2007 Annual Report
The Bank of Princeton
Bank Wisely.
THE BANK OF
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Table of Contents
Letter to Shareholders 3
Independent Auditor’s Report 6
Balance Sheet 7
Statement of Operations 8
Statement of Stockholders’ Equity 9
Statement of Cash Flows 10
Notes to Financial Statements 11
Board of Directors / Advisory Board 23
Who we Are 24
Partners in the Community 25
Leadership through Innovation 27
Letter to Our Shareholders
We are pleased to present the first annual report to shareholders from The Bank of
Princeton (‘the Bank”). The attached financial statements reflect the financial activity
for the year ended December 31, 2007
The Bank of Princeton represents the return of community banking to Princeton
and its surrounding neighborhoods We did not just raise our initial capital of $30
million and set out to compete with all the national banks in the area; rather, we
endeavored to bring a friendlier, more personalized style of banking to communities
that still remember what that was like from not so long ago Whether it’s our free
coin counting machines in every branch, our courier service that enables our business
customers to spend more time in their shops, or our willingness to meet all of our
customers at most any place and any time, our interpretation of community banking
is clearly resonating throughout the area
Community minded consumers seem to appreciate that when they bank with us,
their deposits are being reinvested in their communities, not recycled to Pittsburgh
or North Carolina And whether its our involvement with Princeton University
Athletics, HiTops, Pop Warner football, or the New Jersey Symphony, we are doing
our part to help many of the institutions that enliven and enhance the quality of our
hometowns
Given that this is our first annual report, permit us to summarize the highlights of
those activities that brought us to where we are today:
• In the Fall of 2005, a small group of founders began planning to start a bank in
Princeton
• In April of 2006, Peter Crowley was hired to become our first President and was
tasked with getting the bank started
• Between October 2006 and March 2007, the founders conducted a private fund
raising effort which gathered $30 million to initially capitalize the bank
• The initial management team was assembled both before and after opening, and
began to make loans, develop consumer friendly products, take deposits, and to
spread the word that a new bank had arrived in town
• On April 24, 2007, the branch at 21 Chambers St was opened, with a more formal
grand opening held on May 5th
• In November 2007, we held our first meeting with our Advisory Board, a collection
of prominent local residents that help to guide our product development and market
outreach
• The Pennington office was opened in December 2007 and held its grand opening on
January 12, 2008.
• The Hamilton office opened on April 19, 2008 and had its grand opening on May 3, 2008.
• Main headquarters branch, on Bayard Lane in Princeton, is scheduled to open in
late 2008
• Assets grew slowly at first, then reached $48.4 million as of September 30, 2007,
$66 5 million as of December 31, 2007, and more than $91 million as of March 31,
2008, more than tripling the size of the bank in its first year of operation.
As the audited financial statements indicate, the Bank finished its December 31,
2007 fiscal year with $66,463,000 in assets, reflecting deposits of $37,751,000, loans
outstanding, net of reserves, of $29,117,000, and stockholders’ equity of $28,340,000
The Statement of Operations reflects a net loss of $1,613,000 for the year. This
number includes $214,000 of net costs incurred between January 1, 2007 and the
bank’s official opening on April 24, 2007, $309,000 of non-cash expense pertaining to
the issuance of options to management, and a net operating loss for the period from
April 24, 2007 through December 31, 2007 of $1,090,000
Broadly speaking, the Bank benefitted in 2007 from high short term interest rates
which enabled us to invest our initial capital at very favorable levels However,
those same rates made deposit gathering more challenging as the high interest rates
necessary to attract deposits narrowed the spreads that we were able to achieve on
our loan products
In the latter part of the year, the Federal Reserve started to cut rates aggressively
The return of a positively sloped yield curve is far more beneficial for the long-term
growth and health of the Bank, and rates have continued to decline thus far in
2008
Deposit activity has picked up handsomely as we develop and market products that
are beneficial to our business customers, our municipal and non-profit customers,
and to professionals such as lawyers, doctors, and accountants On the loan side,
as of this writing , we are offering a five-year fixed rate home equity loan of 5.24%,
with absolutely no associated fees. This new product, just introduced, is being well
received. For those that have found themselves trapped in high interest, re-adjusting
mortgage products, we have put together a consumer helper mortgage product which
in certain cases, enables them to replace sky high adjustable rate products with lower,
fixed rate loans.
