Bayard / Corporate HQ
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
New Brunswick
1 Spring Street, Ste 102
Lawrenceville
2999 Princeton Pike
Lambertville, NJ 08530
New Brunswick, NJ 08901
Lawrenceville, NJ 08648
Operations Center
403 Wall Street
Princeton, NJ 08540
Cheltenham
470 W. Cheltenham Avenue
Philadelphia, PA 19126
North Wales
1222 Welsh Road
Chinatown
921 Arch Street
North Wales, PA 19454
Philadelphia, PA 19107
Annual Report
www.thebankofprinceton.com | 609.921.1700
www.morebankusa.com | 215.224.6400
Established 2007
At The Bank of Princeton...
At The Bank of Princeton...
We Listen -
We appreciate your business, and we’re
committed to being a true resource for
our community.
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.
Most importantly, we believe that our own success is
achieved only when yours is, when we deliver our unique
banking experience to you… and everyone we meet. For you,
in that way,
Est. 2007
We Make a Difference.
Annual Report 2016
Table of Contents
i
Letter to the Shareholders ......................................................................................
1
2016 Form 10-K .........................................................................................................
Who We Are .............................................................................................................
91
Bank
Wisely.
Dear Fellow Shareholders,
Letter to Shareholders
The Bank of Princeton (the “Bank”) earned $11.8 million in 2016, an increase of 8% percent from 2015. We were able to
build on our strong results from 2015 and continued to grow loans and net income in 2016. Book value per share was
$22.01 at December 31, 2016, an increase of $2.50 per share, or 13%, from December 31, 2015.
In 2016, we continued to focus on balance sheet optimization. Total assets increased 1.3% to $1.026 billion. However, our
mix of assets was more profitable. Gross loans increased $52.4 million or 6% in 2016, while less profitable investments
and cash decreased 20% and 31%, respectively. Customer deposits showed an increase of $73.1 million or 9% versus 2015.
This change in mix of both assets and liabilities had a positive impact on our 2016 profits.
The Bank’s return on average assets was 1.17% and our return on equity was 12.06%, demonstrating the consistent
profitability of the Bank. Despite the growing competition, we were able to increase our net interest margin to 3.86% in
2016 compared to 3.84% in 2015. Another key aspect in maintaining and expanding the Bank’s profitability is having
high-quality assets, as evidenced by our non-performing assets to total assets ratio. In 2016, this ratio decreased to 0.33%
versus 1.21% at year-end 2015. We remain committed to improving our financial performance while staying focused on
high-quality asset growth in 2017 so that we may continue to increase value to our shareholders.
For the greater part of 2016, the Bank was under a merger agreement that was terminated in early 2017. In spite of the
challenges faced, we continued to grow uninterrupted. This is in large part due to the Bank's business model and the
professionalism of people who are part of The Bank of Princeton team. Collectively, we remain committed to the
communities that we serve.
Once again, we are extremely pleased to report a notable selection of the Bank’s accomplishments for 2016 which include:
• The Bank had two new successful product launches - the Princeton Money Market and Princeton Savings
accounts.
◦ The combination of these two products brought the Bank over 1,000 new relationships.
◦ The launch of these products was done exclusively with digital advertising.
• Thirteen branches continued to provide quality customer service in the Mercer, Hunterdon, Middlesex,
and Somerset Counties within New Jersey. In addition, our three branches in Philadelphia and the
surrounding markets provided an excellent opportunity to serve the community.
• Communication continued through the distribution of monthly e-mail blasts, statement stuffers and statement
messages.
• Customer Appreciation week celebrated in May provided an occasion to grant an additional 0.25% on any new
Certificate of Deposit opened during the allotted period.
• An invitation was extended to customers in May to participate in a survey regarding products and services
offered by The Bank of Princeton/MoreBank. Much to our delight, the survey yielded exceptionally positive
results. Our customer satisfaction score exceeded the industry average! Customer Service is our Strength!
Customers feel Valued! We were recognized as a Bank where relationships can easily be established and
expanded. Over 93% of our customers would highly recommend the Bank to others.
• The Bank continued to support many non-profit and community events in our market area. Preview the
calendar of Upcoming Events on our website and join us!
• The American Bankers Association ranked The Bank of Princeton the 24th best performing community bank in
the nation. This marks the third consecutive year we achieved high placement, as we continue to advance in
position.
Our core focus is on providing competitive products and services, while our passion is to deliver exceptional customer
service. We believe expanding relationships, strengthening philanthropic partnerships and seeking additional
opportunities to support our communities is paramount. We highly value and are extremely grateful for the support from
our customers, shareholders, and community partners. Our directors, management and staff genuinely thank you for your
efforts. Together… we listen… we understand... and we can continue to make a difference.
r
Edward J. Dietzler, Pr, Pr
resident
Edward J. Dietzler, President
resident
Richard Gillespie, Chairman
i
The Bank of Princeton
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 31,2016
- OR -
]
[
For the transition period from ________________________________ to _______________________________
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 March 22, 2017 there were 4,743,895 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 24, 2017 is incorporated by reference into Part III of this annual report on Form 10-K.
1
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The Bank of Princeton
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
2
PAGE
3
12
12
12
13
13
14
15
15
31
31
78
78
78
79
79
79
79
79
79
81
The Bank of Princeton
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.
3
The Bank of Princeton
Termination of Merger Agreement
On January 24, 2017, the Bank entered into a Mutual Termination Agreement (the “Termination Agreement”) with
Investors Bancorp, Inc. and Investors Bank to terminate the Agreement and Plan of Merger, dated as of May 3, 2016 (“Merger
Agreement”), between the parties. The parties concluded that regulatory approval of the merger application submitted by
Investors Bank to the Federal Deposit Insurance Corporation would not be obtained prior to the March 31, 2017 termination
deadline set forth in the merger agreement. Each party bore its own costs and expenses in connection with the terminated
transaction, without penalties. Under the Termination Agreement, the parties also mutually released each other from any claims
of liability to one another relating to the merger transaction. Investors Bank also agreed that it would not engage in certain
activities involving the Bank through December 31, 2017, including directly soliciting or calling on any person who, to
Investors Bank’s knowledge as of January 24, 2017, was a customer of the Bank, for the purpose of extending credit to such
person.
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.
4
The Bank of Princeton
Loan Portfolio Composition. The following table presents our loan portfolio by segment at December 31, 2016,
2015, 2014, 2013 and 2012:
(in thousands)
2016
2015
As of December 31,
2014
2013
2012
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total loans
$
554,050
60,886
166,719
56,712
24,185
577
863,129
Deferred fees and costs
Allowance for loan losses
Loans, net
(2,803)
(10,822)
849,504
$
$
$
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
(2,910)
(10,851)
797,095
(2,150)
(10,008)
723,131
$
$
$
372,273
118,274
76,477
40,242
28,204
132
635,602
(1,769)
(8,493)
625,340
$
$
317,946
103,627
62,702
29,127
25,617
1,480
540,499
(1,351)
(7,033)
532,115
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.
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
5
The Bank of Princeton
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, 2016, we had no customers whose deposit balances individually exceeded 5 percent of total 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
Debit cards
Direct deposit
Safe deposit boxes
Night depository
Bank-by-mail
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.
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.
6
The Bank of Princeton
Staffing
As of December 31, 2016, we had 135 total employees and approximately 134 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
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.
7
The Bank of Princeton
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, 2016, averaged 0.76 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.
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 which began January 1, 2016 and will be phased in until January 1, 2019. At
December 31, 2016, the Bank’s capital conversation buffer was 4.0%.
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.
8
The Bank of Princeton
The final capital rules that became effective on January 1, 2015 introduced a requirement for a common equity Tier 1
capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital
standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more
stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the
payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three
years beginning in 2016. We have included the 0.625% increase for 2016 in our minimum capital adequacy ratios in the table
below. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the
Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. Management
believes that, as of December 31, 2016, the Bank would meet all capital adequacy requirements on a fully phased-in basis as if
all such requirements were currently in effect.
For capital adequacy
purposes
(including capital buffer
requirement)
To be well capitalized
under prompt corrective
action provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2016:
Total capital (to risk-weighted assets) $ 113,191
Tier 1 capital (to risk-weighted assets) $ 102,369
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 102,369
$ 102,369
December 31, 2015:
Total capital (to risk-weighted assets) $ 100,624
Tier 1 capital (to risk-weighted assets) $ 89,773
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 89,773
$ 89,773
12.000%
10.900%
$ 81,034
$ 62,243
≥ 8.625%
≥ 6.625%
$ 93,952
$ 75,162
≥ 10.000%
≥
8.000%
10.900%
$ 48,150
≥ 5.125%
$ 61,069
10.100%
$ 40,371
≥ 4.000%
$ 50,464
≥
≥
6.500%
5.000%
11.400%
10.100%
$ 70,828
$ 53,121
≥ 8.000%
≥ 6.000%
$ 88,535
$ 70,828
≥ 10.000%
≥
8.000%
10.100%
$ 39,841
≥ 4.500%
$ 57,548
9.000%
$ 40,131
≥ 4.000%
$ 50,163
≥
≥
6.500%
5.000%
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, 2016, the Bank exceeded all of its regulatory capital requirements.
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.
9
The Bank of Princeton
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,
2016, 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, 2016, 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
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:
•
•
Required 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;
Required BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located
outside their home state;
10
The Bank of Princeton
•
•
•
•
•
•
•
Changed 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;
eliminated the ceiling on the size of the DIF and increased the floor on the size of the DIF;
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
Eliminated 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;
Repealed 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;
Enhanced 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 increased the amount of
time for which collateral requirements regarding covered transactions must be maintained;
Expanded 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 were 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
Strengthened 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.
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. 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.
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, 2016, the Bank’s lending limit to one borrower was $17.0 million.
