Princeton Bancorp Announces Fourth Quarter 2023 Results

PRINCETON, N.J., Jan. 25, 2024 /PRNewswire/ -- Princeton Bancorp, Inc. (the "Company") (NASDAQ - BPRN), the bank holding company for The Bank of Princeton (the "Bank"), today reported its unaudited financial condition and results of operations at and for the quarter and 12 months ended December 31, 2023. 

President/CEO Edward Dietzler commented on the results, "I am extremely proud of the Bank's continued strong financial performance given the industry's strong headwinds.  Despite the significant impact from the interest rate environment and other industry pressures, the Bank increased loan and deposit balances while maintaining strong liquidity and good credit quality."

"In 2024, the addition of Cornerstone Bank is an in-market acquisition that adds to the Bank's central and south Jersey footprint. The Bank will continue to build on our existing valuable franchise reaching from New York to Philadelphia."

HIGHLIGHTS

• Total assets grew to $1.92 billion in 2023, an increase of 19.7%
• Net loans increased by $178 million for the year
• Total deposits for the year increased $288 million, or 21.4% over the prior year-end
• Stockholders' equity increased $20.6 million or 9.4% year over year
• Net income for the quarter was $5.3 million and $25.8 million for the year

The Company reported net income of $5.3 million, or $0.82 per diluted common share, for the fourth quarter of 2023, compared to net income of $7.6 million, or $1.19 per diluted common share, for the third quarter of 2023, and net income of $7.2 million, or $1.13 per diluted common share, for the fourth quarter of 2022. The decrease in net income for the fourth quarter of 2023 when compared to the third quarter of 2023 was due to decreases of $674 thousand and $624 thousand in net interest income and non-interest income, respectively, and increases of $744 thousand and $790 thousand in provision for credit losses and non-interest expense, respectively, partially offset by a reduction in income tax expense of $516 thousand. The decrease in net income for the fourth quarter of 2023 compared to the same period in 2022 was primarily due to a decrease in net interest income of $2.2 million and an increase in non-interest expenses of $1.3 million, partially offset by a decrease in income tax expense of $1.2 million and an increase in non-interest income of $782 thousand.

For the year ended December 31, 2023, the Company recorded net income of $25.8 million, or $4.03 per diluted common share, compared to $26.5 million, or $4.11 per diluted common share, for the same period in 2022. The decrease was due to an increase of $10.2 million in non-interest expenses, a decrease in net interest income of $3.1 million, and an increase in provision for credit losses of $2.7 million, partially offset by an increase of $12.3 million in non-interest income and a decrease in income tax expense of $3.0 million attributable in part to the $9.7 million bargain purchase gain from its Noah Bank acquisition in May of 2023 that is not taxable. The results for 2023 were significantly impacted by purchase accounting adjustments resulting from the Noah Bank acquisition.

Balance Sheet Review

Total assets were $1.92 billion at December 31, 2023, an increase of $314.7 million, or 19.7% 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 $178.0 million, an increase in cash and cash equivalents of approximately $97.2 million, an increase in bank-owned life insurance of $6.2 million, an increase in its right of use asset of $7.4 million and an increase in deferred tax assets of $3.4 million.  The increase in the Company's net loans consisted of a $269.3 million increase in commercial real estate loans and a $22.1 million increase in commercial and industrial loans, partially offset by a decrease of $107.4 million in construction loans.

Total deposits at December 31, 2023 increased $288.0 million, or 21.4%, 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 $96.3 million increase from existing operations. When comparing deposit products between the two periods, certificates of deposit increased $299.5 million and money market deposits increased $70.4 million. Partially offsetting these increases were decreases in savings deposits of $44.2 million, interest-bearing demand deposits of $21.8 million and non-interest-bearing deposits of $15.8 million for the year ended December 31, 2023.

Total stockholders' equity at December 31, 2023 increased $20.6 million or 9.4% when compared to the end of 2022. The increase was primarily due to the $17.9 million increase in retained earnings, consisting of $25.8 million in net income partially offset by $7.6 million of cash dividends recorded during the period. The ratio of equity to total assets at December 31, 2023 and at December 31, 2022, was 12.5% and 13.7%, respectively. The current period ratio decrease was primarily due to the Noah Bank acquisition.

Asset Quality

At December 31, 2023, non-performing assets totaled $6.7 million, an increase of $6.4 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 and $2.1 million of non-performing loans acquired from Noah Bank. With respect to the $4.5 million commercial real estate loan, the Company has an agreement of sale with a material non-refundable security deposit and the sale is expected to close in the first quarter of 2024.

With the adoption of the Current Expected Credit Losses ("CECL") method of calculating the allowance for credit losses effective January 1, 2023, 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 at December 31, 2022 and throughout 2023.

