2 015
Annual Report
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.
Est.
2007
We Understand -
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.
$1
BLN
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,
Most importantly, we believe that our own
We Make a Difference.
Annual Report 2015
Table of Contents
Letter to the Shareholders......................................................................................... i
2015 Form 10-K............................................................................................................ 1
Who We Are................................................................................................................ 96
Bank Wisely.
TABLE OF CONTENTS
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Purchases of Equity Securities
Item 6 Selected Financial Data
Item 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Signatures
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FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal
Year Ended December 31, 2015
[ ]
For the transition period from ________________________________ to _______________________________
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
- OR -
FDIC Certificate Number: 58513
THE BANK OF PRINCETON
(Exact name of Registrant as specified in its Charter)
New Jersey
(State or other Jurisdiction of
Incorporation or Organization)
183 Bayard Lane, Princeton, NJ
(Address of Principal Executive Offices)
68‐0645074
(I.R.S. Employer
Identification No.)
08540
(Zip Code)
Registrant’s telephone number, including area code: (609) 921-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $5.00 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] YES [ X ] NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] YES [ X ] NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that
the registrant was required to submit and post such files). [ ] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] YES [ X ] NO
As of April 11, 2016 there were 4,697,645 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its 2016 Annual
Meeting of Stockholders to be held April 28, 2016 is incorporated by reference into Part III of this annual report on Form 10-K.
1
TABLE OF CONTENTS
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Purchases of Equity Securities
Item 6 Selected Financial Data
Item 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Signatures
2
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3
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12
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77
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TABLE OF CONTENTS
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Mine Safety Disclosures
PART II
Item 5 Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Signatures
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3
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Cautionary Note Regarding Forward-Looking Statements
The Bank of Princeton (the “Bank”) may from time to time make written or oral “forward-looking statements,”
including statements contained in the Bank’s filings with the Federal Deposit Insurance Corporation (the “FDIC”) (including
this Annual Report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the
Bank, which are made in good faith by the Bank pursuant to the “safe harbor” provisions of Section 21E of the Securities
Exchange Act of 1934, as amended (referred to as the “Exchange Act”).
These forward-looking statements involve risks and uncertainties, such as statements of the Bank’s plans, objectives,
expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond
the Bank’s control). The following factors, among others, could cause the Bank’s financial performance to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength
of the United States economy in general and the strength of the local economies in which the Bank conducts operations; the
effects of, and changes in monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; market volatility; the value of our
products and services as perceived by actual and prospective customers, including the features, pricing and quality compared
to competitors’ products and services; loss of management and key personnel; failure of our controls and procedures; inability
to close loans in our pipeline; operational risks, including the risk of fraud by employees, customers or outsiders; our borrowers’
ability to repay their loans; changes in the real estate market that can affect real estate that serves as collateral for some of our
loans; the adequacy of our allowance for loan losses and our methodology for determining such allowance; the willingness of
customers to substitute competitors’ products and services for the Bank’s products and services; the impact of changes in
applicable laws and regulations; changes in technology or interruptions and breaches in security of our information systems;
acquisitions; changes in consumer spending and saving habits; and the success of the Bank at managing the risks involved in
the foregoing.
The Bank cautions that the foregoing list of important factors is not exclusive. The Bank does not undertake to update
any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank, except
as required by applicable law or regulation.
Throughout this document, references to “we,” “us,” or “our” refer to the Bank and its consolidated subsidiaries.
PART I
Item 1. Business
General
The Bank of Princeton 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. As a state-chartered bank, we are regulated by the New Jersey Department of Banking and
Insurance and the FDIC. Our market area, which we serve through our thirteen branches, is generally an area within an
approximate 50 mile radius of Princeton, NJ, including parts of Mercer, Somerset, Hunterdon, Monmouth and Middlesex
Counties in central New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in
Pennsylvania. 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 May 2010, we
acquired our Montgomery Township branch from The Provident Bank and, in September 2010, we acquired three Pennsylvania
branches through a merger with MoreBank. We continue to operate the former MoreBank branches as a division of The Bank
of Princeton under the “MoreBank” name. In November 2015, we opened a new branch located in Lawrenceville, New Jersey.
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.
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3
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. 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. Among other things, this competition could reduce our interest
income and net income by decreasing the number and size of loans that we originate and the interest rates we may charge on
these loans.
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. These competitors may
offer higher interest rates on deposits, which could decrease the deposits that we attract, or require us to increase the rates we
pay to retain existing deposits or attract new deposits. Deposit competition could adversely affect our net interest income and
net income, and our ability to generate the funds we require for our lending or other operations. 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.
Lending Activities
Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real
estate lending. While most loans and other credit facilities are appropriately collateralized, major emphasis is placed upon the
financial condition of the borrower and the borrower’s cash flow versus debt service requirements.
Loan growth is driven by customer demand, which in turn is influenced by individual and business indebtedness and
consumer demand for goods. Loaning money will always entail some risk. Without loaning money, however, a bank cannot
generate enough net interest income to be profitable. The risk involved in each loan must be carefully evaluated before the
loan is made. The interest rate at which the loan is made should always reflect the risk factors involved, including the term of
the loan, the value of collateral, if any, the reliability of the projected source of repayment, and the amount of the loan requested.
Credit quality and repayment capacity are generally the most important factors in evaluating loan applications.
Loan Portfolio Composition. The following table presents our loan portfolio by segment at December 31, 2015,
2014, 2013, 2012 and 2011:
(in thousands)
2015
2014
As of December 31,
2013
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total loans
$ 490,298
125,072
122,297
42,409
29,922
858
810,856
$
450,250
127,469
78,822
45,383
30,711
2,654
735,289
$
372,273
118,274
76,477
40,242
28,204
132
635,602
$
2012
317,946
103,627
62,702
29,127
25,617
1,480
540,499
$
2011
233,504
85,527
56,453
15,396
19,341
1,957
412,178
Deferred fees and costs
Allowance for loan losses
Loans, net
(2,910)
(10,851)
$ 797,095
(2,150)
(10,008)
723,131
$
$
(1,769)
(8,493)
625,340
$
(1,351)
(7,033)
532,115
(955)
(5,362)
405,861
$
The majority our loans are to borrowers in our immediate markets. We believe that no single borrower or group of
borrowers presents a credit concentration whereby the borrowers’ loan default would have a material adverse effect on our
financial condition or results of operations.
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4
Commercial Real Estate, Commercial and Industrial, and Construction Loans. 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 contacts and
by referral from our directors, stockholders and customers.
Construction lending represents a segment of our loan portfolio, and is driven primarily by market conditions. Local
builders of one-to-four family homes have been the primary source of these types of loans.
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 strive
to process, approve and fund loans in a timeframe that meets the needs of our borrowers. Generally, we originate and retain
non-conforming residential first-lien mortgage loans and refer conforming residential first-lien mortgage loans to a third party,
whereby we may earn a fee.
Home Equity Loans and Lines of Credit. 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. We solicit consumer loans on a direct basis and upon referrals from our directors, stockholders and
existing customers.
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.
We offer our customers access to automated teller machines (ATMs) and other services which increase customer
convenience and encourage continued and additional banking relationships.
We endeavor to maintain competitive rates on deposit accounts, and actual rates are established at the time that they
are offered, and subsequently, based on contractual terms, take into consideration competitor offerings. Although from time
to time we advertise in local newspapers, our primary source of deposit relationships is satisfied customers. We offer a range
of direct deposit products ranging from social security and disability payments to direct deposit of payroll checks.
At December 31, 2015, we had three customers whose deposit balances individually exceeded 5 percent of total
deposits. In aggregate, these deposits represented 16.3 percent of total deposits. We believe we have sufficient liquidity to
fund our operations should these customers withdraw their deposits. 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 Services
To further attract and retain customer relationships, we provide a standard array of additional community banking
services, which include the following:
Money orders
Cashier’s checks
Wire transfers
EE and I U.S. savings bonds redemption Bank-by-mail
Debit cards
Direct deposit
Safe deposit boxes
Night depository
Automated teller machines
On-line banking
Remote deposit capture
Automated telephone banking
We also offer, on a limited basis, payroll-related services, credit card and merchant credit card processing through
third parties whereby we do not undertake credit or fraud risk.
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5
Internet Banking
We advertise but do not actively solicit new deposits or loans through our website, but utilize a qualified and
experienced internet service provider to furnish the following types of customer account services:
Full on-line statements
On-line bill payment
Account inquiries
Transaction histories
Transaction details
Account-to-account transfers
Fee Income
Fee income is a component of our non-interest income. By charging non-customers fees for using our ATMs and
charging customers for banking services such as money orders, cashier’s checks, wire transfers and check orders, as well as
other deposit and loan-related fees, we earn fee income. 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.
Bank Premises and Market Area
Our principal office and corporate headquarters is in a full-service banking facility located at 183 Bayard Lane,
Princeton, New Jersey. We have twelve additional branches in New Jersey and Pennsylvania, as well as an operations center
in Princeton, New Jersey.
The market area served by us through our thirteen branches is generally an area within an approximate 50 mile radius
of Princeton, including parts of Mercer, Somerset, Hunterdon, Monmouth and Middlesex Counties in central New Jersey, and
additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. Our market area is dominated
by offices of large statewide, regional and interstate banking institutions. We believe that banking services provided in a
friendly and courteous manner with timely response to customer needs will fill a niche that has arisen due to the loss of small,
local community-focused institutions. Our Pennsylvania branches provide us with a market in the greater Philadelphia area
and access to a growing Asian-American market. The Bank also conducts loan origination activities in select areas of New
York.
Staffing
As of December 31, 2015, we had 138 total employees and approximately 136 full-time equivalent employees.
Supervision and Regulation
General. We are extensively regulated under both federal and state law. These laws restrict permissible activities
and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage
and fiduciary activities. They also impose capital adequacy requirements and conditions to our ability to repurchase stock or
to pay dividends. We are also subject to comprehensive examination and supervision by the New Jersey Department of Banking
and Insurance (the “Department”) and the FDIC. The Department and the FDIC 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. Proposals to change the laws and regulations governing the
banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these
laws and regulations, and the impact such changes may have on us, are difficult to ascertain. Changes in applicable laws and
regulations, or in the manner such laws or regulations are interpreted by regulatory agencies or courts, may have a material
effect on our business, financial condition and results of operations.
We are subject to various requirements and restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits
on the type of other activities in which we may engage and the investments we may make. Under the Gramm-Leach-Bliley
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Act, or “GLBA,” we may engage in expanded activities, such as insurance sales and securities underwriting, through the
formation of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, we must be “well
capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this time, we do not engage in
any activity which would require us to maintain a financial subsidiary. We are also subject to federal laws that limit the amount
of transactions between us and any nonbank affiliates. Under these provisions, transactions, such as a loan or investment, by
us with any nonbank affiliate are generally limited to 10 percent of our capital and surplus for all covered transactions with
such affiliate or 20 percent of capital and surplus for all covered transactions with all affiliates. Any extensions of credit, with
limited exceptions, must be secured by eligible collateral in specified amounts. We are also prohibited from purchasing any
“low quality” assets from an affiliate. The Dodd-Frank Act significantly expands the coverage and scope of the limitations on
affiliate transactions within a banking organization.
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 System, or “Federal Reserve,” have a significant effect upon the operating results of commercial
banks such as ours. The Federal Reserve has a major effect upon the levels of bank loans, investments and deposits through
its open market operations in United States government securities transactions and through its regulation of, among other things,
the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not
possible to predict the nature and impact of future changes in monetary and fiscal policies.
Deposit Insurance. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the
FDIC (“DIF”). No institution may pay a dividend if in default of the federal deposit insurance assessment.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the DIF has
a minimum designated reserve ratio (“DRR”) of 1.35 percent of the estimated insured deposits. The FDIC has adopted a
restoration plan should the DRR fall below 1.35 percent, and dividends are required to be paid to the industry should the DRR
exceed 1.50 percent. 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 Dodd-Frank Act made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of
Securities Investor Protection Corporation protection from $100,000 to $250,000.
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the
late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment is established
quarterly and, during the four quarters ended December 31, 2015, averaged 1.06 basis points of average assets.
The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would
likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what insurance
assessment rates will be in the future.
Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC.
Dividend Restrictions. Under the New Jersey Banking Act of 1948, as amended (the “Banking Act”), a bank may
declare and pay cash dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and
either the bank will have a surplus of not less than 50 percent of its capital stock or the payment of the dividend will not reduce
the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the institution would be undercapitalized or
the institution is in default with respect to any assessment due to the FDIC.
Recent Regulatory Capital Regulations. In July of 2013 the respective U.S. federal banking agencies issued final
rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January
1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement
for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain
types of instruments and change the risk weightings of certain assets used to determine required capital ratios.
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The new common equity Tier 1 capital component requires capital of the highest quality – predominantly composed
of retained earnings and common stock instruments. For community banks, such as the Bank, a common equity Tier 1 capital
ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum Tier 1 capital
ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary
bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity
attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019.
The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150%
for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules
maintain the general structure of the prompt corrective action rules (described below), but incorporate the new common equity
Tier 1 capital requirement, the increased Tier 1 RWA requirement and the common equity Tier 1 capital conservation buffer
into the prompt corrective action framework.
Regulatory Capital Requirements. 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.
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). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively
increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are
those that the FDIC determines are strong banking organization and are rated composite 1 under the Uniform Financial
Institutions Rating System.
Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must
equal at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these
standards on individual institutions on a case-by-case basis.
In determining compliance with the risk-based capital requirement, a banking organization is allowed to include both
core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not
exceed the bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum
of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital,
total assets, including certain off-balance sheet items, are multiplied by a risk-weight based on the risks inherent in the type of
assets. At December 31, 2015, the Bank exceeded all of its regulatory capital requirements.
Actual
For capital adequacy
purposes
To be well capitalized
under prompt corrective
action provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015:
Total capital (to risk-weighted assets) $100,624
Tier 1 capital (to risk-weighted assets) $ 89,773
11.4%
10.1%
$ 70,828
$ 53,121
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 89,773
10.1%
$ 39,841
$ 89,773
9.0%
$ 40,131
December 31, 2014:
Total capital (to risk-weighted assets) $ 87,610
Tier 1 capital (to risk-weighted assets) $ 77,821
11.2%
9.9%
$ 62,632
$ 31,316
Tier 1 leverage capital (to average
assets)
$ 77,821
8.2%
$ 37,994
8.0%
6.0%
$ 88,535
$ 70,828
4.5%
$ 57,548
4.0%
$ 50,163
8.0%
4.0%
$ 78,289
$ 46,974
4.0%
$ 47,493
10.0%
8.0%
6.5%
5.0%
10.0%
6.0%
5.0%
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8
Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the
FDIC. Such action could include a capital directive, a cease and desist order, civil money penalties, the establishment of
restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or
receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require
one or more of a variety of corrective actions.
Prompt Corrective Action. In addition to the required minimum capital levels described above, federal law establishes
a system of “prompt corrective actions” which federal banking agencies are required to take, and certain actions which they
have discretion to take, based upon the capital category into which a federally-regulated depository institution falls. Regulations
set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not
adequately capitalized. The following table shows the amount of capital associated with the different capital categories set
forth in the prompt corrective action regulations.
Capital Category
Well capitalized
Adequately capitalized
Undercapitalized
Significantly undercapitalized
Total
Risk-Based
Capital
10% or more
8% or more
Less than 8%
Less than 6%
Tier 1
Risk-Based
Capital
8% or more
6% or more
Less than 6%
Less than 4%
Common Equity
Tier 1
Capital
6.5% or more
4.5% or more
Less than 4.5%
Less than 3%
Tier 1
Leverage
Capital
5% or more
4% or more
Less than 4%
Less than 3%
In addition, a banking organization is “critically undercapitalized” if it has a ratio of tangible equity to total assets that
is equal to or less than 2.0%. 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).
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. A federal banking agency must provide the institution with written notice of
approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. A banking
organization which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each
company that controls the institution. 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,
2015, the Bank was not subject to the above mentioned restrictions.
Community Reinvestment Act. The Community Reinvestment Act, or “CRA,” requires that banks meet the credit
needs of all of their assessment area, as established for these purposes in accordance with applicable regulations based
principally on the location of branch offices, including those of low-income areas and borrowers. The CRA also requires that
the FDIC assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs
of the community they serve. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to
improve” or “unsatisfactory.” Our record in meeting the requirements of the CRA is made publicly available and is taken into
consideration in connection with any applications with federal regulators to engage in certain activities, including approval of
a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into non-banking activities. As
of December 31, 2015, we maintained a “satisfactory” CRA rating.
Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implements far-reaching
changes across the financial regulatory landscape.
Among other things, the Dodd-Frank Act created the Bureau of Consumer Financial Protection (the “CFPB”), which
is an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance industry,
including regulated financial institutions such as us, and non-banks and others who are involved in the consumer finance
industry. The CFPB has exclusive authority through rulemaking, orders, policy statements, guidance and enforcement actions
to administer and enforce federal consumer finance laws, to oversee non-federally regulated entities, and to impose its own
regulations and pursue enforcement actions when it determines that a practice is unfair, deceptive or abusive (“UDA”). While
9
9
the CFPB has the exclusive power to interpret, administer and enforce federal consumer finance laws and UDA, the Dodd-
Frank Act provides that the FDIC continues to have examination and enforcement powers over us relating to the matters within
the jurisdiction of the CFPB because we have less than $10 billion in assets. The Dodd-Frank Act also gives state attorneys
general the ability to enforce federal consumer protection laws.
The Dodd-Frank Act also:
•
•
•
•
•
•
•
•
•
•
Applies the same leverage and risk-based capital requirements to most bank holding companies (“BHCs”)
that apply to insured depository institutions;
Requires the FDIC to make its capital requirements for insured depository institutions countercyclical, so
that capital requirements increase in times of economic expansion and decrease in times of economic
contractions;
Requires BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located
outside their home state and requires any BHC electing to be treated as a financial holding company to be
both well-capitalized and well-managed;
Changes the assessment base for federal deposit insurance from the amount of insured deposits held by the
depository institution to the depository institution’s average total consolidated assets less tangible equity;
eliminates the ceiling on the size of the DIF and increases the floor on the size of the DIF;
Makes permanent the $250,000 limit for federal deposit insurance and increases the cash limit of Securities
Investor Protection Corporation protection from $100,000 to $250,000
Eliminates all remaining restrictions on interstate banking by authorizing national and state banks to establish
de novo branches in any state that would permit a bank chartered in that state to open a branch at that location;
Repeals Regulation Q, the federal prohibitions on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business transaction and other accounts;
Enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal
Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount
of time for which collateral requirements regarding covered transactions must be maintained;
Expands insider transaction limitations through the strengthening of loan restrictions to insiders and the
expansion of the types of transactions subject to the various limits, including derivative transactions,
repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions.
Restrictions are also placed on certain asset sales to and from an insider to an institution, including
requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s
board of directors; and
Strengthens the previous limits on a depository institution’s credit exposure to one borrower which limited a
depository institution’s ability to extend credit to one person (or group of related persons) in an amount
exceeding certain thresholds. The Dodd-Frank Act expanded the scope of these restrictions to include credit
exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing
transactions.
While designed primarily to reform the financial regulatory system, the Dodd Frank Act also contains a number of
corporate governance provisions that will affect companies with securities registered under the Securities Exchange Act of
1934 (the “Exchange Act”). The Dodd-Frank Act requires the Securities and Exchange Commission to adopt rules which may
affect our executive compensation policies and disclosure. It also exempts smaller issuers, such as us, from the requirement,
originally enacted under Section 404(b) of the Sarbanes-Oxley Act of 2002, that our independent auditor also attest to and
report on management’s assessment of internal control over financial reporting.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized,
including rules regulating compensation of residential mortgage loan originators, residential mortgage loan servicing practices,
and defining qualified mortgage loans and the ability to repay a mortgage loan, many of the new requirements called for have
yet to be implemented and will likely be subject to implementing regulations over the course of several years. Given the
uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various
agencies, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. The Dodd-
Frank Act could require us to make material expenditures, in particular personnel training costs and additional compliance
expenses, or otherwise adversely affect our business, financial condition, results of operations or cash flow. It could also
require us to change certain of our business practices, adversely affect our ability to pursue business opportunities that we might
otherwise consider pursuing, cause business disruptions and/or have other impacts that are as of yet unknown to us. Failure to
10
10
comply with these laws or regulations, even if inadvertent, could result in negative publicity, fines or additional expenses, any
of which could have an adverse effect on our business, financial condition, results of operations or cash flow.
Jumpstart Our Business Startups (JOBS) Act. In April 2012, the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”) became law. The JOBS Act is aimed at facilitating capital-raising by smaller companies and banks and bank
holding companies by implementing the following changes:
•
•
•
•
•
•
Raising the threshold requiring registration under the Exchange Act for banks and bank holding companies
from 500 to 2,000 holders of record;
Raising the threshold for triggering deregistration under the Exchange Act for banks and bank holding
companies from 300 to 1,200 holders of record;
Raising the limit for Regulation A offerings from $5 million to $50 million per year and exempting some
Regulation A offerings from state blue sky laws;
Permitting advertising and general solicitation in Rule 506 and Rule 144A offerings;
Allowing private companies to use “crowd funding” to raise up to $1 million in any 12-month period, subject
to certain conditions; and,
Creating a new category of issuer, called an “Emerging Growth Company,” for companies with less than $1
billion in annual gross revenue, which will benefit from certain changes that reduce the cost and burden of
carrying out an equity initial public offering and complying with public company reporting obligations for
up to five years.