11
The Bank of Princeton
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
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, 2016:
Leased or
Owned
Date of Lease
Expiration
Leased
October 31, 2018
Leased
August 11, 2021
Leased
October 31, 2020
Leased
April 30, 2022
Leased
December 31, 2021
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
12
Leased or
Owned
Date of Lease
Expiration
Leased
April 30, 2020
Owned
N/A
Leased
November 30, 2020
Leased
November 30, 2021
Leased
March 31, 2022
Leased
September 30, 2021
Leased
January 25, 2021
Leased
September 30, 2017
The Bank of Princeton
Location
Montgomery Branch
1185 Route 206 North
Princeton, NJ
Lambertville Branch
10-12 Bridge Street
Lambertville, NJ
Lawrenceville Branch
2999 Princeton Pike
Lawrenceville, NJ
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
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
13
The Bank of Princeton
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
There is no established public trading market for our common stock. Although shares of our common stock are
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
common stock may have to seek buyers and negotiate a transaction price by themselves.
Holders
As of March 22, 2017, there were approximately 684 holders of our common stock.
Dividends
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.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 31, 2016. 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.
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
169,036
481,517
6,000
72,000
728,553
$12.00
$16.29
$25.00
$10.00
$14.74
42,253
86,296
-
-
128,549
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
Total
14
The Bank of Princeton
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," our Consolidated Financial Statements
and the notes thereto included in this Form 10-K, and 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, 2016 and December 31, 2015
Comparison of Operating Results for the Years Ended December 31, 2016 and December 31, 2015
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-
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.
15
The Bank of Princeton
Comparison of Financial Condition at December 31, 2016 and December 31, 2015
General. Our total assets increased from $1.01 billion at December 31, 2015 to $1.03 billion at December 31, 2016,
an increase of $12.7 million, or one percent. This increase was primarily due to increases in loans receivable, net of our
allowance for loan losses of $52.4 million and bank owned life insurance of $3.2 million. Offsetting these increases, securities
available-for-sale decreased $28.5 million, cash and cash equivalents decreased $9.0 million, and accrued interest receivable
and other assets decreased $4.2 million. Total liabilities remained relatively flat at $922.5 million at December 31, 2016. Total
deposits increased nine percent from $789.4 million to $862.5 million at December 31, 2016. Offsetting this increase, total
borrowings decreased $72.7 million or 56 percent as compared to the prior year. Total stockholders’ equity increased $12.0
million to $103.5 million or 13 percent primarily attributable to 2016 net income of $11.8 million. The growth of our balance
sheet has been a direct result of the successful implementation of our business plan. However, this growth was somewhat
constrained in 2016 by limitations set forth in the Merger Agreement described in Part I—Item 1. Business, and by the effects
of being under such an agreement, which was terminated in January 2017. 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 $28.6 million at December 31, 2015 to $19.6
million at December 31, 2016, a decrease of $9.0 million, or 31 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 loss.
The following table presents a summary of the amortized cost and fair value of our securities available-for-sale at
December 31, 2016, 2015 and 2014.
2016
December 31,
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
- $
- $
- $
- $
14,770 $
14,551
59,679
59,864
70,524
70,682
76,428
77,188
53,361
53,170
70,140
70,827
71,665
72,061
(in thousands)
U.S. Treasury securities
Mortgage-backed Securities-U.S.
Government-sponsored
Enterprises (GSEs)
Obligations of state and
political subdivisions
Total
$
113,040 $
113,034 $
140,664 $
141,509 $
162,863 $
163,800
Securities available-for-sale, which are carried at fair value, decreased $28.5 million, or 20 percent, to $113 million
at December 31, 2016. Funds from security sales and principal repayments were utilized to supplement growth in our loan
portfolio.
16
The Bank of Princeton
The following table presents a summary of the amortized cost and fair value of our HTM securities at December 31,
2016, 2015 and 2014.
2016
December 31,
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
340 $
365 $
381 $
414 $
420
$
456
(in thousands)
Mortgage-backed Securities-U.S.
Government-sponsored
Enterprises (GSEs)
HTM securities decreased minimally from December 31, 2015 to December 31, 2016. 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, 2016. 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.
(in thousands)
Mortgage-backed Securities-U.S. Government-
sponsored Enterprises (GSEs)
Obligations of state and political subdivisions
Total
After one
through five
years
December 31, 2016
After five
through ten
years
After ten
years
One year
or less
$
$
- $
405
405 $
1,835 $
2,683
4,518 $
33,965 $
39,784
73,749 $
23,879 $
10,489
34,368 $
Weighted average yield
0.87%
2.41%
1.00%
2.59%
Total
59,679
53,361
113,040
1.54%
At December 31, 2016, 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
10-K for additional information regarding debt securities.
Loans receivable, net. Loans receivable, net increased from $797.1 million at December 31, 2015 to $849.5 million
at December 31, 2016, an increase of $52.4 million, or six percent. The increase was attributable to our efforts to grow our
loan portfolio through existing relationships and new business. This growth was largely funded by increases in deposits and a
decrease in our investment securities.
17
The Bank of Princeton
The following table details our loan maturities by loan segment and interest rate type at December 31, 2016:
(in thousands)
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total loans
Type:
Fixed rate loans
Floating rate loans
Total loans
December 31, 2016
Due in one year
or less
Due after one
through five
years
Due after five
years
Total
$
$
$
$
35,597 $
24,736
132,623
-
167
174
193,297 $
62,919 $
21,017
34,096
-
138
403
118,573 $
56,732 $
136,565
62,528 $
56,045
193,297 $
118,573 $
455,534
15,133
-
56,712
23,880
-
551,259
51,707
499,552
551,259
$
$
$
$
554,050
60,886
166,719
56,712
24,185
577
863,129
170,967
692,162
863,129
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 the principal or interest, even if 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.
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, 2016, 2015, 2014, 2013, and 2012.
(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,
2016
2015
2014
2013
2012
$
$
1,389 $
188
1,649
-
145
-
3,371
4,943
1,820
10,134
-
6,530
1,834
1,805
1,370
450
-
11,989
1,171
-
13,160
300
10,134 $ 13,460
$
6,190 $
1,185
1,911
166
419
-
9,871
3,797
-
13,668
804
2,690
4,596
892
-
359
11
8,548
2,412
-
10,960
1,550
$ 14,472 $ 14,023 $ 12,510
2,535 $
5,127
-
182
394
-
8,238
4,858
-
13,096
927
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, 2016 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.
18
The Bank of Princeton
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, 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 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 remained relatively flat at $10.9 million at December 31, 2016. The (credit) provision
for loan losses decreased $1.9 million over the prior year from a provision of $1.9 million for the year ended December 31,
2015 to a credit of $41,000 for the year ended December 31, 2016. Contributing to this decrease, nonaccrual loans decreased
$8.6 million or 72 percent as compared to the prior year. Specific reserves related to impaired loans decreased $0.4 million
from the prior year. Net recoveries were $12,000 during 2016 as compared to net charge-offs of $1.1 million during 2015.
The ratio of allowance for loan losses to total loans decreased from 1.34% to 1.26% for the period ended December 31, 2016.
19
The Bank of Princeton
The following table presents a summary of changes in our allowance for loan losses and includes information
regarding charge-offs, recoveries, and net charge offs to average loans outstanding for the years ended December 31, 2016,
2015, 2014, 2013 and 2012:
(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
Net charge-offs
(Reductions) additions charged to operations ((credit)
provision for loan losses)
Balance at end of year
2016
Year Ended December 31,
2014
2015
2013
2012
$
10,851
$
10,008 $
8,493
$
7,033 $
5,362
-
-
-
-
-
-
-
-
12
-
-
-
-
12
12
(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
(1,061)
(65)
(572)
(297)
(41)
10,822
$
1,904
1,580
10,851 $ 10,008
$
$
2,032
8,493 $
1,968
7,033
Net charge offs to average loans outstanding
0.00 %
0.14 %
0.01%
0.10%
0.06%
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. Reductions or additions to the allowance charged to
operations are the result of applying our allowance methodology to the existing loan portfolio.
20
The Bank of Princeton
The following table presents the allocation of the allowance for loan losses by portfolio segment for the years ended
December 31, 2016, 2015, 2014, 2013 and 2012. 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.
2016
December 31,
2015
2014
Allocation
as a % of
Loan
Category
64.2 % $
7.0 %
19.3 %
6.6 %
2.8 %
0.1 %
-
100.0 % $
Amount
4,703
2,246
2,615
292
225
3
767
10,851
Allocation
as a % of
Loan
Category
60.5 % $
15.4 %
15.1 %
5.2 %
3.7 %
0.1 %
-
100.0 % $
Amount
3,621
1,530
2,719
318
307
17
1,496
10,008
Allocation
as a % of
Loan
Category
61.2 %
17.3 %
10.7 %
6.2 %
4.2 %
0.4 %
-
100.0 %
Amount
5,330
974
3,159
404
155
3
797
10,822
December 31,
2013
2012
Allocation
as a % of
Loan
Category
58.6 % $
18.6 %
12.0 %
6.3 %
4.5 %
- %
-
100.0 % $
Allocation
as a % of
Loan
Category
58.8 %
19.2 %
11.6 %
5.4 %
4.7 %
0.3 %
-
100.0 %
Amount
2,557
1,244
2,163
204
256
10
599
7,033
Amount
2,994
1,419
2,638
282
282
1
877
8,493
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Unallocated
Total
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Unallocated
Total
$
$
$
$
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 $0.9 million from December 31, 2015 to December
31, 2016 resulting from normal depreciation expense during the year.
Accrued interest receivable and other assets. Accrued interest receivable and other assets decreased $4.2 million, or
23 percent, from December 31, 2015 to December 31, 2016, primarily due to decreases of $3.2 million in restricted investments
in bank stock. The decrease in restricted investments in bank stocks was primarily the result of a $72.7 million decrease in
FHLB-NY borrowings from December 31, 2015 to December 31, 2016. We are required to own stock of the FHLB-NY based
in part by the amount of our FHLB-NY borrowings outstanding. The remaining decrease was primarily due to a $0.5 million
decrease in income taxes receivable as compared to the prior year-end.
Deposits. Total deposits increased from $789.4 million at December 31, 2015 to $862.5 million at December 31,
2016, an increase of $73.1 million, or nine percent. Non-interest-bearing deposits decreased $4.7 million, or five percent, to
$98.2 million at December 31, 2016. Interest-bearing deposits increased $77.8 million, or 11 percent, to $764.3 million at
December 31, 2016.
21
The Bank of Princeton
The following table presents our time deposit maturities as of December 31, 2016.
