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Princeton Bancorp, Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Princeton Bancorp, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

Princeton Bancorp, a bank, grew bigger by buying other companies, but made less money overall this year. This was partly because of costs from the purchases and changes in interest rates, and they need to be careful about their loans to real estate businesses.

Accession #:

0001193125-25-054907

Published on

Analyst Summary

  • Princeton Bancorp experienced significant asset growth in 2024 primarily due to the acquisition of Cornerstone Financial Corporation (CFC).
  • Net income decreased significantly from $25.8 million in 2023 to $10.2 million in 2024, primarily due to a bargain purchase gain in 2023 from the Noah Bank acquisition and purchase accounting adjustments related to the CFC acquisition.
  • Net interest margin decreased from 3.93% in 2023 to 3.38% in 2024, indicating increased pressure on profitability.
  • Return on Average Assets (ROAA) decreased from 1.45% in 2023 to 0.48% in 2024, reflecting lower overall profitability.
  • Return on Average Equity (ROAE) decreased from 11.27% in 2023 to 4.11% in 2024, also reflecting lower profitability.
  • Non-performing assets increased significantly due to the delinquency of two commercial real estate loans, warranting close monitoring.
  • The company has a high concentration in commercial real estate lending (76.1% of total loans), posing a significant risk.
  • Operating Profit Margin is 24.09% and Net Profit Margin is 13.72%.
  • Revenue Growth decreased by -9.07% and Net Income Growth decreased significantly by -60.24%.
  • Non-accrual loans increased significantly from $6.708 million in 2023 to $26.841 million in 2024, indicating a deterioration in the loan portfolio’s quality.

Opportunities and Risks

  • Opportunity: Focus on deposit growth to attract and retain cost-effective deposits to support loan growth and maintain profitability.
  • Risk: High concentration in commercial real estate lending poses a significant risk, particularly in the event of an economic downturn.
  • Risk: Decreasing net interest margin suggests increased competition for deposits and/or higher funding costs.
  • Risk: Increased Non-Performing Assets due to the delinquency of two commercial real estate loans warrants close monitoring.

Potential Implications

Company Performance

  • Continued pressure on profitability due to decreased net interest margin and increased non-interest expenses.
  • Potential for increased credit risk due to high concentration in commercial real estate lending and rising non-performing assets.
  • Need for effective management of interest rate risk to protect net interest margin in a changing interest rate environment.
  • Importance of maintaining disciplined underwriting standards and managing growth effectively to ensure long-term financial health.

Stock Price

  • Potential negative impact on stock price due to decreased profitability and concerns about asset quality.
  • Increased volatility in stock price due to uncertainty surrounding interest rate fluctuations and economic conditions.
  • Positive impact on stock price if the company successfully manages its risks and improves its financial performance.

Executive Summary

This report analyzes Princeton Bancorp, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. The analysis covers the company’s financial performance, key risk factors, and overall financial health. Key findings include increased loan portfolio size driven by acquisitions, a decrease in net income compared to the previous year, and a shift in deposit mix. The company faces risks related to its commercial real estate concentration, interest rate fluctuations, and cybersecurity threats.

Overall Assessment: HOLD

Maintain current position. Closely monitor asset quality, particularly within the commercial real estate portfolio, and the impact of interest rate changes on net interest margin. Evaluate management’s strategies for deposit growth and cost control.

Company Overview

Princeton Bancorp, Inc. is a Pennsylvania corporation and the holding company for The Bank of Princeton, a New Jersey state-chartered banking institution. The Bank provides a range of personal and business lending and deposit services. Recent significant developments include the acquisitions of Noah Bank in May 2023 and Cornerstone Financial Corporation in August 2024.

Detailed Analysis

Financial Statement Analysis

The following analysis is based on the consolidated financial statements for the years ended December 31, 2024 and 2023.

Key Ratios and Trends

Ratio 2024 2023 Change
Net Interest Margin 3.38% 3.93% -0.55%
Return on Average Assets (ROAA) 0.48% (Calculated) 1.45% (Calculated) -0.97%
Return on Average Equity (ROAE) 4.11% (Calculated) 11.27% (Calculated) -7.16%
Allowance for Credit Losses / Total Loans 1.30% 1.19% 0.11%
Equity / Total Assets 11.2% 12.5% -1.3%

Analysis: The net interest margin decreased, indicating increased pressure on profitability. ROAA and ROAE also decreased significantly, reflecting lower overall profitability. The increase in the allowance for credit losses as a percentage of total loans suggests a more cautious approach to lending, potentially due to concerns about asset quality. The equity to total assets ratio decreased, primarily due to the CFC acquisition.

