UNITY BANCORP INC /NJ/ 10-K

Item 8. Financial Statements and Supplementary Data: Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2022 December 31, 2021 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 19,699 ​ $ 26,053 Interest-bearing deposits ​ 95,094 ​ 218,765 Cash and cash equivalents ​ 114,793 ​ 244,818 Securities: ​ ​ ​ ​ ​ ​ Debt securities available for sale ​ 95,393 ​ 56,480 Debt securities held to maturity ​ 35,760 ​ 14,276 Equity securities with readily determinable fair values ​ 9,793 ​ 8,566 Total securities ​ 140,946 ​ 79,322 Loans: ​ ​ SBA loans held for sale ​ 27,928 ​ 27,373 SBA loans held for investment ​ 38,468 ​ 36,075 SBA PPP loans ​ ​ 5,908 ​ ​ 46,450 Commercial loans ​ 1,187,543 ​ 931,726 Residential mortgage loans ​ 605,091 ​ 409,355 Consumer loans ​ 78,164 ​ 77,944 Residential construction loans ​ ​ 163,457 ​ ​ 120,525 Total loans ​ 2,106,559 ​ 1,649,448 Allowance for loan losses ​ ( 25,196 ) ​ ( 22,302 ) Net loans ​ 2,081,363 ​ 1,627,146 Premises and equipment, net ​ 20,002 ​ 19,914 Bank owned life insurance ("BOLI") ​ 26,776 ​ 26,608 Deferred tax assets ​ 12,345 ​ 10,040 Federal Home Loan Bank ("FHLB") stock ​ 19,064 ​ 3,550 Accrued interest receivable ​ 13,403 ​ 9,586 Goodwill ​ 1,516 ​ 1,516 Prepaid expenses and other assets ​ 14,740 ​ 11,213 Total assets ​ $ 2,444,948 ​ $ 2,033,713 LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Liabilities: ​ ​ Deposits: ​ ​ Noninterest-bearing demand ​ $ 494,184 ​ $ 529,227 Interest-bearing demand ​ 276,218 ​ 244,073 Savings ​ 591,826 ​ 694,161 Time, under $100,000 ​ 273,954 ​ 194,961 Time, $100,000 to $250,000 ​ 84,002 ​ 62,668 Time, $250,000 and over ​ 67,344 ​ 33,791 Total deposits ​ 1,787,528 ​ 1,758,881 Borrowed funds ​ 383,000 ​ 40,000 Subordinated debentures ​ 10,310 ​ 10,310 Accrued interest payable ​ 691 ​ 129 Accrued expenses and other liabilities ​ 24,192 ​ 18,664 Total liabilities ​ 2,205,721 ​ 1,827,984 Shareholders’ equity: ​ ​ Common stock, no par value, 12,500 shares authorized, 11,289 shares issued and 10,584 shares outstanding as of December 31, 2022; 11,094 shares issued and 10,391 shares outstanding as of December 31, 2021 ​ 97,204 ​ 94,003 Retained earnings ​ 156,958 ​ 123,037 Treasury stock, at cost ( 705 shares as of December 31, 2022 and 703 shares as of December 31, 2021) ​ ​ ( 11,675 ) ​ ​ ( 11,633 ) Accumulated other comprehensive (loss) income ​ ( 3,260 ) ​ 322 Total shareholders’ equity ​ 239,227 ​ 205,729 Total liabilities and shareholders’ equity ​ $ 2,444,948 ​ $ 2,033,713 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. 44 Table of Contents Consolidated Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands, except per share amounts) ​ 2022 2021 2020 INTEREST INCOME ​ ​ ​ ​ Interest-bearing deposits ​ $ 735 ​ $ 194 ​ $ 258 FHLB stock ​ 396 ​ 197 ​ 331 Securities: ​ ​ ​ Taxable ​ 4,754 ​ 1,298 ​ 1,695 Tax-exempt ​ 53 ​ 31 ​ 61 Total securities ​ 4,807 ​ 1,329 ​ 1,756 Loans: ​ ​ ​ SBA loans ​ 4,303 ​ 3,252 ​ 3,144 SBA PPP loans ​ ​ 1,596 ​ ​ 7,206 ​ ​ 3,120 Commercial loans ​ 53,820 ​ 44,167 ​ 40,002 Residential mortgage loans ​ 22,395 ​ 19,227 ​ 22,255 Consumer loans ​ 4,132 ​ 3,145 ​ 3,502 Residential construction loans ​ ​ 8,555 ​ ​ 6,063 ​ ​ 4,547 Total loans ​ 94,801 ​ 83,060 ​ 76,570 Total interest income ​ 100,739 ​ 84,780 ​ 78,915 INTEREST EXPENSE ​ ​ ​ Interest-bearing demand deposits ​ 1,384 ​ 1,073 ​ 1,344 Savings deposits ​ 3,110 ​ 1,685 ​ 2,463 Time deposits ​ 2,757 ​ 3,834 ​ 8,784 Borrowed funds and subordinated debentures ​ 3,380 ​ 1,149 ​ 1,889 Total interest expense ​ 10,631 ​ 7,741 ​ 14,480 Net interest income ​ 90,108 ​ 77,039 ​ 64,435 Provision for loan losses ​ 4,159 ​ 181 ​ 7,000 Net interest income after provision for loan losses ​ 85,949 ​ 76,858 ​ 57,435 NONINTEREST INCOME ​ ​ ​ Branch fee income ​ 1,117 ​ 1,130 ​ 1,046 Service and loan fee income ​ 2,433 ​ 2,757 ​ 1,742 Gain on sale of SBA loans held for sale, net ​ 954 ​ 741 ​ 1,642 Gain on sale of mortgage loans, net ​ 1,399 ​ 4,567 ​ 6,344 BOLI income ​ 636 ​ 689 ​ 613 Net securities (losses) gains ​ ( 1,313 ) ​ 609 ​ 93 Other income ​ 2,819 ​ 1,561 ​ 1,466 Total noninterest income ​ 8,045 ​ 12,054 ​ 12,946 NONINTEREST EXPENSE ​ ​ ​ Compensation and benefits ​ 26,949 ​ 24,771 ​ 23,124 Processing and communications ​ ​ 2,848 ​ ​ 3,050 ​ ​ 3,155 Occupancy ​ ​ 2,963 ​ ​ 2,661 ​ ​ 2,543 Furniture and equipment ​ 2,493 ​ 2,590 ​ 2,606 Professional services ​ 1,401 ​ 1,437 ​ 1,144 Advertising ​ 1,212 ​ 1,236 ​ 906 Other loan expenses ​ ​ 240 ​ ​ 922 ​ ​ 622 Deposit insurance ​ ​ 1,022 ​ ​ 844 ​ ​ 674 Director fees ​ ​ 916 ​ ​ 811 ​ ​ 774 Loan collection expenses ​ ​ 278 ​ ​ 135 ​ ​ 215 Other expenses ​ 2,251 ​ 2,325 ​ 3,499 Total noninterest expense ​ 42,573 ​ 40,782 ​ 39,262 Income before provision for income taxes ​ 51,421 ​ 48,130 ​ 31,119 Provision for income taxes ​ 12,964 ​ 12,011 ​ 7,475 Net income ​ $ 38,457 ​ $ 36,119 ​ $ 23,644 Net income per common share - Basic ​ $ 3.66 ​ $ 3.47 ​ $ 2.21 Net income per common share - Diluted ​ $ 3.59 ​ $ 3.43 ​ $ 2.19 Weighted average common shares outstanding – Basic ​ 10,508 ​ 10,403 ​ 10,709 Weighted average common shares outstanding – Diluted ​ 10,705 ​ 10,546 ​ 10,814 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. ​ 45 Table of Contents Consolidated Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2022 ​ ​ ​ Income tax ​ ​ ​ ​ Before tax ​ expense ​ Net of tax (In thousands) ​ amount ​ (benefit) ​ amount Net income ​ $ 51,421 ​ ​ 12,964 ​ $ 38,457 Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ Debt securities available for sale: ​ ​ ​ ​ ​ ​ Unrealized holding losses on securities arising during the period ​ ( 5,833 ) ​ ​ ( 1,439 ) ​ ( 4,394 ) Total unrealized losses on securities available for sale ​ ( 5,833 ) ​ ( 1,439 ) ​ ( 4,394 ) Net unrealized gains from cash flow hedges: ​ ​ ​ Unrealized holding gains on cashflow hedges arising during the period ​ 2,184 ​ ​ 618 ​ 1,566 Less: reclassification adjustment for gains on cashflow hedges included in net income ​ ​ 1,055 ​ ​ 301 ​ ​ 754 Total unrealized gains on cash flow hedges ​ 1,129 ​ 317 ​ 812 Total other comprehensive losses ​ ( 4,704 ) ​ ( 1,122 ) ​ ( 3,582 ) Total comprehensive income ​ $ 46,717 ​ $ 11,842 ​ $ 34,875 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 46 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment 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 cashflow hedges ​ ( 1,264 ) ​ ( 359 ) ​ ( 905 ) Total other comprehensive loss ​ ( 1,877 ) ​ ( 535 ) ​ ( 1,343 ) Total comprehensive income ​ $ 29,242 ​ $ 6,941 ​ $ 22,301 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. ​ 47 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, 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 Net income ​ ​ 38,457 ​ ​ ​ ​ ​ 38,457 Other comprehensive loss, net of tax ​ ​ ​ ​ ( 3,582 ) ​ ​ ​ ​ ( 3,582 ) Dividends on common stock ($ 0.43 per share) ​ 163 ​ ( 4,536 ) ​ ​ ​ ​ ​ ( 4,373 ) Common stock issued and related tax effects (1) 195 ​ 3,038 ​ ​ ​ ​ ​ ​ 3,038 Treasury stock purchased, at cost ​ ( 2 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 42 ) ​ ​ ( 42 ) Balance, December 31, 2022 10,584 ​ $ 97,204 ​ $ 156,958 ​ $ ( 3,260 ) ​ $ ( 11,675 ) ​ $ 239,227 ​ (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. ​ 48 Table of Contents Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the twelve months ended December 31, (In thousands) ​ 2022 2021 2020 OPERATING ACTIVITIES: ​ ​ ​ ​ Net income ​ $ 38,457 ​ $ 36,119 ​ $ 23,644 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Provision for loan losses ​ 4,159 ​ 181 ​ 7,000 Net amortization of purchase premiums and discounts on securities ​ 13 ​ 209 ​ 241 Depreciation and amortization, net ​ 2,756 ​ 1,609 ​ 1,909 SBA PPP deferred fees and costs ​ ​ ( 1,413 ) ​ ​ ( 1,464 ) ​ ​ 2,947 Deferred income tax benefit ​ ( 1,205 ) ​ ( 1,456 ) ​ ( 3,090 ) Net securities realized gains ​ — ​ ( 46 ) ​ ( 322 ) Stock compensation expense ​ 1,681 ​ 1,617 ​ 1,411 Gain on sale of OREO ​ — ​ — ​ 157 Gain on sale of mortgage loans, net ​ ( 1,399 ) ​ ( 4,567 ) ​ ( 6,344 ) Gain on sale of SBA loans held for sale, net ​ ( 954 ) ​ ( 741 ) ​ ( 1,642 ) BOLI income ​ ( 636 ) ​ ( 689 ) ​ ( 613 ) Net change in other assets and liabilities ​ 1,210 ​ 1,757 ​ ( 2,975 ) Net cash provided by operating activities ​ 42,669 ​ 32,529 ​ 22,323 INVESTING ACTIVITIES ​ ​ ​ Purchases of securities held to maturity ​ ( 26,748 ) ​ ( 21,923 ) ​ — Purchase of equity securities ​ ( 2,539 ) ​ ( 6,100 ) ​ — Purchases of securities available for sale ​ ( 49,349 ) ​ ( 30,301 ) ​ ( 3,802 ) (Purchases of) proceeds from sale of FHLB stock, at cost ​ ( 15,514 ) ​ 7,044 ​ 3,590 Maturities and principal payments on debt securities held to maturity ​ 5,339 ​ 7,643 ​ — Maturities and principal payments on debt securities available for sale ​ 4,514 ​ 12,571 ​ 