Federal Home Loan Bank Membership. We are a member of the Federal Home Loan Bank of New York (the
“FHLB-NY”). Each member of the FHLB-NY is required to maintain a minimum investment in capital stock of the FHLB-
NY. The Board of Directors of the FHLB-NY can increase the minimum investment requirements in the event it has concluded
that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum
investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because
the extent of any obligation to increase our investment in the FHLB-NY depends entirely upon the occurrence of a future event,
potential payments to the FHLB-NY are not determinable.
Additionally, in the event that we fail, the right of the FHLB-NY to seek repayment of funds loaned to us will take
priority over certain other creditors.
Loans to One Borrower
New Jersey banking law limits the total loans and extensions of credit by a bank to one borrower at one time to 15%
of the capital funds of the bank, or up to 25% of the capital funds of the bank if the additional 10% is fully secured by collateral
having a market value (as determined by reliable and continuously available price quotations) at least equal to the amount of
the loans and extensions of credit over the 15% limit. If a bank’s lending limit is less than $500,000, the bank may nevertheless
have total loans and extensions of credit outstanding to one borrower at one time not to exceed $500,000. At December 31,
2015, the Bank’s lending limit to one borrower was $15.1 million.
Other Laws and Regulations. We are subject to a variety of laws and regulations which are not limited to banking
organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating our own property,
we are subject to regulations and potential liabilities under state and federal environmental laws.
We are heavily regulated by regulatory agencies at the federal and state levels. As a result of events in the financial
markets and the economy in recent years, we, like most of our competitors, have faced and expect to continue to face increased
regulation and regulatory and political scrutiny, which creates significant uncertainty for us and the financial services industry
in general.
Future Legislation and Regulation. Regulators have increased their focus on the regulation of the financial services
industry in recent years. Proposals that could substantially intensify the regulation of the financial services industry have been
and are expected to continue to be introduced in the U.S. Congress, in state legislatures and by applicable regulatory authorities.
These proposals may change banking statutes and regulation and our operating environment in substantial and unpredictable
ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities
11
11
or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot
predict whether any of these proposals will be enacted and, if enacted, the effect that it, or any implementing regulations, would
have on our business, financial condition and results of operations.
Item 1A. Risk Factors
As a smaller reporting company, the Bank is not required to provide the information otherwise required by this Item.
Item 1B. Unresolved Staff Comments
Not applicable.
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 twelve other branch locations in New Jersey and
Pennsylvania. The following table sets forth certain information regarding the Bank’s properties as of December 31, 2015:
Location
Corporate Headquarters and Branch
183 Bayard Lane
Princeton, NJ
Operations Center
403 Wall Street
Princeton, NJ
Hamilton Branch
339 Route 33
Hamilton, NJ
Pennington Branch
2 Route 31
Pennington, NJ
Chambers Street Branch
21 Chambers Street
Princeton, NJ
Monroe Branch
1 Rossmoor Drive, Suite 120
Monroe Township, NJ
Montgomery Branch
1185 Route 206 North
Princeton, NJ
Lambertville Branch
10-12 Bridge Street
Lambertville, NJ
Lawrenceville Branch
2999 Princeton Pike
Lawrenceville, NJ
Leased or
Owned
Leased
Date of Lease
Expiration
October 31, 2018
Leased
August 11, 2021
Leased
October 31, 2020
Leased
April 30, 2017
Leased
December 31, 2021
Leased
July 31, 2020
Leased
April 30, 2020
Owned
N/A
Leased
November 30, 2020
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12
Location
Nassau Street Branch
194 Nassau Street
Princeton, NJ
New Brunswick Branch
1 Spring Street, Suite 102
New Brunswick, NJ
North Wales Branch (MoreBank Division)
1222 Welsh Road
North Wales, PA
Cheltenham Branch (MoreBank Division)
470 West Cheltenham Avenue
Philadelphia, PA
Arch Street Branch (MoreBank Division)
921 Arch Street
Philadelphia, PA
Leased or
Owned
Date of Lease
Expiration
Leased
November 30, 2021
Leased
March 31, 2017
Leased
September 30, 2021
Leased
January 25, 2021
Leased
November 30, 2017
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13
Item 3. Legal Proceedings
On February 3, 2015, the FDIC terminated its Consent Order with us (the “Consent Order”). The Consent Order was
issued on January 30, 2014 and required us to strengthen our BSA/AML program and internal audit function, and to address
other related matters. Concurrently with the termination of the Consent Order, a related Acknowledgement and Consent
between us and the NJDOBI also terminated.
Number of
shares of
common stock
to be issued
upon exercise
of outstanding
options,
warrants and
rights
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
Number of
shares of
common stock
remaining
available for
future issuance
under
compensation
plans
From time to time, we may be a party to ordinary routine litigation incidental to our business. Except for the Consent
Order and the related Acknowledgement and Consent, there were no material legal proceedings to which we were a party or of
Plan Category
which any of our property was the subject, pending or, to our knowledge, contemplated by governmental authorities, at
Equity Compensation Plans approved by security
December 31, 2015 or the date of this report.
holders:
The Bank of Princeton 2007 Stock Option Plan
The Bank of Princeton 2012 Stock Option Plan
Item 4. Mine Safety Disclosures
MoreBank 2004 Incentive Equity Compensation Plan
Equity compensation plan not approved by security
holders:
Organizer warrants
MoreBank Organizer options
Total
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
-
-
186,299
77,250
46,000
730,941
178,074
422,417
7,200
38,503
147,796
-
$10.00
$25.00
$14.68
$11.95
$15.38
$25.00
Not applicable.
PART II
Item 6. Selected Financial Data
Market Information
As a smaller reporting company, the Bank is not required to provide the information otherwise required by
There is no established public trading market for our common stock. Although shares of our common stock are
this Item.
transferable, our common stock is not listed on any stock exchange or quoted in any over-the-counter securities market. There
can be no assurance that a trading market for our common stock will develop in the future, and stockholders wishing to sell
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
common stock may have to seek buyers and negotiate a transaction price by themselves.
The following discussion should be read in conjunction with "Part I—Item 1. Business" and our Consolidated Financial
Holders
Statements and the notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with
the "Cautionary Note Regarding Forward-Looking Statements."
As of April 11, 2016, there were approximately 670 holders of our common stock.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as
Dividends
follows:
We have not declared or paid cash dividends on our common stock since we began operations. Under the New Jersey
Banking Act of 1948, as amended, we may declare and pay cash dividends only if, after payment of the dividend, our capital
stock will be unimpaired and either we will have a surplus of not less than 50 percent of our capital stock or the payment of the
dividend will not reduce our surplus. The FDIC prohibits payment of cash dividends if, as a result, we would be
undercapitalized or are in default with respect to any assessment due to the FDIC. Our board of directors intends to follow a
policy of retaining earnings for the purpose of increasing our capital and therefore the Bank does not anticipate declaring or
paying dividends for the foreseeable future.
Overview and Strategy
Comparison of Financial Condition at December 31, 2015 and December 31, 2014
Comparison of Operating Results for the Years Ended December 31, 2015 and December 31, 2014
Rate/Volume Analysis
Liquidity, Commitments and Capital Resources
Off-Balance Sheet Arrangements
Impact of Inflation
Return on Equity and Assets
Critical Accounting Policies and Estimates
Recently Issued Accounting Standards
The following table summarizes our equity compensation plan information as of December 31, 2015. See Note 13 to
our audited financial statements included in this Annual Report on Form 10-K for a description of the material features of each
plan.
Securities Authorized for Issuance under Equity Compensation Plans
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, professionals
and individuals in our market area. As a locally-operated community bank, we seek to provide superior customer service that
is highly personalized, efficient and responsive to local needs. To better serve our customers, we endeavor to provide state-of-
14
15
14
Number of
shares of
common stock
to be issued
upon exercise
of outstanding
options,
warrants and
rights
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
Number of
shares of
common stock
remaining
available for
future issuance
under
compensation
plans
178,074
422,417
7,200
77,250
46,000
730,941
$11.95
$15.38
$25.00
$10.00
$25.00
$14.68
38,503
147,796
-
-
-
186,299
Plan Category
Equity Compensation Plans approved by security
holders:
The Bank of Princeton 2007 Stock Option Plan
The Bank of Princeton 2012 Stock Option Plan
MoreBank 2004 Incentive Equity Compensation Plan
Equity compensation plan not approved by security
holders:
Organizer warrants
MoreBank Organizer options
Total
Item 6. Selected Financial Data
As a smaller reporting company, the Bank is not required to provide the information otherwise required by
this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with "Part I—Item 1. Business" and our Consolidated Financial
Statements and the notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with
the "Cautionary Note Regarding Forward-Looking Statements."
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, 2015 and December 31, 2014
Comparison of Operating Results for the Years Ended December 31, 2015 and December 31, 2014
Rate/Volume Analysis
Liquidity, Commitments and Capital Resources
Off-Balance Sheet Arrangements
Impact of Inflation
Return on Equity and Assets
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, professionals
and individuals in our market area. As a locally-operated community bank, we seek to provide superior customer service that
is highly personalized, efficient and responsive to local needs. To better serve our customers, we endeavor to provide state-of-
15
15
the-art delivery systems with ATMs, current operating software, timely reporting, online bill pay and other similar up-to-date
products and services. We seek to deliver these products and services with the care and professionalism expected of a
community bank and with a special dedication to personalized customer service.
Our primary business objectives are:
•
•
•
to provide local businesses, professionals and individuals with banking services responsive to and determined
by their needs and local market conditions,
to attract deposits and loans through competitive pricing, responsiveness and service, and
to provide a reasonable return to stockholders on capital invested.
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 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, differentiate 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.
Comparison of Financial Condition at December 31, 2015 and December 31, 2014
General. Our total assets increased from $955.3 million at December 31, 2014 to $1.01 billion at December 31, 2015,
an increase of $58.1 million, or six percent. This increase was primarily due to increases in loans receivable, net of our
allowance for loan losses of $73.9 million, accrued interest receivable and other assets of $6.3 million, and bank-owned life
insurance of $4.3 million, partially offset by a decrease in securities available-for-sale of $22.3 million. Total liabilities
increased from $876.8 million at December 31, 2014 to $921.9 million at December 31, 2015, an increase of $45.1 million, or
five percent. This increase was primarily the result of a $104.5 million increase in total borrowings, partially offset by a $58.5
million decrease in deposits. Total stockholders’ equity increased from $78.5 million at December 31, 2014 to $91.4 million
at December 31, 2015, an increase of $12.9 million, or 16 percent. This increase was primarily attributable to net income of
$11.0 million and increases in additional paid-in capital of $1.5 million and common stock of $0.5 million. The growth of our
balance sheet has been a direct result of the successful implementation of our business plan. Although we will continue to seek
to grow our business through the continued implementation of our business plan, the growth experienced in the past may not
be indicative of future results.
We manage our balance sheet based on a number of interrelated criteria, such as changes in interest rates, fluctuations
in certain asset and liability categories whose changes are not totally controlled by us, such as swings in deposit account
balances driven by depositors’ needs, prepayments and issuer call options exercised on securities available for sale, early
payoffs on loans, investment opportunities presented by market conditions, lending originations, capital provided by earnings,
and active management of our overall liquidity positions. The management of these dynamic and interrelated elements of our
balance sheet result in fluctuations in balance sheet items throughout the year.
Cash and due from banks. Cash and due from banks decreased from $31.9 million at December 31, 2014 to $28.6
million at December 31, 2015, a decrease of $3.3 million, or 10 percent. The decrease in cash was primarily attributable to the
timing of cash payments and cash receipts.
Investment Securities. We hold securities that are available to fund increased loan demand or deposit withdrawals
and other liquidity needs, and which provide an additional source of interest income. Securities are classified as held-to-
maturity (“HTM”) or available-for-sale (“AFS”) at the time of purchase. Securities are classified as HTM if we have the ability
and intent to hold them until maturity. HTM securities are carried at cost, adjusted for unamortized purchase premiums and
discounts. 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.
16
16
The following table presents a summary of the amortized cost and fair value of our securities available-for-sale at
December 31, 2015, 2014 and 2013.
2015
December 31,
2014
2013
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
- $
- $
14,770 $
14,551 $
38,112 $
35,689
70,524
70,682
76,428
77,188
72,680
73,084
70,140
70,827
71,665
72,061
88,697
84,541
(in thousands)
U.S. Treasury securities
Mortgage-backed Securities-U.S.
Government-sponsored
Enterprises (GSEs)
Obligations of state and
political subdivisions
Total
$
140,664 $
141,509 $
162,863 $
163,800 $
199,489 $
193,314
Securities available-for-sale, which is carried at fair value, decreased $22.3 million, or 14 percent, to $141.5 million
at December 31, 2015. Funds from security sales and principal repayments were utilized to supplement growth in our loan
portfolio.
The following table presents a summary of the amortized cost and fair value of our HTM securities at December 31,
2015, 2014 and 2013.
2015
December 31,
2014
2013
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(in thousands)
Mortgage-backed Securities-U.S.
Government-sponsored
Enterprises (GSEs)
$
381 $
414 $
420 $
456 $
423 $
454
HTM securities decreased minimally from December 31, 2014 to December 31, 2015. The decline in HTM securities
is the result of normal principal prepayments and our strategy to not purchase additional securities for the HTM portfolio as we
manage our investment portfolio to allow for greater flexibility as our liquidity needs change.
The following table summarizes the maturity distribution schedule of the amortized cost of debt securities with
corresponding weighted-average yields at December 31, 2015. Interest income presented in this Form 10-K for tax-advantaged
obligations of state and political subdivisions has not been adjusted to reflect fully taxable-equivalent interest income.
Weighted-average yields presented below have also not been computed on a fully taxable-equivalent basis. Expected maturities
may differ from contractual maturities because the securities may be called without any penalties.
17
17
This was offset slightly by a decrease of three basis points in the ASC 450-20 general reserve ratio as compared to December
31, 2014.
After one
through five
years
December 31, 2015
After five
through ten
years
After ten
years
One year
or less
(in thousands)
Net charge-offs increased $1.0 million as compared to the prior year. The increase in commercial and industrial
charge-offs was primarily driven by two loans to separate borrowers amounting to $0.6 million. The increase in commercial
Mortgage-backed Securities-U.S. Government-
real estate charge-offs was primarily driven by one $0.3 million loan.
sponsored Enterprises (GSEs)
- $
Obligations of state and political subdivisions
The following table presents a summary of changes in our allowance for loan losses and includes information
Total
regarding charge-offs, recoveries, and selected coverage ratios for the years ended December 31, 2015, 2014, 2013, 2012 and
2011:
Weighted average yield
32,493 $
28,882
61,375 $
34,937 $
36,476
71,413 $
3,094 $
3,740
6,834 $
70,524
70,140
140,664
1,042
1,042 $
2.56%
2.44%
2.05%
2.33%
2.35%
Total
$
$
Year Ended December 31,
2013
2014
At December 31, 2015, there were no holdings of any one issuer in an amount greater than ten percent of our total
stockholders’ equity. See Note 3 - Investment Securities in the Notes to Consolidated Financial Statements within this Form
2015
(in thousands)
10-K for additional information regarding debt securities.
Balance at beginning of year
Charge offs:
Loans receivable, net. Loans receivable, net increased from $723.1 million at December 31, 2014 to $797.1 million
at December 31, 2015, an increase of $73.9 million, or 10 percent. The increase was attributable to our efforts to grow our
(286)
loan portfolio through existing relationships and new business and was funded by a combination of an increase in borrowings
(217)
and a decreases in our investment securities.
(143)
-
(80)
-
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
(116)
-
-
-
-
December 31, 2015
(29)
The following table details our loan maturities by loan segment and interest rate type at December 31, 2015:
(73)
(156)
(370)
-
-
-
-
(388)
-
-
-
(5)
(435)
(626)
-
-
(39)
-
7,033 $
5,362 $
8,493 $
10,008
3,693
2012
2011
$
$
Total charge offs
Recoveries:
(in thousands)
Commercial real estate
Commercial real estate
Commercial and industrial
Commercial and industrial
Construction
Construction
Residential first-lien mortgage
Residential first-lien mortgage
Home equity
Home equity
Consumer
Consumer
Total recoveries
Total loans
Net charge-offs
Additions charged to operations (provision for loan losses)
Type:
Balance at end of year
Fixed rate loans
Floating rate loans
$
Net charge offs to average loans outstanding
$
Due in one year
or less
$
13,851 $
29,568
62,297
-
183
414
106,313 $
(145)
Due after one
(1,100)
through five
years
-
13
-
-
6
20
39
5
72,586 $
70
37,239
-
60,000
-
-
-
217
5
436
80
170,478 $
(65)
1,580
(1,061)
1,904
(599)
Due after five
years
(393)
(726)
Total
-
95
-
-
1
-
96
490,298
125,072
122,297
42,409
29,922
858
810,856
-
18
-
-
-
-
18
(297)
1,968
(708)
2,377
12
403,861 $
15
58,265
-
-
-
42,409
-
29,522
-
8
27
534,065 $
(572)
2,032
$
11,570 $
94,743
10,851 $
0.14 %
10,008 $
74,734 $
95,744
0.01 %
8,493 $
47,662 $
0.10 %
486,403
7,033 $
5,362
133,966
676,890
0.06%
0.21%
Total loans
$
106,313 $
170,478 $
534,065 $
810,856
Our allowance for loan losses is allocated to the various segments of our portfolio identified above. The unallocated
The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or
component of the allowance for loan losses is maintained to cover uncertainties that could affect our estimate of probable
management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing.
losses. The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the
A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well-secured.
methodologies for estimating specific and general losses in the portfolio. Additions to the allowance charged to operations are
the result of applying our allowance methodology to the existing loan portfolio. Increases in the additions charged to operations
were primarily the result of increases in the loan portfolio, combined with adjustments to qualitative factors impacting the
allowance as discussed above.
18
20
18
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 as of December 31, 2015, 2014, 2013, 2012, and 2011.
(in thousands)
Nonaccrual loans:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total nonaccrual loans
Troubled debt restructurings (TDRs) – performing
Accrual loans 90 days or more past due
Total nonperforming loans and performing TDRs
Other real estate owned
Total nonperforming assets and performing TDRs
December 31,
2015
2014
2013
2012
2011
$
$
6,530 $
1,834
1,805
1,370
450
-
11,989
1,171
-
13,160
300
6,190
1,185
1,911
166
419
-
9,871
3,797
-
13,668
804
13,460 $ 14,472
$
2,535 $
5,127
-
182
394
-
8,238
4,858
-
13,096
927
5,229
2,135
892
-
456
-
8,712
2,332
-
11,044
919
$ 14,023 $ 12,510 $ 11,963
2,690 $
4,596
892
-
359
11
8,548
2,412
-
10,960
1,550
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, 2015 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.
Analysis of Allowance for Loan Losses. Our allowance for loan losses (the “allowance”) is based on a documented
methodology, which includes an ongoing evaluation of the loan portfolio, and reflects management’s best estimate of probable
losses in the loan portfolio as of the reporting date. The determination of the allowance for loan losses involves a high degree
of judgment and complexity. In evaluating the adequacy of the allowance for loan losses, management gives consideration to
current economic conditions, statutory examinations of the loan portfolio by regulatory agencies, loan reviews performed
periodically by independent third parties, delinquency information, management’s internal review of the loan portfolio, and
other relevant factors. In determining and maintaining our allowance for loan losses, we comply with the Federal Financial
Institutions Examination Council (FFIEC) Interagency Policy Statements on the Allowance for Loan and Lease Losses and on
Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Associations.
Our allowance for loan losses is maintained at a level considered adequate to provide for probable losses. We perform,
at least quarterly, an evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience
(which is bound by our limited operating history), 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, the 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 revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified
as impaired. For loans that are 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 pools of loans by loan segment including loans not considered impaired, as well as smaller balance homogeneous loans,
such as residential mortgage and other consumer loans. These pools of loans are evaluated for loss exposure based upon
historical loss rates for each of these categories of loans, adjusted for qualitative factors.
The allowance for loan losses increased from $10.0 million at December 31, 2014 to $10.9 million at December 31,
2015, an increase of $0.9 million, or approximately eight percent. This increase was primarily attributable to applying our
ASC 450-20 general allowance ratio of 1.14% to the $74.8 million increase in our loan portfolio as compared to the prior year.
19
19
This was offset slightly by a decrease of three basis points in the ASC 450-20 general reserve ratio as compared to December
31, 2014.
Net charge-offs increased $1.0 million as compared to the prior year. The increase in commercial and industrial
charge-offs was primarily driven by two loans to separate borrowers amounting to $0.6 million. The increase in commercial
real estate charge-offs was primarily driven by one $0.3 million loan.
The following table presents a summary of changes in our allowance for loan losses and includes information
regarding charge-offs, recoveries, and selected coverage ratios for the years ended December 31, 2015, 2014, 2013, 2012 and
2011:
(in thousands)
Balance at beginning of year
Charge offs:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total charge offs
Recoveries:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total recoveries
2015
Year Ended December 31,
2013
2014
2012
2011
$
10,008 $
8,493 $
7,033 $
5,362 $
3,693
(435)
(626)
-
-
(39)
-
(1,100)
-
13
-
-
6
20
39
(116)
-
-
-
-
(29)
(145)
5
70
-
-
-
5
80
(73)
(156)
(370)
-
-
-
(599)
12
15
-
-
-
-
27
-
(388)
-
-
-
(5)
(393)
-
95
-
-
1
-
96
(286)
(217)
(143)
-
(80)
-
(726)
-
18
-
-
-
-
18
Net charge-offs
Additions charged to operations (provision for loan losses)
Balance at end of year
(1,061)
1,904
(65)
1,580
(572)
2,032
(297)
1,968
(708)
2,377
$
10,851 $
10,008 $
8,493 $
7,033 $
5,362
Net charge offs to average loans outstanding
0.14 %
0.01 %
0.10 %
0.06%
0.21%
Our allowance for loan losses is allocated to the various segments of our portfolio identified above. The unallocated
component of the allowance for loan losses is maintained to cover uncertainties that could affect our estimate of probable
losses. The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio. Additions to the allowance charged to operations are
the result of applying our allowance methodology to the existing loan portfolio. Increases in the additions charged to operations
were primarily the result of increases in the loan portfolio, combined with adjustments to qualitative factors impacting the
allowance as discussed above.
