UNITY BANCORP INC /NJ/ 10-K

Item 8. Financial Statements and Supplementary Data: Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2021 December 31, 2020 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 26,053 ​ $ 22,750 Interest-bearing deposits ​ 218,765 ​ 196,561 Cash and cash equivalents ​ 244,818 ​ 219,311 Securities: ​ ​ ​ ​ ​ ​ Debt securities available for sale (amortized cost of $ 56,442 in 2021 and $ 45,921 in 2020) ​ 56,480 ​ 45,617 Securities held to maturity (fair value of $ 14,229 in 2021) ​ 14,276 ​ — Equity securities with readily determinable fair values (amortized cost of $ 8,163 in 2021 and $ 2,112 in 2020) ​ 8,566 ​ 1,954 Total securities ​ 79,322 ​ 47,571 Loans: ​ ​ SBA loans held for sale ​ 27,373 ​ 9,335 SBA loans held for investment ​ 36,075 ​ 39,587 SBA PPP loans ​ ​ 46,450 ​ ​ 118,257 Commercial loans ​ 931,726 ​ 839,788 Residential mortgage loans ​ 409,355 ​ 467,586 Consumer loans ​ 77,944 ​ 66,100 Residential construction loans ​ ​ 120,525 ​ ​ 87,164 Total loans ​ 1,649,448 ​ 1,627,817 Allowance for loan losses ​ ( 22,302 ) ​ ( 23,105 ) Net loans ​ 1,627,146 ​ 1,604,712 Premises and equipment, net ​ 19,914 ​ 20,226 Bank owned life insurance ("BOLI") ​ 26,608 ​ 26,514 Deferred tax assets ​ 10,040 ​ 9,183 Federal Home Loan Bank ("FHLB") stock ​ 3,550 ​ 10,594 Accrued interest receivable ​ 9,586 ​ 10,429 Goodwill ​ 1,516 ​ 1,516 Prepaid expenses and other assets ​ 11,213 ​ 8,858 Total assets ​ $ 2,033,713 ​ $ 1,958,914 LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Liabilities: ​ ​ Deposits: ​ ​ Noninterest-bearing demand ​ $ 529,227 ​ $ 459,677 Interest-bearing demand ​ 244,073 ​ 204,236 Savings ​ 694,161 ​ 455,449 Time, under $100,000 ​ 194,961 ​ 264,671 Time, $100,000 to $250,000 ​ 62,668 ​ 95,595 Time, $250,000 and over ​ 33,791 ​ 78,331 Total deposits ​ 1,758,881 ​ 1,557,959 Borrowed funds ​ 40,000 ​ 200,000 Subordinated debentures ​ 10,310 ​ 10,310 Accrued interest payable ​ 129 ​ 248 Accrued expenses and other liabilities ​ 18,664 ​ 16,486 Total liabilities ​ 1,827,984 ​ 1,785,003 Shareholders’ equity: ​ ​ Common stock, no par value, 12,500 shares authorized, 11,094 shares issued and 10,391 shares outstanding in 2021; 10,961 shares issued and 10,456 shares outstanding in 2020 ​ 94,003 ​ 91,873 Retained earnings ​ 123,037 ​ 90,669 Treasury stock, at cost ( 703 shares in 2021 and 505 shares in 2020) ​ ​ ( 11,633 ) ​ ​ ( 7,442 ) Accumulated other comprehensive income (loss) ​ 322 ​ ( 1,189 ) Total shareholders’ equity ​ 205,729 ​ 173,911 Total liabilities and shareholders’ equity ​ $ 2,033,713 ​ $ 1,958,914 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 51 Table of Contents Consolidated Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands, except per share amounts) ​ 2021 2020 2019 INTEREST INCOME ​ ​ ​ ​ Interest-bearing deposits ​ $ 194 ​ $ 258 ​ $ 906 FHLB stock ​ 197 ​ 331 ​ 385 Securities: ​ ​ ​ Taxable ​ 1,298 ​ 1,695 ​ 1,926 Tax-exempt ​ 31 ​ 61 ​ 104 Total securities ​ 1,329 ​ 1,756 ​ 2,030 Loans: ​ ​ ​ SBA loans ​ 3,252 ​ 3,144 ​ 3,780 SBA PPP loans ​ ​ 7,206 ​ ​ 3,120 ​ ​ — Commercial loans ​ 44,167 ​ 40,002 ​ 37,577 Residential mortgage loans ​ 19,227 ​ 22,255 ​ 22,483 Consumer loans ​ 3,145 ​ 3,502 ​ 3,808 Residential construction loans ​ ​ 6,063 ​ ​ 4,547 ​ ​ 4,679 Total loans ​ 83,060 ​ 76,570 ​ 72,327 Total interest income ​ 84,780 ​ 78,915 ​ 75,648 INTEREST EXPENSE ​ ​ ​ Interest-bearing demand deposits ​ 1,073 ​ 1,344 ​ 1,386 Savings deposits ​ 1,685 ​ 2,463 ​ 4,907 Time deposits ​ 3,834 ​ 8,784 ​ 9,459 Borrowed funds and subordinated debentures ​ 1,149 ​ 1,889 ​ 2,303 Total interest expense ​ 7,741 ​ 14,480 ​ 18,055 Net interest income ​ 77,039 ​ 64,435 ​ 57,593 Provision for loan losses ​ 181 ​ 7,000 ​ 2,100 Net interest income after provision for loan losses ​ 76,858 ​ 57,435 ​ 55,493 NONINTEREST INCOME ​ ​ ​ Branch fee income ​ 1,130 ​ 1,046 ​ 1,502 Service and loan fee income ​ 2,757 ​ 1,742 ​ 1,965 Gain on sale of SBA loans held for sale, net ​ 741 ​ 1,642 ​ 909 Gain on sale of mortgage loans, net ​ 4,567 ​ 6,344 ​ 2,090 BOLI income ​ 689 ​ 613 ​ 588 Net security gains ​ 609 ​ 93 ​ 373 Gain on sale of premises and equipment ​ — ​ — ​ 766 Other income ​ 1,561 ​ 1,466 ​ 1,346 Total noninterest income ​ 12,054 ​ 12,946 ​ 9,539 NONINTEREST EXPENSE ​ ​ ​ Compensation and benefits ​ 24,771 ​ 23,124 ​ 20,666 Processing and communications ​ ​ 3,050 ​ ​ 3,155 ​ ​ 2,924 Occupancy ​ ​ 2,661 ​ ​ 2,543 ​ ​ 2,650 Furniture and equipment ​ 2,590 ​ 2,606 ​ 2,894 Professional services ​ 1,437 ​ 1,144 ​ 1,061 Advertising ​ 1,236 ​ 906 ​ 1,358 Other loan expenses ​ ​ 922 ​ ​ 622 ​ ​ 272 Deposit insurance ​ ​ 844 ​ ​ 674 ​ ​ 301 Director fees ​ ​ 811 ​ ​ 774 ​ ​ 673 BSA expenses ​ ​ 701 ​ ​ 1,800 ​ ​ — Loan collection & OREO expenses ​ 135 ​ 215 ​ 41 Other expenses ​ 1,624 ​ 1,699 ​ 1,877 Total noninterest expense ​ 40,782 ​ 39,262 ​ 34,717 Income before provision for income taxes ​ 48,130 ​ 31,119 ​ 30,315 Provision for income taxes ​ 12,011 ​ 7,475 ​ 6,662 Net income ​ $ 36,119 ​ $ 23,644 ​ $ 23,653 Net income per common share - Basic ​ $ 3.47 ​ $ 2.21 ​ $ 2.18 Net income per common share - Diluted ​ $ 3.43 ​ $ 2.19 ​ $ 2.14 Weighted average common shares outstanding – Basic ​ 10,403 ​ 10,709 ​ 10,845 Weighted average common shares outstanding – Diluted ​ 10,546 ​ 10,814 ​ 11,029 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. ​ 52 Table of Contents Consolidated Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Before tax ​ Income tax ​ Net of tax (In thousands) ​ amount ​ expense ​ amount Net income ​ $ 48,130 ​ ​ 12,011 ​ $ 36,119 Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ Debt securities available for sale: ​ ​ ​ ​ ​ ​ Unrealized holding gains on securities arising during the period ​ 948 ​ ​ 226 ​ 722 Less: reclassification adjustment for gains on securities included in net income ​ 605 ​ ​ 127 ​ 478 Total unrealized gains on securities available for sale ​ 343 ​ 99 ​ 244 Adjustments related to defined benefit plan: ​ ​ ​ Amortization of prior service cost ​ 332 ​ ​ 94 ​ 238 Total adjustments related to defined benefit plan ​ 332 ​ 94 ​ 238 Net unrealized gains from cash flow hedges: ​ ​ ​ Unrealized holding gains on cash flow hedges arising during the period ​ 1,435 ​ ​ 406 ​ 1,029 Total unrealized gains on cash flow hedges ​ 1,435 ​ 406 ​ 1,029 Total other comprehensive income ​ 2,110 ​ 599 ​ 1,511 Total comprehensive income ​ $ 50,240 ​ $ 12,610 ​ $ 37,630 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2020 ​ ​ ​ Income tax ​ ​ ​ ​ Before tax ​ expense ​ Net of tax (In thousands) ​ amount ​ (benefit) ​ amount Net income ​ $ 31,119 ​ ​ 7,475 ​ $ 23,644 Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ Debt securities available for sale: ​ ​ ​ ​ ​ ​ Unrealized holding losses on securities arising during the period ​ ( 603 ) ​ ​ ( 181 ) ​ ( 422 ) Less: reclassification adjustment for gains on securities included in net income ​ 93 ​ ​ 20 ​ 73 Total unrealized losses on securities available for sale ​ ( 696 ) ​ ( 201 ) ​ ( 495 ) Adjustments related to defined benefit plan: ​ ​ ​ Amortization of prior service cost ​ 83 ​ ​ 26 ​ 57 Total adjustments related to defined benefit plan ​ 83 ​ 26 ​ 57 Net unrealized losses from cash flow hedges: ​ ​ ​ Unrealized holding losses on cash flow hedges arising during the period ​ ( 1,264 ) ​ ​ ( 359 ) ​ ( 905 ) Total unrealized losses on cash flow hedges ​ ( 1,264 ) ​ ( 359 ) ​ ( 905 ) Total other comprehensive loss ​ ( 1,877 ) ​ ( 535 ) ​ ( 1,343 ) Total comprehensive income ​ $ 29,242 ​ $ 6,941 ​ $ 22,301 ​ 53 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2019 ​ ​ ​ Income tax ​ ​ ​ ​ Before tax ​ expense ​ Net of tax (In thousands) ​ amount ​ (benefit) ​ amount Net income ​ $ 30,315 ​ ​ 6,662 ​ ​ 23,653 Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available for sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains on securities arising during the period ​ 1,814 ​ ​ 482 ​ ​ 1,332 Less: reclassification adjustment for gains on securities included in net income ​ 373 ​ ​ 78 ​ ​ 295 Total unrealized gains on securities available for sale ​ 1,441 ​ 404 ​ 1,037 Adjustments related to defined benefit plan: ​ ​ ​ Amortization (accretion) of prior service cost ​ 83 ​ ​ ( 53 ) ​ ​ 136 Total adjustments related to defined benefit plan ​ 83 ​ ( 53 ) ​ 136 Net unrealized losses from cash flow hedges: ​ ​ ​ Unrealized holding losses on cash flow hedges arising during the period ​ ( 1,195 ) ​ ​ ( 333 ) ​ ​ ( 862 ) Total unrealized losses on cash flow hedges ​ ( 1,195 ) ​ ( 333 ) ​ ( 862 ) Total other comprehensive income ​ 329 ​ 18 ​ 311 Total comprehensive income ​ $ 30,644 ​ $ 6,680 ​ $ 23,964 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. ​ 54 Table of Contents Consolidated Statements of Changes in Shareholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ other ​ ​ ​ ​ Total ​ ​ Common stock ​ Retained ​ comprehensive ​ Treasury ​ Shareholders’ (In thousands, except per share amounts) Shares Amount earnings (loss) income ​ stock equity Balance, December 31, 2018 10,780 ​ $ 88,484 ​ $ 50,161 ​ $ ( 157 ) ​ $ — ​ $ 138,488 Net income ​ ​ 23,653 ​ ​ ​ ​ ​ 23,653 Other comprehensive income, net of tax ​ ​ ​ 311 ​ ​ ​ ​ 311 Dividends on common stock ($ 0.31 per share) ​ 117 ​ ( 3,372 ) ​ ​ ​ ​ ​ ( 3,255 ) Common stock issued and related tax effects (1) 101 ​ 1,512 ​ ​ ​ ​ ​ ​ 1,512 Balance, December 31, 2019 10,881 ​ 90,113 ​ 70,442 ​ 154 ​ ​ — ​ 160,709 Net income ​ ​ 23,644 ​ ​ ​ ​ ​ 23,644 Other comprehensive loss, net of tax ​ ​ ​ ( 1,343 ) ​ ​ ​ ​ ( 1,343 ) Dividends on common stock ($ 0.32 per share) ​ 119 ​ ( 3,417 ) ​ ​ ​ ​ ​ ( 3,298 ) Common stock issued and related tax effects (1) ​ 80 ​ ​ 1,641 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,641 Treasury stock purchased, at cost ( 505 ) ​ ​ ​ ​ ​ ​ ( 7,442 ) ​ ( 7,442 ) Balance, December 31, 2020 10,456 ​ 91,873 ​ 90,669 ​ ( 1,189 ) ​ ​ ( 7,442 ) ​ 173,911 Net income ​ ​ 36,119 ​ ​ ​ ​ ​ 36,119 Other comprehensive income, net of tax ​ ​ ​ 1,511 ​ ​ ​ ​ 1,511 Dividends on common stock ($ 0.36 per share) ​ 134 ​ ( 3,751 ) ​ ​ ​ ​ ​ ( 3,617 ) Common stock issued and related tax effects (1) 134 ​ 1,996 ​ ​ ​ ​ ​ ​ 1,996 Treasury stock purchased, at cost ​ ( 199 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 4,191 ) ​ ​ ( 4,191 ) Balance, December 31, 2021 10,391 ​ $ 94,003 ​ $ 123,037 ​ $ 322 ​ $ ( 11,633 ) ​ $ 205,729 ​ (1) Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised. ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. ​ 55 Table of Contents Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the twelve months ended December 31, (In thousands) ​ 2021 2020 2019 OPERATING ACTIVITIES: ​ ​ ​ ​ Net income ​ $ 36,119 ​ $ 23,644 ​ $ 23,653 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Provision for loan losses ​ 181 ​ 7,000 ​ 2,100 Net amortization of purchase premiums and discounts on securities ​ 209 ​ 241 ​ 189 Depreciation and amortization ​ 1,609 ​ 1,909 ​ 1,619 SBA PPP deferred fees and costs ​ ​ ( 1,464 ) ​ ​ 2,947 ​ ​ — Deferred income tax benefit ​ ( 1,456 ) ​ ( 3,090 ) ​ ( 299 ) Net security gains ​ ( 46 ) ​ ( 322 ) ​ ( 52 ) Stock compensation expense ​ 1,617 ​ 1,412 ​ 1,271 Gain on sale of OREO ​ — ​ ( 68 ) ​ ( 16 ) Valuation writedowns on OREO ​ — ​ 225 ​ — Gain on sale of mortgage loans, net ​ ( 4,567 ) ​ ( 5,594 ) ​ ( 2,143 ) Gain on sale of SBA loans held for sale, net ​ ( 741 ) ​ ( 1,642 ) ​ ( 909 ) Origination of mortgage loans sold ​ ( 286,408 ) ​ ( 290,808 ) ​ ( 120,173 ) Origination of SBA loans held for sale ​ ( 20,108 ) ​ ( 13,998 ) ​ ( 10,246 ) Proceeds from sale of mortgage loans, net ​ 290,975 ​ 296,402 ​ 122,316 Proceeds from sale of SBA loans held for sale, net ​ 6,466 ​ 19,826 ​ 15,768 BOLI income ​ ( 689 ) ​ ( 613 ) ​ ( 588 ) Gain on sale of premises and equipment ​ 4 ​ — ​ ( 766 ) Net change in other assets and liabilities ​ 1,753 ​ ( 3,726 ) ​ 1,480 Net cash provided by operating activities ​ 23,454 ​ 33,745 ​ 33,204 INVESTING ACTIVITIES ​ ​ ​ Purchases of securities held to maturity ​ ( 21,923 ) ​ — ​ — Purchase of equity securities ​ ( 6,100 ) ​ — ​ — Purchases of securities available for sale ​ ( 30,301 ) ​ ( 3,802 ) ​ ( 13,084 ) Purchases of FHLB stock, at cost ​ ( 39,036 ) ​ ( 76,915 ) ​ ( 90,644 ) Maturities and principal payments on securities held to maturity ​ 7,643 ​ — ​ 633 Maturities and principal payments on debt securities available for sale ​ 12,571 ​ 15,205 ​ 5,441 Proceeds from sales of securities available for sale ​ 7,048 ​ 6,635 ​ 5,606 Proceeds from sales of equity securities ​ 53 ​ 111 ​ 198 Proceeds from redemption of FHLB stock ​ 46,080 ​ 80,505 ​ 87,255 Proceeds from sale of OREO ​ — ​ 1,566 ​ 269 Net decrease (increase) in SBA PPP loans ​ ​ 73,208 ​ ​ ( 121,182 ) ​ ​ — Net increase in loans ​ ( 80,029 ) ​ ( 88,770 ) ​ ( 128,876 ) Proceeds from BOLI ​ 595 ​ 422 ​ — Purchase of BOLI ​ — ​ — ​ ( 1,025 ) Proceeds from sale of premises and equipment ​ 20 ​ — ​ 1,821 Purchases of premises and equipment ​ ( 1,269 ) ​ ( 559 ) ​ ( 709 ) Net cash used in investing activities ​ ( 31,440 ) ​ ( 186,784 ) ​ ( 133,115 ) FINANCING ACTIVITIES ​ ​ ​ Net increase in deposits ​ 200,922 ​ 307,845 ​ 42,427 Proceeds from new borrowings ​ — ​ 160,000 ​ 283,000 Repayments of borrowings ​ ( 160,000 ) ​ ( 243,000 ) ​ ( 210,000 ) Proceeds from exercise of stock options ​ 630 ​ 451 ​ 453 Fair market value of shares withheld to cover employee tax liability ​ ( 251 ) ​ ( 222 ) ​ ( 213 ) Dividends on common stock ​ ( 3,617 ) ​ ( 3,298 ) ​ ( 3,255 ) Purchase of treasury stock ​ ​ ( 4,191 ) ​ ​ ( 7,442 ) ​ ​ — Net cash provided by financing activities ​ 33,493 ​ 214,334 ​ 112,412 Increase in cash and cash equivalents ​ 25,507 ​ 61,295 ​ 12,501 Cash and cash equivalents, beginning of period ​ 219,311 ​ 158,016 ​ 145,515 Cash and cash equivalents, end of period ​ $ 244,818 ​ $ 219,311 ​ $ 158,016 SUPPLEMENTAL DISCLOSURES ​ ​ ​ Cash: ​ ​ ​ Interest paid ​ $ 7,860 ​ $ 14,687 ​ $ 18,006 Income taxes paid ​ 13,990 ​ 11,112 ​ 8,222 Noncash investing activities: ​ ​ ​ Transfer of securities held to maturity to available for sale ​ — ​ — ​ 14,221 Establishment of lease liability and right-of-use asset ​ 3,138 ​ 28 ​ 3,234 Transfer of SBA loans held for sale to held to maturity ​ — ​ 2,633 ​ — Capitalization of servicing rights ​ 126 ​ 722 ​ 643 Transfer of loans to OREO ​ — ​ — ​ 2,151 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements ​ 56 Table of Contents Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Overview The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiary, Unity Bank (the “Bank” or when consolidated with the Parent Company, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Unity Bancorp, Inc. is a bank holding company incorporated in New Jersey and registered under the Bank Holding Company Act of 1956, as amended. Its wholly-owned subsidiary, the Bank, is chartered by the New Jersey Department of Banking and Insurance. The Bank provides a full range of commercial and retail banking services through nineteen branch offices located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania. These services include the acceptance of demand, savings, and time deposits and the extension of consumer, real estate, Small Business Administration (“SBA”) and other commercial credits. Unity Investment Services, Inc. is a wholly-owned subsidiary of Unity Bank and is used to hold and administer part of the Bank’s investment portfolio. Unity Investment Services, Inc. has one subsidiary, Unity Delaware Investment 2, Inc., which has one subsidiary, Unity NJ REIT, Inc. Unity NJ REIT, Inc. was formed in 2013 to hold loans. The Company has two wholly-owned subsidiaries: Unity (NJ) Statutory Trust II and Unity Risk Management, Inc. For additional information on Unity (NJ) Statutory Trust II, see Note 9 to the Consolidated Financial Statements. Unity Risk Management, Inc. is the Company’s captive insurance company that insures risks to the Bank not insured by the traditional commercial insurance market. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with U.S. 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Amounts requiring the use of significant estimates include the allowance for loan losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of other-than-temporary impairment for securities and fair value disclosures. Actual results could differ from those estimates. Risks and Uncertainties On March 11, 2020, the world Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has adversely affected local, national and global economic activity. Actions taken to help mitigate the spread of COVID-19 included restrictions on travel, localized quarantines, and government-mandated closures of certain businesses. The spread of the outbreak has caused significant disruptions to the U.S. economy and disrupted banking and other financial activity in the areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. Other effects of the COVID-19 pandemic may materially and adversely affect the Company's financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is possible that estimates made in the financial statements could be materially and adversely impacted as a result of these conditions. On July 27, 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR to the LIBOR administrator after 2021. The announcement also indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 57 Table of Contents 2021, although LIBOR rates of certain tenors may be published until June 2023. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide LIBOR submissions to the LIBOR administrator or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable benchmark for certain loans and liabilities including our subordinated notes, what rate or rates may become accepted alternatives to LIBOR or the effect of any such changes in views or alternatives on the values of the loans and liabilities, whose interest rates are tied to LIBOR. Uncertainty as to the nature of such potential changes, alternative reference rates, the elimination or replacement of LIBOR, or other reforms may adversely affect the value of, and the return on our loans, and our investment securities. ​ Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits. Securities The Company classifies its securities into three categories, debt securities available for sale, securities held to maturity and equity securities with readily determinable fair values ("equity securities"). Securities that are classified as available for sale are stated at fair value. Unrealized gains and losses on securities available for sale are generally excluded from results of operations and are reported as other comprehensive income, a separate component of shareholders’ equity, net of taxes. Securities classified as available for sale include securities that may be sold in response to changes in interest rates, changes in prepayment risks or for asset/liability management purposes. The cost of securities sold is determined on a specific identification basis. Gains and losses on sales of securities are recognized in the Consolidated Statements of Income on the date of sale. Securities are classified as held to maturity based on management’s intent and ability to hold them to maturity. Such securities are stated at cost, adjusted for unamortized purchase premiums and discounts using the level yield method. If transfers between the available for sale and held to maturity portfolios occur, they are accounted for at fair value and unrealized holding gains and losses are accounted for at the date of transfer. For securities transferred to available for sale from held to maturity, unrealized gains or losses as of the date of the transfer are recognized in other comprehensive income (loss), a separate component of shareholders’ equity. For securities transferred into the held to maturity portfolio from the available for sale portfolio, unrealized gains or losses as of the date of transfer continue to be reported in other comprehensive income (loss), and are amortized over the remaining life of the security as an adjustment to its yield, consistent with amortization of the premium or accretion of the discount. Equity securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. These securities were transferred from available for sale and reclassified into equity securities on the balance sheet as a result of the adoption of ASU 2016-01 in January 2018. Periodic net gains and losses on equity investments are recognized in the income statement as realized gains and losses. For additional information on securities, see Note 3 to the Consolidated Financial Statements. Other-Than-Temporary Impairment The Company has a process in place to identify debt securities that could potentially incur credit impairment that is other-than-temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. This evaluation considers relevant facts and circumstances 58 Table of Contents in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a forecasted period of time that allows for the recovery in value. Management assesses its intent to sell or whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired where management has no intent to sell and the Company has no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income. For debt securities where management has the intent to sell, the amount of the impairment is reflected in earnings as realized losses. The present value of expected future cash flows is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances including timing, security interests and loss severity. Transfers of Financial Assets Transfers of financial assets 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 Company, (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 Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Loans Loans Held for Sale Loans held for sale represent the guaranteed portion of SBA loans, other than loans originated under the Paycheck Protection Program, and are reflected at the lower of aggregate cost or market value. The Company originates loans to customers under an SBA program that historically has provided for SBA guarantees of up to 90 percent of each loan. The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the nonguaranteed portion in its portfolio. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur; see details under the “Transfers of Financial Assets” heading above. Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash 59 Table of Contents flows using market-based assumptions. Any impairment, if temporary, would generally be reported as a valuation allowance. Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets. For additional information on servicing assets, see Note 4 to the Consolidated Financial Statements. Loans Held for Investment Loans held for investment are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding. Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more. Nonperforming loans consist of loans that are not accruing interest as a result of principal or interest being delinquent for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt (nonaccrual loans). When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest. Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off. All loan charge-offs are approved by the Board of Directors. Troubled debt restructurings ("TDRs") occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider. These concessions typically include reductions in interest rate, extending the maturity of a loan, or a combination of both. Interest income on accruing TDRs is credited to operations primarily based upon the principal amount outstanding, as stated in the paragraphs above. The Company evaluates its loans for impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company has defined impaired loans to be all TDRs and nonperforming loans individually evaluated for impairment. Impairment of a loan is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or as a practical expedient, based on a loan’s observable market price or the fair value of collateral, net of estimated costs to sell, if the loan is collateral-dependent. If the value of the impaired loan is less than the recorded investment in the loan, the Company establishes a valuation allowance, or adjusts existing valuation allowances, with a corresponding charge to the provision for loan losses. For additional information on loans, see Note 4 to the Consolidated Financial Statements. 60 Table of Contents Allowance for Loan Losses and Reserve for Unfunded Loan Commitments The allowance for loan losses is maintained at a level management considers adequate to provide for probable loan losses as of the balance sheet date. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. The level of the allowance is based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio, and historical loan loss experience. The allowance for loan losses consists of specific reserves for individually impaired credits and TDRs, reserves for nonimpaired loans based on historical loss factors adjusted for general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends. This risk assessment process is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known. Although management attempts to maintain the allowance at a level deemed adequate to provide for probable losses, future additions to the allowance may be necessary based upon certain factors including changes in market conditions and underlying collateral values. In addition, various regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses. These agencies may require the Company to make additional provisions based on their judgments about information available at the time of the examination. The Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the reserve are made through other expenses and applied to the reserve which is classified as other liabilities. For additional information on the allowance for loan losses and reserve for unfunded loan commitments, see Note 5 to the Consolidated Financial Statements. Premises and Equipment, net Land is carried at cost. All other fixed assets are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful life of buildings is not to exceed 30 years ; furniture and fixtures is generally 10 years or less, and equipment is 3 to 5 years . Leasehold improvements are depreciated over the life of the underlying lease. For additional information on premises and equipment, see Note 6 to the Consolidated Financial Statements. Bank Owned Life Insurance The Company purchased life insurance policies on certain members of management. Bank owned life insurance is recorded at its cash surrender value or the amount that can be realized. Federal Home Loan Bank Stock Federal law requires a member institution of the Federal Home Loan Bank system to hold stock of its district FHLB according to a predetermined formula. The stock is carried at cost. Management reviews the stock for impairment based on the ultimate recoverability of the cost basis in the stock. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net assets, if any, of the FHLB, the length of time this situation has persisted, commitments by the FHLB to make payments required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLB and the liquidity position of the FHLB. 61 Table of Contents Accrued Interest Receivable Accrued interest receivable consists of amounts earned on investments and loans. The Company recognizes accrued interest receivable as it is earned. Other Real Estate Owned Other real estate owned is recorded at the fair value, less estimated costs to sell at the date of acquisition, with a charge to the allowance for loan losses for any excess of the loan carrying value over such amount. Subsequently, OREO is carried at the lower of cost or fair value, as determined by current appraisals. Certain costs that increase the value or extend the useful life in preparing properties for sale are capitalized to the extent that the appraisal amount exceeds the carrying value, and expenses of holding foreclosed properties are charged to operations as incurred. Goodwill The Company accounts for goodwill and other intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other,” which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Based on a qualitative assessment, management determined that the Company’s recorded goodwill totaling $ 1.5 million, which resulted from the 2005 acquisition of its Phillipsburg, New Jersey branch, is not impaired as of December 31, 2021. Appraisals The Company requires current real estate appraisals on all loans that become OREO or in-substance foreclosure, 1-4 family residential and consumer mortgage loans above $400,000, commercial credit facilities above $500,000 when supported by real property or nonperforming loans with properties that are securing credit. Prior to each balance sheet date, the Company values impaired collateral-dependent loans and OREO based upon a third party appraisal, broker’s price opinion, drive by appraisal, automated valuation model, updated market evaluation, or a combination of these methods. The amount is discounted for the decline in market real estate values for any known damage or repair costs, and for selling and closing costs. The amount of the discount is dependent upon the method used to determine the original value. The original appraisal is generally used when a loan is first determined to be impaired. When applying the discount, the Company takes into consideration when the appraisal was performed, the collateral’s location, the type of collateral, any known damage to the property and the type of business. Subsequent to entering impaired status and the Company determining that there is a collateral shortfall, the Company will generally, depending on the type of collateral, order a third party appraisal, broker’s price opinion, automated valuation model or updated market evaluation. Subsequent to receiving the third party results, the Company will discount the value 6 to 10 percent for selling and closing costs. Derivative Instruments and Hedging Activities The Company utilizes derivative instruments in the form of interest rate swaps to hedge its exposure to interest rate risk in conjunction with its overall asset and liability risk management process. In accordance with accounting requirements, the Company formally designates all of its hedging relationships as either fair value hedges, intended to offset the changes in the value of certain financial instruments due to movements in interest rates, or cash flow hedges, intended to offset changes in the cash flows of certain financial instruments due to movement in interest rates, and documents the strategy for undertaking the hedge transactions, and its method of assessing ongoing effectiveness. The Company’s derivative instruments currently consist of cash flow hedges. We recognize all derivative instruments at fair value as either Other assets or Other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section of the Consolidated Statement of Cash Flows. 62 Table of Contents For derivatives designated cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Derivative instruments qualify for hedge accounting treatment only if they are designated as such on the date on which the derivative contract is entered and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as undesignated derivatives and would be recorded at fair value with changes in fair value recorded in income. The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting changes in cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that the forecasted transaction will no longer occur; or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all cases in which hedge accounting is discontinued and a derivative remains outstanding, the Company will carry the derivative at fair value in the Consolidated Financial Statements, recognizing changes in fair value in current period income in the consolidated statement of income. For additional information on derivative instruments and hedging activities, see Note 9 to the Consolidated Financial Statements. Income Taxes The Company follows Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for 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 income in the period that includes the enactment date. Valuation reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are recognized in income tax expense on the income statement. For additional information on income taxes, see Note 16 to the Consolidated Financial Statements. 63 Table of Contents Net Income Per Share Basic net income per common share is calculated as net income available to common shareholders divided by the weighted average common shares outstanding during the reporting period. Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period utilizing the Treasury stock method. However, when a net loss rather than net income is recognized, diluted earnings per share equals basic earnings per share. For additional information on net income per share, see Note 17 to the Consolidated Financial Statements. Stock-Based Compensation The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation,” which requires recognition of compensation expense related to stock-based compensation awards over the period during which an employee is required to provide service for the award. Compensation expense is equal to the fair value of the award, net of estimated forfeitures, and is recognized over the vesting period of such awards. For additional information on the Company’s stock-based compensation, see Note 19 to the Consolidated Financial Statements. Fair Value The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which provides a framework for measuring fair value under generally accepted accounting principles. For additional information on the fair value of the Company’s financial instruments, see Note 20 to the Consolidated Financial Statements. Other Comprehensive Income Other comprehensive income consists of the change in unrealized gains (losses) on SERP, securities available for sale and swap related items that were reported as a component of shareholders’ equity, net of tax. For additional information on other comprehensive income, see Note 12 to the Consolidated Financial Statements. Advertising The Company expenses the costs of advertising in the period incurred. Dividend Restrictions Banking regulations require maintaining certain capital levels that may limit the dividends paid by the Bank to the holding company or by the holding company to the shareholders. Operating Segments While management monitors the revenue streams of its various products and services, operating results and financial performance are evaluated on a company-wide basis. The Company’s management uses consolidated results to make operating and strategic decisions. Accordingly, there is only one reportable segment. 