(in thousands)
Time deposits of $250,000 or more
Time deposits of less than $250,000
Total
Over
three
through
six
months
December 31, 2016
Over six
through
twelve
months
Over
twelve
months
Three
months
or less
$
$
10,036 $
22,770
32,806 $
2,115 $
14,371
16,486 $
14,678 $
40,588
55,266 $
23,724 $
92,207
115,931 $
Total
50,553
169,936
220,489
The following table presents the average balance of our deposit accounts for the years ended December 31, 2016,
2015 and 2014, and the average cost of funds for each category of our deposits.
2016
Avg.
Rate
Paid
% of
Average
Total
Deposits
Average
Amount
2015
Avg.
Rate
Paid
% of
Average
Total
Deposits
Average
Amount
2014
Avg.
Rate
Paid
% of
Average
Total
Deposits
Average
Amount
$ 105,794
0.00%
12.6% $ 133,970
0.00%
16.2% $ 125,472
0.00%
15.9 %
160,270
234,949
83,123
0.63
0.86
0.77
19.1
28.0
9.9
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
63,608
1.48
7.6
64,065
1.23
7.7
63,196
1.02
8.0
(in thousands)
Demand, non-
interest-bearing
checking
Demand Interest-
bearing
Money market
Savings deposits
Time deposits of
$250,000 or
more
Other time
deposits
191,825
1.44
22.8
211,224
1.52
25.5
212,249
2.07
Total
$ 839,569
0.88%
100.0% $ 828,909
0.79%
100.0% $ 790,943
0.88%
26.8
100.0 %
Borrowings. Borrowings decreased $72.7 million or 56 percent to $56.1 million at December 31, 2016. 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 deposits during the year, supplemented with amounts from the sales and principal repayments of
securities, available-for-sale, decreased the need for borrowings at year-end December 31, 2016.
Accrued interest payable and other liabilities. Accrued interest payable and other liabilities increased $0.3 million
to $3.9 million as compared to $3.6 million in the prior year. Income taxes payable increased $0.6 million due to the timing of
tax payments offset by decreases in miscellaneous other liabilities.
Stockholders’ equity. Total stockholders’ equity increased $12.0 million to $103.5 million or 13 percent primarily
attributable to net income of $11.8 million.
22
The Bank of Princeton
Comparison of Operating Results for the Years Ended December 31, 2016 and December 31, 2015
General. Net income for the year ended December 31, 2016 was $11.8 million, an increase of approximately $0.8
million, or eight percent as compared to the year ended December 31, 2015. This increase was primarily attributable to an
increase in net interest income and a decrease in the provision for loan losses partially offset by increases in non-interest expense
and income tax expense.
Net interest income. Net interest income increased $1.3 million, or four percent, to $37.7 million for the year ended
December 31, 2016, compared to $36.4 million for the year ended December 31, 2015. Our interest rate spread increased from
3.66 percent for the year ended December 31, 2015 to 3.69 percent for the year ended December 31, 2016, an increase of three
basis points. Our average interest-earning assets increased $28.3 million, or three percent, while the average yield on those
assets increased 10 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 $45.6 million, or six
percent, while the average cost of those liabilities increased seven basis points.
Total interest and dividend income. Total interest and dividend income increased $2.2 million, or five percent, to
$45.4 million for the year ended December 31, 2016, compared to $43.2 million for the prior year. The improvement in interest
income resulted from an increase in the average balance of interest-earning assets which increased $28.3 million coupled with
an increase in yield on these assets of 10 basis points as compared to the previous year.
Interest income and fees on loans increased $2.7 million, or seven percent, to $42.3 million for the year ended
December 31, 2016, compared to $39.6 million for the prior year. The increase was attributable to an increase in the average
balance of loans receivable of $62.5 million from $766.8 million in 2015 to $829.3 million in 2016. This increase was partially
offset by a six 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, 2016.
Interest income on securities decreased approximately $0.6 million, or 17 percent, for the year ended December 31,
2016 compared to the prior year. This decrease was primarily attributable to a $27.0 million decrease in average balances while
yields increased one basis point over the prior year. Average balances decreased as cash received from principal repayments
and sales of securities was utilized to fund the growth in our loan portfolio.
Interest Expense. Total interest expense increased $0.9 million, or 14 percent for the year ended December 31, 2016,
compared to the prior year period. This increase was the result of a seven basis point increase in the cost of interest-bearing
liabilities, coupled with a $45.6 million increase in average interest-bearing liabilities.
Interest expense on deposits increased $0.8 million for the year ended December 31, 2016 compared to the prior year
due to an increase in the cost of interest-bearing deposits of five basis points during 2016, coupled with an increase in average
interest-bearing deposits of $38.8 million.
Interest expense on borrowings increased approximately $0.1 million, or 51 percent, for the year ended December 31,
2016 compared to the prior year. This increase was primarily attributable to a $6.8 million increase in average balances and a
15 basis point increase in the cost of borrowings.
(Credit) Provision for Loan Losses. The (credit) provision for loan losses decreased $1.9 million over the prior year
from a provision of $1.9 million for the year ended December 31, 2015 to a credit of $41,000 for the year ended December 31,
2016. Contributing to this decrease, nonaccrual loans decreased $8.6 million or 72 percent as compared to the prior year. Net
charge-offs were $12,000 as compared to $1.1 million during 2015. The ratio of allowance for loan losses to total loans
decreased from 1.34% to 1.26% for the period ended December 31, 2016. 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 remained relatively unchanged at $2.4 million as compared to December
31, 2015. Gain on sales of securities available-for-sale decreased $0.1 million to $0.1 million for the year ended December 31,
2016 and gain on sale of real estate owned decreased $0.2 million. Offsetting these decreases, income from bank owned life
23
The Bank of Princeton
insurance increased $0.1 million and other service charges increased $0.3 million largely driven by increases in loan
prepayment fees and expired commitment fees on commercial loans.
Non-Interest Expense. Non-interest expense increased approximately $1.7 million, or eight percent, to $23.7 million
in 2016, compared to $22.1 million in the prior year.
Salaries and employee benefits increased $1.1 million, or nine percent, to approximately $13.4 million in 2016. The
increase was primarily attributable to normal merit increases occurring at the beginning of the 2016 as well as an increase in
average full time equivalent employees from 132 employees during 2015 to 134 employees during 2016. Bonus expense
increased $0.1 million as compared to the prior year. Medical insurance premiums increased $0.1 million over the prior year.
Professional fees increased $0.9 million, or 66 percent, to approximately $2.1 million in 2016 compared to $1.3 million
in 2015. Legal fees increased $0.2 million during the year due to increased costs related to the planned merger with Investors
Bank. Consulting fees also increased $0.1 million directly related to the planned merger. Internal and external audit fees each
increased $0.1 million due to increased testing related to the Bank’s initial year of compliance with Section 36 of the FDI Act
and FDIC Regulation Part 363 regarding internal control over financial reporting, as well as internal control related matters
identified in early 2016. Board of director fees increased $0.2 million over the prior year.
Income Tax Expense. The provision for income taxes increased $0.8 million, or 21 percent, to $4.5 million in 2016
compared to $3.7 million in the prior year. The increase was due to an 11 percent increase in pre-tax income and an increase
in the effective tax rate from 25.2 percent in 2015 to 27.4 percent in 2016. This was mainly attributable to increases in state
taxes and from the incremental federal tax rate increase on taxable income over $10.0 million.
24
The Bank of Princeton
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:
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
2016
Interest
Average
Yield/Cost
Average
Balance
2015
Interest
Average
Yield/Cost
$
829,295
$
42,304
5.10 % $
766,776
$
39,579
5.16 %
124,311
369
21,184
975,159
35,971
$ 1,011,130
243,393
234,949
255,433
733,775
69,222
802,997
109,829
912,826
98,304
2,817
19
293
45,433
1,646
2,015
3,699
7,360
403
2.27
5.15
1.38
4.66
0.68
0.86
1.45
1.00
0.58
$
$
7,763
0.97 %
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
1,741
837
3,992
6,570
267
2.25
5.02
0.76
4.56
0.62
0.59
1.45
0.95
0.43
6,837
0.90 %
$ 1,011,130
$
980,604
3.69 %
3.66 %
$
37,670
$
36,384
3.86 %
1.21x
3.84 %
1.25x
(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.
25
The Bank of Princeton
(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,
2014
Average
Balance
Interest
Average
Yield/Cost
$
678,058
$
36,170
5.33 %
$
$
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
$
910,672
4,206
21
170
40,567
1,953
918
4,109
6,980
177
2.38
4.98
0.74
4.62
0.81
0.62
1.49
1.05
0.41
7,157
1.01 %
$
33,410
3.61 %
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
The Bank of Princeton
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
Year Ended December 31,
2016 vs. 2015
Increase (Decrease) Due to
Year Ended December 31,
2015 vs. 2014
Increase (Decrease) Due to
Volume
Rate
Net
Volume
Rate
Net
$
3,189
$
(464) $
2,725 $
4,579 $
(1,170) $
3,409
$
$
(574)
(1)
(100)
2,514
$
(15)
-
177
(302) $
(589)
(1)
77
2,212 $
(529)
(1)
42
4,091 $
(271)
-
4
(1,437) $
(800)
(1)
46
2,654
(240) $
806
(287)
40
144
372
(5)
96
$
(96) $
1,178
(292)
136
232 $
(44)
(2)
(444) $
(36)
(116)
84
6
(212)
(80)
(118)
90
Total interest-bearing
liabilities
$
319
$
607
$
926 $
270 $
(590) $
(320)
Change in net interest income
$
2,195
$ (909) $
1,286 $
3,821 $ (847) $
2,974
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.
While deposits are our primary source of funds, we are also able to generate cash through borrowings from the FHLB-
NY. At December 31, 2016, we had $56.1 million of overnight advances outstanding from the FHLB-NY. At December 31,
2016, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $457 million.
27
The Bank of Princeton
Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2016,
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, 2016:
Years Ended December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum payments required
(in thousands)
1,520
$
1,430
1,183
1,121
738
38
$ 6,030
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, 2016,
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)
2016
2015
Performance and standby letters of credit
Commitments to fund loans
Unfunded commitments under lines of credit
Total
$
$
3,720
138,925
10,765
153,410
$
$
9,015
121,015
11,611
141,641
For additional information regarding our outstanding lending commitments at December 31, 2016, see Note 10 –
Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in this Annual Report on Form
10-K.
