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What changed in Princeton Bancorp, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Princeton Bancorp, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+279 added−304 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-24)

Top changes in Princeton Bancorp, Inc.'s 2023 10-K

279 paragraphs added · 304 removed · 185 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

77 edited+49 added−52 removed87 unchanged
Biggest changeThe increase was attributable to an increase in commercial real estate loans of $102.5 million and an increase in construction loans of $13.9 million, partially offset by a decrease of $77.3 million decrease in PPP loans due to loan payoffs and the federal government’s termination of the program, and a decrease of $5.5 million in residential loans. 4 Table of Contents The following table details our loan maturities by loan segment and interest rate type: December 31, 2022 Due after one Due after five Due in one year through five years through Due after fifteen or less years fifteen years years Total (Dollars in thousands) Commercial real estate $ 16,719 $ 123,062 $ 351,460 $ 382,332 $ 873,573 Commercial and industrial 19,418 4,155 4,683 603 28,859 Construction 330,465 78,948 — 8,125 417,538 Residential first-lien mortgage — 27 6,300 36,798 43,125 Home equity/consumer 81 439 3,419 3,321 7,260 PPP — 2,469 — — 2,469 Total Loans $ 366,683 $ 209,100 $ 365,862 $ 431,179 $ 1,372,824 Amount due after one year Fixed Rate Variable Rate (Dollars in thousands) Commercial real estate $ 142,273 $ 714,581 Commercial and industrial 3,831 5,610 Construction 1,618 85,455 Residential first-lien mortgage 35,962 7,163 Home equity/consumer 1,486 5,693 PPP 2,469 — Total Loans $ 187,639 $ 818,502 The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing.
Biggest changeThe following table details our loan maturities by loan segment and interest rate type: December 31, 2023 Due in one year or less Due after one through five years Due after five years through fifteen years Due after fifteen years Total (Dollars in thousands) Commercial real estate $ 58,707 $ 316,614 $ 382,800 $ 384,743 $ 1,142,864 Commercial and industrial 20,948 10,586 19,088 339 50,961 Construction 292,979 9,424 — 7,784 310,187 Residential first-lien mortgage — 60 5,347 32,633 38,040 Home equity/consumer 208 251 3,189 4,433 8,081 Total loans $ 372,842 $ 336,935 $ 410,424 $ 429,932 $ 1,550,133 Amount due after one year Fixed Rate Variable Rate (Dollars in thousands) Commercial real estate $ 278,786 $ 805,371 Commercial and industrial 15,985 14,028 Construction 280 16,928 Residential first-lien mortgage 32,967 5,073 Home equity/consumer 1,920 5,953 Total loans $ 329,938 $ 847,353 The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing. 8 Table of Contents The following table sets forth certain information regarding our nonaccrual loans, troubled debt restructurings, accruing loans 90 days or more past-due, and other real estate owned.
After one After five One year or through five through ten After ten less years years years Total (Dollars in thousands) Mortgage-backed securities - U.S.
One year or less After one through five years After five through ten years After ten years Total (Dollars in thousands) Mortgage-backed securities - U.S.
Monetary Policy. Our business, financial condition and results of operations are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a significant effect upon the operating results of commercial banks such as ours.
Our business, financial condition and results of operations are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a significant effect upon the operating results of commercial banks such as ours.
Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2022, the Bank met all capital adequacy requirements on a fully phased-in basis.
Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2023, the Bank met all capital adequacy requirements on a fully phased-in basis.
While the CFPB has these extensive powers to interpret, administer and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to have examination and enforcement powers over us on matters otherwise following within the CFPB’s jurisdiction because we have less than $10 billion in assets.
While the CFPB has these extensive powers to interpret, administer and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to have examination and enforcement powers over us on matters otherwise falling within the CFPB’s jurisdiction because we have less than $10 billion in assets.
As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. 1 Table of Contents Lending Activities Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real estate lending.
As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. 5 Table of Contents Lending Activities Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real estate lending.
The borrower is paying in accordance with the loan terms as of December 31, 2022. Residential First-Lien Mortgage Loans. We offer a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans.
The borrower is paying in accordance with the loan terms as of December 31, 2023. Residential First-Lien Mortgage Loans. We offer a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans.
We utilize a qualified and experienced internet service provider to furnish the following types of customer account services: Full on-line statements Transaction histories On-line bill payment Transaction details Account inquiries Account-to-account transfers Fee Income Fee income is a component of our non-interest income.
We utilize a qualified and experienced internet service provider to furnish the following types of customer account services: Full on-line statements Transaction histories On-line bill payment Transaction details Account inquiries Account-to-account transfers Mobile banking Fee Income Fee income is a component of our non-interest income.
In addition, undercapitalized organizations are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2022, the Bank was not subject to the above mentioned restrictions. Community Reinvestment Act.
In addition, undercapitalized organizations are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2023, the Bank was not subject to any of the above mentioned restrictions. Community Reinvestment Act.
The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corporation protection is also $250,000. The FDIC has authority to increase insurance assessments.
The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. 16 Table of Contents The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corporation protection is also $250,000. The FDIC has authority to increase insurance assessments.
See Note 3 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities.
See Note 4 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities.
Prudent fee income opportunities are sought to supplement net interest income but may be limited by our efforts to remain competitive and by regulatory constraints. Staffing As of December 31, 2022, we had approximately 175 full-time equivalent employees. Supervision and Regulation General. We are extensively regulated under both federal and state law.
Prudent fee income opportunities are sought to supplement net interest income but may be limited by our efforts to remain competitive and by regulatory constraints. Staffing As of December 31, 2023, we had approximately 206 full-time equivalent employees. Supervision and Regulation General. We are extensively regulated under both federal and state law.
The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small office buildings, strip shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes located in the Bank’s market area. At December 31, 2022, the average commercial and multi-family real estate loan size was approximately $1.9 million.
The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small office buildings, strip shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes located in the Company’s market area. At December 31, 2023, the average commercial and multi-family real estate loan size was approximately $1.9 million.
The rules adopted by the SEC under the Sarbanes-Oxley Act require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. 15 Table of Contents Loans to One Borrower.
The rules adopted by the SEC under the Sarbanes-Oxley Act require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
We cannot predict whether any of these proposals will be enacted and, if enacted, the effects that such laws or any implementing regulations would have on our business, financial condition and results of operations. 17 Table of Contents
We cannot predict whether any of these proposals will be enacted and, if enacted, the effects that such laws or any implementing regulations would have on our business, financial condition and results of operations.
The change made by A.4721 takes effect immediately and applies retroactively to privilege periods beginning on or after January 1, 2020. Cyber-security. Federal regulators have issued two related statements regarding cyber-security.
The change made by A.4721 took effect immediately and applied retroactively to privilege periods beginning on or after January 1, 2020. Cyber-security. Federal regulators have issued two related statements regarding cyber-security.
Many of our competitors enjoy advantages over us, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs.
Many of our competitors enjoy advantages over us, including greater financial resources and higher lending limits, more aggressive marketing campaigns, better brand recognition, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs.
As a public company with our securities listed for trading on the NASDAQ stock market, the Company is subject to the disclosure and regulatory requirements of the Securities and Exchange Commission, or SEC, including under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and listing standards of the NASDAQ stock market.
As a public company with our securities listed for trading on the NASDAQ stock market, the Company is subject to the disclosure and regulatory requirements of the SEC, including under the Securities Act of 1933, as amended, and the Exchange Act, and the rules and listing standards of the NASDAQ stock market. Monetary Policy.
Such a transaction would also require approval of the Department. 12 Table of Contents A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
At December 31, 2022, the Bank exceeded all its regulatory capital requirements. Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC.
At December 31, 2023, the Bank exceeded all its regulatory capital requirements. 17 Table of Contents Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC.
December 31, 2022 2021 (Dollars in thousands) Commercial real estate $ — $ 766 Commercial and industrial — — Construction 148 278 Residential first-lien mortgage 118 131 Home Equity/Consumer — — PPP — — Total nonaccrual loans 266 1,175 Troubled debt restructurings (TDRs) - performing 5,882 6,122 Accruing loans 90 days or more past due 184 151 Total nonperforming loans and performing TDRs 6,332 7,448 Other real estate owned — 226 Total nonperforming assets and performing TDRs $ 6,332 $ 7,674 See Note 4 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classified as nonperforming assets as of December 31, 2022 and for other information on our loan ratings of special mention, substandard and doubtful, all of which contain varying degrees of potential credit problems that could result in the loans being classified as nonaccrual, past-due 90 or more days or troubled debt restructurings in a future period.
December 31, 2023 2022 (Dollars in thousands) Commercial real estate $ 4,485 $ — Commercial and industrial 2,116 — Construction — 148 Residential first-lien mortgage 107 118 Home equity/consumer — — Total nonaccrual loans 6,708 266 Troubled debt restructurings (TDRs) - performing — 5,882 Accruing loans 90 days or more past due — 184 Total nonperforming loans and performing TDRs 6,708 6,332 Other real estate owned — — Total nonperforming assets and performing TDRs $ 6,708 $ 6,332 See Note 5 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classified as nonperforming assets as of December 31, 2023 and for other information on our loan ratings of special mention, substandard and doubtful, all of which contain varying degrees of potential credit problems that could result in the loans being classified as nonaccrual, past-due 90 or more days or troubled debt restructurings in a future period.
We generate these loans and lines of credit primarily through direct marketing at our branch locations, referrals from local real estate brokers and, to a lesser extent, by targeted direct marketing programs such as mail and electronic mail. Consumer loans are solicited on a direct basis and upon referrals from our directors, stockholder and existing customers. Paycheck Protection Program Loans.
We generate these loans and lines of credit primarily through direct marketing at our branch locations, referrals from local real estate brokers and, to a lesser extent, by targeted direct marketing programs such as mail and electronic mail. Consumer loans are solicited on a direct basis and upon referrals from our directors, stockholders and existing customers. Loan s Receivable, Net.
Other Services To further attract and retain customer relationships, we provide a standard array of additional community banking services, which include the following: Money orders Direct deposit Automated teller machines Cashier’s checks Safe deposit boxes On-line banking Wire transfers Night depository Remote deposit capture Debit cards Bank-by-mail Automated telephone banking We also offer, on a limited basis, payroll-related services and credit card and merchant credit card processing through third parties hereby we do not undertake credit or fraud risk. 11 Table of Contents Internet Banking We advertise but do not actively solicit new deposits or loans through our website.
Other Services To further attract and retain customer relationships, we provide a standard array of additional community banking services, which include the following: Money orders Direct deposit Automated teller machines Cashier’s checks Safe deposit boxes On-line banking Wire transfers Night depository Remote deposit capture Debit cards Bank-by-mail Automated telephone banking We also offer, on a limited basis, payroll-related services and credit card and merchant credit card processing through third parties whereby we do not undertake credit or fraud risk.
Securities that are classified as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equity within accumulated other comprehensive income (loss). Securities available-for-sale, which are carried at fair value, decreased $17.8 million, or 17.6%, to $83.4 million at December 31, 2022 from December 31, 2021.
Securities that are classified as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equity within accumulated other comprehensive income (loss). Securities available-for-sale, which are carried at fair value, increased $8.0 million, or 9.5%, to $91.4 million at December 31, 2023 from $83.4 million at December 31, 2022.
Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. Set forth below is a brief description of our three largest commercial real estate or multi-family loans: • The largest commercial real estate loan is a $23.8 million loan.
Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. Set forth below is a brief description of our three largest commercial real estate or multi-family loans: - The largest commercial real estate loan is a $31 million loan (split between two loans, $29 million and $2 million).
The proceeds were used as a fully drawn business line of credit for general purposes. The loan is secured by real estate and cash collateral. The borrower is paying in accordance with the loan terms as of December 31, 2022. • The third largest commercial and industrial loans is a $1.8 million loan.
The borrower is paying in accordance with the loan terms as of December 31, 2023. - The second largest commercial and industrial loan is a $5.0 million loan. The proceeds were used as a fully drawn business line of credit for general purposes. The loan is secured by real estate and cash collateral.
At December 31, 2022, our residential first-lien loans amounted to $43.1 million, or 3.2%, of our total portfolio. Our residential first-lien loan portfolio has decreased $5.5 million, or 11.3%, since December 31, 2021, when residential first-lien loans amounted to $48.6 million, or 3.7%, of our total loan portfolio. Home Equity Loans and Consumer Loans.
At December 31, 2023, our residential first-lien loans amounted to $38.0 million, or 2.5%, of our total portfolio. Our residential first-lien loan portfolio has decreased $5.1 million, or 11.8%, since December 31, 2022, when residential first-lien loans amounted to $43.1 million, or 3.2%, of our total loan portfolio. Home Equity Loans and Consumer Loans.
The BHCA requires the Company to secure the prior approval of the Federal Reserve before it can acquire all or substantially all of the assets of any bank, or acquire ownership or control of 5% or more of any voting shares of any bank.
The BHCA requires the Company to secure the prior approval of the Federal Reserve before it can acquire all or substantially all of the assets of any bank or acquire ownership or control of 5% or more of any voting shares of any bank. Such a transaction would also require approval of the Department.