We are especially grateful for the commitment and dedication of all of our employees
Starting any new enterprise is an exhausting, time-intensive task; we are particularly
fortunate to have assembled such a high quality team to get the Bank started and
as we grow, we are constantly hiring to maintain the highest service levels for our
customers Your Board of Directors has performed admirably and the Advisory Board
is learning how to enhance the Bank’s strong reputation and leverage our good work
But it is our investors and our customers that are making this bank so successful
We thank you all for your continued support and request that you keep looking for
opportunities to send more business our way
The current year is off to a strong start and we look forward to reporting to you on
our continued growth
Sincerely,
Stephen Distler, Chairman Peter M Crowley, President
Independent Auditors Report
Independent Auditor’s Report
Independent Auditor’s Report
To the Board of Directors
The Bank of Princeton
Princeton, New Jersey
We have audited the accompanying balance sheet of The Bank of Princeton as of December 31, 2007, and
the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of The Bank of Princeton as of December 31, 2007, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles generally accepted in the United States of
America.
Beard Miller Company LLP
Malvern, Pennsylvania
April 3, 2008
Balance Sheet
Balance Sheet
December 31, 2007
Assets
Cash and due from banks
Federal funds sold
Cash and Cash Equivalents
Securities available for sale
Securities held to maturity
Loans receivable, net of allowance for loan losses of $354,486
Restricted investment in bank stock
Bank premises and equipment, net
Accrued interest receivable
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Non-interest bearing
Interest-bearing
Total Deposits
Accrued interest payable
Other liabilities
Total Liabilities
Stockholders’ Equity
Common stock, $5 par value; authorized 10,000,000 shares;
issued and outstanding 3,000,000 shares
Surplus
Accumulated deficit
Accumulated other comprehensive gain
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to financial statements.
2007
$ 1,274,611
11,697,000
12,971,611
21,993,736
503,489
29,116,579
50,000
1,260,558
369,894
197,459
$66,463,326
$ 1,268,080
36,482,595
37,750,675
74,214
298,327
38,123,216
15,000,000
15,252,820
(2,152,232)
239,522
28,340,110
$66,463,326
Statement of Operations
Statement of Operations
Year Ended December 31, 2007
Interest Income
Loans receivable, including fees
Securities available for sale
Federal funds sold
Total Interest Income
Interest Expense, Deposits
Net Interest Income
Provision for Loan Losses
Net Interest Income after Provision for Loan Losses
Non-Interest Income
Loan servicing fee income
Loss on sale of securities
Other income
Total Non-Interest Income
Non-Interest Expenses
Salaries and employee benefits
Occupancy and equipment
Professional fees
Advertising and promotion
Loan expenses
Other
Total Non-Interest Expenses
Net Loss
See notes to financial statements.
2007
$ 625,212
389,671
1,160,724
2,175,607
539,764
1,635,843
354,486
1,281,357
32,666
(4,304)
4,075
32,437
1,627,935
309,216
216,172
283,578
92,567
397,460
2,926,928
$(1,613,134)
Statement of Stockholders’ Equity
Statement of Stockholders’ Equity
Year Ended December 31, 2007
Balance - January 1, 2007
$
Common
Stock
Comprehensive loss:
Net loss
Change in net unrealized gains
on securities available
for sale, net of
reclassification adjustment
and tax effect
Total Comprehensive Loss
Sale of 3,000,000 shares of
common stock, net of offering
costs of $56,522
Share-based compensation expense
Surplus
$
-
-
-
-
-
-
15,000,000
-
14,943,478
309,342
Accumulated
Deficit
Accumulated
Other
Comprehen-
sive Gain
$ (539,098)
$
(1,613,134)
-
-
Total
$
(539,098)
(1,613,134)
-
-
-
239,522
239,522
(1,373,612)
-
-
29,943,478
309,342
Balance - December 31, 2007
$15,000,000
$15,252,820
$(2,152,232)
$239,522
$28,340,110
See notes to financial statements.