28
The Bank of Princeton
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, 2016, 2015 and 2014.
Return on Average Assets (ROA)
Return on Average Equity (ROE)
Average Equity to Average Assets
2016
1.17%
12.05%
9.72%
2015
1.12 %
12.95%
8.67%
2014
0.99%
12.53%
7.89%
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, 2016, 2015 and 2014.
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
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.
29
The Bank of Princeton
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, 2016 and 2015. 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.
30
The Bank of Princeton
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.
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.
31
The Bank of Princeton
THE BANK OF PRINCETON
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Reports 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
33
34
35
36
37
38
40
32
The Bank of Princeton
33
The Bank of Princeton
34
The Bank of Princeton
35
The Bank of Princeton
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 $365 and $414, respectively)
Loans receivable, net of allowance for loan losses of $10,822 and $10,851
$
at December 31, 2016 and 2015, respectively
Bank-owned life insurance
Other real estate owned (OREO)
Premises and equipment, net
Accrued interest receivable and other assets
December 31,
2016
2015
$
19,605
113,034
340
849,504
25,411
-
4,519
13,583
28,589
141,509
381
797,095
22,258
300
5,450
17,740
TOTAL ASSETS
$
1,025,996
$
1,013,322
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, 4,700,395 and
4,687,457 shares issued and outstanding at December 31, 2016 and
2015, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
TOTAL STOCKHOLDERS’ EQUITY
$
$
98,204
764,317
862,521
56,100
3,913
922,534
23,502
31,856
48,108
(4)
103,462
102,944
686,489
789,433
128,800
3,645
921,878
23,437
31,223
36,265
519
91,444
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,025,996
$
1,013,322
See notes to consolidated financial statements.
36
The Bank of Princeton
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
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
(Credit) provision for loan losses
NET INTEREST INCOME AFTER (CREDIT) 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
(Loss) 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.
$
$
$
37
For the Years Ended
December 31,
2016
2015
$
42,304
$
39,579
1,154
1,663
19
293
45,433
7,360
403
7,763
37,670
(41)
37,711
136
653
1,540
(42)
67
2,354
13,350
3,483
2,147
1,904
705
225
308
18
1,621
23,761
16,304
4,461
11,843
2.52
2.36
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
$
$
$
The Bank of Princeton
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
NET INCOME
Other comprehensive (loss) income
Unrealized holding (losses) gains arising during period on securities
available-for-sale
Income tax effect on unrealized holding losses (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
COMPREHENSIVE INCOME
For the Years ended
December 31,
2016
2015
$
11,843
$
11,006
(715)
276
(136)
52
(523)
11,320
$
$
134
(52)
(226)
87
(57)
10,949
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.
38
The Bank of Princeton
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2016 and 2015
(in thousands, except share data)
Common
stock
Paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
(loss) income
Total
Balance, January 1, 2015
Net income
Other comprehensive loss
Stock options and warrants exercised
$
(105,142 shares)
Non-qualified stock options
exercised
Stock-based compensation expense
Balance, December 31, 2015
Net income
Other comprehensive loss
Stock options and warrants exercised
(12,938 shares)
Stock-based compensation expense
Balance, December 31, 2016
$
$
22,912
-
-
525
-
23,437
-
-
65
-
23,502
$
$
$
29,755
-
-
703
76
689
31,223
-
-
87
546
31,856
$
$
25,259 $
11,006
-
-
-
36,265 $
11,843
-
-
-
$
48,108 $
576
-
(57 )
-
-
519
-
(523 )
-
-
(4 )
$
$
$
78,502
11,006
(57 )
1,228
76
689
91,444
11,843
(523 )
152
546
103,462
See notes to consolidated financial statements.
39
The Bank of Princeton
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2016
2015
$
11,843
$
11,006
(41)
940
546
614
(1,112)
(136)
(653)
20
42
9
1,241
268
13,581
(7,052)
10,274
23,924
41
(51,256)
(2,500)
258
(9)
3,215
(23,105)
73,088
17,300
(90,000)
152
540
(8,984)
28,589
19,605
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
(3,283)
31,872
28,589
$
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
(Credit) 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
Net realized gains on sale of securities available-for-sale
Increase in cash surrender value of bank-owned life insurance
Deferred income tax expense
Net loss (gain) on sale of other real estate owned
Amortization of core deposit intangible
Decrease (increase) in accrued interest receivable and other assets
Increase (decrease) 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
Redemptions (purchases) of restricted bank stock
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
Net proceeds of borrowings
Repayments of term borrowings
Proceeds from exercise of stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET DECREASE 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.
40
The Bank of Princeton
THE BANK OF PRINCETON
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(in thousands)
SUPPLEMENTARY CASH FLOWS INFORMATION:
Interest paid
Income taxes paid
SUPPLEMENTARY SCHEDULE OF NONCASH ACTIVITIES:
Transfers from loans receivable, net of OREO
See notes to consolidated financial statements.
For the Years Ended December 31,
2016
2015
$
$
$
7,837
3,510
-
$
$
$
7,000
5,102
300
41
The Bank of Princeton
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, 2016, the Bank had 135 total employees and 134 full-time equivalent
employees. The Bank maintains a website at www.thebankofprinceton.com.
Termination of Merger Agreement
On January 24, 2017, the Bank entered into a Mutual Termination Agreement (the “Termination Agreement”) with
Investors Bancorp, Inc. and Investors Bank to terminate the Agreement and Plan of Merger, dated as of May 3, 2016
(“Merger Agreement”), between the parties. The parties concluded that regulatory approval of the merger application
submitted by Investors Bank to the Federal Deposit Insurance Corporation would not be obtained prior to the March 31,
2017 termination deadline set forth in the merger agreement. Each party bore its own costs and expenses in connection
with the terminated transaction, without penalties. Under the Termination Agreement, the parties also mutually released
each other from any claims of liability to one another relating to the merger transaction. Investors Bank also agreed that
it would not engage in certain activities involving the Bank through December 31, 2017, including directly soliciting or
calling on any person who, to Investors Bank’s knowledge as of January 24, 2017, was a customer of the Bank, for the
purpose of extending credit to such person.
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, 2016 and 2015. 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.
42
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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.
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.
43
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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 2016 and 2015, 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, 2016 and 2015.
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.
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.
44
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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.
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.
45
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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.
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.
46
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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, 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 write-downs are included in non-interest expense.
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.
47
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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 $3.5 million
and $6.8 million is carried at cost at December 31, 2016 and 2015, 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, 2016 and 2015.
Management believes no impairment charge is necessary related to the FHLB restricted stock or the ACBB restricted stock
as of December 31, 2016 or 2015.
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, 2016
and 2015. 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, 2016, tax years
after 2013 are subject to federal examination and tax years after 2012 to state examination. Tax regulations are subject to
interpretation of the related tax laws and regulations and require significant judgment to apply.
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
48
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
matching contributions to employees of $117,000 and $101,000, respectively during the years ended December 31, 2016
and 2015.
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.
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.
Recently issued accounting standards
In November, 2016, the FASB issued Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic
230): Restricted Cash. ASU 2016-18 was issued to address divergence in the way restricted cash is classified and presented.
The amendments in the update require that a statement of cash flows explain the change during a reporting period in the
total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The
amendments in this update apply to entities that have restricted cash or restricted cash equivalents and are required to
present a statement of cash flows under Topic 230. The amendment says that transfers between cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents are not part of the entity's operating, investing,
and financing activities. For public business entities, ASU 2016-18 is effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. At December 31, 2016 the Bank does not have restricted cash and
therefore does not anticipate a material impact to the consolidated financial statements at this time.
49
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
In August, 2016, the FASB issued ASU 2016-15: Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments. Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash
payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other
Topics. This update addresses the following eight cash flow issues: Debt prepayment or debt extinguishment costs;
settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in
relation to the effective interest rate of the borrowing; contingent consideration payments made after a business
combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life
insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity
method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application
of the predominance principle. The amendments in this update apply to all entities, including both business entities and
not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this
update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Historically, the cash flows from these items has been infrequent and immaterial. The Bank
does not anticipate a material impact to the consolidated financial statements at this time.
In June, 2016 the FASB has issued ASU 2016-13: Financial Instruments - Credit Losses, which amends the Board's
guidance on the impairment of financial instruments. The amended guidance requires financial assets measured at
amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a
valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value
at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly
recognized financial assets as well as expected increases or decreases of expected credit losses that have taken place during
the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s)
(taking into account prepayments) will be estimated considering relevant information about past events, current conditions,
and reasonable and supportable forecasts that affect the collectability of the reported amount. The amended guidance also
requires recording an allowance for credit losses for purchased financial assets with a more-than-insignificant amount of
credit deterioration since origination. The initial allowance for these assets will be added to the purchase price at
acquisition rather than being reported as an expense. Subsequent changes in the allowance will be recorded through the
income statement as an expense adjustment. In addition, the amended guidance requires credit losses relating to available-
for-sale debt securities to be recorded through an allowance for credit losses. The calculation of credit losses for available-
for-sale securities will be similar to how it is determined under existing guidance. The guidance is effective for annual
periods and interim periods within those annual periods beginning after December 15, 2019. The Bank is assessing the
new guidance to determine what modifications to existing credit estimation processes may be required. The Bank expects
that the new guidance will result in an increase in its allowance for credit losses as a result of considering credit losses
over the expected life of its loan portfolios. Increases in the level of the allowance for credit losses will also reflect new
requirements to include the nonaccretable principal difference on purchased credit impaired loans and estimated credit
losses on investment securities classified as held-to-maturity, if any. The Bank is reviewing our systems and data
collection to determine the necessary changes to our current process. The Bank is in the initial stages of evaluating the
effect of this standard on our financial statements.
In March, 2016, the FASB issued ASU 2016-09: Compensation —Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The Board is issuing this update as part of its initiative to reduce complexity
in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee
share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic
entities. In addition, the amendments in this update eliminate the guidance in Topic 718 that was indefinitely deferred
shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. For public business entities,
the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. The Bank evaluated the impact of this guidance and does not anticipate a material impact to
the consolidated financial statements at this time.