20
20
The following table presents the allocation of the allowance for loan losses by portfolio segment for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011. 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.
2015
2014
2013
2012
December 31,
% of
Loans to
Amount
$
4,703
Total
Loans
60.5 % $
Amount
3,621
% of
Loans to
Total
Loans
61.2 % $
Amount
2,994
% of
Loans to
Total
Loans
58.6 % $
Amount
2,246
2,615
15.4
15.1
1,530
2,719
17.3
10.7
1,419
2,638
18.6
12.0
292
225
3
767
$ 10,851
5.2
3.7
0.1
-
100.0 % $
318
307
17
1,496
10,008
6.2
4.2
0.4
-
100.0 % $
282
282
1
877
8,493
6.3
4.5
-
-
100.0 % $
% of
Loans to
Total
Loans
58.8 %
19.2
11.6
5.4
4.7
0.3
-
100.0 %
2,557
1,244
2,163
204
256
10
599
7,033
Commercial real estate
Commercial and
industrial
Construction
Residential first-lien
mortgage
Home equity
Consumer
Unallocated
Total
2011
Commercial real estate
Commercial and
industrial
Construction
Residential first-lien
mortgage
Home equity
Consumer
Unallocated
Total
Amount
$
2,082
1,011
1,965
101
179
12
12
5,362
$
% of
Loans to
Total
Loans
56.6 %
20.8
13.7
3.7
4.7
0.5
-
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.
Premises and equipment. Premises and equipment, net decreased $0.4 million from December 31, 2014 to December
31, 2015. Additions to premises and equipment resulting from leasehold improvements in the new Lawrenceville branch and
purchases of upgraded equipment were offset by depreciation expense.
Accrued interest receivable and other assets. Accrued interest receivable and other assets increased $6.3 million, or
54 percent, from December 31, 2014 to December 31, 2015, primarily due to increases of $4.8 million in restricted investments
in bank stocks. The increase in restricted investments in bank stocks was primarily the result of a $104.5 million increase in
FHLB-NY borrowings from December 31, 2014 to December 31, 2015. We are required to own stock of the FHLB-NY based
in part by the amount of our FHLB-NY borrowings outstanding. The remaining $1.5 million increase was primarily comprised
of $1.3 million in income taxes receivable at December 31, 2015.
Deposits. Total deposits decreased from $847.9 million at December 31, 2014 to $789.4 million at December 31,
2015, a decrease of $58.5 million, or seven percent. Non-interest-bearing deposits decreased $32.3 million, or 24 percent, to
$102.9 million at December 31, 2015, compared to $135.2 million at December 31, 2014. Interest-bearing deposits decreased
21
21
$26.2 million, or four percent, to $686.5 million at December 31, 2015, compared to $712.7 million in the prior year. Of the
$32.3 million decrease in noninterest bearing deposits, one institutional customer’s balance decreased $27.8 million at
December 31, 2015 as compared to December 31, 2014. Certificates of deposits decreased $37.4 million during 2015 due to
attrition from 12 and 15 month promotion rates offered in 2014. This decrease was partially offset by an increase in interest
bearing checking and savings of $11.2 million over the prior year.
The following table presents our time deposit maturities as of December 31, 2015.
(in thousands)
Time deposits of $100,000 or more
Time deposits of less than $100,000
Total
Over
three
through
six
months
December 31, 2015
Over six
through
twelve
months
Over
twelve
months
Three
months
or less
Total
$
$
9,536 $
15,197 $
58,438 $
71,847 $
155,018
7,570
9,270
30,225
55,196
102,261
17,106 $
24,467 $
88,663 $
127,043 $
257,279
The following table presents the average balance of our deposit accounts for the years ended December 31, 2015,
2014 and 2013, and the average cost of funds for each category of our deposits.
2015
Avg.
Rate
Paid
% of
Average
Total
Deposits
Average
Amount
2014
Avg.
Rate
Paid
% of
Average
Total
Deposits
2013
Avg.
Rate
Paid
% of
Average
Total
Deposits
Average
Amount
Average
Amount
$ 133,970
0.00 %
16.2% $ 125,472
0.00%
15.9% $ 99,650
0.00%
13.6%
202,124
140,973
76,553
0.59
0.59
0.71
24.4
17.0
9.2
151,917
148,462
89,647
0.75
0.62
0.91
19.2
18.8
11.3
148,969
155,438
89,044
0.78
0.60
0.86
20.3
21.2
12.1
162,744
1.45
19.6
153,039
1.48
19.3
120,504
1.71
16.3
(in thousands)
Demand, non-
interest-bearing
checking
Demand Interest-
bearing
Money market
Savings deposits
Time deposits of
$100,000 or
more
Other time
deposits
112,545
1.45
13.6
122,406
1.51
15.5
119,464
1.70
Total
$ 828,909
0.79 %
100.0% $ 790,943
0.88%
100.0% $ 733,069
0.95%
16.5
100.0%
Borrowings. Borrowings increased from $24.3 million at December 31, 2014 to $128.8 million at December 31, 2015,
an increase of $104.5 million. The Bank utilizes its available capacity with FHLB-NY as an additional source of liquidity to
fund increases in asset classes not funded by our deposits. Increased borrowings, supplemented with amounts from the sales
and principal repayments of securities, available-for-sale, compensated for deposit decreases during the year ended December
31, 2015.
22
22
Accrued interest payable and other liabilities. Accrued interest payable and other liabilities decreased from $4.6
million at December 31, 2014 to $3.6 million at December 31, 2015, a decrease of $1.0 million, or 21 percent. This decrease
was primarily attributable to a decrease in accrued expenses of $0.5 million, primarily due to decreases in FDIC assessments
payable, accrued salaries expense, and other miscellaneous accrued expenses. The $0.1 million decrease in FDIC assessments
payable is the result of a decreased assessment rate during 2015 due to the termination of our Consent Order with the FDIC in
February 2015. The decrease in salaries payable was attributable to a $0.3 million decrease in the normal year end salary
accrual at December 31, 2015 as compared to the prior year. Other miscellaneous accruals decreased $0.1 million over the
prior year primarily due to decreased legal fees also due to the termination of our Consent Order with the FDIC in February
2015. Accrued interest payable on deposits decreased $0.2 million from the prior year resulting from a decrease in the average
cost of funds on interest-bearing deposits of ten basis points at December 31, 2015 as compared to 2014 as well as the timing
of interest payments.
Stockholders’ equity. Stockholders’ equity increased from $78.5 million at December 31, 2014 to $91.4 million at
December 31, 2015, an increase of $12.9 million, or 16 percent. The increase in stockholders’ equity was due to an $11.0
million increase in retained earnings from current year net income, combined with a $1.5 million increase in paid-in-capital
and a $0.5 million increase in common stock due to stock option exercises during 2015.
23
23
(in thousands)
Interest-earning assets:
Loans receivable, net
Investment securities:
Available-for-sale
Held-to-maturity
Other interest-earning assets
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Demand, interest-bearing
and savings deposits
Money market
Time deposits
Total interest-bearing deposits
Federal Home Loan Bank
borrowings
Total interest-bearing
liabilities
Non-interest-bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Interest rate spread(1)
Net interest income
Net yield on interest-
earning assets(2)
Ratio of average interest-
earning assets to average
interest-bearing liabilities
For the Year Ended December 31,
2013
Average
Balance
Interest
Average
Yield/Cost
$
570,720
$
32,285
5.66 %
207,227
497
22,341
800,785
27,017
827,802
238,012
155,438
239,968
633,418
$
$
4,670
23
135
37,113
2.25
4.70
0.60
4.63
1,925
936
4,091
6,952
0.81
0.60
1.71
1.10
25,903
163
0.63
7,115
1.08 %
659,321
105,558
764,879
62,923
$
827,802
$
29,998
3.55 %
3.75 %
1.21x
(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost
of interest-bearing liabilities.
(2) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.
27
Comparison of Operating Results for the Years Ended December 31, 2015 and December 31, 2014
General. Net income for the year ended December 31, 2015 was $11.0 million, an increase of approximately $2.0
million, or 22 percent, from $9.0 million for the year ended December 31, 2014. This increase was primarily attributable to an
increase in net interest income and decreases in non-interest expense partially offset by an increase in provision for loan losses,
a decrease in non-interest income and an increase in income tax expense.
Net interest income. Net interest income increased $3.0 million, or nine percent, to $36.4 million for the year ended
December 31, 2015, compared to $33.4 million for the year ended December 31, 2014. Our interest rate spread increased from
3.61 percent for the year ended December 31, 2014 to 3.66 percent for the year ended December 31, 2015, an increase of five
basis points. Our average interest-earning assets increased $68.3 million, or eight percent, while the average yield on those
assets decreased six basis points. The increase in average interest-earning assets was primarily the result of our ability to
continue to increase the size of our loan portfolio. Our average interest-bearing liabilities increased $49.1 million, or seven
percent, while the average cost of those liabilities decreased 11 basis points.
Total interest and dividend income. Total interest and dividend income increased $2.6 million, or seven percent, to
$43.2 million for the year ended December 31, 2015, compared to $40.6 million for the prior year. The improvement in interest
income resulted from an increase in the average balance of interest-earning assets.
Interest income and fees on loans increased $3.4 million, or nine percent, to $39.6 million for the year ended December
31, 2015, compared to $36.2 million for the prior year. The increase was attributable to an increase in the average balance of
loans receivable of $88.7 million from $678.1 million in 2014 to $766.8 million in 2015. This increase was partially offset by
a 17 basis point decrease in the year-over-year average yield on loans. The decrease in the average yield on loans was due to
lower interest rates on new loan production caused primarily by increasing competition throughout the year ending December
31, 2015.
Interest income on securities decreased approximately $0.8 million, or nineteen percent, for the year ended December
31, 2015 compared to the prior year. This decrease was primarily attributable to a $25.8 million decrease in average balances
and a 13 basis point decrease in the average yield. Average balances decreased due to principal repayments and sales of
securities that provided cash to fund the increase in our loan portfolio.
Interest Expense. Total interest expense decreased $0.3 million, or four percent for the year ended December 31,
2015, compared to the prior year period. This decrease was the result of an 11 basis point decrease in the cost of interest-bearing
liabilities, partially offset by a $49.1 million increase in average interest-bearing liabilities.
Interest expense on deposits decreased $0.4 million for the year ended December 31, 2015 compared to the prior year
due to a decrease in the cost of interest-bearing deposits of 10 basis points during 2015 as compared to 2014, partially offset
by an increase in average interest-bearing deposits of $29.5 million.
Interest expense on borrowings increased approximately $90,000, or 51 percent, for the year ended December 31,
2015 compared to the prior year. This increase was primarily attributable to a $19.6 million increase in average balances as
borrowings were utilized to partially fund the increase in our loan portfolio.
Provision for Loan Losses. The provision for loan losses increased $0.3 million over the prior year to $1.9 million
for the year ended December 31, 2015. The increase in the 2015 provision for loan losses reflected, among other things, the
$73.9 million increase in our loan portfolio year-over-year, and the increase in loan charge-offs, net of recoveries (“net charge-
offs”) during the year ended December 31, 2015 compared to the prior period. Net charge-offs were $1.1 million during 2015,
compared to $65,000 in 2014. See the section above titled “Financial Condition —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. Non-interest income decreased $0.5 million for the year ended December 31, 2015 compared
to the prior year. Gain on sales of securities available-for-sale decreased $0.8 million to $0.2 million for the year ended
December 31, 2015. Partially offsetting this decrease, income from bank owned life insurance and gain on sale of other real
estate owned each increased $0.1 million as compared to the prior year period.
24
24
Non-Interest Expense. Non-interest expense decreased approximately $0.3 million, or two percent, to $22.1 million
in 2015, compared to $22.4 million in the prior year.
Professional fees decreased $0.7 million, or 34 percent, to approximately $1.3 million in 2015 compared to $2.0
million in 2014. The decrease was primarily attributable to decreases in 2014 consulting fees paid in relation our FDIC Consent
Order, which the FDIC terminated on February 3, 2015. Federal deposit insurance assessments also decreased $0.4 million
during the year ended 2015 to $0.8 million, compared to $1.2 million in the prior year. The termination of our Consent Order
caused our assessment rate to decrease significantly.
OREO, net expense decreased $0.2 million in during the year ended 2015 compared to the prior year. The decrease
was primarily attributable to the write-down of two properties to their net realizable values in 2014.
Other non-interest expense decreased $0.4 million, or 18 percent, to $1.6 million in 2015, compared to $1.9 million
in the prior year. Decreases were noted in several miscellaneous non-interest expense accounting including employee travel
and entertainment, correspondent bank charges, and core deposit intangible expense.
Partially offsetting these decreases in non-interest expense, salaries and employee benefits increased approximately
$1.0 million, or eight percent, to $12.3 million in 2015, compared to $11.3 million in the prior year. The increase was related
to eight additional full time equivalent employees in 2015, as well as increases in bonus expense, medical insurance premiums,
and stock option compensation expense. Salary deferrals resulting from ASC 310-20 related loan origination costs also
decreased as loan volume was lower in 2015 as compared to 2014.
Occupancy and equipment expenses increased slightly to $3.6 million in 2015 compared to $3.5 million in the prior
year. The increase was primarily attributable to the impact of a rent increase due to the expansion for our operations center in
September 2014.
Data processing and communications expense increased slightly to $1.8 million in 2015 compared to $1.7 million in
2014. The increase was primarily attributable to an increase is fees paid to our core processing servicer as we added a new
branch in November 2015.
Income Tax Expense. The provision for income taxes increased $0.5 million, or 17 percent, to $3.7 million in 2015
compared to $3.2 million in the prior year. The increase was due to a 21 percent increase in pre-tax income offset by a slight
decrease in our effective tax rate from 26.0 percent in 2014 to 25.2 percent in 2015 resulting from increases in tax-exempt
interest income on qualifying loans over the prior year.
25
25
Average Balance Sheets. The average yields and costs of funds shown in the following table are derived by dividing
income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Nonaccrual loans
are included in the average balance of loans receivable, net for all periods presented. No tax-equivalent adjustments have been
made.
(in thousands)
Interest-earning assets:
Loans receivable, net
Investment securities:
Available-for-sale
Held-to-maturity
Other interest-earning assets
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Demand, interest-bearing
and savings deposits
Money market
Time deposits
Total interest-bearing deposits
Federal Home Loan Bank
borrowings
Total interest-bearing
liabilities
Non-interest-bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Interest rate spread(1)
Net interest income
Net yield on interest-
earning assets(2)
Ratio of average interest-
earning assets to average
interest-bearing liabilities
For the Year Ended December 31,
Average
Balance
2015
Interest
Average
Yield/Cost
Average
Balance
2014
Interest
Average
Yield/Cost
$
766,776
$
39,579
5.16 % $
678,058
$
36,170
5.33 %
$
$
151,291
399
28,381
946,847
33,757
980,604
278,677
140,973
275,289
694,939
62,465
757,404
138,211
895,615
84,989
3,406
20
216
43,221
2.25
5.02
0.76
4.56
1,741
837
3,992
6,570
267
0.62
0.59
1.45
0.95
0.43
6,837
0.90 %
$
$
177,073
421
22,953
878,505
32,167
910,672
241,564
148,462
275,445
665,471
42,839
708,310
130,498
838,808
71,864
$
980,604
$
910,672
4,206
21
170
40,567
2.38
4.98
0.74
4.62
1,953
918
4,109
6,980
177
0.81
0.62
1.49
1.05
0.41
7,157
1.01 %
3.66 %
3.61 %
$
36,384
$
33,410
3.84 %
1.25x
3.80 %
1.24x
(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost
of interest-bearing liabilities.
(2) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.
26
26
(in thousands)
Interest-earning assets:
Loans receivable, net
Investment securities:
Available-for-sale
Held-to-maturity
Other interest-earning assets
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Demand, interest-bearing
and savings deposits
Money market
Time deposits
Total interest-bearing deposits
Federal Home Loan Bank
borrowings
Total interest-bearing
liabilities
Non-interest-bearing liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Interest rate spread(1)
Net interest income
Net yield on interest-
earning assets(2)
Ratio of average interest-
earning assets to average
interest-bearing liabilities
For the Year Ended December 31,
2013
Average
Balance
Interest
Average
Yield/Cost
$
570,720
$
32,285
5.66 %
207,227
497
22,341
800,785
27,017
827,802
238,012
155,438
239,968
633,418
$
$
4,670
23
135
37,113
2.25
4.70
0.60
4.63
1,925
936
4,091
6,952
0.81
0.60
1.71
1.10
25,903
163
0.63
7,115
1.08 %
659,321
105,558
764,879
62,923
$
827,802
$
29,998
3.55 %
3.75 %
1.21x
(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost
of interest-bearing liabilities.
(2) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.
27
27
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.
(in thousands)
Interest and dividend income:
Loans receivable
Investment securities:
Available-for-sale
Held-to-maturity
Other interest-earnings assets
Total interest-earning assets
Interest expense:
Demand, interest-bearing and
savings
Money market
Time deposits
Federal Home Loan Bank
borrowings
Total interest-bearing
liabilities
Change in net interest income
Year Ended December 31,
2015 vs. 2014
Increase (Decrease) Due to
Year Ended December 31,
2014 vs. 2013
Increase (Decrease) Due to
Volume
Rate
Net
Volume
Rate
Net
$
4,579 $
(1,170) $
3,409 $
5,726 $
(1,841 ) $
3,885
(529 )
(1 )
42
4,091
$
(271)
-
4
(1,437) $
(800)
(1)
46
2,654 $
(665)
(3)
4
5,062 $
201
1
31
(1,608 ) $
(464)
(2)
35
3,454
232 $
(44 )
(2 )
(444) $
(36)
(116)
(212) $
(80)
(118)
29 $
(44)
530
(1 ) $
26
(512 )
84
6
90
70
(56 )
270 $
(590) $
(320) $
585 $
(543 ) $
28
(18)
18
14
42
3,821 $ (847) $
2,974 $
4,477 $
(1,065) $
3,412
$
$
$
$
Liquidity, Commitments and Capital Resources
Liquidity. Our liquidity, represented by cash and due from banks, is a product of our operating, investing and financing
activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds
provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits
or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the
amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest
rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed
securities.
We strive to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels.
We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe
and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to the return on loans. We attempt to maintain adequate but not excessive liquidity, and
liquidity management is both a daily and long-term function of our business management. We manage our liquidity in
accordance with a board of directors-approved asset-liability policy, which is administered by our asset-liability committee
(ALCO). 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.
28
28
While deposits are our primary source of funds, we are also able to generate cash through borrowings from the FHLB-
NY. At December 31, 2015, we had $128.8 million of overnight and short-term advances outstanding from the FHLB-NY. At
December 31, 2015, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $377.9
million.
Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2015,
we had available capacity with its subsidiary, Atlantic Community Bankers Bank (“ACBB”) 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. The
following is a schedule by years of future minimum rental payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year at December 31, 2015:
Years Ended December 31:
2016
2017
2018
2019
2020
Thereafter
Total minimum payments required
(in thousands)
$ 1,510
1,441
1,321
1,080
1,011
646
$ 7,009
Capital Resources. Consistent with our goals to operate as a sound and profitable financial institution, we actively
seek to maintain our status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2015,
we met the capital requirements to be considered “well capitalized”. See Note 14 - Regulatory Matters in the Notes to
Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of our business of investing
in loans and securities as well as in the normal course of maintaining and improving our facilities. These financial instruments
include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to
purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financial needs of
our customers.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee by our customers. Our exposure to credit loss in the event of non-performance by the counterparty to
the financial instrument for commitments to extend credit is represented by the contractual notional amount of those
instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-
sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at
December 31:
(in thousands)
2015
2014
Performance and standby letters of credit
Commitments to fund loans
Unfunded commitments under lines of credit
Total
$
$
9,015
121,015
11,611
141,641
$
$
8,843
91,228
11,320
111,391
29
29
For additional information regarding our outstanding lending commitments at December 31, 2015, see Note 10 –
Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in this Annual Report on Form
10-K.
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. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant
impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in
the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation.
Return on Equity and Assets
The following table presents certain performance ratios for the years ended December 31, 2015, 2014 and 2013.
Return on Average Assets (ROA)
Return on Average Equity (ROE)
Average Equity to Average Assets
2015
1.12%
12.95%
8.67%
2014
0.99%
12.53%
7.89%
2013
1.06 %
13.99 %
7.60 %
Our dividend payout ratio was zero for all periods presented above as we did not declare or pay dividends during any
of the years ended December 31, 2015, 2014 and 2013.
Critical Accounting Policies and Estimates
In the preparation of our financial statements, we have adopted various accounting policies that govern the application
of accounting principles generally accepted in the United States and in accordance with general practices within the banking
industry. Our significant accounting policies are described in our financial statements under Note 1- Summary of Significant
Accounting Policies. While all of these policies are important to understanding the financial statements, certain accounting
policies described below involve significant judgment and assumptions by management that have a material impact on the
carrying value of certain assets and liabilities. We consider these accounting estimates to be critical accounting policies. The
judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable
under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from
these judgments and assumptions that could have a material impact on the carrying values of our assets and liabilities and our
results of operations.