At December 31, 2022, the Bank’s lending limit to one borrower under regulatory guidelines was $35.0 million, but our Board of Directors has set an internal lending limit of approximately 75.0% of legal lending limit or $26.3 million. Concentration and Risk Guidance .
At December 31, 2023, the Bank’s lending limit to one borrower under regulatory guidelines was $38.1 million, but our Board of Directors has set an internal lending limit of approximately 75.0% of the legal lending limit or $28.6 million. Concentration and Risk Guidance .
The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings).
Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings).
If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. The Bank adheres to the practices recommended in this guidance. Economic Growth, Regulatory Relief, and Consumer Protection Act.
If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. The Bank adheres to the practices recommended in this guidance. Restrictions on Transactions with Affiliates, Directors, and Officers.
Cash and Due from Banks and Interest-earning Bank Balances Cash and due from banks and interest-earning bank balances increased from $12.0 million at December 31, 2021 to $25.3 million at December 31, 2022, an increase of $13.3 million, or 110.5%. The increase in cash and due from banks and interest-earning banks balances was primarily due to the Bank’s liquidity management.
Cash and Due from Banks and Interest-earning Bank Balances Cash and due from banks and interest-earning bank balances increased from $25.3 million at December 31, 2022 to $34.5 million at December 31, 2023, an increase of $9.2 million, or 36.5%. The increase in cash and due from banks and interest-earning banks’ balances was primarily due to the Bank’s liquidity management.
As of December 31, 2022 2021 Uninsured time deposits maturity (Dollars in thousands) Three months or less $ 1,822 $ 3,509 Over three through six months 6,060 2,244 Over six through twelve months 14,586 1,283 Over twelve months 19,942 3,139 Total uninsured time deposits $ 42,410 $ 10,175 The uninsured portion of deposits is any balance that exceeds the FDIC insurance limit of $250,000.
As of December 31, 2023 2022 Uninsured time deposits maturity (Dollars in thousands) Three months or less $ 10,796 $ 1,822 Over three through six months 22,609 6,060 Over six through twelve months 28,715 14,586 Over twelve months 6,678 19,942 Total uninsured time deposits $ 68,798 $ 42,410 The uninsured portion of deposits is any balance that exceeds the FDIC insurance limit of $250,000.
A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. 13 Table of Contents Regulatory Capital Requirements .
A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. Regulatory Capital Requirements . Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital.
Our construction loans portfolio has increased $13.8 million or 3.4% since December 31, 2021, when construction loans amounted to $403.7 million, or 30.2% of our total loans receivable. Construction lending represents a segment of our loan portfolio and is driven primarily by market conditions.
Our construction loans portfolio has decreased $107.4 million or 25.7% since December 31, 2022, when construction loans amounted to $417.5 million, or 30.5% of our total loans receivable. Construction lending represents a segment of our loan portfolio and is driven primarily by market conditions.
These regulators have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impact the conduct and profitability of our activities. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.
This supervisory framework could materially impact the conduct and profitability of our activities. 15 Table of Contents To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.
Bank owned life insurance increased $1.1 million from December 31, 2021 to December 31, 2022, primarily due to the increase in cash surrender value resulting from the increase in interest rates.
Bank owned life insurance increased $6.2 million from December 31, 2022 to December 31, 2023, primarily due to $5.0 million in purchases and a $1.3 million increase in cash surrender value resulting from the increase in interest rates.
The Restoration Plan maintains the current schedule of assessment rates for all insured depository institutions. Dividends are required to be paid to the industry should the DRR exceed 1.50%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends.
Dividends are required to be paid to the industry should the DRR exceed 1.50%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends.
At December 31, 2022, commercial real estate and multi-family loans amounted in the aggregate to $873.6 million, or 63.7% of the total loans receivable. Our commercial real estate portfolio has increased $102.5 million or 13.3% since December 31, 2021, when commercial real estate and multi-family loans amounted to $771.0 million, or 57.7%, of our total portfolio.
At December 31, 2023, commercial real estate and multi-family loans amounted in the aggregate to $1.14 billion, or 73.8% of the total loans receivable. Our commercial real estate portfolio has increased $269.3 million or 30.8% since December 31, 2022, when commercial real estate and multi-family loans amounted to $873.6 million, or 63.7%, of our total portfolio.
Accrued Interest Receivable and Other Assets Accrued interest receivable increased $538,000 from December 31, 2021 to December 31, 2022, primarily due to an increase in the outstanding principal balance of loans at December 31, 2022.
Accrued Interest Receivable and Other Assets Accrued interest receivable increased $1.3 million from December 31, 2022 to December 31, 2023, primarily due to an increase in the outstanding principal balance of loans at December 31, 2023. Deferred taxes increased $3.9 million from December 31, 2022 to December 31, 2023, primarily due to the Noah acquisition.
The allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories. 2022 2021 Loan Balance Loan Balance as % of as % of (Dollars in thousands) Amount Total Loans Amount Total Loans Commercial real estate $ 8,554 63.6 % $ 7,458 57.5 % Commercial and industrial 271 2.1 % 713 2.2 % Construction 6,389 30.4 % 7,228 30.1 % Residential first-lien mortgage 236 3.1 % 267 3.6 % Home equity/consumer 45 0.6 % 48 0.6 % PPP — 0.2 % — 6.0 % Unallocated 966 0.0 % 906 0.0 % Total loans $ 16,461 100.0 % $ 16,620 100.0 % See Note 4 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our allowance for loan losses.
(Dollars in thousands) 2023 2022 Amount Loan Balance as % of Total Loans Amount Loan Balance as % of Total Loans Commercial real estate $ 16,047 73.7 % $ 8,554 63.6 % Commercial and industrial 488 3.3 % 271 2.3 % Construction 1,145 20.0 % 6,389 30.4 % Residential first-lien mortgage 725 2.5 % 236 3.1 % Home equity/consumer 87 0.5 % 45 0.6 % Unallocated — 0.0 % 966 0.0 % Total loans $ 18,492 100.0 % $ 16,461 100.0 % See Note 5 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our allowance for credit losses.
The Bank is also subject to the supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”), as their primary federal regulator and as the insurer of the Banks’ deposits. The Bank is also regulated and examined by the New Jersey Department of Banking and Insurance (the “Department”).
The Bank is also subject to the supervision and examination by the FDIC, as their primary federal regulator and as the insurer of the Banks’ deposits. The Bank is also regulated and examined by the New Jersey Department of Banking and Insurance (the “Department”). These regulators have broad discretion to impose restrictions and limitations on our operations.
Government Sponsored Enterprises (GSEs) — 3.36 % 2.19 % 2.08 % 2.10 % U.S. government agencies — 2.84 % 2.00 % 2.33 % 2.31 % SBIC securities — — — 4.06 % 4.06 % Obligations of state and political subdivisions 3.31 % 2.64 % 2.62 % 2.33 % 2.53 % Total 3.31 % 2.74 % 2.56 % 2.24 % 2.37 % At December 31, 2022, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity.
Government Sponsored Enterprises (GSEs) 2.96 % 3.06 % 2.50 % 3.26 % 3.24 % U.S. government agencies — 2.84 % 2.00 % 2.33 % 2.32 % Obligations of state and political subdivisions — 3.21 % 2.59 % 2.36 % 2.62 % Small business association (SBA) securities — 7.16 % 6.74 % 5.38 % 6.33 % Total 2.96 % 3.31 % 2.75 % 3.11 % 3.00 % At December 31, 2023, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity.
Premises and Equipment Premises and equipment, net decreased $876,000 from December 31, 2021 to December 31, 2022 resulting from $1.5 million in depreciation and disposals, partially offset by $607,000 in a combination of purchases of new equipment and improvements.
Premises and Equipment Premises and equipment, net increased $2.7 million from December 31, 2022 to December 31, 2023 resulting from $2.5 million acquired in connection with the Noah acquisition, $1.7 million in a combination of purchases of new equipment and improvements, partially offset by $1.5 million in depreciation and disposals.
Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). 14 Table of Contents A banking organization generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized.
Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized).
In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy advantages over us, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more branch locations.
In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds.
The Federal Reserve’s Regulation W and relevant federal statutes and regulations, among other authorities, impose significant limitations on transactions in which the Bank may engage with us or with other affiliates, including per-affiliate and aggregate limits on affiliate transactions.
The Federal Reserve’s Regulation W and relevant federal statutes and regulations, among other authorities, impose significant limitations on transactions in which the Bank may engage with us or with other affiliates, including per-affiliate and aggregate limits on affiliate transactions. 19 Table of Contents Federal Reserve Regulation O restricts loans to the Bank and its parent holding company’s insiders, which includes directors, certain officers, and principal shareholders and their respective related interests.
This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders.
Competition We have substantial competition in originating commercial and consumer loans in our market area. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders.
Loan s Receivable, Net. Loans receivable, net increased from $1.32 billion at December 31, 2021, to $1.35 billion at December 31, 2022, an increase of $35.4 million, or 2.7%.
Loans receivable, net increased from $1.37 billion at December 31, 2022, to $1.55 billion at December 31, 2023, an increase of $178.0 million, or 13.0%.
Federal Funds Sold Federal funds sold decreased from $146.7 million at December 31, 2021 to $28.1 million at December 31, 2022, a decrease of $118.6 million, or 80.9%. The decrease in federal funds sold was primarily due to a reduction in deposits and an increase in loans.
Federal Funds Sold Federal funds sold increased from $28.1 million at December 31, 2022 to $116.0 million at December 31, 2023, an increase of $88.0 million, or 313.6%. The increase in federal funds sold was primarily due to an increase in deposits partially offset by an increase in loans.
See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarding our available funds. Total deposits decreased from $1.45 billion at December 31, 2021 to $1.35 billion at December 31, 2022, a decrease of $98.4 million, or 6.8%.
See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarding our available funds.
Other assets decreased $261,000 from December 31, 2021 to December 31, 2022. 9 Table of Contents Deposits Our deposit services are generally comprised of a traditional range of deposit products, including checking accounts, savings accounts, attorney trust accounts, money market accounts, and certificates of deposit.
Other assets increased $4.5 million from December 31, 2022 to December 31, 2023, partially due to mortgage servicing rights of $1.6 million acquired in connection with the Noah acquisition. Deposits Our deposit services are generally comprised of a traditional range of deposit products, including checking accounts, savings accounts, attorney trust accounts, money market accounts, and certificates of deposit.
Item 1. Business General The Bank was incorporated on March 5, 2007 under the laws of the State of New Jersey as a New Jersey state-chartered bank. We commenced operations on April 23, 2007. We are a full service bank providing personal and business lending and deposit services.
Item 1. Business General The Bank of Princeton (the “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution.
The proceeds were used for working capital for future business opportunities. The loan is unsecured. The borrower is paying in accordance with the loan terms as of December 31, 2022. C onstruction Loans. We originate various types of commercial loans, including construction loans, secured by collateral such as real estate, business assets and personal guarantees.
The borrower is paying in accordance with the loan terms as of December 31, 2023. - The third largest commercial and industrial loan is a $3.5 million loan. The proceeds were used for working capital for future business opportunities. The loan is unsecured. The borrower is paying in accordance with the loan terms as of December 31, 2023. Construction Loans.
The loan-to-value is 51% and the borrower is paying in accordance with the loan terms as of December 31, 2022. Commercial and Industrial Loans. At December 31, 2022, commercial and industrial loans amounted in the aggregate to $28.9 million, or 2.1%, of the total loan portfolio .
At December 31, 2023, commercial and industrial loans amounted in the aggregate to $51.0 million, or 3.3%, of the total loan portfolio . Our commercial and industrial portfolio has increased $22.1 million, or 76.6%, since December 31, 2022, when commercial and industrial loans amounted to $31.3 million, or 2.3%, of our total loan portfolio.
The borrower is paying in accordance with the loan terms as of December 31, 2022. • The second largest commercial real estate loan is a $19.3 million loan to refinance an existing construction line of credit and to provide cash out equity.
The borrower is paying in accordance with the loan terms as of December 31, 2023. 6 Table of Contents - The third largest commercial real estate loan is a $20.7 million loan. The proceeds were used to refinance an existing loan.
Set forth below is a brief description of our three largest construction loans or loan relationships: • The largest construction loan is a $25.0 million loan to purchase land for future construction of a mixed-use property consisting of residential units and commercial/retail office space in Jersey City, NJ.
The project’s phase 1 is approximately 99% complete. The borrower is paying in accordance with the loan terms as of December 31, 2023. 7 Table of Contents - The third largest construction loan is a $25.0 million loan to purchase land for future construction of a mixed-use property consisting of residential units and commercial/retail office space in Jersey City, NJ.
The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, total uninsured deposits, and amount of uninsured portion of time deposits by maturity. 2022 2021 Average Average Average Rate Average Rate Amount Paid Amount Paid (Dollars are in thousands) Non-interest-bearing checking $ 280,729 0.00 % $ 273,260 0.00 % Demand interest-bearing 261,951 0.31 % 263,715 0.27 % Money market 353,224 0.44 % 339,903 0.30 % Savings deposits 220,222 0.32 % 205,788 0.25 % Time deposits 293,627 0.99 % 336,488 1.32 % $ 1,409,753 0.43 % $ 1,419,154 0.47 % Amount Amount Uninsured deposits $ 269,247 $ 324,134 10 Table of Contents The following table represents the uninsured time deposits by maturity.