50
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
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. Our leases are operating
leases and ASU 2016-02 will require us to recognize them in our consolidated statement of financial condition. Our
operating leases are predominantly related to real estate. The Bank is in the initial stages of evaluating the effect of this
standard on our financial statements and continues to evaluate the available transition methods.
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 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 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. Our revenue is comprised of net interest income on financial assets and financial liabilities,
which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We are currently evaluating the
impact of ASU 2014-09 on the components of our non-interest income. However, our preliminary analysis suggests that
the adoption of this amended guidance is not expected to have a material impact on the Bank’s consolidated financial
statements. We expect to adopt the standard in the first quarter of 2018.
51
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Earnings Per Share
The following schedule presents earnings per share data for the years ended December 31, 2016 and 2015:
Net income applicable to common stockholders
Weighted average number of common shares outstanding
Basic earnings per share
Net income applicable to common stockholders
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
Years ended
December 31,
2016
2015
(in thousands, except per share
data)
$
$
$
$
11,843
4,696
2.52
11,843
4,696
323
5,019
2.36
$
$
$
$
11,006
4,623
2.38
11,006
4,623
161
4,784
2.30
Options and warrants to purchase 728,553 shares of common stock at a weighted average exercise price of $14.74 were included
in the computation of diluted earnings per share for the year ended December 31, 2016. There were no non-dilutive options or
warrants at December 31, 2016.
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
Note 3 – Investment Securities
The following summarizes the amortized cost and estimated fair value of securities available-for-sale at December 31, 2016
and 2015 with gross unrealized gains and losses therein:
Amortized
Cost
December 31, 2016
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
$
$
59,679
53,361
113,040
$
$
578
214
792
$
$
(393)
$
59,864
(405)
(798)
$
53,170
113,034
52
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Investment Securities (Continued)
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
70,140
140,664
$
$
564
780
1,344
$
$
(406)
$
70,682
(93)
(499)
$
70,827
141,509
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, 2016 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, 2016:
Mortgage-backed
securities-U.S.
Government Sponsored
Enterprises (GSEs)
Obligations of state and
political subdivisions
Total
$
$
19,417
25,176
44,593
$
$
(349)
(402)
(751)
$
$
1,289
904
2,193
$
$
(44)
(3)
(47)
$
$
20,706
26,080
46,786
$
$
(393)
(405)
(798)
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
9,974
40,072
$
$
(306)
(64)
(370)
$
$
2,807
2,631
5,438
$
$
(100)
(29)
(129)
$
$
32,905
12,605
45,510
$
$
(406)
(93)
(499)
53
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Investment Securities (Continued)
At December 31, 2016, there were four securities in the more-than-twelve-months category and 79 securities in the less-than
twelve-month category for the securities available-for-sale portfolio. Included in the four securities in the twelve-months-or-
more category are (a) two collateralized mortgage obligations; and (b) two municipal debt obligations. Included in the 79
securities in the less-than twelve-month category are (a) ten mortgage-backed securities; (b) eight collateralized mortgage
obligation; and (c) 61 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, 2016 and 2015.
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 amortized cost and estimated fair value of securities available-for-sale at December 31, 2016 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)
$
$
405
4,518
73,749
34,368
113,040
$
$
404
4,531
73,964
34,135
113,034
The following summarizes the amortized cost and estimated fair value of securities held-to-maturity at December 31, 2016
with gross unrealized gains and losses therein:
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
Held-to-maturity:
Mortgage-backed securities-U.S.
Government Sponsored Enterprises (GSEs)
$
340
$
25
$
-
$
365
All securities held-to-maturity are due after ten years.
54
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Investment Securities (Continued)
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
Proceeds from the sale of securities available-for-sale amounted to $10.3 million for the year ended December 31, 2016, which
included gross realized gains of approximately $0.1 million. 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.
Securities available-for-sale with fair values of approximately $69.9 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, 2016.
Note 4 – Loans Receivable
Loans receivable, net at December 31, 2016 and 2015 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,
2016
December 31,
2015
(in thousands)
$
$
554,050
60,886
166,719
56,712
24,185
577
863,129
(2,803)
(10,822)
849,504
$
$
490,298
125,072
122,297
42,409
29,922
858
810,856
(2,910)
(10,851)
797,095
55
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
The following table presents nonaccrual loans by segment of the loan portfolio as of December 31, 2016 and 2015:
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
December 31,
2016
December 31,
2015
(in thousands)
$
$
1,389
188
1,649
-
145
-
3,371
$
$
6,530
1,834
1,805
1,370
450
-
11,989
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, 2016
and the year then ended:
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
(in thousands)
Average
Recorded
Investment
Interest
Income
Recognized
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
$
$
5,131
824
-
658
505
-
7,118
478
1,911
1,668
-
-
-
4,057
5,609
2,735
1,668
658
505
-
11,175
$
$
$
4,472
762
-
660
499
-
6,393
442
1,920
1,649
-
-
-
4,011
4,914
2,682
1,649
660
499
-
10,404
56
-
-
-
-
-
-
-
111
269
302
-
-
-
682
111
269
302
-
-
-
682
$
$
5,696
1,203
25
668
511
-
8,103
352
1,920
1,750
-
-
-
4,022
6,048
3,123
1,775
668
511
-
12,125
$
$
309
22
9
14
26
-
380
7
97
-
-
-
-
104
316
119
9
14
26
-
484
The Bank of Princeton
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
-
-
-
1,033
34
798
201
-
-
-
1,033
$
$
3,111
1,369
-
1,255
637
-
6,372
5,151
3,499
1,943
114
-
-
10,707
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
57
The Bank of Princeton
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, 2016:
30-59
Days Past
Due
60-89
Days Past
Due
Greater
than
90 days
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
560
597
-
654
-
-
1,811
$
$
4,556
58
-
-
-
-
4,614
$
$
3,209
188
1,649
-
145
-
5,191
Total
Past
Due
(in thousands)
$
8,325
843
1,649
654
145
-
11,616
$
Total
Loans
Receivable
$
$
554,050
60,886
166,719
56,712
24,185
577
863,129
Current
$ 545,725
60,043
165,070
56,058
24,040
577
$ 851,513
Loans
Receivable
>90 Days
and
Accruing
$
$
1,820
-
-
-
-
-
1,820
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
(in thousands)
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
1,829
1,370
800
-
19,008
Loans
Receivable
>90 Days
and
Accruing
Total
Loans
Receivable
$
$
490,298
125,072
122,297
42,409
29,922
858
810,856
$
$
-
-
-
-
-
-
-
Current
$ 477,123
123,238
120,468
41,039
29,122
858
$ 791,848
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, 2016:
Pass
Special
Mention
Substandard
(in thousands)
Doubtful
Total
Commercial real estate
Commercial and industrial
Construction
Residential first-lien mortgage
Home equity
Consumer
Total
$
$
540,445
57,675
165,070
56,542
24,040
577
844,349
$
$
12,216
1,112
-
-
-
-
13,328
$
$
1,389
2,099
1,649
170
145
-
5,452
$
$
-
-
-
-
-
-
-
$
$
554,050
60,886
166,719
56,712
24,185
577
863,129
58
The Bank of Princeton
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, 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
Allowance for loan losses on loans receivables at and for the year ended December 31, 2016:
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
Ending Balance
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
$
$
$
4,703
627
-
-
$
2,246
(1,284)
-
12
$
2,615
544
-
-
$
292
112
-
-
$
225
(70)
-
-
5,330
$
974
$
3,159
$
404
$
155
$
111
5,219
$
$
269
705
$
$
302
2,857
$
$
-
404
$
$
-
155
$
$
3
-
-
-
3
-
3
$
$
$
$
$
767
30
-
-
10,851
(41)
-
12
797
$
10,822
-
797
$
$
682
10,140
Recorded investment in loans receivables at December 31, 2016:
Loans:
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
4,914
$
2,683
$
1,649
$
660
$
499
$
-
$
549,136
58,203
165,070
56,052
23,686
577
Ending Balance
$
554,050
$
60,886
$
166,719
$
56,712
$
24,185
$
577
$
-
-
-
$
10,405
852,724
$
863,129
59
The Bank of Princeton
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, 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
Ending Balance
Ending Balance:
Individually
evaluated for
impairment
Collectively
evaluated
for impairment
$
$
$
$
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
4,703
$
2,246
$
2,615
$
292
$
225
$
3
$
767
$
10,851
34
4,669
$
$
798
1,448
$
$
201
2,414
$
$
-
292
$
$
-
225
$
$
-
3
$
$
-
767
$
$
1,033
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
Ending Balance
$
490,298
$
125,072
$
122,297
$
42,409
$
29,922
$
858
$
-
-
-
$
15,512
795,344
$
810,856
At December 31, 2016, twelve loans totaling $6.8 million were considered troubled debt restructurings and classified as
impaired. Troubled debt restructurings of $4.9 million were performing in accordance with their modified terms at December
31, 2016. The remaining $1.9 million of troubled debt restructurings were on non-accrual status at December 31, 2016.
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.
The following table summarizes information in regards to new troubled debt restructurings for the year ended December 31,
2016 (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
1
1
$
$
3,386
271
$
$
3,386
271
60
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
As indicated above, the Bank modified two loans during the year ended December 31, 2016 that constituted troubled debt
restructuring. In modifying both a commercial real estate loan and a commercial and industrial loan to the same borrower, the
Bank entered into a forbearance agreement with the borrower that resulted in reduced monthly payments during the forbearance
period and an increase in the undrawn balance of the commercial and industrial term loan. These troubled debt restructurings
are impaired loans and therefore, in accordance with the Bank’s policy, are individually evaluated for impairment. As of
December 31, 2016 there was no specific allowance on these modified loans.
There were two loans classified as troubled debt restructurings with a payment default occurring during 2016 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
1
1
$
$
3,386
271
$
$
3,386
271
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
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
61
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Loans Receivable (Continued)
Loans to Related Party. Included in total loans are loans due from directors and other related parties of $5.5 million and $5.7
million at December 31, 2016 and 2015. 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, 2016 and 2015.
(in thousands)
2016
2015
Outstanding related party loans at January 1,
New loans
Repayments
Outstanding related party loans at December 31,
$
$
5,653
2,978
(3,115)
5,516
$
$
3,820
3,845
(2,012)
5,653
No loans to related parties were nonaccrual, past due, restructured or potential problems at December 31, 2016 and 2015.
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
Total before accumulated depreciation and
amortization
Accumulated depreciation and amortization
Total
Estimated
useful lives
N/A
40 Yrs.
10 Yrs.
3-7 Yrs.
2016
2015
$
$
410
1,714
5,488
4,041
11,653
(7,134)
4,519
$
$
410
1,741
5,480
4,014
11,645
(6,195)
5,450
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):
Accrued interest receivable
Deferred tax asset, net
Restricted investments in bank stocks
Prepaid assets and other assets
Total
2016
2015
$
$
3,186
5,590
3,648
1,159
13,583
$
$
3,084
5,282
6,863
2,511
17,740
62
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Deposits
The components of deposits at December 31 were as follows (in thousands):
Demand, non-interest-bearing checking
Demand, interest-bearing and savings
Money market
Time deposits, $250,000 and over
Time deposits, other
Total
2016
2015
$
$
98,204
259,282
284,546
50,553
169,936
$
862,521
$
102,944
277,603
151,607
155,018
102,261
789,433
At December 31, 2016, the scheduled maturities of certificates of deposit were as follows (in thousands):
2017
2018
2019
2020
2021
$
Amounts
104,558
47,703
25,925
20,841
21,462
Total
$
220,489
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):
2016
2015
FHLB-NY overnight advances (rate of 0.74%
and 0.52% at December 31, 2016 and 2015,
respectively)
FHLB-NY short-term advances (weighted avg.
rate of 0.5% at December 31, 2015)
Total borrowings
$
$
56,100
$
38,800
-
90,000
56,100
$
128,800
At December 31, 2016, the Bank has a total borrowing capacity with the FHLB-NY, subject to certain collateral restrictions,
of $456.9 million. The Bank is also a shareholder in Atlantic Community Bancshares, Inc., the holding company of Atlantic
Community Bankers Bank (“ACBB”). As of December 31, 2016, 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, 2016.
63
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Note 10 – Commitments and Contingencies
Operating leases
2016
2015
$
$
$
1,336
253
2,324
3,913
$
1,410
214
2,021
3,645
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):
2017
2018
2019
2020
2021
Thereafter
Total
$
$
1,520
1,430
1,183
1,121
738
38
6,030
Rental expense for of the years ended December 31, 2016 and 2015 was $1.6 million and $1.6 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. Base rental payments of $312,000 and $284,000
were made to this related party in each of the years ended December 31, 2016 and 2015, respectively. Certain operating
expenses, including real estate taxes, insurance, utilities, maintenance and repairs, related to this property are paid directly to
the various service providers.
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.
64
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Commitments and Contingencies (Continued)
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, 2016 and 2015 for guarantees under standby letters of credit issued is
not material.
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
Litigation
2016
2015
$
$
3,720
138,925
10,765
153,410
$
$
9,015
121,015
11,611
141,641
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.
65
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2016
2015
(in thousands)
$
$
4,162
279
4,441
(66 )
86
20
4,461
$
$
3,686
4
3,690
71
(59 )
12
3,702
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
Unrealized loss on securities
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
2016
2015
(in thousands)
4,169
1,060
214
2
663
6,108
(338 )
-
(156 )
(24 )
(518 )
5,590
$
$
4,225
1,146
262
-
637
6,270
(376 )
(326 )
(258 )
(28 )
(988 )
5,282
$
$
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
2016
2015
(in thousands)
$
$
5,543
$
5,000
241
(1,515 )
213
(21 )
4,461
$
(36 )
(1,418 )
18
138
3,702
66
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Income Taxes (Continued)
At December 31, 2016, 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.
Note 12 – Fair Value Measurements and Disclosure
The Bank follows the guidance on fair value measurements 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.
67
The Bank of Princeton
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, 2016 were as follows:
Description
(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,
2016
(in thousands)
Mortgage-backed securities-U.S.
Government Sponsored Enterprises
(GSE’s)
Obligations of state and
political subdivisions
Securities available-for-sale at fair value
$
$
- $
-
- $
59,864
$
53,170
113,034
$
- $
-
- $
59,864
53,170
113,034
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
(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)
Mortgage-backed securities-U.S.
Government Sponsored Enterprises
(GSE’s)
Obligations of state and
political subdivisions
Securities available-for-sale at fair value
$
$
- $
-
- $
70,682
$
70,827
141,509
$
- $
-
- $
70,682
70,827
141,509
68
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
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, 2016, were as follows:
Description
Impaired loans
(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,
2016
(in thousands)
$
$
- $
- $
- $
- $
3,329 $
3,329
3,329 $ 3,329
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
The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2016.
Description
Fair Value at
December 31,
2016
(in thousands)
Valuation
Technique
Unobservable
Input
Range
(Weighted
Average)
Impaired loans
$
3,329 Appraisal of collateral1
Discount
adjustment2
38.0%-65.0%
(52.8%)
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.
69
The Bank of Princeton
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
Impaired loans
Other real estate owned
Fair Value at
December 31,
2015
(in thousands)
Valuation
Technique
Unobservable
Input
Range
(Weighted
Average)
$
$
8,740 Appraisal of collateral1
Discount
adjustment2
7.0%-13.39%
(8.5%)
300
Agreement of sale
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 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
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.
70
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
Other real estate owned (generally 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.
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, 2016 and December 31, 2015.
71
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
The carrying amounts and estimated fair value of financial instruments at December 31, 2016, are as follows:
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
Financial liabilities:
Deposits
Borrowings
Accrued interest payable
Carrying
Amount
(in thousands)
Estimated
Fair Value
December 31, 2016
Level 1
Level 2
Level 3
$
19,605 $
19,605 $
19,605 $
- $
113,034
340
849,504
3,648
3,186
862,521
56,100
1,336
113,034
365
859,789
3,648
3,186
856,734
56,100
1,336
-
-
-
-
-
-
-
-
113,034
365
-
3,648
3,186
856,734
-
1,336
-
-
-
859,789
-
-
-
56,100
-
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
$
28,589 $
28,589 $
28,589 $
- $
141,509
381
797,095
6,863
3,084
789,433
128,800
1,410
141,509
414
820,282
6,863
3,084
786,527
128,800
1,410
-
-
-
-
-
-
-
-
141,509
414
-
6,863
3,084
786,527
-
1,410
-
-
-
820,282
-
-
-
128,800
-
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
Financial liabilities:
Deposits
Borrowings
Accrued interest payable
Limitations
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.
72
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Fair Value Measurements and Disclosure (Continued)
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, 2016, 72,000
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 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, 2016 there were 42,253 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, 2016, under the MoreBank 2004 Incentive Equity Compensation Plan (the
“MoreBank Plan”), 6,000 options remained outstanding. 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, 2016 there were 86,296 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.
73
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Stock-Based Compensation (Continued)
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, 2016:
Balance at January 1, 2016
Granted
Exercised
Forfeited
Expired
Weighted Avg.
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Stock
Options /
Warrants
730,941
68,900
(12,938)
(3,533)
(54,817)
Weighted
Avg.
Exercise Price
14.68
$
22.00
$
11.69
$
20.16
$
23.33
$
Balance at December 31, 2016
Exercisable at December 31, 2016
728,553
576,783
$
$
14.74
5.9 years
13.75
5.2 years
$
$
9,892,382
8,401,190
The fair value of the 2016 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
6.0 years
32.98%
2.75%
0.00%
1.32%
$ 7.50
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:
Balance at January 1, 2015
Granted
Exercised
Forfeited
Expired
Weighted Avg.
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Number of
Stock
Options /
Warrants
674,234
168,700
(105,142)
(3,766)
(3,085)
Weighted
Avg.
Exercise Price
13.51
$
17.66
$
11.68
$
15.00
$
13.32
$
Balance at December 31, 2015
Exercisable at December 31, 2015
730,941
553,738
$
$
14.68
6.1 years
14.16
5.2 years
$
$
3,532,445
2,774,016
74
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Stock-Based Compensation (Continued)
The fair value of the 2015 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
5.84 years
38.72%
1.56%
0.00%
1.70 %
$ 6.93
Stock option expenses included in salaries and employee benefits expense in the consolidated statements of income were
$469,000 and $481,000 for the years ended December 31, 2016 and 2015, respectively. Stock option expenses recorded within
other expenses were $77,000 and $207,000 for the years ended December 31, 2016 and 2015, respectively. At December 31,
2016, there was approximately $761,000 of unrecognized expense related to outstanding stock options, which will be
recognized over a period of approximately 1.29 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
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.
The final capital rules that became effective on January 1, 2015 introduced a requirement for a common equity Tier 1 capital
conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in
the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent
limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of
discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years
beginning in 2016. We have included the 0.625% increase for 2016 in our minimum capital adequacy ratios in the table below.
The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1
capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. Management believes
that, as of December 31, 2016, the Bank would meet all capital adequacy requirements on a fully phased-in basis as if all such
requirements were currently in effect.
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.
75
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Regulatory Matters (Continued)
The Bank’s actual capital amounts and ratios at December 31, 2016 and 2015 are presented below:
For capital adequacy
purposes
(including capital buffer
requirement)
To be well capitalized
under prompt corrective
action provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2016:
Total capital (to risk-weighted assets) $ 113,191
Tier 1 capital (to risk-weighted assets) $ 102,369
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 102,369
$ 102,369
December 31, 2015:
Total capital (to risk-weighted assets) $ 100,624
Tier 1 capital (to risk-weighted assets) $ 89,773
Common equity tier 1 capital (to risk-
weighted assets)
Tier 1 leverage capital (to average
assets)
$ 89,773
$ 89,773
12.000%
10.900%
$ 81,034
$ 62,243
≥ 8.625%
≥ 6.625%
$ 93,952
$ 75,162
≥ 10.000%
≥
8.000%
10.900%
$ 48,150
≥ 5.125%
$ 61,069
10.100%
$ 40,371
≥ 4.000%
$ 50,464
≥
≥
6.500%
5.000%
11.400%
10.100%
$ 70,828
$ 53,121
≥ 8.000%
≥ 6.000%
$ 88,535
$ 70,828
≥ 10.000%
≥
8.000%
10.100%
$ 39,841
≥ 4.500%
$ 57,548
9.000%
$ 40,131
≥ 4.000%
$ 50,163
≥
≥
6.500%
5.000%
The Bank is subject to certain restrictions on the amount of dividends that it may declare due to regulatory considerations.