Allowance for Credit Losses. 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 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 decreased by charge-offs, net of
recoveries. 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. 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. For a more detailed discussion of our allowance for loan loss methodology and the allowance for loan losses
see the section titled “Analysis of the Allowance for Loan Losses” in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Other Than Temporary Impairment. Management evaluates securities for other-than-temporary-impairment
(“OTTI”) quarterly, and more frequently when economic or market conditions warrant such an evaluation. In determining
OTTI under Financial Accounting Standards Board (“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
30
30
security or more likely than not will be required to sell the debt security before its anticipated recovery. 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.
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. 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 security’s amortized cost
basis and its fair value at the balance sheet date. If the Bank does not intend to sell the security and it is not more likely than
not that the Bank will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be separated
into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related
to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in
earnings. The amount of the total OTTI related to other factors shall be recognized in other comprehensive income, net of
applicable tax benefit. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized
cost basis of the investment.
For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other
comprehensive income for the noncredit portion of a previous other-than-temporary impairment will be amortized
prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.
For equity securities, when the Bank decides to sell an impaired available-for-sale security and the entity does not
expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-
temporarily impaired in the period in which the decision to sell is made. The Bank recognizes an impairment loss when the
impairment is deemed other than temporary even if a decision to sell has not been made.
Income Taxes. We account for income taxes in accordance with income tax accounting guidance contained in
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. This
includes guidance related to accounting for uncertainties in income taxes, which sets out a consistent framework to determine
the appropriate level of tax reserves to maintain for uncertain tax positions. We had no material unrecognized tax benefits or
accrued interest and penalties as of December 31, 2015 and 2014. Our policy is to account for interest and penalties as a
component of other expense.
We have provided for federal and state income taxes on the basis of reported income. The amounts reflected on our
tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial
reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes
applicable to future periods.
Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively,
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred assets and liabilities of a change in tax rates is recognized in earnings in the period that includes
the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided for the full amount
which is not more-likely-than-not to be realized.
Recently Issued Accounting Standards
See Note 1 to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a discussion
of recently issued accounting standards.
31
31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information otherwise required by this Item.
Item 8. Financial Statements and Supplementary Data
The following audited financial statements are set forth in this Annual Report on Form 10-K on the pages listed in
the Index to Consolidated Financial Statements below.
32
32
THE BANK OF PRINCETON
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
34
35
36
37
38
39
41
33
33
34
34
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
Cash and due from banks
Securities available-for-sale
Securities held-to-maturity (fair value of $414 and $456, respectively)
Loans receivable, net of allowance for loan losses of $10,851 and $10,008
at December 31, 2015 and 2014, respectively
Bank-owned life insurance
Other real estate owned (OREO)
Premises and equipment, net
Accrued interest receivable and other assets
December 31,
2015
2014
$
$
28,589
141,509
381
797,095
22,258
300
5,450
17,740
31,872
163,800
420
723,131
17,929
804
5,816
11,490
TOTAL ASSETS
$
1,013,322
$
955,262
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Borrowings
Accrued interest payable and other liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
Common stock, $5.00 par value, 10,000,000 authorized, 4,687,457 and
4,582,315 shares issued and outstanding at December 31, 2015 and
2014, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income
TOTAL STOCKHOLDERS’ EQUITY
$
$
102,944
686,489
789,433
128,800
3,645
921,878
23,437
31,223
36,265
519
91,444
135,157
712,700
847,857
24,300
4,603
876,760
22,912
29,755
25,259
576
78,502
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,013,322
$
955,262
See notes to consolidated financial statements.
35
35
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Years Ended
December 31,
2015
2014
$
39,579
$
36,170
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees
Securities available-for-sale:
Taxable
Tax-exempt
Securities held-to-maturity
Other interest and dividend income
TOTAL INTEREST AND DIVIDEND INCOME
INTEREST EXPENSE
Deposits
Borrowings
TOTAL INTEREST EXPENSE
NET INTEREST INCOME
Provision for loan losses
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
NON-INTEREST INCOME
Gain on sale of securities available-for-sale, net
Income from bank-owned life insurance
Fees and service charges
Gain on sale of other real estate owned
Other
TOTAL NON-INTEREST INCOME
NON-INTEREST EXPENSE
Salaries and employee benefits
Occupancy and equipment
Professional fees
Data processing and communications
Federal deposit insurance assessment
Advertising and promotion
Office expense
Other real estate owned, net
Other
TOTAL NON-INTEREST EXPENSE
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
Earnings per common share-basic
Earnings per common share-diluted
See notes to consolidated financial statements.
$
$
$
36
36
1,465
1,941
20
216
43,221
6,570
267
6,837
36,384
1,904
34,480
226
579
1,248
125
109
2,287
12,246
3,647
1,295
1,844
795
197
290
160
1,585
22,059
14,708
3,702
11,006
2.38
2.30
2,055
2,151
21
170
40,567
6,980
177
7,157
33,410
1,580
31,830
1,006
430
1,193
15
102
2,746
11,288
3,479
1,975
1,665
1,223
208
311
316
1,942
22,407
12,169
3,168
9,001
1.97
1.92
$
$
$
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For the Years ended
December 31,
2015
2014
NET INCOME
Other comprehensive (loss) income
Unrealized holding gains arising during period on securities
available-for-sale
Income tax effect on unrealized holding gains
Less: reclassification adjustment for gains on sales of securities
available-for-sale1
Income tax effect on reclassification adjustment for gains on sales of
securities available-for-sale2
Total other comprehensive (loss) income
COMPREHENSIVE INCOME
$
11,006
$
9,001
134
(52)
(226)
87
(57)
10,949
$
$
8,118
(2,948)
(1,006)
342
4,506
13,507
1 Amounts are included in Gain on sale of securities available-for-sale, net on the Consolidated Statements of
Income as a separate element within total non-interest income.
2 Amounts are included in Income Tax Expense on the Consolidated Statements of Income.
See notes to consolidated financial statements.
37
37
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2015 and 2014
(in thousands, except share and per share data)
Common
stock
Paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income
Total
(3,930)
-
4,506
-
-
576
-
(57)
-
$
-
519
$
64,232
9,001
4,506
41
722
78,502
11,006
(57)
1,228
76
689
91,444
Balance, January 1, 2014
Net income
Other comprehensive income
Stock options exercised (66 shares)
Stock-based compensation expense
Balance, December 31, 2014
Net income
Other comprehensive loss
Stock options and warrants exercised
$
22,893
-
-
19
-
$ 22,912
-
-
29,011
-
-
22
722
$ 29,755
-
-
16,258
9,001
-
-
-
$
25,259 $
11,006
-
525
703
(105,142 shares)
Non-qualified stock options
exercised
Stock-based compensation expense
Balance, December 31, 2015
-
$ 23,437
See notes to consolidated financial statements.
-
-
$
36,265 $
76
689
$ 31,223
38
38
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses
Depreciation and amortization
Stock-based compensation
Amortization of premiums and accretion of discounts on securities
Accretion of net deferred loan fees and costs
Amortization of premiums and accretion of discounts on deposits
Amortization of premiums on borrowings
Net realized gains on sale of securities available-for-sale
Increase in cash surrender value of bank-owned life insurance
Loss on disposition of premises and equipment
Deferred income tax expense (benefit)
Net (gain) loss on other real estate owned
Amortization of core deposit intangible
Increase in accrued interest receivable and other assets
(Decrease) increase in accrued interest payable and other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale
Proceeds from sale of securities available-for-sale
Maturities, calls and principal repayments of securities available for-sale
Maturities, calls and principal repayments of securities held-to-maturity
Net increase in loans
Purchases of bank-owned life insurance
Proceeds on sale of other real estate owned
Purchases of premises and equipment
(Purchases) redemptions of restricted bank stock
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits
Net proceeds (repayments) of borrowings
Repayments of term borrowings
Proceeds from exercise of stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
See notes to consolidated financial statements.
For the Years Ended December 31,
2015
2014
$
11,006
$
9,001
1,904
1,003
765
688
(1,297)
-
-
(226)
(579)
-
12
(125)
65
(1,452)
(958)
10,806
(17,516)
21,742
17,511
39
(74,871)
(3,750)
929
(637)
(4,840)
(61,393)
(58,424)
104,500
-
1,228
47,304
1,580
959
722
687
(763)
158
(11)
(1,006)
(430)
57
(452)
(15)
126
82
829
11,524
(30,121)
46,256
20,809
4
(99,102)
(8,700)
420
(1,060)
1,788
(69,706)
98,689
(33,800)
(2,301)
41
62,629
(3,283)
31,872
28,589
$
4,447
27,425
31,872
$
39
39
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(in thousands)
For the Years Ended December 31,
2015
2014
SUPPLEMENTARY CASH FLOWS INFORMATION:
Interest paid
Income taxes paid
$
$
7,000
5,102
$
$
7,259
3,198
SUPPLEMENTARY SCHEDULE OF NONCASH ACTIVITIES:
Transfers from loans receivable, net to other real estate owned (OREO)
$
300
$
494
See notes to consolidated financial statements.
40
40
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Organization and Nature of Operations
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 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
Federal Deposit Insurance Corporation (“FDIC”). The area served by the Bank, through its thirteen branches, is generally
an area within an approximate 50 mile radius of Princeton, NJ, including parts of Mercer, Somerset, Hunterdon, Monmouth
and Middlesex Counties in central New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks
Counties in Pennsylvania. The Bank also conducts loan origination activities in select areas of New York.
The Bank 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 December 31, 2015, the Bank had 138 total employees and 136 full-time equivalent
employees. The Bank maintains a website at www.thebankofprinceton.com.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Bank and its wholly-owned subsidiaries: Bayard Lane,
LLC, Bayard Properties, LLC, 112 Fifth Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All
significant inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in
the United States of America (“GAAP”).
Estimates
The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes,
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, the determination of other-than-temporary
impairment of securities and the valuation of deferred tax assets.
Management believes that the allowance for loan losses is adequate as of December 31, 2015 and 2014. While
management uses current information to recognize losses on loans, future additions to the allowance for loan losses may
be necessary based on changes in economic conditions in the market area or other factors.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s
allowance for loan losses. Such agencies may require the Bank to effect certain changes that result in additions to the
allowance based on their judgments about information available to them at the time of their examinations.
Subsequent Events
Management evaluated subsequent events until the date of issuance of this report and concluded that no events occurred
that were of a material nature.
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THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Significant group concentrations of credit risk
Most of the Bank’s activities are with customers located within the Mercer County, New Jersey, and surrounding areas as
well as select areas in New York and certain Philadelphia, Pennsylvania metropolitan areas. The Bank does not have any
portion of its business dependent on a single or limited number of customers or industries, the loss of which would have a
material adverse effect on its business. No substantial portion of loans is concentrated within a single industry or group of
related industries, except that a significant majority of commercial loans are secured by real estate. There are numerous
risks associated with commercial and consumer lending that could impact the borrowers’ ability to repay on a timely basis.
They include, but are not limited to: the owner’s business expertise, changes in local, national, and in some cases
international economies, competition, governmental regulation, and the general financial stability of the borrowing entity.
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.
Cash and due from banks
Cash and due from banks include cash on hand, on deposit at other financial institutions and federal funds sold with original
maturities of 90 days or less. Generally, federal funds are purchased for one-day periods.
Securities
The Bank’s investment portfolio includes both held-to-maturity and available-for-sale securities:
Held-to-Maturity - Investment securities that management has the positive intent and ability to hold until maturity are
classified as held-to-maturity and carried at their remaining unpaid principal balance, net of unamortized premiums or
unaccreted discounts. Premiums are amortized and discounts are accreted using the interest method over the estimated
remaining term of the underlying security.
Available-for-Sale - Investment securities that will be held for indefinite periods of time, including securities that may be
sold in response to changes in market interest or prepayment rates, needs for liquidity, and changes in the availability and
the yield of alternative investments, are classified as available-for-sale. These assets are carried at their estimated fair
value. Fair values are based on quoted prices for identical assets in active markets, quoted prices for similar assets in
markets that are either actively or not actively traded, or in some cases where there is limited activity or less transparency
around inputs, internally developed discounted cash flow models. Unrealized gains and losses are excluded from earnings
and are reported net of tax in accumulated other comprehensive income (loss) on the consolidated statements of financial
condition until realized, including those recognized through the non-credit component of an OTTI charge.
In accordance with FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets (FASB ASC 325-40), and
FASB ASC 320, Investment - Debt and Equity Securities (FASB ASC 320), the Bank evaluates its securities portfolio for
OTTI throughout the year. Each investment, which has a fair value less than the book value, is reviewed on a quarterly
basis by management. Management considers, at a minimum, whether the following factors exist that, both individually
or in combination, could indicate that the decline is other-than-temporary: (a) the Bank has the intent to sell the security;
(b) it is more likely than not that it will be required to sell the security before recovery; and (c) the Bank does not expect
to recover the entire amortized cost basis of the security. Among the factors that are considered in determining the Bank’s
intent is a review of capital adequacy, interest rate risk profile and liquidity at the Bank. An impairment charge is recorded
against individual securities if the review described above concludes that the decline in value is other-than-temporary.
During 2015 and 2014, it was determined that there were no other-than-temporarily impaired investments. As a result, the
Bank did not record credit related OTTI charges through earnings during the years ended December 31, 2015 and 2014.
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THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans Receivable
Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding
unpaid principal balances, net of an allowance for loan losses, and deferred fees and 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 on the related loans. Premiums and discounts on purchased loans are amortized as adjustments
to interest income using the level-yield method.
The loan receivable portfolio is segmented into commercial real estate, commercial and industrial, construction, residential
first-lien mortgage, home equity and consumer loan segments.
For all segments of loans receivable, 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 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, including impaired loans, generally is either applied against principal or reported as interest
income, according to management’s judgment as to the collectability 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 (generally six months) and the ultimate collectability of the total contractual principal and interest is no
longer in doubt. The past due status of all segments of loans receivable is determined on contractual due dates for loan
payments.
Allowance for credit losses
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 management’s estimate of losses inherent in the loan portfolio as
of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents
management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the
Consolidated Statements of Financial Condition. The allowance for loan losses is increased by the provision for loan
losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal
balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part,
of the principal balance is highly unlikely.
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43
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
The allowance for loan losses is maintained at a level considered adequate to provide for probable losses. The Bank
performs, at least quarterly, an evaluation of the adequacy of the allowance. The allowance is based on past loan loss
experience (which is bound by the Bank’s limited operating history), 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, the 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 revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are
classified as impaired. For loans that are 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 pools of loans by loan segment, including loans not considered impaired, as well as smaller
balance homogeneous loans, such as residential mortgage, home equity and consumer loans. These pools of loans are
evaluated for loss exposure based upon historical loss rates for each of these loan segments, adjusted for qualitative factors.
These qualitative risk factors include:
1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery
practices;
2. National, regional, and local economic and business conditions, as well as the condition of various market
segments, including the value of underlying collateral for collateral-dependent loans;
3. Nature and volume of the portfolio and terms of loans;
4. Experience, ability, and depth of lending management and staff;
5. Volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications;
6. Quality of the Bank’s loan review system, and the degree of oversight by the Bank’s board of directors;
7. Existence and effect of any concentrations of credit and changes in the level of such concentrations;
8. Changes in the value of underlying collateral for collateral-dependent loans; and
9. Effect of external factors, such as competition and legal and regulatory requirements.
The Bank determines the allowance for loan losses by portfolio segment, which consists of commercial real estate loans,
commercial and industrial loans, construction loans, residential first-lien mortgage loans, home equity and consumer loans.
The Bank estimates the inherent risk of loss on all loans by portfolio segment, based primarily on the risk factors identified
above and by applying a weight factor to each element for each portfolio segment.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment
using relevant information available at the time of the evaluation. Adjustments to the factors are supported through
documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.
Residential first-lien mortgage loans and home equity loans involve certain risks such as interest rate risk and risk of non-
repayment. Adjustable-rate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates
but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted
by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying
property may be adversely affected by higher interest rates. Repayment risk can be affected by job loss, divorce, illness
and personal bankruptcy of the borrower.
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THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Construction lending is generally considered to involve a high degree of risk due to the concentration of principal in a
limited number of loans and borrowers and the effects of general economic conditions on developers and
builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both
a property's value at completion of the project and the estimated cost, including interest, of the project. The nature of these
loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a
builder are not necessarily for projects which are pre-sold or leased, and thus pose a greater potential risk to the Bank than
construction loans to individuals on their personal residences.
Commercial real estate lending entails significant additional risks as compared with single-family residential real estate
lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment
experience on such loans is typically dependent on the successful operation of the real estate project. The success of such
projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as
economic conditions generally.
Commercial and industrial lending is generally considered higher risk due to the concentration of principal in a limited
number of loans and borrowers and the effects of general economic conditions on the business. Commercial business
loans are primarily secured by inventories and other business assets. In most cases, any repossessed collateral for a
defaulted commercial business loan will not provide an adequate source of repayment of the outstanding loan balance.
Consumer loans generally have shorter terms and higher interest rates than other lending but generally involve more credit
risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer
lending collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely
effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted
consumer loan will not provide an adequate source of repayment of the outstanding loan balance.
An unallocated component of the allowance for loan losses 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.
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 loans. 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 real estate loans, commercial and industrial loans 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 loan collateral if the loan is collateral-dependent. An allowance for loan losses is established for an impaired
loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Bank’s
impaired loans are measured based on the estimated fair value of the loan’s collateral, less costs to sell the property.
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THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
For commercial real estate loans, estimated fair values of the real estate collateral are determined primarily through third-
party appraisals. When a real estate-secured loan becomes impaired, a decision is made regarding whether an updated
appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most
recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values
are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair
value. The discounts also include estimated costs to sell the property.
For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable and inventory and
equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts
receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted
based on the age of the financial information or the quality of the assets.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank
does not separately identify individual residential first-lien mortgage loans, home equity loans and consumer loans for
impairment disclosures, unless such loans are a troubled debt restructuring.
Loans whose terms are modified are classified as troubled debt restructurings if the Bank grants borrower concessions and
it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt
restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity
date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the
modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings
are designated as impaired.
The allowance calculation methodology includes further segregation of loan segments into risk-rating categories. The
borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated
annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and
consumer loans.
Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans
classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the
potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-
defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately
protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans
classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that
collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified loss
are considered uncollectible and are charged-off to the allowance for loan losses. Loans not classified are rated pass.
Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses
is adequate at the reported dates.
Bank-owned life insurance
The Bank is the beneficiary of insurance policies on the lives of certain officers of the Bank. This life insurance investment
is accounted for using the cash surrender value method and is recorded at its net realizable value. Increase in cash surrender
values are recorded as non-interest income.
Other real estate owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to
sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are then recorded at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance are included in non-interest expense.
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46
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Premises and equipment
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-
line method over the shorter of the lease term or estimated useful lives of the related assets.
Accrued interest receivable and other assets
Accrued interest receivable and other assets include accrued interest receivable, deferred tax asset, net, restricted
investments in bank stocks, prepaid assets and other assets.
Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold restricted stock of its
district Federal Home Loan Bank according to a predetermined formula. Restricted stock in the amount of $6.8 million
and $1.9 million is carried at cost at December 31, 2015 and 2014, respectively.
Management’s determination of whether these investments are impaired is based on an assessment of the ultimate
recoverability of their cost, rather than by recognizing temporary declines in value. The determination of whether a decline
affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of the decline in net assets
of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2)
commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to
the operating performance of the FHLB and (3) the impact of legislative and regulatory changes on institutions and,
accordingly, on the customer base of the FHLB.
The Bank also held $100,000 of stock in Atlantic Community Bankers Bank (“ACBB”) at December 31, 2015 and 2014.
Management believes no impairment charge is necessary related to the FHLB restricted stock or the ACBB restricted stock
as of December 31, 2015 or 2014.
Intangible assets
The acquisition of MoreBank on September 30, 2010 and the acquisition of a branch in 2010 resulted in the Bank recording
core deposit intangibles of $551,000 and $100,000, respectively. The core deposit intangible asset is amortized to expense
on a straight-line basis over the expected period of benefit, which was established initially to be 5 years for the MoreBank
acquisition and 10 years for the branch acquisition. The core deposit intangible, net of accumulated amortization, was
approximately $39,000 and $104,000 as of December 31, 2015 and 2014, respectively. Amortization expense is
anticipated to be approximately $9,000 in 2016, 2017, 2018, 2019 and 2020, respectively.
The recoverability of the carrying value of intangible assets will be evaluated whenever changes in circumstances indicate
recoverability may be in doubt and there may be impairment. Permanent declines in value, if any, will be charged to
expense. There were no impairment charges in the years ended December 31, 2015 and 2014.
Income taxes
The Bank accounts for income taxes in accordance with income tax accounting guidance contained in FASB ASC Topic
740, Income Taxes. This includes guidance related to accounting for uncertainty in income taxes, which sets out a
consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The Bank
had no material unrecognized tax benefits or accrued interest and penalties as of and for the year ended December 31, 2015
and 2014. The Bank’s policy is to account for interest and penalties as a component of other non-interest expense. The
Bank is subject to income taxes in the U. S. and various state and local jurisdictions. As of December 31, 2015, tax years
after 2012 are subject to federal examination and tax years after 2011 to state examination. Tax regulations are subject to
interpretation of the related tax laws and regulations and require significant judgment to apply.