Statement of Cash Flows
Statement of Cash Flows
Year Ended December 31, 2007
Cash Flows from Operating Activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for loan losses
Depreciation
Share-based compensation
Net amortization of investment securities
Net realized loss on sale of securities
Increase in accrued interest receivable
Increase in other assets
Increase in accrued interest payable
Decrease in other liabilities
Net Cash Used in Operating Activities
Cash Flows from Investing Activities
Activity in available for sale securities:
Purchases
Proceeds from sales
Activity in held to maturity securities, purchases
Net increase in loans
Purchases of restricted investment in bank stock
Purchases of premises and equipment
0
Net Cash Used in Investing Activities
Cash Flows from Financing Activities
Net increase in deposits
Proceeds from issuance of common stock, net
Net Cash Provided by Financing Activities
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
Supplementary Cash Flows Information
Interest paid
See notes to financial statements.
2007
$(1,613,134)
354,486
74,859
309,342
856
4,304
(369,894)
(197,459)
74,214
(364,161)
(1,726,587)
(25,628,963)
3,993,740
(504,250)
(29,471,065)
(50,000)
(1,335,417)
(52,995,955)
37,750,675
29,943,478
67,694,153
12,971,611
-
$12,971,611
$
465,550
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
The Bank of Princeton (the “Bank”) was incorporated on July 17, 2006 under the laws of the State of New
Jersey and is a New Jersey state chartered banking institution. The Bank was granted its bank charter on
April 17, 2007. The Bank 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 of the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance
Corporation. The area served by the Bank is primarily Mercer County, New Jersey.
Prior to commencing operations, the Bank incurred $1,080,046 of organization and preopening costs,
$539,098 of which was expensed in 2006, and $540,948 of which was expensed in 2007. Interest income of
$360,539 was earned on escrow funds during 2007. These amounts expensed and earned in 2007 are
included in the statement of operations for the period ended December 31, 2007 in the respective income and
expense categories. Stock offering costs of $56,522 were netted against the proceeds from the sale of
common stock.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax
assets.
Significant Group Concentrations of Credit Risk
Most of the Bank’s activities are with customers located within Mercer County, New Jersey. Note 3
discusses the types of lending that the Bank engages in. Although the Bank has a diversified loan portfolio,
its debtors’ ability to honor their contracts is influenced by the region’s economy. The Bank does not have
any significant concentrations to any one industry or customer.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from
banks and federal funds sold, all of which mature within ninety days. Generally, federal funds are purchased
for one day periods.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 1 - Summary of Significant Accounting Policies (Continued)
Securities
Management determines the appropriate classification of debt securities at the time of purchase and re-
evaluates such designation as of each balance sheet date.
Securities classified as available for sale are those securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any
decision to sell a security classified as available for sale would be based on various factors, including
significant movement in interest rates, changes in maturity mix of the Bank’s assets and liabilities, liquidity
needs, regulatory capital considerations and other similar factors. Unrealized gains and losses are reported as
increases or decreases in other comprehensive income. Realized gains or losses, determined on the basis of
the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in
interest income using the interest method over the terms of the securities.
Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to
hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for the amortization of premium and accretion of
discount, computed by a method which approximates the interest method over the terms of the securities.
Declines in the fair value of securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been less than cost (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
2
Restricted investment in bank stock is comprised of stock in the Atlantic Central Banker’s Bank. All
restricted stock is recorded at cost.
Loans Receivable
Loans receivable that management has the intent and the Bank the ability to hold for the foreseeable future or
until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan
losses and any deferred fees or costs.
Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield
(interest income) of the related loans. The Bank is generally amortizing these amounts over the contractual life
of the loan.
The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further collectibility of principal or interest, even though the
loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is
either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to
income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance
for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as
interest income, according to management’s judgment as to the collectibility of principal. Generally, loans are
restored to accrual status when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal
and interest is no longer in doubt.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 1 - Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against
the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be
reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on
known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay,
the estimated value of any underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates
that may be susceptible to significant revisions as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to
loans that are classified as either doubtful, substandard, or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of that loan. The general
component covers non-classified loans and is based on historical loss experience adjusted for qualitative
factors. An unallocated component is maintained to cover uncertainties that could affect management’s
estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in
the portfolio. At December 31, 2007, the entire allowance reflected a general reserve.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will
be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-
case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the
shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for
commercial and construction loans by either the present value of expected future cash flows discounted at the
loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly,
the Bank does not separately identify individual consumer loans for impairment disclosures, unless such loans
are the subject of a restructuring agreement.
