PRINCETON, N.J., April 22, 2021 /PRNewswire/ -- The Bank of Princeton (the "Bank") (NASDAQ: BPRN) today reported its unaudited results of operations and financial condition for the quarter ended March 31, 2021. The Bank reported net income of $4.9 million, or $0.70 per diluted common share, for the first quarter of 2021, compared to net income of $4.1 million, or $0.60 per diluted common share, for the fourth quarter of 2020, and net income of $3.0 million, or $0.44 per diluted common share, for the first quarter of 2020. The increase in net income, when compared to the three months ended December 31, 2020, was primarily due to a $1.2 million increase in net-interest income and a $525 thousand reduction in the provision for loan losses, partially offset by a $307 thousand decrease in non-interest income and a $349 thousand increase in non-interest expense. The increase in net income, when comparing it to the three months ended March 31, 2020, was primarily due to an increase in net-interest income of $4.3 million partially offset by a $475 thousand increase in the provision for loan losses, a $628 thousand decrease in non-interest income, and a $676 thousand increase in non-interest operating expenses.
Highlights for the quarter-ended March 31, 2021 are as follows:
Total loans increased $94.2 million since December 31, 2020, to $1.5 billion or by 6.9%.
Net interest income for the first quarter of 2021 increased $4.3 million or 40.5% over the same period in 2020.
The Bank decreased its cost of funds by 88 basis points in the first quarter 2021 from the same period 2020.
The Bank efficiency ratio decreased to 51.8% for the first quarter 2021 compared to 64.3% from the first quarter 2020.
The ratio of nonperforming loans to total loans continues to be low at 0.14% as of March 31, 2021 compared to 0.12% at December 31, 2020 and compared to 0.22% at March 31, 2020.
President/CEO Edward Dietzler stated that, "The Bank started off the year very strong with a 17.5% increase in earnings per share with both asset and deposit growth as well as our net interest margin increasing 35 basis points from the fourth quarter of 2020."
Chairman Richard Gillespie added, "The Bank continues to outperform significantly even in the face of COVID-19 challenges. Our profitability continues to be well positioned for the balance of 2021."
Balance Sheet Review
Total assets were $1.68 billion at March 31, 2021, an increase of $81.7 million or 5.1% when compared to $1.60 billion at the end of 2020. The primary reason for the increase in total assets was due to an increase in net loans of approximately $91.7 million, primarily consisting of approximately $98.3 million in originations of phase two Payroll Protection Program ("PPP") loans guaranteed by the U.S. government, and a $53.4 million increase in construction loans, partially offset by a decrease of $42.8 million of PPP loans from the first phase as a result of the U.S. government forgiveness program.
Total deposits at March 31, 2021 increased by $31.4 million, or 2.3%, when compared to December 31, 2020, primarily due to loan proceeds maintained in non-interest demand accounts from customers who received PPP loans, stimulus payments to individuals under the recently enacted 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 $73.5 million, savings increased $14.1 million and money markets increased $19.6 million. These increases were partially offset by a decrease in interest-bearing demand accounts of $47.7 million, primarily municipal deposits and a decrease of $28.0 million in certificates of deposit. In addition, the Bank had approximately $43.0 million in overnight borrowings at March 31, 2021 and no outstanding borrowings at December 31, 2020.
Total stockholders' equity at March 31, 2021 increased $3.7 million or 1.8% when compared to the end of 2020. This increase was primarily due to earnings recorded during the three months of 2021 minus the cash dividend paid during the period, and minus the $552 thousand decrease in the fair-value of the available-for-sale investment portfolio related to increase in the treasury curve. The ratio of equity to total assets at March 31, 2021 was 12.6% compared to 13.0% at December 31, 2020, as the current period ratio was impacted by the 5.1% growth in assets.