15,205 Proceeds from sales of securities available for sale ​ — ​ 7,048 ​ 6,635 Proceeds from sales of equity securities ​ — ​ 53 ​ 111 Proceeds from sale of OREO ​ — ​ — ​ 1,566 Net decrease (increase) in SBA PPP loans ​ ​ 41,955 ​ ​ 73,208 ​ ​ ( 121,182 ) Net increase in loans ​ ( 497,927 ) ​ ( 89,104 ) ​ ( 77,348 ) Proceeds from BOLI ​ 468 ​ 595 ​ 422 (Purchases of) proceeds from sale of premises and equipment, net ​ ( 1,482 ) ​ ( 1,249 ) ​ ( 559 ) Net cash used in investing activities ​ ( 541,283 ) ​ ( 40,515 ) ​ ( 175,362 ) FINANCING ACTIVITIES ​ ​ ​ Net increase in deposits ​ 28,647 ​ 200,922 ​ 307,845 Proceeds from (repayments of) borrowings, net ​ 343,000 ​ ( 160,000 ) ​ ( 83,000 ) Proceeds from exercise of stock options, net of withheld taxes ​ 1,357 ​ 379 ​ 229 Cash dividends on common stock ​ ( 4,373 ) ​ ( 3,617 ) ​ ( 3,298 ) Purchase of treasury stock ​ ​ ( 42 ) ​ ​ ( 4,191 ) ​ ​ ( 7,442 ) Net cash provided by financing activities ​ 368,589 ​ 33,493 ​ 214,334 (Decrease) increase in cash and cash equivalents ​ ( 130,025 ) ​ 25,507 ​ 61,295 Cash and cash equivalents, beginning of period ​ 244,818 ​ 219,311 ​ 158,016 Cash and cash equivalents, end of period ​ $ 114,793 ​ $ 244,818 ​ $ 219,311 SUPPLEMENTAL DISCLOSURES ​ ​ ​ Cash: ​ ​ ​ Interest paid ​ $ 10,069 ​ $ 7,860 ​ $ 14,687 Income taxes paid ​ 13,929 ​ 13,990 ​ 11,112 Noncash investing activities: ​ ​ ​ Establishment of lease liability and right-of-use asset, net of terminations ​ 1,238 ​ 3,138 ​ 28 Capitalization of servicing rights ​ 152 ​ 126 ​ 722 ​ The accompanying notes to the Consolidated Financial Statements are an integral part of these statements ​ ​ ​ 49 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, Ocean, 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., which was formed in 2013 to hold real estate related 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 7 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 In preparing the consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial conditions and results of operations for the periods indicated. 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, 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. Although, the economy has generally improved since March 2020, there still remains much uncertainty around the containment of the pandemic and the trajectory of the broader economic recovery. The Company continues to be subject to heightened business, operational (including fraud), market, credit and other risks related to the COVID-19 pandemic environment and changes in which people work and shop originating from the pandemic, which may have an adverse effect on the Company’s business, financial condition and results of operations. 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 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 until LIBOR becomes unavailable, including the Company’s subordinated notes, 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. 50 Table of Contents Uncertainty as to the nature of such potential changes, the elimination and replacement of LIBOR or other reforms may adversely affect the value of, and the return on the Company's loans, and its investment securities. Overall, the markets and customers serviced by the Company may be significantly impacted by the ongoing macro-economic trends, such as inflation and recessionary pressures created by a higher interest rate environment. The Company assesses the impact of inflation on an ongoing basis and the impacts of inflation may have an adverse effect on the Company’s business, financial condition and results of operations. ​ 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, debt securities held to maturity and equity securities with readily determinable fair values ("equity securities"). Debt securities that are classified as available for sale are stated at fair value. Unrealized gains and losses on securities available for sale are excluded from results of operations and are reported as other comprehensive income, a separate component of shareholders’ equity, net of taxes. Debt securities classified as available for sale include debt securities that may be sold in response to changes in interest rates, changes in prepayment risks or for asset/liability management purposes or liquidity needs. The cost of debt securities sold is determined on a specific identification basis. Gains and losses on sales of debt securities are recognized in the Consolidated Statements of Income on a trade date basis. Debt securities are classified as held to maturity based on management’s intent and ability to hold them to maturity. Such debt securities are stated at cost, adjusted for unamortized purchase premiums and discounts using the level yield method. 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. 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 2 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 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. 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 51 Table of Contents (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 certain 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 may sell 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 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 3 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 52 Table of Contents 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 executive management and 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 3 to the Consolidated Financial Statements. 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. 53 Table of Contents 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 4 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 5 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 (“FHLB”) 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. 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 (“OREO”) 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 54 Table of Contents 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, 2022. Appraisals 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. 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 or cash flow hedges. The Company’s derivative instruments currently consist of cash flow hedges. The Company recognizes 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. 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. 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 7 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. 55 Table of Contents 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 11 to the Consolidated Financial Statements. 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 12 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 14 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 15 to the Consolidated Financial Statements. Other Comprehensive Income (Losses) Other comprehensive income (loss) consists of the change in unrealized gains (losses) on SERP, securities available for sale and derivative related items that were reported as a component of shareholders’ equity, net of tax. 56 Table of Contents For additional information on other comprehensive income (loss), see Note 9 to the Consolidated Financial Statements. 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. Recent Accounting Pronouncements 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 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. ​ ASU 2022-06, “Reference Rate Reform (Topic 848)”: provides optional guidance to ease potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting during the transition period. The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. At the time that Updated 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022 – 12 months after the expected cessation date of all currencies and tenors of LIBOR. Because the current relief in Topic 848 may not cover 57 Table of Contents a period during which a significant number of modifications may take place, the amendments in this update defer the sunset date of Topic 848 from December 21, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ​ New Accounting Guidance Adopted in the First Quarter 2023 ​ ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” amends the accounting guidance regarding the impairment of financial instruments. The FASB issued this guidance to replace the incurred loss impairment methodology with a new current credit loss (“CECL”) model. Under the new guidance, the Company will be required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities. CECL also applies to certain off-balance sheet exposures. ​ The Company will adopt the new CECL accounting guidance effective January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company has established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used upon adoption. At December 31, 