Business Overview and History

Princeton Bancorp was founded in 2007 and is the parent company of The Bank of Princeton, a New Jersey state-chartered commercial bank. The Bank of Princeton was incorporated under the laws of the state of New Jersey and was granted its bank charter on April 17, 2007, commencing operations on April 23, 2007. As a state-chartered bank, The Bank of Princeton is subject to regulation by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation (FDIC).

The Bank primarily 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 additional areas in 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. Over time, the Bank has expanded its footprint, and by the end of 2023, it had grown to 35 branches.

The Bank offers a diverse range of traditional retail banking services, including 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. In 2023, the company completed the acquisition of Noah Bank, a Pennsylvania-chartered state bank headquartered in Elkins Park, Pennsylvania, that primarily served the Philadelphia, Northern New Jersey, and New York City markets. This acquisition allowed Princeton Bancorp to expand its geographic reach and customer base.

One of the key challenges Princeton Bancorp faced early on was establishing itself as a new community bank in a competitive market. The Company had to work to build brand recognition and attract customers in its initial service area. Additionally, as the Company grew through organic expansion and acquisitions, it had to successfully integrate new branches, customers, and employees into its operations.

In 2024, Princeton Bancorp announced the acquisition of Cornerstone Financial Corporation, the holding company for Cornerstone Bank, a New Jersey-chartered state bank. This strategic move strengthened the company’s presence in the central and southern New Jersey markets, adding to its valuable franchise spanning from New York to Philadelphia.

Financial Performance and Ratios

Princeton Bancorp has demonstrated strong financial performance, despite the challenges faced by the banking industry in recent years. As of the latest reporting period, the company’s total assets stood at $2.35 billion, reflecting a 22.87% increase compared to the end of 2023. This growth can be attributed to the successful integration of the Cornerstone Bank acquisition, as well as organic growth in the company’s loan and deposit portfolios.

For the fiscal year 2023, Princeton Bancorp reported revenue of $72.44 million and net income of $25.77 million, with a net income margin of 9.35%. The bank’s return on assets (ROA) and return on equity (ROE) were 1.24% and 10.72%, respectively, indicating efficient utilization of its asset base and strong profitability. The company’s operating cash flow (OCF) for 2023 was $23.11 million, with free cash flow (FCF) of $21.40 million.

However, the most recent quarter (Q3 2024) showed a different picture due to the impact of the Cornerstone Bank acquisition. The company reported revenue of $19.165 million but incurred a net loss of $4.456 million. This represents a significant decrease compared to the net income of $7.60 million in Q3 2023, primarily due to a $10.00 million increase in non-interest expense and a $4.80 million increase in provision for credit losses, both largely related to the acquisition. Despite the net loss, the company maintained positive cash flows, with OCF of $1.149 million and FCF of $0.766 million for the quarter.

Liquidity

Princeton Bancorp’s liquidity position remains robust, with a current ratio of 1.87 and a quick ratio of 1.87 as of the latest reporting period. The company’s debt-to-equity ratio is 0.00, showcasing its conservative approach to leverage and strong solvency. As of September 30, 2024, the bank held $181.06 million in cash and cash equivalents, up from $150.6 million at the end of 2023.

The company has significant additional borrowing capacity to support its liquidity needs. As of September 30, 2024, Princeton Bancorp had $471.80 million in additional borrowing capacity with the Federal Home Loan Bank (FHLB) and $10.00 million in additional borrowing capacity with Atlantic Community Bankers Bank (ACBB).

Loan Portfolio and Asset Quality

Princeton Bancorp’s loan portfolio totaled $1.83 billion as of September 30, 2024, up from $1.55 billion at the end of 2023. This increase was primarily driven by the acquisition of Cornerstone Bank in August 2024, which added $255.5 million in loans.

The commercial real estate (CRE) segment is the largest component of the loan portfolio, accounting for $1.39 billion, or 75.8%, of total loans. Within CRE, the bank has significant exposure to multi-family ($525.2 million), owner-occupied ($420.0 million), and non-owner-occupied properties such as office buildings, retail, and industrial/warehousing. The weighted average loan-to-value ratio for the CRE portfolio is around 45%.