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47
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Federal and state income taxes have been provided on the basis of reported income or loss. The amounts reflected on the
tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for
financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as
deferred taxes applicable to future periods.
Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively, for
the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period
that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided for
the full amount which is not more likely than not to be realized.
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 and letters of credit. Such financial instruments are recorded in the statement of financial
condition when they are funded.
Employee benefit plan
The Bank sponsors a 401(k) plan into which 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. The Bank made matching
contributions to employees of $101,000 and $77,000, respectively during the years ended December 31, 2015 and 2014.
Stock compensation plans
The stock compensation accounting guidance set forth in FASB ASC Topic 718, Compensation - Stock Compensation,
requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That
cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation
accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted
share plans, performance-based awards, share appreciation rights, and employee share purchase plans.
The stock compensation accounting guidance requires that compensation costs for all stock awards be calculated and
recognized over the employees’ service period, generally defined as the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-
Scholes model is used to estimate the fair value of stock options.
Earnings per share
Basic earnings per share amounts are calculated by dividing income available to common stockholders by the weighted
average common shares outstanding during the period, and exclude any dilutive effects of stock options and warrants.
Diluted earnings per share amounts include the dilutive effects of stock options and warrants whose exercise price is less
than the market price of the Bank’s shares. Diluted earnings per share amounts are calculated by dividing income available
to common stockholders by the weighted average common shares outstanding during the period if options and warrants
were exercised and converted into common stock, using the treasury stock method.
Advertising costs
The Bank charges the costs of advertising to expense as incurred.
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48
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Comprehensive income
Accounting principles generally require that recognized revenues, 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 consolidated statements of financial condition, such items,
along with net income, are components of comprehensive income. Accumulated other comprehensive income is comprised
of net unrealized holding gains and losses, net of taxes, on available-for-sale securities. Realized gains or losses are
reclassified out of accumulated other comprehensive income when the underlying security is sold, based upon the specific
identification method.
Reclassifications
Certain amounts as of and for the year ended December 31, 2014 have been reclassified to conform to the current year’s
presentation. These reclassifications did not have any impact on stockholders’ equity, net income or cash flows.
Recently issued accounting standards
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This standard requires the recognition of
a right of use asset and related lease liability by lessees for leases classified as operating leases under current GAAP. Topic
842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases.
The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not
significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842
will be effective for reporting periods beginning January 1, 2019, with an early adoption permitted. The Bank must apply
a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements. The modified retrospective approach would not require
any transition accounting for leases that expired before the earliest comparative period presented. The Bank is currently
evaluating the impact of Topic 842 on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities.” This amendment supersedes the guidance to classify equity
securities with readily determinable fair values into different categories, requires equity securities to be measured at fair
value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity
investments without readily determinable fair values. The amendment requires public business entities that are required to
disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value
using the exit price notion. The amendment requires an entity to present separately in other comprehensive income the
portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when
the entity has elected to measure the liability at fair value in accordance with the fair value option. The amendment requires
separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on
the balance sheet or in the accompanying notes to the financial statements. The amendment reduces diversity in current
practice by clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to
available for sale securities in combination with the entity’s other deferred tax assets. This amendment is effective for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply
the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the
exception of the amendment related to equity securities without readily determinable fair values, which should be applied
prospectively to equity investments that exist as of the date of adoption. The Bank intends to adopt the accounting standard
during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial
position, and liquidity.
In January 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-04, Receivables-Troubled Debt
Restructurings by Creditors (Subtopic 310-40). The amendments in this update clarify that an in-substance repossession
or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property
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THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate
property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property
to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal
agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed
residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans
collateralized by residential real estate property that are in the process of foreclosure according to local requirements of
the applicable jurisdiction. The amendments in this update became effective January 1, 2015. There was no material
impact on the Bank’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 660): Summary and
Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—
Contracts with Customers (Subtopic 340-40). The guidance in this update supersedes the revenue recognition requirements
in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the
Accounting Standards Codification. In August, 2015, the FASB issued ASU 2015-14, Revenue From Contracts With
Customers (Topic 606): Deferral of the Effective Date, that defers the effective date of the new revenue standard by one
year (January 1, 2018 effective date). Reporting entities have the option to adopt the standard as early as the original
January 1, 2017 effective date. The Bank is currently assessing the impact that this guidance will have on its consolidated
financial statements, but does not expect the guidance to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU 2014-14, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-
40), Classification of Certain Government-guaranteed Mortgage Loans upon Foreclosure. The amendments in this update
require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the
following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure;
2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim
on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount
of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other
receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered
from the guarantor. The amendments in this update became effective January 1, 2015. There was no material impact on
the Bank’s consolidated financial statements.
Note 2 – Earnings Per Share
The following schedule presents earnings per share data for the years ended December 31, 2015 and 2014:
Net income applicable to common stock
Weighted average number of common shares outstanding
Basic earnings per share
Net income applicable to common stock
Weighted average number of common shares outstanding
Dilutive effect of potential common shares
Weighted average number of diluted common shares outstanding
Diluted earnings per share
50
50
Twelve months ended
December 31,
2015
2014
(in thousands, except per share
data)
$
$
$
$
11,006
4,623
2.38
11,006
4,623
161
4,784
2.30
$
$
$
$
9,001
4,579
1.97
9,001
4,579
114
4,693
1.92
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Earnings Per Share (Continued)
Options and warrants to purchase 611,491 shares of common stock at a weighted average exercise price of $13.30 were included
in the computation of diluted earnings per share for the year ended December 31, 2015. Options to purchase 131,200 shares
of common stock at a weighted average exercise price of $20.94 were not included in the computation of diluted earnings per
share because the exercise price equaled or exceeded the estimated fair value of our common stock at December 31, 2015.
Options and warrants to purchase 606,834 shares of common stock at a weighted average exercise price of $12.41 were included
in the computation of diluted earnings per share for the year ended December 31, 2014. Options to purchase 75,750 shares of
common stock at a weighted average exercise price of $22.22 were not included in the computation of diluted earnings per
share because the exercise price equaled or exceeded the estimated fair value of our common stock at December 31, 2014.
Note 3 – Investment Securities
The following summarizes the amortized cost and estimated fair value of securities available-for-sale at December 31, 2015
and 2014 with gross unrealized gains and losses therein:
Amortized
Cost
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Available-for-sale:
Mortgage-backed securities-U.S.
Government Sponsored Enterprises (GSEs) $
Obligations of state and
political subdivisions
Total
$
70,524
$
564
$
(406) $
70,682
70,140
140,664
$
780
1,344
$
(93)
(499) $
70,827
141,509
Amortized
Cost
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Available-for-sale:
U.S. Treasury securities
Mortgage-backed securities-U.S.
Government Sponsored Enterprises (GSEs)
Obligations of state and
political subdivisions
Total
$
$
14,770
$
-
$
(219) $
14,551
76,428
1,006
(246)
77,188
71,665
162,863
$
705
1,711
$
(309)
(774) $
72,061
163,800
51
51
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Investment Securities (Continued)
The unrealized losses, categorized by the length of time in a continuous loss position, and the fair value of related securities
available-for-sale as of December 31, 2015 are as follows:
Less than 12 Months
Fair
Value
Unrealized
Losses
More than 12 Months
Fair
Value
Unrealized
Losses
(in thousands)
Total
Fair
Value
Unrealized
Losses
December 31, 2015:
Mortgage-backed
securities-U.S.
Government Sponsored
Enterprises (GSEs
Obligations of state and
political subdivisions
Total
$
$
30,098
$
(306) $
2,807 $
(100)
$
32,905
$
(406)
9,974
40,072
$
(64)
(370) $
2,631
5,438 $
(29)
(129)
$
12,605
45,510
$
(93)
(499)
The unrealized losses, categorized by the length of time in a continuous loss position, and the fair value of related securities
available-for-sale as of December 31, 2014 are as follows:
Less than 12 Months
Fair
Value
Unrealized
Losses
More than 12 Months
Fair
Value
Unrealized
Losses
(in thousands)
Total
Fair
Value
Unrealized
Losses
-
$
- $
14,551 $
(219)
$
14,551
$
(219)
-
-
-
-
$
-
11,822
(246)
-
- $
22,752
49,125 $
(309)
(774)
$
11,822
22,752
49,125
$
(246)
(309)
(774)
December 31, 2014:
US Treasury securities
Mortgage-backed
securities-U.S.
Government Sponsored
Enterprises (GSEs)
Obligations of state and
political subdivisions
Total
$
$
At December 31, 2015, there were nine securities in the more-than-twelve-months category and 44 securities in the less-than
twelve-month category for the securities available-for-sale portfolio. Included in the nine securities in the twelve-months-or-
more category are (a) one mortgage-backed securities; (b) two collateralized mortgage obligations; and (c) six municipal debt
obligations. Included in the 44 securities in the less-than twelve-month category are (a) 17 mortgage-backed securities; (b)
seven collateralized mortgage obligation; and (c) 20 municipal debt obligations.
The Bank does not intend to sell these securities and it is not more likely than not that we will be required to sell these securities.
Unrealized losses primarily relate to interest rate fluctuations and not credit-related criteria. No OTTI charges were recorded
for the years ended December 31, 2015 and 2014.
At December 31, 2014, there were no securities in the less-than-twelve-months category and 63 securities in the twelve-months-
or-more category for the securities available-for-sale portfolio. Included in the 63 securities in the twelve-months-or-more
category are (a) three U. S. government securities; (b) five mortgage-backed securities; and (c) four collateralized mortgage
obligations; and (d) 51 municipal debt obligations,
52
52
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Investment Securities (Continued)
The amortized cost and estimated fair value of securities available-for-sale at December 31, 2015 by contractual maturity are
shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay
obligations with or without call or prepayment 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
Total
Amortized
Cost
Fair Value
(in thousands)
$
$
1,042 $
6,834
71,413
61,375
140,664 $
1,041
6,910
71,983
61,575
141,509
The following summarizes the amortized cost and estimated fair value of securities held-to-maturity at December 31, 2015
with gross unrealized gains and losses therein:
Amortized
Cost
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Held-to-maturity:
Mortgage-backed securities-U.S.
Government Sponsored Enterprises (GSEs)
$
381
$
33
$
- $
414
All securities held-to-maturity are due after ten years.
The following summarizes the amortized cost and estimated fair value of securities held-to-maturity at December 31, 2014
with gross unrealized gains and losses therein:
Amortized
Cost
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Held-to-maturity:
Mortgage-backed securities-U.S.
Government Sponsored Enterprises (GSEs)
$
420
$
36
$
- $
456
Proceeds from the sale of securities available-for-sale amounted to $21.7 million for the year ended December 31, 2015, which
included gross realized gains of approximately $0.2 million and no realized losses. Proceeds from the sale of securities
available-for-sale amounted to $46.3 million for the year ended December 31, 2014, which included gross realized gains of
approximately $1.0 million and gross realized losses of approximately $33,600.
Securities available-for-sale with fair values of approximately $63.8 million and securities held-to-maturity with fair values of
approximately $0.4 million were pledged as collateral for NJ Governmental Unit Deposit Protection Act (“GUDPA”) deposits
at December 31, 2015.
53
53
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable
Loans receivable, net at December 31, 2015 and 2014 were comprised of the following:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total loans
Deferred fees and costs
Allowance for loan losses
Loans, net
December 31,
2015
December 31,
2014
(in thousands)
$
$
490,298
125,072
122,297
42,409
29,922
858
810,856
(2,910)
(10,851)
797,095
$
$
450,250
127,469
78,822
45,383
30,711
2,654
735,289
(2,150)
(10,008)
723,131
The following table presents nonaccrual loans by segment of the loan portfolio as of December 31, 2015 and 2014:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
December 31,
2015
December 31,
2014
(in thousands)
$
$
6,530
1,834
1,805
1,370
450
-
11,989
$
$
6,190
1,185
1,911
166
419
-
9,871
54
54
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
The following table summarizes information in regards to impaired loans by loan portfolio segment segregated by those for
which a related allowance was required and those for which a related allowance was not necessary, as of December 31, 2015
and the year then ended:
$
With no related allowance
recorded:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
With an allowance recorded:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
Total:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
(in thousands)
Average
Recorded
Investment
Interest
Income
Recognized
2,658
721
-
2,044
830
-
6,253
4,679
3,579
2,102
-
-
-
10,360
7,337
4,300
2,102
2,044
830
-
16,613
$
2,612 $
455
-
2,047
828
-
5,942
4,043
3,443
2,084
-
-
-
9,570
6,655
3,898
2,084
2,047
828
-
15,512
$
- $
-
-
-
-
-
-
34
798
201
-
-
-
3,111 $
1,369
-
1,255
637
-
6,372
5,151
3,499
1,943
114
-
-
1,033
10,707
34
798
201
-
-
-
1,033
$
8,262
4,868
1,943
1,369
637
-
17,079
$
11
19
-
43
31
-
104
58
144
10
-
-
-
212
69
163
10
43
31
-
316
55
55
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
The following table summarizes information in regards to impaired loans by loan portfolio segment segregated by those for
which a related allowance was required and those for which a related allowance was not necessary, as of December 31, 2014
and the year then ended:
$
With no related allowance
recorded:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
With an allowance recorded:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
Total:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
(in thousands)
Average
Recorded
Investment
Interest
Income
Recognized
2,296
3,640
-
688
719
-
7,343
5,321
2,495
1,931
-
-
-
9,747
2,052 $
3,467
-
677
719
-
6,915
4,758
2,479
1,911
-
-
-
9,148
7,617
6,135
1,931
688
719
-
17,090
$
6,810
5,946
1,911
677
719
-
16,063
$
- $
-
-
-
-
-
-
417
255
200
-
-
-
872
417
255
200
-
-
-
872
$
4,644 $
3,711
-
685
889
-
9,929
1,195
957
1,953
-
-
-
4,105
5,839
4,668
953
685
889
-
14,034
$
64
102
-
22
24
-
212
14
151
-
-
-
-
165
78
253
-
22
24
-
377
56
56
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable by the
length of time a recorded payment is past due. The following table presents the segments of the loan portfolio summarized by
the past due status as of December 31, 2015:
30-59
Days Past
Due
60-89
Days Past
Due
Greater
than
90 days
Total
Past
Due
Total
Loans
Receivable
Current
Loans
Receivable
>90 Days
and
Accruing
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
867
-
24
-
350
-
1,241
$
$
5,778
-
-
-
-
-
5,778
$
$
6,530
1,834
1,805
1,370
450
-
11,989
$
13,175
1,834
1829
1,370
800
-
19,008
$ 477,123
123,238
120,468
41,039
29,122
858
$ 791,848
$ 490,298
125,072
122,297
42,409
29,922
858
$ 810,856
$
$
-
-
-
-
-
-
-
(in thousands)
$
The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2014:
30-59
Days Past
Due
60-89
Days Past
Due
Greater
than
90 days
Total
Past
Due
Total
Loans
Receivable
Current
(in thousands)
Loans
Receivable
>90 Days
and
Accruing
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
919
3,470
25
-
-
-
4,414
$
$
3,948
783
-
1,565
-
-
6,296
$
$
6,190
1,185
1,911
166
419
-
9,871
$
$
11,057
5,438
1,936
1,731
419
-
20,581
$ 439,193
122,031
76,886
43,652
30,292
2,654
$ 714,708
$ 450,250
127,469
78,822
45,383
30,711
2,654
$ 735,289
$
$
-
-
-
-
-
-
-
The following table presents the segments of the loan portfolio summarized by the aggregate pass rating and the classified
ratings of special mention, substandard and doubtful within the Bank’s internal risk rating system as of December 31, 2015:
Pass
Special
Mention
Substandard
(in thousands)
Doubtful
Total
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
477,148
120,176
120,215
40,863
29,222
858
788,482
$
$
6,620
1,151
-
-
250
-
8,021
$
$
5,975
3,745
2,082
1,546
450
-
13,798
$
$
555
-
-
-
-
-
555
$
$
490,298
125,072
122,297
42,409
29,922
858
810,856
57
57
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
The following table presents the segments of the loan portfolio summarized by the aggregate pass rating and the classified
ratings of special mention, substandard and doubtful within the Bank’s internal risk rating system as of December 31, 2014:
Pass
Special
Mention
Substandard
(in thousands)
Doubtful
Total
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
437,342
122,151
76,911
45,217
30,219
2,654
714,494
$
$
6,081
2,021
-
-
73
-
8,175
$
$
6,804
3,297
1,911
166
419
-
12,597
$
$
23
-
-
-
-
-
23
$
$
450,250
127,469
78,822
45,383
30,711
2,654
735,289
Allowance for loan losses on loans receivables at and for the year ended December 31, 2015:
Commercial
real estate
Commercial
and industrial
Construction
Residential
first-lien
mortgage
Home equity
Consumer
Unallocated
Total
(in thousands)
Allowance for loan
losses:
Beginning balance
Provisions
Charge-offs
Recoveries
$
$
3,621
1,517
(435 )
-
$
1,530
1,329
(626 )
13
2,719 $
(104)
-
-
$
318
(26 )
-
-
307 $
(49 )
(39 )
6
17
$
(34 )
-
20
1,496
$
(729)
-
-
10,008
1,904
(1,100)
39
Ending Balance
$
4,703
$
2,246
$
2,615 $
292
$
225 $
3
$
767
$
10,851
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
$
34
$
798
$
201 $
-
$
-
$
-
$
-
$
1,033
4,669
$
1,448
$
2,414 $
292
$
225 $
3
$
767 $
9,818
Recorded investment in loans receivables at December 31, 2015:
Loans:
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
6,655
$
3,898
$
2,084 $
2,047
$
828
$
-
$
483,643
121,174
120,213
40,362
29,094
858
-
-
$
15,512
795,344
Ending Balance
$
490,298
$
125,072
$ 122,297 $
42,409
$
29,922 $
858
$
-
$
810,856
58
58
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
Allowance for loan losses on loans receivables at and for the year ended December 31, 2014:
Commercial
real estate
Commercial
and industrial
Construction
Residential
first-lien
mortgage
Home equity
Consumer
Unallocated
Total
(in thousands)
Allowance for loan
losses:
Beginning balance
Provisions
Charge-offs
Recoveries
$
$
2,994
738
(116 )
5
$
1,419
41
-
70
2,638 $
81
-
-
$
282
36
-
-
282 $
25
-
-
$
1
40
(29 )
5
$
877
619
-
-
8,493
1,580
(145)
80
Ending Balance
$
3,621
$
1,530
$
2,719 $
318
$
307 $
17
$
1,496
$
10,008
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
$
417
$
255
$
200 $
-
$
-
$
-
$
-
$
872
3,204
$
1,275
$
2,519 $
318
$
307 $
17
$
1,496 $
9,136
Recorded investment in loans receivables at December 31, 2014:
Loans:
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
6,810
$
5,946
$
1,911 $
677
$
719
$
-
$
443,440
121,523
76,911
44,706
29,992
2,654
-
-
$
16,063
719,226
Ending Balance
$
450,250
$
127,469
$
78,822 $
45,383
$
30,711 $
2,654
$
-
$
735,289
At December 31, 2015, thirteen loans totaling $3.8 million were considered troubled debt restructurings and classified as
impaired. Troubled debt restructurings of $1.2 million were performing in accordance with their modified terms at December
31, 2015. The remaining $2.6 million of troubled debt restructurings were on non-accrual status at December 31, 2015.
At December 31, 2014, thirteen loans totaling $7.9 million were considered troubled debt restructurings and classified as
impaired. Troubled debt restructurings of $3.8 million were performing in accordance with their modified terms at December
31, 2014. The remaining $4.1 million of troubled debt restructurings were on non-accrual status at December 31, 2014.
The following table summarizes information in regards to new troubled debt restructurings for the year ended December 31,
2015 (dollars in thousands):
Troubled debt restructurings:
Commercial real estate
Commercial and industrial
Number of
Contracts
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
3
2
$
$
154
187
$
$
154
187
As indicated above, the Bank modified five loans during the year ended December 31, 2015 that were categorized as a troubled
debt restructuring In modifying the commercial real estate loans, the Bank entered into modification agreements with the
borrowers that lowered the interest rate on the loans, provided for an interim interest-only period, and extended the maturity
59
59
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
date of the loans. In modifying the commercial and industrial loans, the Bank entered into modification agreements with the
borrowers that lowered the interest rate on the loans and extended the maturity date. Troubled debt restructurings are impaired
loans and are individually evaluated for impairment in accordance with the Bank’s policy. There was a $1,094 allowance related
to the modified commercial real estate loans at December 31, 2015.
There were four loans classified as troubled debt restructurings with a payment default occurring during 2015 whereby the
default occurred within 12 months of the restructure.
Troubled debt restructurings:
Commercial real estate
Commercial and industrial
Number of
Contracts
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
3
1
$
$
154
98
$
$
154
98
The following table summarizes information in regards to new troubled debt restructurings for the year ended December 31,
2014 (dollars in thousands):
Troubled debt restructurings:
Commercial and industrial
Number of
Contracts
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
1
$
579
$
579
As indicated above, the Bank modified one loan during the year ended December 31, 2014 that was categorized as a troubled
debt restructuring. In modifying this commercial and industrial loan, the Bank extended the maturity date and reduced the
interest rate on the original loan. Troubled debt restructurings are impaired loans and are individually evaluated for impairment
in accordance with the Bank’s policy. There was a $13,125 allowance related to this modified commercial and industrial loan
at December 31, 2014.
There were no loans classified as troubled debt restructurings with a payment default occurring during 2014 whereby the default
occurred within 12 months of the restructure.
