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Princeton Bancorp
BPRN
#8342
Rank
$0.23 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$34.81
Share price
0.67%
Change (1 day)
22.23%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Princeton Bancorp
  2. Quarterly Reports (10-Q)
  3. Submitted on 2023-05-11

Princeton Bancorp - 10-Q quarterly report FY


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Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
 
 
FORM
10-Q
 
 
(Mark one)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March
31
, 2023
Or
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:
001-41589
 
 
PRINCETON BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Pennsylvania
 
88-4268702
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
183 Bayard Lane, Princeton, New Jersey 08540
(Address of principal executive offices) (Zip Code)
(609)
921-1700
(Registrant’s telephone number, including area code)
 
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
Common stock, no par value
 
BPRN
 
The Nasdaq Global Market
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
    
☒
  
Yes
    
☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     
☒
  
Yes
    
☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer  ☐  Accelerated filer   ☐
Non-accelerated
filer 		 ☐  Smaller reporting company  ☒
Emerging growth company ☐    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes
  
☐    No  
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 8, 2023, there were 6,261,569 outstanding shares of the issuer’s common stock, no par value.
 
 
 

Table of Contents

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

 

Item 1

  Financial Statements  
  Unaudited Consolidated Statements of Financial Condition—March 31, 2023 and December 31, 2022.   1 
  Unaudited Consolidated Statements of Income—Three Months Ended March 31, 2023 and 2022.   2 
  Unaudited Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2023 and 2022.   3 
  Unaudited Consolidated Statements of Changes in Stockholders’ Equity—Three Months Ended March 31, 2023 and 2022.   4 
  Unaudited Consolidated Statements of Cash Flows—Three Months Ended March 31, 2023 and 2022.   5 
  Notes to Unaudited Consolidated Financial Statements   6 

Item 2

  Management’s Discussion and Analysis of Financial Condition and Results of Operations.   24 

Item 3

  Quanitative and Qualitative Disclosure about Market Risk.   34 

Item 4

  Controls and Procedures.   34 

PART II OTHER INFORMATION

  

Item 1

  

Legal Proceedings.

   35 

Item 1A

  Risk Factors.   35 

Item 2

  

Unregistered Sale of Equity Securities and Use of Proceeds.

   35 

Item 3

  

Defaults Upon Senior Securities.

   36 

Item 4

  

Mine Safety Disclosures.

   36 

Item 5

  

Other Information.

   36 

Item 6

  

Exhibits.

   36 

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 terms of an Agreement and Plan of Reorganization and Merger dated February 23, 2022 (the “Plan”). Pursuant to the Reorganization, shares of the Bank’s common stock were exchanged for shares of the Company’s common stock on a one-for-one basis. As a result, 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
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 
   
March 31,
2023
  
December 31,
2022
 
ASSETS
         
Cash and due from banks
  $10,083  $12,161 
Interest-earning bank balances
   7,941   13,140 
Federal funds sold
   —     28,050 
   
 
 
  
 
 
 
Total cash and cash equivalents
   18,024   53,351 
   
 
 
  
 
 
 
Securities
available-for-sale,
at fair value
   84,512   83,402 
Securities
held-to-maturity
(fair value $199 and $200, at March 31, 2023 and December 31, 2022, respectively)
   199   201 
Loans receivable, net of deferred costs
   1,388,575   1,370,368 
Less: allowance for credit lossess
   (16,507)   (16,461) 
   
 
 
  
 
 
 
Loan receivable, net
   1,372,068   1,353,907 
Bank-owned life insurance
   52,906   52,617 
Premises and equipment, net
   11,662   11,722 
Accrued interest receivable
   4,865   4,756 
Restricted investment in bank stock
   3,295   1,742 
Deferred taxes, net
   7,784   7,599 
Goodwill
   8,853   8,853 
Core deposit intangible
   1,690   1,825 
Operating lease
right-of-use
asset
   15,707   16,026 
Other assets
   3,755   5,778 
   
 
 
  
 
 
 
TOTAL ASSETS
  $ 1,585,320  $ 1,601,779 
   
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
LIABILITIES
         
Deposits:
         
Non-interest-bearing
  $218,709  $265,078 
Interest-bearing
   1,073,391   1,082,652 
   
 
 
  
 
 
 
Total deposits
   1,292,100   1,347,730 
Borrowings
   44,500   10,000 
Accrued interest payable
   2,160   1,027 
Operating lease liability
   16,466   16,772 
Other liabilities
   4,821   6,649 
   
 
 
  
 
 
 
TOTAL LIABILITIES
   1,360,047   1,382,178 
   
 
 
  
 
 
 
STOCKHOLDERS’ EQUITY:
         
Common stock, no par value; 15,000,000 shares authorized, 6,261,629 shares issued and outstanding at March 31, 2023; at December 31, 2022, par value $5.00 per share, 6,909,402 shares issued and 6,245,597 shares outstanding
   —     34,547 
Paid-in
capital
   96,880   81,291 
Treasury stock, at cost 663,805 shares at December 31, 2022
   —     (19,452) 
Retained earnings
   135,425   131,488 
Accumulated other comprehensive loss
   (7,032)   (8,273) 
   
 
 
  
 
 
 
TOTAL STOCKHOLDER’S EQUITY
   225,273   219,601 
   
 
 
  
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $1,585,320  $1,601,779 
   
 
 
  
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
1
Table of Contents
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
   
Three Months Ended
March 31
 
   
2023
   
2022
 
INTEREST AND DIVIDEND INCOME
          
Loans receivable, including fees
  $19,894   $16,492 
Securities
available-for-sale:
          
Taxable
   278    223 
Tax-exempt
   284    303 
Securities
held-to-maturity
   3    3 
Other interest and dividend income
   153    57 
   
 
 
   
 
 
 
TOTAL INTEREST AND DIVIDEND INCOME
   20,612    17,078 
   
 
 
   
 
 
 
INTEREST EXPENSE
          
Deposits
   3,865    1,224 
Borrowings
   86    —   
   
 
 
   
 
 
 
TOTAL INTEREST EXPENSE
   3,951    1,224 
   
 
 
   
 
 
 
NET INTEREST INCOME
   16,661    15,854 
Provision for credit losses
   265    —   
   
 
 
   
 
 
 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
   16,396    15,854 
   
 
 
   
 
 
 
NON-INTEREST
INCOME
          
Income from bank-owned life insurance
   290    282 
Fees and service charges
   448    475 
Loan fees, including prepayment penalties
   351    95 
Other
   285    194 
   
 
 
   
 
 
 
TOTAL
NON-INTEREST
INCOME
   1,374    1,046 
   
 
 
   
 
 
 
NON-INTEREST
EXPENSE
          
Salaries and employee benefits
   5,399    4,901 
Occupancy and equipment
   1,341    1,478 
Professional fees
   465    561 
Data processing and communications
   1,300    1,035 
Federal deposit insurance
   190    264 
Advertising and promotion
   110    119 
Office expense
   97    54 
Other real estate expenses
   —      9 
Core deposit intangible
   135    154 
Other
   735    693 
   
 
 
   
 
 
 
TOTAL NON-INTEREST EXPENSE
   9,772    9,268 
   
 
 
   
 
 
 
INCOME BEFORE INCOME TAX EXPENSE
   7,998    7,632 
INCOME TAX EXPENSE
   1,901    1,611 
   
 
 
   
 
 
 
NET INCOME
  $6,097   $6,021 
   
 
 
   
 
 
 
Earnings per common share-basic
  $0.97   $0.93 
Earnings per common share-diluted
  $0.95   $0.91 
Dividends declared per common share
  $0.30   $0.25 
See accompanying notes to unaudited consolidated financial statements.
 
