The Bank of Princeton Announces Second Quarter 2020 Results

PRINCETON, N.J., July 23, 2020 /PRNewswire/ -- The Bank of Princeton (the "Bank") (NASDAQ – BPRN) today reported unaudited results of operations and financial condition for the quarter ended June 30, 2020.  The Bank reported net income of $3.1 million, or $0.45 per diluted common share, for the second quarter of 2020, compared to net income of $3.0 million, or $0.44 per diluted common share, for the first quarter of 2020, and net income of $2.8 million, or $0.41 per diluted common share, for the second quarter of 2019. The increase in net income, when comparing this most recent quarter to the three months ended March 31, 2020, was primarily due to a $1.5 million increase in net-interest income, partially offset by a $350 thousand increase in the Bank's provision for loan losses, a $621 thousand decrease in non-interest income and a $471 thousand increase in non-interest expenses.  The increase in net income, when comparing it to the three months ended June 30, 2019, was primarily due to a $1.6 million increase in net-interest income and a $141thousand increase in non-interest income, partially offset by a $650 thousand increase in the Bank's provision for loan losses and a $738 thousand increase in non-interest expenses.   For the six month period ended June 30, 2020, the Bank recorded net income of $6.2 million, or $0.89 per diluted common share, compared to $3.0 million, or $0.44 per diluted common share for the same period in 2019, primarily due to a $2.2 million increase in net-interest income, a $2.9 million decrease in the Bank's provision for loan losses and a $847 thousand increase in non-interest income, partially offset by $1.9 million increase in non-interest expenses attributed to the Bank's strategy of branch expansion.

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

• The Bank originated $175 million in loans under the U.S. government's Payroll Protection Program ("PPP"), generating $5.6 million in fees, only $434 thousand of which were recognized in the second quarter of 2020 and the remainder of which will be amortized over the life of the loans, which will be approximately 24 months.
• Net interest income for the three month period ended June 30, 2020 increased $1.6 million, or 15.8%, over the same period in 2019.
• The Bank decreased its cost of funds by 58 basis points during the three month period ended June 30, 2020, when compared to the same period in 2019.
• The ratio of non-performing assets to total assets was 0.15% at June 30, 2020.

President/CEO stated that, "We are pleased to report strong earnings this quarter, especially in light of the economic challenges created by the ongoing COVID-19 pandemic.  To date the Bank has approved over 1,400 PPP loans which equated to over $175 million of loans to small and medium sized businesses within our community who have experienced financial burdens from COVID-19.  In addition, I want to express my appreciation to the employees of the Bank for all their efforts and dedication during the crisis.  They have continued to provide quality customer service, despite the many obstacles created by the crisis."

Balance Sheet Review

Total assets were $1.59 billion at June 30, 2020, an increase of $138.2 million or 9.5% 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 $153.2 million, consisting of loans generated from the PPP loans guaranteed by the U.S. government, which have a maturity of 24 months.

Total deposits at June 30, 2020 increased by $123.8 million, or 10.0%, when compared to December 31, 2019, primarily due to loan proceeds maintained in non-interest demand accounts from customers who received PPP loans.  As of June 30, 2020, approximately $102.0 million remained in the non-interest-bearing demand accounts that PPP proceeds were deposited into.  When comparing deposit products between the two periods, non-interest checking increased $11.1 million (excluding deposits resulting from the PPP), savings increased $23.3 million, and time deposits increased by $8.5 million. These increases were partially offset by a decrease of $22.1 million in money market accounts. In addition, at June 30, 2020 and at December 31, 2019, the Bank did not have any outstanding borrowings.  

Total stockholders' equity at June 30, 2020 increased $6.3 million or 3.2% when compared to the end of 2019. This increase was primarily due to earnings recorded during the six months of 2020, 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 June 30, 2020 was 12.7% compared to 13.5% at December 31, 2019, as the current period ratio was impacted by the growth in assets.

Asset Quality

At June 30, 2020, non-performing assets were $2.4 million, a decrease of $55 thousand, or 0.15%, when compared to $2.4 million at December 31, 2019.  This decrease at June 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 $9.5 million at June 30, 2020, compared to $9.3 million at December 31, 2019, an increase of $225 thousand or 2.4%. Two commercial and industrial loans totaling $269 thousand were modified during the quarter. 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. As of June 30, 2020, the Bank approved 240 loans totaling $263.5 million in principal, or 19.58% of its gross loans, for such deferment. Under current accounting guidance, these loans are not required to be classified as TDR's.