Transfers of Financial Assets
Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when
control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
Bank does not maintain effective control over the transferred assets through an agreement to repurchase them
before their maturity.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 1 - Summary of Significant Accounting Policies (Continued)
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the estimated useful lives of the related assets.
Advertising Costs
The Bank follows the policy of charging the costs of advertising to expense as incurred.
Advertising expense incurred for the period ended December 31, 2007 totaled approximately $284,000.
Income Taxes
Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for
deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and net
operating loss carryforwards and their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available
for sale securities, are reported as a separate component of the equity section of the balance sheet, such items,
along with net
income, are components of comprehensive income (loss). The components of other
comprehensive income for the year ended December 31, 2007 are as follows:
Unrealized holding gains on securities available for sale
Reclassification adjustment for losses included in net loss
Tax effect
2007
$358,608
4,304
362,912
(123,390)
$239,522
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments
consisting of commitments to extend credit. Such financial instruments are recorded in the balance sheet
when they are funded.
Employee Benefit Plan
During 2007, the Bank established a 401(k) plan (“the Plan”). Under the Plan, all employees are eligible to
contribute the maximum allowed by the Internal Revenue Code of 1986, as amended. The Bank may make
discretionary matching contributions. During the period ended December 31, 2007, no matching
contributions were made.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 1 - Summary of Significant Accounting Policies (Continued)
Share-Based Compensation
The Bank adopted the provisions of Statement of Financial Standards No. 123(R), “Share-Based Payment.”
This statement requires the Bank to recognize the cost of employee and organizer services received in share-
based payment transactions and measure the cost based on the grant-date fair value of the award. The cost
will be recognized over the period during which the employee or organizer is required to provide service in
exchange for the award.
Note 2 - Securities Available for Sale
The amortized cost and approximate fair value of securities as of December 31, 2007 is summarized as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities Available for Sale
U.S. Government agency securities
Mortgage-backed securities
$16,795,870
4,834,954
$376,140
7,196
-
$
(20,424)
$17,172,010
4,821,726
$21,630,824
$383,336
$(20,424)
$21,993,736
Securities Held to Maturity
Obligations of state and political
subdivisions
$
503,489
$
5,257
$
-
$
508,746
At December 31, 2007,
the Bank has three securities in an unrealized loss position due to interest rate
fluctuations. There were no unrealized losses in the portfolio at December 31, 2007 that exceeded 12 months.
The Bank has the intent and ability to hold this investment until maturity or market price recovery, therefore, they
are not deemed to be other-than-temporarily impaired.
The amortized cost and fair value of securities as of December 31, 2007, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because the securities may be called without
any penalties.
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Available for Sale
Held to Maturity
Amortized
Cost
$
700,000
2,100,103
5,997,866
12,832,855
Fair
Value
Amortized
Cost
Fair
Value
$
700,658
2,104,592
6,227,200
12,961,286
$
-
503,489
-
-
$
-
508,746
-
-
$21,630,824
$21,993,736
$503,489
$508,746
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 2 - Securities Available for Sale (Continued)
During 2007, the Bank sold securities available for sale for total proceeds of approximately $3,993,740, resulting
in gross realized losses of $4,304.
At December 31, 2007, the Bank had pledged to the Commissioner of Banking, State of New Jersey, $100,000 in
U.S. Government agency securities, for the purpose of securing public deposits under the Governmental Unit
Deposit Protection Act.
Note 3 - Loans Receivable
The composition of loans receivable at December 31, 2007 is as follows:
Commercial term
Commercial real estate
Construction
Home equity
Consumer
Total Loans
Deferred fees
Allowance for loan losses
Net Loans
The changes in the allowance for loan losses for the period ended December 31, 2007 are as follows:
Balance, beginning
Provision for loan losses
Balance, ending
2007
$ 3,059,135
16,132,127
5,653,778
2,098,160
2,637,550
29,580,750
(109,685)
(354,486)
$29,116,579
2007
$
-
354,486
$354,486
As of and for the period ended December 31, 2007, the Bank had no impaired loans, no nonaccrual loans, and no
loans past due 90 days or more.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 4 - Bank Premises and Equipment
The components of premises and equipment at December 31, 2007 are as follows:
Estimated
Useful Lives
10
3 - 7
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress
Accumulated depreciation
2007
$ 679,602
565,367
90,448
1,335,417
(74,859)
$1,260,558
Depreciation expense charged to operations amounted to $74,859 for the period ended December 31, 2007.