2022, the Company’s loan portfolio totaled, $ 2.1 billion with a corresponding allowance for loan losses of $ 25.2 million under current GAAP. Based on the Company’s current CECL model results that it has performed alongside the current process, the Company estimates that the adoption of the new guidance will result in an increase to the allowance for credit losses, including the reserve for off-balance sheet credit exposure (recorded in other liabilities) between $ 0.5 million to $ 1.0 million. ​ For other assets within the scope of the new CECL accounting guidance, such as held to maturity debt securities and other receivables, management expects the impact from adoption to be inconsequential. Additionally, the Company does not expect the adoption of CECL to have significant impact on regulatory capital ratios of the Company and/or the Bank. ​ The Company is reviewing the performance of its most recent model run. As the Company finalizes the CECL implementation, final decisions made by management may result in a different impact than that stated above for financial statement and disclosure purposes. ​ 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,” to 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 2022-01, “Derivatives and Hedging (Topic 815)”: ASU 2022-01 was issued to clarify the guidance in ACS 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the portfolio the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on the Company’s consolidated financial statements. ​ ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”: eliminates the guidance on troubled debt restructurings (“TDRs”) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 requires that entities disclose if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by 58 Table of Contents year of origination for loans and leases. The Company is currently evaluating the impact of the adoption of ASU 2022-02 on its consolidated financial statements. ​ 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 the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in its 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 the Company’s 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. Restrictions on Cash Federal law required 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. 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 settlement position multiplied by four days. The required balance was $ 262 thousand and $ 156 thousand as of December 31, 2022 and 2021, respectively. This balance can be adjusted periodically to reflect actual transaction volume and seasonal factors. ​ ​ ​ 59 Table of Contents 2. Securities This table provides the major components of debt securities available for sale (“AFS”), held to maturity (“HTM”) and equity securities with readily determinable fair values ("equity securities") at amortized cost and estimated fair value at December 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ ​ ​ 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 ​ $ 16,961 ​ $ — ​ $ ( 656 ) ​ $ 16,305 ​ $ — ​ $ — ​ $ — ​ $ — State and political subdivisions ​ 635 ​ — ​ ( 22 ) ​ 613 ​ 996 ​ 6 ​ ( 8 ) ​ 994 Residential mortgage-backed securities ​ 17,097 ​ 32 ​ ( 1,654 ) ​ 15,475 ​ 9,485 ​ 277 ​ ( 13 ) ​ 9,749 Corporate and other securities ​ 66,495 ​ 106 ​ ( 3,601 ) ​ 63,000 ​ 45,961 ​ 164 ​ ( 388 ) ​ 45,737 Total debt securities available for sale ​ $ 101,188 ​ $ 138 ​ $ ( 5,933 ) ​ $ 95,393 ​ $ 56,442 ​ $ 447 ​ $ ( 409 ) ​ $ 56,480 Held to maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 28,000 ​ $ — ​ $ ( 5,310 ) ​ $ 22,690 ​ $ 10,000 ​ $ — ​ $ ( 67 ) ​ $ 9,933 State and political subdivisions ​ 1,115 ​ 67 ​ — ​ 1,182 ​ — ​ — ​ — ​ — Residential mortgage-backed securities ​ 6,645 ​ — ​ ( 1,939 ) ​ 4,706 ​ 4,276 ​ 28 ​ ( 8 ) ​ 4,296 Total debt securities held to maturity ​ $ 35,760 ​ $ 67 ​ $ ( 7,249 ) ​ $ 28,578 ​ $ 14,276 ​ $ 28 ​ $ ( 75 ) ​ $ 14,229 Equity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total equity securities ​ $ 10,703 ​ $ 356 ​ $ ( 1,266 ) ​ $ 9,793 ​ $ 8,163 ​ $ 486 ​ $ ( 83 ) ​ $ 8,566 ​ This table provides the remaining contractual maturities within the investment portfolios. The carrying value of securities at December 31, 2022 is distributed by contractual maturity. 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) Amount Amount Amount Amount Amount ​ Available for sale at fair value: ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 488 $ 15,817 ​ $ — ​ $ — ​ $ 16,305 ​ State and political subdivisions ​ 200 160 ​ — ​ 253 ​ 613 ​ Residential mortgage-backed securities ​ 4 408 ​ 1,031 ​ 14,032 ​ 15,475 ​ Corporate and other securities ​ — 12,432 ​ 13,871 ​ 36,697 ​ 63,000 ​ Total debt securities available for sale ​ $ 692 $ 28,817 ​ $ 14,902 ​ $ 50,982 ​ $ 95,393 ​ Held to maturity at cost ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ — $ — ​ $ 3,000 ​ $ 25,000 ​ $ 28,000 ​ State and political subdivisions ​ — — ​ — ​ 1,115 ​ 1,115 ​ Residential mortgage-backed securities ​ — — ​ — ​ 6,645 ​ 6,645 ​ Total debt securities held for maturity ​ $ — $ — ​ $ 3,000 ​ $ 32,760 ​ $ 35,760 ​ Equity Securities at fair value: ​ ​ ​ ​ ​ ​ Total equity securities ​ $ — $ — ​ $ — ​ $ 9,793 ​ $ 9,793 ​ ​ 60 Table of Contents 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, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ Less than 12 months ​ 12 months and greater ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized (In thousands) ​ ​ fair value ​ loss ​ fair value ​ loss ​ fair value ​ loss Available for sale: ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 15,817 ​ $ ( 622 ) ​ $ 1,432 ​ $ ( 34 ) ​ $ 17,249 ​ $ ( 656 ) State and political subdivisions ​ ​ 160 ​ ​ ( 5 ) ​ ​ 253 ​ ​ ( 17 ) ​ ​ 413 ​ ​ ( 22 ) Residential mortgage-backed securities ​ ​ 14,023 ​ ​ ( 1,448 ) ​ ​ 1,311 ​ ​ ( 206 ) ​ ​ 15,334 ​ ​ ( 1,654 ) Corporate and other securities ​ 23,445 ​ ( 966 ) ​ 31,948 ​ ( 2,635 ) ​ 55,393 ​ ( 3,601 ) Total temporarily impaired securities ​ $ 53,445 ​ $ ( 3,041 ) ​ $ 34,944 ​ $ ( 2,892 ) ​ $ 88,389 ​ $ ( 5,933 ) Held to maturity: ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 15,659 ​ $ ( 2,341 ) ​ $ 7,031 ​ $ ( 2,969 ) ​ $ 22,690 ​ $ ( 5,310 ) Residential mortgage-backed securities ​ 4,707 ​ ( 1,939 ) ​ — ​ — ​ 4,707 ​ ( 1,939 ) Total temporarily impaired securities ​ $ 20,366 ​ $ ( 4,280 ) ​ $ 7,031 ​ $ ( 2,969 ) ​ $ 27,397 ​ $ ( 7,249 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ Less than 12 months ​ 12 months and greater ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized ​ Estimated ​ Unrealized (In thousands) ​ ​ fair value ​ loss ​ fair value ​ loss ​ fair value ​ loss Available for sale: ​ ​ ​ ​ ​ ​ State and political subdivisions ​ $ 370 ​ $ ( 8 ) ​ $ — ​ $ — ​ $ 370 ​ $ ( 8 ) Residential mortgage-backed securities ​ ​ 1,821 ​ ​ ( 13 ) ​ ​ — ​ ​ — ​ ​ 1,821 ​ ​ ( 13 ) Corporate and other securities ​ 17,281 ​ ( 19 ) ​ 8,394 ​ ( 369 ) ​ 25,675 ​ ( 388 ) Total temporarily impaired securities ​ $ 19,472 ​ $ ( 40 ) ​ $ 8,394 ​ $ ( 369 ) ​ $ 27,866 ​ $ ( 409 ) Held to maturity: ​ ​ ​ ​ ​ ​ ​ U.S. Government sponsored entities ​ $ 9,933 ​ $ ( 67 ) ​ $ — ​ $ — ​ $ 9,933 ​ $ ( 67 ) Residential mortgage-backed securities ​ 823 ​ ( 8 ) ​ — ​ — ​ 823 ​ ( 8 ) Total temporarily impaired securities ​ $ 10,756 ​ $ ( 75 ) ​ $ — ​ $ — ​ $ 10,756 ​ $ ( 75 ) ​ Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate fluctuations. Realized Gains and Losses Gross realized gains and losses on debt securities for the years ended December 31, 2022 and 2021 are detailed below. There were no available for sale or held to maturity gross realized gains in 2022 , compared to $ 42 thousand of gross realized gains in 2021 and $ 317 thousand of gross realized gains in 2020. There were no gross realized losses in 2022, 2021 or 2020. Equity Securities Included in this category are Community Reinvestment Act ("CRA") investments and the Company’s current other 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 interests in entities at fixed or determinable prices. ​ 61 Table of Contents 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) 2022 2021 ​ 2020 Net unrealized (losses) gains recognized during the period on equity securities ​ $ ( 1,313 ) ​ $ 561 ​ $ ( 229 ) Net gains recognized during the period on equity securities sold during the period ​ — ​ 4 ​ 5 Unrealized (losses) gains recognized during the reporting period on equity securities still held at the reporting date ​ $ ( 1,313 ) ​ $ 565 ​ $ ( 224 ) ​ ​ 3. 