | $ | 17,832 | ||||||
|
|
|
|
|
|
|
|||||||
| Change in net interest income |
$ | 2,158 | $ | (2,989 | ) | $ | (831 | ) | ||||
|
|
|
|
|
|
|
|||||||
How We Manage Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee which is comprised of both Management and members of the Board of Directors. The Asset/Liability Committee meets on a
38
Table of Contents
regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent and direction of shifts in interest rates are uncertainties that could have a negative impact on future earnings.
Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.
The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at September 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 September 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.
39
Table of Contents
| (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 |
$ | 9,734 | $ | 3,156 | $ | 8,266 | $ | 9,660 | $ | 73,386 | $ | (15,943 | ) | $ | 88,259 | |||||||||||||
| Loans receivable |
426,183 | 280,830 | 360,138 | 363,637 | 67,712 | (17,992 | ) | 1,480,508 | ||||||||||||||||||||
| Other interest-earnings assets (2) |
192,132 | — | — | — | — | 14,799 | 206,931 | |||||||||||||||||||||
| Other non-interest assets |
— | — | — | — | — | 137,425 | 137,425 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total interest-earning assets |
$ | 628,049 | $ | 283,986 | $ | 368,404 | $ | 373,297 | $ | 141,098 | $ | (19,136 | ) | $ | 1,913,123 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||||||
| Checking and savings accounts |
$ | 10,018 | $ | 376,997 | $ | — | $ | — | $ | — | $ | — | $ | 387,015 | ||||||||||||||
| Money market accounts |
18,992 | 330,513 | — | — | — | — | 349,505 | |||||||||||||||||||||
| Certificate accounts |
123,285 | 414,322 | 96,635 | 2,994 | 13 | — | 637,249 | |||||||||||||||||||||
| Borrowings |
— | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total interest-bearing liabilities |
$ | 152,295 | $ | 1,121,832 | $ | 96,635 | $ | 2,994 | $ | 13 | $ | — | $ | 1,373,769 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Interest-earning assets less interest-bearing liabilities |
$ | 475,754 | $ | (837,846 | ) | $ | 271,769 | $ | 370,303 | $ | 141,085 | $ | (19,136 | ) | $ | 539,354 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Cumulative interest-rate sensitivity gap (3) |
$ | 475,754 | $ | (362,092 | ) | $ | (90,323 | ) | $ | 279,980 | $ | 421,065 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Cumulative interest-rate gap as a percentage of total assets at September 30, 2023 |
24.87 | % | -18.93 | % | -4.72 | % | 14.63 | % | 22.01 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at September 30, 2023 |
412.39 | % | 71.58 | % | 93.41 | % | 120.38 | % | 130.65 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| (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
Table of Contents
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 September 30, 2023 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
| Change in Interest Rates In Basis Points (Rate Shock) |
Net Portfolio Value | NPV as % of Portfolio Value of Assets |
||||||||||||||||||
| Amonts | $Change | % Change | NPV Ratio | Change | ||||||||||||||||
| (Dollars in thousands) |
||||||||||||||||||||
| 300 |
$ | 302,867 | $ | (20,618 | ) | -6.37 | % | -6.20 | % | -5.61 | % | |||||||||
| 200 |
$ | 316,146 | $ | (7,339 | ) | -2.27 | % | -4.20 | % | -3.61 | % | |||||||||
| 100 |
$ | 324,202 | $ | 717 | 0.22 | % | -2.26 | % | -1.67 | % | ||||||||||
| Static |
$ | 323,485 | $ | — | -0.59 | % | ||||||||||||||
| (100) |
$ | 326,123 | $ | 2,638 | 0.82 | % | 0.82 | % | 1.41 | % | ||||||||||
| (200) |
$ | 323,998 | $ | 513 | 0.16 | % | 1.95 | % | 2.54 | % | ||||||||||
| (300) |
$ | 307,890 | $ | (15,595 | ) | -4.82 | % | 3.05 | % | 3.64 | % | |||||||||
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
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
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 September 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 September 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
Table of Contents
Changes in Internal Control Over Financial Reporting
Due to implementation of CECL, the Bank has made updates to its internal control over financial reporting. Controls around the allowance for loan losses were replaced with CECL controls, including processes and control owners. With the exception of these changes, there was no change in the Company’s internal control over financial reporting identified during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II–OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth under the Part I, Item 1.A. Risk Factors as set forth in the Company’s Annual Report on Form 10-K 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 Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the fiscal quarter ended September 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”.
42
Table of Contents
Item 6. Exhibits
| Exhibit Number |
Description | |
| 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) | |
43
Table of Contents
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: November 13, 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) | ||||||
44
Exhibit 31.1
RULE 13A-14(a) CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER
I, Edward Dietzler, Chief Executive Officer and President of Princeton Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Princeton Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, considering the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 13, 2023 | /s/ Edward Dietzler | |||||
| Edward Dietzler | ||||||
| Chief Executive Officer and President | ||||||
| (Principal Executive Officer) |
Exhibit 31.2
RULE 13A-14(a) CERTIFICATION
OF THE PRINCIPAL FINANCIAL OFFICER
I, George Rapp, Executive Vice President and Chief Financial Officer of Princeton Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Princeton Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 13, 2023 | /s/ George Rapp | |||||
| George Rapp | ||||||
| Executive Vice President and Chief Financial Officer | ||||||
| (Principal Financial and Accounting Officer) |
Exhibit 32
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of Princeton Bancorp, Inc. on Form 10-Q for the period ended September 30, 2023 as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Princeton Bancorp, Inc.
| /s/ Edward Dietzler |
| Edward Dietzler |
| Chief Executive Officer and President |
| (Principal Executive Officer) |
| /s/ George Rapp |
| George Rapp |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
Date: November 13, 2023