What changed in this filing

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Item 1A. Risk Factors

2022-03-11 compared with 2021-03-25 · 33 added, 40 removed, 200 unchanged (27% of the section changed)

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Our operations are significantly affected by the general economic conditions of New Jersey, Eastern Pennsylvania and the specific local markets in which we operate.

The Central and Northern New Jersey and Eastern Pennsylvania markets served by the Registrant have been significantly impact by the Coronavirus epidemic and governmental actions to mitigate the epidemic, such as stay at home orders and business shutdowns.

The Central and Northern New Jersey and Eastern Pennsylvania markets served by the Registrant have been significantly impacted by the Coronavirus epidemic and governmental actions to mitigate the epidemic, such as stay at home orders and business shutdowns.

Our real estate portfolio consists primarily of loans secured by properties located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania.

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Including the potential effects of the COVID-19 outbreak on the Company’s loan portfolios, the ongoing and dynamic nature of the pandemic and the resultant, potentially severe and long-lasting, economic dislocations, it is difficult to predict the full impact of the COVID-19 outbreak on our business.

The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

The extent of such impact will depend on future developments, which are highly uncertain, including the development of new variants of the virus, when the coronavirus can be controlled and abated and when and how the economy may return to pre-pandemic levels of activity.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

● demand for our products and services may decline, making it difficult to grow assets and income;

● If the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

● if the economy is unable to return to pre pandemic levels of activity, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

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● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

● As the result of the decline in the Federal Reserve Board’s target federal fund rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

● Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

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On July 15, 2020, the Commissioner adopted the Acknowledgement.

The Bank consented to the issuance of the Consent Order without admitting any charges of unsafe or unsound banking practices or violations of law or regulation.

The Bank consented to the issuance of the Consent Order without admitting any unsafe or unsound banking practices or violations of law or regulation.

The Consent Order arises from a routine safety and soundness examination of the Bank by the FDIC.

Under the terms of the Order, the Bank is required to, among other things, increase board supervision of its BSA/AML program, review and improve its written BSA/AML compliance program, review and improve its BSA risk assessment, review and improve its system of internal controls to assure and monitor compliance with the BSA, provide for independent testing of its BSA compliance, provide additional resources and training to staff to ensure BSA compliance, review its compliance with Office of Foreign Assets Control regulations, retain a firm acceptable to the FDIC and the New Jersey Department of Banking and Insurance ("NJDOBI") to undertake a review of all accounts and transaction activity to determine that appropriate reporting was undertaken, establish a board oversight committee consisting of independent directors and provide quarterly reporting to the FDIC and NJDOBI.

review and improve its system of internal controls to assure and monitor compliance with the BSA, provide for independent testing of its BSA compliance, provide additional resources and training to staff to ensure BSA compliance, review its compliance with Office of Foreign Assets Control regulations, retain a firm acceptable to the FDIC and the New Jersey Department of Banking and Insurance ("NJDOBI") to undertake a review of all accounts and transaction activity to determine that appropriate reporting was undertaken, establish a board oversight committee consisting of independent directors and provide quarterly reporting to the FDIC and NJDOBI.

The board of directors and management of the Bank began proactively taking steps to address identified matters promptly following the FDIC examination, and will continue to work with the FDIC to address such matters.

However, the provisions of the Order will remain in effect until modified, terminated, suspended or set aside by the FDIC, and we can give no assurance that the FDIC and NJDOBI will find the steps that we have taken satisfactory and when, or if, the Order will be lifted.

Based upon quotes received from third party vendors to date and management’s current understanding of the work to be performed to comply with the Consent Order, we currently estimate that the costs to comply with the Consent Order will approximate $1.8 million.

As of December 31, 2021, the Company has incurred a total of $2.5 million in remediation costs to address the Order.

However, if additional review or remediation work is required to fully comply with the provisions of the Consent Order, the Bank could incur additional expense.