2
Table of Contents
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
 
         
   
Three Months Ended
March 31,
 
   
2023
  
2022
 
NET INCOME
  $6,097  $6,021 
Other comprehensive income (loss)
         
Unrealized gains (losses) arising during period on securities
available-for-sale
   1,739   (6,113) 
Tax effect
   (498)   1,591 
   
 
 
  
 
 
 
Total other comprehensive income (loss)
   1,241   (4,522) 
   
 
 
  
 
 
 
COMPREHENSIVE INCOME
  $7,338  $1,499 
   
 
 
  
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
3
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except per share data)
 
   
Common
Stock
  
Paid-in

Capital
   
Treasury
Stock
  
Retained
Earnings
  
Accumulated
Other
Comprehensive

(Loss) Income
  
Total
 
Three Months Ended March 31, 2023 and 2022
                          
Balance, December 31, 2021
  $34,100  $ 80,220   $(10,032)  $ 111,451  $839  $216,578 
Net income
   —     —      —     6,021   —     6,021 
Other comprehensive loss
   —     —      —     —     (4,522)   (4,522) 
Stock options exercised (6,450 shares)
   32   73    —     —     —     105 
Directors compensation (4,019 shares)
   44   165    —     —     —     209 
Dividends declared $0.25 per share
   —     —      —     (1,668)   —     (1,668) 
Purchase of treasury stock (124,440 shares)
   —     —      (3,615)   —     —     (3,615) 
Dividend reinvestment plan (802 shares)
   5   10    —     9   —     24 
Stock-based compensation expense
   —     108    —     —     —     108 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance, March 31, 2022
  $34,181  $80,576   $(13,647)  $115,813  $(3,683)  $213,240 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2022
  $34,547  $81,291   $(19,452)  $131,488  $(8,273)  $219,601 
Net income
   —     —      —     6,097   —     6,097 
Other comprehensive loss
   —     —      —     —     1,241   1,241 
Adoption of CECL
   —     —      —     (284)   —     (284) 
Formation of Princeton Bancorp, Inc.
   (34,547)   15,095    19,452   —     —     —   
Stock options exercised (16,307 shares)
   —     297    —     —     —     297 
Dividends declared $0.30 per share
   —     —      —     (1,843)   —     (1,843) 
Dividend reinvestment plan (958 shares)
   —     33    —     (33)   —     —   
Stock-based compensation expense
   —     164    —     —     —     164 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance, March 31, 2023
  $—    $96,880   $—    $135,425  $(7,032)  $225,273 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to unaudited consolidated financial statements.
 
4
Table of Contents
PRINCETON BANCORP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
Three Months Ended March 31,
 
   
2023
  
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net income
  $6,097  $6,021 
Adjustments to reconcile net income to net cash provided by operating activities:
         
Provision for credit losses
   265   —   
Depreciation and amortization
   305   317 
Stock-based compensation expense
   164   108 
Amortization of premiums and accretion of discount on securities
   11   16 
Accretion of net deferred loan fees and costs
   (534)   (1,853) 
Income earned from small business investment company (“SBIC”) Investment
   (181)   —   
Increase in cash surrender value of bank-owned life insurance
   (290)   (282) 
Deferred income tax benefit
   (793)   (20) 
Amortization of core deposit intangible
   136   155 
Decrease in accrued interest receivable and other assets
   2,233   1,972 
Decrease in accrued interest payable and other liabilities
   (227)   (1,797) 
   
 
 
  
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
   7,186   4,637 
   
 
 
  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
         
Purchases of
available-for-sale
securities
   (345)   (4,318) 
Principal repayments of securities
available-for-sale
   839   2,453 
Maturities and calls of securities
available-for-sale
   305   450 
Maturities, calls and principal repayments of securities
held-to-maturity
   2   2 
Net increase in loans
   (18,840)   (58,105) 
Purchases of premises and equipment
   (245)   (250) 
Purchases of restricted bank stock
   (1,553)   (12) 
   
 
 
  
 
 
 
NET CASH USED IN INVESTMENT ACTIVITIES
   (19,837)   (59,780) 
   
 
 
  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
         
Net decrease in deposits
   (55,630)   (4,598) 
Proceeds from overnight borrowings
   34,500   —   
Cash dividends
   (1,876)   (1,668) 
Dividend reinvestment program
   33   24 
Purchase of treasury stock
   —     (3,615) 
Proceeds from exercise of stock options
   —     105 
Release of restricted stock units
   297   209 
   
 
 
  
 
 
 
NET CASH USED IN FINANCING ACTIVITIES
   (22,676)   (9,543) 
   
 
 
  
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   (35,327)   (64,686) 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   53,351   158,716 
   
 
 
  
 
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $18,024  $94,030 
   
 
 
  
 
 
 
SUPPLEMENTARY CASH FLOWS INFORMATION:
         
Interest paid
  $2,818  $1,597 
Income taxes paid
  $653  $435 
Reclass of
paid-in
capital related to holding company formation
  $15,095   —   
Reclass of treasury stock related to holding company formation
  $19,452   —   
Reclass of common stock related to holding company formation
  $(34,547)   —   
See accompanying notes to unaudited consolidated financial statements.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
Note 1 – Summary of Significant Accounting Policies
Organization and Nature of Operations
The Bank of Princeton (the “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation (“FDIC”). The area served by the Bank, through its 23 branches, is generally an area within an approximate
50-mile
radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also conducts loan origination activities in select areas of New York.
The Bank offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. As of
March 31, 2023
, the Company had 
179 total employees and 176 full-time equivalent employees.
On January 10, 2023 Princeton Bancorp, Inc., a Pennsylvania corporation (the “Company”) acquired all of the outstanding stock of the Bank. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company.
On October 19, 2022, the Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Noah Bank, a Pennsylvania-chartered bank (“Noah”). Pursuant to the terms and conditions set forth in the Merger Agreement, Noah will merge with and into TBOP Acquisition company, a newly-formed wholly owned subsidiary of the Bank, with Noah surviving (the “Merger”). The Company plans to merge Noah with and into the Company immediately after the Merger. The Merger Agreement has been approved by the boards of directors of each of the Company and Noah and by Noah’s shareholders.
Basis of Financial Statement Presentation
The unaudited consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, the Bank and its wholly owned subsidiaries: Bayard Lane, LLC, Bayard Properties, LLC, 112 Fifth Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and the FDIC. Accordingly, they do not include all the information and disclosures required by GAAP for annual financial statements. In management’s opinion, the unaudited consolidated financial statements contain all adjustments, which include normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period. These unaudited consolidated financial statements should be read in conjunction with the Company’s annual report on
Form 10-K
for the year ended December 31, 2022.
Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and evaluation of the potential impairment of goodwill.
Management believes that the allowance for credit losses is adequate as of March 31, 2023 and December 31, 2022. While management uses current information to recognize losses on loans, future additions to the allowance for credit losses may be necessary based on changes in economic conditions in the market area or other factors.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 1 – Summary of Significant Accounting Policies (continued)
 
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to effect certain changes that result in additions to the allowance based on their judgments about information available to them at the time of their examinations.
Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.
Recently issued accounting standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2020-04,
“Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or
re-measurements
of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU
2020-04
also provides numerous optional expedients for derivative accounting. ASU
2020-04
is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU
2020-04
for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and March 31, 2023 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and we do not anticipate any material impacts to the financial statements.
Recently adopted accounting standards
Effective January 1, 2023 the Company adopted the FASB issued ASU
2016-13,
“
Financial Instruments—Credit Losses,
” (“CECL”) which amends the Board’s guidance on the impairment of financial instruments, using the modified retrospective method. The amended guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Upon adoption of the new CECL standard, effective January 1, 2023, the Company recorded a
one-time
decrease, net of tax, in retained earnings of $284,000, a reduction to the allowance for credit losses of $301,000 and an increase in the reserve for unfunded liabilities of $695,000.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 2 – Earnings Per Share
 
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding for the period adjusted to include the effect of outstanding stock options, if dilutive, using the treasury stock method. Shares issued during any period are weighted for the portion of the period they were outstanding.
The following schedule presents earnings per share data for the three-month periods ended March 31, 2023 and 2022 (in thousands, except per share data):
 
