Princeton Bancorp, Inc. — Form 10-Q Summary
Business Context and Reporting Period
This quarterly report covers the three and nine months ended September 30, 2023. Princeton Bancorp became the holding company for The Bank of Princeton on January 10, 2023; prior-period information primarily reflects the Bank. The Company completed its acquisition and merger of Noah Bank on May 19, 2023. The Bank operates a community banking business serving New Jersey, Pennsylvania and selected New York markets through 29 branches and offers commercial, construction, residential mortgage, consumer, deposit and related banking services.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Total interest and dividend income | $27.0 million, compared with $19.1 million | $70.6 million, compared with $53.6 million |
| Net interest income | $16.7 million, compared with $17.7 million | $49.0 million, compared with $49.8 million |
| Net interest margin | 3.76%, compared with 4.64% | 4.07%, compared with 4.31% |
| Provision for credit losses | $(182,000) credit, compared with $200,000 provision | $2.5 million provision, compared with $200,000 |
| Non-interest income | $2.4 million, compared with $1.7 million | $15.3 million, compared with $3.9 million |
| Non-interest expense | $10.2 million, broadly unchanged | $37.7 million, compared with $28.8 million |
| Net income | $7.6 million, compared with $7.0 million | $20.5 million, compared with $19.3 million |
| Diluted earnings per share | $1.19, compared with $1.09 | $3.21, compared with $2.98 |
| Dividends declared per share | $0.30, compared with $0.25 | $0.90, compared with $0.75 |
The filing does not present a consolidated revenue measure; interest and dividend income is the principal operating revenue indicator. Third-quarter net income increased approximately 9%, while nine-month net income increased approximately 6%. The third-quarter net interest margin declined primarily because deposit costs rose faster than asset yields. The nine-month return on average assets, return on equity and efficiency ratio are not clearly provided in the filing text.
Financial Condition, Cash Flow, Debt and Liquidity
- Total assets were $1.913 billion at September 30, 2023, up 19.4% from $1.602 billion at December 31, 2022, primarily because of the Noah Bank acquisition.
- Net loans were $1.481 billion, up from $1.354 billion. Commercial real estate loans increased to $1.080 billion, while construction loans declined to $320.8 million.
- Total deposits were $1.638 billion, up 21.5% from $1.348 billion. The increase included $191.7 million of deposits acquired from Noah and $98.5 million of growth from existing operations. Approximately $533.1 million of deposits were uninsured.
- Cash and cash equivalents were $206.9 million, compared with $53.4 million at year-end. The Company had no borrowings outstanding, compared with $10.0 million at December 31, 2022.
- Net cash provided by operating activities was $20.1 million for the nine months, compared with $16.2 million in the prior-year period. Investing activities provided $49.6 million, primarily reflecting loan reductions and acquisition-related cash flows. Financing activities provided $83.8 million, primarily from deposit growth.
- The Company reported $232.2 million of stockholders’ equity, equal to 12.1% of assets versus 13.7% at year-end. The decline in the equity-to-assets ratio was primarily attributed to the Noah acquisition.
- Management stated that the Bank was well capitalized at September 30, 2023. Regulatory ratios included total risk-based capital of 14.959%, common equity Tier 1 capital of 13.887% and Tier 1 leverage capital of 12.380%.
- Available liquidity included $183.4 million of FHLB borrowing capacity, $101.5 million under the Bank Term Funding Program and $10.0 million of short-term capacity with Atlantic Community Bancshares. No amounts were outstanding under the latter line.
Material Changes Versus Prior Comparable Period
- Loan interest income increased $5.2 million in the third quarter and $13.3 million year to date, reflecting higher average balances and yields.
- Interest expense on deposits increased $8.9 million in the third quarter and $17.7 million year to date. The average rate paid on interest-bearing deposits increased to 3.01% in the third quarter from 0.50% in the prior-year quarter.
- Non-interest income benefited from a $9.7 million bargain purchase gain related to Noah Bank, higher loan fees and a $203,000 gain on the sale of other real estate owned.
- Year-to-date non-interest expense included $5.6 million of Noah merger-related costs. Third-quarter expense included a $1.4 million reversal of previously recorded merger costs, substantially offsetting acquisition-related increases in salaries and occupancy expense.
- The Company adopted CECL on January 1, 2023, recording a $284,000 after-tax reduction to retained earnings, a $301,000 reduction to the loan allowance and a $695,000 increase in the reserve for unfunded liabilities.
- Available-for-sale securities had $16.2 million of gross unrealized losses at September 30, 2023, compared with $11.6 million at year-end. Management attributed the losses primarily to interest-rate changes rather than credit concerns and reported no credit-loss charges on the securities portfolio.
Credit Quality, Outlook and Risks
The allowance for credit losses on loans was $18.0 million, representing 1.20% of period-end loans, unchanged from year-end. Nonperforming assets increased to $6.8 million from $0.3 million, driven by a $4.5 million commercial real estate delinquency and approximately $2.5 million of nonperforming loans acquired from Noah. Nine-month net charge-offs were $1.8 million; third-quarter net recoveries were $22,000.
The filing provides no formal earnings, revenue, margin or balance-sheet guidance. Management stated that current funding sources were adequate for current cash-flow needs and that the Bank met applicable capital requirements. The filing highlights risks from elevated inflation and interest rates, potential recession, deposit outflows, liquidity management, real estate and construction credit exposure, securities valuation losses, regulatory changes, technology and cybersecurity, labor constraints, geopolitical conflicts, and the integration and realization of benefits from the Noah acquisition.
Goodwill of $8.9 million was not impaired in the May 31, 2023 quantitative test, although the filing identifies the stock price trading below book value and lower return on assets as impairment considerations. Acquisition fair-value estimates remain subject to adjustment for up to one year after closing. The Board declared a $0.30 per share dividend on October 25, 2023, payable November 30, 2023.
Important Facts for Investors to Verify
- Whether deposit pricing and the high proportion of interest-bearing and uninsured deposits continue to pressure the net interest margin and liquidity.
- The performance of the expanded commercial real estate and construction loan portfolio, including the $4.5 million delinquent commercial real estate loan and acquired Noah loans.
- Whether the $9.7 million bargain purchase gain and the $1.4 million merger-cost reversal distort comparisons with recurring earnings.
- The final valuation of Noah Bank assets and liabilities and any resulting adjustment to the bargain purchase gain.
- Trends in available-for-sale securities’ unrealized losses, tangible capital and regulatory capital after acquisition integration.
- The Company’s ability to retain deposits, manage repricing risk and maintain adequate borrowing capacity if market rates remain elevated or deposit outflows recur.