Review of Quarterly and Year-to-Date Financial Results

Net interest income was $16.0 million for the fourth quarter of 2023, compared to $16.7 million for the third quarter of 2023 and $18.2 million for the fourth quarter of 2022. The decrease from the previous quarter was the result of an increase in interest expense of $1.2 million, or 11.9%, partially offset by an increase in interest income of $554 thousand, or 2.1%. The net interest margin for the fourth quarter 2023 was 3.55%, decreasing 21 basis points when compared to the third quarter of 2023. This decrease was primarily associated with an increase of 25 basis points in the cost of funds associated with rising interest rates. The increase in funding costs was partially offset by a $28.1 million growth in average interest-earning assets driven by a $58.1 million increase in average loans. When comparing the three-month periods ended December 31, 2023 and 2022, net interest income decreased $2.2 million, which was primarily due to an increase of 214 basis points in the cost of funds, partially offset by an increase of 71 basis points in the yield earned on interest-earning assets. For the year ended December 31, 2023, net interest income of $65.0 million was down 4.5% compared to net interest income of $68.1 million during 2022.  The decrease from the previous year was the result of an increase in interest expense of $27.2 million, or 452.7%, partially offset by an increase in interest income of $24.1 million, or 32.5%, both as a result of the 525 basis-point increase in federal funds interest rates since March 2022 and management's strategic initiative to maintain high levels of primary liquidity in this uncertain rate environment.

The Bank recorded a provision for credit losses of $562 thousand during the fourth quarter of 2023 and a credit provision for credit losses of $182 thousand during the third quarter of 2023.  The Bank recorded a $200 thousand provision for loan losses for the three months ended December 31, 2022. The provision recorded during the fourth quarter of 2023 was the result of an increase in the required reserve for credit losses on loans in the amount of $489 thousand and an increase in the reserve for unfunded liabilities of $72 thousand.  The credit recorded in the third quarter of 2023 was the result of a reduction in the reserve for unfunded liabilities in the amount of $182 thousand and no provision for credit losses on loans. For the three-month and twelve-month periods ended December 31, 2023, the Bank recorded net recoveries of $10 thousand and net charge-offs of $1.8 million, respectively. Included in the Company's provision for the twelve-month period of 2023 was $1.7 million related to non-purchased credit deteriorated loans resulting from the Noah Bank acquisition. With the adoption of the CECL method of calculating the allowance for credit losses on January 1, 2023, 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. The coverage ratio of the allowance for credit losses to period end loans was 1.19% at December 31, 2023 and 1.20% at December 31, 2022.

Total non-interest income of $1.8 million for the fourth quarter of 2023 decreased $624 thousand or 26.0% when compared to the third quarter of 2023 and increased $782 thousand or 78.4% when compared to the quarter ended December 31, 2022. The decrease from the third quarter of 2023 was primarily due to the $528 thousand decrease in loan fees during the fourth quarter and a gain on sale of other real estate owned during the third quarter. The increase over the prior year quarter was primarily due to an increase in loan fees of $420 thousand. For the year ended December 31, 2023, non-interest income increased $12.3 million, or by 252.1%, primarily due to the $9.7 million bargain purchase gain and an increase in loan fees of $1.7 million over the same period in 2022.

Total non-interest expense of $10.9 million for the fourth quarter of 2023 increased $790 thousand, or 7.8%, when compared to the third quarter of 2023, due primarily to the reversal of merger-related expenses in the third quarter of $1.4 million, representing a portion of the merger costs associated with the Noah acquisition expensed during the second quarter. The amounts reversed during the third quarter 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 Bank branch office and a legal reserve of $150 thousand that was no longer needed. Total non-interest expense for the fourth quarter of 2023 increased $1.3 million or 13.2 % from the fourth quarter of 2022.  The increase was due primarily to increases in salaries and employee benefits and occupancy and equipment expenses of $830 thousand and $436 thousand, respectively, over the prior-year period which were associated with the Noah acquisition in 2023. For the year ended December 31, 2023, non-interest expense was $48.7 million, compared to $38.5 million for the same period in 2022. The increase was primarily due to merger-related expenses of $5.6 million during 2023 as well as increases in salaries and employee benefits of $2.9 million, occupancy and equipment of $1.2 million and data processing and communications of $538 thousand over the same period in 2022.

For the three-month period ended December 31, 2023, the Company recorded an income tax expense of $1.0 million, resulting in an effective tax rate of 15.9%, compared to an income tax expense of $1.5 million resulting in an effective tax rate of 16.6% for the three-month period ended September 30, 2023 and compared to an income tax expense of $2.2 million resulting in an effective tax rate of 23.5% for the three-month period ended December 31, 2022. For the year ending December 31, 2023, income tax expense was $4.6 million resulting in an effective tax rate of 15.1% compared to income tax expense of $7.6 million and an effective tax rate of 22.2% for the year ended December 30, 2022. This decrease was due to the $9.7 million non-taxable bargain purchase gain from the Noah Bank acquisition, partially offset by $325 thousand of merger-related expenses that were not tax-deductible.

About Princeton Bancorp, Inc. and The Bank of Princeton

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"). On January 18, 2024, the Company announced that it has entered into a definitive agreement and plan of merger with Cornerstone Financial Corporation ("Cornerstone"), the parent company of Cornerstone Bank, headquartered in Mount Laurel, New Jersey, pursuant to which the Company will acquire Cornerstone in a transaction that is expected to close in the second or third quarter of 2024 (the "Transaction").

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 and additional interest rate increases by the Federal Reserve. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following factors: the integration of the businesses of the Company and Cornerstone following the completion of the Transaction may be more difficult, time-consuming or costly than expected; the ability to obtain required regulatory and shareholder approvals, and the ability to complete the Transaction on the expected timeframe may be more difficult, time-consuming or costly than expected; the global impact of the military conflicts in the Ukraine and the Middle East; 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; 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; changes in consumer spending and saving habits; those risks under the heading "Risk Factors" set forth in the Bank's Annual Report on Form 10-K for the year ended December 31, 2022, 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.