At December 31, 2023, there were no customers whose deposit balances individually exceeded 5% of total deposits. 13 Table of Contents The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, total uninsured deposits, and amount of uninsured portion of time deposits by maturity. 2023 2022 Average Amount Average Rate Paid Average Amount Average Rate Paid (Dollars in thousands) Non-interest-bearing checking $ 248,233 0.00 % $ 280,729 0.00 % Demand interest-bearing 250,312 1.46 % 261,951 0.31 % Money market 311,478 3.07 % 353,224 0.44 % Savings deposits 159,175 1.72 % 220,222 0.32 % Time deposits 538,343 3.17 % 293,627 0.99 % $ 1,507,541 2.19 % $ 1,409,753 0.43 % Amount Amount Uninsured deposits $ 427,384 $ 456,729 The following table represents the uninsured time deposits by maturity.
On January 10, 2023, the Company and the Bank completed the Reorganization pursuant to which the Bank became the wholly owned subsidiary of the Company. Our headquarters and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Our telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com .
Our headquarters and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Our telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com. The Company has elected to prepare this Annual Report on Form 10- K and other annual and periodic reports as a “smaller reporting company” consistent with the rules of the SEC.
Goodwill and Core Deposit Intangible At December 31, 2022, the Bank had $8.9 million of goodwill and $1.8 million in core deposit intangible assets derived from five branches purchased in May 2019.
Goodwill and Core Deposit Intangible At December 31, 2023, the Company had $8.9 million of goodwill and $1.4 million in core deposit intangible assets of which $1.3 million is remaining from the branch acquisition that occurred in May 2019 and $89,000 from the Noah acquisition.
The borrower is paying in accordance with the loan terms as of December 31, 2022. 3 Table of Contents • The second largest construction loan is a $19.0 million to construct a 14-story mixed-use building consisting of 68 residential units and two commercial units in Brooklyn, NY. The project is approximately 67% complete.
The borrower is paying in accordance with the loan terms as of December 31, 2023. - The second largest construction loan is a $28.1 million ($11.78 million non-revolver and $16.3 million revolver two phase loan.) The proceeds are being used to construct an eight-story building project consisting of 159 residential units in Monroe, NY.
The property is a seven-story mixed-use property located in Brooklyn, NY with one commercial unit on the first floor and 42 residential units above with a loan-to value of 70%.
The property is an eight-story mixed use property located in Brooklyn, NY with 69 residential units and one commercial unit with a loan-to-value of 70%. The borrower is paying in accordance with the loan terms as of December 31, 2023. - The second largest commercial real estate loan is a $23.3 million loan.
As of December 31, 2022, the allowance for loan losses was $16.5 million as compared to $16.6 million as of December 31, 2021.
The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. As of December 31, 2023, the allowance for credit losses on loans was $18.5 million as compared to $16.5 million as of December 31, 2022.
The ratio of allowance for loan losses to total loans receivable as of December 31, 2022 was 1.20% compared to 1.24% as of December 31, 2021. 6 Table of Contents The following table presents a summary of our allowance for loan losses and nonaccrual loans by total loans and a summary of net charge-offs by loan segments: As of and for Year Ended December 31, 2022 2021 (Dollars in thousands) Allowance for loan losses to total loans outstanding: 1.20 % 1.24 % Allowance for loan losses $ 16,461 $ 16,620 Total loans outstanding $ 1,372,824 $ 1,340,448 Nonaccrual loans $ 266 $ 1,175 Allowance for loan losses to nonaccrual loans 6188.3 % 1414.5 % Nonaccrual loans to total loans outstanding 0.02 % 0.09 % Net charge-offs during the period to average loans outstanding Commercial real estate 0.05 % 0.26 % Net charge-offs $ 459 $ 2,075 Average amount outstanding $ 850,192 $ 785,379 Commercial and industrial 0.00 % 2.43 % Net charge-offs $ — $ 957 Average amount outstanding $ 29,562 $ 39,329 Construction 0.02 % 0.00 % Net charge-offs $ 100 $ — Average amount outstanding $ 416,508 $ 335,416 Residential first-lien 0.00 % 0.00 % Net charge-offs $ — $ — Average amount outstanding $ 46,379 $ 55,230 Home equity/consumer 0.00 % 0.00 % Net charge-offs $ — $ — Average amount outstanding $ 7,575 $ 9,133 PPP 0.00 % 0.00 % Net charge-offs $ — $ — Average amount outstanding $ 25,285 $ 157,140 Total Loans 0.04 % 0.22 % Net charge-offs $ 559 $ 3,032 Average amount outstanding $ 1,375,501 $ 1,381,626 The allowance for loan losses decreased $159 thousand, or 1.0%, to $16.5 million at December 31, 2022.
The $2.0 million increase in the allowance for credit losses was attributed to a $1.8 million provision related to the Bank’s loan portfolio, $1.7 million for CECL day 1 provision and $601 thousand associated with purchased credit deteriorated loans, partially offset by $1.8 million of net-charge offs recorded during 2023 and $301 thousand related to the adoption of CECL effective January 1, 2023. 9 Table of Contents The following table presents a summary of our allowance for credit losses on loans and nonaccrual loans by total loans and a summary of net charge-offs by loan segments: As of and for Year Ended December 31, 2023 2022 (Dollars in thousands) Allowance for credit losses to total loans outstanding: 1.19 % 1.20 % Allowance for credit losses on loans $ 18,492 $ 16,461 Total loans outstanding $ 1,550,133 $ 1,372,824 Nonaccrual loans $ 6,708 $ 266 Allowance for credit losses to nonaccrual loans 275.7 % 6188.3 % Nonaccrual loans to total loans outstanding 0.43 % 0.02 % Net charge-offs (recoveries) during the period to average loans outstanding Commercial real estate 0.17 % 0.05 % Net charge-offs $ 1,659 $ 459 Average amount outstanding $ 986,974 $ 850,192 Commercial and industrial 0.00 % 0.00 % Net recoveries $ (2 ) $ — Average amount outstanding $ 42,850 $ 54,847 Construction 0.04 % 0.02 % Net charge-offs $ 148 $ 100 Average amount outstanding $ 371,037 $ 416,508 Residential first-lien 0.00 % 0.00 % Net charge-offs $ 2 $ — Average amount outstanding $ 40,831 $ 46,379 Home equity/consumer 0.00 % 0.00 % Net charge-offs $ — $ — Average amount outstanding $ 7,812 $ 7,575 Total loans 0.12 % 0.04 % Net charge-offs $ 1,807 $ 559 Average amount outstanding $ 1,449,504 $ 1,375,501 10 Table of Contents The following table presents the allocation of the allowance for credit losses by portfolio segment for the years presented.
Small business loans may have adjustable or fixed rates of interest and generally have terms of three years or less but may be as long as 15 years. Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.20 X.
Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.20 X. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to commercial business loans and frequently obtain real estate as additional collateral.
At December 31, 2022 the balance of brokered deposits was $107.4 million, a decrease of $1.5 million from the $108.9 million outstanding at December 31, 2021. At December 31, 2022, there were no customers whose deposit balances individually exceeded 5% of total deposits.
At December 31, 2023 the balance of brokered deposits was $87.2 million, a decrease of $20.2 million from the $107.4 million outstanding at December 31, 2022.
The proceeds were used for business purposes and completion of capital improvements. The loan has not been fully drawn upon. The collateral is a lien on all business assets. The borrower is paying in accordance with the loan terms as of December 31, 2022. • The second largest commercial and industrial loan is a $5.0 million loan.
Set forth below is a brief description of our three largest commercial and industrial loans: - The largest commercial and industrial loan is a $9.9 million loan. The proceeds were used for business purposes and completion of capital improvements. The collateral is a lien on all business assets.
Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape.
The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. 18 Table of Contents Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape.
Non-interest-bearing deposits decreased $21.2 million, or 7.4%, to $265.1 million at December 31, 2022. Interest-bearing deposits decreased $77.2 million, or 6.7%, to $1.08 billion at December 31, 2022. Borrowings At December 31, 2022, the Bank had $10.0 million in overnight borrowings. At December 31, 2021, the Bank had no borrowings outstanding.
Total deposits increased from $1.35 billion at December 31, 2022 to $1.64 billion at December 31, 2023, an increase of $288.0 million, or 21.4%, included in this increase was $192.7 million acquired from Noah Bank. Non-interest-bearing deposits decreased $15.8 million, or 6.0%, to $249.3 million at December 31, 2023. The Company acquired $55.2 million of non-interest-bearing deposits during 2023.
The loans are solicited on a direct basis and through various professionals with whom we maintain contacts and by referral from our directors, stockholders and customers. At December 31, 2022, our construction loans amounted to $417.5 million, or 30.5% of our total loans receivable. The average size of a construction loan was approximately $4.1 million at December 31, 2022.
We originate various types of commercial loans, including construction loans, secured by collateral such as real estate, business assets and personal guarantees. The loans are solicited on a direct basis and through various professionals with whom we maintain contact and by referral from our directors, stockholders and customers.
Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement.
Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets.
The borrower is paying in accordance with the loan terms as of December 31, 2022. • The third largest construction loan is a $17.1 million loan to construct an 18-story mixed-use building in Newark, NJ consisting of 84 residential units and three retail units. The project is approximately 74% complete.
The property is an eight-story mixed use property located in Queens, NY with 49 residential units and two commercial units with a loan-to-value of 56%. The borrower is paying in accordance with the loan terms as of December 31, 2023. Commercial and Industrial Loans.
Stockholders’ Equity Total stockholders’ equity at December 31, 2022 increased $3.0 million or 1.4% when compared to the end of 2021.
Stockholders’ Equity Total stockholders’ equity at December 31, 2023 increased $20.6 million or 9.4% when compared to the end of 2022. This increase was primarily due to the $25.8 million of earnings recorded during 2023, partially offset by $7.4 million of cash dividends paid during the period.
The majority of the construction loans are secured by properties located in our primary areas.
The majority of the construction loans are secured by properties located in our primary areas. Set forth below is a brief description of our three largest construction loans or loan relationships: - The largest construction loan is a $32.5 million participation loan. The Bank’s share is 76.9% of the total loan amount.
Treasury stock totaled $19.5 million at December 31, 2022 including common stock purchased in 2021 in connection with the first stock buyback program and a part of the second buyback program. The ratio of equity to total assets at December 31, 2022 and December 31, 2021, was 13.7% and 12.8%, respectively.
Other increases in stockholders’ equity were $989,000, $807,000 and $779,000 due to stock options exercised, stock-based compensation and other comprehensive income, respectively. The ratio of equity to total assets at December 31, 2023 and December 31, 2022, was 12.5% and 13.7%, respectively.
Our commercial and industrial portfolio has decreased $818 thousand, or 2.8%, since December 31, 2021, when commercial and industrial loans amounted to $29.7 million, or 2.3%, of our total loan portfolio. Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capital.
Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capital. Small business loans may have adjustable or fixed rates of interest and generally have terms of three years or less but may be as long as 15 years.
The decrease was primarily due to a $12.7 million reduction in the fair value of the available-for-sale securities portfolio and $10.4 million of maturities or calls and principal repayments, partially offset by $5.3 million in purchases. The Bank utilized the cash received from the maturities, calls and principal repayments to fund new loans.
The increase was primarily due to $8.4 million in purchases of available-for-sale securities during 2023, the addition of $6.5 million from the Noah acquisition, and $1.1 million attributed to a reduction in the unrealized losses associated with the available-for-sale portfolio, partially offset by principal repayments of $4.9 million and $1.6 million of maturities or calls. 11 Table of Contents The following table summarizes the weighted-average yields based on maturity distribution schedule of the amortized cost of AFS debt securities at December 31, 2023.
Removed
The Bank is a New Jersey state-chartered commercial bank with 19 branches in New Jersey, including three 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.
Added
The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC.
Removed
The Bank of Princeton is a member of the FDIC. The Bank also conducts loan origination activities in select areas of New York. Since we commenced operations, we have grown through both de novo branching and acquisitions. In July 2020, the Bank opened three new branches in Lakewood, New Jersey, Piscataway, New Jersey, and Philadelphia, Pennsylvania.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

56 edited+17 added−33 removed101 unchanged
Biggest changeWe also offer ATM and debit cards, wire transfers, and ACH transfers. The successful operation and further development of these and other new technologies will likely require additional capital investment in the future. In addition, increased use of electronic banking creates opportunities for interruptions in service which could expose us to claims by customers or other third parties.
Biggest changeWe offer electronic banking services for our consumer and business customers including Internet banking, mobile banking and electronic bill payment, as well as banking by phone. We also offer ATM and debit cards, wire transfers, and ACH transfers. The successful operation and further development of these and other new technologies will likely require additional capital investment in the future.
Further declines in these sectors may result in future other than temporary impairment charges. • Asset quality may deteriorate as borrowers become unable to repay their loans. Changes in interest rates may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income.