64 Table of Contents Recent Accounting Pronouncements ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 was issued to replace the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. In May 2019, FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief." ASU 2019-05 was issued to address concerns with the adoption of ASU 2016-13. ASU 2019-05 gives entities the ability to irrevocably elect the fair value option in Subtopic 825-10 for certain existing financial assets upon transition to ASU 2016-03. Financial assets that are eligible for this fair value election are those that qualify under Subtopic 825-10 and are within the scope of Subtopic 326-10, "Financial Instruments - Credit Losses - Measured at Amortized Costs." An exception to this is held-to-maturity debt securities, which do not qualify for this transition election. The effective date for the amendment is the same as the effective date in ASU 2016-03. In November 2019, FASB issued ASU 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates." ASU 2019-10 was issued to defer the effective dates for certain guidance in its Accounting Standard Codification ("ASC") for certain entities. The amendments in this update amend the mandatory effective dates for ASC 326, "Financial Instruments - Credit Losses", for entities eligible to be smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. In November 2019, FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses." ASU 2019-11 was issued to address issues raise by stakeholders during the implementation of ASU 2016-13. ASU 2019-11 provides transition relief when adjusting the effective interest rate for troubled debt restructurings ("TDRs") that exist as of the adoption date, extends the disclosure relief in ASU 2019-04 to disclose accrued interest receivable balances separately from the amortized cost basis to additional disclosures involving amortized cost basis, and provides clarification regarding application of the guidance in paragraph 326-20-35-6 for financial assets secured by collateral maintenance provisions that provides a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of a financial asset and the fair value of collateral securing the financial asset as of the reporting date. The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13. ASU 2019- 12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." ASU 2019-12 removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items and removes the exception to the interim period income tax accounting when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies the accounting for income taxes by requiring that an entity recognize a franchise tax that is partially based on income as an income-based tax, that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill originally was recognized, and that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public business entities, ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force)." ASU 2020-01 clarifies that the observable price changes in orderly transactions that should be considered when applying the measurement alternative in accordance with ASC 321 include transactions that require it to either apply or discontinue the equity method of accounting under ASC 323. ASU 65 Table of Contents 2020-01 also addresses questions about how to apply the guidance in Topic 815, “Derivatives and Hedging,” for certain forward contracts and purchased options to purchase securities that, upon settlement or exercise, would be accounted for under the equity method of accounting. The ASU clarifies that, for the purpose of applying ASC 815-10-15- 141(a), an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with the financial instruments guidance in Topic 825, “Financial Instruments.” For public business entities, ASU 2020-01 is effective for interim and annual periods beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. ASU 2020- 03, "Codification Improvement to Financial Instruments." ASU 2020-03 clarifies that all entities are required to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32 of the FASB’s Accounting Standards Codification (ASC). ASU 2020-03 also clarifies that the contractual term of a net investment in a lease determined in accordance with ASC 842, “Leases,” should be the contractual term used to measure expected credit losses under ASC 326, “Financial Instruments – Credit Losses.” ASU 2020-03 also addresses amendments to ASC 860-20, “Transfers and Servicing – Sales of Financial Assets,” clarify that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with ASC 326. The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13. The Company is currently evaluating the impact of the adoption of ASU 2020-03 on its consolidated financial statements. ASU 2020- 04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides temporary optional guidance intended to ease the burden of reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying existing guidance to contract modifications, hedging relationships and other transactions that are expected to be affected by reference rate reform and meet certain scope guidance. ASU 2020-04 provides various optional expedients, including the following, for hedging relationships affected by reference rate reform, if certain criteria are met: ● An entity can change certain critical terms of the hedging instrument or hedged item or transaction without having to dedesignate the relationship. ● For fair value hedging relationships in which the designated interest rate is LIBOR or another rate that is expected to be discontinued, an entity may change the hedged risk to another permitted benchmark rate without dedesignating the relationship. ● For cash flow hedging relationships in which the designated hedged risk is LIBOR or another rate that is expected to be discontinued, an entity may assert that the occurrence of the hedged forecasted transaction remains probable. ● Certain qualifying conditions for the shortcut method and other methods that assume perfect effectiveness may be disregarded. ​ In addition, ASU 2020-04 permits an entity to make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that were classified as held to maturity before January 1, 2020. ASU 2020-04 was effective upon its issuance on March 12, 2020. However, it cannot be applied to contract modifications that occur after December 31, 2022. With certain exceptions, the ASU also cannot be applied to hedging relationships entered into or evaluated after that date. The company is currently evaluating the various optional expedients as well as impact of the adoption of ASU 2020-04 on its consolidated financial statements. ​ ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.” ASU 2020-06 was issued to address the complexities of its guidance for certain financial instruments with characteristics of liabilities and equity, including: ● Removing the accounting models that require beneficial conversion features or cash conversion features associated with convertible instruments to be recognized as a separate component of equity. ● Adding certain disclosure requirements for convertible instruments. ● Amending the guidance for the derivatives scope exception for contracts in an entity’s own equity. 66 Table of Contents ● Simplifying the diluted earning per share calculation for certain situations. For public business entities, ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2020-06 on its consolidated financial statements. ​ ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 was issued to clarify certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transaction. In addition, the ASU clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered eligible as a hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of the reference rate reform. ASU 2021-01 became effective January 7, 2021. The Company currently uses the shortcut method as the practical expedient. ​ Revenue Recognition ASC 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of non-interest income are as follows: ● Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or transaction based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. ● Other non-interest income primarily includes items such as letter of credit fees, bank owned life insurance income, dividends on FHLB and FRB stock and other general operating income, none of which are subject to the requirements of ASC 606. Subsequent Events The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements. During this period, the Company did not have any material recognizable or non-recognizable subsequent events. 2. Restrictions on Cash Federal law requires depository institutions to hold reserves in the form of vault cash or, if vault cash is insufficient, in the form of a deposit maintained with a Federal Reserve Bank. The dollar amount of a depository institution’s reserve requirement is determined by applying the reserve ratios specified in the FRB’s Regulation D to an institution’s reservable liabilities. In response to COVID-19, on March 15, 2020, the FRB announced the reduction of the reserve requirement ratios to zero percent, effective March 26, 2020. This action eliminated the reserve requirement for depository institutions to help support lending to households and businesses. In addition, the Company’s contract with its current electronic funds transfer (“EFT”) provider requires a predetermined balance be maintained in a settlement account controlled by the provider equal to the Company’s average daily net 67 Table of Contents settlement position multiplied by four days. The required balance was $ 156 thousand as of December 31, 2021 and 2020. This balance can be adjusted periodically to reflect actual transaction volume and seasonal factors. As of December 31, 2021, Unity Risk Management, Inc. had a total cash balance of $ 2.7 million, compared to $ 2.0 million at December 31, 2020. ​ 3. Securities This table provides the major components of debt securities available for sale (“AFS”) and equity securities with readily determinable fair values ("equity securities") at amortized cost and estimated fair value at December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 ​ ​ ​ Gross Gross ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ unrealized ​ unrealized ​ Estimated ​ Amortized ​ unrealized ​ unrealized ​ Estimated (In thousands) ​ cost ​ gains ​ losses ​ fair value ​ cost ​ gains ​ losses ​ fair value Available for sale: ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 2,000 ​ $ 3 ​ $ — ​ $ 2,003 State and political subdivisions ​ 996 ​ 6 ​ ( 8 ) ​ 994 ​ 2,935 ​ 34 ​ — ​ 2,969 Residential mortgage-backed securities ​ 9,485 ​ 277 ​ ( 13 ) ​ 9,749 ​ 16,765 ​ 645 ​ — ​ 17,410 Corporate and other securities ​ 45,961 ​ 164 ​ ( 388 ) ​ 45,737 ​ 24,221 ​ 132 ​ ( 1,118 ) ​ 23,235 Total debt securities available for sale ​ $ 56,442 ​ $ 447 ​ $ ( 409 ) ​ $ 56,480 ​ $ 45,921 ​ $ 814 ​ $ ( 1,118 ) ​ $ 45,617 Held to maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 10,000 ​ $ — ​ $ ( 67 ) ​ $ 9,933 ​ $ — ​ $ — ​ $ — ​ $ — State and political subdivisions ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Residential mortgage-backed securities ​ 4,276 ​ 28 ​ ( 8 ) ​ 4,296 ​ — ​ — ​ — ​ — Commercial mortgage-backed securities ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Corporate and other securities ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total securities held to maturity ​ $ 14,276 ​ $ 28 ​ $ ( 75 ) ​ $ 14,229 ​ $ — ​ $ — ​ $ — ​ $ — Equity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total equity securities ​ $ 8,163 ​ $ 486 ​ $ ( 83 ) ​ $ 8,566 ​ $ 2,112 ​ $ — ​ $ ( 158 ) ​ $ 1,954 ​ 68 Table of Contents This table provides the remaining contractual maturities and yields of securities within the investment portfolios. The carrying value of securities at December 31, 2021 is distributed by contractual maturity. Yields for all debt securities are calculated based on amortized cost. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ After one through ​ After five through ​ ​ ​ ​ ​ ​ Total carrying ​ ​ Within one year ​ five years ​ ten years ​ After ten years ​ value (In thousands, except percentages) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available for sale at fair value: ​ ​ ​ ​ ​ ​ State and political subdivisions ​ 201 3.89 ​ 423 2.91 ​ — — ​ 371 2.75 ​ 994 3.05 ​ Residential mortgage-backed securities ​ 23 1.66 ​ 763 2.56 ​ 575 2.44 ​ 8,389 2.52 ​ 9,749 2.52 ​ Corporate and other securities ​ — — ​ 3,001 5.55 ​ 15,370 4.69 ​ 27,366 2.10 ​ 45,737 3.20 ​ Total debt securities available for sale ​ $ 224 3.66 % $ 4,187 4.74 % $ 15,945 4.61 % $ 36,126 2.21 % $ 56,480 3.08 % Held to maturity at cost ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ — — % $ — — % $ — — % $ 10,000 2.68 % $ 10,000 2.68 % Residential mortgage-backed securities ​ — — ​ — — ​ — — ​ 4,276 2.81 ​ 4,276 2.81 ​ Total debt securities held for maturity ​ $ — — % $ — — % $ — — % $ 14,276 2.72 % $ 14,276 2.72 % Equity Securities at fair value: ​ ​ ​ ​ . ​ ​ ​ ​ Total equity securities ​ $ — — % $ — — % $ — — % $ 8,566 2.01 % $ 8,566 2.01 % ​ The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2021 and December 31, 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ Less than 12 months ​ 12 months and greater ​ Total ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ number in a ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized (In thousands, except number in a loss position) ​ loss position ​ fair value ​ loss ​ fair value ​ loss ​ fair value ​ loss Available for sale: ​ ​ ​ ​ ​ ​ State and political subdivisions 1 ​ $ 370 ​ $ ( 8 ) ​ $ — ​ $ — ​ $ 370 ​ $ ( 8 ) Residential mortgage-backed securities 8 ​ $ 1,821 ​ $ ( 13 ) ​ $ — ​ $ — ​ $ 1,821 ​ $ ( 13 ) Corporate and other securities 15 ​ 17,281 ​ ( 19 ) ​ 8,394 ​ ( 369 ) ​ 25,675 ​ ( 388 ) Total temporarily impaired securities 24 ​ $ 19,472 ​ $ ( 40 ) ​ $ 8,394 ​ $ ( 369 ) ​ $ 27,866 ​ $ ( 409 ) Held to maturity: ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities 3 ​ $ 9,933 ​ $ ( 67 ) ​ $ — ​ $ — ​ $ 9,933 ​ $ ( 67 ) Residential mortgage-backed securities 1 ​ 823 ​ ( 8 ) ​ — ​ — ​ 823 ​ ( 8 ) Total temporarily impaired securities 4 ​ $ 10,756 ​ $ ( 75 ) ​ $ — ​ $ — ​ $ 10,756 ​ $ ( 75 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ Less than 12 months ​ 12 months and greater ​ Total ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ number in a ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized (In thousands, except number in a loss position) ​ loss position ​ fair value ​ loss ​ fair value ​ loss ​ fair value ​ loss Available for sale: ​ ​ ​ ​ ​ ​ Corporate and other securities 9 ​ 4,793 ​ ( 20 ) ​ 9,157 ​ ( 1,098 ) ​ 13,950 ​ ( 1,118 ) Total temporarily impaired securities 9 ​ $ 4,793 ​ $ ( 20 ) ​ $ 9,157 ​ $ ( 1,098 ) ​ $ 13,950 ​ $ ( 1,118 ) ​ Unrealized Losses The unrealized losses in each of the categories presented in the tables above are discussed in the paragraphs that follow: U.S. government sponsored entities and state and political subdivision securities: The unrealized losses on investments in these types of securities were caused by the increase in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments. Because the Company does not intend to sell the investments and it is 69 Table of Contents not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of December 31, 2021 or December 31, 2020. Residential mortgage-backed securities: The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or the increase in interest rates at the long end of the Treasury curve. The majority of contractual cash flows of these securities are guaranteed by the Federal National Mortgage Association (FNMA), the Government National Mortgage Association (GNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). It is expected that the securities would not be settled at a price significantly less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of December 31, 2021 or December 31, 2020. Corporate and other securities: Included in this category are corporate and other debt securities. The unrealized losses on corporate and other debt securities were due to widening credit spreads. The Company evaluated the prospects of the issuers and forecasted a recovery period; and as a result determined it did not consider these investments to be other-than-temporarily impaired as of December 31, 2021 or December 31, 2020. The contractual terms do not allow the securities to be settled at a price less than the par value. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of its amortized cost basis, which may be at maturity, the Company did not consider these securities to be other-than-temporarily impaired as of December 31, 2021 or December 31, 2020. Realized Gains and Losses Gross realized gains and losses on securities for the past three years are detailed in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Available for sale: ​ ​ ​ Realized gains ​ $ 44 ​ $ 317 ​ $ 35 Realized losses ​ — ​ — ​ — Total debt securities available for sale ​ 44 ​ 317 ​ 35 Net gains on sales of securities ​ $ 44 ​ $ 317 ​ $ 35 ​ The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains. There were $ 44 thousand of gross realized gains in 2021, compared to $ 317 thousand of gross realized gains in 2020 and $ 35 thousand of gross realized gains in 2019. There were no gross realized losses in 2021, 2020, or 2019. ● The net gain during 2021 is attributed to the sale of six corporate bonds with a total book value of $ 7.0 million and resulting gains of $ 39 thousand, and the call of one taxable municipal security with a total book value of $ 496 thousand and resulting gains of $ 5 thousand. ● The net gain during 2020 is attributed to the sale of two corporate bonds with a total book value of $ 2.7 million and resulting gains of $ 77 thousand, three mortgage-backed securities with a total book value of $ 2.8 million and resulting gains of $ 57 thousand, one taxable municipal security with a book value of $ 456 thousand and resulting gains of $ 140 thousand, one tax-exempt municipal security with a book value of $ 381 thousand and resulting gains of $ 27 thousand, and the call of three tax-exempt municipal securities with a total book value of $ 1.8 million and resulting gains of $ 16 thousand ● The net gain during 2019 is attributed to the sale of two commercial mortgage-backed securities with a total book value of $ 3.5 million and resulting gains of $ 64 thousand offset by the sale of two agency securities with a total book value of $ 2.1 million and resulting losses of $ 29 thousand. 