Review of Quarterly Financial Results

Net interest income was $12.0 million for the second quarter of 2020, compared to $10.5 million for the first quarter of 2020 and $10.4 million for the second quarter of 2019.  The increase from the previous quarter was a result of a decrease in interest paid on liabilities of $1.2 million, or 27.3%, partially resulting from 150 basis points rate reduction by the Federal Open Market Committee ("FOMC") in March 2020, and an increase in interest income of $263 thousand.  The net interest margin for the second quarter of 2020 was 3.43%, increasing 30 basis points when compared to the first quarter of 2020. This increase was primarily associated with a reduction of 48 basis points in total cost of funds, partially offset by a 11 basis points reduction in the yield on earning assets. When comparing the three month periods ended June 30, 2020 and 2019, net interest income increased $1.6 million, which was primarily due to a reduction in interest expense of $1.3 million and by an increase in interest income of $302 thousand.  The reduction in cost of funds was attributed to decline of 58 basis points 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 six month period ended June 30, 2020, net interest income was $22.5 million, an increase of $2.2 million, or 11.0%, over the same period in 2019.  This increase was due a $1.1 million increase in interest earned on earning assets and a $1.2 million decline in interest expense. For the six month period ended June 30, 2020, the average outstanding balance of earning assets increased by $146.9 million and average outstanding interest-bearing liabilities increased $70.3 million.  The total rate on interest-bearing liabilities, which includes non-interest-bearing deposits, for the three month periods ended June 30, 2020 and 2019 was 1.02% and 1.60%, respectively.  For the six month periods ended June 30, 2020 and 2019 the total rate on  interest-bearing liabilities was 1.47% and 1.82%, respectively.

The provision for credit losses was $1.0 million for the three month period ended June 30, 2020.  The comparable amounts were $650 thousand and $4.6 million for the three months ended March 31, 2020 and June 30, 2019, respectively. The primary reason for the provision in the second quarter was due to an increase in the Bank's qualitative factors and historical loss factor.  The qualitative factor increase was due to uncertainties of the economic impact from the COVID-19 pandemic and the historical loss factor resulted from increased levels of prior period charge-offs.  As of June 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 0.99% (excluding PPP loans, the coverage ratio was 1.14%) at June 30, 2020, compared to 1.06% at December 31, 2019 and 1.10% at June 30, 2019, which reflects management's assessment of the credit quality in the loan portfolio.

Total non-interest income for the second quarter of 2020 increased $141 thousand to $870 thousand, or 19.3%, 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 March 31, 2020, total non-interest income for the second quarter of 2020  decreased by $621 thousand, or 41.6%, primarily due a $505 thousand gain recorded on the sale of investment securities held as available-for-sale for the three month period ended March 31, 2020, and a reduction in the level loan fees collected in the later period.  For the six month period ended June 30, 2020, non-interest income increased $847 thousand, or 55.9%, primarily due to the above-described gain recorded on the sale of investment securities held as available-for-sale and increases in service charges collected and fees generated on loans.

Total non-interest expense for the second quarter of 2020 increased $738 thousand, or 10.1%, 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 June 30, 2020 to the immediately prior quarter, non-interest expense increased $471 thousand, or 6.2%, primarily due to growth-related increases in salaries and employee benefits' expense, occupancy and equipment expense, other expense and FDIC insurance premiums, partially offset by a reduction in advertising expenses, data processing and communication expenses, professional fees and office expense. For the six month period ended June 30, 2020, non-interest expense was $15.6 million, compared to $13.7 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, partially offset by acquisition costs recorded relating to our Beneficial Bank branch acquisition in 2019.

For the three month period ended June 30, 2020, the Bank recorded an income tax expense of $697 thousand, resulting in an effective tax rate of 18.2%, 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, and compared to an income tax expense of $618 thousand resulting in an effective tax rate of 18.0% for the three month period ended June 30, 2019. 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 report. 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 19 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, Princeton Junction, Quakerbridge and Sicklerville.  There are also three 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 March 31, 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
grapp@thebankofprinceton.com