During 2007, the Bank began construction of a branch building which is expected to be completed in May 2008.
Total cost of the branch building is expected to be approximately $400,000, including the land, furniture and
equipment, of which $90,448 was recorded in construction in progress at December 31, 2006.
Note 5 - Deposits
The components of deposits at December 31, 2007 are as follows:
Demand, non-interest bearing
Demand interest bearing and savings accounts
Money market accounts
Time, $100,000 and over
Time, other
At December 31, 2007, the scheduled maturities of time deposits are as follows:
2008
2009
2010
2011
2012
2007
$ 1,268,080
2,229,469
9,002,083
12,576,216
12,674,827
$37,750,675
$25,041,059
-
-
131,984
78,000
$25,251,043
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 6 - Lease Commitments and Total Rental Expense
The Bank has operating leases for three of its branch locations, as well as its loan operations center. Future
minimum lease payments by year under the non-cancellable lease agreements for the Bank’s facilities are as
follows:
2008
2009
2010
2011
2012
Thereafter
$ 205,426
206,841
202,009
168,467
138,665
441,467
$1,362,875
Rent expense for the four leases for the year ended December 31, 2007 was $190,440.
Note 7 - Employment Agreement
The Bank entered into employment agreements with certain employees. The terms of the agreements range from
one to three years. The agreements include minimum annual salary commitments and for certain employees
change of control provisions. Upon resignation after a change in the control of the Bank, as defined in the
agreement, the individual will receive monetary compensation in the amount set forth in the agreements.
Note 8 - Stockholders’ Equity
During 2007, the bank sold 3,000,000 shares of common stock at $10.00 per share, which resulted in net proceeds
of $29,943,478 (after offering costs of $56,522) under an initial stock offering of 1,200,000 to 2,500,000 shares.
The Bank reserved the right to in their sole and absolute discretion to increase the number of shares offered by
20% over the maximum. For every four (4) shares of common stock purchased in the offering, one (1) warrant to
purchase one (1) additional share of the Bank's common stock at $12.00 was issued. Warrants are exercisable any
time and expire three years from the date of issuance, which is April 1, 2010. There were 750,000 warrants
outstanding at December 31, 2007. No warrants were exercised during the year ended December 31, 2007.
The New Jersey Department of Banking, in issuing its charter to the Bank required an allocation of its initial
capital to a reserve for organization expenses of $325,000 and a reserve for contingencies of $1,625,000 to defray
anticipated initial losses. Accordingly, $1,950,000 of the Bank's surplus is reserved for this purpose until the
Bank becomes profitable.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 9 - Federal Income Taxes
There is no provision for income taxes for the year ended December 31, 2007 due to the net operating losses
incurred.
The components of the net deferred tax liability at December 31, 2007 are as follows:
Deferred tax assets:
Allowance for loan losses
Organization and start-up costs
Net operating loss carryforwards
Organizer warrants
Other
Valuation allowance
Total Deferred Tax Assets, Net of Valuation
Allowance
Deferred tax liabilities:
Property and equipment
Cash basis conversions
Unrealized gain on securities
Deferred loan costs
Net Deferred Tax Liability
2007
$ 123,128
410,418
397,583
109,656
1,176
1,041,961
(846,795)
195,166
(41,112)
(134,941)
(123,390)
(19,113)
(318,556)
$ (123,390)
At December 31, 2007, the Bank has available unused net operating loss carryforwards available for federal and
state income tax purposes of approximately $994,000 which expire in 2027 for federal purposes and 2014 for
state purposes.
Note 10 - Transactions with Executive Officers, Directors and Principal Stockholders
The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of
business with its executive officers, directors, principal stockholders, their immediate families and affiliated
companies (commonly referred to as related parties), on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with others. There were no loans receivable from related
parties at December 31, 2007. Deposits of related parties totaled $7,691,595 as of December 31, 2007.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 11 - Share-Based Compensation
Organizers of the Bank were issued a total of 97,500 “organizer warrants” for their efforts during the organization
and start-up of the Bank. These warrants are immediately exercisable, expire in 10 years and will enable the
warrant holder to purchase one (1) share of common stock at $10.00 per share for each warrant exercised.