70 Table of Contents Equity Securities Included in this category are Community Reinvestment Act ("CRA") investments and the equity holdings of financial institutions. Equity securities are defined to include (a) preferred, common and other ownership interests in entities including partnerships, joint ventures and limited liability companies and (b) rights to acquire or dispose of ownership interest in entities at fixed or determinable prices. The following is a summary of the gains and losses recognized in net income on equity securities for the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2021 2020 ​ 2019 Net gains (losses) recognized during the period on equity securities ​ $ 561 ​ $ ( 229 ) ​ $ 321 Net gains recognized during the period on equity securities sold during the period ​ 4 ​ 5 ​ ​ 17 Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date ​ $ 565 ​ $ ( 224 ) ​ $ 338 ​ Pledged Securities Securities with a carrying value of $ 1.2 million and $ 1.6 million at December 31, 2021 and December 31, 2020, respectively, were pledged to secure other borrowings and for other purposes required or permitted by law. ​ 4. Loans The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses for the past two years: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2021 December 31, 2020 SBA loans held for investment ​ $ 36,075 ​ $ 39,587 SBA PPP loans ​ ​ 46,450 ​ ​ 118,257 Commercial loans ​ ​ SBA 504 loans ​ 27,479 ​ 19,681 Commercial other ​ 109,903 ​ 118,280 Commercial real estate ​ 704,674 ​ 630,423 Commercial real estate construction ​ 89,670 ​ 71,404 Residential mortgage loans ​ 409,355 ​ 467,586 Consumer loans ​ ​ ​ ​ Home equity ​ 76,725 ​ 62,549 Consumer other ​ 1,219 ​ 3,551 Residential construction loans ​ ​ 120,525 ​ ​ 87,164 Total loans held for investment ​ $ 1,622,075 ​ $ 1,618,482 SBA loans held for sale ​ 27,373 ​ 9,335 Total loans ​ $ 1,649,448 ​ $ 1,627,817 ​ Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company’s different loan segments follows: SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the 71 Table of Contents portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses’ major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various relief programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board (“FRB”) and other federal banking agencies have implemented or may implement. The CARES Act provided assistance to small businesses through the establishment of the SBA Paycheck Protection Program (“PPP”). The PPP provided eligible small businesses with funds to pay up to 24 weeks of payroll costs, including certain benefits. The funds were provided in the form of loans that may be fully or partially forgiven when used for payroll costs, interest on mortgages, rent, or utilities. The payments on these loans will be deferred for up to six months. Loans made after June 5, 2020, mature in five years, and loans made prior to June 5, 2020, mature in two years but can be extended to five years if the lender agrees. Forgiveness of the PPP loans is based on the borrower maintaining or quickly rehiring employees and maintaining salary levels. Applications for the PPP loans started on April 3, 2020 and were extended through August 8, 2020. The Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”) became law o n December 27, 2020 . Among other things, the Economic Aid Act extended the PPP through March 31, 2021 and allocated additional funds for new PPP loans, to be guaranteed by the SBA. The extension included an authorization to make new PPP loans to existing PPP loan borrowers, and to make loans to parties that did not previously obtain a PPP loan. Loans originated under the extended PPP will have substantially the same terms as existing PPP loans. As an existing SBA 7(a) lender, the Company opted to participate in the program. Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s market place for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Loans will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination. Residential Mortgage, Consumer and Residential Construction Loans: The Company originates mortgage and consumer loans including principally residential real estate, home equity lines and loans and residential construction lines. The Company originates qualified mortgages which are generally sold in the secondary market and nonqualified mortgages which are generally held for investment. Each loan type is evaluated on debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower. During the quarter ended September 30, 2021, the Company enrolled in the “Upgrade Consumer Unsecured Loan Program” to purchase consumer unsecured loans. This loan product has a fixed rate, fully amortizing term for up to five years and a maximum loan amount of $ 50 thousand. Restrictions were placed on the loans purchased to limit the purchases to borrowers residing in New Jersey, southern New York, and eastern Pennsylvania and to limit purchases to borrowers with higher credit quality with a 700 FICO minimum. Upgrade services the loans on behalf of the Company. Upgrade is a financial technology company that utilizes artificial intelligence to underwrite personal loan and credit card installment loans to retail customers, in addition to credit monitoring and education tools. Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when the Company initiates contact regarding a loan with a borrower. Documentation, 72 Table of Contents including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm. The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis. Credit Ratings For SBA 7(a), and commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. A loan’s internal risk rating is updated at least annually and more frequently if circumstances warrant a change in risk rating. The Company uses a 1 through 10 loan grading system that follows regulatory accepted definitions. Pass: Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”. Special Mention: Criticized loans are assigned a risk rating of 7 and termed “Special Mention”, as the borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s collateral and position. While potentially weak, these borrowers are currently marginally acceptable and no loss of interest or principal is anticipated. As a result, special mention assets do not expose an institution to sufficient risk to warrant adverse classification. Included in “Special Mention” could be turnaround situations, such as borrowers with deteriorating trends beyond one year, borrowers in start up or deteriorating industries, or borrowers with a poor market share in an average industry. "Special Mention" loans may include an element of asset quality, financial flexibility, or below average management. Management and ownership may have limited depth or experience. Regulatory agencies have agreed on a consistent definition of “Special Mention” as an asset with potential weaknesses which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. This definition is intended to ensure that the “Special Mention” category is not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset. Substandard: Classified loans are assigned a risk rating of an 8 or 9, depending upon the prospect for collection, and deemed “Substandard”. A risk rating of 8 is used for borrowers with well-defined weaknesses that jeopardize the orderly liquidation of debt. The loan is inadequately protected by the current paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified “Substandard”. A risk rating of 9 is used for borrowers that have all the weaknesses inherent in a loan with a risk rating of 8, with the added characteristic that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; and refinancing plans. Partial charge-offs are likely. Loss: Once a borrower is deemed incapable of repayment of unsecured debt, the risk rating becomes a 10, the loan is termed a “Loss”, and charged-off immediately. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be affected in the future. 73 Table of Contents For residential mortgage, consumer and residential construction loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being delinquent for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis, as a loan is placed on nonaccrual status as soon as management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan. The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ SBA & Commercial loans - Internal risk ratings (In thousands) Pass Special mention Substandard Total SBA loans held for investment ​ $ 34,959 ​ $ 745 ​ $ 371 ​ $ 36,075 SBA PPP loans ​ ​ 46,450 ​ ​ — ​ ​ — ​ ​ 46,450 Commercial loans ​ ​ ​ ​ SBA 504 loans ​ 27,479 ​ — ​ — ​ 27,479 Commercial other ​ 105,388 ​ 1,976 ​ 2,539 ​ 109,903 Commercial real estate ​ 694,627 ​ 7,980 ​ 2,067 ​ 704,674 Commercial real estate construction ​ 86,770 ​ 2,900 ​ — ​ 89,670 Total commercial loans ​ 914,264 ​ 12,856 ​ 4,606 ​ 931,726 Total SBA and commercial loans ​ $ 995,673 ​ $ 13,601 ​ $ 4,977 ​ $ 1,014,251 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming (In thousands) ​ ​ Performing Nonperforming Total Residential mortgage loans ​ ​ ​ ​ $ 406,093 ​ $ 3,262 ​ $ 409,355 Consumer loans ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ ​ ​ 76,515 ​ 210 ​ 76,725 Consumer other ​ ​ ​ ​ 1,219 ​ — ​ 1,219 Total consumer loans ​ ​ ​ ​ 77,734 ​ 210 ​ 77,944 Residential construction loans ​ ​ ​ ​ ​ 117,403 ​ ​ 3,122 ​ ​ 120,525 Total residential mortgage, consumer and residential construction loans ​ ​ ​ ​ $ 601,230 ​ $ 6,594 ​ $ 607,824 ​ 74 Table of Contents The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ SBA & Commercial loans - Internal risk ratings (In thousands) Pass Special mention Substandard Total SBA loans held for investment ​ $ 36,818 ​ $ 525 ​ $ 2,244 ​ $ 39,587 SBA PPP loans ​ ​ 118,257 ​ ​ — ​ ​ — ​ ​ 118,257 Commercial loans ​ ​ ​ ​ SBA 504 loans ​ 19,681 ​ — ​ — ​ 19,681 Commercial other ​ 109,672 ​ 5,533 ​ 3,075 ​ 118,280 Commercial real estate ​ 603,482 ​ 25,206 ​ 1,735 ​ 630,423 Commercial real estate construction ​ 71,404 ​ — ​ — ​ 71,404 Total commercial loans ​ 804,239 ​ 30,739 ​ 4,810 ​ 839,788 Total SBA and commercial loans ​ $ 959,314 ​ $ 31,264 ​ $ 7,054 ​ $ 997,632 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming (In thousands) ​ ​ Performing ​ Nonperforming ​ Total Residential mortgage loans ​ ​ $ 462,369 ​ $ 5,217 ​ $ 467,586 Consumer loans ​ ​ ​ ​ ​ Home equity ​ ​ 61,254 ​ 1,295 ​ 62,549 Consumer other ​ ​ 3,551 ​ — ​ 3,551 Total consumer loans ​ ​ 64,805 ​ 1,295 ​ 66,100 Residential construction loans ​ ​ ​ ​ ​ 85,414 ​ ​ 1,750 ​ ​ 87,164 Total residential mortgage, consumer and residential construction loans ​ ​ $ 612,588 ​ $ 8,262 ​ $ 620,850 ​ Nonperforming and Past Due Loans Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being delinquent for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans and generally represent loans that are well secured and in process of collection. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The Company values its collateral through the use of appraisals, broker price opinions, and knowledge of its local market. 75 Table of Contents The following tables set forth an aging analysis of past due and nonaccrual loans as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ 90+ days ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 ‑ 59 days ​ 60 ‑ 89 days ​ and still ​ Nonaccrual ​ Total past ​ ​ ​ ​ ​ ​ (In thousands) ​ past due ​ past due ​ accruing ​ (1) ​ due ​ Current ​ Total loans SBA loans held for investment ​ $ 1,558 ​ $ — ​ $ — ​ $ 510 ​ $ 2,068 ​ $ 34,007 ​ $ 36,075 SBA PPP loans ​ ​ — ​ ​ 79 ​ ​ — ​ ​ — ​ ​ 79 ​ ​ 46,371 ​ ​ 46,450 Commercial loans ​ ​ ​ ​ ​ ​ ​ ​ SBA 504 loans ​ — ​ — ​ — ​ — ​ — ​ 27,479 ​ 27,479 Commercial other ​ — ​ 33 ​ — ​ 2,216 ​ 2,249 ​ 107,654 ​ 109,903 Commercial real estate ​ 334 ​ 565 ​ — ​ 366 ​ 1,265 ​ 703,409 ​ 704,674 Commercial real estate construction ​ — ​ — ​ — ​ — ​ — ​ 89,670 ​ 89,670 Residential mortgage loans ​ 3,688 ​ — ​ — ​ 3,262 ​ 6,950 ​ 402,405 ​ 409,355 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ 39 ​ — ​ — ​ 210 ​ 249 ​ 76,476 ​ 76,725 Consumer other ​ — ​ — ​ — ​ — ​ — ​ 1,219 ​ 1,219 Residential construction loans ​ ​ — ​ ​ 845 ​ ​ — ​ ​ 3,122 ​ ​ 3,967 ​ ​ 116,558 ​ ​ 120,525 Total loans held for investment ​ ​ 5,619 ​ ​ 1,522 ​ ​ — ​ ​ 9,686 ​ ​ 16,827 ​ ​ 1,605,248 ​ ​ 1,622,075 SBA loans held for sale ​ — ​ — ​ — ​ — ​ — ​ 27,373 ​ 27,373 Total loans ​ $ 5,619 ​ $ 1,522 ​ $ — ​ $ 9,686 ​ $ 16,827 ​ $ 1,632,621 ​ $ 1,649,448 ​ (1) At December 31, 2021, nonaccrual loans included $ 59 thousand of loans guaranteed by the SBA. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ 90+ days ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 ‑ 59 days ​ 60 ‑ 89 days ​ and still ​ Nonaccrual ​ Total past ​ ​ ​ ​ ​ ​ (In thousands) ​ past due ​ past due ​ accruing ​ (1) ​ due ​ Current ​ Total loans SBA loans held for investment ​ $ 792 ​ $ 1,280 ​ $ — ​ $ 2,473 ​ $ 4,545 ​ $ 35,042 ​ $ 39,587 SBA PPP loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 118,257 ​ ​ 118,257 Commercial loans ​ ​ ​ ​ ​ ​ ​ ​ SBA 504 loans ​ — ​ — ​ — ​ — ​ — ​ 19,681 ​ 19,681 Commercial other ​ 186 ​ 201 ​ — ​ 266 ​ 653 ​ 117,627 ​ 118,280 Commercial real estate ​ 3,109 ​ 1,971 ​ — ​ 1,059 ​ 6,139 ​ 624,284 ​ 630,423 Commercial real estate construction ​ 1,047 ​ — ​ — ​ — ​ 1,047 ​ 70,357 ​ 71,404 Residential mortgage loans ​ 3,232 ​ 2,933 ​ 262 ​ 5,217 ​ 11,644 ​ 455,942 ​ 467,586 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ 393 ​ — ​ 187 ​ 1,295 ​ 1,875 ​ 60,674 ​ 62,549 Consumer other ​ 3 ​ 1 ​ — ​ — ​ 4 ​ 3,547 ​ 3,551 Residential construction loans ​ ​ 120 ​ ​ 796 ​ ​ — ​ ​ 1,750 ​ ​ 2,666 ​ ​ 84,498 ​ ​ 87,164 Total loans held for investment ​ ​ 8,882 ​ ​ 7,182 ​ ​ 449 ​ ​ 12,060 ​ ​ 28,573 ​ ​ 1,589,909 ​ ​ 1,618,482 SBA loans held for sale ​ 597 ​ — ​ — ​ — ​ 597 ​ 8,738 ​ 9,335 Total loans ​ $ 9,479 ​ $ 7,182 ​ $ 449 ​ $ 12,060 ​ $ 29,170 ​ $ 1,598,647 ​ $ 1,627,817 ​ (1) At December 31, 2020, nonaccrual loans included $ 371 thousand of loans guaranteed by the SBA. Impaired Loans The Company has defined impaired loans to be all nonperforming loans and troubled debt restructurings. Management considers a loan impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract. 76 Table of Contents The following tables provide detail on the Company’s loans individually evaluated for impairment with the associated allowance amount, if applicable, as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Unpaid ​ ​ ​ ​ ​ ​ principal ​ Recorded ​ Specific (In thousands) ​ balance ​ investment ​ reserves With no related allowance: ​ ​ ​ ​ SBA loans held for investment (1) ​ $ 606 ​ $ 506 ​ $ — Commercial loans ​ ​ ​ Commercial other ​ ​ 71 ​ ​ 70 ​ ​ — Commercial real estate ​ 1,493 ​ 1,493 ​ — Total commercial loans ​ 1,564 ​ 1,563 ​ — Residential mortgage loans ​ ​ 1,630 ​ ​ 1,630 ​ ​ — Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 210 ​ ​ 210 ​ ​ — Residential construction loans ​ ​ 2,636 ​ ​ 2,636 ​ ​ — Total impaired loans with no related allowance ​ 6,646 ​ 6,545 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With an allowance: ​ ​ ​ SBA loans held for investment (1) ​ 35 ​ 4 ​ 4 Commercial loans ​ ​ ​ Commercial other ​ 2,832 ​ 2,531 ​ 2,490 Commercial real estate ​ 973 ​ 126 ​ 125 Total commercial loans ​ 3,805 ​ 2,657 ​ 2,615 Residential mortgage loans ​ ​ 1,632 ​ ​ 1,632 ​ ​ 80 Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 427 ​ ​ 427 ​ ​ 56 Residential construction loans ​ ​ 486 ​ ​ 486 ​ ​ 68 Total impaired loans with a related allowance ​ 6,385 ​ 5,206 ​ 2,823 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total individually evaluated impaired loans: ​ ​ ​ SBA loans held for investment (1) ​ 641 ​ 510 ​ 4 Commercial loans ​ ​ ​ Commercial other ​ 2,903 ​ 2,601 ​ 2,490 Commercial real estate ​ 2,466 ​ 1,619 ​ 125 Total commercial loans ​ 5,369 ​ 4,220 ​ 2,615 Residential mortgage loans ​ ​ 3,262 ​ ​ 3,262 ​ ​ 80 Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 637 ​ ​ 637 ​ ​ 56 Residential construction loans ​ ​ 3,122 ​ ​ 3,122 ​ ​ 68 Total individually evaluated impaired loans ​ $ 13,031 ​ $ 11,751 ​ $ 2,823 ​ (1) Balances are reduced by amount guaranteed by the SBA of $ 59 thousand at December 31, 2021. 77 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Unpaid ​ ​ ​ ​ ​ ​ principal ​ Recorded ​ Specific (In thousands) ​ balance ​ investment ​ reserves With no related allowance: ​ ​ ​ ​ SBA loans held for investment (1) ​ $ 1,799 ​ $ 1,698 ​ $ — Commercial loans ​ ​ ​ Commercial real estate ​ 1,462 ​ 1,462 ​ — Total commercial loans ​ 1,462 ​ 1,462 ​ — Residential mortgage loans ​ ​ 4,080 ​ ​ 3,975 ​ ​ ​ Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 1,295 ​ ​ 1,295 ​ ​ ​ Residential construction loans ​ ​ 1,750 ​ ​ 1,750 ​ ​ ​ Total impaired loans with no related allowance ​ 10,386 ​ 10,180 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With an allowance: ​ ​ ​ SBA loans held for investment (1) ​ 434 ​ 404 ​ 324 Commercial loans ​ ​ ​ Commercial other ​ 3,160 ​ 3,160 ​ 3,106 Commercial real estate ​ 1,730 ​ 1,080 ​ 576 Total commercial loans ​ 4,890 ​ 4,240 ​ 3,682 Residential mortgage loans ​ ​ 1,242 ​ ​ 1,242 ​ ​ 101 Total impaired loans with a related allowance ​ 6,566 ​ 5,886 ​ 4,107 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total individually evaluated impaired loans: ​ ​ ​ SBA loans held for investment (1) ​ 2,233 ​ 2,102 ​ 324 Commercial loans ​ ​ ​ ​ ​ ​ Commercial other ​ 3,160 ​ 3,160 ​ 3,106 Commercial real estate ​ 3,192 ​ 2,542 ​ 576 Total commercial loans ​ 6,352 ​ 5,702 ​ 3,682 Residential mortgage loans ​ ​ 5,322 ​ ​ 5,217 ​ ​ 101 Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 1,295 ​ ​ 1,295 ​ ​ — Residential construction loans ​ ​ 1,750 ​ ​ 1,750 ​ ​ — Total individually evaluated impaired loans ​ $ 16,952 ​ $ 16,066 ​ $ 4,107 ​ (1) Balances are reduced by amount guaranteed by the SBA of $ 371 thousand at December 31, 2020. 78 Table of Contents The following table presents the average recorded investments in impaired loans and the related amount of interest recognized during the time period in which the loans were impaired for the years ended December 31, 2021, 2020 and 2019. The average balances are calculated based on the month-end balances of impaired loans. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method, therefore no interest income is recognized. The interest recognized on impaired loans noted below represents accruing troubled debt restructurings only and nominal amounts of income recognized on a cash basis for well-collateralized impaired loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ ​ 2021 ​ 2020 ​ 2019 ​ ​ ​ Interest ​ ​ Interest ​ ​ Interest ​ ​ ​ ​ ​ income ​ ​ ​ ​ income ​ ​ ​ ​ income ​ ​ Average ​ recognized ​ Average ​ recognized ​ Average ​ recognized ​ ​ recorded ​ on impaired ​ recorded ​ on impaired ​ recorded ​ on impaired (In thousands) ​ investment ​ loans ​ investment ​ loans ​ investment ​ loans SBA loans held for investment (1) ​ $ 1,118 ​ $ 102 ​ $ 1,674 ​ $ 70 ​ $ 679 ​ $ 17 Commercial loans ​ ​ ​ ​ ​ ​ SBA 504 loans ​ — ​ — ​ 150 ​ 32 ​ — ​ — Commercial other ​ 889 ​ 59 ​ 93 ​ 31 ​ 264 ​ 6 Commercial real estate ​ 1,637 ​ 137 ​ 1,232 ​ 124 ​ 1,258 ​ 36 Commercial real estate construction ​ ​ — ​ ​ — ​ ​ — ​ ​ 33 ​ ​ — ​ ​ — Residential mortgage loans ​ ​ 4,358 ​ ​ 17 ​ ​ 5,409 ​ ​ 131 ​ ​ 4,671 ​ ​ 61 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 553 ​ ​ 23 ​ ​ 726 ​ ​ 67 ​ ​ 66 ​ ​ 37 Consumer other ​ ​ 1 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2 ​ ​ — Residential construction loans ​ ​ 2,718 ​ ​ 50 ​ ​ 165 ​ ​ — ​ ​ — ​ ​ — Total ​ $ 11,274 ​ $ 388 ​ $ 9,449 ​ $ 488 ​ $ 6,940 ​ $ 157 ​ (1) Balances are reduced by the average amount guaranteed by the SBA of $ 201 thousand, $ 719 thousand and $ 124 thousand for years ended December 31, 2021, 2020 and 2019, respectively. Troubled Debt Restructurings The Company’s loan portfolio includes certain loans that have been modified as a troubled debt restructuring (“TDR”). TDRs occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, unless it results in a delay in payment that is insignificant. These concessions typically include reductions in interest rate, extending the maturity of a loan, other modifications of payment terms, or a combination of modifications. Under the CARES Act and regulatory guidance issued in regards to the COVID-19 pandemic, loan payment deferrals for periods of up to 180 days granted to borrowers adversely effected by the pandemic are not considered TDRs if the borrower was current on its loan payments at year end 2019 or until the deferral was granted. When the Company modifies a loan, management evaluates for any possible impairment using either the discounted cash flows method, where the value of the modified loan is based on the present value of expected cash flows, discounted at the contractual interest rate of the original loan agreement, or by using the fair value of the collateral less selling costs if the loan is collateral-dependent. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or charge-off to the allowance. This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms. TDRs of $ 1.0 million and $ 663 thousand are included in the impaired loan numbers as of December 31, 2021 and December 31, 2020, respectively. The increase in TDRs was due to the addition of two loans, partially offset by principal pay downs. At December 31, 2021 and December 31, 2020, there were no specific reserves on the TDRs. The TDRs are in accrual status since they are performing in accordance with the restructured terms. There are no commitments to lend additional funds on these loans. 79 Table of Contents To date, the Company’s TDRs consisted of principal reduction, interest only periods and maturity extensions. There were no loans modified as a TDR within the previous 12 months that subsequently defaulted at some point during the year ended December 31, 2021. In this case, the subsequent default is defined as 90 days past due or transferred to nonaccrual status. Other Loan Information Servicing Assets: Loans sold to others and serviced by the Company are not included in the accompanying Consolidated Balance Sheets. The total amount of such loans serviced, but owned by third party investors, amounted to approximately $ 106.1 million and $ 128.5 million at December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, the carrying value, which approximates fair value, of servicing assets was $ 1.0 million and $ 1.9 million, respectively, and is included in Other Assets. The fair value of SBA servicing assets was determined using a discount rate of 15 %, constant prepayment speeds ranging from 15 % to 18 %, and interest strip multiples ranging from 2.08 % to 3.80 %, depending on each individual credit. The fair value of mortgage servicing assets was determined using a discount rate of 12 % and the present value of excess servicing over 7 years. A summary of the changes in the related servicing assets for the past three years follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Balance, beginning of year ​ $ 1,857 ​ $ 2,026 ​ $ 2,375 Servicing assets capitalized ​ 126 ​ 722 ​ 643 Amortization of expense ​ ( 970 ) ​ ( 891 ) ​ ( 992 ) Balance, end of year ​ $ 1,013 ​ $ 1,857 ​ $ 2,026 ​ In addition, the Company had a $ 915 thousand and $ 1.3 million discount related to the retained portion of the unsold SBA loans at December 31, 2021 and 2020, respectively. Officer and Director Loans: In the ordinary course of business, the Company may extend credit to officers, directors or their associates. These loans are subject to the Company’s normal lending policy. An analysis of such loans, all of which are current as to principal and interest payments, is as follows: ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2021 December 31, 2020 Balance, beginning of year ​ $ 12,082 ​ $ 17,841 New loans and advances ​ 402 ​ 58 Loan repayments ​ ( 982 ) ​ ( 5,817 ) Balance, end of year ​ $ 11,502 ​ $ 12,082 ​ Loan Portfolio Collateral: The majority of the Company’s loans are secured by real estate. Declines in the market values of real estate in the Company’s trade area impact the value of the collateral securing its loans. This could lead to greater losses in the event of defaults on loans secured by real estate. At December 31, 2021, and December 31, 2020 approximately 92 % and 87 % of the Company’s loan portfolio was secured by real estate. ​ 5. Allowance for Loan Losses and Reserve for Unfunded Loan Commitments Allowance for Loan Losses The Company has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. At a minimum, the adequacy of the allowance for loan losses is 80 Table of Contents reviewed by management on a quarterly basis. For purposes of determining the allowance for loan losses, the Company has segmented the loans in its portfolio by loan type. Loans are segmented into the following pools: SBA 7(a), commercial, residential mortgages, consumer, and residential construction loans. Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan. Commercial loans are divided into the following five classes: commercial real estate, commercial real estate construction, unsecured business line of credit, commercial other, and SBA 504. Consumer loans are divided into two classes as follows: home equity and other. The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. The same standard methodology is used, regardless of loan type. Specific reserves are made to individual impaired loans and troubled debt restructurings (see Note 1 for additional information on this term). The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. Within the five-year historical net charge-off rate, the Company weights the past three years more because it believes they are more indicative of future losses. All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk. Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics. ● For SBA 7(a) and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. It also incorporates analysis of the type of collateral and the relative loan to value ratio. ● For residential mortgage, consumer, and residential construction loans, the estimate of loss is based on pools of loans with similar characteristics. Factors such as credit score, delinquency status and type of collateral are evaluated. Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed. According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for loan losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited. This charge-off policy is followed for all loan types. The allocated allowance is the total of identified specific and general reserves by loan category. The allocation is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of the portfolio. 81 Table of Contents The following tables detail the activity in the allowance for loan losses by portfolio segment for the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ SBA held ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ investment ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Balance, beginning of period ​ $ 1,301 ​ $ 14,992 ​ $ 5,318 ​ $ 681 ​ $ 813 ​ $ 23,105 Charge-offs ​ ( 591 ) ​ ( 551 ) ​ — ​ ( 4 ) ​ — ​ ( 1,146 ) Recoveries ​ 86 ​ 34 ​ 42 ​ — ​ — ​ 162 Net (charge-offs) recoveries ​ ( 505 ) ​ ( 517 ) ​ 42 ​ ( 4 ) ​ — ​ ( 984 ) Provision for (credit to) loan losses charged to expense ​ 278 ​ 578 ​ ( 1,246 ) ​ ( 6 ) ​ 577 ​ 181 Balance, end of period ​ $ 1,074 ​ $ 15,053 ​ $ 4,114 ​ $ 671 ​ $ 1,390 ​ $ 22,302 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2020 ​ SBA held ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ investment ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Balance, beginning of period ​ $ 1,079 ​ $ 9,722 ​ $ 4,254 ​ $ 625 ​ $ 715 ​ $ 16,395 Charge-offs ​ ( 26 ) ​ ( 669 ) ​ ( 200 ) ​ — ​ — ​ ( 895 ) Recoveries ​ 83 ​ 522 ​ — ​ — ​ — ​ 605 Net recoveries (charge-offs) ​ 57 ​ ( 147 ) ​ ( 200 ) ​ — ​ — ​ ( 290 ) Provision for loan losses charged to expense ​ 165 ​ 5,417 ​ 1,264 ​ 56 ​ 98 ​ 7,000 Balance, end of period ​ $ 1,301 ​ $ 14,992 ​ $ 5,318 ​ $ 681 ​ $ 813 ​ $ 23,105 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2019 ​ SBA held ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ investment ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Balance, beginning of period ​ $ 1,655 ​ $ 8,705 ​ $ 3,900 ​ $ 618 ​ $ 610 ​ $ 15,488 Charge-offs ​ ( 535 ) ​ ( 501 ) ​ ( 205 ) ​ ( 1 ) ​ — ​ ( 1,242 ) Recoveries ​ 23 ​ 16 ​ — ​ 10 ​ — ​ 49 Net (charge-offs) recoveries ​ ( 512 ) ​ ( 485 ) ​ ( 205 ) ​ 9 ​ — ​ ( 1,193 ) Provision for (credit to) loan losses charged to expense ​ ( 64 ) ​ 1,502 ​ 559 ​ ( 2 ) ​ 105 ​ 2,100 Balance, end of period ​ $ 1,079 ​ $ 9,722 ​ $ 4,254 ​ $ 625 ​ $ 715 ​ $ 16,395 ​ The following tables present loans and their related allowance for loan losses, by portfolio segment, as of December 31 st for the past two years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ SBA held ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ investment ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Allowance for loan losses ending balance: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 4 ​ $ 2,615 ​ $ 80 ​ $ 56 $ 68 ​ $ 2,823 Collectively evaluated for impairment ​ 1,070 ​ 12,438 ​ 4,034 ​ 615 ​ 1,322 ​ 19,479 Total ​ $ 1,074 ​ $ 15,053 ​ $ 4,114 ​ $ 671 $ 1,390 ​ $ 22,302 Loan ending balances: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 510 ​ $ 4,220 ​ $ 3,262 ​ $ 637 $ 3,122 ​ $ 11,751 Collectively evaluated for impairment ​ 82,015 ​ 927,506 ​ 406,093 ​ 77,307 ​ 117,403 ​ 1,610,324 Total ​ $ 82,525 ​ $ 931,726 ​ $ 409,355 ​ $ 77,944 $ 120,525 ​ $ 1,622,075 ​ 82 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ SBA held ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ for ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ investment ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Allowance for loan losses ending balance: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 324 ​ $ 3,682 ​ $ 101 ​ $ — $ — ​ $ 4,107 Collectively evaluated for impairment ​ 977 ​ 11,310 ​ 5,217 ​ 681 ​ 813 ​ 18,998 Total ​ $ 1,301 ​ $ 14,992 ​ $ 5,318 ​ $ 681 $ 813 ​ $ 23,105 Loan ending balances: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 2,102 ​ $ 5,702 ​ $ 5,217 ​ $ 1,295 $ 1,750 ​ $ 16,066 Collectively evaluated for impairment ​ 155,742 ​ 834,086 ​ 462,369 ​ 64,805 ​ 85,414 ​ 1,602,416 Total ​ $ 157,844 ​ $ 839,788 ​ $ 467,586 ​ $ 66,100 $ 87,164 ​ $ 1,618,482 ​ Changes in Methodology: The Company did not make any changes to its allowance for loan losses methodology in the current period. Reserve for Unfunded Loan Commitments In addition to the allowance for loan losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities. At December 31, 2021, a $ 400 thousand commitment reserve was reported on the balance sheet as an “other liability”, compared to a $ 288 thousand commitment reserve at December 31, 2020. There were no losses on unfunded loan commitments during 2021 or 2020. ​ 6. Premises and Equipment The detail of premises and equipment as of December 31 st for the past two years is as follows: ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ December 31, 2021 ​ December 31, 2020 Land and buildings $ 23,576 $ 23,588 Furniture, fixtures and equipment ​ 12,219 ​ 11,593 Leasehold improvements ​ 2,917 ​ 2,376 Gross premises and equipment ​ 38,712 ​ 37,557 Less: Accumulated depreciation ​ ( 18,798 ) ​ ( 17,331 ) Net premises and equipment ​ $ 19,914 ​ $ 20,226 ​ Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.6 million in 2021 and 2020. 83 Table of Contents 7. Other Assets The detail of other assets as of December 31 st for the past two years is as follows: ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ December 31, 2021 ​ December 31, 2020 Right-of-use assets $ 5,249 $ 2,365 Prepaid insurance ​ ​ 942 ​ ​ 808 Prepaid expenses ​ 751 ​ 869 Servicing assets: ​ ​ ​ ​ Mortgage servicing asset ​ 352 ​ 970 SBA servicing asset ​ 661 ​ 887 Escrow advances ​ ​ 459 ​ ​ 987 Unrealized gains on interest rate swap agreements ​ ​ 408 ​ ​ — Net receivable due from SBA ​ ​ 150 ​ ​ 174 Mortgage gains receivable ​ ​ 115 ​ ​ 870 Other ​ ​ 2,126 ​ ​ 928 Total other assets ​ $ 11,213 ​ $ 8,858 ​ ​ 8. Deposits The following table details the maturity distribution of time deposits as of December 31 st for the past two years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ More than More than ​ ​ ​ ​ ​ ​ ​ three six months ​ ​ ​ ​ ​ ​ Three months through More than ​ ​ ​ ​ ​ months or ​ through six twelve ​ twelve ​ ​ ​ (In thousands) ​ less months months ​ months ​ Total At December 31, 2021: ​ ​ ​ ​ ​ Less than $250,000 ​ $ 67,614 ​ $ 20,515 ​ $ 43,126 ​ $ 126,374 ​ $ 257,629 $250,000 or more ​ 3,191 ​ ​ 2,248 ​ ​ 13,686 ​ ​ 14,666 ​ ​ 33,791 At December 31, 2020: ​ ​ ​ ​ ​ Less than $250,000 ​ $ 101,496 ​ $ 77,625 ​ $ 79,534 ​ $ 101,611 ​ $ 360,266 $250,000 or more ​ 8,047 ​ ​ 21,698 ​ ​ 33,699 ​ ​ 14,887 ​ ​ 78,331 ​ The following table presents the expected maturities of time deposits over the next five years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2022 2023 2024 2025 2026 Thereafter Total Balance maturing ​ $ 150,498 ​ $ 57,087 ​ $ 23,992 ​ $ 30,123 ​ $ 19,588 ​ $ 10,132 ​ $ 291,420 ​ Time deposits with balances of $250 thousand or more totaled $ 33.8 million and $ 78.3 million at December 31, 2021 and 2020, respectively. ​ 84 Table of Contents 9. Borrowed Funds and Subordinated Debentures The following table presents the period-end and average balances of borrowed funds and subordinated debentures for the past three years with resultant rates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 ​ 2019 (In thousands) Amount Rate Amount Rate Amount Rate ​ FHLB borrowings and repurchase agreements: ​ ​ ​ ​ At December 31, ​ $ 40,000 1.81 % $ 200,000 0.77 % $ 283,000 1.74 % Year-to-date average ​ 58,502 1.50 ​ 101,954 1.49 ​ 103,201 1.85 ​ Maximum outstanding ​ 195,000 ​ 270,000 ​ 283,000 ​ Subordinated debentures: ​ ​ ​ ​ At December 31, ​ $ 10,310 1.69 % $ 10,310 3.33 % $ 10,310 3.33 % Year-to-date average ​ 10,310 2.46 ​ 10,310 3.33 ​ 10,310 3.50 ​ Maximum outstanding ​ 10,310 ​ 10,310 ​ 10,310 ​ ​ The following table presents the expected maturities of borrowed funds and subordinated debentures over the next five years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2022 2023 2024 2025 2026 Thereafter Total FHLB borrowings ​ $ — ​ $ — ​ $ 40,000 ​ $ — ​ $ — ​ $ — ​ $ 40,000 Subordinated debentures ​ — ​ — ​ — ​ — ​ — ​ 10,310 ​ 10,310 Total borrowings ​ $ — ​ $ — ​ $ 40,000 ​ $ — ​ $ — ​ $ 10,310 ​ $ 50,310 ​ FHLB Borrowings At December 31, 2021 and December 31, 2020, the Company had $ 40.0 million in fixed rate advances. The terms of this transaction are as follows: ● A $ 40.0 million FHLB borrowing with a maturity date of August 22, 2024, at a rate of 1.810 % . At December 31, 2021, there were no adjustable rate (“ARC”) advances. At December 31,2020, the $ 30.0 million FHLB adjustable rate advances consisted of one $ 20.0 million advance and one $ 10.0 million advance. Subordinated Debentures At December 31, 2021 and 2020, the Company was a party in the following subordinated debenture transactions: ● On July 24, 2006, Unity (NJ) Statutory Trust II, a statutory business trust and wholly-owned subsidiary of Unity Bancorp, Inc., issued $ 10.0 million of floating rate capital trust pass through securities to investors due on July 24, 2036. The subordinated debentures are redeemable in whole or part, prior to maturity but after July 24, 2011. The floating interest rate on the subordinated debentures is the three-month LIBOR plus 159 basis points and reprices quarterly. The floating interest rate was 1.806 % at December 31, 2021 and 1.835 % at December 31, 2020. At December 31, 2020 and 2019, the subordinated debentures had a swap instrument which modified the borrowing to a 3 year fixed rate borrowing at 3.435 % . The swap instrument matured on June 23, 2021. ● In connection with the formation of the statutory business trust, the trust also issued $ 465 thousand of common equity securities to the Company, which together with the proceeds stated above were used to purchase the subordinated debentures, under the same terms and conditions. At December 31, 2021 and 2020, $ 310 thousand of the common equity securities remained. The capital securities in the above transaction have preference over the common securities with respect to liquidation and other distributions and qualify as Tier I capital. Under the terms of the Dodd-Frank Wall Street Reform and 85 Table of Contents Consumer Protection Act, these securities will continue to qualify as Tier 1 capital as the Company has less than $ 10 billion in assets. In accordance with FASB ASC Topic 810, “Consolidation,” the Company does not consolidate the accounts and related activity of Unity (NJ) Statutory Trust II because it is not the primary beneficiary. The additional capital from this transaction was used to bolster the Company’s capital ratios and for general corporate purposes, including among other things, capital contributions to the Bank. The Company has the ability to defer interest payments on the subordinated debentures for up to 5 years without being in default. Due to the redemption provisions of these securities, the expected maturity could differ from the contractual maturity. Derivative Financial Instruments and Hedging Activities Derivative Financial Instruments The Company has derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s balance sheet as other assets or other liabilities. The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to any derivative agreement. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations. The Company deals only with primary dealers. Derivative instruments are generally either negotiated OTC contracts or standardized contracts executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity. Risk Management Policies – Hedging Instruments The primary focus of the Company’s asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Company evaluates the effectiveness of entering into any derivative agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates. Interest Rate Risk Management – Cash Flow Hedging Instruments The Company has variable rate debt as a source of funds for use in the Company’s lending and investment activities and for other general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore hedges its variable-rate interest payments. To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments during the contract period. The Company had a total of two interest rate swaps designated as cash flow hedging instruments with a notional amount of $ 40.0 million at December 31, 2021, compared to five interest rate swaps with a notional amount of $ 80.0 million at December 31, 2020. At December 31, 2021, the Company had $ 1.3 million in cash collateral pledged for these derivatives which was included in cash and due from banks, compared to $ 1.5 million at December 31, 2020. A 86 Table of Contents summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at December 31, 2021 and 2020, respectively is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands, except percentages and years) December 31, 2021 December 31, 2020 Notional amount ​ $ 40,000 ​ $ 80,000 ​ Fair value ​ $ 408 ​ $ ( 1,026 ) ​ Weighted average pay rate ​ 0.98 % 1.19 % Weighted average receive rate ​ 0.19 % 0.89 % Weighted average maturity in years ​ 2.37 ​ 2.20 ​ Number of contracts ​ 2 ​ 5 ​ ​ During the twelve months ended December 31, 2021 and 2020, the Company received variable rate LIBOR payments from and paid fixed rates in accordance with its interest rate swap agreements. The unrealized gains relating to interest rate swaps are recorded as a derivative asset and are included in Prepaid expenses and other assets in the Company’s Balance Sheet, and the unrealized losses are recorded as a derivative liability and are included in Accrued expenses and other liabilities. Changes in the fair value of interest rate swaps designated as hedging instruments of the variability of cash flows associated with long-term debt are reported in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps. The following table presents the net gains (losses) recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at December 31, 2021, 2020 and 2019 respectively: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Gain (loss) recognized in OCI $ 1,029 $ ( 1,264 ) $ ( 1,195 ) Loss reclassified from AOCI into interest expense $ ( 450 ) $ ( 319 ) $ — ​ ​ ​ 10. Leases and Commitments Leases The Company follows ASU 2016-02, "Leases (Topic 842)," which revised certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. ASU 2016-02 requires that a lessee recognize the assets and liabilities on its balance sheet that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset. Operating leases in which the Bank is the lessee are recorded as right-of-use ("ROU") assets and lease liabilities and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee. Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The incremental borrowing rate was calculated for each lease by taking a variable rate FHLB ARC product (based on Libor plus a spread) and then swapping it to a fixed rate borrowing by adding a fixed mid swap rate for the desired term. The borrowing rate for each lease is unique based on the lease term. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in Occupancy expense in the Consolidated Statements of Income. 87 Table of Contents The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years . Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Operating lease ROU assets totaled $ 5.2 million at December 31, 2021, compared to $ 2.4 million at December 31, 2020. As of December 31, 2021, operating lease liabilities totaled $ 5.3 million, compared to $ 2.4 million at December 31, 2020. The table below summarizes our net lease cost: ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) ​ 2021 ​ 2020 Operating lease cost ​ $ 638 ​ $ 593 Net lease cost ​ $ 638 ​ $ 593 ​ The table below summarizes the cash and non-cash activities associated with our leases: ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) ​ 2021 ​ 2020 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ Operating cash flows from operating leases ​ $ 614 ​ $ 570 ROU assets obtained in exchange for new operating lease liabilities ​ $ 3,138 ​ $ 41 ​ The table below summarizes other information related to our operating leases: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands, except percentages and years) December 31, 2021 December 31, 2020 Weighted average remaining lease term in years ​ 11.40 ​ ​ 5.96 ​ Weighted average discount rate ​ 3.20 % ​ 5.45 % Operating lease right-of-use assets ​ $ 5,249 ​ $ 2,365 ​ ​ The table below summarizes the maturity of remaining lease liabilities: ​ ​ ​ ​ (In thousands) December 31, 2021 2022 ​ $ 681 2023 ​ 617 2024 ​ 572 2025 ​ 589 2026 ​ 595 2027 and thereafter ​ 3,104 Total lease payments ​ $ 6,158 Less: Interest ​ ( 827 ) Present value of lease liabilities ​ $ 5,331 ​ As of December 31, 2021, the Company had not entered into any material leases that have not yet commenced. 88 Table of Contents Commitments to Borrowers Commitments to extend credit are legally binding loan commitments with set expiration dates. They are intended to be disbursed, subject to certain conditions, upon the request of the borrower. The Company was committed to advance approximately $ 399.8 million to its borrowers as of December 31, 2021, compared to $ 288.4 million at December 31, 2020. At December 31, 2021, $ 170.1 million of these commitments expire within one year, compared to $ 114.2 million a year earlier. At December 31, 2021, the Company had $ 4.3 million in standby letters of credit compared to $ 4.5 million at December 31, 2020. The estimated fair value of these guarantees is not significant. The Company believes it has the necessary liquidity to honor all commitments. Litigation The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments. ​ 11. Other Liabilities The detail of other liabilities as of December 31 st for the past two years is as follows: ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2021 December 31, 2020 Accrued expenses ​ $ 7,955 ​ $ 8,437 Lease liabilities ​ 5,331 ​ 2,416 Deferred compensation ​ 3,229 ​ 2,513 Loan expense advances ​ 1,359 ​ 926 Reserve for commitments ​ 400 ​ 288 Unrealized losses on interest rate swap agreements ​ ​ — ​ ​ 1,026 Other ​ 390 ​ 880 Total other liabilities ​ $ 18,664 ​ $ 16,486 ​ ​ 12. Accumulated Other Comprehensive Income (Loss) The following tables shows the changes in other comprehensive (loss) income for the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2021 ​ ​ Adjustments Net unrealized Accumulated ​ Net unrealized related to (losses) gains other ​ (losses) gains on defined benefit from cash flow comprehensive (In thousands) ​ securities plan hedges (loss) income Balance, beginning of period $ ( 215 ) ​ $ ( 238 ) ​ $ ( 736 ) $ ( 1,189 ) Other comprehensive income before reclassifications ​ 722 ​ ​ — ​ ​ 579 ​ 1,301 Less amounts reclassified from accumulated other comprehensive income (loss) ​ 478 ​ ​ ( 238 ) ​ ​ ( 450 ) ​ ( 210 ) Period change ​ 244 ​ 238 ​ 1,029 ​ 1,511 Balance, end of period ​ $ 29 ​ $ — ​ $ 293 ​ $ 322 ​ 89 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2020 ​ ​ Adjustments Net unrealized Accumulated ​ Net unrealized related to gains (losses) other ​ gains (losses) on defined benefit from cash flow comprehensive (In thousands) ​ securities plan hedges income (loss) Balance, beginning of period (1) $ 316 ​ $ ( 295 ) ​ $ 169 $ 190 Other comprehensive loss before reclassifications ​ ( 422 ) ​ ​ — ​ ​ ( 1,224 ) ​ ( 1,646 ) Less amounts reclassified from accumulated other comprehensive income (loss) ​ 73 ​ ​ ( 57 ) ​ ​ ( 319 ) ​ ( 303 ) Period change ​ ( 495 ) ​ 57 ​ ( 905 ) ​ ( 1,343 ) Balance, end of period (1) ​ $ ( 179 ) ​ $ ( 238 ) ​ $ ( 736 ) ​ $ ( 1,153 ) ​ (1) AOCI does not reflect the net reclassification of $ 36 thousand to Retained Earnings as a result of ASU 2016-01, "Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" & ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2019 ​ ​ Adjustments Net unrealized Accumulated ​ Net unrealized related to gains (losses) other ​ (losses) gains on defined benefit from cash flow comprehensive (In thousands) ​ securities plan hedges (loss) income Balance, beginning of period $ ( 721 ) ​ $ ( 431 ) ​ $ 1,031 $ ( 121 ) Other comprehensive income (loss) before reclassifications ​ 1,332 ​ ​ — ​ ​ ( 862 ) ​ 470 Less amounts reclassified from accumulated other comprehensive income (loss) ​ 295 ​ ​ ( 136 ) ​ ​ — ​ 159 Period change ​ 1,037 ​ 136 ​ ( 862 ) ​ 311 Balance, end of period ​ $ 316 ​ $ ( 295 ) ​ $ 169 ​ $ 190 ​ ​ 13. Shareholders’ Equity Shareholders’ equity increased $ 31.8 million to $ 205.7 million at December 31, 2021 compared to $ 173.9 million at December 31, 2020, primarily due to net income of $ 36.1 million. Other items impacting shareholders’ equity included treasury stock purchases of $ 4.2 million, $ 3.6 million in dividends paid on common stock, $ 2.0 million from the issuance of common stock under employee benefit plans and $ 1.5 million in accumulated other comprehensive income net of tax. The issuance of common stock under employee benefit plans includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised. 90 Table of Contents Repurchase Plan On February 4, 2021, the Company authorized the repurchase of up to 750 thousand shares, or approximately 7.5 percent of its outstanding common stock. The new plan took effect after the Company’s prior share repurchase program was completed and all authorized shares were repurchased on February 16, 2021. A total of 199 thousand shares were repurchased at an average price of $ 21.04 during 2021, of which 20 thousand shares were repurchased from the prior repurchase plan, leaving 571 thousand shares available for repurchase. The amount and timing of additional purchases, if any, will be dependent upon a number of factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for loan losses, whether related to the COVID-19 pandemic or otherwise, the market price of the Company’s stock and the general impact of the COVID-19 pandemic on the economy. There were 504 thousand shares repurchased during 2020 and no shares repurchased during 2019. The table below sets forth information regarding our repurchases during the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Number of ​ ​ Total ​ ​ ​ ​ Shares Purchased ​ Shares that May ​ ​ Number of ​ ​ ​ ​ as Part of Publicly ​ Yet be Purchased ​ ​ Shares ​ Average Price ​ Announced Plans ​ Under the Plans Period ​ Purchased ​ Paid per Share ​ or Programs ​ or Programs Jan 1, 2021 through March 31, 2021 ​ 69,787 ​ $ 19.29 ​ 69,787 ​ 700,688 April 1, 2021 through June 30, 2021 ​ 40,434 ​ ​ 21.60 ​ 40,434 ​ 660,254 July 1, 2021 through September 30, 2021 ​ 85,055 ​ ​ 22.06 ​ 85,055 ​ 575,199 October 1, 2021 through December 31, 2021 ​ 3,483 ​ ​ 24.93 ​ 3,483 ​ 571,716 ​ ​ ​ 14. Other Income The components of other income for the past three years are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 ATM and check card fees ​ $ 956 ​ $ 847 ​ $ 832 Wire transfer fees ​ 248 ​ 260 ​ 170 Safe deposit box fees ​ 91 ​ 93 ​ 90 Other ​ 266 ​ 266 ​ 254 Total other income ​ $ 1,561 ​ $ 1,466 ​ $ 1,346 ​ ​ 15. Other Expenses The components of other expenses for the past three years are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Travel, entertainment, training and recruiting ​ $ 544 ​ $ 412 ​ $ 871 Insurance ​ 402 ​ 356 ​ 325 Stationery and supplies ​ 184 ​ 190 ​ 214 Retail losses ​ 77 ​ 186 ​ 86 Other ​ 417 ​ 555 ​ 381 Total other expenses ​ $ 1,624 ​ $ 1,699 ​ $ 1,877 ​ ​ ​ 91 Table of Contents 16. Income Taxes On July 1, 2018, New Jersey’s Assembly Bill 4202 was signed into law. The bill, effective January 1, 2018, imposed a temporary surtax on corporations earning New Jersey allocated taxable income in excess of $1 million at a rate of 2.5 percent for tax years beginning on or after January 1, 2018, through December 31, 2019, and at 1.5 percent for tax years beginning on or after January 1, 2020, through December 31, 2021. In addition, New Jersey adopted mandatory unitary combined reporting for its Corporation Business Tax. On September 29, 2020, New Jersey’s Assembly Bill 4721 was signed into law. The bill, retroactively effective January 1, 2020, extends the 2.5% corporate income surtax until December 31, 2023. The components of the provision for income taxes for the past three years are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Federal - current provision ​ $ 9,837 ​ $ 7,828 ​ $ 5,478 Federal - deferred benefit ​ ( 944 ) ​ ( 2,043 ) ​ ( 285 ) Total federal provision ​ 8,893 ​ 5,785 ​ 5,193 State - current provision ​ 3,630 ​ 2,737 ​ 1,483 State - deferred benefit ​ ( 512 ) ​ ( 1,047 ) ​ ( 14 ) Total state provision ​ 3,118 ​ 1,690 ​ 1,469 Total provision for income taxes ​ $ 12,011 ​ $ 7,475 ​ $ 6,662 ​ Reconciliation between the reported income tax provision and the amount computed by multiplying income before taxes by the statutory Federal income tax rate for the past three years is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands, except percentages) 2021 2020 2019 Federal income tax provision at statutory rate ​ $ 10,107 ​ $ 6,535 ​ $ 6,366 ​ Increases (decreases) resulting from: ​ ​ ​ ​ ​ ​ Stock option and restricted stock ​ ( 173 ) ​ ( 93 ) ​ ( 185 ) ​ Bank owned life insurance ​ ( 145 ) ​ ( 129 ) ​ ( 123 ) ​ Tax-exempt interest ​ ( 6 ) ​ ( 13 ) ​ ( 22 ) ​ Meals and entertainment ​ 7 ​ 9 ​ 19 ​ Captive insurance premium ​ ( 262 ) ​ ( 193 ) ​ ( 209 ) ​ State income taxes, net of federal income tax effect ​ 2,463 ​ 1,335 ​ 1,161 ​ Other, net ​ 20 ​ 24 ​ ( 345 ) ​ Provision for income taxes ​ $ 12,011 ​ $ 7,475 ​ $ 6,662 ​ Effective tax rate ​ 25.0 % 24.0 % 22.0 % ​ 92 Table of Contents Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The components of the net deferred tax asset at December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2021 December 31, 2020 Deferred tax assets: ​ ​ Allowance for loan losses ​ $ 6,299 ​ $ 6,540 SERP ​ 1,277 ​ 1,088 Stock-based compensation ​ 1,010 ​ 811 Deferred compensation ​ 912 ​ 737 Depreciation ​ 451 ​ 408 Deferred loan costs ​ ​ 443 ​ ​ — Interest rate swaps ​ ​ — ​ ​ 290 State net operating loss ​ — ​ 209 EVP retirement plan ​ 153 ​ 155 Net unrealized security losses ​ — ​ 90 Commitment reserve ​ 113 ​ 82 Net other deferred tax assets ​ 525 ​ 410 Gross deferred tax assets ​ 11,183 ​ 10,820 Valuation allowance ​ — ​ ( 209 ) Total deferred tax assets ​ 11,183 ​ 10,611 Deferred tax liabilities: ​ ​ ​ ​ Goodwill ​ 428 ​ 429 Prepaid insurance ​ 474 ​ 357 Deferred loan costs ​ — ​ 289 Deferred servicing fees ​ 99 ​ 275 Net unrealized securities gains ​ 9 ​ — Bond Accretion ​ 17 ​ 19 Interest rate swaps ​ 116 ​ — Net other deferred tax liabilities ​ — ​ 59 Total deferred tax liabilities ​ 1,143 ​ 1,428 Net deferred tax asset ​ $ 10,040 ​ $ 9,183 ​ The Company computes deferred income taxes under the asset and liability method. Deferred income taxes are recognized for tax consequences of “temporary differences” by applying enacted statutory tax rates to differences between the financial reporting and the tax basis of existing assets and liabilities. A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions subject to reduction of the asset by a valuation allowance. The Company had no valuation allowance for deferred tax assets related to its state net operating loss carry-forward deferred tax asset at December 31, 2021, compared to $ 209 thousand at December 31, 2020. The Company had no state net operating loss carry-forwards at December 31, 2021, compared to $ 2.6 million at December 31, 2020. Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on securities available for sale, a supplemental retirement plan (“SERP”) and interest rate swaps. The after-tax component of each of these is included in other comprehensive income (loss) in shareholders’ equity. The after-tax component related to securities available for sale was an unrealized gain of $ 29 thousand for 2021, compared to an unrealized loss of $ 215 thousand in 2020. The after-tax component related to the SERP was no unrealized gain or loss for 2021, compared to an unrealized loss of $ 238 thousand in 2020. The after-tax component related to the interest rate swaps was an unrealized gain of $ 293 thousand for 2021, compared to an unrealized loss of $ 736 thousand in the prior year. The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim 93 Table of Contents periods, disclosure and transition of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2021 and 2020. The Company does not have an accrual for uncertain tax positions as of December 31, 2021 or 2020, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2018 and thereafter are subject to future examination by tax authorities. 17. Net Income per Share The following is a reconciliation of the calculation of basic and diluted net income per share for the past three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands, except per share amounts) 2021 2020 2019 Net income ​ $ 36,119 ​ $ 23,644 ​ $ 23,653 Weighted average common shares outstanding - Basic ​ 10,403 ​ 10,709 ​ 10,845 Plus: Potential dilutive common stock equivalents ​ 143 ​ 105 ​ 184 Weighted average common shares outstanding - Diluted ​ 10,546 ​ 10,814 ​ 11,029 Net income per common share - Basic ​ $ 3.47 ​ $ 2.21 ​ $ 2.18 Net income per common share - Diluted ​ 3.43 ​ 2.19 ​ 2.14 Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive ​ 259 ​ 414 ​ 243 ​ ​ 18. Regulatory Capital On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets, implementing provisions of The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). Under the proposal, a qualifying community banking organization would be eligible to elect the community bank leverage ratio framework, or continue to measure capital under the existing Basel III requirements. The new rule, effective beginning January 1, 2020, allowed qualifying community banking organizations (“QCBO”) to opt into the new community bank leverage ratio (“CBLR”) in their call report beginning in the first quarter of 2020. A QCBO is defined as a bank, a savings association, a bank holding company or a savings and loan holding company with: ● A leverage capital ratio of greater than 9.0%; ● Total consolidated assets of less than $10.0 billion; ● Total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets; and ● Total trading assets and trading liabilities of 5% or less of total consolidated assets. ​ On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, which modified the CBLR framework so that: (i) beginning in the second quarter 2020 and until the end of 2020, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%. Under the interim rules, the minimum CBLR will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions less assets deducted from Tier 1 capital. The Bank has opted into the CBLR, and is therefore not required to comply with the Basel III capital requirements. 