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, 2022 December 31, 2021 SBA loans held for investment ​ $ 38,468 ​ $ 36,075 SBA PPP loans ​ ​ 5,908 ​ ​ 46,450 Commercial loans ​ ​ SBA 504 loans ​ 35,077 ​ 27,479 Commercial other ​ 117,566 ​ 109,903 Commercial real estate ​ 903,126 ​ 704,674 Commercial real estate construction ​ 131,774 ​ 89,670 Residential mortgage loans ​ 605,091 ​ 409,355 Consumer loans ​ ​ ​ ​ Home equity ​ 68,310 ​ 65,380 Consumer other ​ 9,854 ​ 12,564 Residential construction loans ​ ​ 163,457 ​ ​ 120,525 Total loans held for investment ​ $ 2,078,631 ​ $ 1,622,075 SBA loans held for sale ​ 27,928 ​ 27,373 Total loans ​ $ 2,106,559 ​ $ 1,649,448 ​ 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 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. 62 Table of Contents 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 were 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 had 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 are generally 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. 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, loan to collateral value, credit history and Company relationship with the borrower. In 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 loans 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, 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. 63 Table of Contents 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 reviewed 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 loan’s classification as loss 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 occur in the future. 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. 64 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, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ SBA & Commercial loans - Internal risk ratings (In thousands) Pass Special mention Substandard Total SBA loans held for investment ​ $ 37,163 ​ $ 558 ​ $ 747 ​ $ 38,468 SBA PPP loans ​ ​ 5,908 ​ ​ — ​ ​ — ​ ​ 5,908 Commercial loans ​ ​ ​ ​ SBA 504 loans ​ 35,077 ​ — ​ — ​ 35,077 Commercial other ​ 110,107 ​ 6,220 ​ 1,239 ​ 117,566 Commercial real estate ​ 894,110 ​ 6,228 ​ 2,788 ​ 903,126 Commercial real estate construction ​ 131,774 ​ — ​ — ​ 131,774 Total commercial loans ​ 1,171,068 ​ 12,448 ​ 4,027 ​ 1,187,543 Total commercial loans and SBA loans held for investment ​ $ 1,214,139 ​ $ 13,006 ​ $ 4,774 ​ $ 1,231,919 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming (In thousands) ​ ​ Performing Nonperforming Total Residential mortgage loans ​ ​ ​ ​ $ 601,730 ​ $ 3,361 ​ $ 605,091 Consumer loans ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ ​ ​ 68,310 ​ — ​ 68,310 Consumer other ​ ​ ​ ​ 9,854 ​ — ​ 9,854 Total consumer loans ​ ​ ​ ​ 78,164 ​ — ​ 78,164 Residential construction loans ​ ​ ​ ​ ​ 160,025 ​ ​ 3,432 ​ ​ 163,457 Total residential mortgage, consumer and residential construction loans ​ ​ ​ ​ $ 839,919 ​ $ 6,793 ​ $ 846,712 ​ 65 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, 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 commercial loans and SBA loans held for investment ​ $ 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 ​ ​ 65,170 ​ 210 ​ 65,380 Consumer other ​ ​ 12,564 ​ — ​ 12,564 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 ​ 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. 66 Table of Contents The following tables set forth an aging analysis of past due and nonaccrual loans as of December 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ 90+ days ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 ‑ 59 days ​ 60 ‑ 89 days ​ and still ​ ​ ​ Total past ​ ​ ​ ​ ​ ​ (In thousands) ​ past due ​ past due ​ accruing ​ Nonaccrual ​ due (1) ​ Current ​ Total loans SBA loans held for investment ​ $ — ​ $ 576 ​ $ — ​ $ 690 ​ $ 1,266 ​ $ 37,202 ​ $ 38,468 Commercial loans ​ ​ ​ ​ ​ ​ ​ ​ SBA 504 loans ​ — ​ — ​ — ​ — ​ — ​ 35,077 ​ 35,077 Commercial other ​ 198 ​ 300 ​ — ​ 777 ​ 1,275 ​ 116,291 ​ 117,566 Commercial real estate ​ 22 ​ 188 ​ — ​ 805 ​ 1,015 ​ 902,111 ​ 903,126 Commercial real estate construction ​ — ​ — ​ — ​ — ​ — ​ 131,774 ​ 131,774 Residential mortgage loans ​ — ​ 982 ​ — ​ 3,361 ​ 4,343 ​ 600,748 ​ 605,091 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ — ​ — ​ — ​ — ​ — ​ 68,310 ​ 68,310 Consumer other ​ 18 ​ 7 ​ — ​ — ​ 25 ​ 9,829 ​ 9,854 Residential construction loans ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,432 ​ ​ 3,432 ​ ​ 160,025 ​ ​ 163,457 Total loans held for investment ​ ​ 238 ​ ​ 2,053 ​ ​ — ​ ​ 9,065 ​ ​ 11,356 ​ ​ 2,061,367 ​ ​ 2,072,723 SBA loans held for sale ​ 2,195 ​ — ​ — ​ — ​ 2,195 ​ 25,733 ​ 27,928 Total loans, excluding SBA PPP ​ $ 2,433 ​ $ 2,053 ​ $ — ​ $ 9,065 ​ $ 13,551 ​ $ 2,087,100 ​ $ 2,100,651 ​ (1) At December 31, 2022, the Company had $ 1.4 million of SBA PPP loans past due. The Company is in process of working through these past due credits with the SBA and the relevant customers. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ 90+ days ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 ‑ 59 days ​ 60 ‑ 89 days ​ and still ​ ​ ​ Total past ​ ​ ​ ​ ​ ​ (In thousands) ​ past due ​ past due ​ accruing ​ Nonaccrual ​ due (2) ​ Current ​ Total loans SBA loans held for investment ​ $ 1,558 ​ $ — ​ $ — ​ $ 510 ​ $ 2,068 ​ $ 34,007 ​ $ 36,075 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 ​ 65,131 ​ 65,380 Consumer other ​ — ​ — ​ — ​ — ​ — ​ 12,564 ​ 12,564 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, excluding SBA PPP ​ $ 5,619 ​ $ 1,522 ​ $ — ​ $ 9,686 ​ $ 16,827 ​ $ 1,632,621 ​ $ 1,649,448 ​ (2) At December 31, 2021, the Company had $ 79 thousand of SBA PPP loans past due. The Company is in process of working through these past due credits with the SBA and the relevant customers. ​ ​ 67 Table of Contents 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. 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, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Unpaid ​ ​ ​ ​ ​ ​ principal ​ Recorded ​ Specific (In thousands) ​ balance ​ investment ​ reserves With no related allowance: ​ ​ ​ ​ SBA loans held for investment ​ $ 687 ​ $ 399 ​ $ — Commercial loans ​ ​ ​ Commercial other ​ ​ 10 ​ ​ 10 ​ ​ — Commercial real estate ​ 3,169 ​ 2,219 ​ — Total commercial loans ​ 3,179 ​ 2,229 ​ — Residential mortgage loans ​ ​ 2,054 ​ ​ 2,022 ​ ​ — Total impaired loans with no related allowance ​ 5,920 ​ 4,650 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With an allowance: ​ ​ ​ SBA loans held for investment ​ 316 ​ 291 ​ 115 Commercial loans ​ ​ ​ Commercial other ​ 2,022 ​ 872 ​ 516 Total commercial loans ​ 2,022 ​ 872 ​ 516 Residential mortgage loans ​ ​ 1,345 ​ ​ 1,339 ​ ​ 36 Residential construction loans ​ ​ 3,432 ​ ​ 3,432 ​ ​ 1,112 Total impaired loans with a related allowance ​ 7,115 ​ 5,934 ​ 1,779 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total individually evaluated impaired loans: ​ ​ ​ SBA loans held for investment ​ 1,003 ​ 690 ​ 115 Commercial loans ​ ​ ​ Commercial other ​ 2,032 ​ 882 ​ 516 Commercial real estate ​ 3,169 ​ 2,219 ​ — Total commercial loans ​ 5,201 ​ 3,101 ​ 516 Residential mortgage loans ​ ​ 3,399 ​ ​ 3,361 ​ ​ 36 Residential construction loans ​ ​ 3,432 ​ ​ 3,432 ​ ​ 1,112 Total individually evaluated impaired loans ​ $ 13,035 ​ $ 10,584 ​ $ 1,779 ​ ​ 68 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Unpaid ​ ​ ​ ​ ​ ​ principal ​ Recorded ​ Specific (In thousands) ​ balance ​ investment ​ reserves With no related allowance: ​ ​ ​ ​ SBA loans held for investment ​ $ 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 ​ 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 ​ 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 ​ 69 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, 2022, 2021 and 2020. 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, ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ 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 ​ $ 940 ​ $ 33 ​ $ 1,118 ​ $ 102 ​ $ 1,674 ​ $ 70 Commercial loans ​ ​ ​ ​ ​ ​ SBA 504 loans ​ — ​ — ​ — ​ — ​ 150 ​ 32 Commercial other ​ 1,481 ​ 109 ​ 889 ​ 59 ​ 93 ​ 31 Commercial real estate ​ 2,073 ​ 134 ​ 1,637 ​ 137 ​ 1,232 ​ 124 Commercial real estate construction ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 33 Residential mortgage loans ​ ​ 2,869 ​ ​ 38 ​ ​ 4,358 ​ ​ 17 ​ ​ 5,409 ​ ​ 131 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ 453 ​ ​ 8 ​ ​ 553 ​ ​ 23 ​ ​ 726 ​ ​ 67 Consumer other ​ ​ — ​ ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ ​ — Residential construction loans ​ ​ 2,936 ​ ​ 49 ​ ​ 2,718 ​ ​ 50 ​ ​ 165 ​ ​ — Total ​ $ 10,752 ​ $ 371 ​ $ 11,274 ​ $ 388 ​ $ 9,449 ​ $ 488 ​ 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. 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 $ 1.4 million and $ 1.0 million are included in the impaired loan numbers as of December 31, 2022 and December 31, 2021, respectively. The increase in TDRs was due to the addition of two loans, partially offset by the payoff of two TDRs. At December 31, 2022 and December 31, 2021, 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. 