The commercial and industrial (C&I) loan segment totaled $93.8 million, or 5.1% of the portfolio, while construction loans were $258.3 million, or 14.1% of total loans. Residential first-lien mortgages and home equity/consumer loans made up the remaining $89.8 million, or 4.9%, of the loan book.

Asset quality metrics have remained stable, with non-performing assets totaling $2.3 million, or 0.13% of total loans, as of September 30, 2024, down from $6.7 million, or 0.43%, at the end of 2023. The allowance for credit losses was $23.2 million, or 1.27% of total loans, at the end of the third quarter of 2024, up from $18.5 million, or 1.19%, at the close of 2023.

Funding and Deposits

Princeton Bancorp’s deposit base grew to $2.05 billion as of September 30, 2024, an increase of $410.3 million, or 25.1%, compared to the end of 2023. This growth was driven by the Cornerstone Bank acquisition, which added $282.8 million in deposits, as well as organic growth of $127.5 million. The deposit mix includes $302.9 million in non-interest-bearing demand accounts, $978.2 million in interest-bearing deposits, and $787.0 million in time deposits.

Capital Position

As of September 30, 2024, Princeton Bancorp’s capital ratios remained well above the regulatory well-capitalized thresholds, with a total risk-based capital ratio of 13.17%, a Tier 1 risk-based capital ratio of 12.02%, and a Tier 1 leverage ratio of 11.44%. The company’s capital position was bolstered by the issuance of $20.0 million in common stock related to the Cornerstone Bank acquisition.

Challenges and Risks

Like many community banks, Princeton Bancorp has navigated the challenging interest rate environment and macroeconomic headwinds that have impacted the banking industry. The company’s net interest margin has been under pressure, although it has managed to maintain a healthy 3.42% net interest margin as of the latest reported quarter.

The company’s loan portfolio, particularly its commercial real estate (CRE) segment, which accounts for 75.80% of total loans, is subject to risk factors such as changes in economic conditions, real estate market fluctuations, and borrower creditworthiness. Princeton Bancorp closely monitors its CRE portfolio and has implemented prudent risk management strategies to mitigate these risks.

Additionally, the company faces the ongoing challenge of integrating its recent acquisitions, including Cornerstone Bank, to achieve the expected synergies and cost savings. The successful integration of these acquisitions will be crucial for Princeton Bancorp to maintain its strong financial performance and continue its growth trajectory.

Outlook and Recent Developments

In its most recent earnings release, Princeton Bancorp reported a net loss of $4.46 million, or $0.68 per diluted share, for the third quarter of 2024. This decrease in net income was primarily due to acquisition-related expenses and an increase in the provision for credit losses associated with the Cornerstone Bank acquisition. However, the company remains optimistic about the long-term benefits of this strategic move.

Despite the near-term challenges, Princeton Bancorp remains committed to its growth strategy and has provided guidance for the upcoming fiscal year. The company expects to continue expanding its loan and deposit portfolios, with a focus on commercial and industrial (C&I) lending and diversifying its revenue streams.

Furthermore, Princeton Bancorp has a track record of paying quarterly cash dividends to its shareholders, reflecting its commitment to shareholder value creation. The company’s Board of Directors recently declared a $0.30 per share cash dividend, payable on November 28, 2024, to shareholders of record as of November 5, 2024.

Industry Trends

The banking industry has been navigating challenges related to higher inflation, rising interest rates, and economic uncertainty. These factors have impacted financial performance across the sector, and Princeton Bancorp is no exception. However, the company’s diversified loan portfolio, stable asset quality, strong funding and liquidity position, and solid capital base position it well to navigate the current economic environment and pursue growth opportunities in its markets.

Conclusion

Princeton Bancorp, Inc. is a well-established community bank that has weathered industry challenges and demonstrated its ability to adapt and grow. Through strategic acquisitions, prudent risk management, and a focus on diversifying its revenue streams, the company is poised to continue its trajectory of success. While the latest quarterly results were impacted by acquisition-related expenses, the long-term potential of Princeton Bancorp’s diversified business model and strong financial position make it an intriguing investment opportunity for those seeking exposure to the banking sector. The company’s ability to successfully integrate its recent acquisitions and leverage its expanded market presence will be key factors in its future performance and growth.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.