Loans to Related Party. Included in total loans are loans due from directors and other related parties of $5.7 million and $3.8
million at December 31, 2015 and 2014. All loans made to directors have substantially the same terms and interest rates as
other bank borrowers at their origination date. The Board of Directors approves loans to individual directors to confirm that
collateral requirements, terms and rates are comparable to other borrowers and are in compliance with underwriting
policies. The following presents the activity in amount due from directors and other related parties for the years ended
December 31, 2015 and 2014.
(in thousands)
2015
2014
Outstanding related party loans at January 1,
New loans
Repayments
Outstanding related party loans at December 31,
$
$
3,820
3,845
(2,012)
5,653
$
$
4,982
-
(1,162 )
3,820
No loans to related parties were nonaccrual, past due, restructured or potential problems at December 31, 2015 and 2014.
60
60
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Premises and Equipment
The components of premises and equipment at December 31 were as follows (in thousands):
Land
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress
Total before accumulated depreciation and
amortization
Accumulated depreciation and amortization
Total
Estimated
useful lives
N/A
40 Yrs.
10 Yrs.
3-7 Yrs.
2015
2014
410
1,741
5,480
4,014
-
11,645
(6,195)
5,450
$
$
410
1,741
4,993
3,791
73
11,008
(5,192)
5,816
$
$
Note 6 – Accrued Interest Receivable and Other Assets
The components of accrued interest receivable and other assets at December 31 were as follows (in thousands):
2015
2014
Accrued interest receivable
Deferred tax asset, net
Restricted investments in bank stocks
Prepaid assets and other assets
Total
Note 7 – Deposits
$
$
3,084
5,282
6,863
2,511
17,740
The components of deposits at December 31 were as follows (in thousands):
$
$
$
3,198
5,259
2,023
1,010
11,490
2014
135,157
273,380
144,648
172,652
122,020
2015
$
102,944
277,603
151,607
155,018
102,261
$
789,433
$
847,857
Demand, non-interest-bearing checking
Demand, interest-bearing and savings
Money market
Time deposits, $100,000 and over
Time deposits, other
Total
As of December 31, 2015, three customer’s deposits with the Bank represented 16.26 percent of total deposits.
61
61
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Deposits (Continued)
At December 31, 2015, the scheduled maturities of certificates of deposit were as follows (in thousands):
2016
2017
2018
2019
2020
Total
Amounts
130,236
57,210
27,395
22,264
20,174
257,279
$
$
Note 8 – Borrowings
The Bank’s borrowings consist of FHLB-NY overnight and short-term advances. The Bank utilizes federal funds purchased
to meet short-term liquidity needs. All of the Bank’s borrowings are collateralized by securities and/or loans pledged to the
FHLB-NY. The terms of the security agreement with the FHLB-NY include a specific assignment of collateral that requires
the maintenance of qualifying collateral in excess of the FHLB advances when discounted at certain pre-established rates.
The following table presents the Bank’s borrowings at December 31 (in thousands):
2015
2014
FHLB-NY overnight advances
FHLB-NY short-term advances (weighted avg.
$
rate of 0.5%)
Total borrowings
$
38,800
90,000
128,800
$
$
24,300
-
24,300
At December 31, 2015, the Bank has a total borrowing capacity with the FHLB-NY, subject to certain collateral restrictions,
of $506.7 million. The Bank is also a member of the Atlantic Community Bankers Bank (“ACBB”). As of December 31,
2015, the Bank has available borrowing capacity with ACBB of $10.0 million to provide short-term liquidity generally for a
period of not more than fourteen days. No amounts are outstanding with the ACBB at December 31, 2015.
Note 9 – Accrued Interest Payable and Other Liabilities
The components of accrued interest payable and other liabilities at December 31 were as follows (in thousands):
Accrued interest payable
Accrued salary expense
Accrued expenses and other liabilities
Total
2015
2014
$
$
$
1,410
214
2,021
3,645 $
1,573
501
2,529
4,603
62
62
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Commitments and Contingencies
Operating leases
The Bank has operating leases for twelve of its branch locations, as well as its operations center. Future minimum lease
payments by year under the non-cancellable lease agreements for the Bank’s facilities were as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
1,510
1,441
1,321
1,080
1,011
646
7,009
Rental expense for of the years ended December 31, 2015 and 2014 was $1.6 million and $1.4 million, respectively.
The Bank has an operating lease agreement with a member of the Bank’s board of directors for a building containing the Bank’s
corporate headquarters and branch, which is included in the above lease schedule. At the lease initiation date, the lease terms
were comparable to similarly outfitted office space in the Bank’s market. The Bank is also required to pay a monthly fee for
certain operating expenses, including real estate taxes, insurance, utilities, maintenance and repairs, in addition to the base rent.
Rental payments of $284,000 were made to this related party in each of the years ended December 31, 2015 and 2014.
Commitments to extend credit
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 and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the
balance sheet. The contract, or notional, amounts of these instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for
commitments to extend credit and standby letters of credit written is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-
balance-sheet instruments.
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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee by the counterparty. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer’s creditworthiness 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 of the counterparty. Collateral
held varies, but primarily includes residential and income-producing real estate.
Standby letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer
to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved
in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires
collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a
liquidation of such collateral should be sufficient to cover the maximum potential amount under the corresponding guarantees.
The current amount of the liability as of December 31, 2015 and 2014 for guarantees under standby letters of credit issued is
not material.
63
63
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Commitments and Contingencies (Continued)
The Bank had the following off-balance sheet financial instruments whose contract amounts represent credit risk at
December 31 (in thousands):
Performance and standby letters of credit
Commitments to fund loans
Unfunded commitments under lines of credit
Total
$
$
9,015
121,015
11,611
141,641
$
$
8,843
91,228
11,320
111,391
2015
2014
Litigation
The Bank, in the normal course of business, may be subject to potential liability under laws and government regulation and
various claims and legal actions that are pending or may be asserted against it. Liabilities are established for legal claims when
payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving
legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently
available, advice of counsel, available insurance coverage and established liabilities, the Bank has determined that there are no
eventual outcomes that will have a material adverse effect on the Bank’s financial position or results of operations.
Note 11 – Income Taxes
Income tax expense for the years ended December 31 is as follows:
Current tax expense:
Federal
State
Total current
Deferred income tax benefit:
Federal
State
Total deferred
Total income tax expense
2015
2014
(in thousands)
$
$
3,686
4
3,690
71
(59)
12
3,702
$
$
3,390
230
3,620
(201 )
(251 )
(452 )
3,168
64
64
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Income Taxes (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
as of December 31 are as follows:
Deferred tax assets:
Allowance for loan losses
Net operating loss carry-forwards
Organizational costs
Other
Total deferred tax assets
Deferred tax liabilities:
Deferred loan costs
Unrealized gains on securities
Premises and equipment
Acquisition accounting adjustments
Total deferred tax liabilities
Net deferred tax asset
2015
2014
(in thousands)
4,225
1,146
262
637
6,270
(376)
(326)
(258)
(28)
(988)
5,282
$
$
3,901
1,212
307
777
6,197
(390 )
(361 )
(97 )
(90 )
(938 )
5,259
$
$
Total income taxes differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as
follows:
Federal income tax expense at statutory rate
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit
Tax-exempt income, net
Non-deductible expenses
Other
Total income taxes applicable to pre-tax income
2015
2014
(in thousands)
$
$
5,000
$
(36)
(1,418)
18
138
3,702
$
4,137
(14 )
(882 )
15
(88 )
3,168
At December 31, 2015, the Bank had available federal net operating loss carry-forwards of approximately $3.3 million, which
expire between 2028 and 2030. The federal net operating loss carry-forwards are amounts that were generated by MoreBank,
which the Bank acquired on September 30, 2010. These net operating losses are subject to an annual Internal Revenue Code
Section 382 limitation of approximately $222,000. There are currently $180,000 of state net operating loss carry-forwards
available that will expire in 2035.
Based on projections of future taxable income over periods in which the deferred tax assets are deductible, management believes
it is more likely than not that the Bank will realize the benefits of these deductible differences.
65
65
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure
The Bank follows the guidance on fair value measurements now codified as FASB ASC Topic 820, Fair Value Measurement
(“Topic 820”). Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value.
Management uses its best judgment in estimating the fair value of the Bank’s financial instruments, however, there are inherent
weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein
are not necessarily indicative of the amounts the Bank could have realized in sales transactions on the dates indicated. The
estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated
for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each
period-end.
The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially
the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair
value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value
hierarchy used at December 31, 2015 were as follows:
Description
Mortgage-backed securities-U.S.
Government Sponsored Enterprises
(GSE’s)
Obligations of state and
political subdivisions
Securities available-for-sale at fair value
$
(Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
Total Fair
Value
December 31,
2015
(in thousands)
$
- $
70,682
$
- $
70,682
-
- $
70,827
141,509 $
-
- $
70,827
141,509
66
66
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value
hierarchy used at December 31, 2014 were as follows:
Description
U.S. Treasury securities
Mortgage-backed securities-U.S.
Government Sponsored Enterprises
(GSE’s)
Obligations of state and
political subdivisions
Securities available-for-sale at fair value
$
(Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
Total Fair
Value
December 31,
2014
(in thousands)
$
14,551 $
- $
- $
14,551
-
77,188
-
14,551 $
72,061
149,249 $
-
-
- $
77,188
72,061
163,800
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy
used at December 31, 2015, were as follows:
Description
Impaired loans
Other real estate owned
(Level 1)
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
Total Fair
Value
December 31,
2015
(in thousands)
$
$
- $
-
- $
- $
-
- $
8,740 $
300
9,040 $
8,740
300
9,040
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy
used at December 31, 2014, were as follows:
Description
Impaired loans
Other real estate owned
(Level 1)
Quoted Prices in
Active
Markets for
Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
Total Fair
Value
December 31,
2014
(in thousands)
$
$
- $
-
- $
- $
-
- $
8,387 $
193
8,580 $
8,387
193
8,580
67
67
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2015.
Description
Fair Value at
December 31,
2014
(in thousands)
Valuation
Technique
Unobservable
Input
Range
(Weighted
Average)
Impaired loans
$
8,740 Appraisal of collateral1
Other real estate owned
$
300
Agreement of sale
Discount
adjustment2
7.0%-13.39%
(8.5%)
Estimated
selling costs3
0.5%
1 Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
2 Appraisals may be adjusted by management for qualitative factors, such as economic conditions and estimated liquidation expense.
3 Selling costs include realty transfer fees.
The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2014.
Description
Fair Value at
December 31,
2014
(in thousands)
Valuation
Technique
Unobservable
Input
Range
(Weighted
Average)
Impaired loans
$
8,387 Appraisal of collateral1
Other real estate owned
$
193
Agreement of sale
Discount
adjustment2
0.0%-5.0%
(3.4%)
Estimated
selling costs3
10.5%
(10.5%)
1 Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales.
2 Appraisals may be adjusted by management for qualitative factors, such as economic conditions and estimated liquidation expense.
3 Selling costs include sales commissions and other costs incidental to the sale.
The following methods and assumptions were used by the Bank in estimating fair value disclosures:
Cash and due from banks (carried at cost)
The carrying amounts reported in the statement of financial condition for cash and short-term instruments approximate those
assets’ fair values.
Investment Securities
The fair value of securities available-for-sale (carried at fair value) and held-to-maturity (carried at amortized cost) are
determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level
2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted
market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry. Level 2 fair value
68
68
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield
curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s
terms and conditions, among other things.
Loans receivable (carried at cost)
The fair value of loans receivable are estimated using discounted cash flow analyses, using market rates at the balance sheet
date that reflect the credit and interest rate-risk inherent in the loans, which is characterized as Level 3 in the fair value
hierarchy. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and
prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit
risk, fair values are based on carrying values.
Impaired loans (generally carried at fair value)
Impaired loans carried at fair value are those impaired loans in which the Bank has measured impairment generally based on
the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals
of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other
factors the Bank determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon
the lowest level of input that is significant to the fair value measurements.
Other real estate and other assets owned (carried at fair value)
Other real estate owned is adjusted to fair value, less estimated selling costs, upon transfer of loans to other real estate
owned. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less cost to sell. Fair value
is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the
collateral. The discount adjustment from the appraised value is a significant unobservable input in the determination of the fair
value for other real estate owned. These assets are included as Level 3 fair values.
Federal Home Loan Bank stock and ACBB stock (carried at cost)
The carrying amount of restricted investments in bank stock approximates fair value, and considers the limited marketability
of such securities.
Accrued interest receivable and payable (carried at cost)
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
69
69
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
Deposit liabilities (carried at cost)
The fair value disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market
accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair
value for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates
currently being offered in the market on certificates of deposit to a schedule of aggregated expected monthly maturities on time
deposits.
Borrowings (carried at cost)
Fair value of FHLB advances are determined by discounting the anticipated future cash payments by using the rates currently
available to the Bank for debt with similar terms and remaining maturities, which is characterized as Level 3 in the fair value
hierarchy.
Off-Balance sheet financial instruments (disclosed at cost)
Fair value for the Bank’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees
currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and
the counterparties’ credit standing. The fair values of these off-balance sheet financial instruments are not considered material
as of December 31, 2015 and December 31, 2014.
The carrying amounts and estimated fair value of financial instruments at December 31, 2015, are as follows:
Carrying
Amount
(in thousands)
Estimated
Fair Value
December 31, 2015
Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
Securities available-for-sale at fair value
Securities held-to-maturity
Loans receivable, net
Restricted investments in bank stocks
Accrued interest receivable
$
28,589 $
141,509
381
797,095
6,863
3,084
28,589 $
141,509
414
820,282
6,863
3,084
Financial liabilities:
Deposits
Borrowings
Accrued interest payable
789,433
128,800
1,410
786,527
128,800
1,410
28,589 $
- $
-
-
-
-
-
-
-
-
141,509
414
-
6,863
3,084
786,527
-
1,410
-
-
-
820,282
-
-
-
128,800
-
The carrying amounts and estimated fair value of financial instruments at December 31, 2014, are as follows:
70
70
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
Carrying
Amount
(in thousands)
Estimated
Fair Value
December 31, 2014
Level 1
Level 2
Level 3
Financial assets:
Cash and cash equivalents
Securities available-for-sale at fair value
Securities held-to-maturity
Loans receivable, net
Restricted investments in bank stocks
Accrued interest receivable
$
31,872 $
163,800
420
723,131
2,023
3,198
31,872 $
163,800
456
743,720
2,023
3,198
31,872 $
14,551
-
-
-
-
- $
149,249
456
-
2,023
3,198
Financial liabilities:
Deposits
Borrowings
Accrued interest payable
Limitations
847,857
23,400
1,573
846,654
23,400
1,573
-
-
-
846,654
-
1,573
-
-
-
743,720
-
-
-
23,400
-
The fair value estimates are made at a discrete point in time based on relevant market information and information about the
financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing
estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were
offered for sale. This is due to the fact that no market exists for a sizable portion of the loan, deposit and off-balance sheet
instruments.
In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to
value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other
significant assets that are not considered financial assets include premises and equipment. In addition, the tax ramifications
related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active secondary markets for many of the
financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these
estimated fair values.
Note 13 – Stock-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 10 years after the grant date and will enable the warrant holder
to purchase one (1) share of common stock at $10.00 per share for each warrant exercised. At December 31, 2015, 77,250
Organizer warrants were outstanding. All Organizer warrants will expire in 2017.
In 2007, the Bank adopted The Bank of Princeton 2007 Stock Option Plan (the “2007 Plan”), which was approved by our board
of directors in August 2007 and by our stockholders 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 2007 Plan are authorized and unissued shares of the Bank. The maximum number of shares
that may be subject to options under the 2007 Plan is 300,000, all of which may be issued as Incentive Stock
71
71
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Stock-Based Compensation (Continued)
Options and not more than 100,000 of which may be issued as Non-Qualified Stock Options. Vesting periods range from
immediate to four years from the date of grant. At December 31, 2015 there were 38,503 shares remaining available for future
issuance under the 2007 plan. No incentive stock options may be granted under the 2007 Plan after October 2, 2017.
In connection with the Bank’s acquisition of MoreBank on September 30, 2010, all outstanding and unexercised options to
acquire shares of MoreBank common stock became fully vested and exercisable and converted into fully vested and exercisable
options to purchase shares of common stock of the Bank in an amount and at an exercise price based on the merger exchange
ratio. These options remain subject to all of the other terms and conditions to which they were subject immediately prior to the
effective time of the merger. At December 31, 2015 and 2014, 46,000 MoreBank Organizer options remained
outstanding. These options were granted to organizers of MoreBank for their efforts during the organization and start-up of
MoreBank. These options are immediately exercisable, expire in February 2016, and enable the option holder to purchase one
(1) share of the Bank’s common stock at $25.00 per share. Under the MoreBank 2004 Incentive Equity Compensation Plan
(the “MoreBank Plan”), 7,200 options remained outstanding at December 31, 2015 and 2014. These options are immediately
exercisable, expire in December 2017, and enable the option holder to purchase one (1) share of the Bank’s common stock at
$25.00 per share. The MoreBank Plan was adopted by MoreBank to provide stock options and stock awards to MoreBank’s
directors and employees.
In 2012, the Bank adopted The Bank of Princeton 2012 Equity Incentive Plan (the “2012 Plan”), which was approved by our
board of directors in February 2012 and by our stockholders in May 2012. The 2012 Plan enabled the board of directors to
grant stock options or restricted shares of common stock to employees, directors, consultants and other individuals who provide
services to the Bank. The shares subject to or related to options under the 2012 Plan are authorized and unissued shares of the
Bank. In 2013, the Bank’s board of directors and stockholders approved an amendment to the 2012 Plan that increased the
maximum number of shares that may be subject to options under the 2012 Plan from 100,000 to 600,000, all of which may be
issued as Incentive Stock Options or as Non-Qualified Stock Options. Vesting periods range from immediate to four years
from the date of grant. At December 31, 2015 there were 147,796 shares remaining available for future issuance under the
2012 plan. No incentive stock options may be granted under the 2012 Plan after April 30, 2023.
In 2014, the Bank adopted an amendment to each of the 2007 Plan and to the 2012 Plan, which amendments were approved by
our board of directors, to provide that all outstanding options under the 2007 Plan and the 2012 Plan will become fully vested
and exercisable upon a change in control of the Bank and to further specify the consideration that may be exchanged with
respect to outstanding awards upon any such change in control.
The following is a summary of the status of the Bank’s stock option and warrant activity and related information for the year
ended December 31, 2015:
Number of
Stock
Options /
Warrants
Weighted
Avg.
Exercise Price
Weighted Avg.
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Balance at January 1, 2015
Granted
Exercised
Forfeited
Expired
674,234 $
168,700 $
(105,142) $
(3,766) $
(3,085) $
13.51
17.66
11.68
15.00
13.32
Balance at December 31, 2015
730,941 $
14.68
6.1 years
$
3,532,445
Exercisable at December 31, 2015
553,738 $
14.16
5.2 years
$
2,774,016
72
72
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Stock-Based Compensation (Continued)
The fair value of the 2015 option grants were estimated on the date of the grants using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
Expected life
Expected volatility
Forfeiture rate
Dividend yield
Risk-free interest rate
Fair value
5.84 years
38.72%
1.56%
0.00%
1.70%
$ 6.93
The following is a summary of the status of the Bank’s stock option and warrant activity and related information for the year
ended December 31, 2014:
Balance at January 1, 2014
Granted
Exercised
Forfeited
Expired
Weighted Avg.
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Stock
Options /
Warrants
Weighted
Avg.
Exercise Price
13.16
$
14.94
$
11.11
(3,636) $
13.40
(2,763) $
12.60
(1,984) $
572,517
110,100
Balance at December 31, 2014
Exercisable at December 31, 2014
674,234
571,665
$
$
13.51
6.1 years
13.52
5.7 years
$
$
2,882,477
2,473,825
The fair value of the 2014 option grants was estimated on the date of the grants using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
Expected life
Expected volatility
Forfeiture rate
Dividend yield
Risk-free interest rate
Fair value
5.34 years
43.66%
1.59%
0.00%
1.75 %
$ 6.15
Stock option expenses included in salaries and employee benefits expense in the consolidated statements of income were
$481,000 and $437,000 for the years ended December 31, 2015 and 2014, respectively. Stock option expenses recorded within
other expenses were $207,000 and $285,000 for the years ended December 31, 2015 and 2014, respectively. At December 31,
2015, there was approximately $880,000 of unrecognized expense related to outstanding stock options, which will be
recognized over a period of approximately 1.4 years.
Note 14 – Regulatory Matters
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. 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). An additional cushion of
73
73
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Regulatory Matters (Continued)
at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage
ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong
banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System. Under the risk-based
capital requirements, as of January 1, 2015, Tier 1 Capital to risk-weighted assets ratio must equal at least 6.0%, increased from
4.0% (and increased from 6.0% to 8.0% for the Bank to be considered “well capitalized”) and total capital to risk-weighted
assets ratio must equal at least 8.0% (10.0% to be considered “well capitalized”). The FDIC also is authorized to impose capital
requirements in excess of these standards on individual institutions on a case-by-case basis.
Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such
action could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the
institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s
capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a
variety of corrective actions. Management believes, as of December 31, 2015, that the Bank meets all capital adequacy
requirements to which it is subject.
