The Bank of Princeton Announces Fourth Quarter 2020 Results

PRINCETON, N.J., Jan. 28, 2021 /PRNewswire/ -- The Bank of Princeton (the "Bank") (NASDAQ: BPRN) today reported its unaudited results of operations and financial condition for the quarter ended December 31, 2020.  The Bank reported net income of $4.1 million, or $0.60 per diluted common share, for the fourth quarter of 2020, compared to net income of $3.5 million, or $0.52 per diluted common share, for the third quarter of 2020, and net income of $3.4 million, or $0.49 per diluted common share, for the fourth quarter of 2019. The increase in net income, when compared to the three months ended September 30, 2020, was primarily due to a $789 thousand increase in net-interest income and a $275 thousand reduction in the provision for loan losses, partially offset by a $105 thousand decrease in non-interest income and a $316 thousand increase in non-interest expense. The increase in net income, when comparing it to the three months ended December 31, 2019, was primarily due to an increase in net-interest income of $3.2 million and a $376 thousand increase in non-interest income, partially offset by a $1.5 million increase in the provision for loan losses, a $1.0 million increase in non-interest operating expenses and a $256 thousand increase in income tax expense.  For the twelve month period ended December 31, 2020, the Bank recorded net income of $13.8 million, or $2.01 per diluted common share, compared to $10.1 million, or $1.47 per diluted common share for the same period in 2019. This increase over 2019's results was primarily due to a $7.4 million increase in net-interest income and a $1.4 million increase in non-interest income, partially offset by $3.4 million increase in non-interest expenses, a $1.3 million increase in income tax expense and a $425 thousand increase in the provision for loan losses.

Highlights for the quarter-ended December 31, 2020 are as follows:

• Net interest income for the fourth quarter of 2020 increased $3.2 million or 30.3% over the same period in 2019
• The Bank decreased its cost of funds by 89 basis points in the fourth quarter 2020 from the fourth quarter 2019.
• Non-interest income for the fourth quarter 2020 increased $376 thousand or 47.4% from the fourth quarter 2019.
• The Bank efficiency ratio decreased to 52.6% for the fourth quarter 2020 compared to 59.63% from the fourth quarter 2019.
• The ratio of nonperforming loans to total loans continues to be low at 0.12% as of December 31, 2020 compared to 0.21% at December 31, 2019

President/CEO Edward Dietzler stated that, "The Bank had a very strong fourth quarter and year for 2020 while contending with the economic headwind, created by the COVID-19 pandemic.  The Bank continues to realize a decline in cost of funds paid on deposits translating into a 36.1% increase in annual net income year over year."

Chairman Richard Gillespie added, "We are extremely proud of Bank's management and our employees for the response to the challenges of COVID-19.  Even while maintaining our focus on serving our customers through the pandemic, the Bank has made substantial strides toward increased profitability. We are well positioned for 2021."

Balance Sheet Review

Total assets were $1.60 billion at December 31, 2020, an increase of $147.9 million or 10.2% 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 in net loans of approximately $175.9 million, primarily consisting of phase one Payroll Protection Program ("PPP") loans guaranteed by the U.S. government.

Total deposits at December 31, 2020 increased by $129.4 million, or 10.5%, 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 $74.0 million, interest bearing demand accounts increased $76.2 million, savings increased $24.2 million and money markets increased $10.4 million. These increases were partially offset by a decrease of $55.4 million in certificates of deposit. In addition, the Bank had no outstanding borrowings at December 31, 2020 and 2019.  

Total stockholders' equity at December 31, 2020 increased $12.9 million or 6.6% when compared to the end of 2019. This increase was primarily due to earnings recorded during the twelve months of 2020 minus the cash dividend paid during the period, and an increase of $1.2 million in the fair-value of the available-for-sale investment portfolio.   The ratio of equity to total assets at December 31, 2020 was 13.0% compared to 13.5% at December 31, 2019, as the current period ratio was impacted by the 10.25% growth in assets.