Further declines in these sectors may in future result in other than temporary impairment charges. • Asset quality may deteriorate as borrowers become unable to repay their loans. Changes in interest rates may adversely affect our earnings and financial condition. Our net income depends primarily upon our net interest income.
Market developments, including unemployment, price levels, stock and bond market volatility, and changes, including those resulting from world events, affect consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase in delinquencies and default rates, which could affect our earnings and credit quality.
Market developments, including unemployment, price levels, stock and bond market volatility, and changes, including those resulting from world events, affect consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase delinquencies and default rates, which could affect our earnings and credit quality.
It requires difficult, subjective and complex judgments about external factors, including the impact of national and regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio.
It requires difficult, subjective and complex judgments about external factors, including the impact of national and regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio.
The weakening of these standards for any reason, such as to seek higher yielding loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans, may result in loan defaults, foreclosures and additional charge offs and may necessitate that we significantly increase our allowance for loan losses.
The weakening of these standards for any reason, such as to seek higher yielding loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans, may result in loan defaults, foreclosures and additional charge offs and may necessitate that we significantly increase our allowance for credit losses.
Any economic downturns and other events that negatively impact our market areas could cause us to incur substantial credit losses that could negatively affect our results of operations and financial condition. Our allowance for loan losses may not be adequate to cover actual losses.
Any economic downturns and other events that negatively impact our market areas could cause us to incur substantial credit losses that could negatively affect our results of operations and financial condition. Our allowance for credit losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition.
Like all financial institutions, we maintain an allowance for credit losses to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition.
Our deposits have been our primary funding source. In current market conditions, depositors may choose to redeploy their funds into higher yielding investments, the stock market or other investment alternatives, regardless of our effort to retain such depositors. If this occurs, it would hamper our ability to grow deposits and could result in a net outflow of deposits.
Our deposits have been our primary funding source. In current market conditions, depositors may choose to redeploy their funds into higher yielding investments, the stock market or other investment alternatives, regardless of our effort to retain such depositors. If this occurs, it will hamper our ability to grow deposits and could result in a net outflow of deposits.
It is possible that the integration process could result in the loss of key employees, the disruption of the Bank’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the Bank’s ability to maintain relationships with clients, customers, depositors, employees and other constituents or to achieve the anticipated benefits of the transaction.
It is possible that the integration process could result in the loss of key employees, the disruption of the Bank’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the Bank’s ability to maintain relationships with clients, customers, depositors, employees and other constituents or to achieve the anticipated benefits of the transaction.
Like other banks of our size, our management is required to prepare a report that contains an assessment by management of the effectiveness of our internal control structure and procedures for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of such fiscal year.
Like other banks of our size, our management is required to prepare a report that contains an assessment by management of the effectiveness of our internal control structure and procedures for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of each fiscal year.
The Company is subject to regulation and supervision by the Federal Reserve, and the Bank is subject to regulation and supervision by the FDIC and the New Jersey Department of Banking and Insurance. Their laws and regulations are subject to change and may require substantial modifications to our operations or may cause us to incur substantial additional compliance costs.
The Company is subject to regulation and supervision by the Federal Reserve, and the Bank is subject to regulation and supervision by the FDIC and the New Jersey Department of Banking and Insurance. These laws and regulations are subject to change and may require substantial modifications to our operations or may cause us to incur substantial additional compliance costs.
In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of the Company, the Bank and Noah Bank, and other factors. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or a delay in their receipt.
In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of the Company, the Bank and Cornerstone, and other factors. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or a delay in their receipt.
As with any acquisition, there also may be business disruptions that cause the Bank to lose customers or cause customers to remove their accounts from the Bank and move their business to competing financial institutions. Integration efforts by the Bank will also divert management attention and resources.
As with any acquisition, there also may be business disruptions that cause the Bank to lose customers or cause customers to remove their accounts from the Bank and move their business to competing financial institutions. Integration efforts by the Bank will also divert management’s attention and resources.
In general, construction and land lending involves additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project as well as the estimated cost of the project and the time needed to sell the property at completion.
In general, construction and land lending involve additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project as well as the estimated cost of the project and the time needed to sell the property at completion.
However, if we are unable to sufficiently increase our deposit balances, we will be required to increase our use of alternative sources of funding, including FHLB advances, or to increase our deposit rates in order to attract additional deposits, each of which would increase our cost of funds. 24 Table of Contents We must maintain and follow high underwriting standards to grow safely.
However, if we are unable to sufficiently increase our deposit balances, we will be required to increase our use of alternative sources of funding, including FHLB advances, or to increase our deposit rates in order to attract additional deposits, each of which would increase our cost of funds. We must maintain and follow high underwriting standards to grow safely.
Item 1A. Risk Factors Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affect the Bank are described below.
Item 1A. Risk Factors Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affect the Company are described below.
There is no assurance that the Bank will be able to pay dividends in the future, and if able, that the dividends will be at the same rate as 2022, or that the Company will generate adequate cash flow from the Bank to pay dividends in the future.
There is no assurance that the Bank will be able to pay dividends in the future, and if able, that the dividends will be at the same rate as 2023, or that the Company will generate adequate cash flow from the Bank to pay dividends in the future.
Therefore, the Bank’s information technology department has instituted additional security measures with the use of lap top computers at home, such as specially loaded software providing more accessibility, increased monitoring of access logs, and the requirement for employees to bring their lap top computer into the office when working there.
Therefore, the Bank’s information technology department has instituted additional security measures with the use of laptop computers at home, such as specially loaded software providing more accessibility, increased monitoring of access logs, and the requirement for employees to bring their laptop computer into the office when working there.
Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantage for non-bank competitors. 28 Table of Contents Our lending limit may restrict our growth. We are limited in the amount we can loan to a single borrower by the amount of our capital.
Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantage for non-bank competitors. Our lending limit may restrict our growth. We are limited in the amount we can loan to a single borrower by the amount of our capital.
Further, state and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses and may require an increase in our allowance for loan losses.
Further, state and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses and may require an increase in our allowance for credit losses.
In addition, the success of a small to midsized business often depends on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay a loan.
In addition, the success of a small to mid-sized business often depends on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay a loan.
Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios.
Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. 22 Table of Contents Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios.
These business disruptions may include temporary closure of our branches and/or the facilities of our customers or vendors and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. 23 Table of Contents Market conditions and economic cyclicality may adversely affect our industry.
These business disruptions may include temporary closure of our branches and/or the facilities of our customers or vendors and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. Market conditions and economic cyclicality may adversely affect our industry.
We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform their obligations to us could disrupt our operations. Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production and account analysis.
We rely on third parties to provide key components of our business infrastructure, and the failure of these parties to fulfil their obligations to us could disrupt our operations. Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production and account analysis.
Although we believe that our allowance for loan losses at December 31, 2022 is adequate to cover known and probable incurred losses included in the portfolio, we cannot provide assurances that we will not further increase the allowance for loan losses or that our regulators will not require us to increase this allowance.
Although we believe that our allowance for credit losses at December 31, 2023 is adequate to cover known and probable incurred losses included in the portfolio, we cannot provide assurances that we will not further increase the allowance for credit losses or that our regulators will not require us to increase this allowance.
When interest-bearing liabilities mature or re-price more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. 21 Table of Contents Likewise, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce our net interest income.
When interest-bearing liabilities mature or re-price more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce our net interest income.
Our stock price may reflect securities market conditions The effectiveness of governmental, fiscal and monetary policies, and regulatory responses to the market conditions affect the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock.
The effectiveness of governmental, fiscal and monetary policies, and regulatory responses to the market conditions affect the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock.
Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the Noah acquisition will be completed. Furthermore, the Company has incurred and will incur substantial expenses in connection with the completion of the transactions contemplated by the Merger Agreement.
Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the Cornerstone acquisition will be completed. 21 Table of Contents Furthermore, the Company has incurred and will incur substantial expenses in connection with the completion of the transactions contemplated by the Merger Agreement.
We may accommodate larger loans by selling participations in those loans to other financial institutions, but this ability may not always be available. The Federal Reserve may require the Company to commit capital resources to support the Bank.
We may accommodate larger loans by selling participations in those loans to other financial institutions, but this ability may not always be available. 29 Table of Contents The Federal Reserve may require the Company to commit capital resources to support the Bank.
In addition, files and documents are only allowed to be transferred via the issued lap top computer; no personal emails can be used.
In addition, files and documents are only allowed to be transferred via the issued laptop computer; no personal emails can be used.
The success of the acquisition, including anticipated benefits, will depend, in part, on the Bank’s ability to successfully combine and integrate Noah into the Bank in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers.
The success of the acquisition, including anticipated benefits, will depend, in part, on the Company’s ability to successfully combine and integrate Cornerstone into the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers.
Loans on land under development or held for future construction as well as lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral.
Loans on land under development or held for future construction as well as lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions.
For example, the Bank’s business may have been impacted adversely by the failure to pursue other opportunities due to management’s focus on the acquisition, without realizing any of the anticipated benefits of completing the acquisition.
If the Merger Agreement is terminated, there may be various consequences. For example, the Bank’s business may have been impacted adversely by the failure to pursue other opportunities due to management’s focus on the acquisition, without realizing any of the anticipated benefits of completing the acquisition.
Our risk factors can be broadly summarized by the following categories: • Risks Related to the Pending Acquisition of Noah Bank • Credit and Interest Rate Risks • Risks Related to the Bank’s Common Stock • Economic Risks • Operational Risks • Strategic Risks • Risks Related to the Regulation of our Industry RISKS RELATED TO THE COMPANY’S PENDING ACQUISITION OF NOAH BANK Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the Company following the transaction.
If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected. 20 Table of Contents Our risk factors can be broadly summarized by the following categories: • Risks Related to the Pending Acquisition of Cornerstone • Credit and Interest Rate Risks • Risks Related to the Bank’s Common Stock • Economic Risks • Operational Risks • Strategic Risks • Risks Related to the Regulation of our Industry RISKS RELATED TO THE COMPANY’S PENDING ACQUISITION OF CORNERSTONE Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the Company following the transaction.
These risks can also be significantly impacted by supply and demand conditions. 19 Table of Contents Any recession in our local economy and commercial real estate market may make it more difficult for commercial real estate borrowers to repay their loans in a timely manner as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development of their properties.
Any recession in our local economy and commercial real estate market may make it more difficult for commercial real estate borrowers to repay their loans in a timely manner as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development of their properties.
Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities.
Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa.
At December 31, 2022, we had approximately $873.6 million of commercial real estate loans, which represented 63.7% of our total loan portfolio. Our commercial real estate loans include loans secured by owner-occupied and non-owner-occupied tenanted properties for commercial uses and multi-family loans.
At December 31, 2023, we had approximately $1.14 billion of commercial real estate loans, which represented 73.8% of our total loan portfolio. Our commercial real estate loans include loans secured by owner-occupied and non-owner-occupied tenanted properties for commercial uses and multi-family loans.
The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Bank’s reputation adversely affecting customer or investor confidence. 27 Table of Contents STRATEGIC RISKS Our growth has substantially increased our expenses and impacted our results of operations.
The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs, remedial training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Bank’s reputation adversely affecting customer or investor confidence.
The portfolio also consists of construction loans of approximately $417.5 million, or 30.5%, of our total loan portfolio as of December 31, 2022. In addition, we make both secured and unsecured commercial and industrial loans. At December 31, 2022, we had $28.9 million of commercial and industrial loans, which represented 2.1% of our total loan portfolio.
The portfolio also consists of construction loans of approximately $310.2 million, or 20.0%, of our total loan portfolio as of December 31, 2023. In addition, we make both secured and unsecured commercial and industrial loans. At December 31, 2023, we had $51.0 million of commercial and industrial loans, which represented 3.3% of our total loan portfolio.
The Company’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.
The Company’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock. 24 Table of Contents Our stock price may reflect securities market conditions.
Our average total deposits for the year ended December 31, 2022 of $1.41 billion fell slightly from $1.42 billion for the year ended December 31, 2021. We will continue to focus on deposit growth, which we use to fund loan originations.
Our average total deposits for the year ended December 31, 2023 of $1.51 billion were $100.1 million higher than the $1.41 billion for the year ended December 31, 2022. We will continue to focus on deposit growth, which we use to fund loan originations.
We are increasingly dependent on technology systems to run our core operations and to be a delivery channel to provide products and services to our customers.
Cybercrime risks have increased as electronic and mobile banking activities have increased. We are increasingly dependent on technology systems to run our core operations and to be a delivery channel to provide products and services to our customers.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Bank’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected.
Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Bank’s business operations. This report is qualified in its entirety by these risk factors.
The financial services industry has experienced an increase in both the number and severity of reported cyberattacks aimed at gaining unauthorized systems access as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions. Cybercrime risks have increased as electronic and mobile banking activities have increased.
We may be vulnerable to cyberattacks or other security breaches affecting our electronic data and product delivery systems. The financial services industry has experienced an increase in both the number and severity of reported cyberattacks aimed at gaining unauthorized systems access as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions.
If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investor confidence and the price of our common stock could be adversely affected and we may be subject to additional regulatory scrutiny.
