The Bank of Princeton Announces Third Quarter 2020 Results

PRINCETON, N.J., Oct. 22, 2020 /PRNewswire/ -- The Bank of Princeton (the "Bank") (NASDAQ – BPRN) today reported its unaudited results of operations and financial condition for the quarter ended September 30, 2020.  The Bank reported net income of $3.5 million, or $0.52 per diluted common share, for the third quarter of 2020, compared to net income of $3.1 million, or $0.45 per diluted common share, for the second quarter of 2020, and net income of $3.7 million, or $0.54 per diluted common share, for the third quarter of 2019. The increase in net income, when compared to the three months ended June 30, 2020, was primarily due to a $772 thousand increase in net-interest income, a $405 thousand increase in non-interest income and a $460 thousand reduction in non-interest expense, partially offset by a $925 thousand increase in the Bank's provision for loan losses, and a $291 thousand increase in income tax expense.  The decrease in net income, when comparing it to the three months ended September 30, 2019, was primarily due to a $187 thousand increase in income tax expense.  For the nine month period ended September 30, 2020, the Bank recorded net income of $9.7 million, or $1.41 per diluted common share, compared to $6.8 million, or $0.98 per diluted common share for the same period in 2019. This increase over 2019's results was primarily due to a $4.2 million increase in net-interest income, a $1.1 million decrease in the Bank's provision for loan losses and a $1.0 million increase in non-interest income, partially offset by $2.4 million increase in non-interest expenses attributed to the Bank's strategy of branch expansion and a $1.1 million increase in income tax expense.

Highlights for the quarter-ended September 30, 2020 are as follows:

• The Bank opened three new branches located in Lakewood and Piscataway, New Jersey and Philadelphia, Pennsylvania.
• Net interest income for the three month period ended September 30, 2020 increased $2.0 million, or 18.7%, over the same period in 2019.
• The Bank decreased its cost of funds by 79 basis points during the three month period ended September 30, 2020, when compared to the same period in 2019.
• The Bank's efficiency ratio decreased to 52.91% for the three month period ended September 30, 2020.
• The ratio of non-performing assets to total assets was 0.15% at September 30, 2020 and 0.17% at December 31, 2019.

President/CEO Edward Dietzler stated that, "We are pleased to report strong third quarter earnings, despite the continued economic challenges created by the ongoing COVID-19 pandemic.  The Bank continues to show improvement in the cost of funds paid on deposits and significantly reduced its loan modifications to 5.4% of net loans outstanding at September 30, 2020, from a high of 19.7%."

Chairman Richard Gillespie added, "Bank management and employees have been especially nimble and attentive to the needs of our customers during the changing COVID-19 environment.  We continue to be well positioned for the near term with both strong deposit growth and loan demand".

Balance Sheet Review

Total assets were $1.55 billion at September 30, 2020, an increase of $94.9 million or 6.5% when compared to $1.45 billion at the end of 2019. The primary reason for the increase in total assets was due to an increase of net loans of approximately $148.0 million, primarily consisting of Payroll Protection Program ("PPP") loans guaranteed by the U.S. government, which have a maturity of 24-60 months.

Total deposits at September 30, 2020 increased by $73.4 million, or 5.9%, when compared to December 31, 2019, primarily due to loan proceeds maintained in non-interest demand accounts from customers who received PPP loans as well as growth from new branches added since year end 2019.  When comparing deposit products between the two periods, non-interest checking increased $79.0 million, savings increased $23.1 million and money markets increased $3.5 million. These increases were partially offset by a decrease of $25.8 million in certificates of deposit and $6.4 million in interest bearing checking accounts. In addition, at September 30, 2020 the Bank had borrowings totaling $8.0 million compared to no outstanding borrowings at December 31, 2019.  

Total stockholders' equity at September 30, 2020 increased $9.2 million or 4.7% when compared to the end of 2019. This increase was primarily due to earnings recorded during the nine months of 2020, and an increase of $1.1 million in the fair-value of the available-for-sale investment portfolio.   The ratio of equity to total assets at September 30, 2020 was 13.2% compared to 13.5% at December 31, 2019, as the current period ratio was impacted by the 6.5% growth in assets.