The Bank’s actual capital amounts and ratios at December 31, 2015 and 2014 are presented below:
Actual
For capital adequacy
purposes
To be well capitalized under
prompt corrective action
provisions
Ratio
Amount
Ratio
Amount
Ratio
Amount
December 31, 2015:
Total capital (to risk-weighted assets)
$100,624
Tier 1 capital (to risk-weighted assets) $ 89,773
11.4%
10.1%
$ 70,828
$ 53,121
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 89,773
10.1%
$ 39,841
$ 89,773
9.0%
$ 40,131
December 31, 2014:
Total capital (to risk-weighted assets)
$ 87,610
Tier 1 capital (to risk-weighted assets) $ 77,821
11.2%
9.9%
$ 62,632
$ 31,316
Tier 1 leverage capital (to average
assets)
$ 77,821
8.2%
$ 37,994
8.0%
6.0%
$ 88,535
$ 70,828
4.5%
$ 57,548
4.0%
$ 50,163
8.0%
4.0%
$ 78,289
$ 46,974
4.0%
$ 47,493
10.0%
8.0%
6.5%
5.0%
10.0%
6.0%
5.0%
The Bank is subject to certain restrictions on the amount of dividends that it may declare due to regulatory considerations.
74
74
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Quarterly Financial Data (unaudited)
Interest and dividend income
Interest expense
Net Interest Income
Provision for loan losses
Net Interest Income after Provision for Loan Losses
Non-interest income
Non-interest expense
Income before Income Tax Expense
Income tax expense
Net Income
Earnings per common share
Basic
Diluted
Interest and dividend income
Interest expense
Net Interest Income
Provision for loan losses
Net Interest Income after Provision for Loan Losses
Non-interest income
Non-interest expenses
Income before Income Tax Expense
Income tax expense
Net Income
Earnings per common share
Basic
Diluted
Year Ended December 31, 2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share data)
10,532
1,742
8,790
233
8,557
476
5,649
3,384
880
2,504
$
$
10,614
1,712
8,902
502
8,400
590
5,359
3,631
866
2,765
$
$
10,857
1,685
9,172
298
8,874
482
5,336
4,020
1,018
3,002
$
$
11,218
1,698
9,520
871
8,649
739
5,715
3,673
938
2,735
0.55
$
0.53 $
0.60
$
0.58 $
0.65
$
0.63 $
0.58
0.56
Year Ended December 31, 2014
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except for share and per share data)
9,694
1,760
7,934
252
7,682
552
5,458
2,776
766
2,010
$
$
10,042
1,755
8,287
371
7,916
633
5,784
2,765
762
2,003
$
$
10,241
1,828
8,413
360
8,053
708
5,512
3,249
896
2,353
$
$
10,590
1,814
8,776
597
8,179
853
5,653
3,379
744
2,635
0.44
$
0.43 $
0.44
$
0.39 $
0.51
$
0.46 $
0.58
0.56
$
$
$
$
$
$
$
$
75
75
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with accounting principles generally accepted in the United States,
which is commonly referred to as GAAP. The effectiveness of any system of internal control over financial reporting
is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and
evaluating the Bank’s internal control over financial reporting. Because of these inherent limitations, internal control
over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP and may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that our internal control over
financial reporting may become inadequate because of changes in conditions or other factors, or that the degree of
compliance with the policies or procedures may deteriorate.
Management, with the participation of the Bank’s President and Chief Financial Officer, evaluated the
effectiveness of the Bank’s internal control over financial reporting as of December 31, 2015 using the criteria in
“Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO 2013”). Management has identified a material weakness in the design and operation
of our internal controls and procedures as of December 31, 2015. A sequence of events occurred in January, 2016
whereby management failed to consistently maintain an effective control environment, specifically as it relates to the
tone at the top of the organization. We believe that certain actions of Bank officers did not demonstrate the appropriate
level of control consciousness. Bank officers circumvented established internal controls regarding the proper
reporting and authorization of two Bank officer expense reports. The Bank’s mitigating controls within its accounts
payable procedures were effective in detecting the internal control breakdown. No loss to the Bank was incurred.
When deficiencies in the control environment are determined, management must assess if the Bank has
pervasive weaknesses in internal controls. The deficiencies identified in the control environment necessitated an
elevated consideration and assessment of the other COSO 2013 internal control components to ascertain whether
deficiencies existing in them may be of greater significance if not remediated on a timely basis. All internal control
components were evaluated to support management's assertion that the Bank has not experienced a pervasive
weakness in internal controls.
To date, the Bank has taken the following steps to remediate the internal control weakness:
Changed the Whistleblower Hotline to limit the recipients of any complaints submitted to the
Hotline to include only the members of the Audit Committee.
Changed the Code of Conduct to require all allegations of violations of the Code of Conduct to be
directed to the Audit Committee.
Prepared a draft of an Expense Reimbursement Policy, which is scheduled to be presented to the
Board for approval at its next meeting in April, 2016.
Planning training sessions with all employees on the changes to the existing Whistleblower process
and Code of Conduct, as well as the new Expense Reimbursement Policy, as soon as the latter policy
is approved by the Board.
The Board and management are still evaluating further remedial measures, and management has not yet
completed its testing of these remediation efforts in connection with its internal control over financial reporting.
76
76
In light of the material weakness in internal control over financial reporting, we completed substantive
procedures, including validating the completeness and accuracy of the underlying data used for this Form 10-K. These
additional procedures have allowed us to conclude that, notwithstanding the material weakness in our internal control
over financial reporting, the consolidated financial statements included in this report present fairly, in all material
respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity
with accounting principles generally accepted in the United States of America.
Disclosure Controls and Procedures
Management, with the participation of the Bank’s President and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Bank’s disclosure controls and procedures (as defined in Rule l3a-
l5(e) promulgated under the Exchange Act) as of December 31, 2015. Based on this evaluation, the Bank’s President
and Chief Financial Officer have concluded that the Bank’s disclosure controls and procedures are effective as of
December 31, 2015 to ensure that the information required to be disclosed by the Bank in the reports that the Bank
files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in FDIC rules and forms.
There may be deemed to be an inconsistency between the conclusion as to a material weakness in the Bank’s
internal control over reporting and the view as to the Bank’s disclosure controls. However, based on their evaluation
of the Bank’s disclosure controls and procedures, the President and Chief Financial Officer concluded as of
December 31, 2015 that the Bank’s disclosure controls and procedures were effective such that the information
relating to the Bank and its consolidated subsidiaries required to be disclosed in filings with the FDIC pursuant to the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in such rules and
forms, and is accumulated and communicated to the Bank’s management, including the President and Chief Financial
Officer, as appropriate to allow timely decisions regarding this disclosure.
The President and Chief Financial Officer reached this conclusion notwithstanding the existence of a material
weakness in the Bank’s internal control over financial reporting because they believe that the processes and procedures
mitigated the potential effect of the identified material weakness in internal control over financial reporting on the
Bank’s disclosure controls and procedures. Management notes that the scope of, and interrelation between, disclosure
controls and internal control over financial reporting is not yet well defined by law, regulation or interpretation.
Management believes, however, that there are significant differences between disclosure controls and
procedures and internal control over financial reporting. If, on the other hand, disclosure controls and procedures and
internal control over financial reporting are ultimately determined to effect substantially the same standard under these
circumstances, then in such case, the Bank’s disclosure controls and procedures also would have been ineffective as
of December 31, 2015 for precisely the same reasons that management has concluded that the Bank’s system of
internal control over financial reporting was ineffective.
Changes in Internal Control Over Financial Reporting
Except as disclosed above, there was no change in the Bank’s internal control over financial reporting
identified during the quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially
affect, the Bank’s internal control over financial reporting.
Item 9B. Other Information
None.
77
77
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The Bank responds to this Item by incorporating by reference the material responsive to this Item in the
Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its
2016 Annual Meeting of Stockholders to be held April 28, 2016.
Item 11. Executive Compensation
The Bank responds to this Item by incorporating by reference the material responsive to this Item in the
Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its
2016 Annual Meeting of Stockholders to be held April 28, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The Bank responds to this Item by incorporating by reference the material responsive to this Item in the
Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its
2016 Annual Meeting of Stockholders to be held April 28, 2016.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Bank responds to this Item by incorporating by reference the material responsive to this Item in the
Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its
2016 Annual Meeting of Stockholders to be held April 28, 2016.
Item 14. Principal Accounting Fees and Services
The Bank responds to this Item by incorporating by reference the material responsive to this Item in the
Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation in connection with its
2016 Annual Meeting of Stockholders to be held April 28, 2016.
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) The following portions of the Bank’s consolidated financial statements are set forth in Item 8 of this
Annual Report:
i.
ii.
iii.
iv.
v.
vi.
Consolidated Statements of Financial Condition as of December 31, 2015 and 2014
Consolidated Statements of Income for the years ended December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015 and
2014
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
78
78
(b) Financial Statement Schedules
All financial statement schedules are omitted as the information, if applicable, is presented in the
consolidated financial statements or notes thereto.
(c) Exhibits
Exhibit
No.
2.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
21.1
31.1
31.2
32.1
Description
(A) Agreement and Plan of Merger dated as of May 5, 2010 by and between The Bank of Princeton and
MoreBank.
(A) Certificate of Incorporation, as amended.
(C) Amended and Restated Bylaws
(A) Specimen form of stock certificate.
The Bank will furnish to the FDIC upon request copies of the instruments defining the rights of the Federal
Home Loan Bank of New York with respect to the Bank’s long-term debt.
(B) The Bank of Princeton Amended and Restated 2007 Stock Option Plan*
(B) The Bank of Princeton Amended and Restated 2012 Equity Incentive Plan*
(A) Form of Incentive Stock Option Agreement*
Form of Incentive Stock Option Agreement*
(A) Form of Nonqualified Stock Option Agreement*
Form of Nonqualified Stock Option Agreement*
(A) Warrant Agreement for Organizers*
(A) Form of Warrant Certificate*
(A) MoreBank 2004 Incentive Equity Compensation Plan*
(A) Form of Incentive Stock Option Agreement*
(A) Form of Nonqualified Stock Option*
(A) Form of Option for the Purchase of Shares of the Par Value of $1.00 Per Share of MoreBank*
Subsidiaries of the Registrant
Rule 13a-14(a) Certification of the Principal Executive Officer
Rule 13a-14(a) Certification of the Principal Financial Officer
Section 1350 Certifications
* Management contract or compensatory plan, contract or arrangement.
(A) Incorporated by reference to the exhibit to registrant’s Form 10, General Form For Registration Of Securities,
filed with the Federal Deposit Insurance Corporation on May 2, 2011.
(B) Incorporated by reference to Exhibits 10.1 or 10.2, as applicable, of registrant’s Current Report on Form 8-K,
filed with the Federal Deposit Insurance Corporation on October 20, 2014.
(C) Incorporated by reference to the exhibit to registrant’s Current Report on Form 8-K, filed with the Federal
Deposit Insurance Corporation on January 25, 2016.
79
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of April 14, 2016.
SIGNATURES
The Bank of Princeton
/s/Edward Dietzler
By: Edward Dietzler
President
(Principal Executive Officer)
The Bank of Princeton
/s/Michael J. Sanwald
By: Michael J. Sanwald
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
80
80
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below on April 14,
2016 by the following persons on behalf of the Registrant and in the capacities indicated.
/s/Edward Dietzler
Edward Dietzler
President
(Principal Executive Officer)
Richard Gillespie
Director, Chairman
/s/Stephen Distler
Stephen Distler
Director, Vice Chairman
/s/Judith A. Giacin
Judith A. Giacin
Director
/s/Michael J. Sanwald
Michael J. Sanwald
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Stephen Shueh
Stephen Shueh
Director
/s/Robert N. Ridolfi, Esq
Robert N. Ridolfi, Esq
Director
/s/Ross Wishnick
Ross Wishnick
Director, Vice Chairman
81
81
EXHIBIT INDEX
Exhibit
No.
2.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
21.1
31.1
31.2
32.1
Description
(A) Agreement and Plan of Merger dated as of May 5, 2010 by and between The Bank of Princeton and
MoreBank.
(A) Certificate of Incorporation, as amended.
(A) Amended and Restated Bylaws
(A) Specimen form of stock certificate.
The Bank will furnish to the FDIC upon request copies of the instruments defining the rights of the Federal
Home Loan Bank of New York with respect to the Bank’s long-term debt.
(B) The Bank of Princeton Amended and Restated 2007 Stock Option Plan*
(B) The Bank of Princeton Amended and Restated 2012 Equity Incentive Plan*
(A) Form of Incentive Stock Option Agreement*
Form of Incentive Stock Option Agreement*
(A) Form of Nonqualified Stock Option Agreement*
Form of Nonqualified Stock Option Agreement*
(A) Warrant Agreement for Organizers*
(A) Form of Warrant Certificate*
(A) MoreBank 2004 Incentive Equity Compensation Plan*
(A) Form of Incentive Stock Option Agreement*
(A) Form of Nonqualified Stock Option*
(A) Form of Option for the Purchase of Shares of the Par Value of $1.00 Per Share of MoreBank*
(C) Stipulation and Consent to the Issuance of a Consent Order
(C) Consent Order
Subsidiaries of the Registrant
Rule 13a-14(a) Certification of the Principal Executive Officer
Rule 13a-14(a) Certification of the Principal Financial Officer
Section 1350 Certifications
* Management contract or compensatory plan, contract or arrangement.
(A) Incorporated by reference to the exhibit to registrant’s Form 10, General Form For Registration Of Securities,
filed with the Federal Deposit Insurance Corporation on May 2, 2011.
(B) Incorporated by reference to Exhibits 10.1 or 10.2, as applicable, of registrant’s Current Report on Form 8-K,
filed with the Federal Deposit Insurance Corporation on October 20, 2014.
(C) Incorporated by reference to the exhibit to registrant’s Current Report on Form 8-K, filed with the Federal
Deposit Insurance Corporation on February 5, 2014.
82
82
Form of Incentive Stock Option Agreement
Exhibit 10.4
INCENTIVE STOCK OPTION AGREEMENT
UNDER
THE BANK OF PRINCETON 2012 EQUITY INCENTIVE PLAN
BANK OF PRINCETON (the “Bank”) and ___________________________________ (the “Optionee”).
THIS INCENTIVE STOCK OPTION AGREEMENT (this “Agreement”) is made between THE
for the benefit of the key employees, directors and advisors of the Bank and its Affiliates; and
WHEREAS, the Bank maintains The Bank of Princeton 2012 Equity Incentive Plan (the “Plan”)
the terms of the Plan; and
WHEREAS, the Plan permits the award of Incentive Stock Options to purchase Shares, subject to
further align the Optionee’s personal financial interests with those of the Bank’s stockholders.
WHEREAS, the Bank desires to grant the Optionee Incentive Stock Options under the Plan to
intending to be legally bound hereby, the parties agree as follows:
NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and
Award of Option. This Agreement evidences the grant to the Optionee of an option (the
“Option”) to purchase _________________ (______) Shares (the “Option Shares”). The Option is subject to the
terms set forth herein, and in all respects is subject to the terms and provisions of the Plan applicable to Incentive
Stock Options, which terms and provisions are incorporated herein by this reference. Except as otherwise specified
herein or unless the context herein requires otherwise, the terms defined in the Plan will have the same meanings
herein.
Revenue Code, the Option is intended to be an incentive stock option as described by Section 422 of the Code.
Nature of the Option. Subject to the limitation contained in Section 422(d) of the Internal
Date of Grant; Term of Option. The Option was granted on ___________, ____ (the “Effective
Date”) and may not be exercised later than the date that is ten (10) years after that date, subject to earlier termination
in accordance with the Plan.
Option Exercise Price. The per share exercise price of the Option is
____________________________ ($__.__) (the “Exercise Price”), which is the Fair Market Value per Share on the
Effective Date.
provisions of the Plan and this Agreement, as follows:
Exercise of Option. The Option will become exercisable only in accordance with the terms and
continuous service to the Bank through the applicable vesting date as follows:
Right to Exercise. Option Shares will become exercisable if the Optionee remains in
___% of the Options will vest on the Effective Date
___% of the Options will vest __________________________
___% of the Options will vest __________________________
___% of the Options will vest __________________________
___% of the Options will vest __________________________
Upon a termination of the Optionee’s service with the Bank, the Option will be exercisable only to the extent
specified in Section 6 of the Plan. Solely for purposes of this Option, service with the Bank will be deemed to
include service with an Affiliate of the Bank for so long as that entity remains an Affiliate of the Bank.
83
83
Notwithstanding the foregoing, this Option (to the extent then outstanding) will become fully vested and
immediately exercisable upon a Change in Control.
Method of Exercise. The Optionee may exercise the Option by providing written notice
to the Bank stating the election to exercise the Option. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified mail to the Secretary of the Bank or such other person as may be designated by
the Bank, and shall be accompanied by payment of the Exercise Price and an amount equal to any required tax
withholding. Payment of the Exercise Price and any required tax withholding will be made in cash or such other
form as may be accepted by the Board in accordance with the Plan.
may be required or appropriate under applicable law, the Plan or otherwise.
Share Legends. Any certificate evidencing an Option Share will contain such legends as
that any exercise may apply only with respect to a whole number of Option Shares.
Partial Exercise. The Option may be exercised in whole or in part; provided, however,
will be void, if the issuance of the Option Shares upon such exercise would constitute a violation of any applicable
federal or state securities laws or other laws or regulations.
Restrictions on Exercise. The Option may not be exercised, and any purported exercise
Non-Transferability of Option. The Option may not be sold, pledged, assigned, hypothecated,
gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution. During the Optionee’s lifetime, the Option is exercisable only by the
Optionee. Subject to the foregoing and the terms of the Plan, the terms of the Option will be binding upon the
executors, administrators and heirs of the Optionee.
Tax Consequences. The Optionee has reviewed with the Optionee’s own tax advisors the federal,
state, local and foreign tax consequences of the Option. The Optionee is relying solely on such advisors and not on
any statements or representations of the Bank or any of its agents or affiliates. The Optionee understands that he or
she (and not the Bank) will be responsible for his or her own tax liabilities arising in connection with this award or
the transactions contemplated by this Agreement. The Bank does not warrant that the Option is an incentive stock
option as described by Section 422 of the Code or otherwise subject to any other particular tax treatment.
No Continuation of Service. Neither the Plan nor this Option will confer upon the Optionee any
right to continue in the service of the Bank or any of its Affiliates, or limit in any respect the right of the Bank or its
Affiliates to discharge the Optionee at any time, with or without Cause and with or without notice.
The Plan. The Optionee has received a copy of the Plan, has read the Plan and is familiar with its
terms, and hereby accepts the Option subject to the terms and provisions of the Plan, as amended from time to time.
Pursuant to the Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent
with the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board with respect to questions arising under the Plan or this Agreement.
Early Disposition of Stock. Subject to the fulfillment by the Optionee of any conditions limiting
the disposition of the Option Shares, the Optionee agrees that if the Optionee disposes of any Option Shares before
the later of (i) the first anniversary of the date on which the Option Shares are transferred to the Optionee or (ii) the
second anniversary of the Effective Date, then the Optionee will notify the Bank in writing within 30 days after the
date of such disposition.
Entire Agreement. This Agreement, together with the Plan, represents the entire agreement
between the parties and supersedes any and all prior or contemporaneous discussions, understandings or any
agreements of any nature, written or otherwise, relating to the subject matter hereof.
New Jersey, without regard to the application of the principles of conflicts of laws.
Governing Law. This Agreement will be construed in accordance with the laws of the State of
84
84
Execution. This Agreement may be executed, including execution by facsimile signature, in one
or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one
and the same instrument.
This space intentionally left blank; signature page follows.
85
85
_________, 20__.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on the ___ day of
THE BANK OF PRINCETON
By:
Name:
Title:
OPTIONEE:
Signature
Print Name
Address:
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86
Form of Nonqualified Stock Option Agreement
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER
THE BANK OF PRINCETON 2012 EQUITY INCENTIVE PLAN
Exhibit 10.6
THE BANK OF PRINCETON (the “Bank”) and ___________________________________ (the “Optionee”).
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is made between
for the benefit of the key employees, directors and advisors of the Bank and its Affiliates; and
WHEREAS, the Bank maintains The Bank of Princeton 2012 Equity Incentive Plan (the “Plan”)
subject to the terms of the Plan; and
WHEREAS, the Plan permits the award of Non-Qualified Stock Options to purchase Shares,
to further align the Optionee’s personal financial interests with those of the Bank’s stockholders.
WHEREAS, the Bank desires to grant the Optionee Non-Qualified Stock Options under the Plan
intending to be legally bound hereby, the parties agree as follows:
NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and
Award of Option. This Agreement evidences the grant to the Optionee of an option (the
“Option”) to purchase _________________________ (______) Shares (the “Option Shares”). The Option is subject
to the terms set forth herein, and in all respects is subject to the terms and provisions of the Plan applicable to Non-
Qualified Stock Options, which terms and provisions are incorporated herein by this reference. Except as otherwise
specified herein or unless the context herein requires otherwise, the terms defined in the Plan will have the same
meanings herein.
Nature of the Option. The Option is intended to be a nonstatutory stock option and is not
intended to be an incentive stock option as described by Section 422 of the Code, or to otherwise qualify for any
special tax benefits to the Optionee.
Date of Grant; Term of Option. The Option was granted on ___________, _____ (the
“Effective Date”) and may not be exercised later than the date that is ten (10) years after that date, subject to earlier
termination in accordance with the Plan.
($__.__) (the “Exercise Price”), which is the Fair Market Value per Share on the Effective Date.
Option Exercise Price. The per share exercise price of the Option is _____________________
provisions of the Plan and this Agreement, as follows:
Exercise of Option. The Option will become exercisable only in accordance with the terms and
continuous service to the Bank through the applicable vesting date as follows:
Right to Exercise. Option Shares will become exercisable if the Optionee remains in
____ of the Options will vest on the Effective Date
____ of the Options will vest __________________________
____ of the Options will vest __________________________
Upon a termination of the Optionee’s service with the Bank, the Option will be exercisable only to the extent
specified in Section 6 of the Plan. Solely for purposes of this Option, service with the Bank will be deemed to
include service with an Affiliate of the Bank for so long as that entity remains an Affiliate of the Bank.