If we cannot favorably assess the effectiveness of our internal control over financial reporting, investor confidence and the price of our common stock could be adversely affected, and we may be subject to additional regulatory scrutiny.
We can provide no assurance that we will be successful in this strategy. Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees. We may not be able to successfully manage our business as a result of the strain on our management and operations that may result from growth.
We can provide no assurance that we will be successful in this strategy. 28 Table of Contents Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees.
However, should such an event occur that is not prevented or detected by our internal controls, is uninsured or in excess of applicable insurance limits, it could have a significant adverse effect on our business, results of operations, financial condition or prospects. 25 Table of Contents If we cannot favorably assess the effectiveness of our internal controls over financial reporting we may be subject to additional regulatory scrutiny.
However, should such an event occur that is not prevented or detected by our internal controls, is uninsured or in excess of applicable insurance limits, it could have a significant adverse effect on our business, results of operations, financial condition or prospects.
The financial services market, including banking services, is increasingly affected by advances in technology, including developments in: • telecommunications; • data processing; • automation; • Internet banking, including mobile banking; 26 Table of Contents • social media; • debit cards and so-called “smart cards”; and • remote deposit capture.
The financial services market, including banking services, is increasingly affected by advances in technology, including developments in: • telecommunications; • data processing; • automation; • Internet banking, including mobile banking; • social media; • debit cards and so-called “smart cards”; and • remote deposit capture. 27 Table of Contents Our ability to compete successfully in the future will depend, to a certain extent, on whether we can anticipate and respond to technological changes.
These conditions to the closing of the acquisition may not be satisfied or waived in a timely manner or at all, and, accordingly, the acquisition may be delayed or may not be completed.
These conditions to the closing of the acquisition may not be satisfied or waived in a timely manner or at all, and, accordingly, the acquisition may be delayed or may not be completed. In addition, Cornerstone or the Company may elect to terminate the Merger Agreement in certain other circumstances. Termination of the Merger Agreement could negatively impact the Company.
Our ability to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees, and we may need to adopt additional equity plans in order to do so.
We may not be able to successfully manage our business as a result of the strain on our management and operations that may result from growth. Our ability to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees, and we may need to adopt additional equity plans in order to do so.
We are subject to certain operational risks, including but not limited to data processing system failures and errors and customer or employee fraud. We maintain a system of internal controls to mitigate such occurrences which system recently had to be modified to cover the additional risks caused by the increase in the amount of time our employees are working remotely.
We maintain a system of internal controls to mitigate such occurrences which system recently had to be modified to cover the additional risks caused by the increase in the amount of time our employees are working remotely. We also maintain insurance coverage for such risks.
Thus, any borrowing or funds needed to raise capital required to make a capital injection becomes more difficult and expensive and could have an adverse effect on the Company’s business, financial condition, and results of operations.
Thus, any borrowing or capital raised to make a capital injection becomes more difficult and expensive and could have an adverse effect on the Company’s business, financial condition, and results of operations. We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.
Business – General), before the acquisition can be completed, the Company and the Bank must obtain approval of the acquisition from the FDIC, the New Jersey Department of Banking and Insurance and the Pennsylvania Department of Banking and Securities, and either the approval of the Federal Reserve or confirmation that such approval is not required.
In connection with the Company’s pending acquisition of Cornerstone (See Item 1. Business – General), before the acquisition can be completed, the Company and the Bank must obtain approval of the acquisition from the FDIC, the New Jersey Department of Banking and Insurance and the Federal Reserve.
OPERATIONAL RISKS Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability. We face substantial competition in originating loans.
As a result, the Company could face increased scrutiny or be viewed as higher risk by regulators and the investor community. Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability. We face substantial competition in originating loans.
Maintaining our reputation also depends on our ability to successfully prevent third-parties from infringing on the “The Bank of Princeton” brand and associated trademarks. Defense of our reputation, including through litigation, could result in costs adversely affecting our business, results of operations, financial condition or prospects. Our internal control systems could fail to detect certain events.
Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on the “The Bank of Princeton” brand and associated trademarks.
We can provide no assurance that we will have sufficient resources or access to the necessary technology to remain competitive in the future. We may be vulnerable to cyberattacks or other security breaches affecting our electronic data and product delivery systems.
In addition, increased use of electronic banking creates opportunities for interruptions in service which could expose us to claims by customers or other third parties. We can provide no assurance that we will have sufficient resources or access to the necessary technology to remain competitive in the future.
Removed
In connection with the Company’s pending acquisition of Noah Bank (See Item 1.
Added
Either of these occurrences could adversely affect our earnings. Increased interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.
Removed
In addition, Noah or the Bank may elect to terminate the Merger Agreement in certain other circumstances. 18 Table of Contents Termination of the Merger Agreement could negatively impact the Company. If the Merger Agreement is terminated, there may be various consequences.
Added
As a result of inflationary pressures and the resulting rapid increases in interest rates over the last two years, the fair value of our securities classified as available for sale has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses embedded in other comprehensive income as a part of shareholders’ equity.
Removed
Either of these occurrences could adversely affect our earnings.
Added
If the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability.
Removed
The Financial Accounting Standards Board (“FASB”) has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations. 20 Table of Contents In June 2016, the FASB issued an accounting standard update, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model.
Added
While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. 23 Table of Contents The financial services industry is undergoing a period of great volatility and disruption.
Removed
Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment, certain off-balance-sheet commitments and held-to-maturity debt securities, at the net amount expected to be collected.
Added
OPERATIONAL RISKS Further negative developments in the banking industry could adversely affect our business operations and our financial condition and results of operations.
Removed
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
Added
The large bank failures during the first half of 2023 and related negative media attention generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company.
Removed
This differs significantly from the “incurred loss” model required under current generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses, and could require us to significantly increase our allowance.
Added
Similar developments in the future could negatively impact customer confidence in regional and community banks, which could prompt customers to move their deposits to larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin.
Removed
Moreover, the CECL model may create more volatility in the level of the allowance for loan losses. If we are required to materially increase the level of its allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
Added
If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.
Removed
The new CECL standard will become effective for the Bank for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years.
Added
If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability.
Removed
We are evaluating the impact the CECL model will have on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses and unfunded commitments as of the beginning of the first reporting period in which the new standard is effective, the quarter ending March 31, 2023, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.
Added
While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. 25 Table of Contents There has also been increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Company, designed to address the negative developments in the banking industry in 2023, all of which may increase our costs of doing business and reduce our profitability.
Removed
Upon adoption of the new CECL standard, effective January 1, 2023, the Bank anticipates recording a one-time decrease, net of tax, in retained earnings of approximately $304,000 (unaudited), a reduction to the allowance for loan losses of approximately $264,000 (unaudited) and a reserve for unfunded liabilities of approximately $686,000 (unaudited).
Added
Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing.
Removed
The financial services industry is undergoing a period of great volatility and disruption.
Added
Defense of our reputation, including through litigation, could result in costs adversely affecting our business, results of operations, financial condition or prospects. 26 Table of Contents Our internal control systems could fail to detect certain events. We are subject to certain operational risks, including but not limited to data processing system failures and errors and customer or employee fraud.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table sets forth certain information regarding the Bank’s properties as of December 31, 2022: Location Leased or Owned Date of Lease Expiration 1 Corporate Headquarters and Branch 183 Bayard Lane Princeton, NJ Leased October 31, 2023 Operations Center 403 Wall Street Princeton, NJ Leased February 28, 2026 Hamilton Branch 339 Route 33 Hamilton, NJ Leased October 30, 2025 Pennington Branch 2 Route 31 Pennington, NJ Leased April 30, 2027 Montgomery Branch 1185 Route 206 North Princeton, NJ Leased April 30, 2025 Monroe Branch Leased July 31, 2030 1 Rossmoor Drive Monroe Township, NJ Lambertville Branch 10-12 Bridge Street Lambertville, NJ Owned N/A Lawrenceville Branch 2999 Princeton Pike Lawrenceville, NJ Leased October 30, 2025 29 Table of Contents Nassau Street Branch 194 Nassau Street Princeton, NJ Leased November 30, 2026 New Brunswick Branch 1 Spring Street, Suite 102 New Brunswick, NJ Leased March 31, 2027 Cream Ridge Branch Leased October 28, 2023 403 Rt 539 Cream Ridge, NJ Chesterfield Branch 305 Bordentown-Chesterfield Road Chesterfield, NJ Owned N/A Bordentown Branch 335 Farnsworth Avenue Bordentown, NJ Owned N/A Browns Mills Branch 101 Pemberton Browns Mills Road Browns Mills, NJ Owned N/A Deptford Branch 1893 Hurffville Road Deptford, NJ Owned N/A Sicklerville Branch 483 Cross Key Road Sicklerville, NJ Leased February 1, 2026 Princeton Junction Branch 11 Cranbury Road Princeton Junction, NJ Leased October 10, 2024 Quakerbridge Branch 3745 Quakerbridge Road Hamilton, NJ Leased April 1, 2024 Lakewood Branch 12 American Avenue, 7B Lakewood, NJ Leased August 20, 2025 Piscataway Branch 1642 Stelton Road, Suite 410 Piscataway, NJ Leased March 31, 2027 North Wales Branch 1222 Welsh Road North Wales, PA Leased September 30, 2026 Cheltenham Branch 470 West Cheltenham Avenue Philadelphia, PA Leased January 25, 2026 Chinatown Branch 921 Arch Street Philadelphia, PA Leased September 30, 2027 Chestnut Street Branch 1839 Chestnut Street Philadelphia, PA Leased February 28, 2027 30 Table of Contents The expiration date is based on the next upcoming maturity date and does not take into consideration any renewal/extensions dates.
Biggest changeThe following table sets forth certain information regarding the Bank’s properties as of December 31, 2023: Location Leased or Owned Date of Lease Expiration 1 Corporate Headquarters and Branch 183 Bayard Lane Princeton, NJ Leased October 31, 2028 Operations Center 403 Wall Street Princeton, NJ Leased February 28, 2026 Hamilton Branch 339 Route 33 Hamilton, NJ Leased October 30, 2025 Pennington Branch 2 Route 31 Pennington, NJ Leased April 30, 2027 Montgomery Branch 1185 Route 206 North Princeton, NJ Leased April 30, 2025 Monroe Branch 1 Rossmoor Drive Monroe Township, NJ Leased July 31, 2030 Lambertville Branch 10-12 Bridge Street Lambertville, NJ Owned N/A Lawrenceville Branch 2999 Princeton Pike Lawrenceville, NJ Leased October 30, 2025 Nassau Street Branch 194 Nassau Street Princeton, NJ Leased November 30, 2026 New Brunswick Branch 1 Spring Street, Suite 102 New Brunswick, NJ Leased March 31, 2027 Cream Ridge Branch 403 Rt 539 Cream Ridge, NJ Leased November 30, 2028 31 Table of Contents Chesterfield Branch 305 Bordentown-Chesterfield Road Chesterfield, NJ Owned N/A Bordentown Branch 335 Farnsworth Avenue Bordentown, NJ Owned N/A Browns Mills Branch 101 Pemberton Browns Mills Road Browns Mills, NJ Owned N/A Deptford Branch 1893 Hurffville Road Deptford, NJ Owned N/A Sicklerville Branch 483 Cross Key Road Sicklerville, NJ Leased February 1, 2026 Princeton Junction Branch 11 Cranbury Road Princeton Junction, NJ Leased October 10, 2024 Quakerbridge Branch 3745 Quakerbridge Road Hamilton, NJ Leased April 1, 2024 Lakewood Branch 12 American Avenue, 7B Lakewood, NJ Leased August 20, 2025 Piscataway Branch 1642 Stelton Road, Suite 410 Piscataway, NJ Leased March 31, 2027 North Wales Branch 1222 Welsh Road North Wales, PA Leased September 30, 2026 Cheltenham Branch 470 West Cheltenham Avenue Philadelphia, PA Leased January 25, 2026 Chinatown Branch 921 Arch Street Philadelphia, PA Leased September 30, 2027 Chestnut Street Branch 1839 Chestnut Street Philadelphia, PA Leased February 28, 2027 Kingston Branch 4442 Route 27 Kingston, NJ Leased March 31, 2028 Fort Lee Branch 2337 Lemoine Ave Fort Lee, NJ Leased November 30, 2027 32 Table of Contents Palisades Park Branch 449 Broad Ave Palisades Park, NJ Leased December 31, 2025 Flushing Branch 15404 Northern Blvd Flushing, NY Leased January 31, 2029 Jericho Branch 350 N Broadway #352 Jericho, NY Leased November 30, 2028 Elkins Park Branch 7301 Old York Rd Elkins Park, PA Leased May 31, 2041 1 The expiration date is based on the next upcoming maturity date and does not take into consideration any renewal/extensions dates.
Item 2. Properties We conduct our operations from our headquarters and branch located at 183 Bayard Lane, Princeton, New Jersey, an operations center at 403 Wall Street, Princeton, New Jersey, and from 24 other branch locations in New Jersey and Pennsylvania.