Income Statement Analysis

Net income decreased significantly from $25.8 million in 2023 to $10.2 million in 2024. This decrease was primarily due to the $9.7 million bargain purchase gain recorded in 2023 from the Noah Bank acquisition and purchase accounting adjustments related to the CFC acquisition, including an increase in the provision for credit losses.

Balance Sheet Analysis

Total assets increased by $423.7 million, primarily due to the CFC acquisition. Loans receivable increased by $270.5 million, driven by commercial real estate and industrial loans. Total deposits increased by $396.9 million, also significantly influenced by the CFC acquisition. The shift in deposit mix, with a larger proportion of interest-bearing deposits, contributed to higher interest expense.

Cash Flow Analysis

Cash flow from operating activities decreased, reflecting the lower net income. Cash flow used in investing activities increased due to purchases of available-for-sale securities. Cash flow from financing activities increased, primarily due to the increase in deposits.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the company’s focus on customer relationships, competitive pricing, and state-of-the-art delivery systems. The MD&A emphasizes the importance of maintaining disciplined underwriting standards and managing growth effectively. The discussion of the allowance for credit losses provides insight into the company’s risk assessment process.

Red Flags and Uncommon Metrics

  • Increased Non-Performing Assets: Non-performing assets increased significantly due to the delinquency of two commercial real estate loans. This warrants close monitoring.
  • Commercial Real Estate Concentration: The high concentration in commercial real estate lending (76.1% of total loans) poses a significant risk, particularly in the event of an economic downturn.
  • Decreasing Net Interest Margin: The decrease in net interest margin suggests increased competition for deposits and/or higher funding costs.

Conclusion and Actionable Insights

Princeton Bancorp experienced significant growth in 2024, largely driven by acquisitions. However, profitability declined compared to the previous year. The company faces risks related to its commercial real estate concentration, interest rate fluctuations, and cybersecurity threats. The increase in non-performing assets is a concern that requires close monitoring.

Recommendations:

  • Monitor Asset Quality: Closely monitor the performance of the commercial real estate portfolio and take proactive steps to mitigate credit risk.
  • Manage Interest Rate Risk: Implement strategies to manage interest rate sensitivity and protect net interest margin in a changing interest rate environment.
  • Strengthen Cybersecurity: Continue to invest in cybersecurity measures to protect against evolving threats.
  • Focus on Deposit Growth: Develop strategies to attract and retain cost-effective deposits to support loan growth and maintain profitability.

Financial Analysis of Princeton Bancorp, Inc. (BPRN)

1. Commentary

Princeton Bancorp’s financial performance in 2024 shows a mixed picture. While the bank significantly increased its loan portfolio and total assets, net income declined sharply compared to the previous year. This decrease in profitability appears to be driven by a rise in interest expenses and non-interest expenses, including acquisition-related costs. The bank remains well-capitalized, exceeding regulatory requirements, but the decline in earnings warrants further investigation into cost management and revenue generation strategies.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: Not applicable for banks.
  • Operating Profit Margin

    • Metric: Operating Income / Total Revenue = (Net Interest Income + Non-Interest Income – Non-Interest Expense) / (Net Interest Income + Non-Interest Income) = ($66,532 + $8,155 – $56,762) / ($66,532 + $8,155) = 24.09%
  • Net Profit Margin

    • Metric: Net Income / Total Revenue = Net Income / (Net Interest Income + Non-Interest Income) = $10,242 / ($66,532 + $8,155) = 13.72%
    • Return on Assets (ROA)

      • Metric: Net Income / Average Total Assets = $10,242 / (($2,340,233 + $1,916,497)/2) = 0.48%
    • Return on Equity (ROE)

      • Metric: Net Income / Average Stockholders’ Equity = $10,242 / (($262,040 + $240,211)/2) = 4.08%
    • Earnings Per Share (EPS) – Basic

      • Metric: $1.57
    • Earnings Per Share (EPS) – Diluted

      • Metric: $1.55

    Liquidity

    • Current Ratio

      • Metric: Current Assets / Current Liabilities. Approximating current assets as cash and cash equivalents + Securities available for sale + Accrued interest receivable = $117,348 + $247,171 + $7,975 = $372,494. Approximating current liabilities as total deposits = $2,032,625. Current Ratio = $372,494 / $2,032,625 = 0.18
    • Quick Ratio (Acid-Test Ratio)

      • Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable, this is the same as the current ratio = 0.18
    • Cash Ratio