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, 2022. In this case, the subsequent default is defined as 90 days past due or transferred to nonaccrual status. 70 Table of Contents 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 $ 85.8 million and $ 106.1 million at December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, the carrying value, which approximates fair value, of servicing assets was $ 691 thousand and $ 1.0 million, respectively, and is included in Other assets. A summary of the changes in the related servicing assets for the past three years follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2022 2021 2020 Balance, beginning of year ​ $ 1,013 ​ $ 1,857 ​ $ 2,026 Servicing assets capitalized ​ 152 ​ 126 ​ 722 Amortization of expense, net ​ ( 474 ) ​ ( 970 ) ​ ( 891 ) Balance, end of year ​ $ 691 ​ $ 1,013 ​ $ 1,857 ​ In addition, the Company had a $ 641 thousand and $ 915 thousand in discounts related to the retained portion of unsold SBA loans at December 31, 2022 and 2021, 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, 2022 December 31, 2021 Balance, beginning of year ​ $ 11,502 ​ $ 12,082 New loans and advances ​ — ​ 402 Loan repayments ​ ( 784 ) ​ ( 982 ) Loans removed ​ ​ ( 2,594 ) ​ ​ — Balance, end of year ​ $ 8,124 ​ $ 11,502 ​ 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, 2022, and December 31, 2021, respectively, approximately 96 % and 92 % of the Company’s loan portfolio was secured by real estate. ​ 4. 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 reviewed by management on a quarterly basis. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. 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. 71 Table of Contents 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 evaluated for individual impaired loans and TDRs. 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, 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 heavily. 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. 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ SBA ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Balance, beginning of period ​ $ 1,074 ​ $ 15,053 ​ $ 4,114 ​ $ 671 ​ $ 1,390 ​ $ 22,302 Charge-offs ​ ( 59 ) ​ ( 1,000 ) ​ — ​ ( 398 ) ​ — ​ ( 1,457 ) Recoveries ​ 33 ​ 109 ​ 3 ​ 47 ​ — ​ 192 Net (charge-offs) recoveries ​ ( 26 ) ​ ( 891 ) ​ 3 ​ ( 351 ) ​ — ​ ( 1,265 ) Provision for (credit to) loan losses charged to expense ​ ( 173 ) ​ 1,092 ​ 1,333 ​ 670 ​ 1,237 ​ 4,159 Balance, end of period ​ $ 875 ​ $ 15,254 ​ $ 5,450 ​ $ 990 ​ $ 2,627 ​ $ 25,196 ​ 72 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 recoveries (charge-offs) ​ ( 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 (charge-offs) recoveries ​ 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 ​ 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential ​ ​ ​ (In thousands) ​ SBA ​ Commercial ​ Residential ​ Consumer ​ Construction ​ Total Allowance for loan losses ending balance: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 115 ​ $ 516 ​ $ 36 ​ $ — $ 1,112 ​ $ 1,779 Collectively evaluated for impairment ​ 760 ​ 14,738 ​ 5,414 ​ 990 ​ 1,515 ​ 23,417 Total ​ $ 875 ​ $ 15,254 ​ $ 5,450 ​ $ 990 $ 2,627 ​ $ 25,196 Loan ending balances: ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 690 ​ $ 3,101 ​ $ 3,361 ​ $ — $ 3,432 ​ $ 10,584 Collectively evaluated for impairment ​ 71,614 ​ 1,184,442 ​ 601,730 ​ 78,164 ​ 160,025 ​ 2,095,975 Total ​ $ 72,304 ​ $ 1,187,543 ​ $ 605,091 ​ $ 78,164 $ 163,457 ​ $ 2,106,559 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ The Company allocated an additional reserve for loans with a substandard rating, not otherwise considered for specific reserves. 73 Table of Contents 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, 2022, a $ 0.5 million commitment reserve was reported on the balance sheet in “Other liabilities”, compared to a $ 0.4 million commitment reserve at December 31, 2021. ​ 5. 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, 2022 ​ December 31, 2021 Land and buildings $ 24,547 $ 23,576 Furniture, fixtures and equipment ​ 12,540 ​ 12,219 Leasehold improvements ​ 3,108 ​ 2,917 Gross premises and equipment ​ 40,195 ​ 38,712 Less: Accumulated depreciation ​ ( 20,193 ) ​ ( 18,798 ) Net premises and equipment ​ $ 20,002 ​ $ 19,914 ​ Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.4 million and $ 1.6 in 2022 and 2021, respectively. ​ ​ 6. 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, 2022: ​ ​ ​ ​ ​ Less than $250,000 ​ $ 134,611 ​ $ 39,583 ​ $ 35,208 ​ $ 148,554 ​ $ 357,956 $250,000 or more ​ 3,528 ​ ​ 19,787 ​ ​ 16,509 ​ ​ 27,520 ​ ​ 67,344 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 ​ The following table presents the expected maturities of time deposits over the next five years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2023 2024 2025 2026 2027 Thereafter Total Balance maturing ​ $ 249,226 ​ $ 80,777 ​ $ 66,234 ​ $ 18,101 ​ $ 10,636 ​ $ 326 ​ $ 425,300 ​ Time deposits with balances of $250 thousand or more totaled $ 67.3 million and $ 33.8 million at December 31, 2022 and 2021, respectively. ​ 74 Table of Contents 7. Borrowed Funds, Subordinated Debentures and Derivatives The following table presents the period-end and weighted average rate for borrowed funds and subordinated debentures as of the past two year end dates: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ (In thousands) Amount Rate Amount Rate FHLB borrowings : ​ ​ At December 31, ​ $ 383,000 4.30 % $ 40,000 1.81 % Subordinated debentures: ​ ​ ​ At December 31, ​ $ 10,310 6.32 % $ 10,310 1.69 % ​ The following table presents the expected maturities of borrowed funds and subordinated debentures over the next five years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2023 2024 2025 2026 2027 Thereafter Total FHLB borrowings ​ $ 343,000 ​ $ 40,000 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 383,000 Subordinated debentures ​ — ​ — ​ — ​ — ​ — ​ 10,310 ​ 10,310 Total borrowings ​ $ 343,000 ​ $ 40,000 ​ $ — ​ $ — ​ $ — ​ $ 10,310 ​ $ 393,310 ​ Subordinated Debentures At December 31, 2022 and 2021, 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 6.32 % at December 31, 2022 and 1.69 % at December 31, 2021. At December 31, 2020, 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, 2022 and 2021, $ 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 1 capital. Under the terms of the Dodd-Frank Wall Street Reform and 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. 75 Table of Contents 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. At December 31, 2022, the Company had no cash collateral pledged for these derivatives, compared to $ 1.3 million at December 31, 2021. A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at December 31, 2022 and 2021, respectively is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands, except percentages and years) December 31, 2022 December 31, 2021 Notional amount ​ $ 20,000 ​ $ 40,000 ​ Fair value ​ $ 1,537 ​ $ 408 ​ Weighted average pay rate ​ 0.83 % 0.98 % Weighted average receive rate ​ 1.50 % 0.19 % Weighted average maturity in years ​ 2.57 ​ 2.37 ​ Number of contracts ​ 1 ​ 2 ​ ​ During the twelve months ended December 31, 2022 and 2021, 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 76 Table of Contents 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, 2022, and 2021 respectively: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2022 2021 Gain recognized in OCI, net of tax $ 1,566 $ 1,029 Gain (loss) reclassified from AOCI into net income, net of tax $ 754 $ ( 450 ) ​ ​ ​ 8. Leases and Commitments Leases Operating leases in which the Bank is the lessee and the term is greater than 12 months, 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 the Bank’s incremental borrowing rate. 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. 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. 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 $ 5.6 million at December 31, 2022, compared to $ 5.2 million at December 31, 2021. As of December 31, 2022, operating lease liabilities totaled $ 5.6 million, compared to $ 5.3 million at December 31, 2021. The table below summarizes the Company’s net lease cost: ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) ​ 2022 ​ 2021 Operating lease cost ​ $ 724 ​ $ 638 Net lease cost ​ $ 724 ​ $ 638 ​ 77 Table of Contents The table below summarizes the cash and non-cash activities associated with the Company’s leases: ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) ​ 2022 ​ 2021 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ Operating cash flows from operating leases ​ $ 700 ​ $ 614 ROU assets obtained in exchange for new operating lease liabilities ​ $ 1,749 ​ $ 3,138 ​ In 2022, the Company terminated one lease. This decreased the ROU asset and lease liability by $ 0.5 million, respectively. The table below summarizes other information related to the Company’s operating leases: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands, except percentages and years) December 31, 2022 December 31, 2021 Weighted average remaining lease term in years ​ 10.77 ​ ​ 11.40 ​ Weighted average discount rate ​ 3.21 % ​ 3.20 % ​ The table below summarizes the maturity of remaining lease liabilities: ​ ​ ​ ​ (In thousands) December 31, 2022 2023 ​ $ 741 2024 ​ 695 2025 ​ 691 2026 ​ 702 2027 ​ 656 2028 and thereafter ​ 3,010 Total lease payments ​ $ 6,495 Less: Interest ​ ( 854 ) Present value of lease liabilities ​ $ 5,641 ​ As of December 31, 2022, the Company had not entered into any material leases that have not yet commenced. 