   
Three months ended

March 31,
 
   
2023
   
2022
 
Net income applicable to common stock
  $6,097   $6,021 
Weighted average number of common shares outstanding
   6,257    6,465 
   
 
 
   
 
 
 
Basic earnings per share
  $0.97   $0.93 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income applicable to common stock
  $6,097   $6,021 
Weighted average number of common shares outstanding
   6,257    6,465 
Dilutive effect on common shares outstanding
   129    149 
   
 
 
   
 
 
 
Weighted average number of diluted common shares outstanding
   6,386    6,614 
   
 
 
   
 
 
 
Diluted earnings per share
  $0.95   $0.91 
   
 
 
   
 
 
 
The following schedule presents stock options granted but not exercised and the amount of share that were anti-dilutive because the weighted average exercise price equaled or exceeded the estimated fair value of our common stock for the three-month periods ended March 31, 2023 and 2022:
 
   
Three months ended March 31,
 
   
2023
   
2022
 
   Options   Weighted Ave
Exercise Price		   Options   Weighted Ave
Exercise Price		 
Options to purchase
   374,496   $22.01    343,570   $16.62 
Anti-dilutive
   —     $—      95,750   $32.45 
 
8
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 3 – Investment Securities
 
The following summarizes the amortized cost and fair value of securities
available-for-sale
at March 31, 2023 and December 31, 2022 with gross unrealized gains and losses therein:
 
   
March 31 , 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)
  $40,677   $3   $(5,981)   $34,699 
U.S. government agency securities
   6,260    —      (1,025)    5,235 
Obligations of state and political subdivisions
   44,844    67    (2,627)    42,284 
Small business investment company securities
   2,587    —      (293)    2,294 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $94,368   $70   $(9,926)   $84,512 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
   
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)
  $41,515   $2   $(6,602)   $34,915 
U.S. government agency securities
   6,260    —      (1,175)    5,085 
Obligations of state and political subdivisions
   45,161    8    (3,828)    41,341 
Small business investment company securities
   2,061    —      —      2,061 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $94,997   $10   $(11,605)   $83,402 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 3 – Investment Securities (continued)
 
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities
available-for-sale
at March 31, 2023 and December 31, 2022 are as follows:
 
   
Less than 12 Months
  
More than 12 Months
  
Total
 
   
Fair

Value
   
Unrealized

Losses
  
Fair

Value
   
Unrealized

Losses
  
Fair
Value
   
Unrealized
Losses
 
                       
March 31, 2023
  (In thousands) 
Mortgage-backed securities—U.S. government sponsored enterprises (GSEs)
  $6,557   $(195)  $27,940   $(5,786)  $34,497   $(5,981) 
U.S. government agency securities
   —     $—     5,235    (1,025)   5,235    (1,025) 
Obligations of state and political subdivisions
   10,642    (144)   22,499    (2,483)   33,141    (2,627) 
Small business investment company securities
   2,294    (293)   —      —     2,294    (293) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
Total
  $19,493   $(632)  $55,674   $(9,294)  $75,167   $(9,926) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
    
   
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)
  $15,605   $(1,778)  $19,137   $(4,824)  $34,742   $(6,602) 
U.S. government agency securities
   —      —     5,085    (1,175)   5,085    (1,175) 
Obligations of state and political subdivisions
   36,421    (3,457)   1,352    (371)   37,773    (3,828) 
Small business investment company securities
   —      —     —      —     —      —   
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
   $52,026   $(5,235)  $25,574   $(6,370)  $77,600   $(11,605) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
   
 
 
 
The amortized cost and fair value of securities
available-for-sale
at March 31, 2023 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties:
 
   
Amortized

Cost
   
Fair Value
 
         
   (In thousands) 
Due in one year or less
  $675   $675 
Due after one year through five years
   4,719    4,641 
Due after five years through ten years
   26,436    25,263 
Due after ten years
   19,274    16,940 
Mortgage-backed securities (GSEs)
   40,677    34,699 
SBIC securities
   2,587    2,294 
   
 
 
   
 
 
 
   $94,368   $84,512 
   
 
 
   
 
 
 
There were no sales of securities
available-for-sale
or proceeds from calls for the three-month periods ended March 31, 2023 and March 31, 2022.
On January 1, 2023, the Company adopted ASU
2016-13
and implemented the CECL methodology for allowance for credit losses on its investment securities
available-for-sale.
The new CECL methodology replaces the other-than-temporary impairment model that previously existed. The company did not have a CECL day 1 impact attributable to its investment securities portfolio and did
not
have an allowance for credit losses on its investment securities available for sale as of March 31, 2023.
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 3 – Investment Securities (concluded)
 
The Company’s securities primarily consist of four types of instruments; U.S. guaranteed mortgage-backed securities, U.S guaranteed agency bonds, state and political subdivision issued bonds and one small business investment company security guaranteed by the U.S. government. We believe it is reasonable to expect that the securities with a credit guarantee of the U.S. government, will have a
zero-credit
loss. Therefore no reserve was recorded for U.S. guaranteed securities or bonds at March 31, 2023. The state and political subdivision securities carry a minimum investment rating of A. Some of the smaller municipalities also have insurance to cover the Company in the event of default. Therefore, the Company expects to have a
zero-credit
loss and no reserve was recorded as of March 31, 2023.
At March 31, 2023, the Comapny’s
available-for-sale
and
held-to-maturity
investment securities portfolio consisted of approximately 206 securities, of which 113
available-for-sale
securities were in an unrealized loss position for more than twelve months and 61
available-for-sale
securities were in a loss position for less than twelve months. The
available-for-sale
securities in a loss position for more than twelve months consisted of 77 municpal securities aggregating $22.5 million with a loss of $2.5 million, 32 mortgage-backed
securities-GSE
aggregating $27.9 million with a loss of $5.8 million and four agency securities aggregating $5.2 million with a loss of $1.0 million. The Company does not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. No OTTI charges were recorded for the three months ended March 31, 2023 and 2022.
There are no securities pledged as of March 31, 2023 and December 31, 2022.
Note 4 – Loans Receivable
Loans receivable, net at March 31, 2022 and December 31, 2022 were comprised of the following:
 
   
March 31,

2023
   
December 31,

2022
 
         
   (In thousands) 
Commercial real estate
  $864,497   $873,573 
Commercial and industrial
   30,916    28,859 
Construction
   442,693    417,538 
Residential first-lien mortgage
   42,566    43,125 
Home equity/consumer
   7,535    7,260 
Paycheck protection program (PPP) -phase I
   1,239    1,307 
Paycheck protection program (PPP) -phase II
   1,077    1,162 
   
 
 
   
 
 
 
Total loans
   1,390,523    1,372,824 
Deferred fees and costs
   (1,948)    (2,456) 
   
 
 
   
 
 
 
Loans, net
  $1,388,575   $1,370,368 
   
 
 
   
 
 
 
The Company did not purchase any loans during the three months ended March 31, 2023 and 2022, respectively.
Upon adoption of CECL the Company has elected to use the discounted cash flow methodology in determining the appropriate quantitative adjustments, which projects future losses, based on historical loss data, as part of the allowance for credit losses (“ACL”) reserve. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an
assessment
of the lending environment, including underwriting standards and other factors affecting credit quality.
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 4 – Loans Receivable (continued)
 
The following table presents the components of the allowance for credit losses:
 
   
March 31,
2023
   
December 31,
2022
 
         
   (In thousands) 
Allowance for credit losses—loans
  $(16,507)   $(16,461) 
Allowance for credit losses—off balance sheet
   (949)    (332) 
   
 
 
   
 
 
 
   $(17,456)   $(16,793) 
   
 
 
   
 
 
 
The following table presents nonaccrual loans by segment of the loan portfolio as of March 31, 2023 and December 31, 2022:
 
   
March 31, 2023
   
December 31, 2023
 
   
With a
Related
Allowance
   
Without a
Related
Allowance
   
With a
Related
Allowance
   
Without a
Related
Allowance
 
                 
   (In thousands) 
Commercial real estate
  $—     $6,193   $—     $—   
Construction
   148    —      148    —   
Residential first-lien mortgage
   —      114    —      118 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total nonaccrual loans
  $148   $6,307   $148   $118 
   
 
 
   
 
 
   
 
 
   
 
 
 
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loan receivables by the length of time a recorded payment is past due. The following table presents the segments of the loan portfolio, excluding PPP loans, summarized by the past due status as of March 31,
2023
:
 
   
30-59

Days
Past
Due
   
60-89

Days
Past
Due
   
Greater

than

90 days
   
Total

Past

Due
   
Current
   
Total

Loans

Receivable
   
Loans

Receivable

>90 Days

and

Accruing
 
                             
   (In thousands) 
Commercial real estate
  $—     $—     $6,193   $6,193   $ 858,304   $864,497   $—   
Commercial and industrial
   —      —      —      —      30,916    30,916    —   
Construction
   —      —      148    148    442,545    442,693    —   
Residential first-lien mortgage
   —      —      —      —      42,566    42,566    —   
Home equity/consumer
   —      —      —      —      7,535    7,535    —   
PPP Phase I & II
1
       171    171    2,145    2,316    171 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $—     $6,512   $6,512   $1,384,011   $1,390,523   $171 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
 
PPP loans that are classified as past due in the table above, have applied for or are in the process of requesting loan forgiveness from the SBA.
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 4 – Loans Receivable (continued)
 
The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2022:
 
   
30-59

Days
Past
Due
   
60-89

Days
Past
Due
   
Greater

than

90 days
   
Total

Past

Due
   
Current
   
Total

Loans

Receivable
   
Loans

Receivable

>90 Days

and

Accruing
 
               (In thousands)             
Commercial real estate
  $—     $6,193   $—     $6,193   $867,380   $873,573   $—   
Commercial and industrial
   —      —      —      —      28,859    28,859    —   
Construction
   —      —      148    148    417,390    417,538    —   
Residential first-lien mortgage
   1,292    —      118    1,410    41,715    43,125    —   
Home equity/Consumer
   —      —      —      —      7,260    7,260    —   
PPP Phase I & II
1
   255         184    439    2,030    2,469    184 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $1,547   $6,193   $450   $8,190   $1,364,634   $1,372,824   $184 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
 
PPP loans that are classified as past due in the table above, have applied for or are in the process of requesting loan forgiveness from the SBA.
The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis and assigns one of the following ratings; pass, special mention, substandard and doubtful. The Company engages a third party to review its assessment on a semiannual basis. The Company classifies residential and consumer loans as either performing or nonperforming based on payment status.
There were no loans charged off during the three months ended March 31, 2023 that would require additional disclosure.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 4 – Loans Receivable (continued)
 
The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of March 31, 2023:
 
   
2023
   
2022
   
2021
   
2020
   
2019
   
Prior
   
Revolving
Loans
   
Total
 
                                 
   (Dollars in thousands) 
Commercial real estate
                                        
Pass
  
$
1,690   
$
205,254   
$
74,625   
$
52,319   
$
149,358   
$
366,663   $5,547   $855,457 
Special mention
   —      —      —      —      —      2,848    —      2,848 
Substandard
   —      —      —      —      —      6,193    —      6,193 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total commercial real estate
   1,690    205,254    74,625    52,319    149,358    375,704    5,547    864,497 
Commercial and industrial
1
                                        
Pass
   803    3,127    1,309    560    5,831    3,289    15,488    30,408 
Special mention
   —      —      —      —      —      508    —      508 
Substandard
   —      —      —      —      —      —      —      —   
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total commercial and industrial
   803    3,127    1,309    560    5,831    3,797    15,488    30,916 
Construction
                                        
Pass
   —      6,904    142,187    9,718    —      14,301    266,510    439,620 
Special mention
   —      —      —      2,925    —      —      —      2,925 
Substandard
   —      —      —      —      —      148    —      148 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total construction
   —      6,904    142,187    12,643    —      14,450    266,510    442,693 
Residential first-lien mortgage
                                        
Performing
   —      1,053    6,075    2,910    1,594    30,820    —      42,452 
Nonperforming
   —      —      —      —      —      114    —      114 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total residential first-lien mortgage
   —      1,053    6,075    2,910    1,594    30,934    —      42,566 
Home equity/consumer
                                        
Performing
   164    814    367    5    —      2,588    3,598    7,535 
Nonperforming
   —      —      —      —      —      —      —      —   
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total home equity/consumer
   164    814    367    5    —      2,588    3,598    7,535 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Loans
  
$
2,657   
$
217,153   
$
224,563   
$
68,436   
$
156,784   
$
427,472   
$
291,143   $1,388,207 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
 
Due to the guarantee by the Small Business Association the PPP loans were not included in this table.
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2022:
 
   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Total
 
                     
   (In thousands) 
Commercial real estate
  $864,497   $2,883   $6,193   $—     $873,573 
Commercial and industrial
   28,350    509    —      —      28,859 
Construction
   417,390    —      148    —      417,538 
Residential first-lien mortgage
   43,007    —      118    —      43,125 
Home equity/consumer
   7,260    —      —      —      7,260 
PPP
   2,469    —      —      —      2,469 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total with no related allowance
  $1,362,973   $3,392   $6,459   $—     $1,372,824 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
14
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 4 – Loans Receivable (continued)
 
The following table presents the allowance for credit losses on loans receivable at and for the three months ended March 31, 2023:

 
  
Commercial
real estate
 
 
Commercial
and
industrial
 
 
Construction
 
 
Residential
first-lien
mortgage
 
 
Home equity/
consumer
 
  
PPP
 
  
Unallocated
 
 
Total
 
 
  
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
  
 
 
  
 
 
 
 
 
Allowance for credit losses:
                                   
Beginning balance
  $8,654  $271  $6,289  $236  $45   $—   $966  $16,461 
CECL adoption
   1,384   (73)   (1,269)   428   195    —      (966)   (301) 
Provision
1
   (4)   16   329   (10)   13    —      —     344 
Charge-offs
   —     —     —     —     —      —      —     —   
Recoveries
   3   —     —     —     —      —      —     3 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $10,037  $214  $5,349  $654  $253   $—     $—    $16,507 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
Ending Balance:
                                   
Individually evaluated
  $—    $—    $118  $—    $—     $—     $—    $118 
Collectively evaluated
   10,037   214   5,231   654   253    —      —     16,389 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
   $10,037  $214  $5,349  $654  $253   $—     $—    $16,507 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 

1
 
The provision for credit losses on the Consolidated Statement of Income is $265,000 comprising a $344,000 increase to the allowance for credit losses on loans and a $79,000 reduction to the reserve for unfunded liabilities.
The following table presents the recorded investment in loans receivable at March 31, 2023:

 
  
Commercial
real estate
 
  
Commercial
and
industrial
 
  
Construction
 
  
Residential
first-lien
mortgage
 
  
Home equity/
consumer
 
  
PPP
 
  
Unallocated
 
  
Total
 
 
  
 
 
  
 
 
  
 
 
  
(In thousands)
 
  
 
 
  
 
 
  
 
 
  
 
 
Loans:
                                        
Ending Balance:
                                        
Individually evaluated
  $6,685   $11   $248   $121   $80   $—     $—     $7,145 
Collectively evaluated
   857,812    30,905    442,445    42,445    7,455    2,316    —      1,383,378 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $864,497   $30,916   $442,693   $42,566   $7,535   $2,316   $—     $1,390,523 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table presents the allowance for loan losses on loans receivables at and for the three months ended March 31, 2022:

 
  
Commercial
real estate
 
  
Commercial
and
industrial
 
  
Construction
 
  
Residential
first-lien
mortgage
 
  
Home equity/
consumer
 
  
PPP
 
  
Unallocated
 
  
Total
 
 
  
 
 
  
 
 
  
 
 