In 2007, the Board of Directors adopted the 2007 Stock Option Plan, which was approved by the Board of
Directors in August 2007, and was approved by the shareholders in October 2007.
The 2007 Plan enables the Board of Directors to grant stock options to employees, directors, consultants, and
other individuals who provide services to the Bank. The shares subject to or related to options under the Plan are
authorized and unissued shares of the Bank. The maximum number of shares that may be subject to options
under the Plan is 300,000, all of which may be issued as Incentive Stock Options and not more than 100,000 of
which may be issued as Non-Qualified Stock Options. Incentive Stock Options are subject to limitations under
Section 422 of the Internal Revenue Code. The Bank has reserved, for the purposes of the Plan, out of its
authorized and unissued shares, such number of shares. The 2007 Plan will terminate ten years from stockholder
approval. Options may not be granted with an exercise price that is less than 100% of the fair market value of the
Bank’s common stock on the date of grant. Options may not be granted with a term longer than 10 years.
However, any Incentive Stock Option granted to any employee who, at the time such Option is granted, owns
more than 10% of the voting power of all classes of shares of the Bank, its parent or of a subsidiary may not have
a term of more than five years. Options will vest and be exercisable at such time or times and subject to such
terms and conditions as determined by the Board of Directors. Generally, options will vest over a vesting period
of approximately equal percentages each year over an initial term no shorter than three (3) years.
In October
2007, 125,750 Incentive Stock Options were issued under the Plan. At December 31, 2007, there are 174,250
shares available for grant under the 2007 Plan.
20
The following is a summary of the Bank's share-based compensation activity and related information for the year
ended December 31, 2007:
Warrants
and
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at December 31, 2006
Stock warrants granted in 2007
Stock options granted in 2007
-
97,500
125,750
$
-
10.00
10.00
Outstanding at December 31, 2007
223,250
$10.00
9.5 years
Exercisable at December 31, 2007
97,500
$10.00
9.3 years
$
$
-
-
The fair value of each organizer warrant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions for grant in 2007: dividend yield of 0%; risk-free
interest rate of 4.65%; expected life of 5 years and expected volatility of 19.95%. The volatility percentage was
based on the average expected volatility of similar public financial institutions in the Bank’s market area. The fair
value of the warrants granted in 2007 was $2.81.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 11 - Share-Based Compensation (Continued)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for grants in 2007: dividend yield of 0%, risk-free interest rate
of 4.34%, expected life of 7 years, and expected volatility of 20.89%. The volatility percentage was based on the
average expected volatility of similar public financial institutions in the Bank's market area. The weighted
average fair value of options granted in 2007 was $3.46 per share.
Total share-based compensation cost for the year ended December 31, 2007 was $309,342 of which $35,203
related to stock options and $274,139 related to stock warrants granted to organizers. There were no tax benefits
recognized related to the share-based compensation expense due to the net operating loss incurred.
As of December 31, 2007, there was $399,000 of unrecognized compensation cost related to nonvested stock
options granted in 2007. That cost is expected to be recognized on a graded vesting method over a weighted
average period of 9.6 years.
Note 12 - Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial instruments include commitments to extend credit. Such
commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations as it does for on-balance sheet
instruments.
2
The Bank had the following off-balance sheet financial instruments whose contract amounts represent credit risk
at December 31, 2007:
Commitments to grant loans
Unfunded commitments under lines of credit
2007
$13,205,000
9,165,359
$22,370,359
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank
evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral
held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.
Notes to Financial Statements
Notes to Financial Statements
December 31, 2007
Note 13 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.
the minimum capital requirements can initiate certain mandatory and possibly additional
Failure to meet
discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts
and classification are also subject to qualitative judgments by the regulators about components, risk-weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (set forth below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2007, that the
Bank meets all capital adequacy requirements to which it is subject.
The Federal Deposit Insurance Corporation requires that the Bank maintain a ratio of Tier 1 leverage capital to
total assets of at least 8% during the first three years of operation. Under these guidelines, the Bank is considered
well capitalized as of December 31, 2007.