94 Table of Contents The following table shows the CBLR ratio for the Company and the Bank at December 31, 2021 and at December 31,2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31,2021 At December 31,2020 ​ Company ​ Bank ​ ​ Company ​ Bank ​ CBLR ​ 10.51 % ​ 10.00 % ​ 10.09 % ​ 9.80 % ​ ​ ​ ​ ​ 19. Employee Benefit Plans Stock Option Plans The Company has incentive and nonqualified option plans, which allow for the grant of options to officers, employees and members of the Board of Directors. Grants under the Company’s incentive and nonqualified option plans generally vest over 3 years and must be exercised within 10 years of the date of grant. Transactions under the Company’s stock option plans for 2021, 2020 and 2019 are summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ average ​ ​ ​ ​ ​ ​ ​ average ​ remaining ​ Aggregate ​ ​ ​ ​ exercise ​ contractual ​ intrinsic ​ ​ Shares ​ price ​ life in years ​ value Outstanding at December 31, 2018 584,178 ​ $ 13.00 7.1 ​ $ 4,574,680 Options granted 96,000 ​ 21.31 ​ Options exercised ( 60,534 ) ​ 7.49 ​ Options forfeited ( 5,333 ) ​ 19.38 ​ Options expired — ​ — ​ Outstanding at December 31, 2019 614,311 ​ $ 14.78 6.9 ​ $ 4,783,402 Options granted 151,500 ​ 19.80 ​ Options exercised ( 63,011 ) ​ 7.16 ​ Options forfeited ( 30,000 ) ​ 19.50 ​ Options expired — ​ — ​ Outstanding at December 31, 2020 672,800 ​ $ 16.42 6.8 ​ $ 1,952,568 Options granted 89,000 ​ 19.21 ​ ​ ​ Options exercised ( 71,267 ) ​ 8.84 ​ ​ ​ Options forfeited ( 2,000 ) ​ 18.64 ​ ​ ​ Options expired — ​ — ​ ​ ​ Outstanding at December 31, 2021 688,533 ​ $ 17.56 6.6 ​ $ 5,986,666 Exercisable at December 31, 2021 ​ 471,214 ​ $ 16.53 5.8 ​ $ 4,579,836 ​ On April 25, 2019, The Company adopted the 2019 Equity Compensation Plan providing for grants of up to 500,000 shares to be allocated between incentive and non-qualified stock options, restricted stock awards, performance units and deferred stock. The Plan replaced all previously approved and established equity plans then currently in effect. As of December 31, 2021, 281,500 options and 111,700 shares of restricted stock have been awarded from the plan. In addition, 2,000 unvested options and 1,500 unvested shares of restricted stock were cancelled and returned to the plan leaving 110,300 shares available for future grants. 95 Table of Contents The fair values of the options granted during 2021, 2020 and 2019 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2021 2020 2019 Number of options granted ​ 89,000 ​ 151,500 ​ 96,000 ​ Weighted average exercise price ​ $ 19.21 ​ $ 19.80 ​ $ 21.31 ​ Weighted average fair value of options ​ $ 7.72 ​ $ 6.12 ​ $ 6.20 ​ Expected life in years (1) ​ 8.38 ​ 8.50 ​ 8.23 ​ Expected volatility (2) ​ 43.69 % 32.69 % 27.05 % Risk-free interest rate (3) ​ 1.14 % 1.28 % 2.21 % Dividend yield (4) ​ 1.68 % 1.64 % 1.37 % ​ (1) The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding. (2) The expected volatility of the Company’s stock price was based on the historical volatility over the period commensurate with the expected life of the options. (3) The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of grant. (4) The expected dividend yield is the projected annual yield based on the grant date stock price. Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2021 2020 2019 Number of options exercised ​ 71,267 ​ 63,011 ​ 60,534 Total intrinsic value of options exercised ​ $ 974,776 ​ $ 564,314 ​ $ 792,446 Cash received from options exercised ​ ​ 630,302 ​ ​ 451,420 ​ ​ 453,326 Tax deduction realized from options ​ ​ 293,261 ​ ​ 169,774 ​ ​ 238,407 ​ The following table summarizes information about stock options outstanding and exercisable at December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options outstanding ​ Options exercisable ​ ​ ​ Weighted average Weighted ​ Weighted ​ ​ Options ​ remaining contractual ​ average ​ Options ​ average Range of exercise prices ​ outstanding ​ life (in years) ​ exercise price ​ exercisable ​ exercise price $ 6.01 - $ 12.00 135,800 3.4 ​ $ 8.85 135,800 ​ $ 8.85 $ 12.01 - $ 18.00 123,933 7.2 ​ ​ 16.48 60,601 ​ ​ 15.85 $ 18.01 - $ 24.00 428,800 7.5 ​ ​ 20.62 274,813 ​ ​ 20.48 Total 688,533 6.6 ​ $ 17.56 471,214 ​ $ 16.53 ​ FASB ASC Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period). Compensation expense related to stock options and the related income tax benefit for the years ended December 31, 2021, 2020 and 2019 are detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2021 2020 2019 Compensation expense ​ $ 866,809 ​ $ 744,091 ​ $ 606,626 Income tax benefit ​ ​ 250,508 ​ ​ 215,042 ​ ​ 175,315 ​ 96 Table of Contents As of December 31, 2021, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $ 1.0 million. That cost is expected to be recognized over a weighted average period of 1.8 years. Restricted Stock Awards Restricted stock is issued under the 2019 Equity Compensation Plan to reward employees and directors and to retain them by distributing stock over a period of time. Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period. The following table summarizes nonvested restricted stock activity for the year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Average grant ​ ​ Shares ​ date fair value Nonvested restricted stock at December 31, 2020 87,972 ​ $ 19.26 Granted 68,550 ​ 22.15 Cancelled ( 1,500 ) ​ 15.09 Vested ( 35,535 ) ​ 19.14 Nonvested restricted stock at December 31, 2021 119,487 ​ $ 21.00 ​ Restricted stock awards granted during the years ended December 31, 2021, 2020 and 2019 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2021 2020 2019 Number of shares granted ​ 68,550 ​ 27,250 ​ 46,050 Average grant date fair value ​ $ 22.15 ​ $ 17.12 ​ $ 20.84 ​ Compensation expense related to the restricted stock for the years ended December 31, 2021, 2020 and 2019 is detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2021 2020 2019 Compensation expense ​ $ 750,011 ​ $ 667,241 ​ $ 664,484 Income tax benefit ​ $ 216,753 ​ $ 192,833 ​ $ 192,036 ​ As of December 31, 2021, there was approximately $ 2.0 million of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 3.0 years. 401(k) Savings Plan The Bank has a 401(k) savings plan covering substantially all employees. Under the Plan, an employee can contribute up to 75 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the Plan. The Bank contributed $ 786 thousand, $ 675 thousand, and $ 648 thousand to the Plan in 2021, 2020 and 2019, respectively. Deferred Fee Plan The Company has a deferred fee plan for Directors and eligible management. Directors of the Company have the option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of management has the option to elect to defer 100 percent of their total compensation. Director and executive deferred compensation totaled $ 593 thousand in 2021, $ 591 thousand in 2020 and $ 379 thousand in 2019, and the interest paid on deferred balances totaled $ 136 thousand in 2021, $ 132 thousand in 2020 and $ 107 thousand in 2019. The deferred balances distributed totaled $ 14 thousand in 2021, 2020 and 2019. 97 Table of Contents Benefit Plans In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer (“CEO”) and unfunded, non-qualified deferred retirement plans for certain other key executives. On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The retirement benefit under the SERP is an amount equal to sixty percent ( 60 %) of the average of the President and CEO’s base salary for the thirty-six ( 36 ) months immediately preceding executive’s separation from service after age 66, adjusted annually thereafter by a percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers (CPI-U). The total benefit is to be made payable in fifteen annual installments. The future payments are estimated to total $ 7.2 million. A discount rate of four percent ( 4 %) was used to calculate the present value of the benefit obligation. The President and CEO commenced vesting to this retirement benefit on January 1, 2014, and it will vest an additional three percent ( 3 %) each year until fully vested on January 1, 2024. In the event that the President and CEO’s separation from service from the Company were to occur prior to full vesting, the President and CEO would be entitled to and shall be paid the vested portion of the retirement benefit calculated as of the date of separation from service. Notwithstanding the foregoing, upon a Change in Control, and provided that within 6 months following the Change in Control the President and CEO is involuntarily terminated for reasons other than “cause” or the President and CEO resigns for “good reason”, as such is defined in the SERP, or the President and CEO voluntarily terminates his employment after being offered continued employment in a position that is not a “Comparable Position”, as such is also defined in the SERP, the President and CEO shall become one hundred percent ( 100 %) vested in the full retirement benefit. No contributions or payments have been made for the year 2021, 2020 or 2019. The following table summarizes the components of the net periodic pension cost of the defined benefit plan recognized during the years ended December 31, 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Service cost ​ $ 515 ​ $ 126 ​ $ 689 Interest cost ​ 161 ​ 147 ​ 135 Amortization of prior service cost ​ 332 ​ 83 ​ 83 Net periodic benefit cost ​ $ 1,008 ​ $ 356 ​ $ 907 ​ The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years ended December 31, 2021, 2020 and 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2021 2020 2019 Benefit obligation, beginning of year ​ $ 3,845 ​ $ 3,572 ​ $ 2,748 Service cost ​ 515 ​ 126 ​ 689 Interest cost ​ 161 ​ 147 ​ 135 Benefit obligation, end of period ​ $ 4,521 ​ $ 3,845 ​ $ 3,572 ​ On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with key executive officers other than the President and CEO. The Plan has an effective date of January 1, 2015. The Plan is an unfunded, nonqualified deferred compensation plan. For any Plan Year, a guaranteed annual Deferral Award percentage of seven and one half percent ( 7.5 %) of the participant’s annual base salary shall be credited to each Participant’s Deferred Benefit Account. A discretionary annual Deferral Award equal to seven and one half percent ( 7.5 %) of the participant’s annual base salary may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix. The total Deferral 98 Table of Contents Award shall never exceed fifteen percent ( 15 %) of the participant’s base salary for any given Plan Year. Each Participant shall be one hundred percent ( 100 %) vested in all Deferral Awards as of the date they are awarded. As of December 31, 2021, the Company had total expenses of $ 108 thousand, compared to $ 86 thousand in 2020 and $ 115 thousand in 2019. The Plan is reflected on the Company’s balance sheet as accrued expenses. Certain members of management are also enrolled in a split-dollar life insurance plan with a post retirement death benefit of $ 250 thousand. Total expenses related to this plan were $ 5 thousand in 2021, 2020 and 2019. 20. Fair Value Fair Value Measurement The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed as follows: Level 1 Inputs ● Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. ● Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets. Level 2 Inputs ● Quoted prices for similar assets or liabilities in active markets. ● Quoted prices for identical or similar assets or liabilities in inactive markets. ● Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” ● Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts. Level 3 Inputs ● Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. ● These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. 99 Table of Contents Fair Value on a Recurring Basis The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis: Debt Securities Available for Sale The fair value of available for sale ("AFS") debt securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). As of December 31, 2021, the fair value of the Company’s AFS debt securities portfolio was $ 56.5 million. Approximately 17 percent of the portfolio was made up of residential mortgage-backed securities, which had a fair value of $ 9.7 million at December 31, 2021. Approximately $ 9.6 million of the residential mortgage-backed securities are guaranteed by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). The underlying loans for these securities are residential mortgages that are geographically dispersed throughout the United States. Most of the Company’s AFS debt securities were classified as Level 2 assets at December 31, 2021. The valuation of AFS debt securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities. Included in the Company’s AFS debt securities are two corporate bonds which are classified as Level 3 assets at December 31, 2021, which were previously classified as Level 2 assets. The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices, or other valuation techniques, such as discounted cash flow techniques. Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads, and trade execution data. The following table presents a reconciliation of the Level 3 available for sale debt securities measured at fair value on a recurring basis for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2021 2020 Balance at beginning of period (1) $ 4,400 $ 6,238 Purchases/additions ​ ​ — ​ ​ — Sales/reductions ​ — ​ ( 1,005 ) Realized ​ — ​ — Unrealized ​ 674 ​ ( 833 ) Balance at end of period ​ $ 5,074 ​ $ 4,400 ​ (1) Includes AFS debt securities classified as Level 2 at December 31, 2019, which were transferred to Level 3 during the period ended December 31, 2020. Equity Securities with Readily Determinable Fair Values The fair value of equity securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). As of December 31, 2021, the fair value of the Company’s equity securities portfolio was $ 8.6 million. 100 Table of Contents All of the Company’s equity securities were classified as Level 2 assets at December 31, 2021. The valuation of securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. There were no changes in the inputs or methodologies used to determine fair value during the period ended December 31, 2021, as compared to the period ended December 31, 2020. Loans Held for Sale Fair value for loans held for sale is derived from quoted market prices for similar loans, in which case they are characterized as Level 2 assets in the fair value hierarchy. Interest Rate Swap Agreements The fair value of interest rate swap agreements is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). The Company’s derivative instruments are classified as Level 2 assets, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data. The tables below present the balances of assets measured at fair value on a recurring basis as of December 31 st for the past two years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021 Using ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ Assets/Liabilities ​ Active Markets ​ Significant Other ​ Significant ​ ​ Measured at Fair ​ for Identical ​ Observable ​ Unobservable (In thousands) Value Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Measured on a recurring basis: ​ ​ ​ ​ Assets: ​ ​ ​ ​ Debt securities available for sale: ​ ​ ​ ​ U.S. Government sponsored entities ​ $ — ​ $ — ​ $ — ​ $ — State and political subdivisions ​ 994 ​ — ​ 994 ​ — Residential mortgage-backed securities ​ 9,749 ​ — ​ 9,749 ​ — Corporate and other securities ​ 45,737 ​ — ​ 40,663 ​ 5,074 Total debt securities available for sale ​ $ 56,480 ​ $ — ​ $ 51,406 ​ $ 5,074 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities with readily determinable fair values ​ 8,566 ​ — ​ 8,566 ​ — Total equity securities ​ $ 8,566 ​ $ — ​ $ 8,566 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale ​ 31,014 ​ — ​ 31,014 ​ — Total loans held for sale ​ $ 31,014 ​ ​ — ​ $ 31,014 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements ​ 816 ​ — ​ 816 ​ — Total swap agreements ​ $ 816 ​ $ — ​ $ 816 ​ $ — ​ 101 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value Measurements at December 31, 2020 Using ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ ​ ​ ​ ​ ​ Assets/Liabilities ​ Active Markets ​ Significant Other ​ Significant ​ ​ Measured at Fair ​ for Identical ​ Observable ​ Unobservable (In thousands) Value Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Measured on a recurring basis: ​ ​ ​ ​ Assets: ​ ​ ​ ​ Debt securities available for sale: ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 2,003 ​ $ — ​ $ 2,003 ​ $ — State and political subdivisions ​ 2,969 ​ — ​ 2,969 ​ — Residential mortgage-backed securities ​ 17,410 ​ — ​ 17,410 ​ — Corporate and other securities ​ 23,235 ​ — ​ 18,835 ​ 4,400 Total debt securities available for sale ​ $ 45,617 ​ $ — ​ $ 41,217 ​ $ 4,400 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities with readily determinable fair values ​ 1,954 ​ — ​ 1,954 ​ — Total equity securities ​ $ 1,954 ​ $ — ​ $ 1,954 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans held for sale ​ 10,712 ​ — ​ 10,712 ​ — Total loans held for sale ​ $ 10,712 ​ ​ — ​ $ 10,712 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements ​ ( 1,026 ) ​ — ​ ( 1,026 ) ​ — Total swap agreements ​ $ ( 1,026 ) ​ $ — ​ $ ( 1,026 ) ​ $ — ​ Fair Value on a Nonrecurring Basis The