Item 2. Properties We conduct our operations from our headquarters and branch located at 183 Bayard Lane, Princeton, New Jersey, an operations center at 403 Wall Street, Princeton, New Jersey, and from 28 other branch locations in New Jersey, Pennsylvania and New York.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeHowever, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Bank.
Biggest changeHowever, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Company.
In addition, no material proceedings are pending or are known to be threatened or contemplated against the Bank by government authorities or others.
In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by government authorities or others.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+6 added−4 removed1 unchanged
Biggest changeThe Bank’s repurchase of equity securities for the three months ended December 31, 2022 were as follows: Total Number of Shares Purchased as Part of Maximum Number Total Average Publicly of Shares that May Number of Price Announced Yet be Purchased Shares Paid Per Plans or Under Plans or Purchased Share Program Programs Period 10,174 October 1 - 31, 2022 10,174 $ 29.09 10,174 — November 1 - 30, 2022 — $ — — — December 1 - 31, 2022 — $ — — — 10,174 $ 29.09 10,174 32 Table of Contents Performance Graph The following graph demonstrates comparison of the cumulative total returns for the common stock of the Bank, NASDAQ Composite Index, SNL Mid-Atlantic Bank Index, and Peer Group made up of banks and thrifts with total assets between $1.00 billion and $3.00 billion for the periods indicated.
Biggest changeA bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. 34 Table of Contents Performance Graph The following graph demonstrates comparison of the cumulative total returns for the common stock of the Company, NASDAQ Composite Index, SNL Mid-Atlantic Bank Index, and Peer Group made up of banks and thrifts with total assets between $1.00 billion and $3.00 billion for the periods indicated.
Plan Category Number of shares of common stock to be issued upon exercise of outstanding options Weighted- average exercise price of outstanding options Number of shares of common stock remaining available for future issuance under compensation plans Equity Compensation Plans approved by security holders 367,564 $ 19.31 317,777 Equity Compensation Plans not approved by security holders — — — Total 367,564 $ 19.31 317,777
Plan Category Number of shares of common stock to be issued upon exercise of outstanding options Weighted- average exercise price of outstanding options Number of shares of common stock remaining available for future issuance under compensation plans Equity Compensation Plans approved by security holders 328,637 $ 19.44 246,883 Equity Compensation Plans not approved by security holders — — — Total 328,637 $ 19.44 246,883
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock trades on the “NASDAQ Global Select Market” under the ticker symbol “BPRN.” As of March 3, 2023, there were approximately 1,025 holders of our common stock.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock trades on the “NASDAQ Global Select Market” under the ticker symbol “BPRN.” As of March 4, 2024, there were approximately 2,415 holders of our common stock. Recent Sales of Unregistered Securities None.
BMI Banks - Mid-Atlantic Region Index 100.00 85.44 121.49 109.82 138.70 117.14 Peer Group 100.00 95.61 108.57 91.92 118.55 119.03 Peer group includes Banks and Thrifts with total assets between $1B – $3B Source: S&P Global Market Intelligence © 2023 33 Table of Contents Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes our equity compensation plan information as of December 31, 2022.
BMI Banks - Mid-Atlantic Region Index 100.00 142.19 128.53 162.33 137.10 166.23 Peer Group 100.00 114.61 97.79 125.48 124.42 123.09 Peer group includes Banks and Thrifts with total assets between $1B – $3B Source: S&P Global Market Intelligence © 2024 35 Table of Contents Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes our equity compensation plan information as of December 31, 2023.
The graph below represents $100 invested in our common stock at its closing price on August 4, 2017, the date the common stock commenced trading on the NASDAQ Global Select Market. Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Bank of Princeton 100.00 81.33 92.39 69.93 89.61 100.17 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P U.S.
The graph below represents $100 invested in our Bank’s common stock at its closing price on December 31, 2018. Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Princeton Bancorp, Inc. 100.00 113.60 85.98 110.18 123.16 144.98 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.
Removed
The following table shows the quarterly high and low closing prices of our common stock traded on NASDAQ.
Added
Dividends The Company declared and paid cash dividends of $0.30 per share in each quarter for the year ended December 31, 2023. The payment of dividends to shareholders of the Company is dependent on the Bank paying dividends to the Company.
Removed
Stock Price Cash Dividend High Low Per Share Quarter ended: December 31, 2022 $ 32.80 $ 28.57 $ 0.25 September 30, 2022 $ 29.95 $ 27.29 $ 0.25 June 30, 2022 $ 30.49 $ 26.66 $ 0.25 March 31, 2022 $ 32.06 $ 28.73 $ 0.25 December 31, 2021 $ 30.89 $ 28.71 $ 0.18 September 30, 2021 $ 30.74 $ 27.90 $ 0.18 June 30, 2021 $ 31.25 $ 25.58 $ 0.18 March 31, 2021 $ 30.00 $ 21.26 $ 0.12 Recent Sales of Unregistered Securities During the three months ended December 31, 2022, the Bank issued: • 1,750 shares of its common stock pursuant to exercises of options previously awarded under the Bank’s stock option plans.
Added
The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions.
Removed
The Bank received cash consideration of $38,500 in the aggregate, based on the exercise price of the options, and • 735 shares of its common stock pursuant to its Dividend Reinvestment Plan. 31 Table of Contents The offer and sale of all of the shares of common stock listed above was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 3(a)(2) of the Securities Act.
Added
Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50.0 percent of the Bank’s capital stock or, if not, the payment of the dividend will not reduce the surplus.
Removed
Issuer Purchases of Equity Securities On January 26, 2022 the Bank announced a stock repurchase program to repurchase up to 324,017 shares of common stock, approximately 5% of the Bank’s outstanding shares of common stock, over a period of time necessary to complete such repurchases. The Company repurchased all 324,017 shares during the year ended December 31, 2022.
Added
In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums.
Added
Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend.
Added
It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

43 edited+22 added−30 removed34 unchanged
Biggest changeNo tax-equivalent adjustments have been made. 2022 2021 Change 2022 vs 2021 Average Income/ Yield Average Income/ Yield Average Yield Balances Expense Rates Balances Expense Rates Balances Rates (Dollars in thousands) Interest-earning assets: Loans receivable $ 1,375,501 $ 70,996 5.16 % $ 1,381,626 $ 67,348 4.87 % $ (6,125 ) 0.29 % Securities Taxable available-for-sale 47,358 986 2.08 % 33,805 547 1.62 % 13,553 0.46 % Tax exempt available-for-sale 43,549 1,167 2.68 % 47,294 1,172 2.48 % (3,745 ) 0.20 % Held-to-maturity 204 11 5.39 % 212 11 5.19 % (8 ) 0.20 % Federal funds sold 66,292 797 1.20 % 43,402 50 0.11 % 22,890 1.09 % Other interest earning-assets 10,612 126 1.19 % 50,995 147 0.29 % (40,383 ) 0.90 % Total interest-earning assets 1,543,516 $ 74,083 4.80 % 1,557,334 $ 69,275 4.45 % (13,818 ) 0.35 % Other non-earnings assets 101,940 101,479 461 Total assets $ 1,645,456 $ 1,658,813 $ (13,357 ) Interest-bearing liabilities Demand $ 261,951 $ 823 0.31 % $ 263,715 $ 716 0.27 % $ (1,764 ) 0.04 % Savings 220,222 714 0.32 % 205,788 512 0.25 % 14,434 0.08 % Money markets 353,224 1,565 0.44 % 339,903 1,004 0.30 % 13,321 0.15 % Certificates of deposit 293,627 2,893 0.99 % 336,488 4,441 1.32 % (42,861 ) -0.33 % Total deposit 1,129,024 5,995 0.42 % 1,145,894 6,673 0.58 % (16,870 ) -0.16 % Borrowings 153 5 3.37 % 270 1 0.37 % (117 ) 3.00 % Total interest-bearing liabilities 1,129,177 $ 6,000 0.53 % 1,146,164 $ 6,674 0.58 % (16,987 ) -0.05 % Non-interest-bearing deposits 280,729 273,260 7,469 Other liabilities 20,755 25,470 (4,715 ) Total liabilities 1,430,661 1,444,894 (14,233 ) Stockholders’ equity 214,795 213,919 876 Total liabilities and stockholder’s equity $ 1,645,456 $ 1,658,813 $ (13,357 ) Net interest-earnings assets $ 414,339 $ 411,170 $ 3,169 Net interest income; interest rate spread 4.27 % 3.87 % 0.39 % Net interest margin $ 68,083 4.41 % $ 62,601 4.02 % $ 5,482 0.39 % Net interest margin FTE 1 4.47 % 4.08 % 0.39 % 1 Includes federal and state tax effect of tax exempt securities and loans. 38 Table of Contents Rate/Volume Analysis The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated.
Biggest changeNo tax-equivalent adjustments have been made. 2023 2022 Change 2023 vs 2022 Average Income/ Yield Average Income/ Yield Average Yield Balances Expense Rates Balances Expense Rates Balances Rates (Dollars in thousands) Interest-earning assets: Loans receivable $ 1,449,504 $ 89,278 6.16 % $ 1,375,501 $ 70,996 5.16 % $ 74,003 1.00 % Securities Taxable available-for-sale 43,476 1,339 3.08 % 47,358 986 2.08 % (3,882 ) 1.00 % Tax exempt available-for-sale 40,264 1,138 2.83 % 43,549 1,167 2.68 % (3,285 ) 0.15 % Held-to-maturity 197 10 5.28 % 204 11 5.39 % (7 ) -0.11 % Federal funds sold 109,441 5,858 5.35 % 66,292 797 1.20 % 43,149 4.15 % Other interest earning-assets 10,064 557 5.53 % 10,612 126 1.19 % (548 ) 4.35 % Total interest-earning assets 1,652,946 $ 98,180 5.94 % 1,543,516 $ 74,083 4.80 % 109,430 1.14 % Other non-earnings assets 122,321 101,940 20,381 Total assets $ 1,775,267 $ 1,645,456 $ 129,811 Interest-bearing liabilities Demand $ 250,312 $ 3,654 1.46 % $ 261,951 $ 823 0.31 % $ (11,639) 1.15 % Savings 159,175 2,742 1.72 % 220,222 714 0.32 % (61,047 ) 1.40 % Money markets 311,478 9,565 3.07 % 353,224 1,565 0.44 % (41,746 ) 2.63 % Certificates of deposit 538,343 17,085 3.17 % 293,627 2,893 0.99 % 244,716 2.19 % Total deposit 1,259,308 33,046 2.62 % 1,129,024 5,995 0.42 % 130,284 2.20 % Borrowings 2,343 118 5.01 % 153 5 3.37 % 2,190 1.65 % Total interest-bearing liabilities 1,261,651 $ 33,164 2.63 % 1,129,177 $ 6,000 0.53 % 132,474 2.10 % Non-interest-bearing deposits 248,233 280,729 (32,496 ) Other liabilities 36,856 20,755 16,101 Total liabilities 1,546,740 1,430,661 116,079 Stockholders’ equity 228,527 214,795 13,732 Total liabilities and stockholder’s equity $ 1,775,267 $ 1,645,456 $ 129,811 Net interest-earnings assets $ 391,295 $ 414,339 $ (23,044) Net interest income; interest rate spread 3.31 % 4.27 % -0.96 % Net interest margin $ 65,016 3.93 % $ 68,083 4.41 % $ (3,067) -0.48 % Net interest margin FTE 1 3.99 % 4.47 % -0.48 % 1 Includes federal and state tax effect of tax exempt securities and loans. 40 Table of Contents Rate/Volume Analysis The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows: • Overview and Strategy • Comparison of Financial Condition at December 31, 2022 and December 31, 2021 • Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 • Rate/Volume Analysis • Liquidity, Commitments and Capital Resources • Off-Balance Sheet Arrangements • Impact of Inflation • Exposure to changes in Interest Rates • Critical Accounting Policies and Estimates • Recently Issued Accounting Standards Overview and Strategy We remain focused on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively priced and delivered in a responsive manner to small businesses, to professionals and individuals in our market area.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows: • Overview and Strategy • Comparison of Financial Condition at December 31, 2023 and December 31, 2022 • Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 • Rate/Volume Analysis • Liquidity, Commitments and Capital Resources • Off-Balance Sheet Arrangements • Impact of Inflation • Exposure to Changes in Interest Rates • Critical Accounting Policies and Estimates • Recently Issued Accounting Standards Overview and Strategy We remain focused on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively priced and delivered in a responsive manner to small businesses, to professionals and individuals in our market area.
Generally, loans deemed to be uncollectible are charged-off against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance for loan losses.
Generally, loans deemed to be uncollectible are charged-off against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for loan losses.
The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2022, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”).
The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2023, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”).
The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2022 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2023 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2022, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments period and subsequent selected time intervals.
The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2023, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments period and subsequent selected time intervals.
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans.
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses expected in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans.
The management of these dynamic and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year. Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 General.
The management of these dynamic and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year. Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 General.
See the section above titled “Analysis of Allowance for Loan Losses” for a discussion of our allowance for loan losses methodology, including additional information regarding the determination of the provision for loan losses. Non-Interest Income.
See the section above titled “Analysis of Allowance for Credit Losses” for a discussion of our allowance for credit losses methodology, including additional information regarding the determination of the provision for credit losses. Non-interest income.
Impact of Inflation The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.
Impact of Inflation The financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.
The reserve for unfunded lending commitments represents our estimate of losses inherent in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for loan losses is increased by the provision for loan losses and recoveries, and decreased by charge-offs.
The reserve for unfunded lending commitments represents our estimate of losses expected in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for credit losses is increased by the provision for credit losses and recoveries and decreased by charge-offs.
As of December 31, 2022, we met the capital requirements to be considered “well capitalized.” See Note 16 – “Regulatory Matters” in the Notes to Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources.
As of December 31, 2023, we met the capital requirements to be considered “well capitalized.” See Note 17 – “Regulatory Matters” in the Notes to Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources.
If this qualitative test determines it is not more likely than not (less than 50% probability) the fair value of the Reporting Unit exceed the Carrying Value, then the Bank does not have to perform a quantitative test and goodwill can be considered not impaired.
If this qualitative test determines it is not more likely than not (less than 50% probability) that the fair value of the Reporting Unit is less than the Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 40 Table of Contents We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31: 2022 2021 (in thousands) Performance and standby letters of credit $ 1,420 $ 486 Undisbursed construction loans-in-process 140,538 239,156 Commitments to fund loans 41,753 41,816 Unfunded commitments under lines of credit 5,800 4,573 Total $ 189,511 $ 286,031 For additional information regarding our outstanding lending commitments at December 31, 2022, see Note 8 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 42 Table of Contents We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31: 2023 2022 (In thousands) Performance and standby letters of credit $ 1,010 $ 1,420 Undisbursed construction loans-in-process 89,258 140,538 Commitments to fund loans 38,863 41,753 Unfunded commitments under lines of credit 4,697 5,800 Total $ 133,828 $ 189,511 For additional information regarding our outstanding lending commitments at December 31, 2023, see Note 9 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Form 10-K.
At May 31, 2022, the Bank in reviewing whether its goodwill was impaired looked at applicable accounting guidance requires an annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill.
Applicable accounting guidance requires an annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill.
The improvement in interest income resulted from an increase in the yield on earning assets of 35 basis points to 4.80% for the twelve-month period ended December 31, 2022. Interest income and fees on loans increased $3.6 million, or 5.4%, to $71.0 million for the year ended December 31, 2022, compared to $67.3 million for the prior year.
The improvement in interest income resulted from an increase in the yield on earning assets of 114 basis points to 5.94% for the twelve-month period ended December 31, 2023. Interest income and fees on loans increased $18.3 million, or 25.8%, to $89.3 million for the year ended December 31, 2023, compared to $71.0 million for the prior year.
All, or part, of the principal balance of loans receivable are charged-off to the allowance for loan losses when it is determined that the repayment of all, or part, of the principal balance is highly unlikely.
All, or part, of the principal balance of loans receivable are charged off to the allowance for credit losses when it is determined that the repayment of all, or part, of the principal balance is highly unlikely. 45 Table of Contents Goodwill and Core Deposit Intangible.
The Bank had $ 10 million in borrowings at December 31, 2022 and no outstanding borrowings at December 31, 2021. 35 Table of Contents Total stockholders’ equity at December 31, 2022 increased $3.0 million or 1.4% when compared to the end of 2021.
The Bank had no outstanding borrowings at December 31, 2023 and $10 million in borrowings at December 31, 2022. Total stockholders’ equity at December 31, 2023 increased $20.6 million or 9.4% when compared to the end of 2022.
This decrease was the result of a 5 basis point decrease in the cost of interest-bearing liabilities and a decrease of $17.0 million in average interest-bearing liabilities. Interest expense on borrowings was not meaningful for either period presented. 36 Table of Contents Provision for Loan Losses.
This increase was the result of a 210 basis point increase in the cost of interest-bearing liabilities and an increase of $132.5 million in average interest-bearing liabilities. Interest expense on borrowings was not significant for either period presented. Provision for credit losses.
(2) Includes interest-bearing bank balances, FHLB Stock and Federal Funds Sold (3) Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities. Net Portfolio Value Analysis.
(2) Includes interest-bearing bank balances, FHLB stock and federal funds sold (3) Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities. Certain shortcomings are inherent in the method of analysis presented in the foregoing table.
This increase was due to a 94 basis point increase in the yield and a $32.2 million increase in average balances of federal funds sold. Interest Expense. Total interest expense decreased $674,000, or 10.1%, for the year ended December 31, 2022 compared to the prior year.
This increase was due to a 415 basis point increase in the yield and a $43.1 million increase in average balances of federal funds sold. 38 Table of Contents Interest expense. Total interest expense increased $27.2 million, or 452.7%, for the year ended December 31, 2023 compared to the prior year.
The increase was attributable to a 29 basis point increase in the year-over-year average yield on loans to 5.16%, due to the rising interest rates over the period. Interest income on securities increased approximately $434,000, or 25.1%, for the year ended December 31, 2022 compared to the prior year.
The increase was attributable to both a $74.0 million increase in the average balance and a 100 basis point increase in the year-over-year average yield on loans to 6.16%, due to rising interest rates over the period. Interest income on securities increased approximately $323,000, or 14.9%, for the year ended December 31, 2023 compared to the prior year.
Income Tax Expense. For the year ended December 31, 2022, the Bank recorded income tax expense of $7.6 million resulting in an effective tax rate of 22.2%, compared to a $6.7 million expense resulting in an effective tax rate of 23.0% for the same period in 2021.
For the year ended December 31, 2023, income tax expense was $4.6 million resulting in an effective tax rate of 15.1% compared to income tax expense of $7.6 million and an effective tax rate of 22.2% for the year ended December 31, 2022.
The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment. Goodwill and Core Deposit Intangible. Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred.
Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred.
The increase in loans receivable primarily consisted of a $102.5 million increase in commercial real estate loans and a $13.9 million increase in construction loans, partially offset by a $77.3 million decrease in PPP loans during the twelve-month period covered. Total liabilities decreased by $88.9 million to $1.38 billion at December 31, 2022 from $1.47 billion at December 31, 2021.
The increase in loans receivable primarily consisted of a $269.3 million increase in commercial real estate loans and a $19.6 million increase in commercial and industrial loans, partially offset by a $107.4 million decrease in construction loans during the twelve-month period covered. 37 Table of Contents Total liabilities increased by $294.1 million to $1.68 billion at December 31, 2023 from $1.38 billion at December 31, 2022.
At December 31, 2022, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $165.0 million. 39 Table of Contents Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2022, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days.
Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2023, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. Contractual Obligations. We have non-cancelable operating leases for branch offices and our operations center.
Total deposits at December 31, 2022 decreased by $98.4 million, or 6.8%, when compared to December 31, 2021, primarily due decreases of $89.4 million in money market deposits, $34.9 million in savings and $21.2 million in non-interest checking, partially offset by a $42.4 million increase in time deposits over $250,000.
Total deposits at December 31, 2023 increased by $288.0 million, or 21.4%, when compared to December 31, 2022, primarily due to increases of $299.5 million in time deposits and $70.4 million in money market deposits partially offset by decreases in savings of $44.2 million, $21.8 million in interest checking, and $15.8 million in non-interest checking.
The following table is a schedule of future payments under operating leases with initial terms longer than 12 months at December 31, 2022: Amount Years Ended December 31 (in thousands) 2023 $ 2,298 2024 2,065 2025 2,048 2026 1,854 2027 1,559 Thereafter 10,371 Total $ 20,195 The following table summarizes our contractual cash obligations relating to certificates of deposits: Amount Years Ended December 31 (in thousands) 2023 $ 158,658 2024 120,028 2025 36,246 2026 21,786 2027 and thereafter 1,859 Total $ 338,577 Capital Resources.
The following table is a schedule of future payments under operating leases with initial terms longer than 12 months at December 31, 2023: Amount Years ended December 31, (In thousands) 2024 $ 3,162 2025 3,101 2026 2,914 2027 2,627 2028 2,487 Thereafter 16,312 Total $ 30,603 The following table summarizes our contractual cash obligations relating to certificates of deposits: Amount Years ended December 31, (In thousands) 2024 $ 519,151 2025 92,413 2026 22,410 2027 2,583 Thereafter 1,474 Total $ 638,031 Capital Resources.
ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to our board of directors. We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals.
We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. 41 Table of Contents While deposits are our primary source of funds, when needed we are also able to generate cash through borrowings from the FHLB-NY.
This decrease was attributable to an $9.8 million increase in average balances and a 25 basis point increase in the yield earned on the securities portfolio. Other interest and dividends increased $726,000, or 368.5%, to $923,000 for the year ended December 31, 2022, compared to $197,000 for the prior year due to an increase in federal funds sold.
Other interest and dividends increased $5.5 million, or 595.0%, to $6.4 million for the year ended December 31, 2023, compared to $923,000 for the prior year due to an increase in federal funds sold.
Net loan fees of $5.2 million and $9.2 million were recorded for twelve months ended December 31, 2022 and 2021, respectively. Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented.
The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Net loan fees of $2.8 million and $5.0 million were recorded for the twelve months ended December 31, 2023 and 2022, respectively.
After performing the qualitative factor test the result was the Bank was more than 50% probable the fair value of the Reporting Unit exceeds the than the Carrying Value, therefore a quantitative test was not required as of May 31, 2022. 43 Table of Contents Income Taxes .
The Company performed its annual review at May 31, 2023 and determined that it was more than 50% probable the fair value of the Reporting Unit exceeds the then Carrying Value, therefore a quantitative test was not required as of May 31, 2023.
Net income for the year ended December 31, 2022 was $26.5 million, an increase of approximately $4.0 million, or 17.8%, as compared to the year ended December 31, 2021.
For the year ended December 31, 2023, the Company recorded net income of $25.8 million, or $4.03 per diluted common share, compared to $26.5 million, or $4.11 per diluted common share, for the same period in 2022.
The provision for credit losses for the twelve months ended December 31, 2022 was $400,000 compared with a provision of $3.6 million for the 2021 period. The decrease in the provision was due to a reduction in net charge-offs from $3.0 million during 2021 to $559,000 during 2022.
The provision for credit losses for the twelve months ended December 31, 2023 was $3.1 million compared with a provision of $400,000 for the 2022 period. The $3.1 million provision for 2023 consists of a $3.4 million provision associated with the company’s loan portfolio, offset by a credit to the provision of $430,000 associated with unfunded commitments.
We continue to capitalize upon the personal contacts and relationships of our organizers, directors, stockholders and officers to establish and grow our customer base. Comparison of Financial Condition at December 31, 2022 and December 31, 2021 General.
Our recognition of, and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differentiates us from our competition. We continue to capitalize upon the personal contacts and relationships of our organizers, directors, stockholders and officers to establish and grow our customer base.
The net interest margin increased 39 basis points from 4.02% for the year ended December 31, 2021 to 4.41% for the year ended December31, 2022. Total interest and dividend income. Total interest and dividend income increased $4.8 million, or 6.9%, to $74.1 million for the year ended December 31, 2022, compared to $69.3 million for the prior year.
Total interest and dividend income. Total interest and dividend income increased $24.1 million, or 32.5%, to $98.2 million for the year ended December 31, 2023, compared to $74.1 million for the prior year.
Change in NPV as % of Portfolio Interest Rates Net Portfolio Value Value of Assets In Basis Points (Rate Shock) Amounts $ Change % Change NPV Ratio Change (Dollars in thousands) 300 $ 331,335 $ (1,509 ) -0.45 % -7.10 % -5.85 % 200 $ 341,112 $ 8,268 2.48 % -4.89 % -3.64 % 100 $ 340,044 $ 7,200 2.16 % -3.00 % -1.76 % Static $ 332,844 $ — -1.25 % (100) $ 332,718 $ (126 ) -0.04 % 0.26 % 1.51 % 42 Table of Contents As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.
Change in Interest Rates Net Portfolio Value NPV as % of Portfolio Value of Assets In Basis Points (Rate Shock) Amounts $Change % Change NPV Ratio Change (Dollars in thousands) 300 $ 188,005 $ 1,581 0.85 % -10.79% -4.74 % 200 $ 194,762 $ 8,338 4.47 % -9.01% -2.97 % 100 $ 193,426 $ 7,002 3.76 % -7.48% -1.43 % Static $ 186,424 $ — -6.05% (100) $ 198,504 $ 12,080 6.48 % -4.11% 1.94 % (200) $ 215,642 $ 29,218 15.67 % -2.17% 3.88 % (300) $ 216,134 $ 29,710 15.94 % -0.34% 5.71 % As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.
This increase over 2021’s results was primarily due to a $5.5 million increase in net-interest income, a $3.2 million decrease in the provision for loan losses and a $196,000 increase in non-interest income, partially offset by a $4.0 million increase in non-interest expenses and an $856,000 increase in income tax expense. Net interest income.
The decrease was due to an increase of $10.2 million in non-interest expenses, a decrease in net interest income of $3.1 million, and an increase in provision for credit losses of $2.7 million, partially offset by an increase of $12.3 million in non-interest income and a decrease in income tax expense of $3.0 million attributable in part to the $9.7 million bargain purchase gain from its Noah Bank acquisition in May of 2023 that is not taxable.
