The Bank of Princeton Announces Fourth Quarter and Year-end 2021 Results

The Bank of Princeton (the “Bank”) (NASDAQ: BPRN) today reported its unaudited results of operations and financial condition for the quarter ended December 31, 2021.

The Bank reported net income of $6.2 million, or $0.92 per diluted common share, for the fourth quarter of 2021, compared to net income of $5.9 million, or $0.88 per diluted common share, for the third quarter of 2021, and net income of $4.1 million, or $0.60 per diluted common share, for the fourth quarter of 2020.

The increase in net income, when compared to the three months ended September 30, 2021, was primarily due to a reduction of $900 thousand in the provision for loan loss, and a $149 thousand increase in non-interest income, partially offset by $414 thousand increase in non-interest expense and by a $268 thousand increase in income tax expense. The increase in net income, when comparing it to the three months ended December 31, 2020, was primarily due to an increase in net interest income of $2.4 million, a $1.4 million decrease in the provision for loan losses and a $297 thousand increase in non-interest income, partially offset by a $1.1 million increase in non-interest expense and a $948 thousand increase in income tax expenses.

Highlights for the quarter-ended December 31, 2021 are as follows:

The Bank completed its 2021 stock buyback program during the fourth quarter by purchasing an additional 112,597 shares of common stock at a weighted average price of $30.23.
Net interest income for the fourth quarter of 2021 increased $2.4 million or 17.9% over the same period in 2020.
The Bank decreased its cost of funds on deposits by 34 basis points in the fourth quarter of 2021 from the same period in 2020.
The Bank’s efficiency ratio decreased to 50.4% for the fourth quarter of 2021 compared to 52.6% for the fourth quarter of 2020.
The ratio of nonperforming loans to total loans continues to be low at 0.09% as of December 31, 2021 compared to 0.12% at December 31, 2020 and compared to 0.16% at September 30, 2021.
President/CEO Edward Dietzler stated that, “The Bank finished up 2021 with a very strong performance overall, including a 63% improvement over last year’s net income, along with strong loan growth after backing out the reduction in the Payroll Protection Program loans, and deposit growth.”

Balance Sheet Review

Total assets were $1.69 billion at December 31, 2021, an increase of $83.3 million, or 5.2% when compared to $1.60 billion at the end of 2020. The primary reason for the increase in total assets was an increase in cash and cash equivalents of approximately $81.3 million, and a $25.5 million increase in available-for-sale securities, partially offset by a decrease of $28.9 million in net loans. The decreases in net loans primarily consisted of a $96.1 million decrease in Payroll Protection Program (“PPP”) loans due to loan payoffs and the federal government’s termination of the program, a decrease of $41.0 million in commercial real estate loans and a $20.5 million decrease in residential loans and home equity/consumer loans, partially offset by an increase of $140.6 million in construction loans during the twelve month period covered.

Total deposits at December 31, 2021 increased by $78.9 million, or 5.8%, when compared to December 31, 2020, primarily due to loan proceeds maintained in non-interest demand accounts from customers who received PPP loans, and stimulus payments to individuals under the American Rescue Plan Act, as well as growth from new branches added during the third quarter of 2020. When comparing deposit products between the two periods, non-interest checking increased $70.9 million, savings increased $46.6 million and money markets increased $67.8 million. These increases were partially offset by a decrease in interest-bearing demand accounts of $29.7 million, primarily consisting of municipal deposits, and a decrease of $76.7 million in certificates of deposit. In addition, the Bank had no outstanding borrowings at December 31, 2021 and December 31, 2020.

Total stockholders’ equity at December 31, 2021 increased $7.8 million or 3.7% when compared to the end of 2020. This increase was primarily due to the $22.5 million of earnings recorded during the twelve months of 2021, offset by the $10.0 million of common stock repurchased, the $4.4 million of cash dividends paid during the period, and the $952 thousand decrease in the accumulated other comprehensive income on the available-for-sale investment portfolio related to an increase in the treasury interest rate yield curve. The Bank completed its 2021 stock buyback program during the fourth quarter and in total repurchased 339,788 shares of common stock at a total cost of $10.0 million and a weighted average cost of $29.53 per share. The ratio of equity to total assets at December 31, 2021 and at December 31, 2020, was $12.8% and 13.0%, respectively.

Asset Quality

At December 31, 2021, non-performing assets were $1.4 million, a decrease of $262 thousand, or 15.6%, when compared to the amount at December 31, 2020. This decrease at December 31, 2021 from December 31, 2020 was primarily due to the removal of three loans totaling $1.2 million offset by one new loan totaling $766 thousand that was classified as non-performing, along with the addition of an other real estate owned property valued at $226 thousand. Troubled debt restructurings (“TDR”) totaled $6.9 million at December 31, 2021 and $8.6 million at December 31, 2020. Three TDR loans totaling $6.1 million are performing to their agreed upon terms and the remaining one loan remained in non-accrual status as of December 31, 2021.

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 has seen a favorable trend as a vast majority of customers have returned to their regular payment schedule. As of December 31, 2021, the Bank had remaining 1 loan that was modified totaling $9.0 million, compared to 14 loans (consisting of nine borrowers) that were modified totaling $45.0 million at December 31, 2020, and 240 loans totaling $263.5 million originally approved for such deferment and reported as of June 30, 2020. Under current accounting guidance, these loans are not required to be classified as TDRs.

