Princeton Bancorp, Inc. (NASDAQ:BPRN) is a Pennsylvania-based bank holding company that operates The Bank of Princeton, a community bank founded in 2007. The Bank serves an area within a 50-mile radius of Princeton, New Jersey, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, as well as portions of Philadelphia, Montgomery, and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of New York.

Business Overview

The Bank of Princeton is a full-service bank providing personal and business lending and deposit services. It offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans, and consumer loans, including home equity loans and lines of credit. As of March 31, 2023, Princeton Bancorp had 211 total employees and 209 full-time equivalent employees.

Recent Developments

On May 19, 2023, Princeton Bancorp completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey, and New York City markets. This acquisition expanded Princeton Bancorp's footprint and customer base.

Additionally, on January 18, 2024, Princeton Bancorp announced that it has entered into a definitive agreement and plan of merger pursuant to which Princeton Bancorp will acquire Cornerstone Financial Corporation ("Cornerstone"), the parent company of Cornerstone Bank, Mount Laurel, New Jersey in a transaction valued at approximately $17.9 million. This transaction is expected to close in the second or third quarter of 2024, subject to regulatory approvals and other customary closing conditions.

Financials

For the full year 2023, Princeton Bancorp reported net income of $25.8 million, or $4.08 per diluted share, on revenue of $115.3 million. Princeton Bancorp's annual operating cash flow was $23.2 million, and its annual free cash flow was $16.6 million.

In the first quarter of 2024, Princeton Bancorp reported net income of $4.3 million, or $0.68 per diluted share, on revenue of $30.1 million. This represents a decrease in net income compared to the first quarter of 2023, which saw net income of $6.1 million, or $0.95 per diluted share, on revenue of $22.0 million. The decrease in net income was primarily due to increases in interest expense and non-interest expense, partially offset by higher interest income and non-interest income.

Princeton Bancorp's total assets stood at $1.99 billion as of March 31, 2023, an increase of 3.73% from $1.92 billion at the end of 2022. This growth was driven by a $26.7 million increase in available-for-sale securities and a $22.9 million increase in net loans.

Loan Portfolio and Asset Quality

Princeton Bancorp's loan portfolio is diversified, with commercial real estate loans accounting for 74.0% of the total loan portfolio, followed by construction loans (20.4%), commercial and industrial loans (2.9%), residential first-lien mortgages (2.3%), and home equity/consumer loans (0.4%) as of March 31, 2023.

Princeton Bancorp's asset quality remains strong, with non-performing assets totaling $2.1 million, or 0.13% of total loans, as of March 31, 2023, down from $6.7 million, or 0.43% of total loans, at the end of 2022. The allowance for credit losses was $18.6 million, or 1.18% of total loans, at the end of the first quarter of 2023, compared to $18.5 million, or 1.19% of total loans, at the end of 2022.

Funding and Liquidity

Princeton Bancorp maintains a strong liquidity position, with cash and cash equivalents of $172.1 million as of March 31, 2023, up from $150.6 million at the end of 2022. Princeton Bancorp had no outstanding borrowings as of March 31, 2023, and December 31, 2022.

Princeton Bancorp's deposit base grew 4.27% to $1.71 billion as of March 31, 2023, compared to $1.64 billion at the end of 2022. The deposit mix remained relatively stable, with non-interest-bearing deposits accounting for 14.5% of total deposits and interest-bearing deposits making up the remaining 85.5%.

Capital Strength

Princeton Bancorp is well-capitalized, with a common equity Tier 1 capital ratio of 13.26% and a total risk-based capital ratio of 14.31% as of March 31, 2023. These ratios exceed the regulatory requirements for a "well-capitalized" institution, providing Princeton Bancorp with a solid foundation to support its growth and operations.

Risks and Challenges

Like other financial institutions, Princeton Bancorp faces risks from changes in the macroeconomic environment, including the ongoing impact of higher inflation, rising interest rates, and the potential for a recession. These factors could impact economic growth and lead to a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations.

Additionally, Princeton Bancorp's geographic concentration in the New Jersey and Pennsylvania markets exposes it to regional economic conditions and real estate market fluctuations. The integration of the Cornerstone acquisition also presents integration risks that Princeton Bancorp will need to manage effectively.

Outlook

Despite the challenging economic environment, Princeton Bancorp has demonstrated resilience in its financial performance. Princeton Bancorp's diversified loan portfolio, strong asset quality, and ample liquidity position it well to navigate the current economic headwinds. The pending acquisition of Cornerstone Bank is expected to further strengthen Princeton Bancorp's market presence and customer base.

Looking ahead, Princeton Bancorp's management remains cautiously optimistic about Princeton Bancorp's prospects, though they acknowledge the potential for continued economic uncertainty. Princeton Bancorp's focus on prudent risk management, disciplined lending practices, and strategic growth initiatives should serve it well in the coming years.

Conclusion

Overall, Princeton Bancorp appears to be a well-managed community bank with a solid foundation and the potential to deliver long-term value for its shareholders, despite the challenges posed by the current economic environment.