  
(In thousands)
 
  
 
 
  
 
 
  
 
 
  
 
 
Allowance for loan losses:
                                        
Beginning balance
  $7,458   $713   $7,228   $267   $48   $—     $906   $16,620 
Provision
   —      —      —      —      —      —      —      —   
Charge-offs
   —      —      —      —      —      —      —      —   
Recoveries
   34    —      —      —      —      —      —      34 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $7,492   $713   $7,228   $267   $48   $—     $906   $16,654 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 

15
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 4 – Loans Receivable (concluded)
 
The following table presents the recorded investment of loans receivables and allowance for loan losses at December 31, 2022:
 
   
Commercial
real estate
   
Commercial
and
industrial
   
Construction
   
Residential
first-lien
mortgage
   
Home equity/
consumer
   
PPP
   
Unallocated
   
Total
 
               (In thousands)                 
Loans:
                                        
Ending Balance:
                                        
Individually evaluated for impairment
  $12,030   $10   $148   $118   $71   $—     $—     $12,377 
Collectively evaluated for impairment
   861,543    28,849    417,390    43,007    7,189    2,469    —      1,360,447 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $873,573   $28,859   $417,538   $43,125   $7,260   $2,469   $—     $1,372,824 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Allowance for loan losses:
                                        
Ending Balance:
                                        
Individually evaluated for impairment
  $—     $—     $118   $—     $—     $—     $—     $118 
Collectively evaluated for impairment
   8,654    271    6,171    236    45    —      966    16,343 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $8,654   $271   $6,289   $236   $45   $—     $966   $16,461 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
At March 31, 2023,
non-performing
assets totaled $6.5 million, an increase of $6.2 million, when compared to the amount at December 31, 2022. This increase was due to the delinquency of a $6.2 million commercial real estate loan. The loan is sufficiently secured by a
mixed-use
property comprising two buildings each with retail units and residential apartments. The property is located in New York City.
The Company classifies certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty are modified. Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction, or some combination of the concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications. Effective January 1, 2023, performing 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.
Note 5 – Deposits
The components of deposits were as follows:
 
   
March 31,
2023
  
December 31,
2022
 
        
       (Dollars in thousands)     
Demand,
non-interest-bearing
checking
  $218,709    16.93%  $265,078    19.67% 
Demand, interest-bearing checking
   244,889    18.95%   269,737    20.01% 
Savings
   173,502    13.43%   190,686    14.15% 
Money Market
   263,874    20.42%   283,652    21.05% 
Time deposits, $
250,000
and over
   88,378    6.84%   83,410    6.19% 
Time deposits, other
   302,748    23.43%   255,167    18.93% 
   
 
 
   
 
 
  
 
 
   
 
 
 
   $1,292,100    100.00%  $1,347,730    100.00% 
   
 
 
   
 
 
  
 
 
   
 
 
 
Note 6 – Borrowings
At March 31, 2023, the Company had overnight borrowings outstanding in the amount of $44.5 million at a rate of 4.99% and $10.0 million at a rate of 4.61% at December 31, 2022.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 7 – Fair Value Measurements and Disclosures
The Company follows the guidance on fair value measurements now codified as FASB ASC Topic 820,
Fair Value Measurement
(“Topic 820”)
.
 Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective
period-end
and have not been
re-evaluated
or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each
period-end.
The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level
 1
: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level
 2
: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level
 3
: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023 were as follows:
 
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
March 31,
2023
 
                 
       (In thousands)     
Mortgage-backed securities
-U.S.
government sponsored enterprise (GSEs)
  $—     $34,699   $—     $34,699 
U.S. government agency securities
   —      5,235    —      5,235 
Obligations of state and political subdivisions
   —      42,284    —      42,284 
SBIC securities
   —      —      2,294    2,294 
   
 
 
   
 
 
   
 
 
   
 
 
 
Securities
available-for-sale
at fair value
  $—     $82,218   $2,294   $84,512 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 7 – Fair Value Measurements and Disclosures (continued)
 
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy, used at December 31, 2022 were as follows:
 
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)
  $—     $34,915   $—     $34,915 
U.S. government agency securities
        5,085    —      5,085 
Obligations of state and political subdivisions
   —      41,341    —      41,341 
SBIC securities
   —      —      2,061    2,061 
   
 
 
   
 
 
   
 
 
   
 
 
 
Securities
available-for-sale
at fair value
  $—     $81,341   $2,061   $83,402 
   
 
 
   
 
 
   
 
 
   
 
 
 
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023, were as follows:
 
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
March 31,
2023
 
                 
       (In thousands)     
Impaired loans
  $—   $—     $30   $30 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $—   $—     $30   $30 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table presents quantitative information using Level 3 fair value measurements at March 31, 2023.
 
Description
  
March 31,
2023
   
Valuation
Technique
   
Unobservable
Input
   
(Weighted
Average)
 
                 
       (Dollars in thousands)     
              Discount    6.0% 
Impaired loans
  $30    Collateral
1
 		   adjustment    (6.0%) 
 
1
 
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 7 – Fair Value Measurements and Disclosures (continued)
 
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2022, were as follows:

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
  $—     $—     $30   $30 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $—     $—     $30   $30 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
The following table presents quantitative information using Level 3 fair value measurements at December 31, 2022.
 
Description
  
Fair Value
December 31,
2022
   
Valuation
Technique
   
Unobservable
Input
   
Range
(Weighted
Average)
 
                 
       (Dollars in thousands)     
              Discount    6.0% 
Impaired loans
  $30    Collateral
1
 		   adjustment    (6.0%) 
 
1
 
Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
There were no transfers between fair value hierarchy levels during the three months ended March 31, 2023 and 2022. The Company’s policy is to recognize transfers between levels as of the end of the reporting period.
The following methods and assumptions were used by the Company in estimating fair value disclosures:
Investment Securities
The fair value of securities
available-for-sale
(carried at fair value) and
held-to-maturity
(carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Impaired loans (generally carried at fair value)
Impaired loans carried at fair value are those impaired loans in which the Company has measured impairment generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 7 – Fair Value Measurements and Disclosures (continued)
 
The carrying amounts and estimated fair value of financial instruments at March 31, 2023 are as follows
 
   
March 31, 2023
 
   
Carrying
Amount
   
Estimated
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
                     
           (In thousands)         
Financial Assets:
                         
Cash and cash equivalents
  $18,024   $18,024   $18,024   $—     $—   
Securities AFS
   84,512    84,512    —      82,218    2,294 
Securities HTM
   199    199    —      199    —   
Loans receivable, net
   1,372,068    1,373,440    —      —      1,373,440 
Restricted bank stock
   3,295    3,295    —      3,295    —   
Accrued interest receivable
   4,865    4,865    —      4,865    —   
Financial Liabilities
                         
Deposits
   1,292,100    1,204,237    —      1,204,237    —   
Borrowings
   44,500    44,500    —      44,500    —   
Accrued interest payable
   2,160    2,160    —      2,160    —   
The carrying amounts and estimated fair value of financial instruments at December 31, 2022 are as follows:
 
   
December 31, 2022
 
   
Carrying
Amount
   
Estimated
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
                     
           (In thousands)         
Financial Assets:
                         
Cash and cash equivalents
  $53,351   $53,351   $53,351   $—     $—   
Securities AFS
   83,402    83,402    —      81,341    2,061 
Securities HTM
   201    200    —      200    —   
Loans receivable, net
   1,353,907    1,347,137    —      —      1,347,137 
Restricted bank stock
   1,742    1,742    —      1,742    —   
Accrued interest receivable
   4,756    4,756    —      4,756    —   
Financial Liabilities
                         
Deposits
   1,347,730    1,225,087         1,225,087    —   
Borrowings
   10,000    10,000         10,000      
Accrued interest payable
   1,027    1,027    —      1,027    —   
The fair value of cash and cash equivalents, restricted bank stock, accrued interest receivable, and accrued interest payable are measured at the Company’s carrying amount.
The fair value of loans and deposits are measured on a discounted basis using similar rates and terms.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
 