Note 15 – Quarterly Financial Data (unaudited)
Year Ended December 31, 2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except for per share data)
11,348
1,786
9,562
422
9,140
549
5,870
3,819
1,049
2,770
0.59
0.56
$
$
$
$
11,454
1,944
9,510
(321)
9,831
683
6,443
4,071
1,049
3,022
0.64
0.60
$
$
$
$
11,255
2,009
9,246
(142)
9,388
468
5,724
4,132
1,099
3,033
0.65
0.60
$
$
$
$
11,376
2,024
9,352
-
9,352
654
5,724
4,282
1,264
3,018
0.64
0.59
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
$
$
$
$
76
The Bank of Princeton
THE BANK OF PRINCETON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Quarterly Financial Data (unaudited) (Continued)
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 for per share data)
$
$
$
$
10,532
1,742
8,790
233
8,557
476
5,649
3,384
880
2,504
0.55
0.53
$
$
$
$
10,614
1,712
8,902
502
8,400
590
5,359
3,631
866
2,765
0.60
0.58
$
$
$
$
10,857
1,685
9,172
298
8,874
482
5,336
4,020
1,018
3,002
0.65
0.63
$
$
$
$
11,218
1,698
9,520
871
8,649
739
5,715
3,673
938
2,735
0.58
0.56
77
The Bank of Princeton
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, 2016 using the criteria in
“Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO 2013”). Based on this assessment, management determined that, as of December 31,
2016, the Bank’s internal control over financial reporting was effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U. S. generally accepted accounting principles
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, 2016. 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, 2016 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.
BDO USA, LLP, an independent registered public accounting firm, has audited the Bank’s consolidated
financial statements as of and for the year ended December 31, 2016 and the effectiveness of the Bank’s internal
control over financial reporting as of December 31, 2016, as stated in their reports, which are included herein.
Changes in Internal Control Over Financial Reporting
There was no change in the Bank’s internal control over financial reporting identified during the quarter
ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Bank’s internal
control over financial reporting.
[Insert Report of Independent Registered Public Accounting Firm internal control over financial
reporting as of December 31, 2016]
Item 9B. Other Information
None.
78
The Bank of Princeton
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
2017 Annual Meeting of Stockholders to be held April 24, 2017.
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
2017 Annual Meeting of Stockholders to be held April 24, 2017.
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
2017 Annual Meeting of Stockholders to be held April 24, 2017.
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
2017 Annual Meeting of Stockholders to be held April 24, 2017.
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
2017 Annual Meeting of Stockholders to be held April 24, 2017.
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, 2016 and 2015
Consolidated Statements of Income for the years ended December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and
2015
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
Notes to Consolidated Financial Statements
79
The Bank of Princeton
(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
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*
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10 (A) Form of Incentive Stock Option Agreement*
10.11 (A) Form of Nonqualified Stock Option*
10.12 (A) Form of Option for the Purchase of Shares of the Par Value of $1.00 Per Share of MoreBank*
10.13 (D) Mutual Termination Agreement by and among Investors Bancorp, Inc., Investors Bank and the Bank, dated
(A) Warrant Agreement for Organizers*
(A) Form of Warrant Certificate*
(A) MoreBank 2004 Incentive Equity Compensation Plan*
21.1
31.1
31.2
32.1
as of January 24, 2017
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 April 28, 2016.
(D) Incorporated by reference to the exhibit to registrant’s Current Report on Form 8-K, filed with the Federal
Deposit Insurance Corporation on January 24, 2017.
Item 16. Form 10-K Summary
None.
80
The Bank of Princeton
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 3, 2017.
SIGNATURES
The Bank of Princeton
/s/Edward Dietzler
By: Edward Dietzler
President
(Principal Executive Officer)
The Bank of Princeton
/s/George S. Rapp
By: George S. Rapp
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
81
The Bank of Princeton
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ Richard Gillespie
Richard Gillespie
/s/ Stephen Distler
Stephen Distler
/s/ Stephen Shueh
Stephen Shueh
/s/ Robert N. Ridolfi, Esq
Robert N. Ridolfi, Esq
/s/ Judith A. Giacin
Judith A. Giacin
Ross Wishnick
/s/Edward Dietzler
Edward Dietzler
/s/ George S. Rapp
George S. Rapp
Chairman of the Board
March 29, 2017
Vice Chairman of the Board
March 29, 2017
Director
Director
Director
Director
President, Director
(Principal Executive Officer)
Executive Vice President, Chief Financial
Officer
(Principal Financial and Accounting
Officer)
March 29, 2017
March 29, 2017
March 29, 2017
April 3, 2017
April 3, 2017
82
The Bank of Princeton
EXHIBIT INDEX
Exhibit
No.
2.1
3.1
3.2
4.1
4.2
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*
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10 (A) Form of Incentive Stock Option Agreement*
10.11 (A) Form of Nonqualified Stock Option*
10.12 (A) Form of Option for the Purchase of Shares of the Par Value of $1.00 Per Share of MoreBank*
10.13 (D) Mutual Termination Agreement by and among Investors Bancorp, Inc., Investors Bank and the Bank, dated
(A) Warrant Agreement for Organizers*
(A) Form of Warrant Certificate*
(A) MoreBank 2004 Incentive Equity Compensation Plan*
as of January 24, 2017
21.1
31.1
31.2
32.1
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 April 28 2016.
(D) Incorporated by reference to the exhibit to registrant’s Current Report on Form 8-K, filed with the Federal
Deposit Insurance Corporation on January 24, 2017.
83
The Bank of Princeton
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary
Bayard Lane, LLC
112 Fifth Avenue, LLC
Bayard Properties, LLC
TBOP REIT, Inc.
TBOP Delaware Investment Company
Exhibit 10.4
Jurisdiction of
Incorporation
or Formation
NJ
NJ
NJ
NJ
DE
84
The Bank of Princeton
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 3, 2017
/s/Edward Dietzler
Edward Dietzler
President
(Principal Executive Officer)
85
The Bank of Princeton
RULE 13A-14(A)/15D-14(A) CERTIFICATIONS OF THE
CHIEF FINANCIAL OFFICER
Exhibit 31.2
I, George S. Rapp, 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 3, 2017
/s/George S. Rapp
George S. Rapp
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
86
The Bank of Princeton
Exhibit 32.1
SECTION 1350 CERTIFICATIONS
In connection with the Annual Report of The Bank of Princeton (the “Bank”) on Form 10-K for the period
ending December 31, 2016 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/ George S. Rapp
George S. Rapp
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 3, 2017
87
The Bank of Princeton
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88
NOTES:
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89
A Special Community • A Special Bank
90
Who We Are
Board of Directors
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
91
Relationship Management • Management & Support
Commercial Lenders
Executive Management
Stephanie M. Williams, Chambers
Michele Lewis-Fleming, Chambers
Kris Muse, Nassau
William McDowell, Pennington/
Lambertville
Paul M. Bencivengo, Hamilton
William McCoy, New Brunswick
Jennifer Yoo, Cheltenham
Market Managers
Rose Russo, Bayard
Darshana Jadav, Chambers
Paul Sabol, Nassau
Roseanne Maresma, Montgomery
Rhoda Sundhar, Pennington
Trinace Johnson, Hamilton
John Thompson, Monroe
Amy Lavery, Lambertville
Miriam Colón, New Brunswick
Karin Broadway, Lawrenceville
Esther Youngsoon Sim, Cheltenham
Hae Ran Hwangbo, North Wales
Sokha Eng, Arch Street
Edward J. Dietzler, President
Daniel J. O’Donnell, Chief Risk Officer &
General Council
Carol R. Coles, Chief Credit Officer
Paul Y. Hyon, Regional President of
MoreBank
George S. Rapp, Chief Financial Officer
Marketing
Barbara A. Cromwell
Human Resources
Anna Maria Miller
Information Technology
Kelly Tarity
Operations & Compliance
Karen D. Pfeifer, CRCM
Vincent Auletta, BSA
Angela Bancroft, Deposit Operations
Loan Administration
Mary Beth Gorecki, Consumer Credit
Christopher Tonkovich,
Commercial Lending
Karen A. Collier, Loan Compliance
Sharon Litchman, Loan Operations
David Geyer, Real Estate
Finance
Michael LaPlante
Edward P. Hassenkamp
92
Our Executive Team
Pictured above (left to right)
Edward J. Dietzler, President of The Bank of Princeton; Paul Y. Hyon, Regional President of
MoreBank; Daniel J. O’Donnell, EVP General Counsel & Chief Risk Officer; Carol R. Coles,
EVP Chief Credit Officer
Establish in 2007, The Bank of Princeton opened its Chambers Street doors for business
on the 23rd of April. Since then, the Bank has grown to include ten branch locations in
New Jersey that serve the Mercer, Hunterdon, Middlesex and Somerset markets. Through
the acquisition of MoreBank in 2010, the Bank extended its footprint with three branches
in nearby Pennsylvania. Together, The Bank of Princeton and MoreBank branch network
consists of thirteen locations and a comprehensive Operations Center.
93
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Owl go out on a limb here...
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eStatements?
eStatements?
eStatements?
Top 5 Reasons to Consider Enrolling Today
• Statements are conveniently available to
view anywhere, at any time
• Eliminate the worry of paper statements
being lost or stolen
• Reduce the risk of Identity Theft
through mail fraud
• Less mail to sort, store or shred
• Go Green… Save Our Trees!
Sign up is fast & easy! Simply log in to your Online
Banking Account, click the eStatement Enrollment
button and follow the prompts.
E
L E BRATE
C
Customer
Appreciation
Week
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Earn an additional .25% APY*
on CDs of Any Term
Need Assistance or have a Business Account? Stop
by any of our thirteen convenient branch locations or
give us a call!