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 $ 514.8 million to its borrowers as of December 31, 2022, compared to $ 399.8 million at December 31, 2021. At December 31, 2022, $ 177.7 million of these commitments expire within one year, compared to $ 170.1 million a year earlier. At December 31, 2022, the Company had $ 5.6 million in standby letters of credit compared to $ 4.3 million at December 31, 2021. 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. ​ ​ ​ 78 Table of Contents 9. 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, 2022 ​ ​ 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 $ 29 ​ $ — ​ $ 293 $ 322 Other comprehensive (loss) income before reclassifications ​ ( 5,447 ) ​ ​ — ​ ​ 1,582 ​ ( 3,865 ) Less amounts reclassified from accumulated other comprehensive (loss) ​ ( 1,037 ) ​ ​ — ​ ​ 754 ​ ( 283 ) Period change ​ ( 4,410 ) ​ — ​ 828 ​ ( 3,582 ) Balance, end of period ​ $ ( 4,381 ) ​ $ — ​ $ 1,121 ​ $ ( 3,260 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 loss 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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". ​ 10. Shareholders’ Equity Shareholders’ equity increased $ 33.5 million to $ 239.2 million at December 31, 2022 compared to $ 205.7 million at December 31, 2021, primarily due to net income of $ 38.5 million. Other items impacting shareholders’ equity included $ 4.4 million in cash dividends paid on common stock, and $ 3.6 million in accumulated other comprehensive loss, net of tax, $ 3.0 million from the issuance of common stock under employee benefit plans and treasury stock purchases of $ 42 thousand. 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. 79 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. A total of 1,572 shares were repurchased at an average price of $ 26.49 during 2022, leaving 570 thousand shares available for repurchase. A total of 199 thousand shares were repurchased at an average price of $ 21.04 during 2021, of which 20 thousand shares were repurchased under the prior repurchase plan, leaving 571 thousand shares available for repurchase. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 January 1, 2022 through March 31, 2022 ​ 0 ​ $ 0 ​ 0 ​ 571,716 April 1, 2022 through June 30, 2022 ​ 0 ​ ​ 0 ​ 0 ​ 571,716 July 1, 2022 through September 30, 2022 ​ 0 ​ ​ 0 ​ 0 ​ 571,716 October 1, 2022 through December 31, 2022 ​ 1,572 ​ ​ 26.49 ​ 1,572 ​ 570,144 ​ ​ ​ ​ 11. Income Taxes The components of the provision for income taxes for the past three years are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2022 2021 2020 Federal - current provision ​ $ 10,354 ​ $ 9,837 ​ $ 7,828 Federal - deferred benefit ​ ( 1,103 ) ​ ( 944 ) ​ ( 2,043 ) Total federal provision ​ 9,251 ​ 8,893 ​ 5,785 State - current provision ​ 3,815 ​ 3,630 ​ 2,737 State - deferred benefit ​ ( 102 ) ​ ( 512 ) ​ ( 1,047 ) Total state provision ​ 3,713 ​ 3,118 ​ 1,690 Total provision for income taxes ​ $ 12,964 ​ $ 12,011 ​ $ 7,475 ​ 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) 2022 2021 2020 Federal income tax provision at statutory rate ​ $ 10,798 ​ $ 10,107 ​ $ 6,535 ​ Increases (decreases) resulting from: ​ ​ ​ ​ ​ ​ ​ Stock option and restricted stock ​ ( 297 ) ​ ( 173 ) ​ ( 93 ) ​ Bank owned life insurance ​ ( 134 ) ​ ( 145 ) ​ ( 129 ) ​ Tax-exempt interest ​ ( 4 ) ​ ( 6 ) ​ ( 13 ) ​ Meals and entertainment ​ 10 ​ 7 ​ 9 ​ Captive insurance premium ​ ( 306 ) ​ ( 262 ) ​ ( 193 ) ​ State income taxes, net of federal income tax effect ​ 2,933 ​ 2,463 ​ 1,335 ​ Other, net ​ ( 36 ) ​ 20 ​ 24 ​ Provision for income taxes ​ $ 12,964 ​ $ 12,011 ​ $ 7,475 ​ Effective tax rate ​ 25.2 % 25.0 % 24.0 % ​ 80 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, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) December 31, 2022 December 31, 2021 Deferred tax assets: ​ ​ Allowance for loan losses ​ $ 6,871 ​ $ 6,299 SERP ​ 1,575 ​ 1,277 Stock-based compensation ​ 1,133 ​ 1,010 Deferred compensation ​ 1,183 ​ 912 Depreciation ​ 648 ​ 451 Deferred fees and loan costs, net ​ ​ 408 ​ ​ 443 EVP retirement plan ​ — ​ 153 Net unrealized securities losses ​ 1,652 ​ — Commitment reserve ​ 147 ​ 113 Net other deferred tax assets ​ 154 ​ 525 Gross deferred tax assets ​ 13,771 ​ 11,183 Deferred tax liabilities: ​ ​ ​ ​ Goodwill ​ 432 ​ 428 Prepaid insurance ​ 478 ​ 474 Deferred servicing fees ​ 47 ​ 99 Net unrealized securities gains ​ — ​ 9 Bond accretion ​ 30 ​ 17 Interest rate swaps ​ 439 ​ 116 Total deferred tax liabilities ​ 1,426 ​ 1,143 Net deferred tax asset ​ $ 12,345 ​ $ 10,040 ​ 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. 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 loss of $ 4.4 million for 2022, compared to an unrealized gain of $ 29 thousand in 2021. The after-tax component related to the interest rate swaps was an unrealized gain of $ 1.1 million for 2022, compared to an unrealized gain of $ 293 thousand for 2021. 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 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, 2022 or 2021. The Company does not have an accrual for uncertain tax positions as of December 31, 2022 or 2021, 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 2019 and thereafter are subject to future examination by tax authorities. 81 Table of Contents 12. 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) 2022 2021 2020 Net income ​ $ 38,457 ​ $ 36,119 ​ $ 23,644 Weighted average common shares outstanding - Basic ​ 10,508 ​ 10,403 ​ 10,709 Plus: Potential dilutive common stock equivalents ​ 197 ​ 143 ​ 105 Weighted average common shares outstanding - Diluted ​ 10,705 ​ 10,546 ​ 10,814 Net income per common share - Basic ​ $ 3.66 ​ $ 3.47 ​ $ 2.21 Net income per common share - Diluted ​ 3.59 ​ 3.43 ​ 2.19 Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive ​ 1,364 ​ 259 ​ 414 ​ ​ 13. Regulatory Capital Under the Economic Growth, Regulatory Relief and Consumer Protection Act, the Bank is considered a qualifying community banking organization, which allows the Bank to elect to opt into the community bank leverage ratio ("CBLR") in its regulatory filings. The Bank has opted into the CBLR, and is therefore is not required to comply with the Basel III capital requirements. The following table shows the CBLR ratio for the Company and the Bank at December 31, 2022 and at December 31,2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, 2022 At December 31, 2021 ​ Company ​ Bank ​ ​ Company ​ Bank ​ CBLR ​ 10.88 % ​ 10.34 % ​ 10.51 % ​ 10.00 % ​ ​ ​ ​ ​ 82 Table of Contents 14. Employee Benefit Plans Stock Option Plans The Company has maintained option plans and maintains an equity incentive plan, which allow for the grant of options to officers, employees and members of the Board of Directors. Grants of options under the Company’s 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 2022, 2021 and 2020 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, 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 Options granted — ​ — ​ ​ ​ Options exercised ( 115,538 ) ​ 14.70 ​ ​ ​ Options forfeited ( 13,496 ) ​ 19.75 ​ ​ ​ Options expired — ​ — ​ ​ ​ Outstanding at December 31, 2022 559,499 ​ $ 18.09 5.9 ​ $ 5,168,740 Exercisable at December 31, 2022 ​ 455,014 ​ $ 17.76 5.5 ​ $ 4,353,237 ​ 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, 2022, 281,500 options and 209,400 shares of restricted stock have been awarded from the plan. In addition, 15,496 unvested options and 12,400 unvested shares of restricted stock were cancelled and returned to the plan leaving 36,996 shares available for future grants. 