20
Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 7 – Fair Value Measurements and Disclosures (concluded)
 
Limitations
The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all the financial instruments were offered for sale. This is due to the fact that no market exists for a sizable portion of the loan, deposit and
off-balance
sheet instruments.
In addition, the fair value estimates are based on existing on and
off-balance
sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be practical due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
Note 8 – Leases
Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use asset (“ROU”) and a lease liability for all leases with terms longer than 12 months. The Company is obligated under 20 operating lease agreements for 19 branches and its corporate offices with terms extending through 2039. The Company’s lease agreements include options to renew at the Company’s discretion. The extensions are reasonably certain to be exercised, therefore they were considered in the calculations of the ROU asset and lease liability.
The following table represents the classification of the Company’s right of use and lease liability:
 
   
Statement of Financial

Condition Location
   
March 31, 2023
   
December 31, 2022
 
             
       (In thousands) 
Operating Lease Right of Use Asset:
               
Gross carrying amount
       $16,026   $17,919 
Accumulated amortization
        (319)    (1,893) 
        
 
 
   
 
 
 
Net book value
   
Operating lease right-of-use asset
   $15,707   $16,026 
        
 
 
   
 
 
 
Operating Lease Liability:
               
        
 
 
   
 
 
 
Lease liability
   Operating lease liability   $16,466   $16,772 
        
 
 
   
 
 
 
As of March 31, 2023, the weighted-average remaining lease terms for operating leases was 11.1 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.54%. The Company used FHLB fixed rate advances at the time the lease was placed in service for the term most closely aligning with remaining lease term.
 
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Table of Contents
PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 8 – Leases (continued)
 
   
Three Months Ended
March 31,
 
   
2023
   
2022
 
         
   (In thousands) 
Lease cost:
          
Operating lease
  $665   $700 
Short-term lease cost
   2    24 
   
 
 
   
 
 
 
Total lease cost
  $667   $724 
   
 
 
   
 
 
 
Other information:
          
   
 
 
   
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
  $585   $573 
   
 
 
   
 
 
 
Future minimum payments under operating leases with terms longer than 12 months are as follows at March 31, 2023 (in thousands):
 
Twelve months ended March 31,
     
2024
  $2,227 
2025
   2,074 
2026
   2,000 
2027
   1,795 
2028
   1,499 
Thereafter
   10,014 
   
 
 
 
Total future operating lease payment
   19,609 
Amounts representing interest
   (3,143) 
   
 
 
 
Present value of net future lease payments
  $16,466 
   
 
 
 
Note 9 – Goodwill and Core Deposit Intangible
On May 17, 2019, the Bank acquired five branches which were accounted for under FASB ASC 805,
Business Combinations
.
In accordance with ASC 805, the Bank recorded $8.9 million of goodwill along with $4.2 million of core deposit intangible assets. The intangible assets are related to core deposits and are being amortized over 10 years, using the sum of the year’s digits. For tax purposes, goodwill totaling $8.9 million is tax deductible and will be amortized over 15 years straight line. Except as set forth below, GAAP requires that goodwill be tested for impairment annually (with the annual evaluation occurring on May 31 of each year) or more frequently if impairment indicators arise. The reporting unit was determined to be our community banking operations, which is our only operating segment.
ASC Topic
350-20
requires an at least annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not likely that (less than 50% probability) the fair value of the Reporting Unit is less than Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired. After performing the qualitative factor test, the result was the Company determined that it was not more likely than not that the fair value of the Reporting Unit is less than the Carrying Value; therefore a quantitative test was not required as of May 31, 2022.
 
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PRINCETON BANCORP, INC.
Notes to Consolidated Financial Statements (unaudited)
 
Note 9 – Goodwill and Core Deposit Intangible (continued)
 
The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows:
 
   
Goodwill
   
Core Deposit
Intangible
 
         
   (In thousands) 
Balance at December 31, 2022
  $8,853   $1,825 
Amortization expense
   —      (135) 
   
 
 
   
 
 
 
Balance at March 31, 2023
  $8,853   $1,690 
   
 
 
   
 
 
 
As of March 31, 2023, the remaining current fiscal year and future fiscal periods amortization for the core deposit intangible is (in thousands):
 
2023
  $357 
2024
   415 
2025
   338 
2026
   261 
2027
   183 
Thereafter
   136 
   
 
 
 
Total
  $1,690 
   
 
 
 
Note 10 – Subsequent Event
On April 19, 2023, the Board of Directors declared a cash dividend of $0.30 per share of common stock to shareholders of record on May 9, 2023, payable on May 26, 2023.
Note 11 – Risk and Uncertainties
The occurrence of events which adversely affect the global, national and regional economies may have a negative impact on our business. Like other financial institutions, our business relies upon the ability and willingness of our customers to transact business with us, including banking, borrowing and other financial transactions. A strong and stable economy at each of the local, federal and global levels is often a critical component of consumer confidence and typically correlates positively with our customers’ ability and willingness to transact certain types of business with us. Local and global events outside of our control which disrupt the New Jersey, Pennsylvania, New York, United States and/or global economy may therefore negatively impact our business and financial condition.
Government economic programs intended to backstop and bolster the economy through the pandemic, such as the PPP have ended, and the nation’s economy has entered an inflationary phase. The Consumer Price Index has risen at levels not experienced since the 1980s while the labor market remains very tight, contributing additional inflationary pressure. To address the inflation problem, the Federal Reserve has reversed course on its previously accommodative monetary policies and aggressively increased short-term interest rates. These actions are intended to slow overall economic activity and risk entering the economy into a recession. The conflict between Russia and Ukraine has exacerbated pandemic-related supply chain issues, upset numerous global markets including energy and certain raw materials, and generally added to economic uncertainty and geopolitical instability. Any or all could have negative downstream effects on the Company’s operating results, the extent of which is indeterminable at this time.
 
 
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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 factor 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, suppy 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 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 the 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 pending acquisition of Noah; ability to meet other closing conditions to that acquisition; delay in closing the acquisition; 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; those risks set forth in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors,” 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

The Company was incorporated on February 23, 2022 under the laws of the Commonwealth of Pennsylvania and became the holding company of the Bank on January 10, 2023. The Bank is a New Jersey state-chartered bank that commenced operations on April 23, 2007. The Bank is a full-service bank providing personal and business lending and deposit services. The Bank has 20 branches in New Jersey, including three in Princeton and others in Bordentown, Browns Mills, Chesterfield, Cream Ridge, Deptford, Hamilton, Lambertville, Lawrenceville, Lakewood, Monroe, New Brunswick, Pennington, Princeton Junction, Quakerbridge and Sicklerville. There are also four branches in the Philadelphia, Pennsylvania area. The Bank of Princeton is a member of the FDIC. The Bank also conducts loan origination activities in select areas of New York.

 

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Since we commenced operations, we have grown through both de novo branching and acquisitions. In April 2023, the Company opened a new branch in Kingston, New Jersey.

On October 19, 2022, the Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Noah Bank, a Pennsylvania-chartered bank (“Noah”). Pursuant to the terms and conditions set forth in the Merger Agreement, Noah will merge with and into TBOP Acquisition company, a newly-formed wholly owned subsidiary of the Bank, with Noah surviving (the “Merger”). The Bank plans to merge Noah with and into the Bank immediately after the Merger. The Company has received the requisite approvals of the Merger Agreement from the Federal Deposit Insurance Corporation, and the Pennsylvania and New Jersey state bank regulators. The Company anticipates that the Merger will close in the second quarter of 2023.

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 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 the Russian invasion of Ukraine. However, the unemployment rate in New Jersey is below the national average.