Asset Quality

At December 31, 2020, non-performing assets were $1.7 million, a decrease of $766 thousand, or 31.4%, when compared to the amount at December 31, 2019.  This decrease at December 31, 2020 from December 31, 2019 was primarily due to $716 thousand in charge-offs, as well as $325 thousand in principal payments on non-performing loans, partially offset by two additional non-performing loans totaling $275 thousand.  Troubled debt restructurings ("TDR") totaled $8.7 million at December 31, 2020, compared to $9.3 million at December 31, 2019, a decrease of $589 thousand or 6.3%. Two loans totaling $2.3 million had deferred their payments resulting from 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 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 $13.6 million for the fourth quarter of 2020, compared to $12.8 million for the third quarter of 2020 and $10.4 million for the fourth quarter of 2019.  The increase from the previous quarter was a result of an increase in interest income of $367 thousand and a $422 thousand, or 15.6%, decrease in interest paid on liabilities, partially resulting from a 16 basis points reduction in the rate on interest bearing deposits.  The net interest margin for the fourth quarter of 2020 was 3.63%, increasing 18 basis points when compared to the third quarter of 2020. This increase was primarily associated with a reduction of 12 basis points in total interest cost of funds, and an increase of 7 basis points in the yield on earning assets. When comparing the three month periods ended December 31, 2020 and 2019, net interest income increased $3.2 million, which was primarily due to a reduction in interest expense of $2.5 million aided by an increase in interest income of $660 thousand caused by a $154.0 million increase in interest earning assets.  The reduction in interest expense was attributed to decline of 96 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 and the three 25 basis points reductions during 2019. The cost of funds rate was 0.68%, including non-interest deposits, for the fourth quarter 2020.

For the twelve month period ended December 31, 2020, net-interest income was $48.9 million, an increase of $7.4 million, or 17.8%, over the same period in 2019.  This increase was due a $2.0 million increase in interest income and a $5.4 million decline in interest expense. For the twelve month period ended December 31, 2020, the average outstanding balance of earning assets increased by $145.3 million and average outstanding balance of interest-bearing liabilities increased $63.0 million.  The total rate on liabilities, which includes non-interest-bearing deposits, for the three month periods ended December 31, 2020 and 2019 was 0.68% and 1.57%, respectively.  For the twelve month periods ended December 31, 2020 and 2019 the total rate on interest-bearing liabilities, which includes non-interest bearing deposits, was 0.98% and 1.60%, respectively.

The provision for credit losses was $1.7 million for the three month period ended December 31, 2020.  The comparable amounts were $1.9 million and $125 thousand for the three months ended September 30, 2020 and December 31, 2019, respectively. The primary reason for the elevated provision in the fourth 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  growth within the Bank's loan portfolio mainly in the construction and development loans, continued 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 December 31, 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 1.18% (excluding PPP loans, the coverage ratio was 1.35%) at December 31, 2020, compared to 1.06% at December 31, 2019, which reflects management's assessment of the credit quality in the loan portfolio.

At December 31, 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 $17.3 million, $49.4 million and $52.1 million, respectively.  

Total non-interest income for the fourth quarter of 2020 increased $376 thousand to $1.2 million, or 47.4%, 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 September 30, 2020, total non-interest income for the fourth quarter of 2020 decreased by $105 thousand, or 8.2%, primarily due an decrease of $77 thousand in loan fees and $31 thousand in gains recorded from investment securities available-for-sale.  For the twelve month period ended December 31, 2020, non-interest income increased $1.4 million, or 41.7%, primarily due to increases of $540 thousand from the gains recorded from the sale of investment securities available-for-sale, $431 thousand  in service charges collected and $391 thousand in loan fees.

Total non-interest expense for the fourth quarter of 2020 increased $1.0 million, or 15.1%, 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 December 31, 2020 to the immediately prior quarter, non-interest expense increased $316 thousand, or 4.2%, primarily due to increases in professional fees expense, Federal Deposit Insurance expense, occupancy and equipment expenses, data processing and communication expenses, and other operating expenses, partially offset by reductions in salaries and benefits expenses, advertising expense, and office expenses.  For the twelve month period ended December 31, 2020, non-interest expense was $31.1 million, compared to $27.7 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.

For the three month period ended December 31, 2020, the Bank recorded an income tax expense of $1.1 million, resulting in an effective tax rate of 20.7%, compared to an income tax expense of $988 thousand resulting in an effective tax rate of 21.8% for the three month period ended September 30, 2020, and compared to an income tax expense of $817 thousand resulting in an effective tax rate of 19.4% for the three month period ended December 31, 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 September 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]