Asset Quality

At September 30, 2020, non-performing assets were $2.4 million, a decrease of $59 thousand, or 0.15%, when compared to the amount at December 31, 2019.  This decrease at September 30, 2020 from December 31, 2019 was primarily due to principal payments on non-performing loans during the period.  Total troubled debt restructurings ("TDR") totaled $8.9 million at September 30, 2020, compared to $9.3 million at December 31, 2019, a decrease of $405 thousand or 4.4%. All TDR's are performing to their agreed upon terms.

As part of the Bank's commitment to provide assistance during the COVID-19 pandemic, the Bank agreed to defer either the principal portion or both principal and interest payments for its customers who requested the deferral and were not delinquent prior to the government shut down.  The Bank is seeing favorable trend as a majority of customers have returned to their regular payment schedule. As of September 30, 2020, the Bank had remaining 36 loans that were modified totaling $72.1 million, down from the 240 loans totaling $263.5 million originally approved, for such deferment reported as of June 30, 2020. Under current accounting guidance, these loans are not required to be classified as TDR's.

Review of Quarterly Financial Results

Net interest income was $12.8 million for the third quarter of 2020, compared to $12.0 million for the second quarter of 2020 and $10.8 million for the third quarter of 2019.  The increase from the previous quarter was a result of an increase in interest income of $186 thousand and a $586 thousand, or 17.8%,  decrease in interest paid on liabilities,  partially resulting from a 28 basis points reduction in the yield on interest bearing deposits.  The net interest margin for the third quarter of 2020 was 3.45%, increasing 2 basis points when compared to the second quarter of 2020. This increase was primarily associated with a reduction of 28 basis points in total cost of funds, partially offset by a 19 basis points reduction in the yield on earning assets. When comparing the three month periods ended September 30, 2020 and 2019, net interest income increased $2.0 million, which was primarily due to a reduction in interest expense of $1.8 million and by an increase in interest income of $235 thousand.  The reduction in cost of funds was attributed to decline of 79 basis points in the rate paid on its interest-bearing liabilities resulting from the two FOMC rate reductions in March of 2020 totaling 150 basis points and the three 25 basis points reductions during 2019.

For the nine month period ended September 30, 2020, net interest income was $35.3 million, an increase of $4.2 million, or 13.7%, over the same period in 2019.  This increase was due a $1.3 million increase in interest earned on earning assets and a $2.9 million decline in interest expense. For the nine month period ended September 30, 2020, the average outstanding balance of earning assets increased by $167.3 million and average outstanding balance of interest-bearing liabilities increased $79.4 million.  The total rate on interest-bearing liabilities, which includes non-interest-bearing deposits, for the three month periods ended September 30, 2020 and 2019 was 0.80% and 1.55%, respectively.  For the nine month periods ended September 30, 2020 and 2019 the total rate on interest-bearing liabilities, which includes non-interest bearing deposits, was 1.25% and 1.61%, respectively.

The provision for credit losses was $1.9 million for the three month period ended September 30, 2020.  The comparable amounts were $1.0 million and $125 thousand for the three months ended June 30, 2020 and September 30, 2019, respectively. The primary reason for the provision in the third quarter was due to an increase in the Bank's general reserves.  The general reserves increase was due to increases in qualitative factors due to  uncertainties of the economic impact from the COVID-19 pandemic and an increase in the historical loss factor resulting from increased levels of prior period charge-offs.  As of September 30, 2020, the Bank did not apply any qualitative factors to the loans originated from PPP, based on the U.S government's guarantee and the Coronavirus Aid, Relief and Economic Securities Act requirement to classify these loans at 0% in determining risk-based capital ratio.  The rate of allowance for credit losses to period end loans was 1.14% (excluding PPP loans, the coverage ratio was 1.32%) at September 30, 2020, compared to 1.06% at December 31, 2019 and 1.09% at September 30, 2019, which reflects management's assessment of the credit quality in the loan portfolio.

At September 30, 2020,the Bank's concentration in the loan portfolio associated with the segments management believes could be effected by the pandemic: restaurants, hotels and retail, totaled $17.4 million, $50.0 million and $50.2 million, respectively.  