While the Bank intends to take such actions as may be necessary to enable it to comply with the Consent Order, there can be no assurance that the Bank will be able to fully comply with the provisions of the Consent Order, that its efforts to comply with the Consent Order will not have adverse effects on the operations and financial condition of the Bank, or that the Bank would not be subject to other regulatory enforcement actions in the future.

In addition, while the Consent Order is in place, the Bank’s ability to expend through acquisitions or additional branches may be curtailed.

In addition, while the Consent Order is in place, the Bank’s ability to expand through acquisitions or additional branches may be curtailed.

We have been and may continue to be adversely affected by national financial markets and economic conditions, as well as local conditions.

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As of December 31, 2021, approximately 92 percent of our loans had real estate as a primary or secondary component of collateral.

The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the

time the credit is extended.

The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended.

Weakness in the real estate market in our primary market areas could result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse effect on our profitability and asset quality.

Any future declines in home prices in the New Jersey and Pennsylvania markets we serve also may result in increases in delinquencies and losses in our loan portfolios.

Stress in the real estate market, combined with any weakness in economic conditions and any future elevated unemployment levels could drive losses beyond that which is provided for in our allowance for loan losses.

Any future declines in home prices in

the New Jersey and Pennsylvania markets we serve also may result in increases in delinquencies and losses in our loan portfolios.

Stress in the real estate market, combined with any weakness in economic conditions could drive losses beyond that which is provided for in our allowance for loan losses.

In that event, our earnings could be adversely affected.

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ASU 2016-13 will replace the incurred loss model under existing guidance with a current expected credit loss (“CECL”) model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.

ASU 2016-13 also simplifies the accounting model for purchased credit-

impaired debt securities and loans.

While ASU 2016-13 does not require any particular method for determining the CECL allowance, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan.

ASU 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans.

duration of each respective loan.

Because our methodology for determining CECL allowances may differ from the methodologies employed by other companies, our CECL allowances may not be comparable with the CECL allowances reported by other companies.

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If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2022.

ASU 2016-13 is effective for us for fiscal years beginning after December 15, 2022.

We are subject to interest rate risk and variations in interest rates may negatively affect our financial performance.

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Declines in value may adversely impact the investment portfolio.

As of December 31, 2020, we had approximately $45.6 million and $2.0 million in available for sale and equity investment securities, respectively.

As of December 31, 2021, we had approximately $56.5 million, $14.3 million, and $8.6 million in debt securities available for sale, held to maturity securities and equity investment securities, respectively.

We may be required to record impairment charges in earnings related to credit losses on our investment securities if they suffer a decline in value that is considered other-than-temporary.

Additionally, (a) if we intend to sell a security or (b) it is more likely than not that we will be required to sell the security prior to recovery

of its amortized cost basis, we will be required to recognize an other-than-temporary impairment charge in the statement of income equal to the full amount of the decline in fair value below amortized cost.

Factors, including lack of liquidity, absence of reliable pricing information, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on our investment portfolio and may result in other-than-temporary impairment on our investment securities in future periods.

Additionally, (a) if we intend to sell a security or (b) it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we will be required to recognize an other-than-temporary impairment charge in the statement of income equal to the full amount of the decline in fair value below amortized cost.

Factors, including lack of liquidity, absence of reliable pricing information, adverse

actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on our investment portfolio and may result in other-than-temporary impairment on our investment securities in future periods.

Liquidity risk.

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Our ability to borrow could also be impaired by factors that are not necessarily specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole.

We are in competition with many other banks, including larger commercial banks which have greater resources than us.

We are in competition with many other banks, including larger commercial banks which have greater resources than us, as well as “fintech” companies for loan and deposit customers.

The banking industry within the State of New Jersey is highly competitive.

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In addition, the Gramm-Leach-Bliley Financial Modernization Act permits other financial entities, such as insurance companies and securities firms, to acquire or form financial institutions, thereby further increasing competition.