Notwithstanding the foregoing, this Option (to the extent then outstanding) will become fully vested and
immediately exercisable upon a Change in Control.
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87
Method of Exercise. The Optionee may exercise the Option by providing written notice
to the Bank stating the election to exercise the Option. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified mail to the Secretary of the Bank or such other person as may be designated by
the Bank, and shall be accompanied by payment of the Exercise Price and an amount equal to any required tax
withholding. Payment of the Exercise Price and any required tax withholding will be made in cash or such other
form as may be accepted by the Board in accordance with the Plan.
may be required or appropriate under applicable law, the Plan or otherwise.
Share Legends. Any certificate evidencing an Option Share will contain such legends as
that any exercise may apply only with respect to a whole number of Option Shares.
Partial Exercise. The Option may be exercised in whole or in part; provided, however,
will be void, if the issuance of the Option Shares upon such exercise would constitute a violation of any applicable
federal or state securities laws or other laws or regulations.
Restrictions on Exercise. The Option may not be exercised, and any purported exercise
Non-Transferability of Option. The Option may not be sold, pledged, assigned, hypothecated,
gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution. During the Optionee’s lifetime, the Option is exercisable only by the
Optionee. Subject to the foregoing and the terms of the Plan, the terms of the Option will be binding upon the
executors, administrators and heirs of the Optionee.
Tax Consequences. The Optionee has reviewed with the Optionee’s own tax advisors the federal,
state, local and foreign tax consequences of the Option. The Optionee is relying solely on such advisors and not on
any statements or representations of the Bank or any of its agents or affiliates. The Optionee understands that he or
she (and not the Bank) will be responsible for his or her own tax liabilities arising in connection with this award or
the transactions contemplated by this Agreement.
No Continuation of Service. Neither the Plan nor this Option will confer upon the Optionee any
right to continue in the service of the Bank or any of its Affiliates, or limit in any respect the right of the Bank or its
Affiliates to discharge the Optionee at any time, with or without Cause and with or without notice.
The Plan. The Optionee has received a copy of the Plan, has read the Plan and is familiar with its
terms, and hereby accepts the Option subject to the terms and provisions of the Plan, as amended from time to time.
Pursuant to the Plan, the Board is authorized to interpret the Plan and to adopt rules and regulations not inconsistent
with the Plan as it deems appropriate. The Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board with respect to questions arising under the Plan or this Agreement.
Entire Agreement. This Agreement, together with the Plan, represents the entire agreement
between the parties and supersedes any and all prior or contemporaneous discussions, understandings or any
agreements of any nature, written or otherwise, relating to the subject matter hereof.
New Jersey, without regard to the application of the principles of conflicts of laws.
Governing Law. This Agreement will be construed in accordance with the laws of the State of
Execution. This Agreement may be executed, including execution by facsimile signature, in one
or more counterparts, each of which will be deemed an original, and all of which together shall be deemed to be one
and the same instrument.
This space intentionally left blank; signature page follows.
88
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20__.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on the ___ day of _________,
THE BANK OF PRINCETON
By:
Name:
Title:
OPTIONEE:
Signature
Print Name
Address:
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SUBSIDIARIES OF REGISTRANT
Exhibit 21.1
Name of Subsidiary
Bayard Lane, LLC
112 Fifth Avenue, LLC
Bayard Properties, LLC
TBOP REIT, Inc.
TBOP Delaware Investment Company
Jurisdiction of
Incorporation
or Formation
NJ
NJ
NJ
NJ
DE
90
90
I, Edward Dietzler, certify that:
RULE 13A-14(A)/15D-14(A) CERTIFICATIONS OF THE
CHIEF EXECUTIVE OFFICER
1. I have reviewed this annual report on Form 10-K of The Bank of Princeton:
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of circumstances under which such statements were
made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting
Date:
April 14, 2016
/s/Edward Dietzler
Edward Dietzler
President
(Principal Executive Officer)
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91
RULE 13A-14(A)/15D-14(A) CERTIFICATIONS OF THE
CHIEF FINANCIAL OFFICER
Exhibit 31.2
I, Michael J. Sanwald, certify that:
1. I have reviewed this annual report on Form 10-K of The Bank of Princeton:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of circumstances under which such statements were made, not
misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting
Date:
April 14, 2016
/s/Michael J. Sanwald
Michael J. Sanwald
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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92
SECTION 1350 CERTIFICATIONS
Exhibit 32.1
In connection with the Annual Report of The Bank of Princeton (the “Bank”) on Form 10-K for the period ending
December 31, 2015 as filed with the Federal Deposit and Insurance Corporation on the date hereof (the “Report”), the
undersigned certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Bank.
/s/Edward Dietzler
Edward Dietzler
President
(Principal Executive Officer)
/s/Michael J. Sanwald
Michael J. Sanwald
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 14, 2016
93
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NOTES:
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94
A special community
deserves a special bank.
95
Who We Are
Board of Directors
Advisory Board, Princeton
Richard Gillespie, Chairman
Stephen Distler, Vice Chairman
Ross E. Wishnick, Vice Chairman
Edward J. Dietzler, President
Judith Giacin
Robert N. Ridolfi, Esq.
Stephen K. Shueh
Incorporators
Gregg E. Chaplin
Andrew M. Chon
Peter M. Crowley
Stephen Distler
Richard Gillespie
Bumsung K. Han
John A. Horvath
Kevin R. Kenyon
W. Andrew Krusen, Jr.
Janet M. Lasley
Emmett J. Lescroart
Dennis M. Machulsky
Casey K. Min
J. Scott Needham
Henry S. Opatut
Robert N. Ridolfi, Esq.
James M. Riley
Jeffrey H. Sands
Eric L. Steinfeldt
Ross E. Wishnick
J. Scott Needham, Chairman
George L. Bustin
Barbara Cuneo
Peter J. Dawson
Robert Dunn
Paul Gerard
Michael Goodman, Esq.
Yongkuen Joh
Martin Kahn
Emmett J. Lescroart
Lance Liverman
Jerry MacLean
Nelson Obus
Joseph Ridolfi
Chetan Shah
Scott Sipprelle
Advisory Board, New Brunswick
Thea Berkhout
Sam Boraie
James Decker
Glynn Dwyer
Jonathan Glick
Ninfa Mueller
Ros Neal
Beverly A. Poelstra
Mark Sherman
Pam Stefanek
H. Edward Wilkin, III
2007
The Bank of Princeton
opened its doors for business.
96
Relationship Management
Management & Support
Commercial Lenders
Stephanie M. Williams, Chambers
Michele Lewis-Fleming, Chambers
Kris Muse, Nassau
Richard T. Livingston, Montgomery
William McDowell, Pennington/
Lambertville
Paul M. Bencivengo, Hamilton
William Wu, Monroe
William McCoy, New Brunswick
Paul Lombard, Lawrenceville
Jennifer Yoo, Cheltenham
Hiwon Kim, Cheltenham
Market Managers
Rose Russo, Bayard
Darshana Jadav, Chambers
Paul Sabol, Nassau
Roseanne Maresma, Montgomery
Rhoda Sundhar, Pennington
Trinace Johnson, Hamilton
Connie Inverso, Monroe
Amy Lavery, Lambertville
Miriam Colón, New Brunswick
Karin Broadway, Lawrenceville
Esther Youngsoon Sim, Cheltenham
Hae Ran Hwangbo, North Wales
Sokha Eng, Arch Street
Executive Management
Edward J. Dietzler
Carol R. Coles
Douglas V. Conover
Paul Y. Hyon
Daniel J. O’Donnell
Michael J. Sanwald
Marketing
Barbara A. Cromwell
Human Resources
Anna Maria Miller
Operations & Compliance
Stacy Miano
Karen D. Pfeifer
Kelly Tarity
Loan Administration
Karen A. Collier, Loan Compliance
Mary Beth Gorecki, Consumer Credit
Christopher Tonkovich,
Commercial Credit
Finance
Michael LaPlante
Edward P. Hassenkamp
2015
The Bank has grown to include
fourteen locations and
one hundred forty employees.
97
Listening....
Executive Management
Pictured left
(Center)
Edward J. Dietzler
President of The Bank of Princeton
(Left to Right)
Carol R. Coles
EVP Chief Credit Officer
Michael J. Sanwald
EVP Chief Financial Officer
Daniel J. O’Donnell
EVP General Counsel
Chief Risk Officer
Douglas V. Conover
EVP Chief Lending Officer
Paul Y. Hyon
Regional President of MoreBank
Understanding...
Board of Directors
Pictured right (left to right)
Stephen K. Shueh
Robert N. Ridolfi, Esq.
Ross E. Wishnick
Vice Chairman
Andrew M. Chon
Chairman
(2007 - 2015)
Edward J. Dietzler
Judith Giacin
Richard Gillespie
Chairman
(appointed January 1, 2016)
Stephen Distler
Vice Chairman
98
Making a Difference.
Lawrenceville, our thirteenth Branch, opened its doors for business on November 9, 2015.
Staffed by an outstanding team, comprised of both new and familiar faces, the Branch's
deposit base grew substantially during the final months of 2015. The Lawrenceville Branch
is conveniently located at 2999 Princeton Pike at the intersection of Franklin Corner Road.
We invite you to visit the Branch and see why we say...
We Listen... We Understand... We Make a Difference!
We’re branching out!
Exclusive 1.10%APY
Certificate of Deposit
&
Money Market Account
Offered at Lawrenceville
in 2015
99
Our Website Can Work for You!
The Bank of Princeton and MoreBank offer many valuable resources on our websites
to assist with planning and managing finances. Review Personal and Business product
information including interest rates. Find a number of practical forms available for
download and print. Explore fraud prevention information as well as local weather
updates.
Community Partners
Calculators
Resources
Directors, Management, and
Staff
continued their support in partnership
in 2015.
with over 215 organizations
Discover a current list located on the
Community Page under the Resources
tab.
Discover over 20 essential calculators to
facilitate budgets, plan
for college
savings, decide if you should refinance,
or show you how much you could save
by bringing your lunch to work!
Upcoming Events
Spotlight on Business
View our Events Page and Calendar for
Dates and Details!
We believe in supporting our community
in unique ways. Visit the Art Gallery in our
Lambertville Branch. On a nice day,
spend time on the front porch, watching
river, while
the activity on
experiencing the local culture.
the
Find your passion, select an event or
events and join us as we continue to
support the markets we serve.
Experience firsthand how together we
can make a difference!
The Bank of Princeton and MoreBank
maintain a
the business
focus on
community. Each quarter, a business
customer is selected and featured at the
branch location specific to their market.
All thirteen Spotlights on Business are
highlighted for one quarter and then
archived on our website.
Investor Relations
Visit the Investor Relations area of our
website to stay up to date on financial
information and
to view our press
releases.
Have you downloaded the App?
Our personal Banking Apps, developed for both smart phones and the iPad, make life more
convenient. Uncover links to the Apps on our website, in iTunes or Google Play for Android.
thebankofprinceton.com/personal/mobile-banking
100
History Timeline
•April - Hamilton Opens as the 3rd Branch Location
•November - Bayard Lane Opens as the 4th Branch
Location & Corporate Headquarters
•$194 Million in Total Year-End Assets
•The Bank of Princeton Extends its Footprint to
Pennsylvania with the Acquisition of MoreBank
•May - The Montgomery Branch Location is
Purchased from Provident Bank
•December - The Monroe Branch Opens as the 9th
Branch Location
•$488 Million in Total Year-End Assets
•The Bank of Princeton Celebrates its Fifth
Anniversary
•August - New Brunswick Opens as the 12th Branch
Location
•December - The Arch Street Branch of MoreBank
Opens in Chinatown
•Recognized by NJBiz as One of the 50 Fastest
Growing Companies in New Jersey, Moving Up
to 3rd Position
•$769 Million in Total Year-End Assets
•The Lending Team, Consisting of 13 Individuals,
Closes 250 Million in Commercial Loans
•The Bank of Princeton Loan Portfolio grows to
$733 Million
•$955 Million in Total Year-End Assets
2007
2008
2009
2010
2011
2012
2013
2014
2015
•$30 Million in Capital is Raised
•April 23 rd - The Bank of Princeton Opens for
Business on Chambers Street
•December - Pennington Opens as the 2nd
Branch Location
•$66 Million in Total Year-End Assets
•Residential Mortgage is Introduced to Product Line
•Established Healthcare Financing Program
•The Operations Center Opens at Wall Street
•$265 Million in Total Year-End Assets
•July - The Lambertville Branch Opens as the 10th
Branch Location
•The North Wales Branch of MoreBank is relocated
to a Newly Renovated Location
•$8.6 Million in Additional Capital is Raised
•December - Nassau Street Opens as the 11th
Branch Location
•Ranked #15 by NJBiz as One of the 50 Fastest
Growing Companies in New Jersey
•$665 Million in Total Year-End Assets
•Bayard Lane, Chambers Street and Hamilton each
exceed $100 Million in Deposits
•Recognized by NJBiz as One of the 50 Fastest
Growing Companies in New Jersey for the Third
Consecutive Year
•$877 Million in Total Year-End Assets
•November - Lawrenceville Opens as the 13th
Branch Location
•The Bank of Princeton Reaches $1 Billion in Assets
ACME Screening Room
Corner House
Hopewell Valley Arts Council
Allies, Inc.
Alzheimer's Association
Alzheimer's New Jersey
American Cancer Society
American Heart Association
American Red Cross
Crossroads of the American Revolution
Hopewell Valley Education Foundation
Crossroads Theatre Company
Hopewell Valley Historical Society
Crisis Ministry of Mercer County, The
Hopewell Valley Veterans Association
Cub Scout Pack 185
Dance Stop Studio
Hopewell Valley YMCA
Howell Living History Farm
Daytop New Jersey at Crawford House
Hunterdon County Chamber
American Repertory Ballet
D&R Greenway Land Trust
of Commerce
Animal Alliance of New Jersey
Delaware Township Schools, Partners in
Hunterdon County YMCA
Anchor House
Arc of Hunterdon County, The
Arts Council of Princeton
Autism Speaks
Education
Dress for Success
Hyacinth AIDS Foundation
Isles, Inc.
Eden Autism Services Foundation
Jewish Family & Children Services
Edison Chamber of Commerce
John Warms Montgomery High School
Bear Tavern Elementary School
Elijah's Promise
Alumni Association
Ben Franklin Elementary School
Family Guidance Center
John Witherspoon Middle School
Big Brothers Big Sisters of Mercer County
Financial Managers Society
Joint Effort - Princeton Safe
Boy Scout Troop 29
Food Cupboard of the Inter-Faith
Bridge Academy of New Jersey, The
Housing Alliance, The
Streets Weekend
Kalmia Club, The
Friendly Sons & Daughters of St. Patrick
Korean American Association
Bucks County Playhouse
Building One New Jersey
Capital Health Auxiliary
of Mercer County
Friends of Ely Park
Capital Health Foundation
Good Grief
of Greater Philadelphia
Korean American Association
of Southern New Jersey
Capital Region Minority Chamber
Greater Lambertville-New Hope Chamber
Korean American Broadcasting Company
of Commerce
Carrier Clinic
of Commerce
Korean American Institute of Princeton
Greater Philadelphia Asian Social
Korean American Soccer Association
Catholic Charities Diocese of Trenton
Services Center
of Greater Philadelphia
Center for Child and Family
Greater Philadelphia Korean American
Korean Community Center
Achievement
Association of 5 Northern Provinces
of Greater Princeton
Center for Educational Advancement
Greener New Jersey Productions
Lambertville/New Hope Winter Festival
Center for Family, Community & Social
Greenwood House
Lambertville Area Education Foundation
Justice, Inc., The
Center for Literacy
Habitat for Humanity, Raritan Valley
Lambertville Historical Society
Hamilton Area YMCA
Lambertville Shad Fest
Chambers Street Holiday Stroll
Hamilton Education Foundation
Lambertville-West Amwell Youth Baseball
Children's Home Society of
Hamilton Post 31
& Softball Association
New Jersey, The
Harrington Realty Charity Golf Tournament
Lamb Foundation, The
Christine's Hope for Kids Foundation
Hibernia Fire Company
Langtree PTA
Civic League of Greater New Brunswick
HiTOPS, Inc.
Community League of St. Mary's
HomeFront
HomeSharing, Inc.
Medical Center, The
Community Options, Inc.
Communiversity
Hopewell Elementary School
Learning Center for Exceptional
Hopewell Harvest Fair
Children, The
“It is every man's obligation to put back into the world
at least the equivalent of what he takes out of it.”
~ Albert Einstein
Leukemia & Lymphoma Society
Lewis School of Princeton
LifeTies, Inc.
March of Dimes
Mary Jacobs Library Foundation
Lawrence Historical Society
Lawrence Township Education Foundation
Lawrenceville School Camps, The
Meals on Wheels of Trenton/Ewing
New Jersey Business & Industry Association
Riverside Symphonia
Mercer County Bar Association
New Jersey Foundation for Aging
Rocky Hill Fire Department
Mercer County Community College
New Vision Youth Community Center
Ronald McDonald House
Foundation
Notre Dame High School
Mercer County Park’s Fall
One Simple Wish
Food Truck Fiesta!
Mercer County Turkey Trot
Parkinson Alliance, The
Paul Robeson House, The
Mercer Street Friends Food Bank
Penn Asian Senior Services
Rotary Club of Princeton
Rutgers Dance Marathon
Robert Wood Johnson Hamilton
Foundation
Ryan's Quest
Mercerville Fire Company
Pennington Business & Professional
St. Francis Medical Center Foundation
Middlesex County Regional Chamber
Association
of Commerce
Pennington Day, Inc.
St. Peter the Apostle Church
SAVE, A Friend to Homeless Animals
MidJersey Chamber of Commerce
Pennington Montessori
Science Mentors 1 to 1
Mid-Summer Marketing Showcase
Pennington Volunteer Fire Company
Send Hunger Packing Princeton
Mil Al Mission
People & Stories
SERV Behavioral Health Systems
Montgomery Baseball League
Philadelphia Chinatown Development
Shalom Heritage Center
Montgomery Basketball Association
Corporation
Sixth Man Club
Montgomery Business Association
Philadelphia Holy Redeemer
Solebury Township Historical Society
Montgomery High School
Cougar Football Club
Chinese Catholic Church & School
Special Olympics NJ
Philadelphia Korean Senior Golf Association
Special Strides
Montgomery / Rocky Hill Rotary Club
PlanSmart NJ
Steamboat Floating Classroom
Montgomery Rodeo
Princeton Academy of the Sacred Heart
Steinert DECA Student Fund
Montgomery Township Education
Princeton Area Alumni Association
Students Change Hunger
Foundation
Princeton Education Foundation
Thomas Edison State College Foundation
Montgomery Township Environmental
Princeton Family YMCA
Commission
Princeton Historical Society
Trenton Area Soup Kitchen
Trenton Catholic Academy
Montgomery Township Fireworks
Princeton in Africa
Trenton Public Education Foundation
Committee
PrincetonKIDS
Montgomery Township Volunteer
Princeton Merchants Association
Trinity Church
UIH Family Partners
Fire Company No. 1 & No. 2
Princeton Prize in Race Relationships, The
United Way of Hunterdon County
Princeton Pro Musica
Princeton Public Library
Princeton Recreation Department
Unity Square / New Brunswick 4-H
Trunk or Treat
VolunteerConnect
Princeton Regional Chamber of Commerce
Waldorf School of Princeton
Princeton Senior Resource Center
West Amwell Township
Princeton Symphony Orchestra
Womanspace
Princeton University Summer
Chamber Concerts
Wounded Warriors Project
Yeshivas Ohr Hatorah
Princeton Youth Baseball Association
Yeshivat Keter Torah
Rapter Trust, The
Recreation Foundation of
Hopewell Valley, Inc.
YMCA Camp Mason
YWCA of Trenton
YWCA Princeton
Montgomery Woman's Club
Morven Museum & Garden
NAMI Mercer New Jersey
Nassau Hockey League
National Kidney Foundation
New Brunswick City Market
New Brunswick Community
Food Alliance
New Brunswick Little League
New Brunswick Recreation
New Hope Automobile Show
New Hope Film Festival
New Hope Historical Society
New Hope Solebury Spirit Run
New Jersey Association
of Community Providers
New Jersey Bankers Association
CORPORATE HEADQUARTERS
183 Bayard Lane
Princeton, NJ 08540
CHAMBERS
21 Chambers Street
Princeton, NJ 08542
NASSAU
194 Nassau Street
Princeton, NJ 08542
MONTGOMERY
1185 Route 206 North
Princeton, NJ 08540
PENNINGTON
2 Route 31 South
Pennington, NJ 08534
HAMILTON
339 Route 33
Hamilton, NJ 08619
MONROE
1 Rossmoor Drive, Ste 120
Monroe Twp, NJ 08831
LAMBERTVILLE
10 Bridge Street
Lambertville, NJ 08530
NEW BRUNSWICK
1 Spring Street, Ste 102
New Brunswick, NJ 08901
LAWRENCEVILLE
2999 Princeton Pike
Lawrenceville, NJ 08648
OPERATIONS CENTER
403 Wall Street
Princeton, NJ 08540
CHELTENHAM
470 W. Cheltenham Avenue
Philadelphia, PA 19126
NORTH WALES
1222 Welsh Road
North Wales, PA 19454
CHINATOWN
921 Arch Street
Philadelphia, PA 19107
www.thebankofprinceton.com
609.921.1700
www.morebankusa.com
215.224.6400