following tables present the assets and liabilities subject to fair value adjustments (impairment) on a non-recurring basis carried on the balance sheet by caption and by level within the hierarchy (as described above): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021 Using ​ ​ ​ ​ ​ Quoted Prices ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Other ​ Significant ​ Net (Credit) ​ ​ Assets/Liabilities ​ Markets for ​ Observable ​ Unobservable ​ Provision ​ ​ Measured at Fair ​ Identical Assets ​ Inputs ​ Inputs ​ During (In thousands) Value (Level 1) (Level 2) (Level 3) Period Measured on a non-recurring basis: ​ ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ ​ Impaired collateral-dependent loans ​ 8,928 ​ — ​ — ​ 8,928 ​ ​ ( 1,284 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2020 Using ​ ​ ​ ​ ​ Quoted Prices ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Other ​ Significant ​ ​ ​ ​ ​ Assets/Liabilities ​ Markets for ​ Observable ​ Unobservable ​ Net Credit ​ ​ Measured at Fair ​ Identical Assets ​ Inputs ​ Inputs ​ During (In thousands) Value (Level 1) (Level 2) (Level 3) Period Measured on a non-recurring basis: ​ ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ ​ OREO ​ $ — ​ $ — ​ $ — ​ $ — ​ $ ( 225 ) Impaired collateral-dependent loans ​ 11,959 ​ — ​ — ​ 11,959 ​ 3,693 ​ Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis: 102 Table of Contents Appraisal Policy All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP"). Appraisals are certified to the Company and performed by appraisers on the Company’s approved list of appraisers. Evaluations are completed by a person independent of Company management. The content of the appraisal depends on the complexity of the property. Appraisals are completed on a "retail value" and an "as is value." OREO The fair value of OREO is determined using appraisals, which may be discounted based on management’s review and changes in market conditions (Level 3 Inputs). Impaired Collateral-Dependent Loans The fair value of impaired collateral-dependent loans is derived in accordance with FASB ASC Topic 310, "Receivables." Fair value is determined based on the loan’s observable market price or the fair value of the collateral. Partially charged-off loans are measured for impairment based upon an appraisal for collateral-dependent loans. When an updated appraisal is received for a nonperforming loan, the value on the appraisal is discounted in the manner discussed above. If there is a deficiency in the value after the Company applies these discounts, management applies a specific reserve and the loan remains in nonaccrual status. The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans from nonaccrual status generally when the borrower makes three months of contractual payments and demonstrates the ability to service the debt going forward. Charge-offs are determined based upon the loss that management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency. The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated balance sheets. At December 31, 2021, the valuation allowance for impaired loans was $ 2.8 million, a decrease of $ 1.3 million from $ 4.1 million at December 31, 2020. Fair Value of Financial Instruments FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of December 31, 2021 and December 31, 2020 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value. The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents For these short-term instruments, the carrying value is a reasonable estimate of fair value. Securities The fair value of securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3). 103 Table of Contents SBA Loans Held for Sale The fair value of SBA loans held for sale is estimated by using a market approach that includes significant other observable inputs. Loans The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed impaired loans. FHLB Stock Federal Home Loan Bank stock is carried at cost. Carrying value approximates fair value based on the redemption provisions of the issues. Servicing Assets Servicing assets do not trade in an active, open market with readily observable prices. The Company estimates the fair value of servicing assets using discounted cash flow models incorporating numerous assumptions from the perspective of a market participant including market discount rates and prepayment speeds. Accrued Interest The carrying amounts of accrued interest approximate fair value. Deposit Liabilities The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value). The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates. Borrowed Funds and Subordinated Debentures The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates. Standby Letters of Credit At December 31, 2021, the Bank had standby letters of credit outstanding of $ 4.3 million, as compared to $ 4.5 million at December 31, 2020. The fair value of these commitments is nominal. 104 Table of Contents The table below presents the carrying amount and estimated fair values of the Company’s financial instruments not previously presented as of December 31 st for the past two years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 ​ ​ Fair value ​ Carrying ​ Estimated ​ Carrying ​ Estimated (In thousands) level amount fair value amount fair value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 244,818 ​ $ 244,818 ​ $ 219,311 ​ $ 219,311 Securities (1) Level 2 ​ 79,322 ​ 79,275 ​ 47,571 ​ 47,571 SBA loans held for sale Level 2 ​ 27,373 ​ 31,014 ​ 9,335 ​ 10,712 Loans, net of allowance for loan losses (2) Level 2 ​ 1,599,773 ​ 1,605,248 ​ 1,595,377 ​ 1,613,593 FHLB stock Level 2 ​ 3,550 ​ 3,550 ​ 10,594 ​ 10,594 Servicing assets Level 3 ​ 1,013 ​ 1,013 ​ 1,857 ​ 1,857 Accrued interest receivable Level 2 ​ 9,586 ​ 9,586 ​ 10,429 ​ 10,429 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits Level 2 ​ 1,758,881 ​ 1,755,670 ​ 1,557,959 ​ 1,561,502 Borrowed funds and subordinated debentures Level 2 ​ 50,310 ​ 50,842 ​ 210,310 ​ 212,358 Accrued interest payable Level 2 ​ 129 ​ 129 ​ 248 ​ 248 ​ (1) Includes corporate securities that are considered Level 3 and reported separately in the table under the “Fair Value on a Recurring Basis” heading. These securities had book values of $ 5.3 million and market values of $ 5.1 million. (2) Includes impaired loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Collateral-dependent impaired loans, net of specific reserves totaled $ 8.9 million and $ 12.0 million at December 31, 2021 and 2020. Limitations Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s 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. Fair value estimates are based on existing on- and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates. 105 Table of Contents 21. Condensed Financial Statements of Unity Bancorp, Inc. (Parent Company Only) Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In thousands) 2021 2020 ASSETS ​ ​ Cash and cash equivalents ​ $ 1,685 ​ $ 640 Equity securities ​ 5,043 ​ 1,003 Investment in subsidiaries ​ 207,799 ​ 181,113 Premises and equipment, net ​ 3,709 ​ 3,823 Other assets ​ — ​ 52 Total assets ​ $ 218,236 ​ $ 186,631 LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Loan due to subsidiary bank ​ $ 2,108 ​ $ 2,209 Other liabilities ​ 89 ​ 201 Subordinated debentures ​ 10,310 ​ 10,310 Shareholders’ equity ​ 205,729 ​ 173,911 Total liabilities and shareholders’ equity ​ $ 218,236 ​ $ 186,631 ​ Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2021 2020 2019 Dividend from Bank ​ $ 11,285 ​ $ 8,200 ​ $ 3,300 Dividend from Nonbank subsidiary ​ ​ 823 ​ ​ 575 ​ ​ — Gain on sales of securities ​ 4 ​ 5 ​ 17 Market value appreciation on equity securities ​ 588 ​ — ​ 293 Other income ​ 532 ​ 465 ​ 454 Total income ​ 13,232 ​ 9,245 ​ 4,064 Interest expenses ​ 257 ​ 349 ​ 366 Market value depreciation on equity securities ​ ​ — ​ ​ 246 ​ ​ — Other expenses ​ 258 ​ 259 ​ 251 Total expenses ​ 515 ​ 854 ​ 617 Income before provision for income taxes and equity in undistributed net income of subsidiary ​ 12,717 ​ 8,391 ​ 3,447 Benefit (provision) for income taxes ​ 219 ​ ( 22 ) ​ 78 Income before equity in undistributed net income of subsidiary ​ 12,498 ​ 8,413 ​ 3,369 Equity in undistributed net income of subsidiaries ​ 23,621 ​ 15,231 ​ 20,284 Net income ​ $ 36,119 ​ $ 23,644 ​ $ 23,653 ​ 106 Table of Contents Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2021 2020 2019 OPERATING ACTIVITIES ​ ​ ​ Net income ​ $ 36,119 ​ $ 23,644 ​ $ 23,653 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Equity in undistributed net income of subsidiaries ​ ( 23,621 ) ​ ( 15,231 ) ​ ( 20,284 ) Gain on sales of securities ​ ( 4 ) ​ ( 5 ) ​ ( 17 ) Net change in other assets and other liabilities ​ ( 723 ) ​ 285 ​ 506 Net cash provided by operating activities ​ 11,771 ​ 8,693 ​ 3,858 INVESTING ACTIVITIES ​ ​ ​ Purchase of land and building ​ — ​ ( 87 ) ​ ( 64 ) Purchases of securities ​ ( 3,500 ) ​ — ​ — Proceeds from sales of securities ​ 53 ​ 111 ​ 198 Net cash (used in) provided by investing activities ​ ( 3,447 ) ​ 24 ​ 134 FINANCING ACTIVITIES ​ ​ ​ Proceeds from exercise of stock options ​ 630 ​ 451 ​ 453 Repayment of advances from subsidiaries ​ ( 101 ) ​ ( 96 ) ​ ( 91 ) Purchase of treasury stock ​ ​ ( 4,191 ) ​ ​ ( 7,442 ) ​ ​ — Cash dividends paid on common stock ​ ( 3,617 ) ​ ( 3,298 ) ​ ( 3,255 ) Net cash used in financing activities ​ ( 7,279 ) ​ ( 10,385 ) ​ ( 2,893 ) Increase (decrease) in cash and cash equivalents ​ 1,045 ​ ( 1,668 ) ​ 1,099 Cash and cash equivalents, beginning of period ​ 640 ​ 2,308 ​ 1,209 Cash and cash equivalents, end of period ​ $ 1,685 ​ $ 640 ​ $ 2,308 SUPPLEMENTAL DISCLOSURES ​ ​ ​ Interest paid ​ $ 361 ​ $ 458 ​ $ 479 ​ ​ 107 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Unity Bancorp, Inc. and Subsidiaries ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Unity Bancorp, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. ​ Allowance for Loan Losses – Qualitative Factors ​ The allowance for loan losses as of December 31, 2021 was $22.3 million. As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan losses is established through a provision for loan losses and represents an amount which, in management’s judgement, will be adequate to absorb losses on existing loans. The allowance consists of specific and general components in the amounts of $2.8 million and $19.5 million, respectively. Specific reserves are made to individual impaired loans, which have been defined to include all nonperforming loans and troubled debt restructurings. The general reserve is set based upon a historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. The 108 Table of Contents evaluation of the qualitative factors requires a significant amount of judgement by management and involves a high degree of subjectivity. ​ We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty. Our audit procedures related to the qualitative factors included the following, among others: ​ - We obtained an understanding of the relevant controls related to management’s assessment and review of the qualitative factors, and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors. - We obtained an understanding of how management developed the estimates and related assumptions, including: ​ o Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources. o Evaluating the reasonableness of the qualitative factor established by management, including the directional consistency and magnitude, as compared to the underlying internal or external information sources. ​ ​ /s/ RSM US LLP ​ We have served as the Company’s auditor since 2007. New York, New York March 11, 2022 ​ ​ ​ 109 Table of Contents Supplementary Data (Unaudited) Quarterly Financial Information The following quarterly financial information for the years ended December 31, 2021, 2020 and 2019 is unaudited. However, in the opinion of management, all adjustments, which include normal recurring adjustments necessary to present fairly the results of operations for the periods, are reflected. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 (In thousands, except per share data) March 31 June 30 September 30 December 31 Total interest income ​ $ 20,576 ​ $ 20,680 ​ $ 21,254 ​ $ 22,270 Total interest expense ​ 2,558 ​ 2,231 ​ 1,531 ​ 1,421 Net interest income ​ 18,018 ​ 18,449 ​ 19,723 ​ 20,849 Provision for loan losses ​ 500 ​ — ​ — ​ ( 319 ) Net interest income after provision for loan losses ​ 17,518 ​ 18,449 ​ 19,723 ​ 21,168 Total noninterest income ​ 3,726 ​ 2,895 ​ 2,809 ​ 2,624 Total noninterest expense ​ 9,802 ​ 10,460 ​ 9,860 ​ 10,660 Income before provision for income taxes ​ 11,442 ​ 10,884 ​ 12,672 ​ 13,132 Provision for income taxes ​ 2,946 ​ 2,466 ​ 3,213 ​ 3,386 Net income ​ $ 8,496 ​ $ 8,418 ​ $ 9,459 ​ $ 9,746 Net income per common share - Basic ​ $ 0.81 ​ $ 0.81 ​ $ 0.91 ​ $ 0.94 Net income per common share - Diluted ​ 0.80 ​ 0.80 ​ 0.90 ​ 0.93 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 (In thousands, except per share data) March 31 June 30 September 30 December 31 Total interest income ​ $ 19,585 ​ $ 19,278 ​ $ 19,764 ​ $ 20,288 Total interest expense ​ 4,341 ​ 3,753 ​ 3,437 ​ 2,949 Net interest income ​ 15,244 ​ 15,525 ​ 16,327 ​ 17,339 Provision for loan losses ​ 1,500 ​ 2,500 ​ 2,000 ​ 1,000 Net interest income after provision for loan losses ​ 13,744 ​ 13,025 ​ 14,327 ​ 16,339 Total noninterest income ​ 2,545 ​ 2,811 ​ 3,336 ​ 4,254 Total noninterest expense ​ 9,323 ​ 9,177 ​ 10,037 ​ 10,725 Income before provision for income taxes ​ 6,966 ​ 6,659 ​ 7,626 ​ 9,868 Provision for income taxes ​ 1,598 ​ 1,488 ​ 1,866 ​ ​ 2,523 Net income ​ $ 5,368 ​ $ 5,171 ​ $ 5,760 ​ $ 7,345 Net income per common share - Basic ​ $ 0.49 ​ $ 0.48 ​ $ 0.54 ​ $ 0.70 Net income per common share - Diluted ​ 0.49 ​ 0.47 ​ 0.54 ​ 0.69 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 (In thousands, except per share data) March 31 June 30 September 30 December 31 Total interest income ​ $ 18,500 ​ $ 18,781 ​ $ 19,055 ​ $ 19,312 Total interest expense ​ 4,284 ​ 4,571 ​ 4,651 ​ 4,549 Net interest income ​ 14,216 ​ 14,210 ​ 14,404 ​ 14,763 Provision for loan losses ​ 500 ​ 350 ​ 750 ​ 500 Net interest income after provision for loan losses ​ 13,716 ​ 13,860 ​ 13,654 ​ 14,263 Total noninterest income ​ 2,020 ​ 2,411 ​ 2,710 ​ 2,398 Total noninterest expense ​ 8,476 ​ 8,791 ​ 8,729 ​ 8,721 Income before provision for income taxes ​ 7,260 ​ 7,480 ​ 7,635 ​ 7,940 Provision for income taxes ​ 1,520 ​ 1,646 ​ 1,676 ​ 1,820 Net income ​ $ 5,740 ​ $ 5,834 ​ $ 5,959 ​ $ 6,120 Net income per common share - Basic ​ $ 0.53 ​ $ 0.54 ​ $ 0.55 ​ $ 0.56 Net income per common share - Diluted ​ 0.52 ​ 0.53 ​ 0.54 ​ 0.55 ​ ​ 110 Table of Contents Supplementary Data (Unaudited) Selected Consolidated Financial Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the years ended December 31, (In thousands, except percentages) 2021 2020 2019 2018 ​ 2017 Selected Results of Operations ​ ​ ​ ​ ​ ​ Interest income ​ $ 84,780 ​ $ 78,915 ​ $ 75,648 ​ $ 67,263 ​ $ 55,310 ​ Interest expense ​ 7,741 ​ 14,480 ​ 18,055 ​ 13,516 ​ 9,453 ​ Net interest income ​ 77,039 ​ 64,435 ​ 57,593 ​ 53,747 ​ 45,857 ​ Provision for loan losses ​ 181 ​ 7,000 ​ 2,100 ​ 2,050 ​ 1,650 ​ Noninterest income ​ 12,054 ​ 12,946 ​ 9,539 ​ 9,031 ​ 8,270 ​ Noninterest expense ​ 40,782 ​ 39,262 ​ 34,717 ​ 33,421 ​ 30,044 ​ Provision for income taxes ​ 12,011 ​ 7,475 ​ 6,662 ​ 5,388 ​ 9,540 ​ Net income ​ 36,119 ​ 23,644 ​ 23,653 ​ 21,919 ​ 12,893 ​ Per Share Data ​ ​ ​ ​ ​ ​ Net income per common share - Basic ​ $ 3.47 ​ $ 2.21 ​ $ 2.18 ​ $ 2.04 ​ $ 1.22 ​ Net income per common share - Diluted ​ 3.43 ​ 2.19 ​ 2.14 ​ 2.01 ​ 1.20 ​ Book value per common share ​ 19.80 ​ 16.63 ​ 14.77 ​ 12.85 ​ 11.13 ​ Market value per common share ​ 26.25 ​ 17.55 ​ 22.57 ​ 20.76 ​ 19.75 ​ Cash dividends declared on common shares ​ 0.36 ​ 0.32 ​ 0.31 ​ 0.27 ​ 0.23 ​ Selected Balance Sheet Data ​ ​ ​ ​ ​ ​ Assets ​ $ 2,033,713 ​ $ 1,958,914 ​ $ 1,718,942 ​ $ 1,579,157 ​ $ 1,455,496 ​ Loans ​ 1,649,448 ​ 1,627,817 ​ 1,425,558 ​ 1,304,566 ​ 1,170,674 ​ Allowance for loan losses ​ (22,302) ​ (23,105) ​ (16,395) ​ (15,488) ​ (13,556) ​ Securities ​ 79,322 ​ 47,571 ​ 66,564 ​ 63,732 ​ 69,800 ​ Deposits ​ 1,758,881 ​ 1,557,959 ​ 1,250,114 ​ 1,207,687 ​ 1,043,137 ​ Borrowed funds and subordinated debentures ​ 50,310 ​ 210,310 ​ 293,310 ​ 220,310 ​ 285,310 ​ Shareholders’ equity ​ 205,729 ​ 173,911 ​ 160,709 ​ 138,488 ​ 118,105 ​ Common shares outstanding ​ 10,391 ​ 10,456 ​ 10,881 ​ 10,780 ​ 10,615 ​ Performance Ratios ​ ​ ​ ​ ​ ​ Return on average assets ​ 1.87 % 1.35 % 1.54 % 1.53 % 1.02 % Return on average equity ​ 19.16 ​ 14.20 ​ 15.86 ​ 17.10 ​ 11.47 ​ Average equity to average assets ​ 9.77 ​ 9.51 ​ 9.69 ​ 8.96 ​ 8.85 ​ Efficiency ratio ​ 46.09 ​ 50.80 ​ 52.00 ​ 53.07 ​ 55.57 ​ Dividend payout ​ 10.50 ​ 14.61 ​ 14.49 ​ 13.43 ​ 18.33 ​ Net interest spread ​ 3.95 ​ 3.48 ​ 3.54 ​ 3.65 ​ 3.57 ​ Net interest margin ​ 4.16 ​ 3.85 ​ 3.95 ​ 3.97 ​ 3.83 ​ Asset Quality Ratios ​ ​ ​ ​ ​ ​ Allowance for loan losses to loans ​ 1.35 % 1.42 % 1.15 % 1.19 % 1.16 % Allowance for loan losses to nonperforming loans ​ 230.25 ​ 191.59 ​ 290.23 ​ 225.35 ​ 452.77 ​ Nonperforming loans to total loans ​ 0.59 ​ 0.74 ​ 0.40 ​ 0.53 ​ 0.26 ​ Nonperforming assets to total loans and OREO ​ 0.59 ​ 0.74 ​ 0.52 ​ 0.53 ​ 0.29 ​ Nonperforming assets to total assets ​ 0.48 ​ 0.62 ​ 0.43 ​ 0.44 ​ 0.23 ​ Net charge-offs to average loans ​ 0.06 ​ 0.02 ​ 0.09 ​ 0.01 ​ 0.06 ​ Capital Ratios - Company ​ ​ ​ ​ ​ ​ ​ ​ CBLR ​ ​ 10.51 % ​ 10.09 % ​ N/A % ​ N/A % ​ N/A % Leverage Ratio ​ N/A ​ N/A ​ 10.59 ​ 9.90 ​ 9.37 ​ Common Equity Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ 11.59 ​ 11.40 ​ 10.81 ​ Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ 12.32 ​ 12.24 ​ 11.75 ​ Total risk-based capital ratio ​ N/A ​ N/A ​ 13.06 ​ 13.49 ​ 12.87 ​ Capital Ratios - Bank ​ ​ ​ ​ ​ ​ ​ CBLR ​ ​ 10.00 % ​ 9.80 % ​ N/A % ​ N/A % ​ N/A % Leverage Ratio ​ N/A ​ N/A ​ 10.15 ​ 9.52 ​ 9.03 ​ Common Equity Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ 11.81 ​ 11.80 ​ 11.33 ​ Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ 11.81 ​ 11.80 ​ 11.33 ​ Total risk-based capital ratio ​ N/A ​ N/A ​ 12.58 ​ 13.05 ​ 12.50 ​ ​ ​ ​ ​ 111 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: None. ​