The Bank’s actual capital amounts and ratios at December 31, 2007 are presented below:
Actual
For Capital Adequacy
Purposes
To be Well Capitalized
under Prompt
Corrective Action
Provisions
22
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to average assets)
$28,455
28,101
28,101
76.88 % $≥2,960
≥1,480
75.92
≥4,799
46.84
≥8.0 % $≥3,701
≥2,220
≥4.0
≥4,799
≥8.0
≥10.0 %
≥ 6.0
≥ 8.0
The Bank is subject to certain restrictions on the amount of dividends that it may declare due to regulatory
considerations.
Board of Directors
Advisory Board
STEPHEN DISTLER, Chairman
SCOTT SIPPRELLE, Chairman
ROSS WISHNICK, Vice Chairman
ANDREW CHON
PETER M. CROWLEY
JUDITH GIACIN
RICHARD GILLESPIE
JANET LASLEY
ROBERT N. RIDOLFI, ESQ.
Kristen Appleget
David Bonanni
Barbara Cuneo
Peter Dawes
Jessica Drurie
John Horvath
Yongkeun Joh
Lance Liverman
Scott Needham
Khursheed Palkhiwala
Joseph Ridolfi
Peter Yi
Incorporators
2
Andrew Chon
Gregg Chaplin
Peter M Crowley
Stephen Distler
Richard Gillespie
Bumsung Han
John Horvath
Kevin Kenyon
W Andrew Krusen
Janet Lasley
Emmet Lescroart
Dennis Machulsky
Casey K Min
Scott Needham
Henry Opatut
Robert N. Ridolfi, Esq.
James Riley
Jeffrey Sands
Eric Steinfeldt
Ross Wishnick
Who we Are
EXECUTIVE
LENDING
Stephen Distler
Chairman
Peter Crowley
President
Lewis Foulke
Chief Financial Officer
Lauren Dezzi
Kelly Tarity
Amela Muslic
Gerard Murray
Chief Lending Officer
Herb Schneider
Nina Melker
Kris Muse
Praful Bhagat
Joel Goldman
Daniel Jackson
Tamekia Jones
OPERATIONS
Rebecca Dittrich
Brian Maslowski
Karen Pfeifer
LEGAL COUNSEL
Pepper Hamilton, LLP
Princeton, New Jersey
INDEPENDENT AUDITOR
Beard Miller Company, LLP
Malvern, Pennsylvania
PRINCETON BRANCH
PENNINGTON BRANCH
HAMILTON BRANCH
Suzanne Lang
Barbara Cromwell
Maureen Brown
2
Karen Dwyer
Joseph Ciampa
Linda Brown
Greg Talkington
Charlene Jones
Suzanne Lippincott
April Sullivan
David Oquendo
Cathy Proctor
Karen Spair
Erin Winder
Partners in the Community
Other local banks have their homes out of state. The Bank of Princeton’s home is here in Mercer
County We support the organizations that serve our communities We appreciate the work they
do Every day
Princeton Arts Council
The Princeton Library
Princeton University Bookstore
HiTops
2
Princeton Little League
The Princeton “Y”
Leadership through Innovation
through CONVENIENCE
through ENVIRONMENT
COIN MACHINE
INNOVATIVE DESIGN
through SERVICES
through TECHNOLOGY
2
DOOR 2 DOOR
COURIER
REMOTE CAPTURE
Temporary Headquarters
Princeton Branch
21 Chambers Street
Princeton, NJ 08542-3707
609-921-1700
Pennington Branch
Route 31 South
Suite 1
Pennington, NJ 08534
609-730-8500
Hamilton Branch
339 Route 33
Hamilton, NJ 08619-4401
609-854-0011
Future Headquarters
Princeton
183 Bayard Lane
Princeton, NJ 08540-3044
At The Bank of Princeton,
we listen to you, we appreciate your business,
and we’re committed to being a true resource
for our community.
We understand and we show it by providing
you with the highest level of friendly, helpful,
and personalized banking services.
We get it — we know you want to be treated
with respect, and we thank you, genuinely,
for entrusting us with your banking.
Most importantly, we believe that our own
success is achieved only when yours is, when
we deliver our unique banking experience to you…
and everyone we meet. For you, in that
way, we make a difference.
Locations:
Princeton
Pennington
Hamilton
21 Chambers St., Princeton, NJ 08542-3719
609.921.1700 • thebankofprinceton.com
( Just off Nassau St. on Chambers St.
past the Nassau Christian Center)