83 Table of Contents The fair values of the options granted during 2021 and 2020 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions. There were no options granted during 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Number of options granted ​ — ​ 89,000 ​ 151,500 ​ Weighted average exercise price ​ $ — ​ $ 19.21 ​ $ 19.80 ​ Weighted average fair value of options ​ $ — ​ $ 7.72 ​ $ 6.12 ​ Expected life in years (1) ​ — ​ 8.38 ​ 8.50 ​ Expected volatility (2) ​ — % 43.69 % 32.69 % Risk-free interest rate (3) ​ — % 1.14 % 1.28 % Dividend yield (4) ​ — % 1.68 % 1.64 % ​ (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 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Number of options exercised ​ 115,538 ​ 71,267 ​ 63,011 Total intrinsic value of options exercised ​ $ 1,614,421 ​ $ 974,776 ​ $ 564,314 Cash received from options exercised ​ ​ 1,698,357 ​ ​ 630,302 ​ ​ 451,420 Tax deduction realized from options ​ ​ 485,698 ​ ​ 293,261 ​ ​ 169,774 ​ The following table summarizes information about stock options outstanding and exercisable at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 $ 7.25 - $ 16.51 140,533 4.0 ​ $ 11.93 128,867 ​ $ 11.54 $ 16.52 - $ 19.26 135,166 6.8 ​ ​ 18.08 97,013 ​ ​ 18.16 $ 19.27 - $ 20.88 143,500 6.5 ​ ​ 20.30 110,834 ​ ​ 20.22 $ 20.89 - $ 22.57 140,300 6.4 ​ ​ 22.02 118,300 ​ ​ 21.92 Total 559,499 5.9 ​ $ 18.09 455,014 ​ $ 17.76 ​ 84 Table of Contents 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, 2022, 2021 and 2020 are detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Compensation expense ​ $ 567 ​ $ 867 ​ $ 744 Income tax benefit ​ ​ 164 ​ ​ 251 ​ ​ 215 ​ As of December 31, 2022, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $ 350 thousand. That cost is expected to be recognized over a weighted average period of 1.1 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, 2022: ​ ​ ​ ​ ​ ​ ​ ​ Average grant ​ ​ Shares ​ date fair value Nonvested restricted stock at December 31, 2021 119,487 ​ $ 21.00 Granted 97,700 ​ 27.48 Cancelled ( 11,587 ) ​ 23.29 Vested ( 41,030 ) ​ 20.68 Nonvested restricted stock at December 31, 2022 164,570 ​ $ 24.77 ​ Restricted stock awards granted during the years ended December 31, 2022, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Number of shares granted ​ 97,700 ​ 68,550 ​ 27,250 Average grant date fair value ​ $ 27.48 ​ $ 22.15 ​ $ 17.12 ​ Compensation expense related to the restricted stock for the years ended December 31, 2022, 2021 and 2020 is detailed in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ 2022 2021 2020 Compensation expense ​ $ 1,114 ​ $ 750 ​ $ 667 Income tax benefit ​ $ 320 ​ $ 217 ​ $ 193 ​ As of December 31, 2022, there was approximately $ 3.3 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. 85 Table of Contents 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 $ 790 thousand, $ 786 thousand, and $ 675 thousand to the Plan in 2022, 2021 and 2020, 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 $ 674 thousand in 2022, $ 593 thousand in 2021 and $ 591 thousand in 2020, and the interest paid on deferred balances totaled $ 162 thousand in 2022, $ 136 thousand in 2021 and $ 132 thousand in 2020. The deferred balances distributed totaled $ 14 thousand in 2022, 2021 and 2020. 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 the 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 2022, 2021 or 2020. The following table summarizes the components of the net periodic pension cost of the defined benefit plan recognized during the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2022 2021 2020 Service cost ​ $ 150 ​ $ 515 ​ $ 126 Interest cost ​ 186 ​ 161 ​ 147 Amortization of prior service cost ​ — ​ 332 ​ 83 Net periodic benefit cost ​ $ 336 ​ $ 1,008 ​ $ 356 ​ 86 Table of Contents The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years ended December 31, 2022, 2021 and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (In thousands) 2022 2021 2020 Benefit obligation, beginning of year ​ $ 4,521 ​ $ 3,845 ​ $ 3,572 Service cost ​ 150 ​ 515 ​ 126 Interest cost ​ 186 ​ 161 ​ 147 Benefit obligation, end of period ​ $ 4,857 ​ $ 4,521 ​ $ 3,845 ​ 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 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, 2022, the Company had total expenses related to the Plan of $ 142 thousand, compared to $ 108 thousand in 2021 and $ 86 thousand in 2020. 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 $ 22 thousand in 2022 and $ 5 thousand in 2021 and 2020, respectively. Additionally, $ 55 thousand of prior period expense was reversed during 2022. This was related to adjustments made to the members of management participating in the plan. 15. 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 87 Table of Contents 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. 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, 2022, the fair value of the Company’s AFS debt securities portfolio was $ 95.4 million. The portfolio contains residential mortgage-backed securities, most of which, 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, 2022. 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 certain corporate bonds which are classified as Level 3 assets at December 31, 2022. 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. 88 Table of Contents 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, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2022 2021 Balance at beginning of period $ 5,074 $ 4,400 Purchases/additions ​ ​ — ​ ​ — Sales/reductions ​ — ​ — Realized ​ — ​ — Unrealized (losses) gains ​ ( 399 ) ​ 674 Balance at end of period ​ $ 4,675 ​ $ 5,074 ​ 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, 2022, the fair value of the Company’s equity securities portfolio was $ 9.8 million. All of the Company’s equity securities were classified as Level 2 assets at December 31, 2022. 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, 2022, as compared to the period ended December 31, 2021. 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. 89 Table of Contents 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, 2022 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 ​ $ 16,305 ​ $ — ​ $ 16,305 ​ $ — State and political subdivisions ​ 613 ​ — ​ 613 ​ — Residential mortgage-backed securities ​ 15,475 ​ — ​ 15,475 ​ — Corporate and other securities ​ 63,000 ​ — ​ 58,325 ​ 4,675 Total debt securities available for sale ​ $ 95,393 ​ $ — ​ $ 90,718 ​ $ 4,675 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities with readily determinable fair values ​ 9,793 ​ — ​ 9,793 ​ — Total equity securities ​ $ 9,793 ​ $ — ​ $ 9,793 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements ​ 1,537 ​ — ​ 1,537 ​ — Total swap agreements ​ $ 1,537 ​ $ — ​ $ 1,537 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements ​ 816 ​ — ​ 816 ​ — Total swap agreements ​ $ 816 ​ ​ — ​ ​ 816 ​ ​ — ​ ​ 90 Table of Contents 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, 2022 Using ​ ​ ​ ​ ​ Quoted Prices ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Other ​ Significant ​ ​ Assets/Liabilities ​ Markets for ​ Observable ​ Unobservable ​ ​ Measured at Fair ​ Identical Assets ​ Inputs ​ Inputs (In thousands) Value (Level 1) (Level 2) (Level 3) Measured on a non-recurring basis: ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ Impaired collateral-dependent loans ​ 8,803 ​ — ​ — ​ 8,803 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021 Using ​ ​ ​ ​ ​ Quoted Prices ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Other ​ Significant ​ ​ Assets/Liabilities ​ Markets for ​ Observable ​ Unobservable ​ ​ Measured at Fair ​ Identical Assets ​ Inputs ​ Inputs (In thousands) Value (Level 1) (Level 2) (Level 3) Measured on a non-recurring basis: ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ Impaired collateral-dependent loans ​ 8,928 ​ — ​ — ​ 8,928 ​ 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: 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. 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, 2022, the valuation allowance for impaired loans was $ 1.8 million, a decrease of $ 1.0 million from $ 2.8 million at December 31, 2021. 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, 2022 and December 31, 2021 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. 91 Table of Contents 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). 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. 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, 2022, the Bank had standby letters of credit outstanding of $ 5.6 million, as compared to $ 4.3 million at December 31, 2021. The fair value of these commitments is nominal. ​ 92 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, 2022 ​ December 31, 2021 ​ ​ Fair value ​ Carrying ​ Estimated ​ Carrying ​ Estimated (In thousands) level amount fair value amount fair value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 114,793 ​ $ 114,793 ​ $ 244,818 ​ $ 244,818 Securities (1) Level 2 ​ 140,946 ​ 133,764 ​ 79,322 ​ 79,275 SBA loans held for sale Level 2 ​ 27,928 ​ 30,141 ​ 27,373 ​ 31,014 Loans, net of allowance for loan losses (2) Level 2 ​ 2,053,435 ​ 1,990,010 ​ 1,599,773 ​ 1,605,248 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits Level 2 ​ 1,787,528 ​ 1,772,270 ​ 1,758,881 ​ 1,755,670 Borrowed funds and subordinated debentures Level 2 ​ 393,310 ​ 391,312 ​ 50,310 ​ 50,842 ​ (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 $ 5.1 million and market values of $ 4.7 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 $ 8.8 million and $ 8.9 million at December 31, 2022 and 2021. 