At March 31, 2021, non-performing assets were $2.4 million, an increase of $822 thousand, or 49.1%, when compared to the amount at December 31, 2020. This increase at March 31, 2021 from December 31, 2020 was primarily due to the addition of three loans totaling $1.3 million being classified as non-performing, partially offset by $360 thousand in principal charge-offs. Troubled debt restructurings ("TDR") totaled $8.5 million at March 31, 2021 and $8.6 million at December 31, 2020. Two TDR loans totaling $2.3 million have deferred their payments under the COVID-19 loan deferral program and the remaining loans 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 a favorable trend as a majority of customers have returned to their regular payment schedule. As of March 31, 2021, the Bank had remaining 8 loans that were modified totaling $16.3 million, and at December 31, 2020, the Bank had remaining 14 loans that were modified totaling $45.0 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 $14.8 million for the first quarter of 2021, compared to $13.6 million for the fourth quarter of 2020 and $10.5 million for the first quarter of 2020. The increase from the previous quarter was a result of an increase in interest income of $933 thousand and a $256 thousand, or 11.2%, decrease in interest paid on liabilities, partially resulting from a 9 basis points reduction in the rate on interest bearing deposits. Interest income for the first three months of 2021 included an increase of $836 thousand in accretion from deferred fees received from the first phase of PPP loans, due to the U.S. government forgiving the debt and paying off the loans. The net interest margin for the first quarter of 2021 was 3.98%, increasing 35 basis points when compared to the fourth quarter of 2020. This increase was primarily associated with a reduction of 8 basis points in total interest cost of funds, and an increase of 28 basis points in the yield on earning assets. When comparing the three month periods ended March 31, 2021 and 2020, net interest income increased $4.3 million, which was primarily due to a reduction in interest expense of $2.5 million aided by an increase in interest income of $1.7 million caused by a $152.4 million increase in interest earning assets. The reduction in interest expense was attributed to decline of 95 basis points in the rate paid on its interest-bearing liabilities resulting from the two Federal Open Market Committee ("FOMC") rate reductions in March of 2020 totaling 150 basis points . The total cost of funds rate was 0.60%, including non-interest deposits, for the first quarter 2021.
The provision for credit losses was $1.1 million for the three month period ended March 31, 2021. The comparable amounts were $1.7 million and $650 thousand for the three months ended December 31, 2020 and March 31, 2020, respectively. The primary reason for the elevated provision in the first quarter 2021, when compared to the same period of 2020, was due to the Bank's partially charging off four loans totaling $1.1 million. The general reserves were also impacted by an increase in the qualitative factors dollar contribution to the reserve due to growth within the Bank's loan portfolio mainly in the construction and development loans and partially offset by a reduction in the historical loss factor resulting from decline in level of prior period charge-offs. As of March 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 rate of allowance for credit losses to period end loans was 1.10% (excluding PPP loans, the coverage ratio was 1.31%) at March 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 March 31, 2021, the Bank's concentration in the loan portfolio associated with the segment's management believes could be affected by the pandemic: restaurants, hotels and retail, which totaled $16.1 million, $37.6 million and $40.7 million, respectively.
Total non-interest income for the first quarter of 2021 decreased $628 thousand to $863 thousand, or by 42.1%, when compared to the same period in 2020. This decrease was primarily due to a $498 thousand reduction from the realized gains on the sale of available-for-sale securities portfolio and a $178 thousand reduction in loan fees collected. Total non-interest income when comparing first quarter of 2021 to the fourth quarter of 2020 decreased $307 thousand, primarily due to a reduction in loans fees.
Total non-interest expense for the first quarter of 2021 increased $676 thousand, or 8.9%, 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 March 31, 2021 to the immediately prior quarter, non-interest expense increased $349 thousand, or 4.4%, primarily due to increases in salaries and benefits expense, data processing expenses, and professional fees expense, partially offset by a reduction in Federal Deposit Insurance expense.
For the three month period ended March 31, 2021, the Bank recorded an income tax expense of $1.4 million, resulting in an effective tax rate of 22.2%, 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, and compared to an income tax expense of $726 thousand resulting in an effective tax rate of 19.3% for the three month period ended March 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 first quarter 2021 and the fourth quarter of 2020 were impacted by the level of tax-free income against the level of taxable earnings.
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").
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, 2020 under the heading "Risk Factors," 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.