Princeton Bancorp, Inc. Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2022, filed March 24, 2023. The filing primarily presents the consolidated results of The Bank of Princeton, because Princeton Bancorp, Inc. conducted no operations before the January 10, 2023 reorganization, when it became the bank holding company. The Bank operates 23 branches in New Jersey and Pennsylvania and originates loans in selected New York markets.
The filing does not provide a separately reported fourth-quarter 2022 income statement or cash flow statement; the financial results below are for the full year ended December 31, 2022.
Key financial metrics
| Metric | 2022 | 2021 / change |
|---|---|---|
| Total assets | $1.602 billion | Down 5.1% from $1.688 billion |
| Net income | $26.5 million | Up 17.8% from $22.5 million |
| Diluted EPS | $4.11 | Up from $3.30 |
| Net interest income | $68.1 million | Up 8.8% from $62.6 million |
| Net interest margin | 4.41% | Up 39 basis points from 4.02% |
| Provision for loan losses | $0.4 million | Down from $3.6 million |
| Non-interest income | $4.9 million | Up 4.2% |
| Non-interest expense | $38.5 million | Up from $34.5 million |
| Effective tax rate | 22.2% | 23.0% in 2021 |
| Loans receivable, net | $1.354 billion | Up 2.7% from $1.319 billion |
| Total deposits | $1.348 billion | Down 6.8% from $1.446 billion |
| Borrowings | $10.0 million | None at December 31, 2021 |
| Stockholders’ equity | $219.6 million | Up 1.4% from $216.6 million |
| Equity-to-assets ratio | 13.7% | 12.8% at December 31, 2021 |
Cash flow from operating activities was $24.0 million, compared with $12.9 million in 2021. Investing activities used $26.5 million, principally because loan growth exceeded securities cash inflows. Financing activities used $102.9 million, primarily reflecting a $98.4 million deposit reduction, $9.4 million of share repurchases and $6.5 million of dividends, partially offset by $10.0 million of overnight borrowings. Cash and cash equivalents ended at $53.4 million, compared with $158.7 million at year-end 2021.
Liquidity included $165.0 million of available borrowing capacity from the Federal Home Loan Bank of New York, subject to collateral restrictions, and an additional $10.0 million of short-term capacity through Atlantic Community Bankers Bank.
Material changes versus the prior comparable period
- Loan growth was concentrated in commercial real estate, which increased $102.5 million to $873.6 million, and construction loans, which increased $13.9 million to $417.5 million.
- Commercial real estate and multi-family loans represented 63.7% of total loans, while construction loans represented 30.5%, creating material real-estate concentration.
- PPP loans declined $77.3 million to $2.5 million as loans were forgiven or repaid and the program ended.
- The higher net interest margin reflected rising asset yields and lower average funding costs. The average yield on earning assets increased to 4.80% from 4.45%, while the average cost of interest-bearing liabilities declined to 0.53% from 0.58%.
- Non-interest expense increased 11.7%, primarily due to higher salaries and employee benefits, data processing and communications costs, and inflation-related operating expenses.
- Asset quality improved: nonaccrual loans declined to $266,000 from $1.2 million, total nonperforming assets and performing troubled debt restructurings declined to $6.3 million from $7.7 million, and net charge-offs declined to $559,000 from $3.0 million.
- The allowance for loan losses was $16.5 million, or 1.20% of total loans, compared with 1.24% in 2021.
- Available-for-sale securities declined to $83.4 million from $101.2 million. Rising rates produced $11.6 million of gross unrealized losses and a $9.1 million after-tax reduction in accumulated other comprehensive income; management recorded no other-than-temporary impairment.
- The Bank repurchased 324,017 shares for $9.4 million and increased the annual dividend declared per share to $1.00 from $0.66.
Guidance, outlook, risks and unusual items
The filing provides no formal earnings, revenue or margin guidance. Management emphasizes relationship-based community banking, deposit and loan growth, disciplined underwriting, variable-rate assets and asset-liability management.
On October 19, 2022, the Bank agreed to acquire Noah Bank. The transaction was expected to close in the second quarter of 2023, subject to regulatory approvals and other closing conditions. Risks include delays or failure to close, integration costs, customer or employee attrition, disruption of operations and failure to realize anticipated benefits.
The Bank adopted the Current Expected Credit Loss model effective January 1, 2023. Management estimated an unaudited one-time after-tax reduction to retained earnings of approximately $304,000, a $264,000 reduction to the allowance for loan losses and a $686,000 reserve for unfunded commitments.
Principal risks include concentration in commercial real estate and construction lending, potential declines in collateral values or project demand, higher funding costs and deposit runoff, interest-rate and liquidity risk, inflation, economic weakness, regulatory changes, cybersecurity and third-party technology failures. The filing also discusses the transition from LIBOR to alternative reference rates, including SOFR.
Off-balance-sheet credit exposure totaled $189.5 million, including $140.5 million of undisbursed construction loans, $41.8 million of loan commitments, $5.8 million of unfunded lines of credit and $1.4 million of letters of credit.
The Bank reported that it exceeded regulatory capital requirements and qualified as well capitalized. At December 31, 2022, total risk-based capital was 15.31%, common equity Tier 1 capital was 14.23% and Tier 1 leverage capital was 13.47%.
Important facts investors should verify
- Confirm the closing date, purchase accounting and integration progress for the Noah Bank acquisition.
- Evaluate the performance, collateral values, maturities and concentrations of the commercial real estate and construction portfolios.
- Assess deposit trends, uninsured deposits, brokered deposits, certificate-of-deposit maturities and reliance on wholesale liquidity.
- Verify the actual impact of CECL adoption, including reserves for loans and unfunded commitments.
- Monitor net interest margin sensitivity to further rate changes, deposit repricing and the LIBOR transition.
- Reconcile reported equity and capital measures after the holding-company reorganization and any subsequent share repurchases or dividends.
- Review unrealized securities losses and management’s ability to hold affected securities until recovery without forced sales.