Review of Quarterly Financial Results

Net-interest income was $16.0 million for the fourth quarter of 2021, compared to $16.1 million for the third quarter of 2021 and to $13.6 million for the fourth quarter of 2020. The decrease from the previous quarter was a result of a decrease in interest income, partially offset by a $134 thousand, or 8.7%, decrease in interest paid on liabilities, partially resulting from a 5 basis points reduction in the rate on interest bearing deposits. Interest income for the fourth quarter of 2021 included an approximately $1.4 million in accelerated accretion attributable to deferred fees received from PPP loans, due to the U.S. government forgiving the debt and paying off the loans. The net interest margin for the fourth quarter of 2021 was 3.96%, decreasing 12 basis points when compared to the third quarter of 2021. This decrease was primarily due to a 16 basis points reduction in the yield on the earning assets, partially offset by a reduction of 5 basis points in total interest cost of funds. When comparing the three month periods ended December 31, 2021 and 2020, net interest income increased $2.4 million, which was primarily due to an increase in interest income of $1.6 million caused by a $118.9 million increase in interest earning assets aided by a reduction in interest expense of $876 thousand. The reduction in interest expense was attributable to a decline of 34 basis points in the rate paid on its interest-bearing liabilities. For the twelve month period ended December 31, 2021, net interest income was $62.6 million, an increase of $13.8 million, or 28.1%, over 2020. This increase was due a $7.6 million increase in interest earned on earning assets and a $6.2 million decline in interest expense. For the twelve month period ended December 31, 2021, the average outstanding balance of earning assets increased by $127.0 million and average outstanding interest-bearing liabilities increased $57.1 million. The total rate on average interest-bearing liabilities, which includes non-interest-bearing deposits, for the three month periods ended December 31, 2021 and 2020 was 0.38% and 0.68%, respectively. For the twelve month periods ended December 31, 2021 and 2020 the total rate on average interest-bearing liabilities was 0.47% and 0.98%, respectively.

The provision for credit losses was $300 thousand for the three month period ended December 31, 2021. The comparable amounts were $1.2 million and $1.7 million for the three months ended September 30, 2021 and December 31, 2020, respectively. The primary reasons for the provision for credit losses for the fourth and third quarters of 2021 were charge-offs in the amounts of $245 thousand and $821 thousand, respectively. The primary reason for the provision in the fourth quarter of 2020 was due to charge-offs recorded in the period. As of December 31, 2021, 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 coverage rate of allowance for credit losses to period end loans was 1.24% (excluding PPP loans, the coverage ratio was 1.32%) at December 31, 2021, compared to 1.18% (excluding PPP loans, the coverage ratio was 1.35%) at December 31, 2020, which reflects management’s assessment of the credit quality in the loan portfolio.

At December 31, 2021, the Bank’s concentration in the loan portfolio associated with the segments management believes could be affected by the pandemic: restaurants and hotels totaled $23.9 million and $45.9 million, respectively.

Total non-interest income for the fourth quarter of 2021 increased $297 thousand, or 25.4%, to $1.5 million when compared to the same period in 2020. This increase was primarily due to a $371 thousand increase in loan fees and a $45 thousand increase in deposit fees earned. Total non-interest income when comparing fourth quarter of 2021 to third quarter of 2021 increased $149 thousand, primarily due to $121 thousand increase in loans fees and a $20 thousand increase in deposit fees earned. For the twelve month period ended December 31, 2021, non-interest income decreased $140 thousand, or 2.9%, from the 2020 twelve month period, primarily due to a $564 thousand gain on the sale of investment securities available-for sale recorded in the 2020 period.

Total non-interest expense for the fourth quarter of 2021 increased $1.1 million, or 13.3%, when compared to the same period in 2020. This increase was primarily due to an increase in additional operating cost associated with the Bank’s branch expansion strategy. When comparing the quarter ended December 31, 2021 to the immediately prior quarter, non-interest expense increased $414 thousand, or 4.8%, primarily due to increases in salaries and benefits expense, occupancy and equipment expenses, and OREO expenses. For the twelve month period ended December 31, 2021, non-interest expense was $34.5 million, compared to $31.1 million for the same period in 2020. This increase was primarily due to an increase in additional operating costs associated with the Bank’s branch expansion strategy.

For the three month period ended December 31, 2021, the Bank recorded an income tax expense of $2.0 million, resulting in an effective tax rate of 24.6%, compared to an income tax expense of $1.8 million resulting in an effective tax rate of 22.8% for the three month period ended September 30, 2021, and compared to an income tax expense of $1.1 million resulting in an effective tax rate of 20.7% for the three month period ended December 31, 2020. 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 the fourth and third quarters 2021 were impacted by the level of tax-free income against the level of taxable earnings. For the twelve month periods ended December 31, 2021 and 2020, the income tax expense was $6.7 million (effective tax rate of 23.0%) and $3.5 million (effective tax rate of 20.2%), respectively.

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 possible payment relief through deferral and waived fees. The Bank continues to endeavor to provide a fast and flexible response to the quickly changing circumstances.

 

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