Princeton Bancorp, Inc. 2023 Form 10-K Summary
Business context and reporting period
Princeton Bancorp, Inc. is the holding company for The Bank of Princeton, a New Jersey state-chartered community bank serving New Jersey, Pennsylvania and selected New York metropolitan markets through 29 branches and two additional retail branches. The filing covers the fiscal year ended December 31, 2023; the source does not provide separate fourth-quarter results.
The company completed its holding-company reorganization on January 10, 2023 and acquired Noah Bank on May 19, 2023. Accordingly, 2023 results include the Noah Bank business from the acquisition date, while 2022 comparative results primarily reflect the predecessor Bank.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total assets | $1.916 billion | $1.602 billion | Up 19.7% |
| Total loans, before allowance | $1.550 billion | $1.373 billion | Up 13.0% |
| Total deposits | $1.636 billion | $1.348 billion | Up 21.4% |
| Net interest income | $65.0 million | $68.1 million | Down 4.5% |
| Net interest margin | 3.93% | 4.41% | Down 48 basis points |
| Provision for credit losses | $3.1 million | $0.4 million | Up $2.7 million |
| Non-interest income | $17.1 million | $4.9 million | Up $12.3 million |
| Non-interest expense | $48.7 million | $38.5 million | Up $10.2 million |
| Net income | $25.8 million | $26.5 million | Down 2.8% |
| Diluted EPS | $4.03 | $4.11 | Down 1.9% |
| Effective tax rate | 15.1% | 22.2% | Down 710 basis points |
Interest income increased 32.5% to $98.2 million, but interest expense increased 452.7% to $33.2 million as market rates and deposit costs rose. Average loan yield increased to 6.16% from 5.16%, while the average cost of total deposits increased to 2.62% from 0.42%.
The 2023 results included a $9.7 million non-taxable bargain purchase gain from the Noah acquisition. Acquisition-related expenses were $5.6 million. Excluding these unusual acquisition items, reported earnings and the effective tax rate would not be directly comparable with 2022.
Balance sheet, credit quality and liquidity
- Commercial real estate and multifamily loans were $1.143 billion, or 73.8% of total loans, compared with 63.7% at year-end 2022. Construction loans were $310.2 million, or 20.0% of total loans, down from $417.5 million.
- Commercial and industrial loans increased 76.6% to $51.0 million. Residential first-lien loans declined 11.8% to $38.0 million.
- Nonaccrual loans increased to $6.7 million from $266,000, and nonaccrual loans represented 0.43% of total loans versus 0.02% in 2022. Total nonperforming assets and performing troubled debt restructurings were $6.7 million.
- The allowance for credit losses on loans increased to $18.5 million from $16.5 million, equal to 1.19% of loans. Net charge-offs were $1.8 million, or 0.12% of average loans.
- The company adopted CECL on January 1, 2023, recording a $284,000 reduction to retained earnings. The allowance methodology incorporates discounted cash flow modeling, probability of default, loss given default, prepayments and forward-looking economic forecasts.
- Cash and cash equivalents increased to $150.6 million from $53.4 million. Available-for-sale securities totaled $91.4 million and carried $10.2 million of unrealized losses at year-end.
- Total deposits increased $288.0 million, including $192.7 million acquired from Noah Bank. Brokered deposits declined to $87.2 million from $107.4 million. Uninsured deposits were $427.4 million.
- The company had no borrowings outstanding at December 31, 2023, compared with $10.0 million of FHLB borrowings in 2022. Available FHLB borrowing capacity was $139.4 million, subject to collateral restrictions, plus $10.0 million of short-term capacity from Atlantic Community Bankers Bank.
- Operating cash flow was $23.1 million. Investing activities used $5.8 million, and financing activities provided $79.9 million, primarily from the net increase in deposits. Cash and cash equivalents increased by $97.2 million during the year.
- Total stockholders’ equity was $240.2 million, and equity was 12.5% of total assets versus 13.7% in 2022. The Bank exceeded all regulatory capital requirements and qualified as well capitalized. Its year-end total risk-based capital ratio was 14.677% and Tier 1 leverage ratio was 12.289%.
Material changes versus the prior comparable period
- The Noah Bank acquisition expanded assets, deposits, loans, branches and operating infrastructure, and generated a $9.7 million bargain purchase gain.
- Loan growth was concentrated in commercial real estate, while construction lending declined materially.
- Deposit growth was strong but increasingly expensive: average interest-bearing deposit costs rose 220 basis points to 2.62%, compressing the net interest margin by 48 basis points.
- Credit risk indicators weakened, including a significant increase in nonaccrual loans and net charge-offs, although the allowance remained substantially above reported nonaccrual loans.
- Non-interest expense increased due to acquisition costs, higher salaries and benefits, occupancy and equipment costs, and data processing expenses.
- Accumulated other comprehensive loss improved to $7.5 million from $8.3 million, but the available-for-sale securities portfolio still had significant unrealized losses attributable primarily to higher interest rates.
- The company declared quarterly cash dividends of $0.30 per share, or $1.20 per share for 2023.
Outlook, management commentary, risks and unusual items
Management intends to continue pursuing relationship-based community banking, deposit and loan growth, variable-rate lending, asset-liability matching and acquisitions. No quantitative earnings, revenue or margin guidance is provided in the filing.
On January 18, 2024, the company announced a proposed acquisition of Cornerstone Financial Corporation in a transaction valued at approximately $17.9 million. The transaction is subject to regulatory and shareholder approvals and other conditions and is expected to close in the second or third quarter of 2024. Risks include failure or delay in closing, integration costs, customer or employee attrition, and failure to realize expected benefits.
- Primary credit risk arises from the concentration in commercial real estate, multifamily and construction lending, including exposure to office, retail, multifamily and development projects.
- Higher interest rates may further increase deposit costs, compress margins, reduce securities values and impair borrowers’ ability to service debt.
- The company may realize losses or reduce capital if it must sell securities with embedded unrealized losses to meet liquidity needs.
- Deposit competition, uninsured deposits, brokered funding and the large 2024 certificate-of-deposit maturities may increase funding pressure.
- CECL estimates, acquired-loan valuations, collateral values, prepayment assumptions and macroeconomic forecasts involve significant management judgment and may change.
- The company identifies cybersecurity, third-party service-provider, regulatory, compliance, operational and acquisition-integration risks. It reported no material cybersecurity incident or material litigation at year-end.
Most important facts for an investor to verify
- Whether commercial real estate and construction concentrations remain manageable as property values, occupancy, rents and refinancing conditions change.
- Trends in nonaccrual loans, classified loans, charge-offs, criticized assets and the allowance for credit losses in subsequent quarters.
- Deposit retention, pricing, uninsured deposit balances, brokered deposits and the amount of certificates renewing in 2024.
- Net interest margin sensitivity to interest-rate changes and the pace at which deposit costs reprice.
- The fair value and unrealized loss position of the securities portfolio, including liquidity available without realizing losses.
- Regulatory approvals, consideration, timing and integration plans for the pending Cornerstone acquisition.
- The recurring earnings profile excluding the $9.7 million bargain purchase gain and $5.6 million of acquisition-related expenses.
- Actual cash flows, capital ratios and dividend capacity after acquisition-related activity and any additional credit-loss provisioning.