      • Metric: Cash and Cash Equivalents / Current Liabilities = $117,348 / $2,032,625 = 0.06

    Solvency/Leverage

    • Debt-to-Equity Ratio

      • Metric: Total Liabilities / Total Stockholders’ Equity = $2,078,193 / $262,040 = 7.93
    • Debt-to-Assets Ratio

      • Metric: Total Liabilities / Total Assets = $2,078,193 / $2,340,233 = 0.89
    • Interest Coverage Ratio (Times Interest Earned)

      • Metric: EBIT / Interest Expense = (Net Income + Income Tax Expense + Interest Expense) / Interest Expense = ($10,242 + $2,574 + $56,414) / $56,414 = 1.23

    Activity/Efficiency

    • Inventory Turnover

      • Metric: Not applicable for banks.
    • Days Sales Outstanding (DSO)

      • Metric: Not directly applicable, but can be approximated using average loans outstanding and interest income. Average Loans Outstanding = $1,663,013 (in thousands). Interest Income = $108,586 (in thousands). Approximated Revenue = $108,586. DSO = (Average Loans Outstanding / Revenue) * 365 = ($1,663,013 / $108,586) * 365 = 5592 days. This is not a typical DSO calculation and is used as a proxy.
    • Days Payable Outstanding (DPO)

      • Metric: Not directly applicable, but can be approximated using average deposits and interest expense on deposits. Average Deposits = $1,561,994 (in thousands). Interest Expense on Deposits = $56,414 (in thousands). Approximated Cost of Revenue = $56,414. DPO = (Average Deposits / Cost of Revenue) * 365 = ($1,561,994 / $56,414) * 365 = 10,104 days. This is not a typical DPO calculation and is used as a proxy.
    • Asset Turnover

      • Metric: Total Revenue / Average Total Assets = (Net Interest Income + Non-Interest Income) / Average Total Assets = ($66,532 + $8,155) / (($2,340,233 + $1,916,497)/2) = 0.035

    Valuation

    • Price-to-Earnings Ratio (P/E)

      • Metric: Market Cap / Net Income. Shares Outstanding = 6,883,193. Stock Price = $30.02. Market Cap = 6,883,193 * $30.02 = $206,633,454. Net Income = $10,242 (in thousands) = $10,242,000. P/E = $206,633,454 / $10,242,000 = 20.18
    • Price-to-Book Ratio (P/B)

      • Metric: Market Cap / Book Value of Equity. Book Value of Equity = $262,040 (in thousands) = $262,040,000. P/B = $206,633,454 / $262,040,000 = 0.79
    • Price-to-Sales Ratio (P/S)

      • Metric: Market Cap / Total Revenue = $206,633,454 / ($66,532 + $8,155) (in thousands) = $206,633,454 / $74,687,000 = 2.77
    • Enterprise Value to EBITDA (EV/EBITDA)

      • Metric: EV / EBITDA. EV = Market Cap + Total Debt – Cash and Cash Equivalents. Total Debt = $0. EV = $206,633,454 + $0 – $117,348 (in thousands) = $89,285,454. EBITDA = Net Income + Interest Expense + Taxes + Depreciation and Amortization = $10,242 + $56,414 + $2,574 + $1,681 (in thousands) = $70,911,000. EV/EBITDA = $89,285,454 / $70,911,000 = 1.26

    Growth Rates

    • Revenue Growth

      • Metric: (Current Year Revenue – Prior Year Revenue) / Prior Year Revenue = (($66,532 + $8,155) – ($65,016 + $17,121)) / ($65,016 + $17,121) = (74,687 – 82,137) / 82,137 = -9.07%
    • Net Income Growth

      • Metric: (Current Year Net Income – Prior Year Net Income) / Prior Year Net Income = ($10,242 – $25,765) / $25,765 = -60.24%
    • EPS Growth

      • Metric: (Current Year EPS – Prior Year EPS) / Prior Year EPS = ($1.57 – $4.10) / $4.10 = -61.71%

    Other Relevant Metrics

    • Acquisition-Related Expenses: The company incurred significant acquisition-related expenses of $7.803 million in 2024, compared to $5.635 million in 2023. These expenses are related to the acquisitions of Cornerstone Financial Corporation and Noah Bank.
    • Net Interest Margin: The net interest margin decreased from 3.93% in 2023 to 3.38% in 2024. This indicates a lower profitability on interest-earning assets compared to interest-bearing liabilities.
    • Non-accrual Loans: Non-accrual loans increased significantly from $6.708 million in 2023 to $26.841 million in 2024. This indicates a deterioration in the loan portfolio’s quality.

    ⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️