We strive to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent with safe and sound banking practices. We expect that a financial strategy that utilizes variable rates and matching assets and liabilities will enable us to increase our net interest margin, while managing interest rate risk.
We expect that a financial strategy that utilizes variable rates and matching assets and liabilities will enable us to increase our net interest margin, while managing interest rate risk. We also seek to generate fee income from various sources, subject to our desire to maintain competitive pricing within our market area.
Net interest income for the twelve-month period ended December 31, 2022 was $68.1 million, an increase of $5.5 million, or 8.8%, over 2021. This increase was due to a $4.8 million increase in interest earned on earning assets and a $674,000 decline in interest expense.
Total non-interest income for the year ended December 31, 2023 increased $12.3 million, or 252.1%, primarily due to the $9.7 million bargain purchase gain and an increase in loan fees of $1.7 million over the same period in 2022. Non-interest expense.
For the twelve-month period ended December 31, 2022, non-interest expense was $38.5 million, compared to $34.5 million for the same period in 2021. This increase was primarily due to an increase in salaries and employee benefits as well as data processing and communications costs to enhance services provided to customers. These increases resulted from inflation pressure on these expenses.
The increase was primarily due to merger-related expenses of $5.6 million during 2023 as well as increases in salaries and employee benefits of $2.9 million, occupancy and equipment of $1.2 million and data processing and communications of $538 thousand over the same period in 2022. Income tax expense.
Twelve Months Ended December 31, 2022 vs. 2021 Increase (Decrease) Due to Rate Volume Net (Dollars in thousands) Interest and dividend income: Loans receivable, including fees $ 3,964 $ (316 ) $ 3,648 Investment securities Available-for-sale 212 222 434 Other interest-earning assets 935 (209 ) 726 Total interest-earning assets $ 5,111 $ (303 ) $ 4,808 Interest expense: Interest-bearing demand and savings deposits $ 268 $ 41 $ 309 Money market 502 59 561 Certificates of deposit (1,126 ) (422 ) (1,548 ) Borrowings 8 (4 ) 4 Total interest expense $ (348 ) $ (326 ) $ (674 ) Change in net interest income $ 5,459 $ 23 $ 5,482 Liquidity, Commitments and Capital Resources Liquidity.
Twelve Months Ended December 31, 2023 vs . 2022 Increase (Decrease) Due to Rate Volume Net (In thousands) Interest and dividend income: Loans receivable, including fees $ 14,307 $ 3,975 $ 18,282 Securities available-for-sale Taxable 440 (87 ) 353 Tax-exempt 62 (91 ) (29 ) Securities held-to-maturity — (1 ) (1 ) Federal funds sold 4,260 801 5,061 Other interest and dividend income 438 (7 ) 431 Total interest and dividend income $ 19,507 $ 4,590 $ 24,097 Interest expense: Demand $ 2,869 $ (38 ) $ 2,831 Savings 2,274 (246 ) 2,028 Money market 8,206 (206 ) 8,000 Certificates of deposit 10,300 3,892 14,192 Borrowings 4 109 113 Total interest expense $ 23,653 $ 3,511 $ 27,164 Change in net interest income $ (4,147 ) $ 1,080 $ (3,067 ) Liquidity, Commitments and Capital Resources Liquidity.
Total assets were $1.60 billion at December 31, 2022, a decrease of $85.9 million, or 5.1% when compared to $1.69 billion at the end of 2021. The primary reason for the decrease in total assets was a decrease in cash and cash equivalents of approximately $105.4 million, partially offset by an increase of $35.2 million in net loans.
Comparison of Financial Condition at December 31, 2023 and December 31, 2022 General. Total assets were $1.92 billion at December 31, 2023, an increase of $314.7 million, or 19.7% when compared to $1.60 billion at the end of 2022 due primarily to the Noah acquisition.
Removed
We also seek to generate fee income from various sources, subject to our desire to maintain competitive pricing within our market area. Our recognition of, and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differentiates us from our competition.
Added
We also intend to continue pursuing a strategy that includes acquisitions.
Removed
This increase was primarily due to the $26.5 million of earnings recorded during the twelve months of 2022, offset by the $9.4 million of common stock repurchased, the $6.5 million of cash dividends paid during the period, and the $9.1 million decrease in the accumulated other comprehensive income on the available-for-sale investment portfolio related to an increase in the interest rate yield curve.
Added
An acquisition strategy involves significant risks, including the following: finding suitable candidates for acquisition; attracting funding to support additional growth within acceptable risk tolerances; maintaining asset quality; retaining the target’s customers and key personnel; obtaining necessary regulatory approvals; conducting adequate due diligence and managing known and unknown risks and uncertainties; integrating acquired businesses; and maintaining adequate regulatory capital.
Removed
The Bank completed its 2022 stock buyback program during the fourth quarter and in total repurchased 324,017 shares of common stock at a total cost of $9.4 million and a weighted average cost of $29.07 per share. The ratio of equity to total assets at December 31, 2022 and at December 31, 2021, was 13.7% and 12.8%, respectively.
Added
The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards. We strive to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent with safe and sound banking practices.
Removed
For the twelve-month period ended December 31, 2022, the average outstanding balance of earning assets decreased by $13.8 million and average outstanding interest-bearing liabilities decreased $17.0 million. The total interest rate on average interest-earning assets for the twelve-month periods ended December 31, 2022 and 2021 was 4.80% and 4.45%, respectively.
Added
The primary components of the increase in total assets were an increase in loans of approximately $178.0 million and an increase in cash and cash equivalents of approximately $97.2 million.
Removed
Therefore, there was less provision needed to fund the allowance for loan losses in 2022. As of December 31, 2022 and 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 CARES Act requirement to classify these loans at 0% in determining risk-based capital ratio.
Added
The increase was primarily due to the $17.9 million increase in retained earnings, consisting of $25.8 million in net income, the issuance of 50,900 shares resulting from the exercise of stock options and $807,000 of compensation expense related to restricted stock units, partially offset by $7.4 million of cash dividends recorded during the period.
Removed
The rate of allowance for credit losses to period end loans was 1.20% at December 31, 2022, compared to 1.24% at December 31, 2021, which reflects management’s assessment of the credit quality in the loan portfolio.
Added
The ratio of equity to total assets at December 31, 2023 and at December 31, 2022, was 12.5% and 13.7%, respectively. The current period ratio decrease was primarily due to the Noah Bank acquisition.
Removed
Total non-interest income for the twelve-month period ended December 31, 2022 increased $196 thousand, or 4.2%, from the 2021 twelve-month period, primarily due to a $282,000 recovery of a prior year loss on a Small Business Investment Company (“SBIC”) fund. Non-Interest Expense.
Added
The results for 2023 were significantly impacted by purchase accounting adjustments resulting from the Noah Bank acquisition. Net interest income. Net interest income for the twelve-month period ended December 31, 2023 was $65.0 million, a decrease of $3.1 million, or 4.5%, from 2022.
Removed
The current effective tax rate was impacted by a refund related to a prior tax period and the impact of legislation enacted by the Governor of the State of New York establishing an economic nexus threshold of $1.0 million in New York City (”NYC”) receipts for purposes of the NYC business corporation tax for tax years beginning on or after January 1, 2022, partially offset by the diminished impact of tax-exempt income resulting from an increase in earnings. 37 Table of Contents Average Balance Sheets.
Added
The decrease from the previous year was the result of an increase in interest expense of $27.2 million, or 452.7%, partially offset by an increase in interest income of $24.1 million, or 32.5%, both as a result of the 525 basis-point increase in federal funds interest rates since March 2022 and management’s strategic initiative to maintain high levels of primary liquidity in this uncertain rate environment.
Removed
The following table sets forth average balance sheets, yields and costs, and certain other information for the years indicated. The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented.
Added
This increase was attributable to a 59 basis point increase in the yield earned on the securities portfolio, partially offset by a $7.2 million decrease in average balances.
Removed
While deposits are our primary source of funds, when needed we are also able to generate cash through borrowings from the FHLB-NY.
Added
The provision for credit losses on loans includes $1.7 million related to non-purchased-credit-deteriorated loans acquired in the Noah acquisition and was also a result of loan net charge offs of $1.8 million.
Removed
Contractual Obligations. We have non-cancelable operating leases for branch offices and our operations center.
Added
For the year ended December 31, 2023, non-interest expense was $48.7 million, compared to $38.5 million for the same period in 2022.
Removed
The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Certain shortcomings are inherent in the method of analysis presented in the foregoing table.
Added
This decrease was due to the $9.7 million non-taxable bargain purchase gain from the Noah Bank acquisition, partially offset by $274 thousand of merger-related expenses that were not tax-deductible. 39 Table of Contents Average Balance Sheets. The following table sets forth average balance sheets, yields and costs, and certain other information for the years indicated.
Removed
Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase. 41 Table of Contents More than 3 More than 1 More than 3 3 Months or Months to 1 Year to 3 Years to 5 More than 5 Non-Rate less Year Years Years Years Sensitive Total Amount (Dollars in thousands) Interest-earning assets: (1) Investment securities $ 8,147 $ 4,457 $ 6,971 $ 8,338 $ 69,151 $ (13,461 ) $ 83,603 Loans receivable 470,378 172,613 349,256 294,296 85,880 (18,516 ) 1,353,907 Other interest-earnings assets (2) 42,932 — — — — 12,161 55,093 Other non-interest assets — — — — — 109,176 109,176 Total interest-earning assets $ 521,457 $ 177,070 $ 356,227 $ 302,634 $ 155,031 $ (19,816 ) $ 1,601,779 Interest-bearing liabilities: Checking and savings accounts $ 11,889 $ 448,533 $ — $ — $ — $ — $ 460,422 Money market accounts 15,391 268,261 — — — — 283,652 Certificate accounts 27,209 131,359 157,039 22,971 — — 338,578 Total interest-bearing liabilities $ 54,489 $ 848,153 $ 157,039 $ 22,971 $ — $ — $ 1,082,652 Interest-earning assets less interest-bearing liabilities $ 466,968 $ (671,083 ) $ 199,188 $ 279,663 $ 155,031 $ (19,816 ) $ 519,127 Cumulative interest-rate sensitivity gap (3) $ 466,968 $ (204,115 ) $ (4,927 ) $ 274,736 $ 429,767 Cumulative interest-rate gap as a percentage of total assets at December 31, 2022 29.15 % -12.74 % -0.31 % 17.15 % 26.83 % Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2022 956.99 % 77.39 % 99.54 % 125.38 % 139.70 % (1) Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.
Added
Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented.
Removed
For a more detailed discussion of our allowance for loan loss methodology and the allowance for loan losses see the section titled “Analysis of Allowance for Loan Losses” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Other-Than-Temporary Impairment.
Added
ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to our board of directors.
Removed
Management evaluates securities for other-than-temporary-impairment (“OTTI”) quarterly, and more frequently when economic or market conditions warrant such an evaluation.
Added
At December 31, 2023, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $139.4 million.
Removed
In determining OTTI under FASB Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.
Added
The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. 43 Table of Contents 3 Months or Less More than 3 Months to 1 Year More than 1 Year to 3 Years More than 3 Years to 5 Years More than 5 Years Non-Rate Sensitive Total Amount (Dollars in thousands) Interest-earning assets: (1) Investment securities $ 12,953 $ 7,633 $ 11,048 $ 11,502 $ 58,822 $ (10,413 ) $ 91,545 Loans receivable 458,104 239,716 376,200 405,918 61,229 (11,324 ) 1,529,843 Other interest-earnings assets (2) 133,401 — — — — 17,156 150,557 Non-interest-earning assets — — — — — 144,552 144,552 Total assets $ 604,458 $ 247,349 $ 387,248 $ 417,420 $ 120,051 $ (4,581 ) $ 1,916,497 Interest-bearing liabilities: Checking and savings accounts $ 394,423 $ — $ — $ — $ — $ — $ 394,423 Money market accounts 354,005 — — — — — 354,005 Certificate accounts 94,627 429,863 112,106 1,435 — — 638,031 Borrowings — — — — — — — Total interest-bearing liabilities $ 843,055 $ 429,863 $ 112,106 $ 1,435 $ — $ — $ 1,386,459 Interest-earning assets less interest-bearing liabilities $ (238,597 ) $ (182,514 ) $ 275,142 $ 415,985 $ 120,051 $ (4,581 ) $ 530,038 Cumulative interest-rate sensitivity gap (3) $ (238,597 ) $ (421,111 ) $ (145,969 ) $ 270,016 $ 390,067 Cumulative interest-rate gap as a percentage of total assets at December 31, 2023 -12.45 % -21.97 % -7.62 % 14.09 % 20.35 % Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2023 71.70 % 66.92 % 89.46 % 119.48 % 128.13 % (1) Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.
Removed
The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
Added
Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase. 44 Table of Contents Net Portfolio Value Analysis.
Removed
When an OTTI of debt securities occurs, the amount of the OTTI recognized in earnings depends on whether the Bank intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.
Added
For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their fair value.
Removed
If the Bank intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings at an amount equal to the difference between the securities’ amortized cost basis and its fair value at the balance sheet date.

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