Present this flyer to your local Branch
May 16th through May 21st, 2016
Earn an additional .25% APY*
on CDs of any term
See below for details on this exciting offer!
94
Our Website • Your Resource
Discover an array of useful information... Research Product and Loan Options... Find
convenient Branch Locations and Hours of Operation... Our easy to use Mobile App
expands your banking day to include 24/7 access... Browse our Calendar of Events
and join us at a community affair! Plan for the future by utilizing the many
calculators found under the Resources Tab. The Bank of Princeton & MoreBank...
finding new ways to help you, your family and friends... Bank Wisely!
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95
Two New Products • One Great Promotion
1.20%APY*
PrincetonUNTIL
Money Market
Account
2017
*APY = “Annual Percentage Yield”. Princeton Money Market Account: Offer valid on NEW MONEY ONLY at The Bank of Princeton/MoreBank. New Princeton
Money Market Account required with minimum opening balance of $5,000. and a maximum of $1,000,000. per tax ID. MUST OPEN a non-interest checking
account with a minimum opening balance of $5,000. or (Direct Deposit of Payroll or Social Security Check into the New Checking Account) to qualify
for the exclusive offer of 1.20% (APY) Annual Percentage Yield guaranteed until January 1, 2017. The non-interest checking account must remain
open with the specific balance requirement of $5,000. until January 1, 2017 to qualify for the exclusive offer of 1.20% (APY) unless the Direct
Deposit option is used. Exclusive offer (APY) is guaranteed through January 1, 2017. After which, The Princeton Money Market
Account converts to prevailing interest rate; APY becomes variable and is subject to change at the Bank's discretion. No
minimum balance required to earn interest. No service charge. Annual Percentage Yield (APY) of 1.15% guaranteed
until January 1, 2017 available to customers who open a Princeton Money Market Account with a minimum
opening balance of $5,000. and maximum of $1,000,000. per tax ID. Offer valid on NEW MONEY
ONLY Promotion begins at 9:00 AM EST on February 5, 2016; subject to change or
cancellation without notice. Fees may reduce earnings. Other terms and
conditions may apply.
www.thebankofprinceton.com
Announcing
• The Princeton Money Market Account
• The Princeton Savings Account
◦ Launched February 5, 2016 at
The Bank of Princeton & MoreBank
◦ Exclusive introductory rate of
1.20%APY guaranteed until
January 1, 2017
1.20%APY*
UNTIL
Princeton
Savings Account
2017
*APY = “Annual Percentage Yield”. Princeton Savings Account: Offer valid on NEW MONEY ONLY at The Bank of Princeton/MoreBank. New Princeton Savings
Account required with minimum opening balance of $5,000. and a maximum of $1,000,000. per tax ID. MUST OPEN a non-interest checking account with a
minimum opening balance of $5,000. or (Direct Deposit of Payroll or Social Security Check into the New Checking Account) to qualify for the exclusive
offer of 1.20% (APY) Annual Percentage Yield guaranteed until January 1, 2017. The non-interest checking account must remain open with the
specific balance requirement of $5,000. until January 1, 2017 to qualify for the exclusive offer of 1.20% (APY) unless the Direct Deposit
option is used. Exclusive offer (APY) is guaranteed through January 1, 2017. After which, The Princeton Savings Account converts to
prevailing interest rate; APY becomes variable and is subject to change at the Bank's discretion. No minimum balance
required to earn interest. No service charge. Annual Percentage Yield (APY) of 1.15% guaranteed until January 1,
2017 available to customers who open a Princeton Savings account with a minimum opening balance of
$5,000. and a maximum of $1,000,000. per tax ID. Offer valid on NEW MONEY ONLY. Promotion
begins at 9:00 AM EST on February 5, 2016; subject to change or cancellation without
notice. Fees may reduce earnings. Other terms and conditions may apply.
www.thebankofprinceton.com
96
ACME Screening Room
Alzheimer's New Jersey
American Heart Association
American Legion,
Hopewell Valley Post 339
American Red Cross
Anchor House
Arc of Hunterdon County, The
Arm in Arm
Arts Council of Princeton
Autism Speaks
Ben Franklin Elementary School
Big Brothers Big Sisters
of Mercer County
Boy Scout Troop 29
Bridge Academy of New Jersey, The
Building One New Jersey
Capital Health Foundation
Carrier Clinic
Catholic Charities, Diocese of Trenton
Center for Educational Advancement
Center for Great Expectations, The
Center for Literacy
Children's Home Society of
New Jersey, The
Christine's Hope for Kids Foundation
Community Justice Center
Community Options, Inc.
Communiversity
CONTACT of Mercer County
Corner House Foundation
D&R Greenway Land Trust
Delaware River Towns Chamber
of Commerce & Visitors Bureau, The
Delaware Township Schools,
Partners in Education
Dress for Success Mercer County
Eden Autism Services Foundation
Elijah's Promise
Family Guidance Center
Food Cupboard of the Inter-Faith
Housing Alliance
Friendly Sons & Daughters of
St. Patrick of Mercer County
Friends of Ely Park
Friends of Hopewell Public Library
Girl Scout Daisy Troop 60195
Good Grief
Greater Lambertville-New Hope
Chamber of Commerce
Greater Philadelphia Asian Social
Services Center
Greener New Jersey Productions
Hamilton Area YMCA
Hamilton Educational Foundation
Hibernia Fire Company
HiTOPS, Inc.
HomeFront
HomeSharing, Inc.
Hopewell Elementary School
Hopewell Harvest Fair
Hopewell Valley Arts Council
Hopewell Valley Education Foundation
Hopewell Valley Historical Society
Hopewell Valley Senior Foundation
Hopewell Valley Veterans Association
Hopewell Valley YMCA
Hopewell Valley Youth Football and
Cheer Association, The
Hunterdon County Chamber
of Commerce
Hunterdon County YMCA
Hyacinth AIDS Foundation
“One man can make a difference
and every man should try.”
~ Jacqueline Kennedy Onassis
Isles, Inc.
Jack & Jill of America, Inc.
Jason Fuhr Memorial Charity Golf
Tournament
Jewish Family & Children’s Service
of Greater Mercer County
John Warms Montgomery High School
Alumni Association
John Witherspoon Middle School
Joint Effort - Princeton Safe Streets
Weekend
Kalmia Club, The
Korean American Broadcasting Co.
Korean American Institute
of Princeton
Korean Community Center
of Greater Princeton
Lambertville Animal Welfare
Lambertville Area Education
Foundation
Lambertville Historical Society
Lambertville / New Hope Winter
Festival
Lambertville Rescue Squad
Lambertville Shad Fest
Lambertville - West Amwell Youth
Baseball & Softball Association
Lamb Foundation, The
Lawrence Township Education
Foundation
Lawrenceville Fire Company
Lawrenceville Main Street
Leukemia & Lymphoma Society
LifeTies, Inc.
March of Dimes
Mary Jacobs Library Foundation
Meals on Wheels of
Greater New Brunswick
Meals on Wheels of Mercer County
Mercer County Bar Association
Mercer County Community College
Foundation
Mercer County Turkey Trot
Mercer Street Friends
Mercerville Fire Company
MidJersey Chamber of Commerce
Mid-Summer Marketing Showcase
Mil Al Mission
Montgomery Baseball League
Montgomery Basketball Association
Montgomery High School - Cougar
Football Club
Montgomery / Rocky Hill Rotary Club
Montgomery Township Education
Foundation
Montgomery Township Fireworks
Committee
Montgomery Township Volunteer Fire
Company No. 1 & No. 2
Montgomery Woman’s Club
Nassau Hockey League
National Kidney Foundation
New Hope Film Festival
New Hope Historical Society
New Jersey Business & Industry
Association
New Jersey Bankers Association
New Jersey Foundation for Aging
Notre Dame High School
One Simple Wish
Parkinson Alliance, The
Penn Asian Senior Services
Pennington Business & Professional
Association
Pennington Day, Inc.
Pennington Volunteer Fire Company
People & Stories / Gente y Cuentos
Philadelphia Chinatown
Development Corporation
Philadelphia Holy Redeemer Chinese
Catholic Church
Philadelphia Korean Christian
Broadcasting Company
Philadelphia Korean Senior Golf Assn
PlanSmart NJ
Princeton Area Alumni Association
Princeton Education Foundation
Princeton First Aid Ladies Auxiliary
Princeton Historical Society
Princeton in Africa
Princeton Little League
Princeton Pro Musica
Princeton Public Library
Princeton Recreation Department
Princeton Regional Chamber
of Commerce
Princeton Senior Resource Center
Princeton Symphony Orchestra
Princeton University Summer
Chamber Concerts
Raritan Valley Habitat for Humanity
Riverside Symphonia
Robert Wood Johnson Hamilton
Foundation
Rocky Hill Fire Department
Ronald McDonald House of
New Brunswick
Rotary Club of Princeton
Rutgers University Dance Marathon
Ryan's Quest
Saint Ann School
Saint John the Evangelist Roman
Catholic Church
Saint Peter the Apostle Church
San Felese Lodge
Science Mentors 1 to 1
Send Hunger Packing Princeton
SERV Behavioral Health Systems
Shad Run
Sixth Man Club
SPLASH Steamboat Floating
Classroom
Solebury Township Historical Society
South Hunterdon Cross Country
Track & Field Booster Club
Special Olympics New Jersey
Special Strides
Students Change Hunger
Sustainable Princeton
Thomas Edison State University
Foundation
Together 4 Kids
Trenton Area Soup Kitchen, The
Trenton Catholic Academy
Trenton Public Education Foundation
Trinity Church
UIH Family Partners
United Way of Hunterdon County
Unity Square Trunk or Treat
Waldorf School of Princeton
West Amwell Golf Day
WHAM / Hightstown CROP
Hunger Walk
Widener University
Womanspace
YMCA Camp Mason
Young Audiences New Jersey
& Eastern Pennsylvania
YWCA Princeton
Thank you to our community partners for helping
Make a Difference.
Bayard / Corporate HQ
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
Annual Report
www.thebankofprinceton.com | 609.921.1700
www.morebankusa.com | 215.224.6400
Established 2007