Total non-interest income for the third quarter of 2020 increased $198 thousand to $1.3 million, or 18.4%, when compared to the same period in 2019. This increase was primarily due to an increase in service charges on deposits and loan fees collected.   When compared to the three month periods ended June 30, 2020, total non-interest income for the third quarter of 2020 increased by $405 thousand, or 46.6%, primarily due an increase of $246 thousand in loan fees and $116 thousand in service charges collected.  For the nine month period ended September 30, 2020, non-interest income increased $1.0 million, or 40.3%, primarily due to an increase of $550 thousand from the gains recorded from the sale of investment securities available-for-sale, $326 thousand  in service charges collected and $127 thousand in loan fees.

Total non-interest expense for the third quarter of 2020 increased $394 thousand, or 5.5%, when compared to the same period in 2019.  This increase was primarily due to an increase in additional operating cost associated with the Bank's branch expansion strategy.  When comparing September 30, 2020 to the immediately prior quarter, non-interest expense decreased $460 thousand, or 5.7%, primarily due to decreases in salaries and employee benefits' expense and other operating expenses resulting from attrition within operations of the Bank related to the economic slowdown caused by the pandemic as well operational economies achieved during the quarter, partially offset by an increase in occupancy and equipment expenses, professional fees, data processing and communication expenses, advertising expenses and office expense. For the nine month period ended September 30, 2020, non-interest expense was $23.2 million, compared to $20.9 million for the same period in 2019. The increase was due to an increase in additional operating cost associated with the Bank's branch expansion strategy, partially offset by acquisition costs recorded relating to our Beneficial Bank branch acquisition in 2019.

For the three month period ended September 30, 2020, the Bank recorded an income tax expense of $988 thousand, resulting in an effective tax rate of 21.9%, compared to an income tax expense of $697 thousand resulting in an effective tax rate of 18.2% for the three month period ended June 30, 2020, and compared to an income tax expense of $801 thousand resulting in an effective tax rate of 17.7% for the three month period ended September 30, 2019. During the third quarter of 2020, the New Jersey Governor signed a law extending and retroactively increasing New Jersey's corporation business tax surtax,  by 1.0% to 2.5%. The effective tax rate for all three periods were impacted by the level of tax-free income against the level of taxable earnings.

COVID-19

The full impact of the coronavirus continues to evolve as of the date of this press release. As such, it is uncertain as to the full magnitude that the pandemic will have on the Bank's financial condition, liquidity and future results of operations.  

The Bank continues to work closely with its loan customers to educate and guide them on their options for financial assistance, including the PPP and payment relief through deferral and waived fees.  The Bank continues to endeavor to provide a fast and flexible response to the quickly changing circumstances and is confident it will navigate successfully through these trying times. 

About The Bank of Princeton

The Bank of Princeton is a community bank founded in 2007.  The Bank is a New Jersey state-chartered commercial bank with 20 branches in New Jersey, including four in Princeton and others in Bordentown, Browns Mills, Chesterfield, Cream Ridge, Deptford, Hamilton, Lakewood, Lambertville, Lawrenceville, Monroe, New Brunswick, Pennington, Piscataway, Princeton Junction, Quakerbridge and Sicklerville.  There are also four branches in the Philadelphia, Pennsylvania area. The Bank of Princeton is a member of the Federal Deposit Insurance Corporation ("FDIC").

Forward-Looking Statements

The Bank of Princeton may from time to time make written or oral "forward-looking statements," including statements contained in the Bank's filings with the FDIC, in its reports to stockholders and in other communications by the Bank (including this press release), which are made in good faith by the Bank 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 Bank's plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Bank's control). The following factors, among others, could cause the Bank's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the extent of the adverse impact of the current global coronavirus outbreak on our customers, prospects and business, as well as 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 Bank conducts 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 Bank; technological changes; acquisitions; 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, 2019 under the heading "Risk Factors," as modified in the Bank's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and the success of the Bank at managing the risks involved in the foregoing.

The Bank cautions that the foregoing list of important factors is not exclusive. The Bank 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 Bank, except as required by applicable law or regulation.

Contact George Rapp 609.454.0718[email protected]