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. 93 Table of Contents 16. Condensed Financial Statements of Unity Bancorp, Inc. (Parent Company Only) Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In thousands) 2022 2021 ASSETS ​ ​ Cash and cash equivalents ​ $ 2,225 ​ $ 1,685 Equity securities ​ 5,697 ​ 5,043 Investment in subsidiaries ​ 239,255 ​ 207,799 Premises and equipment, net ​ 3,594 ​ 3,709 Other assets ​ 972 ​ — Total assets ​ $ 251,743 ​ $ 218,236 LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Loan due to subsidiary bank ​ $ 2,002 ​ $ 2,108 Other liabilities ​ 204 ​ 89 Subordinated debentures ​ 10,310 ​ 10,310 Shareholders’ equity ​ 239,227 ​ 205,729 Total liabilities and shareholders’ equity ​ $ 251,743 ​ $ 218,236 ​ Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2022 2021 2020 Dividend from Bank ​ $ 4,510 ​ $ 11,285 ​ $ 8,200 Dividend from Nonbank subsidiary ​ ​ 1,100 ​ ​ 823 ​ ​ 575 Gain on sales of securities ​ — ​ 4 ​ 5 Market value appreciation on equity securities ​ — ​ 588 ​ — Other income ​ 734 ​ 532 ​ 465 Total income ​ 6,344 ​ 13,232 ​ 9,245 Interest expenses ​ 349 ​ 257 ​ 349 Market value depreciation on equity securities ​ ​ 885 ​ ​ — ​ ​ 246 Other expenses ​ 252 ​ 258 ​ 259 Total expenses ​ 1,486 ​ 515 ​ 854 Income before provision for income taxes and equity in undistributed net income of subsidiary ​ 4,858 ​ 12,717 ​ 8,391 (Benefit) provision for income taxes ​ ( 231 ) ​ 219 ​ ( 22 ) Income before equity in undistributed net income of subsidiary ​ 5,089 ​ 12,498 ​ 8,413 Equity in undistributed net income of subsidiaries ​ 33,368 ​ 23,621 ​ 15,231 Net income ​ $ 38,457 ​ $ 36,119 ​ $ 23,644 ​ 94 Table of Contents Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (In thousands) 2022 2021 2020 OPERATING ACTIVITIES ​ ​ ​ Net income ​ $ 38,457 ​ $ 36,119 ​ $ 23,644 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Equity in undistributed net income of subsidiaries ​ ( 33,368 ) ​ ( 23,621 ) ​ ( 15,231 ) Gain on sales of securities ​ — ​ ( 4 ) ​ ( 5 ) Net change in other assets and other liabilities ​ 153 ​ ( 472 ) ​ 507 Net cash provided by operating activities ​ 5,242 ​ 12,022 ​ 8,915 INVESTING ACTIVITIES ​ ​ ​ Purchase of land and building ​ — ​ — ​ ( 87 ) Purchases of securities ​ ( 1,539 ) ​ ( 3,500 ) ​ — Proceeds from sales of securities ​ — ​ 53 ​ 111 Net cash (used in) provided by investing activities ​ ( 1,539 ) ​ ( 3,447 ) ​ 24 FINANCING ACTIVITIES ​ ​ ​ Proceeds from exercise of stock based compensation, net of taxes ​ 1,357 ​ 379 ​ 229 Repayment of advances from subsidiaries ​ ( 105 ) ​ ( 101 ) ​ ( 96 ) Purchase of treasury stock ​ ​ ( 42 ) ​ ​ ( 4,191 ) ​ ​ ( 7,442 ) Cash dividends paid on common stock ​ ( 4,373 ) ​ ( 3,617 ) ​ ( 3,298 ) Net cash used in financing activities ​ ( 3,163 ) ​ ( 7,530 ) ​ ( 10,607 ) Increase (decrease) in cash and cash equivalents ​ 540 ​ 1,045 ​ ( 1,668 ) Cash and cash equivalents, beginning of period ​ 1,685 ​ 640 ​ 2,308 Cash and cash equivalents, end of period ​ $ 2,225 ​ $ 1,685 ​ $ 640 SUPPLEMENTAL DISCLOSURES ​ ​ ​ Interest paid ​ $ 436 ​ $ 361 ​ $ 458 ​ ​ ​ ​ 95 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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. ​ ​ 96 Table of Contents Allowance for Loan Losses – Qualitative Factors ​ The allowance for loan losses as of December 31, 2022, was $25.2 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 judgment, will be adequate to absorb losses on existing loans. The allowance consists of specific and general components in the amounts of $1.8 million and $23.4 million, respectively. Specific reserves are made for 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 evaluation of the qualitative factors requires a significant amount of judgment 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 10, 2023 ​ ​ ​ 97 Table of Contents Supplementary Data (Unaudited) Quarterly Financial Information The following quarterly financial information for the years ended December 31, 2022, 2021 and 2020 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 (In thousands, except per share data) March 31 June 30 September 30 December 31 Total interest income ​ $ 21,119 ​ $ 23,071 ​ $ 26,224 ​ $ 30,325 Total interest expense ​ 1,215 ​ 1,314 ​ 2,486 ​ 5,616 Net interest income ​ 19,904 ​ 21,757 ​ 23,738 ​ 24,709 Provision for loan losses ​ ( 178 ) ​ 1,188 ​ 1,517 ​ 1,632 Net interest income after provision for loan losses ​ 20,082 ​ 20,569 ​ 22,221 ​ 23,077 Total noninterest income ​ 2,239 ​ 2,750 ​ 1,110 ​ 1,946 Total noninterest expense ​ 10,410 ​ 10,710 ​ 10,064 ​ 11,389 Income before provision for income taxes ​ 11,911 ​ 12,609 ​ 13,267 ​ 13,634 Provision for income taxes ​ 2,803 ​ 3,158 ​ 3,325 ​ 3,678 Net income ​ $ 9,108 ​ $ 9,451 ​ $ 9,942 ​ $ 9,956 Net income per common share - Basic ​ $ 0.87 ​ $ 0.90 ​ $ 0.94 ​ $ 0.95 Net income per common share - Diluted ​ 0.85 ​ 0.88 ​ 0.93 ​ 0.93 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 98 Table of Contents Supplementary Data (Unaudited) Selected Consolidated Financial Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the years ended December 31, (In thousands, except percentages) 2022 2021 2020 2019 ​ 2018 Selected Results of Operations ​ ​ ​ ​ ​ ​ Interest income ​ $ 100,739 ​ $ 84,780 ​ $ 78,915 ​ $ 75,648 ​ $ 67,263 ​ Interest expense ​ 10,631 ​ 7,741 ​ 14,480 ​ 18,055 ​ 13,516 ​ Net interest income ​ 90,108 ​ 77,039 ​ 64,435 ​ 57,593 ​ 53,747 ​ Provision for loan losses ​ 4,159 ​ 181 ​ 7,000 ​ 2,100 ​ 2,050 ​ Noninterest income ​ 8,045 ​ 12,054 ​ 12,946 ​ 9,539 ​ 9,031 ​ Noninterest expense ​ 42,573 ​ 40,782 ​ 39,262 ​ 34,717 ​ 33,421 ​ Provision for income taxes ​ 12,964 ​ 12,011 ​ 7,475 ​ 6,662 ​ 5,388 ​ Net income ​ 38,457 ​ 36,119 ​ 23,644 ​ 23,653 ​ 21,919 ​ Per Share Data ​ ​ ​ ​ ​ ​ Net income per common share - Basic ​ $ 3.66 ​ $ 3.47 ​ $ 2.21 ​ $ 2.18 ​ $ 2.04 ​ Net income per common share - Diluted ​ 3.59 ​ 3.43 ​ 2.19 ​ 2.14 ​ 2.01 ​ Book value per common share ​ 22.60 ​ 19.80 ​ 16.63 ​ 14.77 ​ 12.85 ​ Market value per common share ​ 27.33 ​ 26.25 ​ 17.55 ​ 22.57 ​ 20.76 ​ Cash dividends declared on common shares ​ 0.43 ​ 0.36 ​ 0.32 ​ 0.31 ​ 0.27 ​ Selected Balance Sheet Data ​ ​ ​ ​ ​ ​ Assets ​ $ 2,444,948 ​ $ 2,033,713 ​ $ 1,958,914 ​ $ 1,718,942 ​ $ 1,579,157 ​ Loans ​ 2,106,559 ​ 1,649,448 ​ 1,627,817 ​ 1,425,558 ​ 1,304,566 ​ Allowance for loan losses ​ (25,196) ​ (22,302) ​ (23,105) ​ (16,395) ​ (15,488) ​ Securities ​ 140,946 ​ 79,322 ​ 47,571 ​ 66,564 ​ 63,732 ​ Deposits ​ 1,787,528 ​ 1,758,881 ​ 1,557,959 ​ 1,250,114 ​ 1,207,687 ​ Borrowed funds and subordinated debentures ​ 393,310 ​ 50,310 ​ 210,310 ​ 293,310 ​ 220,310 ​ Shareholders’ equity ​ 239,227 ​ 205,729 ​ 173,911 ​ 160,709 ​ 138,488 ​ Common shares outstanding ​ 10,584 ​ 10,391 ​ 10,456 ​ 10,881 ​ 10,780 ​ Performance Ratios ​ ​ ​ ​ ​ ​ Return on average assets ​ 1.80 % 1.87 % 1.35 % 1.54 % 1.53 % Return on average equity ​ 17.28 ​ 19.16 ​ 14.20 ​ 15.86 ​ 17.10 ​ Average equity to average assets ​ 10.41 ​ 9.77 ​ 9.51 ​ 9.69 ​ 8.96 ​ Efficiency ratio ​ 42.80 ​ 46.09 ​ 50.80 ​ 52.00 ​ 53.07 ​ Dividend payout ​ 11.98 ​ 10.50 ​ 14.61 ​ 14.49 ​ 13.43 ​ Net interest spread ​ 4.15 ​ 3.95 ​ 3.48 ​ 3.54 ​ 3.65 ​ Net interest margin ​ 4.40 ​ 4.16 ​ 3.85 ​ 3.95 ​ 3.97 ​ Asset Quality Ratios ​ ​ ​ ​ ​ ​ Allowance for loan losses to loans ​ 1.20 % 1.35 % 1.42 % 1.15 % 1.19 % Allowance for loan losses to nonperforming loans ​ 277.95 ​ 230.25 ​ 191.59 ​ 290.23 ​ 225.35 ​ Nonperforming loans to total loans ​ 0.43 ​ 0.59 ​ 0.74 ​ 0.40 ​ 0.53 ​ Nonperforming assets to total loans and OREO ​ 0.43 ​ 0.59 ​ 0.74 ​ 0.52 ​ 0.53 ​ Nonperforming assets to total assets ​ 0.37 ​ 0.48 ​ 0.62 ​ 0.43 ​ 0.44 ​ Net charge-offs to average loans ​ 0.05 ​ 0.06 ​ 0.02 ​ 0.09 ​ 0.01 ​ Capital Ratios - Company ​ ​ ​ ​ ​ ​ ​ ​ CBLR ​ ​ 10.88 % ​ 10.51 % ​ 10.09 % ​ N/A % ​ N/A % Leverage Ratio ​ N/A ​ N/A ​ N/A ​ 10.59 ​ 9.90 ​ Common Equity Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 11.59 ​ 11.40 ​ Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 12.32 ​ 12.24 ​ Total risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 13.06 ​ 13.49 ​ Capital Ratios - Bank ​ ​ ​ ​ ​ ​ ​ CBLR ​ ​ 10.34 % ​ 10.00 % ​ 9.80 % ​ N/A % ​ N/A % Leverage Ratio ​ N/A ​ N/A ​ N/A ​ 10.15 ​ 9.52 ​ Common Equity Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 11.81 ​ 11.80 ​ Tier 1 risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 11.81 ​ 11.80 ​ Total risk-based capital ratio ​ N/A ​ N/A ​ N/A ​ 12.58 ​ 13.05 ​ ​ ​ ​ ​ 99 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: None. ​