Comparison of Financial Condition at March 31, 2023 and December 31, 2022

General

Total assets were $1.59 billion at March 31, 2023, a decrease of $16.5 million, or 1.0% when compared to $1.60 billion at the end of 2022. The primary reason for the decrease in total assets was a decrease in cash and cash equivalents of approximately $35.3 million, partially offset by an increase of $18.2 million in net loans. The increase in net loans consisted of a $25.2 million increase in construction loans and a $2.1 million increase in commercial and industrial loans, partially offset by a decrease of $9.1 million in commercial real estate loans

Cash and cash equivalents

Cash and cash equivalents decreased $35.3 million, or 66.2%, to $18.0 million at March 31, 2023 compared to December 31, 2022. This decrease was primarily due to the funding of net loans of $18.2 million and a reduction in outstanding deposits of approximately $55.6 million.

Investment securities

Total available-for-sale investment securities increased slightly to $84.5 million at March 31, 2023 compared to $83.4 million at December 31, 2022. This increase was a result of approximately $1.7 million related to unrealized losses in the available-for-sale securities portfolio resulting from the recent rate changes, $839 thousand in principal payments and $305 thousand in called or matured securities, partially offset by $345 thousand in new purchases added to the available-for-sale securities portfolio.

 

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Loans

Loans, net of deferred loan fees, increased $18.2 million to $1.39 billion at March 31, 2023 compared to $1.37 billion at December 31, 2022, or 1.3%. This increase was due to a $25.2 million increase in construction loans and a $2.1 million increase in commercial and industrial loans, partially offset by a $9.1 million reduction in commercial real estate loans.

The Company recorded a provision for credit losses of $265 thousand during the three months ended March 31, 2023. Net recoveries for the three-month period ended March 31, 2023 were $3 thousand and $34 thousand for the three-month period ended March 31, 2022. Upon adoption of the Current Expected Credit Losses (“CECL”) method of calculating the allowance for credit losses on January 1, 2023, the Company 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 first quarter of 2023, the Company recorded a provision for credit losses of $265 thousand in total representing a $344 thousand increase in the allowance for credit losses and a $79 thousand reduction to the reserve for credit losses on unfunded liabilities. The coverage ratio of allowance for credit losses to period end loans was 1.19% at March 31, 2023, compared to 1.20% at December 31, 2022.

At March 31, 2023, non-performing assets totaled $6.5 million, an increase of $6.2 million, when compared to the amount at December 31, 2022. This increase was due to the delinquency of a $6.2 million commercial real estate loan. The loan is sufficiently secured by a mixed-use property comprising two buildings each with retail units and residential apartments. The property is located in New York City.

Upon the adoption of the CECL method of calculating the allowance for credit losses effective January 1, 2023, 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.

Deferred Taxes

Deferred taxes increased $185 thousand to $7.8 million at March 31, 2023 compared to December 31, 2022. The increase was primarily due to a $550 thousand transfer to federal income taxes payable, a $111 thousand increase related to the adoption of CECL, partially offset by a $498 thousand decrease due to the reduction in unrealized losses on available-for-sale securities.

Deposits

Total deposits at March 31, 2023 decreased $55.6 million, or 4.1%, when compared to December 31, 2022. When comparing deposit products between the two periods, non-interest-bearing demand deposits decreased $46.4 million, interest-bearing demand deposits decreased $24.8, money market deposits decreased $19.8 million and savings deposits decreased $17.2 million. Certificates of deposit increased $52.5 million, partially offsetting these decreases.

Borrowings

The Company had $44.5 million in outstanding borrowings at March 31, 2023 an increase from $10.0 million at December 31, 2022.

Stockholders’ equity

Total stockholders’ equity at March 31, 2023 increased $5.7 million, or 2.6%, when compared to the end of 2022. This increase was primarily due to the $3.9 million increase in retained earnings consisting of $6.1 million of net income less $1.9 million of cash dividends recorded during the period, and a $1.2 million reduction in the accumulated other comprehensive loss on the available-for-sale investment portfolio associated with a decrease in unrealized losses. The ratio of equity to total assets at March 31, 2023 and at December 31, 2022, was 14.2% and 13.7%, respectively.

 

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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 commercial real estate loan collateral, and a $80.0 million line of credit with the FHLB supporting municipal deposits, the Company had the ability to borrow $122.6 million as of March 31, 2023.

The Company is also a shareholder of Atlantic Community Bancshares, Inc., the parent company of Atlantic Community Bankers Bank (“ACBB”). As of March 31, 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 March 31, 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 March 31, 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 March 31, 2023, that the Bank meets all capital adequacy requirements to which it is subject and is “well capitalized” under applicable regulations.

 

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The Bank’s actual capital amounts and ratios and the regulatory requirements at March 31, 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 the thousands)

 

March 31, 2023:

          

Total capital (to risk-weighted assets)

  $238,269    15.563%  $160,751    10.500%  $153,096    10.000% 

Tier 1 capital (to risk-weighted assets)

  $221,762    14.485%  $130,132    8.500%  $122,477    8.000% 

Common equity tier 1 capital (to-risk weighted assets)

  $221,762    14.485%  $107,167    7.000%  $99,512    6.500% 

Tier 1 leverage capital (to average assets)

  $221,762    14.084%  $102,351    6.500%  $78,731    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 March 31, 2023 and 2022

General

The Company reported net income of $6.1 million, or $0.95 per diluted common share, for the first quarter of 2023, compared to net income of $6.0 million, or $0.91 per diluted common share, for the first quarter of 2022. Although net income for the first quarter of 2023 was only slightly higher than the net income for same period in 2022, net interest income was $807 thousand above the first quarter of 2022 and non-interest income was also higher by $328 thousand. Increases of $504 thousand in non-interest expense and $265 thousand in the provision for credit losses almost entirely offset the increases in income from the first quarter of 2022 to the same period in 2023.

Interest income

Interest income increased $3.5 million for the three months ended March 31, 2023 compared to the same period in 2022. Interest income on loans increased $3.4 million due to increases in both the average balance of loans of $29.1 million and the yield of 89 basis points. Other interest and dividend income increased $96 thousand due to an increase in the yield of 445 basis points, partially offset by a decrease in the average balance of $110.7 million, and interest on taxable available-for-sale securities increased $55 thousand due to an increases in yield of 93 basis points, partially offset by a decrease in the average balance of $10.0 million.

Interest expense

Interest expense on deposits increased $2.6 million to $3.9 million for the three-month period ended March 31, 2023, due to an increase in the rate paid on interest-bearing deposits of 102 basis points, partially offset by a reduction of $76.8 million in the average balance of interest-bearing deposits over the same prior year period.

Interest expense on borrowings was $86 thousand during the three-month period ended March 31, 2023 and there was no interest expense on borrowings during the same period in 2022.

 

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Provision for loan losses

The Company recorded a provision for credit losses of $265 thousand during the three months ended March 31, 2023 and no provision for the three months ended March 31, 2022. Net recoveries for the three-month periods ended March 31, 2023 and 2022 were $3 thousand and $34 thousand, respectively. Upon adoption of the CECL method of calculating the allowance for credit losses on January 1, 2023, the Company 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 first quarter of 2023, the Company recorded a provision for credit losses of $265 thousand, representing a $344 thousand increase in the allowance for credit losses on loans and a $79 thousand reduction to the reserve for unfunded liabilities. The coverage ratio of allowance for credit losses to period end loans was 1.19% at both March 31, 2023 and at March 31, 2022. Refer to Note 4 – Loans of this document to see additional information regarding the Company’s adoption of CECL. See the section titled “Financial Condition —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, including additional information regarding the determination of the provision for loan losses.

Non-interest income

Total non-interest income of $1.4 million for the first quarter of 2023 increased $328 thousand, or by 31.4%, when compared to the quarter ended March 31, 2022. The increase over the first quarter of 2022 was primarily due to a $256 thousand increase in loan fees and a $91 thousand increase in other non-interest income.

Non-interest expense

Total non-interest expense for the first quarter of 2023 increased $504 thousand, or 5.4%, when compared to the same period in 2022. This increase was primarily due to a $498 thousand increase in salaries and benefits expenses and a $265 thousand increase in data processing and communications expenses, partially offset by decreases in occupancy and equipment expenses of $137 thousand, professional fees of $96 thousand and federal deposit insurance expense of $74 thousand.

Provision for income taxes

For the three-month period ended March 31, 2023, the Company recorded an income tax expense of $1.9 million, resulting in an effective tax rate of 23.8%, compared to an income tax expense of $1.6 million resulting in an effective tax rate of 21.1% for the three-month period ended March 31, 2022. The effective tax rate was impacted by legislation enacted by the Governor of the State of New York establishing an economic nexus threshold of $1.0 million in New York City (“NYC”) receipts for purposes of the NYC business corporation tax for tax years beginning on or after January 1, 2022. The Company’s effective tax rate increased as a result of this legislation.

 

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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 and have been annualized. Tax-exempt incomes and yields have not been adjusted to a tax-equivalent basis.

 

   

Three Months Ended March 31,

       
   2023  2022  Change 2023 vs 2022 
   Average
Balances		   Income/
Expense		   Yield
Rates		  Average
Balances		   Income/
Expense		   Yield
Rates		  Average
Balances		  Yield
Rates		 
                              
   

(Dollars in thousands)

 

Interest-earning assets:

             

Loans receivable

  $1,375,849   $19,894    5.86%  $1,346,733   $16,492    4.97%  $ 29,116   0.89% 

Securities

             

Taxable available-for-sale

   42,235    278    2.66%   52,221    223    1.73%   (9,986)   0.93% 

Tax exempt available-for-sale

   41,634    284    2.77%   48,605    303    2.53%   (6,971)   0.24% 

Held-to-maturity

   200    3    5.36%   207    3    5.35%   (7)   0.01% 

Federal funds sold

   8,454    95    4.56%   119,581    43    0.15%   (111,127)   4.41% 

Other interest earning-assets

   5,001    58    4.77%   4,546    14    1.25%   455   3.52% 
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

  

Total interest-earning assets

   1,473,373   $20,612    5.67%   1,571,893   $17,078    4.41%   (98,520)   1.26% 
    

 

 

      

 

 

     

Other non-earnings assets

   109,354       108,280       1,074  
  

 

 

      

 

 

      

 

 

  

Total assets

  $1,582,727      $1,680,173      $(97,446)  
  

 

 

      

 

 

      

 

 

  

Interest-bearing liabilities

             

Demand

  $264,507   $551    0.84%  $257,978   $160    0.25%  $ 6,529   0.59% 

Savings

   182,763    417    0.92%   232,136    136    0.24%   (49,373)   0.68% 

Money markets

   268,814    1,158    1.75%   376,517    247    0.27%   (107,703)   1.48% 

Certificates of deposit

   364,470    1,739    1.94%   290,686    681    0.95%   73,784   0.99% 
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

  

Total deposit

   1,080,554    3,865    1.45%   1,157,317    1,224    0.43%   (76,763)   1.02% 

Borrowings

   6,993    86    4.99%   —      —      0.00%   6,993   4.99% 
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

  

Total interest-bearing liabilities

   1,087,547   $3,951    1.47%   1,157,317   $1,224    0.43%   (69,770)   1.04% 
  

 

 

   

 

 

      

 

 

     

Non-interest-bearing deposits

   242,814       285,298       (42,484)  

Other liabilities

   28,587       20,505       8,082  
  

 

 

      

 

 

      

 

 

  

Total liabilities

   1,358,948       1,463,120       (104,172)  

Stockholders’ equity

   223,779       217,053       6,726  
  

 

 

      

 

 

      

 

 

  

Total liabilities and stockholder’s equity

  $1,582,727      $1,680,173      $(97,446)  
  

 

 

      

 

 

      

 

 

  

Net interest-earnings assets

  $385,826      $414,576      $(28,750)  

Net interest income; interest rate spread

       4.20%       3.98%    0.22% 
    

 

 

      

 

 

    

 

 

  

Net interest margin

    $16,661    4.59%    $15,854    4.09%  $ 807   0.50% 
    

 

 

      

 

 

    

 

 

  

Net interest margin FTE1

       4.66%       4.14%    0.52% 

 

1

Includes federal and state tax effect of tax exempt securities and loans.

 

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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 March 31,
2023 vs . 2022
Increase (Decrease) Due to		 
   Rate   Volume   Net 
             
   

(In thousands)

 

Interest and dividend income:

      

Loans receivable, including fees

  $1,140   $2,262   $3,402 

Securities avalable-for-sale

      

Taxable

   212    (157)    55 

Tax-exempt

   54    (73)    (19) 

Securities held-to-maturity

   —      —      —   

Federal funds sold

   908    (856)    52 

Other interest-earning assets

   28    16    44 
  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

  $2,342   $1,192   $3,534 
  

 

 

   

 

 

   

 

 

 

Interest expense:

      

Demand

  $332   $59   $391 

Savings

   555    (274)    281 

Money market

   1,753    (842)    911 

Certificates of deposit

   211    847    1,058 

Borrowings

   —      86    86 
  

 

 

   

 

 

   

 

 

 

Total interest expense

  $2,852   $(125)   $2,727 
  

 

 

   

 

 

   

 

 

 

Change in net interest income

  $(510)   $1,317   $807 
  

 

 

   

 

 

   

 

 

 

 

31

Table of Contents

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 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 March 31, 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 March 31, 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.

 

32

Table of Contents
   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		 

(Dollars in thousands)

        

Interest-earning assets: (1)

        

Investment securities

  $ 11,452  $3,530  $6,575  $7,213  $65,708  $(9,767)  $84,711 

Loans receivable

   537,176   171,446   323,895   278,050   79,908   (18,407)   1,372,068 

Other interest-earnings assets (2)

   11,236   —     —     —     —     10,083   21,319 

Other non-interest assets

   —     —     —     —     —     107,222   107,222 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-earning assets

  $559,864  $174,976  $330,470  $285,263  $145,616  $(18,091)  $1,585,320 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Interest-bearing liabilities:

        

Checking and savings accounts

  $ 10,808  $407,583  $—    $—    $—    $—    $418,391 

Money market accounts

   14,317   249,557   —     —     —     —     263,874 

Certificate accounts

   43,030   160,463   168,426   19,207   —     —     391,126 

Borrowings

   40,500   —     —     —     —     —     40,500 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing liabilities

  $108,655  $817,603  $168,426  $19,207  $—    $—    $1,113,891 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Interest-earning assets less interest-bearing liabilities

  $451,209  $(642,627)  $162,044  $266,056  $145,616  $(18,091)  $471,429 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cumulative interest-rate sensitivity gap (3)

  $451,209  $(191,418)  $(29,374)  $236,682  $382,298   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

Cumulative interest-rate gap as a percentage of total assets at March 31, 2023

   28.46%   -12.07%   -1.85%   14.93%   24.11%   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2023

   515.27%   79.33%   97.32%   121.25%   134.32%   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

(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.

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 March 31, 2023 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

 

33

Table of Contents

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

  $308,493   $(4,140)   -1.32%   -6.08%   -5.49% 

200

  $317,135   $4,502   1.44%   -4.02%   -3.43% 

100

  $316,901   $4,268   1.37%   -2.28%   -1.70% 

Static

  $312,633   $—      -0.59%  

(100)

  $312,423   $(210)   -0.07%   0.85%   1.43% 

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 March 31, 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 March 31, 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.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting identified during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

34

Table of Contents

PART II–OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

The following represents a material change in our risk factors from those disclosed in Part I – “Item 1A. Risk Factors” in the 2022 Form 10-K.

Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.

The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Company, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Company could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

Rising interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the fair value of our securities classified as available for sale has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses embedded in other comprehensive income as a part of shareholders’ equity. If the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

 

35

Table of Contents

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

 

Exhibit
Number

  

Description

10.1  The Bank of Princeton Non-Employee Directors Deferred Compensation Plan*
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)

 

36

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: May 11, 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)

 

37

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