In addition, financial technology companies, either directly or in partnership with other insured depository institutions, compete for loan and deposit customers.

A number of our competitors have substantially greater resources than we do to expend upon advertising and marketing, and their substantially greater capitalization enables them to make much larger loans.

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In the future, if our or the Bank’s capital ratios fall below the prevailing regulatory required minimums, we or the Bank could be forced to raise additional capital by making additional offerings of common stock or preferred stock.

equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.

Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.

We cannot predict how changes in technology will impact our business.

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We maintain a system of comprehensive policies and a control framework designed to monitor vendor risks including, among other things, (i) changes in the vendor’s organizational structure or internal controls, (ii) changes in the vendor’s financial condition, (iii) changes in the vendor’s support for existing products and services and (iv) changes in the vendor’s strategic focus.

In addition, we maintain cyber liability insurance to mitigate against any loss incurred.

In addition, we maintain cyber liability insurance to mitigate against certain losses we may incur.

While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur;

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Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees.

Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.

Hurricanes and other weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate.

Hurricanes, flooding or other adverse weather events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.

Hurricanes, flooding and other weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate.

In addition, these weather events may result in a decline in value or destruction of properties securing our loans and an increase in delinquencies, foreclosures and loan losses.

The Company may be adversely affected by changes in U.S.

Our business may be adversely affected by changes in tax laws.

For example, changes in tax laws contained in the Tax Cuts and Jobs Act ("Tax Act"), enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate.

Changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.

The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments.

In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New Jersey.

If home ownership becomes less attractive, demand for mortgage loans could decrease.

The value of the properties securing loans in the loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in the provision for loan losses, which would reduce profitability and could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, the incoming Biden administration has discussed raising corporate income tax rates.

Any increase in our federal income tax rates could adversely impact our results of operations.

Our business may be adversely affected by changes in tax laws if there are any increases in our federal income tax rates.

New Jersey legislative changes may increase our tax expense.

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These changes are not temporary.

Reforms to and uncertainty regarding LIBOR may adversely affect the business.

Reforms to and uncertainty regarding LIBOR may adversely affect our business.

In 2017, a committee of private-market derivative participants and their regulators convened by the Federal Reserve, the Alternative Reference Rates Committee, or “ARRC”, was created to identify an alternative reference interest rate to replace LIBOR.

The ARRC announced Secured Overnight Financing Rate, or “SOFR”, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR.

The Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021.

The ARRC announced the Secured Overnight Financing Rate, or “SOFR”, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR.

Subsequently, the Federal Reserve Bank announced final plans for the production of SOFR, which resulted in the commencement of its published rates by the Federal Reserve Bank of New York on April 2, 2018.

The Unity States bank regulatory agencies have required financial institutions in the United States to cease issuing new LIBOR contracts effective December 31, 2021.

Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain.

The uncertainty as to the nature and effect of such reforms and actions and the political discontinuance of LIBOR may adversely affect the value of and return on the Company’s financial assets and liabilities that are based on or are linked to LIBOR, the Company’s results of operations or financial condition.

In addition, these reforms may also

require extensive changes to the contracts that govern these LIBOR based products, as well as the Company’s systems and processes.

In addition, these reforms may also require extensive changes to the contracts that govern these LIBOR based products, as well as the Company’s systems and processes.

LIBOR is used as a reference rate for many of our transactions, which means it is the base on which relevant interest rates are determined.

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The value of loans, securities, or derivative instruments tied to LIBOR and the trading market for LIBOR-based securities could also be impacted upon its discontinuance or if it is limited.

While we expect LIBOR to continue to be available in substantially its current form until the end of 2021 or shortly before that, it is possible that LIBOR quotes will become unavailable prior to that point.

While we expect LIBOR will continue to be available in substantially its current form until 2023, it is possible that LIBOR quotes will become unavailable prior to that point.

This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors