Bank of Princeton
Annual Report 2021

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2023 Report
2022 Report
2021 Report
2020 Report
2019 Report

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(cid:53)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:36)(cid:80)(cid:79)(cid:85)(cid:70)(cid:79)(cid:85)(cid:84) Letter to the Shareholders.....................i -ii 2021 Form 10-K...................................................1 Who We Are...................................................... 105 Overdraft Protection Zelle® Transfer CardValet® uChoose Rewards® (cid:35)(cid:66)(cid:79)(cid:76)(cid:74)(cid:79)(cid:72)(cid:1)(cid:52)(cid:80)(cid:77)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:34)(cid:85)(cid:1)(cid:38)(cid:87)(cid:70)(cid:83)(cid:90)(cid:1)(cid:53)(cid:80)(cid:86)(cid:68)(cid:73)(cid:81)(cid:80)(cid:74)(cid:79)(cid:85) Mobile Deposit CheckFree Bill Pay eStatements Merchant Services Positive Pay Soft Tokens (cid:37)(cid:70)(cid:66)(cid:83)(cid:1)(cid:39)(cid:70)(cid:77)(cid:77)(cid:80)(cid:88)(cid:1)(cid:52)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:13) The challenges during 2021 presented by the continued COVID-19 pandemic did not hamper The Bank of Princeton from reaching its strategic goals for loan and (cid:430)(cid:437)(cid:559)(cid:524)(cid:570)(cid:478)(cid:584)(cid:3)(cid:464)(cid:562)(cid:524)(cid:617)(cid:584)(cid:472)(cid:1577)(cid:3)(cid:478)(cid:511)(cid:559)(cid:562)(cid:524)(cid:616)(cid:437)(cid:430)(cid:3)(cid:423)(cid:562)(cid:437)(cid:430)(cid:478)(cid:584)(cid:3)(cid:561)(cid:592)(cid:394)(cid:502)(cid:478)(cid:584)(cid:623)(cid:1577)(cid:3)(cid:464)(cid:562)(cid:437)(cid:394)(cid:584)(cid:437)(cid:562)(cid:3)(cid:437)(cid:463)(cid:731)(cid:423)(cid:478)(cid:437)(cid:513)(cid:423)(cid:478)(cid:437)(cid:570)(cid:1577)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:394)(cid:3)(cid:570)(cid:478)(cid:464)(cid:513)(cid:478)(cid:731)(cid:423)(cid:394)(cid:513)(cid:584)(cid:3) improvement in earnings performance. At the same time, during this year, we (cid:617)(cid:437)(cid:562)(cid:437)(cid:3)(cid:394)(cid:422)(cid:502)(cid:437)(cid:3)(cid:584)(cid:524)(cid:3)(cid:498)(cid:437)(cid:437)(cid:559)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:570)(cid:584)(cid:394)(cid:463)(cid:463)(cid:3)(cid:570)(cid:394)(cid:463)(cid:437)(cid:1577)(cid:3)(cid:394)(cid:570)(cid:570)(cid:478)(cid:570)(cid:584)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:423)(cid:592)(cid:570)(cid:584)(cid:524)(cid:511)(cid:437)(cid:562)(cid:570)(cid:3)(cid:617)(cid:478)(cid:584)(cid:472)(cid:3)(cid:584)(cid:472)(cid:437)(cid:478)(cid:562)(cid:3)(cid:731)(cid:513)(cid:394)(cid:513)(cid:423)(cid:478)(cid:394)(cid:502)(cid:3)(cid:513)(cid:437)(cid:437)(cid:430)(cid:570)(cid:1577)(cid:3) and look for opportunities to increase the value to you, our shareholders. The Bank of Princeton completed a successful year with earnings of $22.5 million, or $3.30 per diluted common share, representing a 64.2% increase in diluted common share over 2020. Total assets grew to $1.7 billion, a 5.3% increase from the year prior. These results and increasing the cash dividend were a part of the Bank’s strategic initiatives of increasing shareholder value and controlled prudent growth of the Bank’s loan portfolio. Excluding PPP loans, our loans grew $68.3 million during 2021. Total deposits increased $78.9 million or 5.8% during the same period. The Bank is approaching its 15th year of operation and continues its success by staying the course with its original core mission of targeting the commercial real estate and small business communities for their lending needs and staying (cid:570)(cid:478)(cid:464)(cid:513)(cid:478)(cid:731)(cid:423)(cid:394)(cid:513)(cid:584)(cid:502)(cid:623)(cid:3)(cid:478)(cid:513)(cid:616)(cid:524)(cid:502)(cid:616)(cid:437)(cid:430)(cid:3)(cid:478)(cid:513)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:423)(cid:524)(cid:511)(cid:511)(cid:592)(cid:513)(cid:478)(cid:584)(cid:623)(cid:1582)(cid:3)(cid:192)(cid:472)(cid:437)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498)(cid:1626)(cid:570)(cid:3)(cid:570)(cid:584)(cid:562)(cid:524)(cid:513)(cid:464)(cid:3)(cid:423)(cid:394)(cid:559)(cid:478)(cid:584)(cid:394)(cid:502)(cid:3)(cid:559)(cid:524)(cid:570)(cid:478)(cid:584)(cid:478)(cid:524)(cid:513) provides the opportunity for future organic growth, as well as the ability to take advantage of acquisition opportunities when they present themselves. Notable Highlights for 2021 • Net interest income increased $13.8 million or 28.1% compared to 2020. Richard J. Gillespie Chairman (cid:524)(cid:463)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:32)(cid:524)(cid:394)(cid:562)(cid:430) Edward J. Dietzler President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:48)(cid:622)(cid:437)(cid:423)(cid:592)(cid:584)(cid:478)(cid:616)(cid:437)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) (cid:1575)(cid:3)(cid:192)(cid:472)(cid:437)(cid:3)(cid:472)(cid:478)(cid:464)(cid:472)(cid:1612)(cid:559)(cid:437)(cid:562)(cid:463)(cid:524)(cid:562)(cid:511)(cid:394)(cid:513)(cid:423)(cid:437)(cid:3)(cid:502)(cid:437)(cid:616)(cid:437)(cid:502)(cid:3)(cid:437)(cid:463)(cid:731)(cid:423)(cid:478)(cid:437)(cid:513)(cid:423)(cid:623)(cid:3)(cid:562)(cid:394)(cid:584)(cid:478)(cid:524)(cid:3)(cid:463)(cid:524)(cid:562)(cid:3)(cid:1474)(cid:1472)(cid:1474)(cid:1473)(cid:3)(cid:430)(cid:437)(cid:423)(cid:502)(cid:478)(cid:513)(cid:437)(cid:430)(cid:3)(cid:584)(cid:524)(cid:3)(cid:1477)(cid:1472)(cid:1582)(cid:1476)(cid:1709)(cid:1577) 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(cid:478)(cid:584)(cid:570)(cid:3)(cid:423)(cid:562)(cid:437)(cid:430)(cid:478)(cid:584)(cid:3)(cid:394)(cid:502)(cid:502)(cid:524)(cid:617)(cid:394)(cid:513)(cid:423)(cid:437)(cid:3)(cid:478)(cid:513)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:437)(cid:616)(cid:437)(cid:513)(cid:584)(cid:3)(cid:524)(cid:463)(cid:3)(cid:423)(cid:562)(cid:437)(cid:430)(cid:478)(cid:584)(cid:3)(cid:430)(cid:437)(cid:584)(cid:437)(cid:562)(cid:478)(cid:524)(cid:562)(cid:394)(cid:584)(cid:478)(cid:524)(cid:513)(cid:1582)(cid:3)(cid:119)(cid:394)(cid:513)(cid:394)(cid:464)(cid:437)(cid:511)(cid:437)(cid:513)(cid:584)(cid:3)(cid:394)(cid:502)(cid:570)(cid:524)(cid:3) (cid:562)(cid:437)(cid:570)(cid:559)(cid:524)(cid:513)(cid:430)(cid:437)(cid:430)(cid:3)(cid:617)(cid:478)(cid:584)(cid:472)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:464)(cid:562)(cid:394)(cid:513)(cid:584)(cid:478)(cid:513)(cid:464)(cid:3)(cid:524)(cid:463)(cid:3)(cid:502)(cid:524)(cid:394)(cid:513)(cid:3)(cid:511)(cid:524)(cid:430)(cid:478)(cid:731)(cid:423)(cid:394)(cid:584)(cid:478)(cid:524)(cid:513)(cid:570)(cid:3)(cid:524)(cid:463)(cid:3)(cid:559)(cid:394)(cid:623)(cid:511)(cid:437)(cid:513)(cid:584)(cid:3)(cid:570)(cid:584)(cid:562)(cid:592)(cid:423)(cid:584)(cid:592)(cid:562)(cid:437)(cid:570) for customers who were in peril as a result of the pandemic and provided assistance through the use of PPP loans. These activities were initiated in (cid:1623)(cid:88)(cid:3)(cid:394)(cid:511)(cid:3)(cid:437)(cid:622)(cid:584)(cid:562)(cid:437)(cid:511)(cid:437)(cid:502)(cid:623)(cid:3)(cid:464)(cid:562)(cid:394)(cid:584)(cid:478)(cid:731)(cid:437)(cid:430)(cid:3) (cid:1474)(cid:1472)(cid:1474)(cid:1472)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:423)(cid:524)(cid:513)(cid:584)(cid:478)(cid:513)(cid:592)(cid:437)(cid:430)(cid:3)(cid:430)(cid:592)(cid:562)(cid:478)(cid:513)(cid:464)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:731)(cid:562)(cid:570)(cid:584)(cid:3)(cid:472)(cid:394)(cid:502)(cid:463)(cid:3)(cid:524)(cid:463)(cid:3)(cid:1474)(cid:1472)(cid:1474)(cid:1473)(cid:1582)(cid:3)(cid:40)(cid:592)(cid:562)(cid:478)(cid:513)(cid:464)(cid:3)(cid:584)(cid:472)(cid:478)(cid:570)(cid:3)(cid:584)(cid:478)(cid:511)(cid:437)(cid:1577)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498) to end 2021 with record (cid:394)(cid:423)(cid:584)(cid:592)(cid:394)(cid:502)(cid:502)(cid:623)(cid:3)(cid:478)(cid:511)(cid:559)(cid:562)(cid:524)(cid:616)(cid:437)(cid:430)(cid:3)(cid:478)(cid:584)(cid:570)(cid:3)(cid:423)(cid:562)(cid:437)(cid:430)(cid:478)(cid:584)(cid:3)(cid:559)(cid:437)(cid:562)(cid:463)(cid:524)(cid:562)(cid:511)(cid:394)(cid:513)(cid:423)(cid:437)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:584)(cid:524)(cid:430)(cid:394)(cid:623)(cid:3)(cid:617)(cid:437)(cid:3)(cid:422)(cid:437)(cid:502)(cid:478)(cid:437)(cid:616)(cid:437)(cid:3)(cid:478)(cid:570)(cid:3)(cid:478)(cid:513)(cid:3)(cid:394)(cid:3)(cid:616)(cid:437)(cid:562)(cid:623) strong position. (cid:119)(cid:394)(cid:513)(cid:394)(cid:464)(cid:437)(cid:511)(cid:437)(cid:513)(cid:584)(cid:3)(cid:478)(cid:570)(cid:3)(cid:423)(cid:524)(cid:513)(cid:731)(cid:430)(cid:437)(cid:513)(cid:584)(cid:3)(cid:584)(cid:472)(cid:394)(cid:584)(cid:3)(cid:478)(cid:584)(cid:3)(cid:423)(cid:394)(cid:513)(cid:3)(cid:513)(cid:394)(cid:616)(cid:478)(cid:464)(cid:394)(cid:584)(cid:437)(cid:3)(cid:584)(cid:472)(cid:562)(cid:524)(cid:592)(cid:464)(cid:472)(cid:3)(cid:394)(cid:513)(cid:623)(cid:3)(cid:423)(cid:472)(cid:394)(cid:502)(cid:502)(cid:437)(cid:513)(cid:464)(cid:437)(cid:570)(cid:3)(cid:584)(cid:472)(cid:394)(cid:584) (cid:584)(cid:472)(cid:437)(cid:623)(cid:3)(cid:394)(cid:562)(cid:437)(cid:3)(cid:502)(cid:478)(cid:498)(cid:437)(cid:502)(cid:623)(cid:3)(cid:584)(cid:524)(cid:3)(cid:437)(cid:513)(cid:423)(cid:524)(cid:592)(cid:513)(cid:584)(cid:437)(cid:562)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:472)(cid:394)(cid:616)(cid:437)(cid:3)(cid:430)(cid:437)(cid:511)(cid:524)(cid:513)(cid:570)(cid:584)(cid:562)(cid:394)(cid:584)(cid:437)(cid:430)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:394)(cid:422)(cid:478)(cid:502)(cid:478)(cid:584)(cid:623)(cid:3)(cid:584)(cid:524)(cid:3)(cid:570)(cid:592)(cid:423)(cid:423)(cid:437)(cid:437)(cid:430)(cid:1582) (cid:192)(cid:472)(cid:478)(cid:570)(cid:3)(cid:502)(cid:437)(cid:616)(cid:437)(cid:502)(cid:3)(cid:524)(cid:463)(cid:3)(cid:559)(cid:437)(cid:562)(cid:463)(cid:524)(cid:562)(cid:511)(cid:394)(cid:513)(cid:423)(cid:437)(cid:3)(cid:570)(cid:472)(cid:524)(cid:592)(cid:502)(cid:430)(cid:3)(cid:559)(cid:562)(cid:524)(cid:616)(cid:478)(cid:430)(cid:437)(cid:3)(cid:423)(cid:524)(cid:513)(cid:731)(cid:430)(cid:437)(cid:513)(cid:423)(cid:437)(cid:3)(cid:584)(cid:524)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:423)(cid:592)(cid:570)(cid:584)(cid:524)(cid:511)(cid:437)(cid:562)(cid:570)(cid:3)(cid:394)(cid:570)(cid:3)(cid:617)(cid:437)(cid:502)(cid:502) as our shareholders. earnings. Despite the pandemic, 2021 was a resounding success for The Bank of Princeton. This was attributable to our employees unwavering commitment to delivering (cid:192)(cid:472)(cid:437)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498)(cid:3)(cid:423)(cid:524)(cid:513)(cid:584)(cid:478)(cid:513)(cid:592)(cid:437)(cid:570)(cid:3)(cid:584)(cid:524)(cid:3)(cid:511)(cid:394)(cid:498)(cid:437)(cid:3)(cid:570)(cid:478)(cid:464)(cid:513)(cid:478)(cid:731)(cid:423)(cid:394)(cid:513)(cid:584)(cid:3)(cid:478)(cid:513)(cid:616)(cid:437)(cid:570)(cid:584)(cid:511)(cid:437)(cid:513)(cid:584)(cid:570)(cid:3)(cid:478)(cid:513)(cid:3)(cid:430)(cid:478)(cid:464)(cid:478)(cid:584)(cid:394)(cid:502)(cid:3)(cid:584)(cid:437)(cid:423)(cid:472)(cid:513)(cid:524)(cid:502)(cid:524)(cid:464)(cid:478)(cid:437)(cid:570)(cid:3) the highest level of service (cid:617)(cid:472)(cid:478)(cid:423)(cid:472)(cid:3)(cid:394)(cid:502)(cid:502)(cid:524)(cid:617)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:423)(cid:502)(cid:478)(cid:437)(cid:513)(cid:584)(cid:570)(cid:3)(cid:584)(cid:524)(cid:3)(cid:562)(cid:437)(cid:511)(cid:524)(cid:584)(cid:437)(cid:502)(cid:623)(cid:3)(cid:394)(cid:423)(cid:423)(cid:437)(cid:570)(cid:570)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:511)(cid:394)(cid:513)(cid:623)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498)(cid:3)(cid:559)(cid:562)(cid:524)(cid:430)(cid:592)(cid:423)(cid:584)(cid:570)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3) to our customers. ” (cid:570)(cid:437)(cid:562)(cid:616)(cid:478)(cid:423)(cid:437)(cid:570)(cid:1577)(cid:3)(cid:394)(cid:570)(cid:3)(cid:617)(cid:437)(cid:502)(cid:502)(cid:3)(cid:394)(cid:570)(cid:3)(cid:394)(cid:430)(cid:430)(cid:478)(cid:513)(cid:464)(cid:3)(cid:559)(cid:562)(cid:524)(cid:584)(cid:437)(cid:423)(cid:584)(cid:478)(cid:524)(cid:513)(cid:3)(cid:394)(cid:464)(cid:394)(cid:478)(cid:513)(cid:570)(cid:584)(cid:3)(cid:423)(cid:623)(cid:422)(cid:437)(cid:562)(cid:3)(cid:463)(cid:562)(cid:394)(cid:592)(cid:430)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:524)(cid:584)(cid:472)(cid:437)(cid:562)(cid:3)(cid:584)(cid:472)(cid:562)(cid:437)(cid:394)(cid:584)(cid:570)(cid:1582) Edward J. Dietzler (cid:88)(cid:513)(cid:3)(cid:394)(cid:430)(cid:430)(cid:478)(cid:584)(cid:478)(cid:524)(cid:513)(cid:1577)(cid:3)(cid:617)(cid:472)(cid:478)(cid:502)(cid:437)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:437)(cid:622)(cid:478)(cid:570)(cid:584)(cid:478)(cid:513)(cid:464)(cid:3)(cid:423)(cid:502)(cid:478)(cid:437)(cid:513)(cid:584)(cid:570)(cid:3)(cid:423)(cid:394)(cid:513)(cid:3)(cid:422)(cid:437)(cid:513)(cid:437)(cid:731)(cid:584)(cid:3)(cid:463)(cid:562)(cid:524)(cid:511)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:423)(cid:524)(cid:513)(cid:616)(cid:437)(cid:513)(cid:478)(cid:437)(cid:513)(cid:423)(cid:437)(cid:1577)(cid:3)(cid:584)(cid:472)(cid:478)(cid:570)(cid:3) (cid:584)(cid:437)(cid:423)(cid:472)(cid:513)(cid:524)(cid:502)(cid:524)(cid:464)(cid:623)(cid:3)(cid:394)(cid:502)(cid:570)(cid:524)(cid:3)(cid:394)(cid:502)(cid:502)(cid:524)(cid:617)(cid:570)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498)(cid:3)(cid:584)(cid:524)(cid:3)(cid:422)(cid:437)(cid:3)(cid:616)(cid:437)(cid:562)(cid:623)(cid:3)(cid:423)(cid:524)(cid:511)(cid:559)(cid:437)(cid:584)(cid:478)(cid:584)(cid:478)(cid:616)(cid:437)(cid:3)(cid:478)(cid:513)(cid:3)(cid:394)(cid:584)(cid:584)(cid:562)(cid:394)(cid:423)(cid:584)(cid:478)(cid:513)(cid:464)(cid:3)(cid:513)(cid:437)(cid:617)(cid:3) consumer and business customers within our footprint and surrounding (cid:511)(cid:394)(cid:562)(cid:498)(cid:437)(cid:584)(cid:3)(cid:394)(cid:562)(cid:437)(cid:394)(cid:570)(cid:1582) (cid:132)(cid:592)(cid:562)(cid:3)(cid:32)(cid:524)(cid:394)(cid:562)(cid:430)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:119)(cid:394)(cid:513)(cid:394)(cid:464)(cid:437)(cid:511)(cid:437)(cid:513)(cid:584)(cid:3)(cid:570)(cid:584)(cid:394)(cid:513)(cid:430)(cid:3)(cid:423)(cid:524)(cid:511)(cid:511)(cid:478)(cid:584)(cid:584)(cid:437)(cid:430)(cid:3)(cid:584)(cid:524)(cid:3)(cid:559)(cid:562)(cid:524)(cid:616)(cid:478)(cid:430)(cid:478)(cid:513)(cid:464)(cid:3)(cid:437)(cid:622)(cid:423)(cid:437)(cid:559)(cid:584)(cid:478)(cid:524)(cid:513)(cid:394)(cid:502) customer service paralleled with strong partnerships in the communities (cid:617)(cid:437)(cid:3)(cid:570)(cid:437)(cid:562)(cid:616)(cid:437)(cid:1582)(cid:3)(cid:224)(cid:437)(cid:3)(cid:394)(cid:562)(cid:437)(cid:3)(cid:437)(cid:570)(cid:559)(cid:437)(cid:423)(cid:478)(cid:394)(cid:502)(cid:502)(cid:623)(cid:3)(cid:559)(cid:562)(cid:524)(cid:592)(cid:430)(cid:3)(cid:524)(cid:463)(cid:3)(cid:524)(cid:592)(cid:562)(cid:3)(cid:437)(cid:511)(cid:559)(cid:502)(cid:524)(cid:623)(cid:437)(cid:437)(cid:570)(cid:3)(cid:463)(cid:524)(cid:562)(cid:3)(cid:584)(cid:472)(cid:437)(cid:478)(cid:562)(cid:3)(cid:562)(cid:437)(cid:570)(cid:559)(cid:524)(cid:513)(cid:570)(cid:437)(cid:3)(cid:584)(cid:524)(cid:3)(cid:584)(cid:472)(cid:437) (cid:423)(cid:472)(cid:394)(cid:502)(cid:502)(cid:437)(cid:513)(cid:464)(cid:437)(cid:570)(cid:3)(cid:524)(cid:463)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:478)(cid:513)(cid:430)(cid:592)(cid:570)(cid:584)(cid:562)(cid:623)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:584)(cid:472)(cid:437)(cid:478)(cid:562)(cid:3)(cid:394)(cid:422)(cid:478)(cid:502)(cid:478)(cid:584)(cid:623)(cid:3)(cid:584)(cid:524)(cid:3)(cid:617)(cid:524)(cid:562)(cid:498)(cid:3)(cid:584)(cid:472)(cid:562)(cid:524)(cid:592)(cid:464)(cid:472)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:559)(cid:394)(cid:513)(cid:430)(cid:437)(cid:511)(cid:478)(cid:423)(cid:1582) ii (cid:62296)(cid:62294)(cid:62296)(cid:62295)(cid:1)(cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:84) FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D.C. 20429 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2021 - OR - ] [ For the transition period from ______ TION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 __ to ______ __ TRANSI ___ ___ __ ____ __ ____ ___ __ ____ ___ __ __ ____ __ _____ ____ ___ ____ ____ ___ ___ ___ ____ __ ____ ____ ____ ____ RR __ FDIC Certificff ate Number: 58513 THE BANK OF PRINCETON (Exact name of Registrant as specifieff d in its Charter) New Jersey (State or other Jurisdiction of ration or Organization) Incorpor 183 Bayard Lane, Princeton, NJ (Address of Principal Executive Offiff ces) 68-0645074 (I.R.S. Employer Identification No.) 08540 (Zip Code) Registrant’s telephone numbem r, including area code: (609) 921-1700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $5.00 per share Indicate by check mark if the registrant t is a well-known seasoned issuer, as defined in Rule 405 of the Securiu ties Act. [ ] YES [ X ] NO Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] YES [ X ] NO Indicate by check marka whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 monthst (or for such shorter period that the registrant was required to file such reports), and (2) has been subjeb ct to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate by check mark whether 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). [X] YES [ the registrant has submitted electronically everyrr Interactive Data File required to be submitted pursuant to Rule ] NO tt Indicate by check mark whethet r the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in RulRR e 12b-2 of the Exchange Act. Large accelerated filer  Non-accelerated filer  Accelerated filer  Smaller reporting company  Emerging growth companyaa  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) the Exchange Act.  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] YES [X] NO The aggregate market value of the voting common stock held by non-affiliff ates at June 30, 2021 was $158.1 million. As of March 11, 2022, there were 6,486,954 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1 Portions of the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation no later than 120 days afteff r December 31, 2021 in connection with its 2022 Annual Meeting of Stockholders to be held April 29, 2022 are incorporated by reference into Part III of this annual report on Form 10-K. 2 TABLE OF CONTENTS PAGE 4 19 28 28 30 30 31 35 45 46 94 94 94 94 95 95 96 96 96 96 98 99 PART I Item 1 Item 1A Item 1B Item 2 Item 3 Item 4 PART II Business Riskii Factors Unrenn solved Staffff Commenmm tsnn Propeoo rties Legal Proceedingii s Mine Safety Item 5 Market for the Registii ratt nt's Common Equiqq tyii , Related Stockhokk lder Matters Issuer Purcuu hase of Equiqq tyii Securiuu tiii esii Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B Item 9C PART III Item 10 Item 11 Item 12 Item 13 Item 14 PART IV Item 15 Item 16 Signatures is of Finaii ncial Conditionoo and Results of Operation tiveii and Analnn ysll losureuu s and Marketkk Riskii Managemenmm t'nn s Discii ussionii Quanuu tinn taii andnn Qualitll ative Discii Financialii Statemenmm tnn and Suppuu lementaryrr Data Changes In and Disaii greement withii Accountsnn andnn Accounoo tinn ngii Finaii ncial Discii Conto rott Othet Discii r Informatmm ion losureuu Regardindd g Foreigngg Juriuu sdii s s that Preventnn Inspectionii ls andnn Procedurdd es icdd tionii losureuu rs and Corporate Governannn ce Direii ctors, Executive Offiff ceii Executive Compensationii Securiuu tyii Ownershipii of Certainii Beneficiii alii Owners and Management Related Stockhokk lderdd s Matters and Related Transactions, and Direii ctors Indenn pendencenn Certainii Relations Fees and Servicv es Principaii hipsii ii l Accountinn ngii : Financialii Statementnn Schedules tsii Exhixx biii Form 10-K Summuu ary 3 Cautionary Note Regarding Forward-Looking Statements The Bank of Princeton (the “Bank” or “TBOP”) may from time to time make written or oral “forff ward-looking statements,” including statements contained in the Bank’s filings with the Federal Deposit Insurance Corporation (the “FDIC”) (including this Annual Report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the Bank, which are made in good faith by the Bank pursuant to the “safe harba or” provisions of Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”). These forward-looking statements involve risks and uncertainties, such as statements of the Bank’s plans, objectives, expectations, estimates and intentions that are subju ect to change based on various important factors (some of which are beyond the Bank’s control). The following factors, among othet rs, could cause the Bank’s financial perforff mance to differff materially from the plans, objeb ctives, expectations, estimates and intentions expressed in such forward-looking statements: Market developments, including price levels, stock and bond marka et volatility,tt and changes including those resulting from Russia’s invasion of Ukrkk aine and the increase in the price of gasoline; the COVID-19 pandemic including, but not limit to, the potential adverse effeff ct of the pandemic on the economy, our emplom yees and our customers; the impact of any future pandemics or othet disasters; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area; the strength of the United States economy in general and the strength of the local economies in which the Bank conducts operations; the effecff ts of,ff and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; market volatility; the value of the Bank’s products and services as perceived by actual and prospective customers, including the features, pricing and quality compared to compem titors’ producdd ts and services; the willingness of customers to substitute competitors’ products and services for the Bank’s products and services; credit risk associated with the Bank’s lending activities; risks relating to the real estate market and the Bank’s real estate collateral; the impact of changes in applicable laws and regulations and requirements arising out of our supervirr sion by banki ng regulators; other regulatory requirements applicable to the Bank; technological changes; acquisitions; changes in consumer spending and saving habits. Such risks and other aspects of our business and operations are described in Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report. r naturalu dd aa The Bank cautions that the foregoing list of important factors is not exclusive. The Bank does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank, except as required by applicable law or regulation. Throughout this document, referff ences to “we,” “us,” or “our” refer to the Bank and its consolidated subsidiaries. PART I Item 1. Business General The Bank was incorporated on March 5, 2007 under the laws of the State of New Jersey as a New Jersey state-chartered bank. We commenced operations on April 23, 2007. We are a full service bank providing personal and business lending and deposit services. The Bank is a New Jersey state-chartered commercial bank with 19 branches in New Jersey, including three in Princeton and others in Bordentown, Browns Mills, Chesterfield, Cream Ridge, Deptforff d, Hamilton, Lakewood, Lambertville, Lawrenceville, Monroe, New Brunswick, Pennington, Piscataway, Princeton Junction, Quakerbrr idge and Sicklerville. There are also four branches in the Philadelphia, Pennsylvania area. The Bank of Princeton is a member of the FDIC. The Bank also conducts loan origination activities in select areas of New York. Since we commenced operations, we have grown through botht de novo branching and acquiqq sitions. In 2010, we acquired three Pennsylvania branches through a merger with MoreBank. In March 2019, the Bank converted the former MoreBank branches to operate under The Bank of Princeton name. In December 2018, the Bank opened a new branch in Cream Ridge, New Jersey. In April 2019, the Bank opened a new branch in Quakerbridge, New Jersey, and another branch in September 2019, located in Princeton Junction, New Jersey. In July 2020, the Bank opened three new branches in Lakewood, New Jersey, Piscataway, New Jersey, and Philadelphia, Pennsylvania. On May 17, 2019, the Bank successfully Mills, Chesterfield, Deptford and Sicklerville, New Jersey. ff completed acquiqq sition of five WSFS Bank branches located in Bordentown, Browns 4 Our headquarta ers and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Ouru telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com. The Bank has elected to prepare this Annual Report on Form 10- K and other annual and periodic reports as a “smaller reporting company” consistent witht the rules of the Securiu ties and Exchange Commission (thet “SEC”). Competition We have substantial competition in originating commercial and consumer loans in our market area. This competition comes r banks, savings institutions, mortgage banking companies and other lenders. Many of our compem titors enjoy c presence, more accessible branch r a wider array of services or more favorable pricing alternatives, as well as lower origination and r things, this competition could reduce our interest income and net income by decreasing the number and principally from othet advantages over us, including greater financial resources and higher lending limits, a wider geographi offiff ce locations, the ability to offeff operating costs. Among othet size of loans that we originate and the interest rates we may charge on these loans. aa In attracting business and consumer deposits, we face substantial competition from othet r insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offeff ring uninsured investment alternatives, including money market funds. Many of our competitors enjon y advadd ntages over us, including greater financial resources, more aggressive marketing r higher interest rates on deposits, which campaigns, better brand recognition and more branch locations. These competitors may offeff could decrease the deposits that we attract, or require us to increase thet t new deposits. Deposit competition could advedd rsely affeff ct our net interest income and net income, and our ability to generate the funds we require for our lending or other operations. As a result, we mayaa need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. rates we pay to retain existing deposits or attract Lending Activities Our loan portfolio consists of variable-rate and fixed-rate loans with a significff ant concentration in commercial real estate ial empham sis is placed upon the financaa lending. While most loans and other credit facilities are appropriately collateralized, majora condition of the borrower and the borrower’s cash flow versus debt service requirements. Loan growth is driven by customer demand, which in turn is influenced by individual and business indebtedness and consumer demand for goods. Loaning money will always entail some risk. Without loaning money, however, a bank cannot generate enough net interest income to be profitaff ble. The risk involved in each loan must be carefully evaluated before the loan is made. The interest rate at which the loan is made should always reflect the risk factors involved, including the term of the loan, the value of collateral, if any, the reliability of the projected source of repayment, and the amount of the loan requested. Credit quality and repayment capaa city are generally the most importantaa factors in evaluating loan applications. The majora ity of our loans are to borrowers in our immediate markets. We believe that no single borrorr wer or group of borrowers presents a credit concentration whereby the borrowers’ loan defaulaa t would have a material adverse effect condition or results of operations. ff on our financial Commerciali Real Estate and Multi-fa- milyii ly loans amounted in the aggregate to $771.0 million, or 57.5% of the total loan portfolio. Our commercial real estate portfolio has decreased $41.0 million or 5.1% since December 31, 2020, when commercial real estate and multi-famiaa ly loans amounted to $812.0 million, or 59.3%, of our total portfolff .yy At December 31, 2021, commercial real estate and multi-famia io. The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small offiff ce buildings, strip located in the Bank’s shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes market area. At December 31, 2021, the average commercial and multi-famia ly real estate loan size was approximately $1.4 million. r Although terms for commercial real estate and multi-family loans vary, our underwriting standards generally allow for terms up to 7 years with loan-to-value ratios of not more than 75%. Most of the loans are structurtt ed witht balloon payments of 5 years or less and amortization periods of up to 25 years. Interest rates are either fixed or adjud stable, based upon designated market indices such as the Wall Street Journal prime rate plus a margin. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successfulff project or the borrower’s business. These risks can be affecff housing units, officff Commercial real estate and multi-family real estate lending involves different risks from single-family residential lending. operations of the ted by supply and demand conditions in the project’s market area of rental e and retail space and other commercial space. We attemptm to minimize these risks by limiting loans to proven 5 businesses, only considering properties with existing operating perforff mance which can be analyzed, using conservative debt coverage ratios in our underwriting, and periodically monitoring the operation of the business or project and the physical condition of the property. Various aspects of commercial and multi-family loan transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future t and projeo cted occupauu ncy levels, location and physical condition. Generally, we impose a debt service ratio operating projections, curren ial condition (the ratio of net cash flows from operations to debt service) of not less than 1.25 X. We also evaluate the credit and financaa of the borrower, and if applicable, the guarantor. With respect to loan participation interests we purchase, we underwrite the loans as if we were the originating lender. Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. u ff Set forth below is a brief description of ouru three largest commercial real estate or multi-family loans: - - - The largest commercial real estate loan is a $19.2 million loan. The proceeds were used to purchase a 32-uniu t offiff ce building located in Hamilton, NJ with a current loan-to-value of 65%. The borrower is paying in accordance with the loan terms as of December 31, 2021. The second largest commercial real estate loan is an $18.0 million loan to a shopping center located in Lakewood, New Jersey. The site has 14 retail units and is 100% leased with a current loan-to value of 72%. The borrorr wer is paying in accordance with the loan terms as of December 31, 2021. The third largest commercial real estate loan is a $17.0 million loan to refinance and cash out on an apartment building located in East Orange, New Jersey with a current loan-to-value of 70%. The borrower is paying in accordance with the loan terms as of December 31, 2021. Commerciali $29.7 million, or 2.2%, of the total loan portfolff December 31, 2020, when commercial and industrit al loans amounted to $40.6 million, or 3.0%, of our total loan portfolio. and Industrialii Loans. At Decembem r 31, 2021, commercial and industrial loans amounted in the aggregate to io has decreased $10.9 million, or 26.9%, since io. Our commercial and industrial portfolff Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capiaa tal. Small business loans may have adjud stable or fixed rates of interest and generally have terms of three years or less, but may be as long as 15 years. Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.20 X. In addition, we generally obtain personal guarantaa ees from the principals of the borrower with respect to commercial business loans and frequently obtain real estate as additional collateral. Set fortht below is a brief description of our three largest commercial and industrial loans: - - - The largest commercial and industrit al loan is a $5.0 million loan. The proceeds were used as a fully drawn business line of credit for general purpor accordance with the loan terms as of December 31, 2021. ses. The loan is secured by real estate and cash collateral. The borrower is payiaa ng in The second largest commercial and industrial loan is a $4.4 million loan. The proceeds were used for general business purposes. The loan is secured by real estate. The borrower is paying in accordance with the loan terms as of December 31, 2021. The third largest commercial and industrial loans is a $3.8 million loan. The proceeds were used for general business purposes. The loan is secured by business assets. The borrower is paying in accordance with the loan terms as of December 31, 2021. Construtt by collateral such ctiott n Loans. We originate various types of commercial loans, including construction loans, securedu as real estate, business assets and personal guarantees. The loans are solicited on a direct basis and through variaa ous professionals with whom we maintain contacts and by referral from our directors, stockholders and customers. At December 31, 2021, our construt ction loans amounted to $403.7 million, or 30.1% of our total portfolio. The average size of a construction loan was approximately $3.8 million at December 31, 2021. Our construction loans portfolio has increased substantially since December 31, 2020, when construction loan amounted to $263.0 million, or 19.2% of our total loan portfolio, an increase of $140.6 million or 53.5%. Construt ction lending represents a segment of our loan portfolio and is driven primarily by market conditions. Loans to finance construction of condominium projects or single-family homes and subdivisions are generally offeff red to experienced builders in our primaryrr market area with whom we have an established relationship. The maximum loan-to-value limit applicable to these loans is 75% of the appraised post construction value and does not require amortization of the principal during the term of the loan. We ofteff n establish interest reserves and obtain 6 personal and corporate guarantees as additional security on the construt ction loans. Interest reserves are used to pay monthlt y payments during the construction phases of the loan and are treated as an addition to the loan balancaa e. Interest reserves pose an additional risk to the Bank if it does not become aware of deterioration in the borrower’s financial condition before the interest reserve is fully utilized. In order to mitigate risk, financial statements and tax returns are obtained from borrowers on an annual basis. Construction loan proceeds are disbursed periodically in increments as construction progresses and as inspection by approved appraisers or loan inspectors warrants. Construction loans are negotiated on an individual basis but typically have floating rates of interest based on a common index plus a stipulated margin. Additional fees may be charged as funds are disbursed. As units are completed and sold, we require that payments to reduce principal outstanding be made prior to them being released. We mayaa permit a pre-determined limited number of model homes to be constructed on an unsold or “speculative” basis. Construction loans also include loans to acquire land and loans to develop the basic infrastructure, such as roads and sewers. The majoa rity of the construction loans are secured by properties located in our primary areas. Set fortht below is a brief description of our three largest construction loans or loan relationships: - - - The large construction loan is a $26.0 million loan participation to construct 200 residential units in Orange County, New York. The project is approximately 83% complete. The borrower is paying in accordance with the loan terms as of December 31, 2021. The second largest construction loan is a $16.0 million to construct a 168,000 square foot industrial warehouse on 9 acres in East Windsor, New Jersey. The project is approximately 65% complete. The borrower is paying in accordance with the loan terms as of December 31, 2021. The third largest construt ction loan is a $14.0 million loan to construct a 14 story multi use building in Brooklyn, New York. Consisting of 68 residential units and two commercial units. The project is approximately 75% complete. The borrower is paying in accordance with the loan terms as of December 31, 2021. - t-Lie l Firsii Resideii ntiatt n Mortgage Loans. We offeff r a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans. We strit ve to process, approve and fund loans in a timeframff g residential first-lien mortgage loans and refer conforff ming residential first-lien mortgage loans to a third party,tt whereby we may earn a fee. At . Our residential first-lien December 31, 2021, our residential first-lien loans amounted to $48.6 million, or 3.6%, of our total portfolio loan portfolff io has decreased $18.3 million, or 27.3%, since December 31, 2020, when residential first-lien loans amounted to $66.9 million, or 4.9%, of ouru total loan portfolio e that meets the needs of our borrowers. Generally, we originate and retain non-conformin ff ff ff . Home Equityii Loans and Consumer Loans. We generate these loans and lines of credit primarily through direct marketing at such as mail our branch locations, refeff rrals from local real estate brokers and, to a lesser extent, by targeted direct marketing programsa and electrot nic mail. Consumer loans are solicited on a direct basis and upon referrals from ouru directors, stockholder and existing customers. Payca heck Protectt tion Program Loans. The Coronavirus Aid, Relief, and Economic Securiu ty Act (“CARES Act”) was passed by Congress and signed into law on March 27, 2020. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP I”). PPP I loans are forgivable, in whole or in part, if the proceeds are used for payraa oll and other permitted purpose the requirements of d rate of 1.00% and generally a term of two years, if not forgiven, in whole or in part. Payments the PPP I. These loans carryrr a fixeff were deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on thet size of the loan. This program ended funding new loans as of May 31, 2021. The SBA announced that a second draw program (referred to as PPP II) for companies who received proceeds from PPP I, with less than 300 employees, and can demonstrate at least a 25% reduction in gross receipts between comparablea quarta ers in 2019 and 2020. PPP II loans have a fixed rate of 1.00% and a term not to exceed five years. The SBA pays the originating bank a processing fee of 50.0% or $2,500, whichever is less, for loans under $50 thousand, 5.0% for loans of more than $50 thousand and not more than $350 thousand, and 3.0% for loans greater than $350 thousand. PPP II borrowers can request full forgiveness during eight to 24 weeks following loan disbursement. Forgiveness requirements are: employee and compensation levels are maintained in the same manner as required in the first draw, loan proceeds are spent on payroll cost and other eligible expenses, and at least 60% of the proceeds are spent on payroll costs. These loans are 100% guaranteed by the SBA. At December 31, 2021, our PPP I and PPP II (collectively referred to as “PPP”) loans amounted to $79.7 million, or 6.0% of our total portfolff io and as of December 31, 2020 our PPP I loans amounted to $175.9 million, or 12.9% of our total portfolio. s in accordance witht rr Loans Receivable, Net. Loans receivable, net decreased from $1.35 billion at December 31, 2020, to $1.32 billion at December 31, 2021, a decrease of $28.9 million, or 2.1%. The decrease was attributable to our $169.2 million decrease in PPP I loans due to loan payoffs and the federal government’s termination of the program, a decrease of $41.0 million in commercial real estate loans and a 7 $20.5 million decrease in residential loans and home equiqq ty/consumer loans, partaa ially offsff et by an increase of $140.6 million in construction loans and $73.0 million of additional funding of PPP II loans. The following table details ouru loan maturities by loan segment and interest rate type: Due in one year or less Due afteff r one through five years December 31, 2021 Due afteff r five years through fifff teff en years Due afteff r fifteen years Total real estate (Dollall rs in thousands) Commermm cialii Commermm cialii and industrial Construcrr Resideii ntial firsii Homeoo PPP /Cyy onsumer Equiqq tyii tionii t-lienii mortgage Total Loans r one year real estate Amounmm tnn due afteff (Dollall rs in thousands) Commermm cialii Commermm cialii and industrial Construcrr Resideii ntial firsii Homeoo PPP /Cyy onsumer Equiqq tyii tionii t-lienii mortgage $ $ $ 17,290 11,121 172,893 - 94 5,413 206,811 $ $ 107,831 13,189 201,688 - 226 74,327 397,261 $ $ 252,214 4,742 29,099 6,122 4,269 - 296,446 $ $ 393,693 625 - 42,516 3,096 - 439,930 $ $ 771,028 29,677 403,680 48,638 7,685 79,740 1,340,448 Fixeii d Rate Variabii le Rate $ 100,893 8,076 33,398 38,892 826 74,327 652,845 10,480 197,389 9,746 6,765 - Total Loans $ 256,412 $ 877,225 The accrual of interest is discontinued when the contrat ctual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing. The following tablea sets fortht certain information regarding our nonaccrual loans, troubled debt restructurings, accruing loans 90 days or more past-dued , and other real estate owned. (Dollall rs in thouso andsn ) Commercial real estate Commercial andn indun stritt alii Construcrr Resideii ntial firsii Home Equiqq tyii PPP /Cyy onsumeuu tionii r t-lien mortgage $ Total nonaccrualuu loans ingsn debt restrutt ctuu urtt Troublu edll Accruingn loans 90 days or more past due (TDRs) - perforff mi rr ngii Othett Total nonperforff mi rr ngii r real estate owned rr ngii Total nonperforff mi loans andn performinmm gn TDRs assets andn performinmm gn TDRs $ December 31, 2021 21 2020 766 - 278 131 - - 1,175 6,122 151 7,448 226 7,674 $ $ 1,030 132 370 144 - - 1,676 8,704 - 10,380 - 10,380 See Note 4 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classifieff d as nonperforming assets as of December 31, 2021 and for other information on ouru loan , all of which contain varyaa ing degrees of potential credit problems that could result ratings of special mention, substandard and doubtfulff 90 or more days or troubled debt restructurings in a future period. in the loans being classifieff d as nonaccrual, past-dued ll Analysi sii of Alloll wance for Loan Losses. Our allowance for loan losses (thet “allowance”) is based on a documented methodology, which includes an ongoing evaluation of the loan portfolio losses in the loan portfolio as of the reporting date. The determination of the allowance for loan losses involves a high degree of judgment and complexity. In evaluating the adequacy of the allowance for loan losses, management gives consideration to current economic , and reflects manaaa gement’s best estimate of probablea ff 8 conditions, statutory examinations of the loan portfolio by regulatory agencies, loan reviews perforff med periodically by independent third parties, delinquency information, management’s internal review of the loan portfolio, r relevant factors. In determining and maintaining our allowance for loan losses, we comply with the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Policy Statements on the Allowance for Loan and Lease Losses and on Allowance for Loan and Lease Losses Methodoldd ogies and Documentation for Bankskk and Savingsgg Associations. and othet ff Our allowance for loan losses is maintained at a level considered adequate to provide for probable losses. We perforff m, at least quarterly, an evaluation of the adequacy of the allowance. The allowance is based on our past loan loss experience (which is bound by our limited operating history), known and inherent risks in thet t the borrower’s ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio , current economic conditions and other relevant factors. This evaluation is inherently subjeb ctive as it requires material estimates that may be susceptible to significant revision as more information becomes available. advedd rse situations that mayaa affecff ff portfolio, ff The allowance consists of specific, general, and unallocated components. The specificff component relates to loans that are classified as impaired. For loans that are classifieff d as impairm ed, an allowance is established when the collateral value or observabla e 31, 2021, all market price (or discounted cash flows) of the impaired loan is lower than the carrying value of that loan. At Decemberm impaired loans value was based on the value of their collateral. The general component covers pools of loans by loan segment including loans not considered impaired, as well as smaller balance homogeneous loans, such as residential mortgage and othet r consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjud sted for qualitative factors. As of December 31, 2021, the allowance for loan losses was $16.6 million as compared to $16.0 million as of Decembem r 31, 2020. The provision for loan losses for the year ended December 31, 2021 decreased $1.6 million over the provision of $5.2 million for the year ended Decembem r 31, 2020, which was primarily due to a reduction in the qualitative factors used in estimating the provision, partially offsff et by a $1.3 million increase in net charge-offs. The ratio of allowance for loan losses to total loans as of December 31, 2021 was 1.24% (excluding PPP loans, thet coverage ratio was 1.32%) compared to 1.18% (excluding PPP loans, the coverage ratio was 1.35%) as of December 31, 2020. 9 The following tabla e presents a summary of our allowance for loan losses and nonaccrual loans by total loans and a summary of net charge-offsff by loan segments: Alloll wance for loan losses to total loans outsuu tandindd g:n Alloll wance for loan losses Total loans outsuu tandingii Nonao ccrualuu loans Alloll wance for loan losses to nonaccrual loans Nonao ccrualuu loans to total loans outsuu tandindd g Net charge-offsff duriuu ngii outsuu tandindd g Commm ercialii real estate the periodii to average loans Net charge-offs Average amoumm ntuu outsuu tandindd g Commercialii andn indunn stritt alii Net charge-offs Average amoumm ntuu outsuu tandindd g Conso tructionii Net charge-offs Average amoumm ntuu outsuu tandindd g Resideii ntial firsii t-lienii Net charge-offs Average amoumm ntuu outsuu tandindd g /Cyy onsumeuu r Home Equiqq tyii Net charge-offs Average amoumm ntuu outsuu tandindd g PPP Net charge-offs Average amoumm ntuu outsuu tandindd g Total Loans Net charge-offs Average amoumm ntuu outsuu tandindd g As of and for Year Ended December 31, 2021 2020 (Dollall rs in thousands) 1.24% 16,620 1,340,448 1,175 1414.5% 0.09% 0.26% 2,075 785,379 2.43% 957 39,329 0.00% - 335,416 0.00% - 55,230 0.00% - 9,133 0.00% - 157,140 0.22% 3,032 1,381,626 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1.18% 16,027 1,367,266 1,676 956.3% 0.12% 0.08% 681 822,959 0.39% 188 48,076 0.42% 886 213,286 0.00% - 78,704 0.00% - 11,616 0.00% - 116,893 0.14% 1,755 1,291,534 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ The allowance for loan losses increased $593 thousand, or 3.7%, to $16.6 million at December 31, 2021. Changes between loan segments were mainly a result of change-offsff during the year or growth within the individual segment between December 31, 2021 and 2020. Our allowance for loan losses is allocated to the variaa ous segments of our portfolio identified above. The unallocated component of the allowance for loan losses is maintained to cover uncertainties that could affeff ct our estimate of probable losses. The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specificff io. Reductions or additions to the allowance charged to operations are the result of applying ouru and general losses in the portfrr olff allowance methodology to the existing loan portfolio. ff 10 The following tablea segment for the years ended. The allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories. presents the allocation of the allowance for loan losses by portfolio ff 2021 2020 Alloll cationii as of % of Loan ategory C 57.5% 2.2% 30.1% 3.6% 0.6% 6.0% 0.0% 100.0% $ $ Amountoo 9,635 1,015 4,069 324 61 - 923 16,027 Alloll cation as of % of Loan Category 59.3% 3.0% 19.2% 4.9% 0.7% 12.9% 0.0% 100.0% nn Amounoo t 7,458 713 7,228 267 48 - 906 16,620 $ $ real estate (Dollall rs in thousands) Commercialii Commercialii andnn indunn stritt alii Consoo tructionii Resideii ntial firsii Home Equiqq tyii PPP Unalloll cated /Cyy onsumer t-lienii mortgage Total Loans See Note 4 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarda ing our allowance for loan losses. Investment Securities (available-forff -sale and held-to-maturity) We hold securities that are available to fund increased loan demand or deposit withdrawaaa r liquidity needs, and which provide an additional source of interest income. Securities are classifieff d as held-to-maturity (“HTM”) or available-forff -sale (“AFS”) at the time of purchase. Securities are classifieff d as HTM if we have the ability and intent to hold them until maturity. HTM securities are carried at cost, adjud sted for unamortized purchase premiums and discounts. Securities that are classifiedff as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equiqq ty within accumulated other comprehensive income (loss). ls and othet Securities available-forff -sale, which are carried at fair value, increased $25.5 million, or 33.8%, to $101.2 million at December 31, 2021 from December 31, 2020. The Bank utilized a portion of excess cash on hand to purchase securities to achieve a higher rate of returt n.rr HTM securities decreased 3.3% from December 31, 2020 to December 31, 2021. The decline in HTM securities is the result of normal principal prepayments and our strategy to not purchase additional securities for the HTM portfolio as we manage ouru investment portfolio to allow for greater flexibility as ouru liquiqq dity needs change. 11 The following table summarizes the weighted-average yields based on maturity distribution schedule of the amortized cost of debt securities at December 31, 2021. Interest income presented in this Form 10-K for tax-advantaged obligations of state and political subdivisions has not been adjusted to reflect fully taxable-equiqq valent interest income. Expected maturities mayaa differ from contractual maturities because the securities may be called without any penalties. s (GSEs) (Dollall rs in thousands) Mortgage-backed securiuu tiii esii Governmenn U.S. governmenn tionii Obligai - U.S. nt Sponsored Entenn rpriseii nt agenciesii s of state andn political subdu ivd isions Total ) (Yield on securiuu tiii esii Mortgage-backed securiuu tiii esii Governmenn - U.S. nt Sponsored Entenn rpriseii s (GSEs) Obligai tionii s of state andn political subdu ivd isions Total One year or less Afteff r one through five years After five through ten years After ten years Total $ $ 50 - 300 350 $ $ 716 - 5,756 6,472 $ $ 835 2,999 18,756 22,590 $ $ 43,851 3,239 24,656 71,746 $ $ 45,452 6,238 49,468 101,158 2.47% - 2.50% 2.50% 2.85% - 2.81% 2.81% 0.86% 1.29% 2.59% 2.47% 1.63% 2.38% 2.31% 1.97% 1.59% 1.86% 2.48% 2.14% At December 31, 2021, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity. See Note 3 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities. Cash and Due from Banks and interest-earning bank balances Cash and due from banks and interest-earning bank balances decreased from $67.4 million at December 31, 2020 to $12.0 million at December 31, 2021, a decrease of $55.4 million, or 82.2%. The decrease in cash and due from banks and interest-earning banks balances was primarily due to the Bank’s decision deposit excess cash into federal funds sold. Federal Funds Sold Federal funds sold increased from $10.0 million at December 31, 2020 to $146.7 million at December 31, 2021, a increase of $136.7 million. The increase in federal funds sold was primarily due to forgiveness and repayment of PPP loans. Premises and Equipment Premises and equipment, net decreased $116,000 from December 31, 2020 to December 31, 2021 resulting from $1.3 million in depreciation, partially offsff et by $1.2 million in a combination of new equipment and improvements. Goodwill and Core Deposit Intangible At December 31, 2021, the Bank had $8.9 million of goodwill and $2.4 million in core deposit intangible asset derived from five branches purcu hased in Mayaa 2019. Accrued Interest Receivable and Other Assets Accrued interest receivable decreased $675,000 from December 31, 2020 to December 31, 2021, primarily due to a decrease in the outstanding principal balance of loans at December 31, 2021. Deferred taxes increased $54,000 from December 31, 2020 to December 31, 2021, primarily due to the increase in deferred tax associated with the allowance for loan losses, the addition of a deferred tax asset associated with PPP loans and the net-deferred tax asset associated with core deposit intangible. Bank owned life insurance increased $3.6 million from December 31, 2020 to December 31, 2021, primarily due to the $2.5 million purchase of additional coverage and to the earnings recorded from the existing policies. Other assets increased $5.0 million from December 31, 2020 to December 31, 2021, primarily due to a $2.2 million purchase of an insurance policy to fund a SERP Plan for two executive offiff cers, and an increase in income tax receivable. 12 Deposits Our deposit services are generally comprised of a traditional range of deposit products, including checking accountu s, savings accounts, attorney trust accounts, money market accounts, and certificff ates of deposit. We offeff r our customers access to automated teller machines (“ATMs”) and other services which increase customer convenience and encourage continued and additional banki aa ng relationships. We endeavor to maintain competitive rates on deposit accounts, and actual rates are established at the time that they are offeff red, rings. Although from time to time we advertise in r a range of direct deposit products ranging and subsequently, based on contractual terms, take into consideration competitor offeff local newspapers, ouru primary source of deposit relationships is satisfiedff from social security and disability payments to direct deposit of payraa oll checks. customers. We offeff During normal business practices the Bank will utilize deposits originated by brokers to support the Bank’s funding needs. At December 31, 2021 the balance of brokered deposits was $109.7 million, an increase of $13.6 million from the $96.1 million outstanding at December 31, 2020. At December 31, 2021, there were no customers whose deposit balances individually exceeded 5% of total deposits. The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, total uninsured deposits, and amount of uninsured portion of time deposits by maturity. 2021 2020 Average Amount Average Rate Paid Average Amount Average Rate Paid (Dollars are in thousands) Non-intenn rest-bearingii checkingii $ 273,260 0.00% $ 209,439 0.00% Demand intenn rest-bearingii Money market ii Savings Timeii depositsii depositsii Uninsureuu d depositsii 263,715 339,903 205,788 336,488 1,419,154 $ Amount $ 324,134 0.27% 0.30% 0.25% 1.32% 0.47% 224,678 281,421 171,119 410,483 1,297,140 $ Amount $ 248,684 0.63% 0.71% 0.58% 2.05% 0.99% 13 The following table represents the uninsured time deposits by maturity. Uninsured time depositsi maturity or less Threhh e montoo hstt Over threehh Over sixii Over twelvell monthst Totaoo l insureuu d timeii throhh ughgg sixii monthst throhh ughg twelvell monthst depositsii As of December 31, 2021 2020 (Dollall rs in thousands) $ $ 3,509 2,244 1,283 3,139 10,175 $ $ 9,404 5,158 6,738 4,873 26,173 The uninsuredu portion of deposits is any balance that exceeds the FDIC insurance limit of $250 thousand. See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarda ing our available funds. Total deposits increased from $1.37 billion at December 31, 2020 to $1.45 billion at December 31, 2021, an increase of $78.9 million, or 5.8%. Non-interest-bearing deposits increased $70.9 million, or 32.9%, to $286.2 million at December 31, 2021. Interest- bearing deposits increased $8.0 million, or 0.7%, to $1.16 billion at December 31, 2021. Borrowings At December 31, 2021 and 2020, the Bank had no borrowings outstanding. Accrued Interest Payable, Lease Liabilities and Other Liabilities Accrued interest payable, lease liabilities and other liabilities decreased $1.9 million to $19.6 million as compared to $21.5 million in the prior year. This decrease is primarily due to a reduction of $1.4 million in accrued interest payable and a $426,000 reduction in the lease liability. Stockholders’ Equity Total stockholders’ equity at December 31, 2021 increased $7.8 million or 3.7% when compared to the end of 2020. This increase was primarily due to the $22.5 million of earnings recorded during the twelve months of 2021, offset by the $10.0 million of common stock repurchased, the $4.4 million of cash dividends paid during the period, and the $952 thousand decrease in the accumulated io related to an increase in the treasury interest rateaa yield curve. othet The Bank completed its 2021 stock buyback program during the fourth quarter and in total repurchased 339,788 shares of common stock at a total cost of $10.0 million and a weighted average cost of $29.52 per share. The ratio of equity to total assets at December 31, 2021 and at December 31, 2020, was $12.8% and 13.0%, respectively. r comprehensive income on the available-forff -sale investment portfolff ff Other Services To furthet which include the following: r attract and retain customer relationships, we provide a standard array of additional communm ity banking services, Money orders Cashier’s checks Wire transferff Debit cards s Direct deposit Safe deposit boxes Night depository Bank-by-mail Automated teller machines On-line banking Remote deposit capta urtt e Automated telephone bankaa ing We also offeff r, on a limited basis, payroll-related services and credit card and merchantaa credit card processing through third parties hereby we do not undertake credit or fraudaa risk. 14 Internet Banking We advertise but do not actively solicit new deposits or loans through our website. We utilize a qualifieff d and experienced internet service provider to furnish the following types of customer account services: Full on-line statements On-line bill payment Account inquiries Transaction histories Transaction details Account-to-account transfers Fee Income Fee income is a component of our non-interest income. By charging non-customers fees for using our ATMs and charging customers for banking services such as money orders, cashier’s checks, wire transferff r deposit and loan-related fees, we earn fee income. Prudent fee income opportunities are sought to supplement net interest income, but may be limited by our effor ts to remain competitive and by regulatoryrr constraints. s and check orders, as well as othet ff Staffiff ng As of December 31, 2021, we had approximately 181 full-time equivalent employees. Supervision and Regulation General. We are extensively regulated under bothtt federal and state law. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capita l adequacy requirements and conditions to our ability to repurchase stock or to pay dividends. We are also subjeb ct to comprehensive examination and supervision by the New Jersey Department of Banking and Insurance (the “Department”) and the FDIC. The Department and the FDIC have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impam ct the conduct and profitab ility of our activities. a ff To the extent that the following information describes statutory and regulatory provisions, it is qualifieff d in its entiretytt by reference to the particular statuttt ory and regulatory provisions. Proposals to change the laws and regulations governing the banking are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, industryt and the impact such changes may have on us, is difficult to ascertain. Changes in applicable laws and regulations, or in the manner such laws or regulations are interpreted by regulatory agencies or courts, may have a material effeff ct on ouru business, financial condition and results of operations. We are subject to variaa ous requirements and restrit ctions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits on the type of othet r activities in which we may engage and the investments we may make. Banking regulations permit us to engage in certain additional activities, such as insurance sales and securities underwriting, through the formation of a “finff ancial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, we must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRARR rating. At this time, we do not engage in any activity which would require us to maintain a financial subsidiary. We are also subject to federal laws that limit the amount of transactions between us and any nonbank affiff liates. Under these provisions, transactions, such as a loan or investment, by us with any nonbank affilia te are generally limited to 10% of our capital and surplus for all covered transactions with such affiff liate or 20% percent of capital and surplus for all covered transactions witht all affiff liates. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specifieff d amounts. We are also prohibited from purchasing any “low quality”tt “Dodd- Frank Act”) significff antly expands the coverage and scope of the limitations on affiff liate transactions within a banking organiaa zation. . The Dodd-Frank Wall Street Reform and Consumer Protection Act (thet assets from an affiliate ff ff Monetary Policy. Our business, financial condition and results of operations are and will be affeff cted by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve System, (“Federal Reserve”) have a significant effeff ct upon the operating results of commercial banks such as ours. The Federal nts and deposits through its open market operations in United States Reserve has a majora r things, the discount rate on borrowings of member banks government securities transactions and through its regulation of,ff among othet and the reserve requirements against member bankaa s’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. upon the levels of bank loans, investmet ff effect 15 Depoe sitii Insurance. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC (“DIF”). No institution may payaa a dividend if in default of the federal deposit insurance assessment. The DIF has a designated reserve (target) ratio (“DRR”) of 2.00% of the estimated insured deposits. The FDIC has adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35 percent within 8 years of establishment, because the reserve ratio was 1.30 percent as of June 30, 2020. The Restoration Plan maintains the current schedule of assessment rates for all insured depository should the DRR exceed 1.50%, but grants the FDIC sole discretion in institutions. Dividends are requiqq red to be paid to the industryt determining whether to suspend or limit the declaration or payment of dividends. The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corpor r ation protection is also $250,000. The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would likely have t on our operating expenses and results of operations. Management cannot predict what insurance assessment rates will an adverse effecff be in the future. Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafeff or unsound practices, operations or has violated any applicable law, regulation, rule, order or condition is in an unsafe or unsound condition to continuen imposed by the FDIC. Dividendd d Restritt ctiott ns.ss Under the New Jersey Banking Act of 1948, as amended (thet “Banking Act”), a bank may declare and pay cash dividends only if,ff afteff r payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if,ff as a result, the institution would be undercapitalized, or the institution is in default with respect to anynn assessment due to the FDIC. Regue latory Capita a levels of regulatory capital. Current FDIC capital standards require these institutions to satisfyff requirement, a leverage capital requirement and a risk-based capital requirement. l Requirements. Federally insured, state-chartered non-member banks are required to maintain minimum l a common equity Tier 1 capita a The common equity Tier 1 capiaa tal component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. Leverage capiaa tal, also known as “core” capia tal, must equal at least 3.0% of adjud sted total assets for the most highly rated state- chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effecff tively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strot ng banking organizations and are rated composite 1 under the Uniforff m Financial Institutions Rating System. Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must equaqq l at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. Capital rules require a common equity Tier 1 capiaa tal conservation bufferff of 2.5% of risk-weighted assets, which is in addition to the other minimumm risk-based capital standards described above. Instituttt ions that do not maintain this required capia tal buffer become subjeb ct to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the paymaa ent of discretionary bonuses to senior executive management. At December 31, 2021, the Bank met all capia tal adequacy requirements on a fully phased-in basis. In determining compliance with the risk-based capital requirement, a banking organization is allowed to include both core capia tal and supplementary capiaa tal in its total capita l, provided that the amount of supplementary capital included does not exceed the bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk- weighted assets, together witht certain other items. In determining the required amount of risk-based capiaa tal, total assets, including certain off-bff e sheet items, are multiplied by a risk-weight based on the risks inherent in the type of assets. At December 31, 2021, the Bank exceeded all its regulatory capital requirements. alancaa a Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capia tal directive, a cease and desist order, civil money penalties, the establishment of restrictions on the 16 institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or othet rwise, could require one or more of a variety of corrective actions. Promptm Corrective Action. In addition to the required minimum capia tal levels described above, federal law establishes a system of “prompt corrective actions” that federal banki l discretion to take, based upon the capita ng agencies are required to take, or haveaa category into which a federally-regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not adequately capitalized. The following table shows the amount of capia tal associated with the different capital categories set forth in the prompt corrective action regulations. a aa Capital Category Well capia talized Adequately capitalized Undercapitalized Significaff ntly undercapitalized Total Risk-Based Capital 10% or more 8% or more Less than 8% Less than 6% Tier 1 Risk-Based Capital 8% or more 6% or more Less than 6% Less than 4% Common Equity Tier 1 Capital 6.5% or more 4.5% or more Less than 4.5% Less than 3% Tier 1 Leverage Capital 5% or more 4% or more Less than 4% Less than 3% In addition, a banking organization is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specifieff d circumstances, a federal banking agency may reclassifyff a well-capia talized institution as adequately capia talized and may require an adequaqq tely capiaa talized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassifyff a significaff ntly undercapiaa talized institution as critically undercapitalized). ion receives notice or is deemed to have notice that it is undercapita A banking organiaa zation generally must file a written capital restoration plan which meets specifieff d requirements within 45 days of the date that the instituttt lized, significantly undercapitalized or critically undercapiaa talized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. A banking organization which is required to submit a capia tal restoration plan must concurrently submit a perforff mance guaranty by each company that controt ls the institution. In t to various regulatory restrictions, and the appropriate federal banking agency also addition, undercapitalized organizations are subjecb may take any number of discretionary supervisory actions. At December 31, 2021, the Bank was not subject to the above mentioned restrit ctions. a Community Reinvestment Act. The Community Reinvestment Act (“CRA”RR ) requires that banks meet the credit needs of all of their assessment area, as established for these purposes in accordance with applicable regulations based principally on the location of branch offiff ces, including those of low-income areas and borrowers. The CRARR also requires that the FDIC assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the community they serve. Under the CRA,RR tory.” Our record in meeting the institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to imprm ove” or “unsatisfacff requirements of the CRA is made publicly available and is taken into consideration in connection with any applications with federal regulators to engage in certain activities, including approval of a branch or othet r deposit facility,tt mergers and acquisitions, offiff ce relocations, or expansaa ions into non-banking activities. As of December 31, 2021, we maintained a “satisfactory” CRARR rating. The federal banking regulators haveaa proposed extensive changes to the regulations under CRA,RR but no final rules have yet been adopted. We have not yet examined the proposed changes, but we do not believe that they will materially affeff ct the operation of the Bank if they are adopted. Dodd-Fdd raFF nk Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Among other things, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which is an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance , including regulated financial institutions such as us, as well as non-banks and other industryt s who are involved in the consumer finance industryt . The CFPB has exclusive authority through formal rulemaking, as well as through the issuance of orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer financial protection laws, to oversee non-federally , deceptive or abusive. While the CFPB has these extensive powers regulated entities, to prevent practices that the CFPB deems unfair nister and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to interpret, admidd to have examination and enforcement powers over us on matteaa rs otherwise following within the CFPB’s jurisdiction because we have less than $10 billion in assets. The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. ff t . We are a member of the FHLB-NY. Each member of the FHLB-NY is required to maintain a minimum investment in capital stock of the FHLB-NY. The Board of Directors of the FHLB-NY can increase Federal Home Loan Bank (“FH“ LBHH ”) Membership rr 17 ements in the event it has concluded that additional capiaa tal is required to allow it to meet its own the minimum investment requirqq regulatory capital requirements. Any increase in the minimum investmet nt requirements outside of specifieff d ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in the FHLB-NY depends entirely upon the occurrence of a future event, potential payments to the FHLB-NY are not determinable. Additionally, in the event that we fail, the right of the FHLB-NY to seek repayment of funds loaned to us will take priority over certain other creditors. The Sarbanes-Oxley Act. As a public company, the Bank is subjeb ct to the Sarbanes-Oxley Act of 2002 which addresses, among r issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate othet information. As directed by the Sarbanes-Oxley Act, our principal executive office r and principal financial offiff cer are required to certifyff that our quarterly and annual reports do not contain any untrutt e statement of a material fact. The rules adopted by the SEC under the Sarbar nes-Oxley Act require these offiff cers to certify that they are responsible for establishing, maintaining and regularly evaluating the tiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee effecff included information in ouru quartaa erly and of the Board of Directors about our internal control over financial reporting; and they haveaa ial reporting or in other annual reports about their evaluation and whether there haveaa factors that could materially affecff been changes in our internal control over financaa t internal control over financial reporting. ff Loans to One Borrower.rr New Jersey banking law limits the total loans and extensions of credit by a bankaa to one borrower at one time to 15% of the capia tal funds of the bank, or up to 25% of the capita l funds of the bank if the additional 10% is fully secured by collateral having a market value (as determined by reliable and continuously available price quotations) at least equal to the amount of the loans and extensions of credit over the 15% limit. At December 31, 2021, the Bank’s lending limit to one borrower under regulatory guidelines was $33.2 million, but our Board of Directors has set an internal lending limit of approximately 75.0% of legal lending limit or $24.9 million. a aa ce. The federal banki Concentratiott n and Risk Guidandd ng regulatory agencies promulm gated joint interagency guidance regarding material direct and indirect asset and funding concentrations. The guidance defines a concentration as any of the following: (i) asset concentrations of 25% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by individual borrower, small interrelated group of individuals, single repayment source or individual project; (ii) asset concentrations of 100% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by industryt , product line, type of collateral, or short-term obligations of one financial institution or affiff liated group; (iii) funding concentrations from a single source representing 10% or more of Total Assets; or (iv) potentially volatile funding sources that when combined represent 25% or more of Total Assets (these sources may include brokered, large, high-rate, uninsured, purchased or other potentially volatile deposits or borrowings). If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third partytt review and increasing capital requirements. The Bank adhed res to the practices recommended in this guidance. internet-listing-service deposits, Federal funds u Economic Growth, Regulatll ortt yr Relief,ff and Consumer Protection Act. The Economic Growth, Regulatory Relief, and Consumer Protection Act (thet “EGRR&CPA”), which was designed to ease certain restrictions imposed by the Dodd-Frank Act, was enacted into law on May 24, 2018. Most of the changes made by the EGRR&CPA can be groupeuu d into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specificff areas, including subjecting credit relief for large financial institutions, including increasing the threshold reporting agencies to additional requirements; certain regulatoryr at which institutions are classified systemically important financial institutions (froff m $50 billion to $250 billion) and thereforff e subject to strit cter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capiaa tal formation. Some of the key provisions of the EGRR&CPA as it relates to communm ity banks include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subjeb ct to certain documentation and producdd t limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal banking agencies to establish a communitytt bank leverage ratio of tangible equity to average consolidated assets not less than 8% or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in risk-based capiaa tal and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing compliance witht an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-forff mrr Call Reports from $1 billion to $5 billion in assets; and (vi) clarifyiff ng definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capiaa tal allocations, so that t only loans with increased risk are subjeb ct to higher risk weightings. aa Section 201 of the EGRR&CPA directed the federal banki aa of not less than 8% and not more than 10% for qualifyinff g community banks and bankaa ng agencies to develop a community bank leverage ratio (“CBLR”) holding companies with total consolidated assets 18 of less than $10 billion. Qualifying community bankaa ing organizations that exceed the CBLR level established by the agencies, and that elect to be covered by the CBLR framework, will be considered to have met: (i) the generally applicable leverage and risk-based capital requirements under the banking agencies’ capital rules; (ii) the capital ratio requirements necessary to be considered “well capitalized” under the banking agencies’ prompt corrective action framework in the case of insured depository institutions; and (iii) any other applicable capia tal or leverage requirements. On September 17, 2019, the Office of the Comptroller of the Currency, the Board of Governor s of the Federal Reserve Board, and the FDIC adopted a rule to implement the provisions of Section 201 of the EGRR&CPA. Under the rule, a qualifying community banking organization would be defined as a deposit institution or depository institution holding company with less than $10 billion in lance sheet exposures, trading assets and liabilities, mortgage servicing assets, and certain assets and specified limited amounts of off-ba temporaryrr difference deferred tax assets. A qualifyinff g community banking organization would be permitted to elect the CBLR framework if its CBLR is greater than 9%. The rule also addresses opting in and opting out of the CBLR framework by a community ent of a community banking organization that falls below the CBLR requirements, and the effeff ct of banking organization, the treatmaa various CBLR levels for purposes of the prompt corrective action categories applicable to insured depository institutions. Advanced approaches banking organiaa zations (generally, institutions with $250 billion or more in consolidated assets) are not eligible to use the CBLR framework. The Bank did not opt in to the CBLR framework. rr rr ff The Bank continues to analyze the changes implemented by the EGRR&CPA, including the CBLR framework included in the r rulemaking from federal banking regulators, but, at this time, does not believe that such changes will recently adopted rule, and furthett materially impact the Bank’s business, operations, or financaa ial results. Changen s in New Jersey Taxaa Laws. On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through Decembem r 31, 2023, the 2.5% surtax currerr ntly impom sed on Corporation Business Tax (CBT) filers with allocated taxable net income over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for privilege periods beginning on or after January 1, 2020 through December 31, 2021 and expire for privilege periods beginning on or afteff r January 1, 2022. The change made by A.4721 takes effeff ct immediately and applies retroactively to privilege periods beginning on or after January 1, 2020. ff Other Laws and Regulatll s. We are subject to a variety of laws and regulations which are not limited to banking organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating our own property,tt we are subjeb ct to regulations and potential liabilities under state and federal environmental laws. iontt ial markets We are heavily regulated by regulatory agencies at the federal and state levels. As a result of events in the financaa and the economy in recent years, we, like most of our competitors, have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertaintytt for us and the financial services industry in general. n and Regue e Future Legislatio lation. Regulators haveaa increased their focus on the regulation of the financial services industryt in recent years. Proposals that could substantially intensifyff the regulation of the financial services industry have been and are expected to continue to be introduced in the U.S. Congress, in state legislatures and by applicable regulatory authorities. These proposals may change banking statutt es and regulation and our operating environment in substantial and unprnn edictable ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affeff ct the competitive balance among banks, savings associations, credit unions, and other financaa ial institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the effeff cts that such laws or any implementing regulations would have on our business, financial condition and results of operations. 19 Item 1A. Risk Factors Our business and results of operations are subjeb ct to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affecff t the Bank are described below. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial mayaa also impair the Bank’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actuatt lly occur, our business, financial condition, and results of operations could be materially and adversely affeff cted. Our risk factors can be broadly summarized by the following categories: Credit and Interest Rate Risks Risks Related to the Bank’s Common Stock Economic Risks     Operational Risks Strategic Risks  Risks Related to the Regulation of our Industryt  CREDIT AND INTEREST RATE RISKS Our loan portfrr olff ioll has a signi ificff ant concentration in commercial real estate and commercialii constructiott n loans. Our loan portfolio is made up largely of commercial real estate loans and commercial construction loans. At December 31, 2021, we had approximately $771.0 million of commercial real estate loans, which represented 57.5% of our total loan portfolio . Our commercial real estate loans include loans secured by owner-occupied and non-owner-occupied tenanted properties for commercial uses and multi-family loans. The portfolio also consists of construction loans of approximately $403.7 million, or 30.1%, of our total loan portfolio as of December 31, 2021. In addition, we make both secured and unsecured commercial and industrial loans. At December 31, 2021, we had $29.7 million of commercial and industrit al loans, which represented 2.2% of our total loan portfolio. ff ff r Commercial real estate loans generally expose a lender to a higher degree of credit risk of nonpan yment and loss than othet loans because of several factors, including dependence on the successful operation of a business or a project for repayment, the collateral securing these loans may not be sold as easily as for other loans, and loan terms may include a balloon payment rathaa er than full amortization over the loan term. In addition, commercial real estate loans typically involve larger loan balances to single borrorr wers or of related borrowers. Underwriting and portfolio management activities cannot completely eliminate all risks related to these groupsuu loans. Any significant failure to pay on time by our customers or a significff ant default by our customers could materially and advedd rsely affecff t us. rr Loans secured by owner-occupiuu ed real estate are reliant on the underlying operating businesses to provide cash flow to meet debt service obligations, and as a result they are more susceptible to the general impam ct on the economic environment affecff ting those operating companies as well as the real estate market. In general, construction and land lending involves additional risks because of the inherent difficff ulty in estimating a property’tt s value both before and at completion of the project as well as the estimated cost of the project and the time needed to sell the property at completion. Construction costs may exceed original estimates as a result of increased r costs. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the materials, labor or othett completed project and the effect ely the total funds required to complete a project and the related loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is ofteff n concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties witht us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. s of governmental regulation on real property, it is relatively diffiff cult to evaluate accuratu ff ff In addition, no payment from the borrower is required during the term of most of our construction loans since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, construt ction loans ofteff n involve the disbursement of substantial funds with repaymaa ent dependent on the success of the ultimate project and the ability of the borrower to sell or lease the propertytt or refinance the indebtedness, rather than the abilitytt of the borrower or guarantor to repay principal and interest. If the appraisal of the value of the completed project proves to be overstated, we may haveaa inadequate security for the repayment of the loan upon completion of construt ction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costlier to monitor. Increases in market 20 rates of interest may have a more pronounced effeff ct on construction loans by rapiaa dly increasing the end-purchasers’ borrowing costs, thereby reducing the overall demand for the projeo ct. Properties under construction are ofteff n diffiff cult to sell and typically must be ly sold which also complicates the process of working out problem construction loans. This may completed in order to be successfulff t witht another builder to complete construction. Further, in the case of speculative require us to advance additional funds and/or contract construction loans, there is added risk associated with identifyinff aser for the finished project which poses a greater potential risk to us than construction loans to individuals on their personal residences. Loans on land under development or held for future construction as well as lot loans made to individuals for the future construt ction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions. g an end-purchu Any recession in our local economy and commercial real estate market may make it more difficult for commercial real estate borrowers to repay their loans in a timely manner as commercial real estate borrowers’ ability to repay their loans frequently depends on the successfulff development of their properties. The deterioration of one or a few of our commercial real estate loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for loan losses and/or an increase in charge offs,ff all of which could have a material adverse impact on our net income. We also may incuru losses on commercial real estate loans due to declines in occupancy rates and rental rates, which could occuru as a result of less need for offiff ce space due to more people working from home or other factors. This would decrease property values and may decrease the likelihood that a borrower may find permanent financing alternatives. Any weakening in the commercial real estate market will increase the likelihood of default on these loans, which could negatively impact our loan portfolff io’s performance and asset quality.tt the debt during a period of reduced real estate values, we could incuru material losses. Any of these events could increase our costs, require management time and attention, and materially and adversely affeff ct us. If we are required to liquidate the collateral securing a loan to satisfyff Federal banking agencies haveaa issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios. The guidance requires financial institutions that exceed certain levels of commercial real estate lending compared with their total capital to maintain heightened risk management practices that address the following key elements: board and manaaa gement oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. If there is any deterioration in our commercial real estate portfolio or if our regulators conclude that we have not implemented appropriate t ouru business, and could result in the requiqq rement to maintain increased capia tal levels risk management practices, it could adversely affecff or restrict our ability to originate new loans secured by commercial real estate. We can provide no assurance that capiaa tal would be available at that time. The nature of our construction loan portfott lioii maya expose us to increased lending riskii s.kk Given the recent growth in our loan portfolff io, a portion of our construction loans are unseasoned, meaning that they were originated relatively recently. Our limited time with these loans does not provide us with a significant payment history pattern with which to judge futureu collectability. As a result, it may be difficff ult to predict the future performance of our loan portfolio. These loans may have delinquency or charge offff levels above our expectations, which could negatively affect ouru perforff mance. ff The small to mid-sdd ized busineii impairii a borrower’s ability to repaya a loan to us that couldll materiallyll harm our operating results. sses that we lend to maya have fewer resources to weather a downturn in the economy,m which maya We target our business development and marketing strategy primarily to serve the banki ng and financial services needs of small to mid-sized businesses. These small to mid-sized businesses frequently have smaller market share than their competition, may be more vulnerable to economic downturtt ns, ofteff n need substantial additional capital to expand or compete and may experience significff ant volatility in operating results. In addition, the success of a small to midsized business ofteff n depends on the management talents and effoff disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay a loan. Any economic downturns and other events that negatively impact our market areas could cause us to incuru substantial credit losses that could negatively affecff t our results of operations and financial condition. rts of one or two persons or a small group of persons, and the death,t aa Our alloll wance for loan losses maya not be adeqdd uate to cover actual losses. Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition. It requires diffiff cult, subjeb ctive and complex judgments about external factors, including the impact of national and regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect, our allowance for loan losses may not be sufficff ient to cover losses inherent in our loan portfolff r, state and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses and may require an increase in our allowance for loan losses. Although we believe that our allowance io. Furthet 21 for loan losses at December 31, 2021 is adequaqq te to cover known and probable incurred losses included in the portfolff io, we cannot provide assurances that we will not further increase the allowance for loan losses or that our regulators will not require us to increase this allowance. Either of these occurrences could adversely affeff ct our earnings. The FASB has recentlytt losses and maya have a materialii updatett dd impact on our finaii ncial condition or resultsll of operations. issued an accountingn standarddd that willii result in a signifii cant change in how we recogno ize creditdd In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the curru ent “incurredrr loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, banks will be required to present certain financaa ial assets carried at amortized cost, such as loans held ity debt securities, at the net amount expex cted to be collected. The measurement of expected credit for investment and held-to-maturt losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affeff ct the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This diffeff rs significff antly from the “incurred loss” model required under current generally accepted accountu ing principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affeff ct how we determine our allowance for loan losses, and could require us to significff antly increase our allowance. Moreover, the CECL model may create more volatilitytt in the level of the allowance for loan losses. If we are required to materially increase the level of its allowance for loan losses for any reason, such increase could adversely affeff ct our business, financial condition and results of operations. The new CECL standard will become effecff tive for the Bank for fiscal years beginning after December 15, 2022 and for interim periods within those fiscal years. We are evaluating the impact the CECL model will have on our accounting, but we expect to recognize nt to the allowance for loan losses as of the beginning of the first reporting period in which the a one-time cumulative-effect adjud stmet in interagency guidance issued at the end of 2016. We cannot new standard is effeff ctive, consistent with regulatory expectations set fortht yet determine the magnitude of any such one-time cumulative adjud stment or of the overall impact of the new standard on its financaa ial condition or results of operations. The finaii ncial services industrytt is undergoingii a period of great volatilityii and disruii tt ptu ion. Changes in interest rates, in the shape of the yield curve, or in valuations in the debt or equity markets or disruptions in the liquidity or othet occurred, could directly impam ct us in one or more of the following ways: r functioning of financial markets, most of which haveaa  Net interest income, the difference between interest earned on interest earning assets and interest paid on interest- bearing liabilities, represents a significff ant portion of our earnings. Both increases and decreases in the interest rate environment may reduce our profitsff . We expect that we will continue to realize income from the spread between the interest we earn on loans, securities and other interest earna ing assets, and the interest we pay on deposits, and borrowings (when applicable). The net ity and repricing characteristics of our interest earning assets interest spread is affeff cted by the differff ences between the maturtt and interest-bearing liabilities. Our interest earning assets may not reprice as slowly or rapia dly as our interest-bearing liabilities.  The market value of ouru securities portfolio may decline and result in other than temporaryrr the securities in our portfolff financial sector factors and entities. Uncertainty in the market regarding the financial sector has at times negatively impacted the value of securities within our portfolff impairment charges. io is affeff cted by factors that impact the U.S. securities markets in general as well as specificff r declines in these sectors may result in future othet impairment chargaa es. The value of r than temporary io. Furthet  Asset qualitytt may deteriorate as borrowers become unable to repay their loans. Changen s in interest rates maya adverselyll affeff ct our earningsn and finaii ncial conditdd iott n. Our net income depends primarily upon our net interest income. The level of net interest income is primarily a function of the average balance of our interest earning assets, the average balance of our interest-bearia ng liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest earnirr ng assets and our interest-bearing liabilities which, in turnu , are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve, and market interest rates. our earnirr ngs if our cost of funds increases more rapidly than our yield on our interest earning assets and compresses our net interest margin. In addition, the economic value of equitytt could decline A sustained increase in market interest rates could adversely affect ff 22 if interest rates increase. Diffeff rent types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates to predict changes in market interest rates, which are affeff cted by many factors y, domestic and international events and could reducd e our net interest income. We are unablea beyond our control, including inflation, deflation, recession, unemployment, money suppl changes in the United States and other financaa ial markets. uu We also attempt to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate sensitive assets and liabilities. However, interest rate risk management techniques are not exact. A rapid increase or decrease in interest rates could advedd rsely affecff t our results of operations and financial perforff marr nce. Uncertarr inty about the future of the Londondd Interbank Offeff r Rate (LIBOR)R maya adverselyll affeff ct our busineii ss and finaii ncial resultsll . We have certain floating-rate investment securities that determine their applicable interest rate or payment amount by reference to LIBOR. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the ICE Benchmark Administration Limited, the ff which LIBOR reference rates will administrator of LIBOR, extended the transition dates of certain LIBOR tenors to June 30, 2023, after cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. Dollar LIBOR should r December 31, 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation be entered into afteff of LIBOR, or whether LIBOR will continue to be published by its administrat r r basis, afteff such dates. or based on these submissions, or on any othet ff t r things, published recommended fallback language for LIBOR-linked financial instrut ments, identifiedff Regulators, industry groups and certain committees, such as the Alternative Reference Rates Committet e (ARRC) have, among othet recommended alternatives for certain LIBOR rates, such as the Secured Overnight Financing Rate (SOFR) as the recommended alternative to U.S. Dollar LIBOR, and proposed implementations of the recommended alternatives in floating rate financial instruments. It is currently unknown the extent to which these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effeff ct of their implementation may be on the markets for floating-rate financial instruments. At this time, it is not possible to predict the effeff ct that these developments or any discontinuance, modificff ation or other reforms or floating-rate debt instruments. On March 16, 2022, President Biden signed into law ts rate, such as floating-rate notes that require holders to agree on a new reference rate, from may have on LIBOR, other benchmarksrr legislation that requiqq res the Federal Reserve to adopt regulations that automatically switch the interest rate in certain legacy contract with no stipulation for a new benchmarkrr LIBOR to SOFR. The Federal Reserve is required to complete the relevant rule within six monthst of the bill’s enactment. RISKS RELATED TO THE BANK’S COMMON STOCK There is no guarantee that the Bank willll be ablell currenr t rate.ee to continutt e to pay a dividend or,rr if contintt ued, willii be able to pay a divideii nd at the The Board of Directors of the Bank determines at its discretion if,ff when and the amount of dividends that may be paid on the common stock. In making such determination, the Board of Directors takes into account various factors including economic conditions, earnings, liquidity needs, the financial condition of the Bank, applicable state law, regulatoaa ry requirements and other factors deemed relevant by the Board of Directors. Although the Bank just recently commenced paying a quarterly dividend on its common stock in November 2018, there is no guarantee that such dividends will continue to be paid in the future or at what rate. Our stoctt k price maya reflee ct securitieii s market conditdd iott ns The effeff ctiveness of governmental, fiscal and monetary policies, and regulatory responses to the market conditions affeff ct the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock. The stock market’s gains due to a concentration of high growtht companies has been adversely affeff cted by inflation and expectation of higher interest rates and the Russia invasion of Ukraikk ne in February 2022. 23 We face riskii which couldll signif i skk related to healthtt epidemdd ics and othett icaff ntlytt disrii upt our operations. ECONOMIC RISKS r outbreaks,kk severe weather, power or telecommunications loss, and terrorism Business disruptions can occuru due to forces beyond the Bank’s control such as severe weather, power or telecommunications loss, accidents, flooding, terrorism, health emergencies, the spread of infectious diseases or pandemics. Our business could be adversely of any of these events to the extent that they harm the local or national economy. Any of these events may also impacted by the effects impact our branches, our operations, ouru customers and / or our vendors, which mayaa materially and adversely affecff t our business, financial condition and results of operations. These business disruptions may include temporaryrr closure of our branches and/or the facilities of our customers or vendors and suspension of services, which mayaa materially and advedd rsely affecff t our business, financial condition and results of operations. ff Market conditions and economic cyclicality may adversely affeff ct our industry. Market developments, including unemployment, price levels, stock and bond market volatility,tt and changes, including those resulting from Russia’s invasion of Ukraine and the increase in the price of gasoline, affecff t consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase in delinquencies and defaulaa t rates, which could affecff t our earnings and credit quality. Competittt iott n from othett r finaii ncial institutiott ns in originatingii loans and attrtt acrr tingii depoe sits maya adversely rr OPERATIONAL RISKS affeff ct our profrr tt itff abi .yy liii tyii We face substantial competition in originating loans. This competition comes principally from othet r banks, savings institutions, mortgage banking companies, credit unions and other lenders in our marka et area, which is generally an area within an approximate 100 ng institutions. Many of our compem titors enjoyn mile radius of Princeton and dominated by large statewide, regional and interstate banki advantages, such as greater financial resources and higher lending limits, a wider geographi c presence, more accessible branch offiff ce aa r a wider arrarr y of services or more favorable pricing alternatives, as well as lower origination and operating locations, the ability to offeff costs. This competition could reduce ouru net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. aa These competitors mayaa offer higher interest rates on deposits than we do, which could decrease the deposits that we attract or require us to increase our interest rates on deposit accounts to retain existing deposits or attract new deposits. Increased deposit competition could adversely affeff ct our ability to generate the funds necessaryr . for lending operations and may increase our cost of funds r lower interest rates on loans than we do, which could decrease the amount of loans that we Additionally, these competitors may offeff attract or require us to decrease our interest rates on loans to attract new loans. Increased loan competition could adversely affecff t our net interest margin. u We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable terms. Some of our non-bankaa competitors are not subjeb ct to the same extensive regulations that govern ouru operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce ouru market share and advedd rsely affeff ct our results of operations and finanaa cial condition. If depoe sitii levels are not suffiu cienii t, it maya be more expexx nsive to fund loan originations. Our deposits have been our primary funding source. In curreu nt market conditions, depositors may choose to redeploy their funds into the stock market or other investment alternatives, regardless of our effoff rt to retain such depositors. If this occurs, it would hamper our ability to grow deposits and could result in a net outflow of deposits. We will continue to focus on deposit growth, which we use to fund loan originations. However, if we are unable to sufficiently increase our deposit balances, we may be required to increase our use of alternative sources of fundi ng, including FHLB advadd nces, or to increase ouru deposit rates in order to attract additional deposits, each of which would increase our cost of funds. u We must maintainii and follow highi underwritintt g standardd dsr to grow safea ly.yy Our ability to grow our assets safely depends on maintaining disciplined and prudent underwriting standards and ensuring that our relationship managers and lending personnel follow those standards. The weakening of these standards for any reason, such as to iting and monitoring loans, may result in seek higher yielding loans, or a lack of discipline or diligence by our emplom yees in underwr rr 24 loan defaults, foreclosures and additional charge offsff As a result, our business, results of operations, financial condition or prospects could be adversely affeff cted. and may necessitate that we significantly increase our allowance for loan losses. We are a community bank and our abiliii tyii so maya materialii rr lyll adverdd sely affeff ct our perforff marr nce. to maintain our reputa ee tionii is critr ictt al to the success of our business and the failure to do We are a community bankaa nce of our current and potential clients in our ability to provide financaa , and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affeff cted, by the actions of our employees or othet rwise, our business and, therefore, our operating results may be materially adversely affeff cted. Additionally, damaa ge to our reputation could undermine the ial services. Such damage could also impam ir the confidff ence confideff of our counterparties and business partnett t transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential confliff cts of interest, anti- money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that mayaa arise from the failure or perceived failure of us to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third-parties from infringing on the “The Bank of Princeton” brand and associated trademarks. Defense of our reputation, including through litigation, could result in costs adversely affeff cting our business, results of operations, financial condition or prospects. rs, and ultimately affeff ct our ability to effecff ff Our internal control tt systemtt s couldll fail to detect certaitt nii events.ss We are subjecb t to certain operational risks, including but not limited to data processing system failures and errors and customer or employee fraud. We maintain a system of internal controls to mitigate such occurrences which system recently had to be modified to cover the additional risks caused by the increase in the amount of time our employees are working remotely. We also maintain insurance coverage for such risks. However, should such an event occur that is not prevented or detected by our internal controls, is uninsured or in excess of applicable insurance limits, it could have a significant adverse effeff ct on our business, results of operations, financial condition or prospects. If we cannot favorablyll assess the effeff ctiveness of our internal controls publicll accountingn firmii ii addidd tiona tt iott n repoe ieff d attett stattt to provide an unqualifll l regulatll ory is unablell scrutiny. tt rr over financial repor ting e rt on our internal controls, or if our indepee ndendd tt we maya be subject to t regie steii red Like other bankaa tiveness of ouru internal controt ntation and testing and possible remediation of internal control weakness s of our size, our management is required to prepare a report that contains an assessment by management of the effecff l structure and procedurdd es for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of such fiscal year. Our independent registered publu ic accounting firm is also required to examine, attest to and report on the assessment of our management concerning the effectiv eness of our internal control structure and procedurdd es for financial reporting. The rules that must be met for management to assess our internal controls over financial reporting are complex and require significant documeu t to comply with regulatory requirements relating to internal controt ls will likely cause us to incur increased expex nses and will cause a diversion of management’s time and other internal resources. We also may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, in connection with the attestation process, we may encounter problems or delays in completing the implementation of any requested improvements or receiving a favorabla e attestation from our independent registered publu ic accounting firm. If we cannot favorably assess the effectiv eness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualifieff d attestation report on e and the price of our common stock could be adversely affeff cted and we may be subject to our internal controls, investor confidenc additional regulatory scrutiny. es. The efforff kk ff ff ff t We rely on third partiesii obligatiott ns to us could disrii upt our operations. to provide keye components of our business infrn astructure, and a failure of these partierr s to perforff mrr their Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement producd tion and accountu and uninterrupted functioning of our informa tion technology and telecommunications systems and third- partytt servicers. The failure of these systems, or the termination of a third-parta y software license or service agreement on which any of these systems is based, could interrupt our operations. Because our inforff mation technology and telecommunications systems interfacff e with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience service providers could entail significff ant delay and interruptu ions. Replacing vendors or addressing other issues witht our third-partytt ience a significant, sustained or repeated, expense. If we are unable to effiff ciently replace ineffecff analysis. Our business depends on the successfulff tive service providers, or if we experx rr ff 25 system failure or service denial, it could compromise our ability to operate effeff ctively, damage our reputation, result in a loss of customer business, and subject us to additional regulatory scrutiny and possible financial liability, any of which could haveaa a material adverse effeff ct on our business, financial condition, results of operations and future prospects. We cannot predict how changes in technologyo willii interruptionii s. impam ct our business; increased use of technologll ygg maya expos xx e us to serviceii The financaa ial services market, including banking services, is increasingly affeff cted by advances in technology, including developments in:        telecommunications; data processing; automation; Internet banki aa social media; debit cards and so-called “smarta cards”; and remote deposit capta urtt e. ng, including mobile banking; Our ability to compete successfulff ly in the future will depend, to a certain extent, on whethett technological changes. We offer electronic banking services for our consumer and business customers including Internet banki banking and electronic bill payment, as well as banki The successfulff in the future. In addition, increased use of electronic banking creates opportunt claims by customers or othet technology to remain competitive in the future. r we can anticipate and respond to ng, mobile s. r new technologies will likely requiqq re additional capiaa tal investment ities for interruptions in service which could expose us to r third parties. We can provide no assurance that we will have sufficient resources or access to the necessary operation and further development of these and othett r ATM and debit cards, wire transferff ng by phone. We also offeff s, and ACH transferff aa aa We maya be vulnerable to cyberatrr tatt ckskk or other security brear ches affeff ctingtt our elecll tronic data and product deliveryr systemtt s. The financial services industryt has experienced an increase in botht rized systems access as a way to misappropriate assets and sensitive information, corruptuu the number and severity of reported cybey rattacks aimed at gaining unauthot and destrot y data, or cause operational disruptions. Cybercrime risks have increased as electronic and mobile banking activities increased as a result of the COVID- 19 pandemic and may increase as a result of the Russia invasion of Ukraine. We are increasingly dependent on technology systems to run our core operations and to be a delivery channel to provide products and services to ouru customers. We also rely on the integrity and security of a variety of third-party processors, payment, clearing and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship witht us. Failure by these participants or their systems to protect our customers’ transaction data may put us at risk for possible losses due to fraud or operational disruption. In many cases, in order for these systems to function, they must be connected to the internet, directly or indirectly. These connections open our systems to potential attacks by attack on our systems could third partaa ies seeking to steal our data, ouru customers’ information or to disable our systems. A successfulff adversely affeff ct our results of operations by, among other things, harming our reputation among current and potential customers if their information is stolen, disrupting our operations if our systems are impaired, the loss of assets which could be stolen in an attat ck and the an attack. Although we have security safeguards and take numerous steps to protect our systems costs of remediating our systems after from a potential attack, we can provide no assurance that these measures will be successfulff in preventing intrusions into ouru systems. A portion of our workforce (which changes based on management’s discretion) are working a portion of their work hoursu remotely which has only increased our risk in this area. Thereforff e, the Bank’s information technology department has instituted additional securitytt measures with the use of lap top computers at home, such as specially loaded software providing more accessibility, increased monitoring of access logs, and the requirement for emplm oyees to bring their lap top computer into the officff e when working there. In addition, files red via the issued lap top computer; no personal emails can be used. The occurrence of a and documents are only allowed to be transferff breach of security involving our customers could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny and could expos e us to litigation and possible financial liability. Any of these events could have a material adverse effeff ct on our financial condition and results of operatioaa ns. x ff The increasingii and effeff ctively managea use of social media platll the accelerate ll rms presents new riskii fott d impam ct of socialii media could materiallyll adverserr skk and challell nges and the inability or failure to recogno ss.ss ly impam ct the Bank’s busineii ize, respond to, r forms of internet-based communications which allow individuals’ access to a broad audience of consumers and othet There has been a marked increase in the use of social media platforff ms, including weblogs (blogs), social media websites, and r interested othet persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to the Bank’s business. Consumers value readily available information concerning businesses and their goods and services and ofteff n act on such information without furtu her investigation and without regard to its accuracy. Many social media platforms 26 immediately publu ish the content their subscribers and participants’ post, ofteff n withot ut filters or checks on accuracy of the content posted. Information posted on such platforms at any time mayaa be advedd rse to the Bank’s interests and/or may be inaccurate. The dissemination of inforff mation online could harm the Bank’s business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affoff rding the Bank an opportunity for redresdd s or correction. Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments out-of-dff ate information, and improper use by about the Bank’s business, exposure of personally identifiable information, fraud, employees, directors and customers. The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative public ting customer or investor confideff ity that could damage the Bank’s reputation adversely affecff nce. u aa Our growth has substantially increased our expexx nses and impacted our resultstt of operations. STRATEGIC RISKS Although we believe that our growth-oriented business strategy will support our long-term profitaff bility and franchise value, the expense associated with our growth, including compensation expense for the employees needed to support this growth and leasehold r expenses associated with our locations, has and may continue to negatively affect our results. In addition, in order for our and othet existing branches to contribute to our long-term profitab ient deposits at these locations. In order to successfully manage our growth, we need to effeff ctively execute policies, procedures and controls to maintain our credit quality and oversee our operations. We can provide no assurance that we will be successful in this strategy. in attracting and maintaining cost-efficff ility,tt we will need to be successfulff ff Our growth-oriented business stratt tegye couldll be adverselyll affecff ted if we are not able to attrtt act and retain skillell d employeo es. We may not be able to successfully manage our business as a result of the strain on our management and operations that may result from growth. Our abilitytt to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees, and we may need to adopt additional equity plans in order to do so. Our success will also depend on the ability of our offiff cers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrerr nt customer relationships and to hire, train and manage our employees. ff RISKS RELATED TO THE REGULATION OF OUR INDUSTRYRR We are subject to signi operations. ificff ant government regue lation, which couldll affeff ct our busineii ss,s financial conditdd iott n and resultstt of We are subject to extensive governmental supervision, regulation and contrott l. These laws and regulations are subject to change and may require substantial modificff ations to our operations or mayaa causaa e us to incur substantial additional compliance costs. In addition, future legislation and government policy could adversely affeff ct the commercial banking industry and our operations. Such governirr ng laws can be anticipated to continue to be the subject of future modification. Our management cannot predict what effeff ct any such future modifications will have on our operations. Changes to laws and regulation applicable to the financial industry, may impam ct the profitab r new products, obtain financaa ility of our business activities and ing, attract deposits, make loans, may change certain of ouru business practices, including the ability to offeff and achieve satisfacff tory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessaryr changes to operations in order to comply and could therefore also materially and adversely affeff ct our business, financial condition and results of operations. ff The federal and state laws and regulations applicable to our operations give regulatoryrr authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulm gated to protect depositors and the Deposit Insurance Fund and not for the purpose us may be changed at any time, and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change. of protecting stockholders. Laws and regulations now affecting rr ff The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financaa ial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Offiff ce of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifyiff ng and verifyiff ng the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. 27 While we have developed policies and procedured procedurdd es may not be effective in preventing violations of these laws and regulations. s designed to assist in compliance with these laws and regulations, these policies and We can give no assurance that future changes in laws and regulations or changes in their interpretation will not adversely affeff ct t us and create our business. Legislative and regulatory changes may increase our cost of doing business or otherwise advedd rsely affecff competitive advantage for non-bank competitors. Our lendingdd limit maya restricr t our growth. t law, we We are limited in the amount we can loan to a single borrower by the amount of ouru capia tal. Generally, under curren may lend up to 15% of our unimpaired capital and surplus, including capital notes, to any one borrower. Based upon our current capital levels, the amount we may lend is less than that of many of our larger competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business witht us. We may accommodate larger loans by selling participations in those loans to other financaa ial institutions, but this ability mayaa not always be available. u Item 1B. Unresolved Staffff Comments Not applicable. Item 2. Properties We conduct our operations from our headquarters and branch located at 183 Bayard Lane, Princeton, New Jersey, an operatioaa ns r branch locations in New Jersey and Pennsylvania. The following center at 403 Wall Street, Princeton, New Jersey, and from 24 othett table sets forth certain information regarding the Bank’s properties as of December 31, 2021: Location Corporate Headqudd 183 Bayard Lane Princeton, NJ arters and Branch Operations Center 403 Wall Street Princeton, NJ HHamilton Branc h rr 339 Route 33 Hamilton, NJ PPennington Branch 2 Route 31 Pennington, NJ rr Montgomery Branc h 1185 Route 206 North Princeton, NJ Monroe Branch 1 Rossmoor Drive Monroe Township, NJ LLambertville Branch 10-12 Bridge Street Lambertville, NJ LLawrenceville Branch 2999 Princeton Pike Lawrenceville, NJ 28 Leased or Owned Date of Lease Expiration1 Leased October 31, 2023 Leased February 28, 2026 Leased October 30, 2025 Leased April 30, 2022 Leased April 30, 2025 Leased July 31, 2030 Owned N/A Leased October 30, 2025 NNassau Street Branch 194 Nassau Street Princeton, NJ NNew Brunswick Branch 1 Spring Street, Suite 102 NNew Brunswick, NJ rr Cream Ridge Branc h 403 Rt 539 Cream Ridge, NJ ld Branch Chesterfieff 305 Bordentown-Chesterfield Road Chesterfield, NJ wn Branch BBordento d 335 Farnswortht Avenue Bordentown, NJ BBrowns Mills Branch 101 Pemberton Browns Mills Road Browns Mills, NJ rd Branch DDeptfo e 1893 Hurffviff Deptforff d, NJ lle Road Sicklerville Branch 483 Cross Key Road Sicklerville, NJ PPrinceton Junction Branch 11 Cranburyu Road Princeton Junction, NJ Quakerkk bridged Branch 3745 Quakerbrr Hamilton, NJ idge Road LLakewood Branch 12 American Avenue, 7B Lakewood, NJ PPiscii atawaya Branch 1642 Stelton Road, Suite 410 Piscataway, NJ NNorthtt Wales Branch 1222 Welsh Road NNortht Wales, PA Cheltenham Branch 470 West Cheltenham Avenue Philadelphia, PA Chinatown Branch 921 Arch Street Philadelphia, PA 29 Leased November 30, 2026 Leased March 31, 2022 Leased October 28, 2023 Owned Owned Owned Owned N/A N/A N/A N/A Leased February 1, 2026 Leased September 1, 2022 Leased April 1, 2024 Leased August 20, 2025 Leased March 31, 2027 Leased September 30, 2026 Leased January 25, 2026 Leased September 30, 2022 Chestnut Strett et Branc 1839 Chestnut Street Philadelphia, PA rr h Leased February 28, 2027 The expiration date is based on the next upcoming maturity date and does not take into consideration any renewal/extensions dates. Item 3. Legal Proceedings From time to time the Bank is a defendant in various legal proceedings arising in the ordinarya course of our business. However, in the opinion of management of the Bank, there are no proceedings pending to which the Bank is a partytt or to which its property is subjeb ct, which, if determined adversely to the Bank, would be material in relation to the Bank’s profitsff or financial condition, nor are r than ordinary routine litigation incident to the business of the Bank. In addition, no material there any proceedings pending othet proceedings are pending or are known to be threatened or contemplated against the Bank by government authorities or others. Item 4. Mine Safety Disclosures Not applicable. 30 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Bank’s common stock trades on the “NASDAQ Global Select Market” under the ticker symbol “BPRN.RR ” As of March 11, 2022, there were approximately 984 holders of our common stock. The following table shows the quarterly high and low closing prices of our common stock traded on NASDAQ. Quaruu ter endenn d: High Low Stock Pricrr e Decembem r 31, 2021 Septembem r 30, 2021 Juneuu 30, 2021 March 31, 2021 Decembem r 31, 2020 Septembem r 30, 2020 30, 2020 Juneuu March 31, 2020 $ $ $ $ $ $ $ $ 30.89 30.74 31.25 30.00 26.44 20.45 24.70 32.25 $ $ $ $ $ $ $ $ 28.71 27.90 25.58 21.26 18.12 17.40 17.51 19.07 Cash Dividend Per Share $ 0.25 $ 0.18 $ 0.18 $ 0.18 $ $ $ $ 0.12 0.10 0.10 0.10 Recent Sales of Unregistered Securities During the three monthst ended December 31, 2021, the Bank issued:    1,200 shares of its common stock pursu uant to exercises of options previously awarded under the Bank’s stock option plans. The Bank received cash consideration of $22,716 in the aggregate, based on the exercise price of the options; 2,011 shares of its common stock to certain of its directors pursuant to its 2018 Director Fee Plan. The shares were issued to such directors in lieu of cash fees of $60,000 in the aggregate; and 574 shares of its common stock pursuant to its Dividend Reinvestment Plan. The offerff and sale of all of the shares of common stock listed above was exempt from the registration requirements of the Securities Act of 1933, as amended (thett “Securities Act”), pursuant to Section 3(a)(2) of the Securities Act. Issuer Purchases of Equity Securities On March 9, 2021 the Bank announcu ed a stock repurchase program to repurchase up to 339,788 shares of common stock, approximately 5% of the Bank’s outstanding shares of common stock, over a period of time necessary to complete such repurchases. The Company repurchased all 339,788 shares during the year ended December 31, 2021. The Bank’s repurchase of equity securities for the three months ended December 31, 2021 were as follows: 31 Total Number of Shares Purchased as Part of Publicly Announced Plans or Program Total Number of Shares Purchased Average Price Paid Per Share Pe riod Octobeo r 1 - 31, 2021 November 1 - 30, 2021 December 1 - 31, 2021 3,980 87,014 21,603 112,597 $ $ $ $ 30.20 30.32 29.87 30.23 3,980 87,014 21,603 112,597 Maximum Number of Shares that May Yet be Purchased Under Plans or Programs 112,597 108,617 21,603 - 32 Perforff mance Graph The following graph demonstrates comparison of the cumulative total returtt ns for the common stock of the Bank, NASDAQ Composite Index, SNL Mid-Atlantic Bank Index, and Peer Group made up of banks and thrifts with total assets between $1.00 billion and $3.00 billion for the periods indicated. The graph below represents $100 invested in our common stock at its closing price on August 4, 2017, the date the common stock commenced trading on the NASDAQ Global Select Market. Bank of Prinrr ceton Total Return Perforff mance Bank of Princeton NASDAQ Composite Index S&P U.S. BMI Banks - Mid-Atlantic Region Index Peer Group 300 250 200 150 100 e u l a V x e d n I 50 08/088 4/17 12/322 1/17 12/322 1/18 12/322 1/19 12/31/20// 12/322 1/21 Indexee Bank of Princeton NASDAQ Composite Index S&P U.S. BMI Banks - Mid-Atlantic Region Index Peer Grourr p 08/04/17 100.00 100.00 100.00 100.00 12/31/17 107.31 109.19 110.06 109.01 Peer group includes Bankskk and Thrifti stt with total assets between $1B – $3B Source: S&P Global Market Intelligence © 2022 Period Ending 12/31/18 87.28 106.09 94.04 105.16 12/31/19 99.15 145.02 133.72 120.33 12/31/20 75.08 210.16 120.87 102.22 12/31/21 96.20 256.77 152.66 137.06 33 Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes our equity compensation plan information as of December 31, 2021. See Note 15 “Stock- ial Statements included in this Annual Report on Form 10-K for a description Based Compensation” in the Notes to Consolidated Financaa of the material features of each plan. Number of shares of common stock to be issued upon exercise of outstanding options 432,981 -- Weighted- average exercise price of outstanding options $18.91 -- Number of shares of common stock remaining available for future issuance under compensation plans 341,959 -- Plan Category Equity Compensation Plans holderdd srr Equity Compem nsation Plans not approved by securitytt holderdd srr approved by security ll Total 432,981 $18.91 341,959 34 Item 6. [Reserved] None. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows:  Overview and Strategy  Comparison of Financial Condition at December 31, 2021 and December 31, 2020  Comparison of Operating Results for the Years Ended December 31, 2021 and 2020  Rate/Volume Analysis  Liquidity, Commitments and Capital Resources  Off-ff Balance Sheet Arrangements   Exposure to changes in Interest Rates  Critical Accounting Policies and Estimates  Recently Issued Accounting Standards Impact of Inflation Overview and Strategy We remain focused on establishing and retaining customer relationships by offeff ial services and products, competitively-priced and delivered in a responsive manner to small businesses, to profess ionals and individuals in our market area. As a locally-operated community bank, we seek to provide superior customer service that is highly personalized, effiff cient and responsive to local needs. To better serve our customers, we endeavor to provide state-of-tff he-arta delivery systems with e, timely reporting, online bill pay and other similar up-to-date products and services. We seek to ATMs, current operating softwar tt deliver these products and services with the care and profesff sionalism expected of a community bank and with a special dedication to personalized customer service. ring a broad range of traditional financaa ff Our primary business objectives are:    to provide local businesses, profesff needs and local market conditions; to attract deposits and loans through competitive pricing, responsiveness and service, and returtt n to stockholders on capital invested. to provide a reasonablea sionals and individuals with banking services responsive to and determined by their We strit ve to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent egy that utilizes variable rates and matching assets and liabilities t with safe and sound banking practices. We expect that a financial strat will enable us to increase our net interest margin, while managing interest rate risk. We also seek to generate fee income from various sources, subjecb t to our desire to maintain competitive pricing within ouru market area. Our recognition of,ff and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differff entiates us from our competition. We continue to capitalize upon the personal contacts and relationships of ouru organizers, directors, stockholders and officff ers to establish and grow ouru customer base. Comparison of Financial Condition at December 31, 2021 and December 31, 2020 General. Total assets were $1.69 billion at December 31, 2021, an increase of $84.8 million, or 5.3% when compared to $1.60 billion at the end of 2020. The primary reason for the increase in total assets was an increase in cash and cash equivalents of approximately $81.3 million, and a $25.5 million increase in available-forff -sale securities, partially offsff et by a decrease of $28.9 million in net loans. The decreases in net loans primarily consisted of a $96.1 million decrease in PPP loans due to loan payoffsff and the federal government’s termination of the program, a decrease of $41.0 million in commercial real estate loans and a $20.5 million decrease in residential loans and home equity/consumer loans, partially offset by an increase of $140.6 million in construction loans during the twelve month period covered. ff 35 Total liabilities increased by $77.1 million to $1.47 billion at December 31, 2021 from $1.39 billion at December 31, 2020. Total deposits at December 31, 2021 increased by $78.9 million, or 5.8%, when compared to December 31, 2020, primarily due to loan proceeds maintained in non-interest demand accounts from customers who received PPP loans, and stimulus payments to individuals under the American Rescue Plan Act, as well as growth from new branches added during the third quarter of 2020. When comparing deposit products between the two periods, non-interest checking increased $70.9 million, savings increased $46.6 million and money markets increased $67.8 million. These increases were partially offset by a decrease in interest-bearing demand accounts of $29.7 ff million, primarily consisting of municipal deposits, and a decrease of $76.7 million in certificff ates of deposit. In addition, the Bank had no outstanding borrowings at December 31, 2021 and December 31, 2020. Total stockholders’ equity at December 31, 2021 increased $7.8 million or 3.7% when compared to the end of 2020. This increase was primarily due to the $22.5 million of earnings recorded during the twelve months of 2021, offset by the $10.0 million of common stock repurchased, the $4.4 million of cash dividends paid during the period, and the $952 thousand decrease in the accumulated othet io related to an increase in the treasury interest rateaa yield curve. The Bank completed its 2021 stock buyback program during the fourth quarter and in total repurchased 339,788 shares of common stock at a total cost of $10.0 million and a weighted average cost of $29.52 per share. The ratio of equity to total assets at December 31, 2021 and at December 31, 2020, was $12.8% and 13.0%, respectively. r comprehensive income on the available-forff -sale investment portfolff ff We manage our balance sheet based on a number of interrelated criteria, such as changes in interest rates, fluctuations in certain asset and liability categories whose changes are not totally controlled by us, such as swings in deposit account balances driven by depositors’ needs, prepayments and issuer call options exercised on securities available for sale, early payoffsff on loans, investment ties presented by markaa et conditions, lending originations, capital provided by earnings, and active management of ouru overall opportuni liquiditytt positions. The management of these dynamia c and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year. t Comparison of Operating Results for the Years Ended December 31, 2021 and 2020 General. Net income for the year ended December 31, 2021 was $22.5 million, an increase of approximately $8.7 million, or 62.9%, as compared to the year ended December 31, 2020. This increase over 2020’s results was primarily due to a $13.8 million increase in net- interest income and a $1.6 million decrease in the provision for loan losses, partially offsff et by a $3.3 million increase in non-interest expenses, a $3.2 million increase in income tax expense and a $140,000 reduction in non-interest income. Net interest income. Net interest income for the twelve montht period ended December 31, 2021 was $62.6 million, an increase of $13.8 million, or 28.1%, over 2020. This increase was due a $7.6 million increase in interest earnerr d on earning assets and a $6.2 million decline in interest expense. For the twelve montht period ended December 31, 2021, the average outstanding balance of earning assets increased by $127.0 million and average outstanding interest-beariaa ng liabilities increased $57.1 million. The total rate on average interest-bearing liabilities, which includes non-interest-bearing deposits, for the twelve month periods ended December 31, 2021 and 2020 was 0.47% and 0.99%, respectively. Total interest and dividend income.ee Total interest and dividend income increased $7.6 million, or 12.3%, to $69.3 million for the year ended Decembem r 31, 2021, compared to $61.7 million for the prior year. The improvement in interest income resulted from a $127.0 million increase in the average balance of interest-earning assets, as well as a increase in the yield on earning assets of 14 basis points to 4.45% for the twelve month period ended December 31, 2021. Interest income and fees on loans increased $8.0 million, or 13.6%, to $67.3 million for the year ended December 31, 2021, compared to $59.3 million for the prior year. The increase was attributable to an increase in the average balance of loans receivable of $90.1 million from $1.29 billion in 2020 to $1.38 billion in 2021. This increase was enhanced by a 28 basis point increase in the year- over-year average yield on loans, associated in part with the fees earned from the PPP loan portfolio as a result of prepayments resulting from the SBA debt forgiveness. Interest income on securities decreased approximately $378,000, or 17.9%, for the year ended December 31, 2021 compared to the prior year. This decrease was primarily attributable to a $12.4 million decrease in average balances and a 13 basis point reduction in the yield earned on the securities portfolio. Average balances decreased in part due to $4.7 million of calls/maturtt ities, and cash received from principal repayments. 36 Othet r interest and dividends decreased $70,000, or 26.2%, to $197,000 for the year ended December 31, 2021, compared to r investments and dividends, $267,000 for the prior year. This decrease was primarily due to a 38 basis point reduction in the yield on othett offsff et by an increase in the average outstanding of $49.3 million. Interest Expexx nse. Total interest expense decreased $6.2 million, or 48.0%, for the year ended December 31, 2021 compared to the prior year. by an increase of $56.8 This decrease was the result of a 60 basis point decrease in the cost of interest-bearing liabilities, partially offset million in average interest-bearia ng liabilities. ff Interest expense on borrowings was not meaningfulff for both periods presented. Provision for Loan Losses.ss The provision for credit losses for the twelve months ended December 31, 2021 was $3.6 million compared witht a provision of $5.2 million for the 2020 period. The decrease in the provision was due to the 2020 provision was enhanced by increased qualitative factors that were impacted by elements of the COVID-19 pandemic that remained flat during 2021. Thereforff e, there was less of provision need to fund the provision for loan losses in 2021. As of December 31, 2021 and 2020, the Bank did not apply any qualitative factors to the loans originated from PPP, based on the U.S government’s guarantee and the CARES Act requirement to classifyff these loans at 0% in determining risk-based capital ratio. The rate of allowance for credit losses to period end loans was 1.24% (excluding PPP loans, the coverage ratio was 1.32%) at December 31, 2021, compared to 1.18% (excluding PPP loans, the coverage ratio was 1.35%) at December 31, 2020, which reflects manaaa gement’s assessment of the credit quality in the loan portfolio. See the section above titled “Financial Condition -Allowance for Loan Losses” for a discussion of our allowance for loan losses methodology, including additional information regarding the determination of the provision for loan losses. Non-In- terest Income. Total non-interest income for the twelve month period ended December 31, 2021 decreased $140 thousand, or 2.9%, from the 2020 twelve month period, primarily due to a $571 thousand gain on the sale of investment securities available-for sale recorded in the 2020 period. Non-In- terest Expexx nse. For the twelve month period ended Decembem r 31, 2021, non-interest expense was $34.5 million, compared to $31.1 million for the same period in 2020. This increase was primarily due to an increase in additional operating costs associated with the Bank’s branch expansion strategy. Income Tax Expexx nse. For the year ended December 31, 2021, the Bank recorded income tax expense of $6.7 million resulting in an effeff ctive tax rate of 23.0%, compared to a $3.5 million expense resulting in an effeff ctive tax rate of 20.2% for the same period in 2020. The curru ent effecff tive tax rate was impacted by the level of tax-free income against the level of taxable earnings. During 2020, the New Jersey Governor signed a law extending and retroactively increasing New Jersey’s corpor ration business tax surtax by 1.0% to 2.5%. 37 rr Average Balance Sheets. The following table sets fortht average balance sheets, yields and costs, and certain other information for the years indicated. The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Net loan fees of $9.2 million and $3.1 million were recorded for twelve months ended December 31, 2021 and 2020, respectively. Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented. No tax-equiqq valent adjustmet nts have been made. Average Balances 2021 Income/ Expexx nse Yield Rates 2020 Average Balances (Dollarll s in thousandsn ) Inconn me/ Expexx nse Yield Rates Change 2021 vs 2020 Average Yielii dll Rates Balances assets: Intenn rest-earnirr ngii Loans receivaii ble ll Securiuu tiii esii $ ,381,626 1 $ 67,348 4.87% $ 1,291,534 $ 59,301 4.59% $ 90,092 0.28% 0.00% -0.24% -0.04% 0.17% -0.22% -0.54% 0.14% -0.36% -0.33% -0.42% -0.73% -0.60% -0.16% -0.60% 0.73% 0.60% 0.59% for-sale for-sale -assets assets Taxablell availaii ble-ll Tax exemptmm availaii ble-ll Held-tdd o-maturiuu tyii sold Federal fundsuu Othett r intenn rest earnirr ngii Total intenn rest-earningii Othett r non-earnings assets Total assets liabiliii tiii esii Intenn rest-bearingii Demand Savings ii Moneo y marketkk s Certificff ates of deposit Total deposit Borrowings Total intenn rest-bearingii Non-intenn rest-bearing liabii ilitll ies Othett ilitll ies liabii ilitll ies r liabii Total liabii Stockholdell Total liabii equiqq tyii ilitll ies rs' equiqq tyii ilitll ies and stockholder's assets ; intenn rest rate ii Net intenn rest-earnirr ngs Net intenn rest incomeoo spread Net intenn rest margin Net intenn rest margin FTE1 1 Includll esdd 719 1,378 11 70 197 61,676 1,418 992 2,003 8,404 12,817 9 12,826 $ $ $ 1.86% 2.52% 5.02% 0.33% 0.83% 4.31% 0.63% 0.58% 0.71% 2.05% 1.18% 0.53% 1.18% $ $ 33,805 47,294 212 43,402 50,995 1,557,334 101,479 1,658,813 263,715 205,788 339,903 336,488 1,145,894 270 1,146,164 273,260 25,470 1,444,894 213,919 547 1,172 11 50 147 69,275 716 512 1,004 4,441 6,673 1 6,674 $ $ $ 1.62% 2.48% 5.19% 0.11% 0.29% 4.45% 0.27% 0.25% 0.30% 1.32% 0.58% 0.37% 0.58% $ $ 38,696 54,787 219 21,379 23,673 1,430,288 101,479 1,531,767 224,678 171,119 281,421 410,483 1,087,701 1,709 1,089,410 209,439 24,654 1,323,503 200,880 $ $ 1,658,813 411,170 $ $ 1,524,383 340,878 $ 62,601 3.87% 4.02% 4.08% $ 48,850 3.13% 3.42% 3.49% (4,891) (7,493) (7) 22,023 27,322 127,046 - 127,046 39,037 34,669 58,482 (73,995) 58,193 (1,439) 56,754 63,821 816 121,391 13,039 134,430 70,292 13,751 $ $ $ $ $ federal and state tax effeff ct of tax exemptmm securiuu tiii esii and loans. 38 Rate/Volume Analysis The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated. Twelww ve Months Ende d December 31, 2021 vs. 2020 Increase (Decrease) Due to Rate $ 3,655 VolVV ume (In thousands) 4,392 $ Net $ 8,047 ( 92) (21) - (173) 3,369 (808) (566) (1,172) (2,987) (5) (5,538) 8,907 $ $ $ $ (80) (185) - 103 4,230 106 86 173 (976) (3) (614) (172) (206) - (70) 7,599 (702) (480) (999) (3,963) (8) (6,152) $ $ $ 4,844 $ 13,751 $ $ $ $ Securiuu tiii esii Intenn rest and diviii deii nd income: Loans receivable, inclnn udll availaii ble-ll Taxable ll Tax-exemptmm for-sale indd g fees Securiuu tiii esii Othett held-tdd o-maturiuu tyii r intenn rest and diviii deii nd income Total intenn rest andn diviii deii nd income Intenn rest expexx nse: Demand Savingii s Money market Certififf caii Borrowingsn tes of deposit Total intenn rest expexx nse Change in net intenn rest income Liquidity, Commitments and Capital Resources Liquii idity.yy Our liquidity, represented by cash and due from banks, is a product of ouru operating, investing and financing activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requiqq rements. While scheduled payments from the amortization of loans and securities and short-term investmet nts are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities. u We strive to maintain suffiff cient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. We are required to have enough investments that qualifyff as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquiditytt may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. We attempt to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term funcu tion of our business management. We manage our liquidity in accordance with a board of directors-appa roved asset- liability policy, which is administered by our asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capia tal and investmet nt-related matters on a quarterly basis to our board of directors. We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the s from maturiu ng certificff ates of deposit requirements of normal operations, including loan commitments and potential deposit outflowff and savings withdrawals. While deposits are our primaryrr source of funds, when needed we are also able to generate cash through borrorr wings from the FHLB-NY. At December 31, 2021, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $184.6 million. Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2020, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourterr en days. 39 Contracrr tual Obligat iott ns.ss We have non-cancelable operating leases for branch offiff ces and our operations center. The following i table is a schedule of future paymaa ents under operating leases with initial terms longer than 12 months at December 31, 2021: Years Enden d December 31 2022 2023 2024 2025 2026 Thereafter Total Amountuu thousandsn ) 2,322 2,278 2,019 1,998 1,846 12,335 22,798 (inii $ $ The following table summarizes our contractual cash obligations relating to certificff ates of deposits: Years Enden d December 31 2022 2023 2024 2025 2026 and thereafteff Total r Amountuu thousandsn ) 124,581 55,293 66,075 32,170 24,101 302,220 (inii $ $ Capia taii l Resources. Consistent with our goals to operate as a sound and profitff able financaa maintain our statust capia tal requirements to be considered “well capita Statements included within this Form 10-K for more information regarding our capiaa tal resources. ial institution, we actively seek to as a well-capia talized institution in accordance with regulatory standards. As of Decembem r 31, 2021, we met the lized.” See Note 16 – “Regulatory Matters” in the Notes to Consolidated Financial a Off-Bff alance Sheet Arrangements We are a partytt to financial instruments with off-bff alance sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving our facilities. These financial instruments include significant purchase commitments, such as commitments related to capiaa tal expenditure plans and commitments to purchu nt securities or mortgage-backed securiu ties, and commitments to extend credit to meet the financial needs of ouru customers. ase investmett tt Commitments to extend credit are agreements to lend to a customer as long as there is no violation of anynn condition established ent of a fee in the loan contract . Commitments generally have fixed expix ration dates or othet rta y to the financial instrut ment for by our customers. Our exposure to credit loss in the event of non-performance by the counterpar commitments to extend credit is represented by the contractual notional amount of those instrut ments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since manyaa of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. r termination clauses and may require paymaa 40 We had the following off-bff alancaa e sheet financial instrut ments whose contract amounts represent credit risk at December 31: (Dollars in thousands) 2021 2020 Performance and standby letters of credit Undisbursed loans-in-process Commitments to fund loans Unfunded commitments under lines of credit Total $ $ 486 239,156 41,816 4,573 286,031 $ $ 2,165 116,877 39,868 4,079 162,989 For additional information regarding ouru outstanding lending commitments at December 31, 2021, see Note 8 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. Impact of Inflaff tion The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our perforff mance than the effeff cts of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affecff ted by inflation. Exposure to changes in Interest Rates Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Bank’s interest rate sensitivity “gap.” An asset or liability is said to be time period if it will mature or reprice within that time period. The interest rate sensitivity gapa is interest rate sensitive within a specificff defined as the difference between the amount of interest-earning assets maturing or repricing within a specificff time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gapa is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gapaa is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gapa would tend to affeff ct adversely net interest income while a positive gapa would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gapa would tend to result in an increase in net interest income while a positive gap would tend to affeff ct adversely net interest income. The table on the next page sets forth the amountu s of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2021, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets fortht an approximation of the projected repricing of assets and liabilities at December 31, 2021, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjud stments period and subsu equent selected time intervals. The loan amountuu s in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments d of adjusta ble-rate loans and fixed-rate loans, and as a result of contrat ctuatt l rate adjud stments on adjud stable-rate loans. Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differeff nt degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on othet r types may lag behind changes in market rates. Additionally, certain assets, such as adjud stable rate loans, have featurtt es which restrict changes in interest rates botht on a short-term basis and over the lifeff of the asset. Further, in the event of a change in interest rates, prepayment and earla y withdrawal levels would likely deviate significaff ntly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjud stable-rate loans may decrease in the event of an interest rate increase. 41 (Dollars in thousands) Interest-earnirr ngii assets: (1) Investment securitiii es Loans receivaii ble Other interest-earnirr ngs ii assets (2) Other non-interest assets Total interest-earnirr ngii assets Interest-bearingii liabilities: Checkingii and savings ii accounts Money market accounts Certificff ate accounts Total interest-bearingii liabilities Interest-earnirr ngii assets less interest-bearingii liabilities Cumulativeii interest-ratrr e sensitivity gap (3) Cumulativeii interest-ratrr e gap as a percentage of total assets at December 31, 2021 3 Months or less More than 3 Months to 1 Year More than 1 Year to 3 Years More than 3 Years to 5 Years More than 5 Years Non-Rate Sensitive Total Amoumm nt $ 12,673 $ 10,915 $ 29,754 $ 19,623 $ 485,357 150,652 - 157,127 378,340 263,262 - - - - - - 28,713 $ 55,061 - - (312) $ (20,604) 9,409 107,712 101,366 1,318,543 160,061 107,712 $ 648,682 $ 168,042 $ 408,094 $ 282,885 $ 83,774 $ (11,507) $ 1,687,682 $ $ 12,541 $ 472,060 $ 20,242 50,844 352,833 73,737 $ - - $ - - 121,368 56,271 83,627 $ 898,630 $ 121,368 $ 56,271 $ - - - - $ $ - - - - $ $ 484,601 373,075 302,220 1,159,896 $ 565,055 $ (730,588) $ 286,726 $ 226,614 $ 83,774 $ (11,507) $ 527,786 $ 565,055 $ (165,533) $ 121,193 $ 347,807 $ 431,581 33.48% -9.81% 7.18% 20.61% 25.57% Cumulativeii interest-earnirr ngii assets as a percentage of cumulativeii interest-bearingii liabilities at December 31, 2021 775.68% 83.15% 110.98% 129.99% 137.21% (1) Interest-earnirr ngii s assets are includll ed in the period in which the balances are expexx cted to be redeployed and/or repriced as a result of anticipaii ted preprr ayments, scheduled rate adjud stments and contractual maturitiii es. (2) Includll es FHLB Stock and Federal Funds Sold (3) Interest-rate sensitivity gap represents the differff ence between total interest-earnirr ngii assets and total interest-bearingii liabilities. 42 Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which of interest rate scenarios. NPV is the present value generates estimates of the changes in our net portfolio value (“NPV”) over a range of expected cash flows from assets, liabilities and off-ff balance sheet contract ts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the marka et value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2021 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated. aa Changen Intenn rest Rates in In Basis Pointsnn Shock) (Rate Net Portfolioii Value NPV as % of Portfolioii Valueuu of Assets Amontsnn $ Change (Dollarsaa 300 200 100 Static (100) $ $ $ $ $ 352,574 347,413 336,059 319,534 281,300 $ $ $ $ $ 33,040 27,879 16,525 - (38,234) % Change in thousands) 10.34% 8.72% 5.17% -11.97% NPV Ratio C ii hange -1.68% -5.72% 0.13% -3.91% 2.06% -1.98% 4.03% 5.22% 1.18% As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a parta icular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at repricing of specificff a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. ff Critical Accounting Policies and Estimates In the preparation of our financaa ial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and in accordance with general practices within the banking industryt . Our significant accounting policies are described in our financial statements under Note 1- “Summary of Significff ant Accounting Policies.” While all of these policies are important to understanding the financial statements, certain accounting policies described below involve significant judgment and assumptions by management that have a material impam ct on the carrying value of certain assets and liabilities. We consider these accounting estimates to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the natureu of the judgments and assumptions we make, actuatt l results could diffeff r from these judgments and assumptions that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Alloll wance for Creditdd Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents our estimate of losses inherent in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Generally, loans deemed to be uncollectible are charged-offff against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance for loan losses. All, to the allowance for loan losses when it is determined that the or part, of the principal balance of loans receivable are charged-offff repayment of all, or part, of the principal balance is highly unlikely. For a more detailed discussion of our allowance for loan loss methodology and the allowance for loan losses see the section titled “Analysis of Allowance for Loan Losses” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” yr Other-ThaTT n-Temporarrr ent. Management evaluates securities for other-than-temporary-impairment (“OTTI”) quarterly, and more frequently when economic or market conditions warrant such an evaluation. In determining OTTI under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, Investmet ntstt – Debt and Equity Securities, management considers many factors, including: (1) the lengtht of time and the extent to which the fair value has been less Impairmii 43 than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the markaa et decline was affeff cted by macroeconomic conditions; and (4) whethet r the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjeb ctivity and judgment and is based on information availabla e to management at a point in time. OTTI is deemed to have occurred if there has been an advedd rse change in the remaining expected future cash flows. When an OTTI of debt securities occurs, the amountu of the OTTI recognized in earnings depends on whether the Bank intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the Bank intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnirr ngs at an amount equal to the difference between the securities’ amortized cost basis and its fair value at the balance sheet date. If the Bank does not intend to sell the security and it is not more likely that the Bank will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to othet r factors shall be recognized in other comprehensive income, net of applicable tax benefit. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment. Goodwidd llii and Core Depoe sitii Intangible.ee Both goodwill and the core deposit intangible asset are reviewed for impairmerr nt annually or when events and circumstances indicate that an impairment may haveaa occurred. As a result of the COVID-19 pandemic and a broad decline in the market values of all banking company stock, the market price of the Bank’s common stock and the resulting 31, 2020, June 30, 2020, aggregate markaa et capitalization of the Bank declined. During each of the quarterly periods ended Marcha September, 30, 2020, and December 31, 2020, the Bank concluded that a triggering event occurred due to the decline in the Bank's stock price and market capitalization as a result of the COVID-19 pandemic. In each quarterly period, management concluded based on the results of a qualitative goodwill impairment analysis that the fair value of the reporting unit exceeded the carrying value and the goodwill was not impaired. At May 31, 2021, the Bank in reviewing whether its goodwill was impaired looked at applicable accounting guidance requires an annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that t is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test canaa be perforff med to determine whether it is necessary to perforff m a quantitative goodwill impam irment test. If this qualitative test determines it is not more likely than not (less than 50% probability) the fair value of the Reporting Unit exceed the Carrying Value, perforff ming the qualitative then the Bank does not have to perform a quantitative test and goodwill can be considered not impaired. After factor test the result was the Bank was more than 50% probable the fair value of the Reporting Unit exceeds the than the Carrying Value, thereforff e a quantitative test was not required as of Mayaa 31, 2021. ff At May 31, 2020, the Bank performed its annual qualitative and subsequently a quantitative goodwill impairment analysis determining the fair value of the reporting unit based on the income approach and market approach. The income approach uses a dividend discount analysis. This approach calculates cash flows based on anticipated financial results assuming a change of control transaction. This change of control assumes that an acquirer will achieve an expected base level of earnings, achieve integration cost savings and incur certain transaction costs (including such items as legal and financial advisors fees, contract cancellations, severance r transaction costs). The present value of all excess cash flows generated by the Bank (above the and emplm oyment obligations, and othet minimum tangible capital ratio) plus the present value of a terminal sale value is calculated to arrive at the fair value for the income approach. The market approach is used to calculate the fair value of a company by calculating median earnings and book value pricing multiples for recent actual acquisitions of companies of similar size and perforff mance and then applying these multiples to our reporting unit. No company or transaction in the analysis is identical to our reporting unit and, accordingly, the results of the analysis are only indicative of comparable value. This technique uses historical data to create a current pricing level and is thus a trailing indicator. Results of the market approach need to be understood in this context, especially in periods of rapia d price change and market uncertainty. The Bank applied the market valuation approach to our then current stock price adjud sted by an appropriate control premium and also to a peer group adjud sted by an appropriate control premium. In this analysis, the Bank determined that none of its goodwill was impaired. Also, the core deposit intangible was analyzed and no impairment was recorded. Income Taxeaa s. We account for income taxes in accordancaa e contained in FASB ASC Topic 740, Income Taxes. This includes guidance related to accounting for uncertainties in income taxes, which sets out a consistent s to maintain for uncertain tax positions. We had no material unrecognized framework to determine the appropriate level of tax reserverr tax benefits or accrued interest and penalties as of December 31, 2021 and 2020. Our policy is to account for interest and penalties as a component of other expense. income tax accounting guidancaa e witht We have provided for federal and state income taxes on the basis of reported income. The amounts reflected on our tax returtt ns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effecff t of these temporary differences is accounted for as deferrer d taxes applicable to future periods. 44 Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively, for the nces between the financial statement carrying amounts of existing assets and red tax assets and liabilities are measured using enacted tax rates expected to apply to red assets red estimated future tax consequences attrit butable to differeff liabilities and their respective tax bases. Deferff taxable income in the years in which those temporary differences are expected to be recovered or settled. The effecff and liabilities of a change in tax rates is recognized in earna ings in the period that includes the enactmet tax assets is assessed and a valuation allowance provided for the full amount which is not more-likely-than-not to be realized. nt date. The realization of deferff t on deferff On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through December 31, 2023, the 2.5% surtax currently imposed on Corporation Business Tax (CBT) filers with allocated taxabla e net income over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for privilege periods beginning on or afteff r Januaryr 1, 2020 through December 31, 2021 and expix re for privilege periods beginning on or afteff r January 1, 2022. The change made by A.4721 r January 1, 2020. The Bank recorded an takes effeff ct immediately and applies retroactively to privilege periods beginning on or afteff additional $63,000 in income tax expense related to the adjud sted surtax during 2020. Effeff ctive in 2019, New Jersey has adopted combined income tax reporting for certain members of a commonly-controlled unitaryrr business group.u Recently Issued Accounting Standards See Note 1- “Summarya of Significff ant Accounting Policies” in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a discussion of recently issued accounting standards. Item 7A. Quantitative and Qualitative Disclosures about Market Risk See Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Exposures to Changes in Interest Rates.” 45 Item 8. Financial Statements and Supplementary Data THE BANK OF PRINCETON INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 Report of Independent Registered Public Accounting Firm for December 31, 2021 Report of Independent Registered Public Accounting Firm for December 31, 2020 Consolidated Statements of Financial Condition Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Stockhokk Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements lders’ Equity Page 47 49 50 51 52 53 54 56 46 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of The Bank of Princeton Opinion on the Financial Statements We have audited the accompanying consolidated statement of financial condition of The Bank of Princeton and subsu idiaries (the “Bank”) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in stockholkk ders’ equity and cash flows for the year ended Decembem r 31, 2021, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conforff mi ty with accountuu ing principles generally accepted in the United States of America. rr Basis for Opinion These financial statements are the responsibility of the Bank's management. Ouruu responsibility is to express an opinion on the Bank's financial statements based on ouruu audits. We are a public accounting firm registered with the Public Companynn respect to the Bank in Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent witht accordance witht U.S. federal securiuu ties laws and the applicable rules and regulations of the Securiuu ties and Exchange Commission and the PCAOB. u We conducted ouru audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform e about whether the financial statements are free of material misstatement, whether the audit to obtain reasonable assurancaa l over r or fraud. The Bank is not required to have, nor were we engaged to perforff m, due to errorr l over financial reporting financial reporting. As part of our audit we are required to obtain an understanding of internal contrott but not for the purpose of expressing an opinion on the effecff l over financial reportirr ng. tiveness of the Bank’s internal contrott Accordingly, we express no such opinion. an audit of its internal contrott rr Our audit included performing procedureuu s to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and perforff ming procedurd es that respond to those risks. Such procedures included examining, on a test basis, evidence regardaa ing the amounts and disclosureuu s in the financial statements. Ouru audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentatiaa on of the financial statements. We believe that our audit provides a reasonable basis for our opinion. t Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicateaa d or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financaa ial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit mattaa er does not alter in any way ouruu opinion on the financial statements, taken as a 47 whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosureu s to which it relates. Allowance for Loan Losses Critical Auditd Matter Description As described in Notes 1 and 4 to the financial statements, the Bank has recorded an allowancaa e for loan losses in the amountuu of $16.6 million as of December 31, 2021, representing management’s estimate of the probable losses inherent in the loan e is established as losses are estimated to have occurred through a provision for loan portfolff losses charged to earnings. io as of that date. The allowancaa d We determined that performing procedures nation of its allowance for loan losses is a critical nation are (i) the application of significff ant judgment and estimatiaa on audit matter. The principal consideratiaa ons for ouruu determi on the partaa of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedurd es and evaluating audit evidence obtained, and (ii) significant audit effoff rt was necessary in evaluating management’s methodology, significant assumptions and calculations. relating to the Bank’s determi rr rr How the Critical Auditd Matter was addressed in the Audit r involved performing procedurdd es and evaluatiaa ng audit evidence in connection with forming our overall Addressing the mattett iveness opinion on the financial statements. These procedures of contrott tions and judgments of its estimation model. These procedures also included, among others, testing manaaa gement’s process for determining the qualitative reserve components and testing the completeness and accurau cy of data utilized by management. ls relating to the Bank’s process for estimating the allowance covering the key assumpu included assessing the design and testing the operating effect dd ff /s/ Wolf & Company, P.C. We haveaa served as the Bank's auditor since 2021. Boston, Massachusetts March 28, 2022 48 Tel: 215-564-1900 Fax: 215-564-3940 www.bdo.com Ten Penn Center 1801 Market Street, Suite 1700 Philadelphia, PA 19103 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors The Bank of Princeton Princeton, NJ Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial condition of The Bank of Princeton (the “Company”) as of December 31, 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, LLP We served as the Company’s auditors from 2013 to 2021. Philadelphia, Pennsylvania March 26, 2021 49 THE BANK OF PRINCETON CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data) ASSETS Cash andnn due from banks Intenn rest-earningii Federal funduu s sold bank balances Total cash and cash equiqq vaii lents for-sale, at fair value availaii ble-ll held-to-maturiuu tyii Securiuu tiii esii Securiuu tiii esii Loans receivable, net of alloll wance for loan losses of $16,620 and $16,027 ll at December 31, 2021 and Decembem r 31, 2020, respectively (faiff rii value of $225 andnn $237, respectiveii y ly) insurauu nce Bank-owned lifeii Premismm es andnn equiqq pmii enmm t,nn net Accruerr d intenn rest receivable Restritt ctii ed invenn stment in bank stock Deferred taxes, net Goodwill ll Core depositii intann ngible Operating lease righi r real estate owned Othet Othet r assets TOTAL ASSETS se asset t-hh of-uff LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Depositsii : Non-intenn rest-bearingii Intenn rest-bearingii Total depositsii Accruerr d intenn rest payable ll Operating lease liabii Othet r liabii ilitll ies ilityii TOTAL LIABILITIES STOCKHOLDERS' EQUITY: Common stock, par values $5.00 per share; 15,000,000 shares authuu orizedzz , 6,820,143 issued andnn 6,480,355 shares outsuu tandind g at December 31, 2021; and 6,789,812 issueduu at December 31, 2020 Paid-idd nii capitaii Treasuryuu Stock, at cost 339,788 andnn 0 shares at Decembem r 31, 2021 andnn December 31, 2020, respectiveii Retained earnings Accumuuu andn outsuu tanding l lauu ted other comprehensive income TOTAL STOCKHOLDER'S EQUITY TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY De ce mbe r 31, 2021 De ce mbe r 31, 2020 $ $ $ $ 9,409 2,610 146,697 158,716 101,158 08 2 ,318,543 1 51,479 12,598 4,218 1,345 4,514 8 ,853 2,393 17,914 226 5,517 1,687,682 286,247 1,159,896 1,446,143 1 ,044 18,561 5,356 1,471,104 34,100 80,220 (10,032) 111,451 839 216,578 1,687,682 $ $ $ $ 4,690 62,739 10,000 77,429 75,628 215 1,347,459 47,862 12,714 4,893 1,366 4,460 8,853 3,036 18,408 - 515 1,602,838 215,381 1,151,885 1,367,266 2,476 18,987 5,291 1,394,020 33,949 79,708 - 93,370 1,791 208,818 1,602,838 ly See notes to consolidated financial statements. 50 THE BANK OF PRINCETON CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) INTEREST AND DIVIDEND INCOME Loans receivaii ble,ll incln udll Securiuu tiii esii availaii ble-ll indd g fees for-sale: Taxablell Tax-exemptmm held-to-maturiuu tyii Securiuu tiii esii Othet r intenn rest and diviii deii nd income TOTAL INTEREST AND DIVIDENDEE INCOME INTEREST EXPEXX NSE Deposits Borrowings TOTAL INTEREST EXPEXX NSEE E NET INTEREST INCOME Provisiii onii NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES for loan losses NON-INTEREST INCOME for-oo sale availaii ble-ll insurauu nce Gain on call/ll sale of securiuu tiii esii Incomeoo from bank-okk wned lifeii Fees and service charges Loan fees, includi Othet TOTAL NON-INTEREST INCOME ngii r ll preypayy ymentnn penalties nt and communmm icnn ationso NON-INTEREST EXPEXX NSE andn emplmm oyll ee benefitsii Salariesii Occupauu ncy and equiqq pme ii Profesff sionii al fees Data processingii Federal deposit insurauu nce Advedd rtising and promotion Officff e expexx nse Othet Core depositii intann ngible Othet TOTAL NON-INTEREST EXPEXX NSEE r real estate expexx nses r E For the twelww ve months e nded Dece mbe r 31, 2021 2020 $ 67,348 $ 59,301 547 1,172 11 197 69,275 6,673 1 6,674 62,601 3,625 58,976 7 1,117 1,764 1,757 21 4,666 17,483 6,055 2,431 3,562 792 214 219 241 643 2,813 34,453 719 1,378 11 267 61,676 12,817 9 12,826 48,850 5,225 43,625 571 1,151 1,493 1,370 221 4,806 16,451 5,412 2,103 3,085 497 301 276 - 727 2,289 31,141 INCOME BEFORE INCOME TAX EXPEXX NSE 29,189 17,290 INCOME TAX EXPEXX NSEE NET INCOME E Earnings per commoo Earnings per commoo e Diviii deii nds declarll ed per common shar onmm share-basic onmm share-dilud teuu d 6,703 22,486 3.37 3.30 .48 0 $ $ $ $ 3,484 13,806 2.04 2.01 0.40 $ $ $ $ See notes to consolidated financial statements 51 THE BANK OF PRINCETON CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) NET INCOME Other comprehensive (losll s) income ses) gains arising duriuu ngii for-salell availaii ble-ll nt for gains realizll ed in income (a) ion adjud stmett periodii on Unrenn alizll ed (losll securiuu tiii esii Reclasll ii sifiii cat Net unrenn alizll ed (losll Tax effeff cts r comprehensive (losll ses) gains Total othett COMPREHENSIVEVV INCOME s) income For the twelvel months ended December 31, 2021 2020 $ 22,486 $ 13,806 (1,276) (7) (1,283) 331 (952) 21,534 $ 2,126 (571) 1,555 (394) 1,161 14,967 $ (a) Amountuu s are includll ed in gain on call/sll alell of securiuu tiii esii availaii ble-ll for-so alell on the Consolidll ated Statemenmm tsnn of Income as a separate elemll entnn withii inhh total non-intenn rest income. Income tax expexx nse of $2 and $147 for the years endenn d Decembem r 31, 2021 andnn 2020 is includll ed in income tax expexx nse on the Consolidll atdd ed Statementnn of Income. See notes to consolidated financial statements 52 THE BANKAA OF PRINCETON CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollall rs in thousands, except per share data) Twelww ve Months End December 31, 2021 and 2020 Common stock Paid-in Capital Treasury rr Stock R etained Earnings Accumlated other comprehensive (loss) income Total r comprehensive income Balance, Januaruu yrr 1, 2020 Net income Othett Stock optionii Direii ctors compensationii Diviii deii nds declarll ed $0.40 per share Diviii deii nd reinvenn stmet nt planll Stock-based compensationii Balance, December 31, 2020 s exercised (21,520 shares) (5,388 shares) (1,461 shares) expexx nse shares) s exercised (22,480, r comprehensive loss Balance, Januaruu yrr 1, 2021 Net income Othett Stock optionii Restritt ctii ed stock units (1,424 shares) Direii ctors compensationii Diviii deii nds declarll ed $0.66 per share Purcuu hase of treasuryrr stock (339,788 shares) Diviii deii nd reinvenn stmet nt planll Stock-based compensationii Balance, December 31, 2021 (2,408 shares) expexx nse (4,019 shares) $ $ $ 33,807 - - 108 27 - 7 - 33,949 33,949 - - 113 7 20 - - 11 - 34,100 $ $ $ $ $ 79,215 - - 179 93 - 24 197 79,708 79,708 - - 184 26 100 - - 59 143 80,220 $ $ $ $ - - - - - - - - - - - - - - - - (10,032) - - (10,032) $ $ $ $ 82,273 13,806 - - - (2,678) (31) - 93,370 93,370 22,486 - - - - (4,335) - (70) - 111,451 $ $ $ $ 630 - 1,161 - - - - - 1,791 1,791 - (952) - - - - - - - 839 $ $ $ $ 195,925 13,806 1,161 287 120 (2,678) - 197 208,818 208,818 22,486 (952) 297 33 120 (4,335) (10,032) - 143 216,578 See notes to consolidated financial statements 53 THE BANKAA OF PRINCETON CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollall rs in thousands) nts to reconcilell net income to net cash provided by operating activiii for loan losses tiii esii tionii and amormm tizaii ensationii of premiumm msuu tionii expexx nse and accretion of discii ountnn on securiuu tiii esii CASH FLOWS FROM OPERATING ACTIVITIES Net Incon me Adjudd stmet Provisiii onii Depreciationii Stock-based compoo Amormm tizaii Accretion of net deferred loan fees and costs Gain on call/sll alell of securiuu tiii esii Increase in cash surreuu Loss on sale/writeii down of othet Deferff Amormm tizaii Stock-based direii ctors compensationii Operating leases lease liabii (Increase) decrease in accruerr d intenn rest receivaii blell and othett (Decrease) increase in accrueduu r liabilitii NET CASH PROVIDVV ED BY OPERATING ACTIVITIVV ES for-sale availaii ble-ll nder value of bank-okk wnoo intenn rest payablell andnn othet ll of core deposit intann ngiblii e red income tax expexx nse r real estate owned ilitll ytt paymenmm tsnn insurauu nce ed lifeff tionii r assets ies l repaymenmm tsnn of securiuu tiii esii and callsll of securiuu tiii esii for-salell securiuu tiii esii le-ll availabll for-sale availaii ble-ll ll for-sale for-salell securiuu tiii esii l repaymentsnn of securiuu tiii esii CASH FLOWS FROM INVESTING ACTIVITIES Purcuu hases of availaii ble-ll Principaii Maturiuu tiii esii Proceeds from sales of availaii ble-ll Maturiuu tiii esii Net increase in loans Purcuu hase of BOLI Purcuu hases of premismm es andn equiqq pmii Redemptionii NET CASH PROVIDVV ED BY (USED IN) INVESTMENT ACTIVITIES (purp chase) of restritt ctii ed bank stock , callsll andn princinn paii held-to-maturiuu tyii nn ent CASH FLOWS FROM FINANCING ACTIVITIES Net increase in depositsii Net increase (decrease) in overnir ghi Cash diviii deii nds Diviii deii nd reinvenn stmett Purcuu hase of treasuryuu Proceeds from exerciseii s of stock optionii NET CASH PROVIDVV ED BY FINANCING ACTIVITIES thh borrowings nt progragg m stock ii NET INCREASE IN CASH AND CASH EQUIVALENTEE CASH AND CASH EQUIVALENTEE CASH AND CASH EQUIVALENTEE S, BEGINNING OF PERIOD S, END OF PERIOD S Twe lww ve Months Ende d De cembe r 2021 2020 $ 22,486 $ 13,806 : 3,625 1,308 143 142 (9,091) (7) (1,116) 220 276 43 6 120 (2,488) (2,549) (809) 12,903 (41,961) 10,338 ,675 - 4 7 34,156 (2,500) 1,192) ( 21 3,544 78,877 - (4,388) 53 (10,032) 330 64,840 81,287 77,429 158,716 $ 5,225 1,159 197 201 (3,021) (571) (1,151) - (926) 727 120 (1,822) 2,116 2,036 18,096 (28,332) 39,259 16,636 11,046 7 (175,650) - (3,096) (120) (140,250) 129,376 - (2,709) 31 - 287 126,985 4,831 72,598 77,429 $ See notes to consolidated financial statements 54 THE BANKAA OF PRINCETON CONSOLIDATED STATEMENTS OF CASH FLOWSWW -(Continued) (Dollall rs in thousands) SUPPLEMENTARY CASH FLOWSWW INFORMATION: Intenn rest paid Income taxes paid Recognition of operatingii Recognition of operatingii t-hh of-uff lease righi leases liabiliii tiii esii se assets $ $ $ $ 8,106 9,025 1,504 1,504 $ $ $ $ 14,235 3,177 5,768 5,768 See notes to consolidated financial statements 55 Note 1 – Summary of Significaff nt Accounting Policies Organization and Nature of Operations The Bank of Princeton (thet “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of e and the Federal Deposit Insurance Corporation (“FDIC”). The area served by the Bank, Banking and Insurancaa through its 21 branches, is generally an area within an approximate 50 mile radius of Princeton, NJ, including parts of Mercer, Somerset, Huntu erdon, Ocean, Burlington, Camden, Gloucester and Middlesex Counties in central New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also conducts loan origination activities in select areas of New York. aa t rs traditional retail banking services, one-to-fouff The Bank offeff ly residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equiqq ty loans and lines of credit. r-famia Basis of Financial Statement Presentation The consolidated financial statements include the accounts of the Bank and its wholly-owned subsidiaries: Bayard Lane, LLC, Bayard Properties, LLC, 112 Fifthff Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financaa accepted in the United States of America (“GAAP”). ial statements have been prepared in conforff mi rr ty with accounting principles generally Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affeff ct the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from those estimates. Material estimates that are particularly susceptible to significff ant change in the near term relate to the determination of the allowance for loan losses, evaluation of the potential impairment of goodwill, and the valuation of deferrer d tax assets. Management believes that the allowance for loan losses is adequate as of December 31, 2021 and 2020. While management uses current information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies mayaa require the Bank to effeff ct certain changes that result in additions to the allowance based on their judgments about information available to them at the time of their examinations. Significaff nt group concentrations of credit risk Most of the Bank’s activities are with customers located within the Mercer County,tt New Jersey, and surrounding areas as well as five boroughs of New York City and certain Philadelphia, Pennsylvania metropolitan areas. The Bank does not have any portion of its business dependent on a single or limited numbem r of customers or industrit es, the loss of which would have a material adverse effeff ct on its business. No substantial portion of loans is or group of related industries, except that a significant majoa rity of concentrated within a single industryt commercial loans are secured by real estate. There are numerous risks associated with commercial and consumer lending that could impact the borrowers’ ability to repay on a timely basis. They include but are not limited to: 56 Note 1 – Summary of Significaff nt Accounting Policies (Continued) the owner’s business expertise, changes in local, national, and in some cases international economies, competition, governmental regulation, and the general financial stability of the borrowing entity. Transferff s of financial assets Transferff s of financial assets, including loan and loan participation sales, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the e obtains the right, free of conditions that constrain it assets have been isolated from the Bank, (2) the transfereff from taking advantaa age of that right, to pledge or exchange the transferff red assets, and (3) the Bank does not maintain effeff ctive control over the transferff red assets through an agreement to repurchase them before their maturity. The outstanding balance of loan participations sold was $10.5 million and $28.7 million as of December 31, 2021 and 2020, respectively. Cash and due from banks Cash and due from banks include cash on hand, on deposit at other financial institutions and the Federal Reserve Bank of Philadelphia. Securities The Bank’s investment portfolff io includes both held-to-maturiu ty and available-for-sal ff e securities: Held-tdd o-Maturity - Investment securities that management has the positive intent and ability to hold until maturity are classifieff d as held-to-maturiu ty and carried at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts. ff Available-for- Sale - Investment securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in marka et interest or prepayment rates, needs for liquidity, and changes in the availability and the yield of alternative investments, are classifieff d as available-for-sale. These assets are carried at their estimated fair value. Fair values are based on quoted prices for identical assets in active markets, quoted r actively or not actively traded, or in some cases where there is prices for similar assets in markets that are eithet limited activity or less transparency around input s, internally developed discounted cash flow models. Unrealized gains and losses are excluded from earnings and are reported net of tax in accumulated other comprehensive income (loss) on the consolidated statements of including those recognized through the non-credit component of an OTTI charge. financial condition until realized, n Premiums are amortized using the interest method to the earliest call date and discounts are accreted using the interest method over the estimated remaining term of the underlying security. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. The Bank evaluates its securities portfolio for OTTI throughout the year. Each investmet nt, having a fair value less than the book value, is reviewed on a quarterly basis by management. Management considers, at a minimum, whether the following factors exist that, both individuad lly or in combination, could indicate that the decline is r-than-temporary: (a) the Bank has the intent to sell the security; (b) it is more likely than not that it will be othet required to sell the security before recovery; and (c) the Bank does not expex ct to recover the entire amortized cost basis of the security. Among the factors that are considered in determining the Bank’s intent are capital adequacy, and liquidity at the Bank. An impairment charge is recorded against individual securities interest rate risk profileff if the review described above concludes that the decline in value is othet r-than-temporary.rr During 2020 and 2019, it was determined that there were no other-than-temporarily impaired investments. 57 Note 1 – Summary of Significaff nt Accounting Policies (Continued) Loans Receivable Loans receivable that management has the intent and ability to hold until maturity or payoffff are reported at their outstanding unpaid principal balances, net of an allowance for loan losses, and deferred fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjud stment of the yield on the related loans. Premiums and discounts on purchased loans are amortized as adjud stmet nts to interest income using the level-yield method. The loan receivable portfolio is segmented into commercial real estate (includes multi-famiaa ly), commercial and industrit al, construction, residential first-lien mortgage, home equity/consumer loans and Payroll Protection Program loans (“PPP”) guaranteed by U.S. Small Business Administrat ion (“SBA”). t For all segments of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performi ng. A loan may remain on accrual status if it is in the process ff , unpaid interest of collection and is either guaranteed or well-secured. When a loan is placed on nonaccrual statust credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has perforff med in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due statust of all segments of loans receivable is determined on contractual due dates for loan paymaa ents. Allowance for credit losses The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents manaaa gement’s estimate of losses inherent in the loan d lending u portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunde commitments represents management’s estimate of losses inherent in its unfunde d loan commitments and is recorded in other liabilities on the Consolidated Statements of Financial Condition. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged offff to the allowance as soon as it is determined that the repayment of all, or partaa , of the principal balance is highly unlikely. u The allowance for loan losses is maintained at a level considered adequaqq te to provide for probable losses. The Bank performs, at least quarterly, an evaluation of the adequaqq cy of the allowance. The allowance is based on past loan loss experience (which is bound by the Bank’s limited operating history), known and inherent risks in the portfolio, adverse situations that may affeff ct the borrower’s ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions and other relevant factors. This nt revision evaluation is inherently subjecb as more information becomes available. tive as it requires material estimates that may be susceptible to significaff 58 Note 1 – Summary of Significaff nt Accounting Policies (Continued) , general and unallocated components. The specificff component relates to loans The allowance consists of specificff as impaired. For loans that are classifieff d as impaired, an allowance is established when the that are classifiedff discounted cash flows (or collateral value or observarr ble market price) of the impaired loan is lower than the carryir ng value of that loan. The general component covers pools of loans by loan segment, including loans not considered impam ired, as well as smaller balance homogeneous loans, such as residential mortgage, home equiqq ty and consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these loan segments, adjuste d for qualitative factors. These qualitative risk factors include: d 1. Lending policies and procedurdd es, including underwriting standards and collection, charge-off,ff and recovery practices; 2. National, regional, and local economic and business conditions, as well as the condition of various market segments; 3. Nature and volume of the portfolio and terms of loans; 4. Experience, ability, and deptht of lending management and staff;ff 5. Volume and severity of past due, classifiedff and nonaccruarr l loans, as well as othet r loan modifications; 6. Quality of the Bank’s loan review system, and the degree of oversight by the Bank’s board of directors; 7. Existence and effect ff of any concentrations of credit and changes in the level of such concentrations; 8. Changes in the value of underlying collateral for collateral-dependent loans; and 9. Effeff ct of external factors, such as competition and legal and regulatory requiqq rements. The Bank determines the allowance for loan losses by portfolff io segment, which consists of commercial real estate loans, commercial and industrial loans, construction loans, residential first-lien mortgage loans, home equity and consumer loans. The Bank estimates the inherent risk of loss on all loans by portfolff io segment, based primarily above and by applying a weight factor ranging from 4 bps (low risk) to 24 bps on the risk factors identifiedff (severely high risk) to each element for each portfolio segment. The Bank does not apply any qualitative factors to the loans originated from PPP, based on the U.S. governments guarantee and the Coronavirus Aid, Relief and Economic Securities Act (“CARES”) requirement to classify these loans at 0.0% risk weighting asset in determining risk-based capital ratio. Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjud stments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation. Residential first-lien mortgage loans and home equity loans involve certain risks such as interest rate risk and risk of non-repayment. Adjud stable-rate loans decrease thet interest rate risk to the Bank that is associated with changes r risks, primarily because as interest rates rise, the payment by the borrower rises in interest rates but involve othett to the extent permitted by the terms of the loan, thereby increasing the potential for defauff lt. At the same time, the marketability of the underlying propertytt may be adversely affecte d by higher interest rates. Repayment risk can be affeff cted by job loss, divorce, illness and personal bankruptcy of the borrower. ff Construction lending is generally considered to involve a high degree of risk due to the concentration of principal in a limited number of loans and borrowers and the effecff ts of general economic conditions on developers and 59 Note 1 – Summary of Significaff nt Accounting Policies (Continued) builders. Moreover, a construcr tion loan can involve additional risks becausaa e of the inherent diffiff culty in estimating both a property'tt s value at completion of the project and the estimated cost, including interest, of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily for projects which are pre-sold or leased, and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residences. Commercial real estate lending entails additional risks as compared with single-family residential real estate lending. Such loans typically involve largaa e loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally. Commercial and industrial lending is generally considered higher risk due to the concentration of principal in a limited number of ts of general economic conditions on the loans and borrorr wers and the effecff r business assets. In most business. Commercial business loans are primarily secured by inventories and othet cases, any repossessed collateral for a defaulted commercial business loan will not provide an adequaqq te source of repayment of the outstanding loan balance. r shorter terms and higher interest rates than othet Consumer loans, including home equity loans, generally haveaa lending but generally involve more credit risk becausaa e of the type and nature of the collateral and, in certain cases, the absence of collateral. Typiyy cally collateral for these type of loans includes either first or second liens on In addition, consumer lending collections are dependent on the borrower's continuing residential properties. d by job loss, divorce, illness and personal financial stability, and thus are more likely to be adversely affecte bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance. ff PPP loans have a maturity term ranging between 2 to 5 years, but the borrower can apply for complete or partial six months. Once the 6 month term expires, the borrorr wer is required forgiveness from the U. S. government after to commence making principle and interest payments until maturity. ff An unallocated component of the allowance for loan losses is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specificff and general losses in the portfolio. ff u t information and events, it is probable that the Bank will be A loan is considered impaired when, based on curren unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment statust , collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that ent shortfalls generally are not classifieff d as impaired experience insignificant payment delays and paymaa loans. Management determines the significaff ls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfalff l in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial real estate loans, commercial and industrit al loans and construction loans by either the present value of expected future cash flows discounted at the loan’s effeff ctive interest rate or the fair value of the loanaa collateral if the loan is collateral-dependent. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Bank’s impaired loans are measured based on the estimated fair value of the loan’s collateral, less costs to sell the property. nce of payment delays and payment shortfalff 60 Note 1 – Summary of Significaff nt Accounting Policies (Continued) For commercial real estate loans, estimated fair values of the real estate collateral are determined primarily through third-partytt appraisals. When a real estate-secured loan becomes impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary.rr This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable and and equipment, estimated fair values are determined based on the borrower’s financial statements, inventoryr inventoryr reports, accounts receivable aging or equiqq pment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the qualitytt of the assets. Large groups of smaller balance Bank does not separately identifyff loans for impam irment, unless such loans are a troublu ed debt restructuring. homogeneous loans are collectively evaluated for impairment. Accordingly, the individual residential first-lien mortgage loans, home equity loans and consumer aa Loans with modified terms are classifieff d as troubled debt restructurings if the Bank grants borrower concessions and it is deemed that those borrowers are expex riencing financial difficulty.tt Concessions granted under a troublu ed reduction in interest rate or an extension of a loan’s stated debt restructuriu ng generally involve a temporm aryrr maturity date. As part of the Bank’s commitment to provide assistance during the COVID-19 pandemic, the Bank agreed to defer either the principal portion or both principal and interest payments for its customers who requested the deferral and were not delinquent prior to the government shut down. For reporting purpos es, loans modified under this program were not classifieff d as troubled debt restrut cturing. rr Nonaccrual troublu ed debt restructurings are restored to accrual statust modified terms, are curru ent for six consecutive months after assured. Loans classifieff d as troubled debt restructuriu ngs are designated as impaired. if principal and interest payments, under the ff modification and continued repayment is reasonabla y segregation of loan segments into risk-rating The allowance calculation methodology includes further categories. The borrower’s overall financaa ial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. t aa tions of special mention, substandard, doubtfulff and Credit quality risk ratings include regulatory classificaff special mention have potential weaknesses that deserve management’s close attention. If loss. Loans classifiedff sses may result in deterioration of the repayment prospects. Loans classifieff d uncorrected, the potential weakne substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequaqq tely protected by the current sound net worth and payiaa ng capac ity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classifieff d substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbabla e. Loans classifieff d loss are considered uncollectible and are charged-offff to the allowance for loan losses. Loans not classifieff d are rated pass. a Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is adequate at the reported dates. Bank-owned lifeff insurance The Bank is the beneficiary of insurance policies on the lives of certain offiff cers of the Bank. This life insurance investmet nt is accounted for using the cash surrender value method and is recorded at its net realizable value. Increase in cash surrender values are recorded as tax exempted non-interest income. 61 Note 1 – Summary of Significaff nt Accounting Policies (Continued) Other real estate owned Assets acquired through, or in lieu of,ff loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by manaaa gement and the assets are then recorded at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and write-downs are included in non-interest expense. Goodwill and Other Intangible Assets, Net Goodwill represents the excess cost over the identifiaff bla e net assets of businesses acquired. The Bank’s intangible asset was derived from core deposits acquired that has a definitive life and is amortized over the estimated life.ff Both goodwill and the core deposit intangible asset are reviewed for impairmerr nt annually or when events and circumstances indicate that an impairment may have occurred. Accounting Standards Codificff ation (“ASC”) Topic 350-20 requires an at least annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that t is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be perforff med to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not likely than not (less than 50% probability) the fair value of the Reporting Unit exceeds the Carryirr ng Value, then the Bank does not have to perforff mrr r a quantitative test and goodwill can be considered not impaired. Afteff perforff mi ng the qualitative factor test, the result was the Bank was more than 50% probable the fair value of the Reporting Unit exceeds the Carrying Value, thereforff e a quantitative test was not required as of May 31, 2021. rr During 2020, as a result of the COVID-19 pandemic and a broad decline in the market values of all banking company stock, the market price of the Bank’s common stock and the resulting aggregate market capiaa talization of the Bank declined. During each of the quarterly periods ended March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, the Bank concluded that a triggering event occurred due to the decline in the Bank's stock price and market capitalization as a result of the COVID-19 pandemic. In each quarterly period, management concluded based on the results of a qualitative goodwill impairment analysis that the fair value of the reporting unit exceeded the carrying value and the goodwidd ll was not impaired. At May 31, 2020, the Bank perforff merr d its annual quantitative goodwill impairment analysis determining the fair value of the reporting unit based on the income approach and market approach. The income approach uses a dividend discount analysis. This approach calculates cash flows based on anticipated financial results assuming a change of control transaction. This change of control assumes that an acquiqq rer will achieve an expected base level of earnings, achieve integration cost savings and incuru certain transaction costs (including such items as legal and financial r transaction costs). The advisors fees, contract cancaa present value of all excess cash flows generated by the Bank (above the minimum tangible capital ratio) plus the present value of a terminal sale value is calculated to arrive at the fair value for the income approach. The markaa et approach is used to calculate the fair value of a company by calculating median earnings and book value pricing multiples for recent actual acquisitions of companies of similar size and perforff mance and then applying these multiples to our reporting unit. No company or transaction in the analysis is identical to our reporting unit and, accordingly, the results of the analysis are only indicative of comparable value. This technique uses historical data to create a curru ent pricing level and is thus a trailing indicator. Results of the market approach need to be understood in this context, especially in periods of rapid price change and market uncertainty. The Bank applied d by an appropriate control premium and the market valuation approach to our then curru ent stock price adjuste also to a peer group adjud sted by an appropriate controt l premium. In this analysis, the Bank determined that none of its goodwill was impaired. Also, the core deposit intangible was analyzed, and no impam irment was recorded. ellations, severance and employment obligations, and othett d 62 Note 1 – Summary of Significaff nt Accounting Policies (Continued) Employee Benefit Plans The Bank maintains a defined contribution Section 401(k) plan covering eligible employees. The Bank also emental executive retirement plan for the benefit of the chief executive offiff cer maintains a defined benefit suppl and chief operating offiff cer. In addition, in 2021 the Bank began making contribt utions to the Employee Stock Ownership Plan and the amounts were not material for the year-ended December 31, 2021. uu The Bank maintains an equity incentive plan to provide for issuance or granting shares of common stock options or restrit cted stock units. The has recorded stock-based employee compensation cost using fair value method as allowed under generally accepted accounting principles. Manaaa gement estimated the fair value of all option grants using the Black-Scholes options-pricing model. Management estimated the expected life options granted is generally derived from historical experiences. The risk-free rate for periods within the contractuatt l terms of the share option is based on the U.S. Treasury for a comparabla e term. Premises and equipment Bank premises and equiqq pment are stated at cost less accumulated depreciation. Depreciation is computed on the t strai ght-line method over the shorter of the lease term or estimated usefulff lives of the related assets. Accrued interest receivable and other assets Accrued interest receivablea and other assets include accruerr d interest receivable, prepaid assets and other assets. Restricted Stock Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula. Restricted stock in the amount of $1.3 million and $1.4 million is carried at cost at December 31, 2021 and 2020, respectively. nts are impaired is based on an assessment of the ultimate Management’s determination of whether these investmet recoverability of their cost, rathet r than by recognizing temporary declines in value. The determination of whether a decline affeff cts the ultimate recoverabia lity of cost is influff enced by criteria such as (1) the significff ance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitmet nts by the FHLB to make payments required by law or regulation and the level of such paymaa ents in relation to the operating performance of the FHLB and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. The Bank also held $100,000 of stock in Atlantic Community Bankers Bank (“ACBB”) at December 31, 2021 and 2020. Management believes no impairment charge is necessaryrr restrit cted stock as of December 31, 2021 or 2020. related to the FHLB restricted stock or the ACBB Income taxes The Bank accountuu s for income taxes in accordance with income tax accounting guidance contained in FASB ASC Topic 740, Income Taxes. This includes guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserverr s to maintain for uncertain tax or accruer d interest and penalties as of and for the positions. The Bank had no material unrecognized tax benefitsff years ended December 31, 2021 and 2020. The Bank’s policy is to account for interest and penalties as a r non-interest expense. The Bank is subject to income taxes in the U. S. and various state and component of othett r 2018 are subject to federal examination and tax years local jurisdictions. As of December 31, 2021, tax years afteff 63 Note 1 – Summary of Significaff nt Accounting Policies (Continued) r 2016 to state examination. Tax regulations are subject to interpretation of the related tax laws and regulations afteff and requiqq re significff ant judgment to apply. Federal and state income taxes have been provided on the basis of reported income or loss. The amounts refleff cted on the tax returns differ from these provisions due principally to temporary differff ences in the reporting of certain items for financial reporting and income tax reporting purpor of these temporary differences is accounted for as deferred taxes applicable to future periods. ses. The tax effect ff Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively, for the estimated future tax consequences attributable to differences between the financial statement carryir ng amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxabla e income in the years in which those temporaryrr differences are expected to be recovered or settled. The effeff ct on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided for the full amount which is not more likely than not to be realized. On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through December 31, 2023, the 2.5% surtax currently imposed on Corporation Business Tax (CBT) filers with allocated taxabla e net income over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for r Januaryrr 1, 2020 through December 31, 2021 and expire for privilege privilege periods beginning on or afteff periods beginning on or afteff t immediately and applies retroactively to privilege periods beginning on or after January 1, 2020. r January 1, 2022. The change made by A.4721 takes effecff Off-bff alance sheet financial instruments alance sheet financial instrut ments consisting of In the ordinary course of business, the Bank has entered into off-bff commitments to extend credit and letters of credit. Such financial instrut ments are recorded in the statement of financial condition when they are funded. Employee benefit plan The Bank sponsors a 401(k) plan into which all employees are eligible to contribute the maximum allowed by the Internal Revenue Code of 1986, as amended. The Bank may make discretionarya matching contributions. The Bank made matching contributions to employees of $168,000 and $166,000, respectively during the years ended December 31, 2021 and 2020. Stock compensation plans in Financial Accounting Standards Board (“FASB”) ASC The stock compensation accounting guidance set forthtt Topic 718, Compensation - Stock Compensation, requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liabilitytt instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance- based awards, share appreciation rights, and emplm oyee share purchase plans. The stock compensation accounting guidance requires that compensation costs for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options. An option is considered ted, if the grant stock option were not exercised prior to vesting. At the date of grant, the Bank estimates to be forfeiff 64 Note 1 – Summary of Significaff nt Accounting Policies (Continued) the forfeiff as they occur. ture rate as parta of its initial determination of the fair-value of options granted and then adjud sts forfeiff tures Earnings per share Basic earnings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period, and exclude any dilutive effeff cts of stock options and warrants. Diluted earnings per share amounts include the dilutive effeff cts of stock options and warrants whose exercise price is less than the market price of the Bank’s shares. Diluted earna ings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period if options and warrants were exercised and converted into common stock, using the treasury stock method. Advertising costs The Bank charges the costs of advertising to expense as incurred. Comprehensive income Accounting principles generally require that recognized revenues, expex nses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for- sale securities, are reported as a separate component of the equity section of the consolidated statements of financial condition, such items, along with net income, are components of comprehensive income. Accumulated r comprehensive income is comprised of net unrealized holding gains and losses, net of taxes, on available- othet for-sale securities. Realized gains or losses are reclassifiedff out of accumulated other comprehensive income when the underlying securiu ty is sold, based upon the specificff identification method. Accounting Standard Pending Adoption it Losses,” which amends the Board's guidance on the impairment of financaa In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments - CredCC ial instruments. The amended guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses will represent a valuation account that is deducted from the amortized cost basis of the financial assets to present their net carrying value at the amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized finanaa cial assets as well as expected increases or decreases of expex cted credit losses that have taken place during the period. When determining the allowance, expected credit losses over the contractual term of the financial asset(s) (taking into account prepayments) will be estimated considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affeff ct the collectability of the reported amount. For Smaller Reporting Companies, such as the Bank, this ASU is effectiv e for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Bank has formed a Current Expected Credit Losses (“CECL”) committee, which has assessed our data and system needs, and has engaged a third-partytt vendor to assist in analyzing ouru data and developing a CECL model. The Bank, in conjunction witht this vendor, has researched and analyzed modeling standards, loan segments, as well as external inputs to supplement ouru historical loss history. We expect to recognize a one-time cumulative effeff ct adjud stment to the allowance for loan losses as of the beginning of the first reporting period in which the ASU is effeff ctive, but cannot yet determine the magnitude of any such one-time or the overall impam ct of the ASUs on our consolidated financial statements. ff In March 2020, the FASB issued ASU No. 2020-04, “Referen ce Rate Reform” (Topic 848), which provides optional expex dients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and d Rate (“LIBOR”) othet toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modificaff r transactions affeff cted by the anticipated transition away from London Interbank Offere tions of loan agreements should be accounted for by prospectively ff ff 65 Note 1 – Summary of Significaff nt Accounting Policies (Continued) adjud sting the effeff ctive interest rate and the modificff ation will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease paymaa ents that otherwise would be required for modificff ations not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effecff tive March 12, 2020 through December 31, 2022. An ions as of Januaryr 1, 2020, or prospectively from a entity may elect to apply ASU 2020-04 for contract modificat date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codificff ation, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplifyff any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing offff unamortized fees/costs. We are evaluating the impacts of this ASU and we do not anticipate any material impacts to the financaa ial statements. ff Note 2 – Earnings Per Share The following schedule presents earnings per share data: Net income applicll able to common stock Weighi tehh d average numbuu Basic earnings per share er of commoo onmm shares outsuu tandindd g Net income applicll able to common stock effecff tehh d average numbuu Weighi Diluii tiuu veii Weighi tehh d average numbuu Diluted earnings per share er of commoo t on common sharh es outsuu tandindd g n er of diluii onmm shares outsuu tandindd g teuu d commonmm shares outsuu tandindd g Years e nded December 31, 2021 2020 (InII thousands,dd expect per share data) $ $ $ $ $ 22,486 6,667 3.37 22,486 6,667 1 48 6,814 3.30 $ $ $ $ $ 13,806 6,774 2.04 13,806 6,774 94 6,868 2.01 Options to purchase 343,035 shares of common stock at a weighted average exercise price of $16.76 were included in the computation of diluted earna ings per share for the year ended December 31, 2021. Options to purchase 95,871 shares of common stock at a weighted average exercise price of $32.45 were not included in the computation of diluted earnings per share because the exercise price equaled or exceeded the fair value of our common stock at Decembem r 31, 2021. Options to purchase 347,093 shares of common stock at a weighted average exercise price of $16.03 were included in the computation of diluted earnings per share for the year ended Decembem r 31, 2020. Options to purcu hase 107,278 shares of common stock at a weighted average exercise price of $32.35 were not included in the computation of diluted earnings per share because the exercise price equaled or exceeded the fair value of our common stock at Decembem r 31, 2020. 66 Note 3 – Investment Securities The following summarizes the amortized cost and estimated fair value of securities available-for-sale at December 31, 2021 and December 31, 2020 with gross unrealized gains and losses therein: -forff -srr ale Availablea Mortgage-backed securiuu tiii esii Governmenn U.S. governmenn tionii Obligai nt Sponsored Entenn rpriseii s (GSEs) nt agency securiuu tiii esii s of state andn politiii cal ii subdu ivd isions - U.S. Total -forff -srr ale Availablea Mortgage-backed securiuu tiii esii Governmenn tionii Obligai nt Sponsored Entenn rpriseii s (GSEs) subdu ivd isions s of state andn politiii cal ii - U.S. Total Amortirr zed Cost December 31, 2021 Gross Unrealized Gaina s Gross Unrealized Losses (In thousands) Fair Valuaa e $ $ 45,750 6,267 48,011 100,028 $ $ 337 - 1,466 1,803 $ $ (635) (29) (9) (673) $ $ 45,452 6,238 49,468 101,158 Amortirr zed Cost December 31, 2020 Gross Unrealized Gaina s Gross Unrealized Losses (In thousands) Fair Valuaa e $ $ 24,487 48,728 73,215 $ $ 626 1,788 2,414 $ $ - (1) (1) $ $ 25,112 50,516 75,628 The unrealized losses, categorized by the length of time in a continuous loss position, and the fair value of related securities available-for-sale as of December 31, 2021 and December 31, 2020 are as follows: - U.S. securiuu tiii esii nt Sponsored Entenn rpriseii securiuu tiii esii nt agencynn Dece mber 31, 2021 Mortgage-backedkk Governmenn U.S. governmenn Obligationsoo Total of state andnn politiii caii l subdu ivdd isv ions s (GSEs) Dece mber 31, 2020 Mortgage-backed securiuu tiii esii Governmenn Total - U.S. nt Sponsored Entenn rpriseii s (GSEs) Less than 12 Months Faira Valua e Unre alize d Losses More than 12 Months Faira ValVV ue Unrealized Losses (In thousands) Totala Fair ValVV ue Unrealized Losses $ $ $ $ 26,711 6,238 1,714 34,663 $ $ $ (635) (29) (9) (673) Less than 12 Months Faira Valua e Unre alize d Losses 2,126 2,126 $ $ (1) (1) $ $ $ $ - - - - $ $ - - - - More than 12 Months Faira ValVV ue Unrealized Losses (In thousands) - - $ $ - - $ $ $ $ 26,711 6,238 1,714 34,663 $ $ (635) (29) (9) (673) Totalaa Fair ValVV ue Unrealized Losses 2,126 2,126 $ $ (1) (1) At December 31, 2021, there were 18 mortgage-backed securities and seven obligations of state and political category and zero mortgage-backed securities in the more-that n twelve- subdivisions in the less-than-twelve-monthst month category for the securities available-for-sale portfolio. The securities had unrealized loss that was 1.91% of their amortized cost basis. 67 Note 3 – Investment Securities (Continued) The Bank does not intend to sell these securities and it is not more likely than not that we will be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit-related criteria. No OTTI charges were recorded for the years ended December 31, 2021 and 2020. At December 31, 2020, there were two mortgage-backed securities in the less-than-twelve-monthst securities in the more-than twelve-montht category for the securities available-for-sale portfolff io. categoryrr and zero The amortized cost and estimated fair value of securities available-forff 31, 2021 by contract maturity are shown below. Expected maturities will differ from contractual maturities as borrorr wers mayaa haveaa right to call or prepay obligations with or without call or prepayment penalties: -sale at Decemberm tt uatt l the Amortirr zed Cost Fair Value Dueuu in one year or less Dueuu afteff Dueuu afteff Dueuu afteff Mortgage-backedkk r one year throhh ugh fiveii r fiveii r ten years years years throhh ughg ten years securiuu tiii esii (GSEs) $ $ $ (In thousands) 300 5,691 21,016 27,271 45,750 100,028 $ 300 5,756 21,755 27,895 45,452 101,158 The following summarizes the amortized cost and estimated fair value of securities held-to-maturity at December 31, 2021 and December 31, 2020 with gross unrealized gains and losses therein: Amortirr zed Cost Unrealized Gains December 31, 2021 oss Gross Unrealized Losses Fair Valuaa e Held-to-maturitrr y: Mortgage-backed securiuu tiii esii (GSEs) $ 208 $ (In thousands) 17 $ - $ 225 December 31, 2020 Gross Unrealized Gains Gross Unrealized Losses Amortirr zed Cost Fair Valuaa e Held-to-maturitrr y: Mortgage-backed securiuu tiii esii (GSEs) $ 215 $ (In thousands) 22 $ - $ 237 All securities held-to-maturity are due after ten years. -sale securities for the twelve months ended December 31, 2021. Proceeds from There were no sales of available-forff the calls and maturities of securities available-for-sale amounted to $4.7 million for the twelve monthst ended December 31, 2021, which included approximately $7,000 in gross realized gains. Proceeds from the sale of available- for-sale securities amounted to $11.0 million for the twelve months ended December 31, 2020, which included -sale approximately $522,000 in gross realized gains. Proceeds from the calls and maturities of securities available-forff amounted to $16.6 million for the twelve months ended December 31, 2020, which included approximately $49,000 in gross realized gains, There were no securities pledged as collateral for NJ Governmental Unit Deposit Protection Act (“GUDPA”) deposits at December 31, 2021 or 2020. 68 Note 4 – Loans Receivable Loans receivable, net was comprised of the following: tionii real estate Commermm cialii Commermm cialii and industritt alii Conso trucrr Resideii ntial firsii Home equiqq tyii /Cyy onsumeuu Payrollll Protectiot n Program -Phase I Payrollll Protectiot n Program -Phase II t-lienii mortgage r Total loans rerr d fees andnn costs Deferff Alloll wance for loan losses Loans, net December 31, 2021 December 31, 2020 (In thousandsn ) $ $ 771,028 29,677 403,680 48,638 7,685 6,641 73,099 1,340,448 (5,285) (16,620) 1,318,543 $ 812,043 40,597 263,032 66,857 9,929 175,878 - 1,368,336 (4,850) (16,027) 1,347,459 $ The following table presents nonaccrual loans by segment of the loan portfolio: December 31, 2021 December 31, 2020 real estate Commermm cialii Commermm cialii and industritt alii Conso trucrr Resideii ntial firsii tionii t-lienii mortgage Total nonaccrual loans $ $ $ (In thousandsn ) 766 - 278 131 1,175 $ 1,030 132 370 144 1,676 69 Note 4 – Loans Receivable (Continued) The following table summarizes information in regard to impaired loans by loan portfolff io segment, segregated by those for which a related allowance was required and those for which a related allowance was not necessary, as of December 31, 2021 and the year then ended: Related Allowanww ce (In thousands) $ - - - - - - - - 196 - - 196 - - 196 - - 196 $ $ $ $ $ Average Recorded Investment Interest Income Recognized $ $ $ $ $ $ 9,667 526 243 138 124 10,698 - - 359 - - 359 9,667 526 602 138 124 11,057 $ $ $ $ $ $ 656 16 - 6 8 686 - - - - - - 656 16 - 6 8 686 Withii no related alloll wance recorded: Commermm cialii real estate Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii t-lienii mortgage r /Cyy onsumeuu Totaoo l withii no related alloll waoo nce an alloll wance recorded: real estate Withii Commermm cialii Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii Totaoo l withii t-lienii mortgage r /Cyy onsumeuu nce an alloll waoo real estate Totaoo l: Commermm cialii Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii Totaoo l /Cyy onsumeuu t-lienii mortgage r Unpaid Prinrr cipal Balaaa nce Recorderr d Investment $ $ $ $ $ $ 16,017 1,138 - 144 106 17,405 - - 278 - - 278 16,017 1,138 278 144 106 17,683 $ $ $ $ $ $ 13,155 15 - 131 108 13,409 - - 278 - - 278 13,155 15 278 131 108 13,687 70 Note 4 – Loans Receivable (Continued) The following table summarizes information in regard to impaired loans by loan portfolff io segment, segregated by those for which a related allowance was required and those for which a related allowance was not necessary, as of December 31, 2020 and the year then ended: Related Allowanww ce (In thousandsnn ) $ - - - - - - 203 6 219 - - 428 203 6 219 - - 428 $ $ $ $ $ Average Recorded Investment Interest Income Recognized $ $ $ $ $ $ 4,444 625 - 314 94 5,477 1,146 59 216 - - 1,421 5,590 684 216 314 94 6,898 $ $ $ $ $ $ 282 47 - 17 15 361 57 7 64 - - - 339 54 - 17 15 425 Withii no related alloll wance recorded: Commermm cialii real estate Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii t-lienii mortgage r /Cyy onsumeuu Totaoo l withii no related alloll waoo nce an alloll wance recorded: real estate Withii Commermm cialii Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii Totaoo l withii t-lienii mortgage r /Cyy onsumeuu nce an alloll waoo real estate Totaoo l: Commermm cialii Commermm cialii and industu ritt alii Conso tructionii Resideii ntial firsii Home equiqq tyii Totaoo l /Cyy onsumeuu t-lienii mortgage r Unpaid Prinrr cipal Balaaa nce Recorderr d Investment $ $ $ $ $ $ 7,520 1,156 - 151 140 8,967 2,707 194 370 - - 3,271 10,227 1,350 370 151 140 12,238 $ $ $ $ $ $ 7,433 1,037 - 144 141 8,755 2,008 132 370 - - 2,510 9,441 1,169 370 144 141 11,265 71 Note 4 – Loans Receivable (Continued) The performance and credit qualitytt of the loan portfolio is also monitored by analyzing the age of the loan receivable by the length of time a recorded payment is past due. The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2021: 30-59 Daysaa Past Due $ $ 27 - - 425 - 585 1,037 60-89 Days Past Due $ $ - - - - - 1,254 1,254 Greater than 90 daysaa $ $ 766 - 278 - - 151 1,195 Total Past Due (In thousands) $ 793 - 278 425 - Current $ 770,235 29,677 403,402 48,213 7,685 Total aa Loans Receivable $ 771,028 29,677 403,680 48,638 7,685 1,990 3,486 $ 77,750 1,336,962 $ 79,740 1,340,448 $ Loans Receivable 90 Daysaa > and Accruing $ $ - - - - - 151 151 real estate ercialii ercialii and industrialii Commoo Commoo Consoo tructionii Resideii ntial firsii Homeoo equiqq tyii PPP Phase I & II1 t-lienii mortgage r /Cyy onsumeuu Total 1 PPP loans thathh are clasll sifiii edii as past due in thehh tablell above, have applpp iell d for or are in the process of requesting for loan forgiveness fromoo the SBA. The following table presents the segments of the loan portfolio summarized by the past due statust 2020: as of December 31, real estate ercialii ercialii and industrialii Commoo Commoo Consoo tructionii Resideii ntial firsii Homeoo equiqq tyii PPP Phase I Total t-lienii mortgage r /Cyy onsumeuu aa Total Loans Receivable $ $ 812,043 40,597 263,032 66,857 9,929 175,878 1,368,336 Current $ $ 810,061 40,426 262,662 65,583 9,785 175,873 1,364,390 Loans Receivable 90 Daysaa > and Accruing $ $ - - - - - - - Total Past Due (In thousauu nds) $ 1,982 171 370 1,274 144 5 3,946 $ 30-59 Daysaa Past Due $ $ 952 39 - 1,274 - 5 2,270 60-89 Days Past Due $ $ - - - - - - - Greater than 90 daysaa $ $ 1,030 132 370 - 144 - 1,676 72 Note 4 – Loans Receivable (Continued) The following table presents the segments of the loan portfolff io summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtfulff within the Bank’s internal risk rating system as of December 31, 2021: Withii no related alloll wance recorded: Commemm rcial real estate Commercialii and indunn stritt alii Constructionii Resideii ntial firsii t-lienii mortgage1 /Cyy onsumermm 1 Home equiqq tyii PPP Phase I & II Total withii no related alloll wao nce 1The Bank does not asigngg a risk ratingii based on deliquii ency statustt . Pass $ $ 754,192 29,071 403,402 48,507 7,685 79,740 1,322,597 Special Mention $ $ 3,832 606 - - - - 4,438 Substandard (In thousandsnn ) 13,004 $ - 278 131 - - 13,413 $ Doubtfulff Total $ $ - - - - - - - $ $ 771,028 29,677 403,680 48,638 7,685 79,740 1,340,448 to resideii ntial real estate and conso umermm based loans. They are deemed to be performoo inmm gn or non-performinmm gn The following table presents the segments of the loan portfolff io summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtfulff within the Bank’s internal risk rating system as of December 31, 2020: Withii no related alloll wance recorded: real estate Commercialii Commercialii and indunn stritt alii Constructionii Resideii ntial firsii t-lienii mortgage1 /Cyy onsumermm 1 Home equiqq tyii PPP Total withii no related alloll wao nce Pass $ $ 793,130 38,840 262,662 66,857 9,929 175,878 1,347,296 Special Mention $ $ 10,481 615 - - - - 11,096 Substandard (In thousandsnn ) $ 7,958 1,142 370 - - - 9,470 $ Doubtfulff Total $ $ 474 - - - - - 474 $ $ 812,043 40,597 263,032 66,857 9,929 175,878 1,368,336 1The Bank does not assigni based on delinqii ueqq ncy statustt a riskii . ratingii to resideii ntial real estate and consumermm based loans. They are deemedmm to be performinmm g or non-o perforff mingii 73 Note 4 – Loans Receivable (Continued) Allowance for loan losses on loans receivables at and for the year ended December 31, 2021: Allowance for loan losses: Beginnii ingn balance Provisvv ion (credit)ii Charhh ge-offs ff Recoveoo riesii Total Endin ngii Balance: Indiviii duii allyll evaluall impamm irment Collectivelvv yll evaluall impamm irment ted for ted for Commercial Re al e stateaa Comme rcirr al and aa industriarr l C onstruction Residential first-lien mortgrr age Home e quity/yy Consume r (In thousands) PPP Unallocated Total $ $ $ $ 9,635 (102) 2,116) ( 41 7,458 - 7,458 $ $ $ $ 1,015 655 (1,060) 103 713 - 713 $ $ $ $ 4,069 3,159 - - 7,228 196 7,032 $ $ $ $ 324 (57) - - 267 - 267 $ $ $ $ 61 (13) - - 48 - 48 $ $ $ $ - - - - - - - $ $ $ $ 923 (17) - - 906 - 906 $ $ $ $ 16,027 3,625 (3,176) 144 16,620 196 16,424 Recorded investmet nt in loans receivables at December 31, 2021: Commercial Re al e stateaa Comme rcirr al and aa industriarr l C onstruction Residential first-lien mortgrr age Home e quity/yy Consume r (In thousands) PPP Unallocated Total Loans: Endin ngii Balance: Indiviii duii allyll evaluall impamm irment Collectivelvv yll evaluall impamm irment ted for ted foro $ 13,155 $ 15 $ 278 $ 131 757,873 29,662 403,402 48,507 Endin ngii balance $ 771,028 $ 29,677 $ 403,680 $ 48,638 $ $ 108 $ - 7,577 79,740 7,685 $ 79,740 $ $ - - - $ 13,687 1,326,761 $ 1,340,448 Allowance for loan losses on loans receivables at and for the year ended December 31, 2020: Allowance for loan losses: Beginnii ingn balance Provisvv ion Charhh ge-offs ff Recoveoo riesii Total Endin ngii Balance: Indiviii duii allyll evaluall ted for impamm irmer nt Collectivelvv yll evaluall ted for impamm irmer nt Commercial Re al e stateaa Comme rcirr al and aa industriarr l C onstruction Residential first-lien mortgrr age Home e quity/yy Consume r (In thousands) PPP Unallocated Total $ $ $ $ 8,168 2,148 716) ( 35 9,635 203 9,432 $ $ $ $ 1,182 21 (188) - 1,015 6 1,009 $ $ $ $ 2,048 2,907 (886) - 4,069 219 3,850 $ $ $ $ 355 (31) - - 324 - 324 $ $ $ $ 78 (17) - - 61 - 61 $ $ $ $ - - - - - - - $ $ $ $ 726 197 - - 923 - 923 $ $ $ $ 12,557 5,225 (1,790) 35 16,027 428 15,599 74 Note 4 – Loans Receivable (Continued) Recorded investmet nt in loans receivables at December 31, 2020: Commercial Re al e stateaa Comme rcirr al and aa industriarr l C onstruction Residential first-lien mortgrr age Home e quity/yy Consume r (In thousands) PPP Unallocated Total Loans: Endin ngii Balance: Indiviii duii allyll evaluall impamm irment Collectivelvv yll evaluall impamm irment ted for ted foro $ 9,441 $ 1,168 $ 370 $ 144 802,602 39,429 262,662 66,713 Endin ngii balance $ 812,043 $ 40,597 $ 263,032 $ 66,857 $ $ 141 $ - 9,788 175,878 9,929 $ 175,878 $ $ - - - $ 11,264 1,357,072 $ 1,368,336 At December 31, 2021, four loans totaling $6.9 million were considered troubled debt restructurings and classifieff d as impaired. Troubled debt restructurings of $6.0 million consisting of one commercial real estate loan, a $140,000 HELOC loan and a $15,000 commercial and industrit al loan were perforff ming in accordance with their modified terms as non-perforff ming at at December 31, 2021. One commercial real estate loan totaling $766,000 was classifiedff December 31, 2021. At December 31, 2020, six loans totaling $8.7 million were considered troubled debt restructurings and classifieff d as impaired. Troubled debt restrut cturings of $6.5 million consisting of two commercial and industrit al loans totaling $152,000, one commercial real estate loan totaling $6.2 million, and a $140,000 HELOC loan were performing in accordance with their modified terms at December 31, 2020. Two loans to the same borrower totaling $2.3 million had deferred their payments resulting from the COVID-19 loan deferral program. As of December 31, 2021, there was one trouble debt restructurtt to non-performing status. t ing in the amount of $766 thousand that was changed There were no loans modified as a troublu e debt restructurtt 2021. ing during the twelve month period ended December 31, The following table summarizes information with regards to new troubled debt restructurtt December 31, 2020: ings for the year ended Troubledll debt restrutt ctuu urtt ingsn : Pre- Modificatiaa on Outstanding Record Investment (In thousands) Post- Modification Outstanding Re cord Investment Number of Contracts Commercialii real estate 2 $ 269 $ 269 As indicated above, the Bank modified two commercial and industrial loans totaling $269,000 to the same borrower during 2020. At December 31, 2020, the outstanding balance was $131,000, resulting from an $138,000 charge-offff recorded during the period. The Bank agreed to a concession by modifyiff ng the borrorr wer’s monthly payment to be interest only. In December 2020, the Bank charged-offff approximately $138,000 of the outstanding balance. As of December 31, 2020, there was no specificff allowance on these modified loans. 75 Note 4 – Loans Receivable (Continued) Loans to Related Party.tt Included in total loans are loans due from directors and other relateaa d parties of $5.6 million and $6.1 million at December 31, 2021 and 2020, respectively. All loans made to directors have substantially the r bank borrowers at their origination date. The Board of Directors confirff ms that same terms and interest rates as othet collateral requirements, terms and rates are comparable to othet r borrowers and are in compliance with underwriting policies prior to approving loans to individual directors. The following presents the activity in amount due from directors and other related parties for the years ended December 31, 2021 and 2020. Outsuu tandindd gn related party loans at Januaryrr 1 New loans Repaymenmm tsnn Outsuu tandindd gn related party loans at Decembem r 31 Note 5 – Premises and Equipment 2021 2020 (In thousands) $ $ 6,079 515 (955) 5,639 $ $ 5,562 729 (212) 6,079 The components of premises and equipment at December 31 were as follows : 2021 2020 (In thousands) ,468 1 3,647 $ 1,468 3,646 11,204 6,684 195 23,197 (10,483) 12,714 $ 8,742 3,157 835 17,849 (5,251) 12,598 Land Buildill ngii s Leashold imprmm ovemvv enmm tsnn Furnuu itnn urtt e, fixtii ures and equiqq pmii Construcrr tionii nn ent in progress accumuuu tionii Total beforeoo and amormm tirr zaii lauu ted depreciationii lauu ted depreciationii Accumuuu Total and amormm tizaii tionii stimated lives usefulff // N/A 40 Years Lessor of lease term or usefulff lifeii -7 Years 3 $ $ 76 Note 6 – Deposits The components of deposits at December 31 were as follows (Dollars in thousands): checkhh inkk g Demand, non-oo intenn rest-bearingii Demand, intenn rest-bearing checkingii Savingii s Money Market depositsii Timeii depositsii Timeii , $250,000 and over , othett r December 31, 2021 December 31, 2020 (In thousands) $ $ 286,247 259,022 225,579 373,075 33,741 268,479 1,446,143 19.79% 17.91% 15.60% 25.80% 2.33% 18.57% 100.00% $ $ 215,381 288,769 178,932 305,290 72,424 306,470 1,367,266 15.75% 21.12% 13.09% 22.33% 5.30% 22.41% 100.00% Money market accounts totaling $23.7 million and $20.1 million at December 31, 2021 and 2020, respectively were originated through a reciprocal deposit relationship. At December 31, 2021, the scheduled maturities of certificff ates of deposit were as follows: Years Ended December 31 2022 2023 2024 2025 2026 andnn thereafter Total Amount (In thousands) 124,581 55,293 66,075 32,170 24,101 302,220 Approximately $108.9 million and $96.1 million at December 31, 2021 and 2020, respectively were originated through brokers. Related partytt deposits were approximately $4.6 million and $4.3 million at December 31, 2021 and 2020 respectively. Deposit overdrafts reclassified as loan balancaa respectively. es were $63,000 and $552,000 at December 31, 2021 and 2020, Note 7 – Borrowings The Bank’s borrowings consist of FHLB-NY overnight and short-term advances. The Bank utilizes federal funds purchased to meet short-term liquidity needs. The FHLB-NY has non-specific blanket collateral on the Bank’s loan portfolio as of December 31, 2021 and 2020. At December 31, 2021 and 2020, the Bank had no outstanding borrowings. At December 31, 2021, the Bank had a maximum borrowing capaa city with the FHLB-NY, subject to certain collateral restrit ctions, of $264.6 million, with $184.6 million available. The Bank is also a shareholder in Atlantic Community Bancshares, Inc., the holding company of ACBB. As of December 31, 2021, the Bank had available borrowing capaa city with ACBB of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. No amounts are outstanding with the ACBB at December 31, 2021. 77 Note 8 – Commitments and Contingencies Operating leases The Bank has operating leases for eighteen of its branch locations, as well as its operations center. Future minimum lease payments by year under the non-cancellable lease agreements for the Bank’s facilities were as follows: Years Ended December 31 2022 2023 2024 2025 2026 Thereafteff Total r Amount (In thousands) 2,322 2,278 2,019 1,998 1,846 12,335 22,798 Rental expense for the years ended December 31, 2021 and 2020 was $2.9 million and $2.8 million, respectively. The Bank has an operating lease agreement with a member of the Bank’s board of directors for a building containing the Bank’s corporate headquarters and branch, which is included in the above lease schedule. At the lease initiation date, the lease terms were comparable to similarly outfitff ted offiff ce space in the Bank’s marka et. Base rental payments in each of the years ended December 31, 2021 and 2020, of $305,000 and $306,000 were made to this related partytt respectively. Certain operating expex nses, including real estate taxes, insurance, utilities, maintenance and repairs, related to this property are paid directly to the various service providers. Commitments to extend credr itdd The Bank is a party to financial instrut ments with off-ba lance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contract, or notional, amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instrut ments. ff The Bank’s exposure to credit loss in the event of nonperformance by the counterpar ial instrument for commitments to extend credit and standby letters of credit written is represented by the contrat ctual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instrut ments. rtaa y to the financaa Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the counterpar Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. rty.tt The Bank evaluates each customer’s creditworthit ness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterpar rta y. Collateral held varies, but primarily includes residential and income-producing real estate. Standby letters of credit are written conditional commitments issued by the Bank to guarantee the perforff marr customer to a third partaa y. The majoa rity of these standby letters of credit expire within the next twelve monthst credit risk involved in issuing letters of credit is essentially the same as that involved in extending othet commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management nce of a . The r loan 78 Note 8 – Commitments and Contingencies (Continued) believes that the proceeds obtained through a liquidation of such collateral should be sufficient to cover the maximum potential amount under the corresponding guarantees. The Bank had the following off-bff alance sheet financial instrumt December 31 (Dollars in thousands): ents whose contract amountu s represent credit risk at Performance and standby letters of credit Undisbursed loans-in-process (Construction) Commitments to fund loans Unfunded commitments under lines of credit Total Litigii atiott n 2021 2020 $ $ 486 229,155 51,817 4,573 286,031 $ $ 2,165 116,877 39,868 4,079 162,989 The Bank, in the normarr l course of business, may be subjeb ct to potential liability under laws and government regulation and variaa ous claims and legal actions that are pending or may be asserted against it. Liabilities are established for legal claims when payments associated witht the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established for those claims. Based on information currently available, advice of counsel, available insurance coverage and established liabilities, the Bank has determined that there are no eventual outcomes that will have a material adverse effecff t on the Bank’s financial position or results of operations. 79 Note 9 – Income Taxes Income tax expense for the years ended Decembem r 31 is as follows: Curruu entnn tax expexx nse: Federal State Total Curreuu nt Deferred income tax benefit:ii Federal State Total Curreuu nt 2021 2020 (In thousands) $ $ 4,608 1,819 6,427 417 (141) 276 6,703 $ $ 3,158 1,252 4,410 (532) (394) (926) 3,484 The tax effects tax liabilities as of December 31 are as follows: ff of temporary differences that give rise to significff ant portions of the deferred tax assets and deferred 2021 2020 (In thousands) $ $ 4,332 421 5 27 400 293 726 ,446 8 9 10,739 4 (993) (242) (4,277) (7) (397) (18) (291) (6,225) 4,514 $ $ 4,119 468 25 28 444 197 555 4,879 - 10,715 (342) (279) (4,731) (7) (240) (35) (621) (6,255) 4,460 Deferred tax assets: loss carry-forward r nce for loan losses Alloll wao Net operatingii Organization costs Branchn acquiqq siii tiii onii Othet Core deposit intann ngible Deferred PPP loans ilitll y tt Lease liabii SERP liabii ii iltill y Total deferred tax assets : ilitiii esii Deferred tax liabii Depreciationii Deferred loan costs ROU Acquisiii tiii onii Goodwill amormm tizaii Section 481a Adj.dd Unrenn alizll ed gain on securiuu tiii esii Total deferred tax liabii accouno tinn ngii tionii ilitll ies adjud stmet Net deferred tax asset nts 80 Note 9 – Income Taxes (Continued) Total income taxes differ income as follows: ff ed from the amount computed by applying the statutt ory federal income tax rate to pre-tax Federal inconn me tax expexx nse at statuttt oryrr Increase (reducdd tion) rate in taxes resulting from: ii 2021 Amoumm ntuu Rate $ 6,130 (Dollall rs in thoushh $ 21.0% 2020 Rate Amountmm ands) 3,631 21.0% State income taxes, net of federal benefit ii Tax-exemptmm income, net Incentive stock options Non-deductible expexx nses Othet r ii Total incomeoo taxes applicll able to pre-tax income $ 1 ,326 (790) 17 8 12 6,703 4.5% -2.7% 0.1% 0.0% 0.0% 22.9% 678 (855) 22 10 (2) 3,484 $ 3.9% -4.9% 0.1% 0.1% 0.0% 20.2% The Bank had available federal net operating loss carry-forff warr rds of approximately $2.0 million and $2.2 million at December 31, 2021 and 2020, respectively, which expire between 2028 and 2030. The federal net operating loss carry-r forwards are amounts that were generated by MoreBank, which the Bank acquiqq red on September 30, 2010. These net operating losses are subjeb ct to an annual Internal Revenue Code Section 382 limitation of approximately $222,000. Based on projections of future taxabla e income over periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Bank will realize the benefits of these deductible differences. u On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through December 31, tly imposed on Corporation Business Tax (CBT) filers with allocated taxable net income 2023, the 2.5% surtu ax curren over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for privilege r January 1, 2020 through December 31, 2021 and expix re for privilege periods beginning periods beginning on or afteff on or after t immediately and applies retroactively to privilege r Januaryrr 1, 2020. The Bank recorded an additional $63,000 in income tax expense related periods beginning on or afteff tive in 2019, New Jersey has adopted combined income tax reporting for to the adjud sted surtax during 2020. Effecff certain members of a commonly-controlled unitaryrr business group.u January 1, 2022. The change made by A.4721 takes effecff ff Note 10 – Revenue Recognition The Bank accounts for its applicable revenue in accordance with ASC Topic 606 - Revenue from Contratt cts with Customers.rr The core principle of Topic is that an entity recognize at an amount that reflect the consideration to which the entity expects to be entitled in exchange for transferff ring goods or service to a customer. Topic 606 requires entities to exercise judgement when considering the terms of a contract. Topic 606 applies to all contracts with customers to provide good or services in the ordinary course of business, except for contracts that are specificff ally excluded from its scope. associated with financial instruments, including revenuen Topic 606 does not apply to revenuen from loans and securities. In addition, certain non-interest income streams such as fees associated witht mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Topic 606 is applicable to non-interest revenue streams such as deposit related fees and interchange fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Bank’s ts witht customers. Non-interest revenue streams in-scope of Topic 606 are discussed revenue is generated from contractt below. 81 Note 10 – Revenue Recognition (Continued) Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and publu ic checking accounts), monthlt y service fees, check orders, and other deposit account related fees. The Bank’s nce obligation for account analysis fees and monthlt y service fees is generally satisfied, and the related perforff marr revenue recognized, over the period in which the service is provided. Check orders and othet r deposit account related fees are largely transactional based, and thereforff e, the Bank’s perforff marr nce obligation is satisfied, and related revenuen recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. Fees, exchange, and othet r service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of net interchange fees earned whenever the Banks’s debit and credit cards are processed through card payment networksrr such as Visa. ATM fees are primarily generated when a cardhodd lder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Othet r service charges include revenue from processing wire transferff s, bill pay service, cashier’s checks, and other services. The Bank’s perforff mance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. ff Note 11 – Leases On Januaryrr 1, 2019, the Bank adopted FASB ASU No. 2016-02, “Leases (Topic 842).” Leases (Topic 842) establishes a right of use model that requires a lessee to record a right of use (“ROU”) and a lease liability for all leases with terms longer 12 months. The Bank has elected the short-term lease recognition exemptm ion such that the Bank will not from the commencement date. The Bank recognize ROU or lease liabilities for leases witht a term less than 12 monthst is obligated under 20 operating leases agreements for 19 branches and its corporate office s with terms extending through 2039. The Bank’s lease agreements include options to renew at the Bank’s discretion. The extensions are reasonabla y certain to be exercised, thereforff e they were considered in the calculations of the ROU asset and lease liability. ff The following table represents the classification of the Bank’s right of use and lease liabilities (Dollars in thousands): Statemen of Financial Condition Locatiaa on December 31, 2021 (In thoush Operating Lease Right of Use Asset: Gross carryingn amounmm t nn Incrnn eased asset from new lease lated amormm tizaii Accumuuu tionii Net book value Operatingii lease right ii -of-use asset Operating Lease liabilities: Lease liabii ilitll ies Operatingii lease liabii ilitll y $ $ $ 1 8,408 1,504 (1,998) 17,914 18,561 Decembe r 31, 2020 ands) $ 14,533 5,768 (1,893) $ $ 18,408 18,987 For the year ended December 31, 2021, the weighted-average remaining lease terms for operating leases was 11.9 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.54%. The Bank used current FHLB fixed rate advances at the time the lease was placed in service for the term most closely aligning with remaining lease term to determine the discount rate. 82 Note 11 – Leases (Continued) Lease cost: Operating lease Short-term lease cost Total lease cost Other information: Cash paid for amountmm s includell measuremenmm tnn of lease liabilitii d in the : iesii Year Ended December 31, 2021 2020 (In thousands) $ $ $ 2,940 97 3,037 2,488 $ $ $ 2,789 100 2,889 1,822 Future minimum payments under operating leases with terms longer than 12 monthstt 2021 (Dollars in thousands): are as follows at December 31, ended Decembem r 31, Twelvell monthstt 2022 2023 2024 2025 2026 r Thereafteff Total futuuu reuu Amountsuu Presentnn valueuu of net futuuu reuu representinn ngii operating lease payment intenn rest lease paymenmm tsnn $ $ 2021 (In thousandsn ) 2,322 2,278 2,019 1,998 1,846 12,335 22,798 (4,237) 18,561 Note 12 – Directors Fee Plan The Bank adopted The Bank of Princeton 2018 Director Fee Plan (“Plan”) which was approved at the Annual Meeting of Stockholders held on April 24, 2018. The Plan allows non-employee members of the board of directors to elect to receive up to 100% of their annual compensation in the form of Bank common stock. During the twelve monthst period ended December 31, 2021 and 2020, 4,019 and 5,388 shares of common stock have been issued, respectively. These shares issued were valued at $120,000 for both periods and recorded in profesff sional fees for the twelve monthst period ended December 31, 2021 and 2020, respectively. Note 13 – Goodwill and Core Deposit Intangible On May 17, 2019, the Bank acquired five branches which were accounted for under FASB ASC 805, Business Combinations. The Bank assumed $177.9 million of branch deposits for which it received net cash of $159.9 million. The difference between the liabilities assumed and net cash received was allocated on the estimated fair value of the assets acquired and liabilities assumed. In accordance with ASC 805, the Bank has expex nsed approximately $627 thousand of direct acquisition cost and recorded $8.9 million of goodwill along with $4.2 million of core deposit intangible assets. The intangible assets are related to core deposits and are being amortized over 10 years, using sum of the years digits. For tax purposes, goodwill totaling $8.9 million is tax deductible and will be amortized over 15 years strai ght line. t 83 Note 13 – Goodwill and Core Deposit Intangible (Continued) The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows (Dollars in thousands): Balance at December 31, 2020 Amormm tirr zaii Balance at December 31, 2021 tionii expexx nse Balance at December 31, 2019 Amormm tirr zaii Balance at December 31, 2020 tionii expexx nse Goodwill Core Deposit Intangible 8,853 - 8,853 $ $ 3,036 (643) 2,393 Goodwill Core Deposit Intangible 8,853 - 8,853 $ $ 3,763 (727) 3,036 $ $ $ $ As of December 31, 2021, the future fiscal periods amortization for the core deposit intangible is: 2022 2023 2024 2025 2026 Thereafter Total Amount (In thousands) 569 $ 492 415 338 261 318 2,393 $ Note 14 – Fair Value Measurements and Disclosure The Bank follows the guidance on fair value measurements codified as FASB ASC Topic 820, Fair Value Measurement (“Topic 820”). Fair value measuremu ents are not adjud sted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Management uses its best judgment in estimating the fair value of the Bank’s financial instruments, however, there are inherent weaknesses in any estimation technique. Thereforff e, for substantially all financial instrut ments, the fair value estimates herein are not necessarily indicative of the amounts the Bank could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be differff ent than the amounts reported at each period-end. 84 Note 14 – Fair Value Measurements and Disclosure (Continued) The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices in markets that are not active, or inputs that are observable eithet substantially the full term of the asset or liability. r directly or indirectly, for Level 3: Prices or valuation techniques that require inputs that are botht significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). An asset’s or liability’s level withit n the fair value hierarchy is based on the lowest level of input that is significaff the fair value measurement. ntaa to For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2021 were as follows: Description Mortgage-backed securiuu tiii esii -U.S. Governmenn U.S. governmenn Obligai tionii Securiuu tiii esii nt Sponsored Entenn rprise (GSEs) nt agency securiuu tiii esii s of state andnn political subdu ivisions availaii ble-ll for-oo sale at fair value (Level 1) Quoted Pricrr e in Active Markets for Identical Assets (Level 2) Significff ant Other Observable Inputs (Level 3) Significff ant Unobservable Inputs Total Fair ValVV ue December 31, 2021 (In thousauu nds) $ $ - - - - $ $ $ 45,452 6,238 49,468 101,158 $ $ - - - - $ $ 45,452 6,238 49,468 101,158 For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2020 were as follows: Description Mortgage-backed securiuu tiii esii -U.S. Governmenn tionii Obligai Securiuu tiii esii nt Sponsored Entenn rprise (GSEs) s of state andnn political subdu ivisions availaii ble-ll for-sale at fair value (Level 1) Quoted Pricrr e in Active Markets for Identical Assets (Level 2) Significant Other Observable Inputs (Level 3) Significff ant Unobservable Inputs Total Fair ValVV ue December 31, 2020 (In thousands) $ $ - - - $ $ 25,112 50,516 75,628 $ $ - - - $ $ 25,112 50,516 75,628 85 Note 14 – Fair Value Measurements and Disclosure (Continued) For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2021, were as follows: Description Impamm ired loans Othett r real estate owned (Level 1) Quoted Pricrr e in Active Markets for Identical Assets (Level 2) Significant Other Observable Inputs (Level 3) Significff ant Unobservable Inputs Total Fair ValVV ue December 31, 2021 (In thousands) $ $ $ - - - $ $ $ - - - $ $ $ 82 226 308 $ $ $ 82 226 308 For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2020, were as follows: (Level 1) Quoted Pricrr e in Active Markets for Identical Assets (Level 2) Significff ant Other Observable Inputs (Level 3) Significff ant Unobservable Inputs Total Fair ValVV ue December 31, 2020 (doldd lall rs in thousands) Description Impamm ired loans $ $ - - $ $ - - $ $ 2,086 2,086 $ $ 2,086 2,086 The following tabla e presents quantitative informa 31, 2021. ff tion with regards to Level 3 fair value measurements at December Description Impamm ired loans Othett r real estate owned2dd Fair Valuaa e December 31, 2021 Valuation Technique Unobservable Input (In thousauu nds) $ $ 82 226 Collatll eral 1 Collatll eral 1 Discii ountuu nt adjud stmett Discii ountuu adjud stmett nt Range (WeiWW ghted Average) 6.0% (6.0%) 0.0% 0.0% 1 Fair value is generallyll determinm ed throhh ughgg indenn pendendd tnn apprpp aisaii 2 The othett r real estate owned was writtett n down to the estimaii ted net realizll able value.uu l of the underlyill ngii collatll eral,ll primarilyll using comparable sales. 86 Note 14 – Fair Value Measurements and Disclosure (Continued) The following tabla e presents quantitative informa 31, 2020. ff tion with regards to Level 3 fair value measurements at December Description Fair Value December 31, 2020 Valuation Technique Unobservable Input (doldd lall rs in thousands) Discii ountuu Range (WeiWW ghted Average) 0.0% - 29.1% Impamm ired loans $ 2,086 Collatll eral1 adjud stmet nt ( 11.1% ) 1 Fair value is generallyll determinm ed throhh ughgg indenn pendendd tnn apprpp aisaii l of the underlyill ngii collatll eral,ll primarilyll using comparable sales. The following methods and assumptions were used by the Bank in estimating fair value disclosures: Investment Securities The fair value of securities available-for-sale (carraa ied at fair value) and held-to-maturiu ty (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specificff securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-partaa y pricing service ing industry, and not adjusted by management. Level 2 fair value measurements consider commonly used in the bankaa observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasuryu yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among othet r things. Impaired loans (generally carried at fair value) Impaired loans carra ied at fair value are those impaired loans in which the Bank has measured impairment generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-partytt appraisals of the properties, or discountu ed cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Bank determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significff ant to the fair value measurements. Other real estate owned (generally carried at fair value) quently, othett ted to fair value, less estimated selling costs, upon transferff of loans to other real estate Other real estate owned is adjusd owned. Subseu r real estate owned is carried at the lower of carrying value or fair value less cost to sell. Fair value is based upon independent market prices, appraised values of the collateral or management’s nt estimation of the value of the collateral. The discount adjustme unobservable input in the determination of the fair value for other real estate owned. These assets are included as Level 3 fair values. nt from the appraised value is a significaff d Loans Receivable, net The fair value of loans receivable, net is based on discounted cash flow methodologies for which the determination of fair value may require significant management and judgement. Deposits The fair value of deposits is based on discounted cash flow methodologies for which the determination of fair value may require significant management and judgement. 87 Note 14 – Fair Value Measurements and Disclosure (Continued) Restricted investment in bank stock and accrued interest receivable and accrued interest payable Fair value estimates are based on existing balance sheet financial instrut ments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments. The carrying amounts and estimated fair value of financial instruments are as follows: for-salell at fair value lents availaii ble-ll held-tdd o-maturiuu tyii Financialaa assets: Cash and cash equiqq vaii Securiuu tiii esii Securiuu tiii esii Loans receivaii ble,ll net Restritt ctii ed invenn stmett Accrued intenn rest receivaii blell nts in bank stock December 31, 2021 Carryinyy g Amount Estimateaa d Fair Valuaa e $ 158,716 101,158 208 1,318,543 1,345 4,218 $ 158,716 101,158 225 1,384,470 1,345 4,218 Level 1 (In thousands) $ 158,716 - - - - - $ - 101,158 225 - 1,345 4,218 Level 2 Level 3 Financialaa Liabilities: Depositsii ll Accrued intenn rest payable 1,446,143 ,044 1 1,438,912 1,044 - - 1,438,912 1,044 The carrying amounts and estimated fair value of financial instruments are as follows: for-salell at fair value lents Financialaa assets: Cash and cash equiqq vaii Securities availaii ble-ll Securiuu tiii esii Loans receivaii ble,ll net Restritt ctii ed invenn stmett Accrued intenn rest receivaii blell held-tdd o-maturiuu tyii nts in bank stock December 31, 2020 Carryinyy g Amount Estimatea d Fair Valua e $ 77,429 75,628 215 1,347,459 1,366 4,893 $ 77,429 75,628 237 1,460,646 1,366 4,893 Level 1 (In thousands) $ 77,429 - - - - - $ - 75,628 237 - 1,366 4,893 Level 2 Level 3 Financialaa Liabilities: Depositsii ll Accrued intenn rest payable Limitations 1,367,266 ,476 2 1,375,470 2,476 - - 1,375,470 2,476 $ - - - 1,384,470 - - - - $ - - - 1,460,646 - - - - The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjeb ctive in nature and involve uncertainties and matters of significff ant judgment and, thereforff e, cannot be determined with precision. Changes in assumptions could significantly affecff t the estimates. Further, the ntially all of the financial foregoing estimates may not reflect the actual amount that could be realized if all or substa instruments were offered for sale. This is due to the fact that no market exists for a sizabla e portion of the loan, deposit and off-bff alance sheet instruments. u 88 Note 14 – Fair Value Measurements and Disclosure (Continued) In addition, the fair value estimates are based on existing on and off-balance sheet financial instrut ments without attet mpting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significaff nt assets that are not considered financial assets include premises and equipment. In addition, the tax ramificff ations related to the realization of unrealized gains and losses can have a significant effeff ct on fair value estimates and haveaa not been considered in anynn of the estimates. comparability between financial institutions may not be likely due to the wide range of permitted Finally, reasonablea valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instrut ments. This lack of uniforff m valuation methodologies introduces a greater degree of subjeb ctivity to these estimated fair values. Note 15 – Stock-Based Compensation In 2007, the Bank adopted The Bank of Princeton 2007 Stock Option Plan (thet “2007 Plan”), which was approved by our board of directors in August 2007 and by our stockholders in October 2007. The 2007 Plan enables the board of directors to grant stock options to employees, directors, consultants and other individuals who provide services to the Bank. The shares subject to or related to options under the 2007 Plan are authorized and unissued shares of the Bank. The maximum number of shares that may be subject to options under the 2007 Plan is 300,000, all of which may be issued as Incentive Stock Options and not more than 100,000 of which may be issued as Non-Qualifieff d Stock Options. from immediate to four years from the date of grant. No incentive stock options may be granted Vesting periods range under the 2007 Plan afteff r October 2, 2017. aa In 2012, the Bank adopted The Bank of Princeton 2012 Equity Incentive Plan (the “2012 Plan”), which was approved by our board of directors in February 2012 and by our stockholders in May 2012. The 2012 Plan enabled the board of directors to grant stock options or restrit cted shares of common stock to employees, directors, consultants and other individuals who provide services to the Bank. The shares subject to or related to options under the 2012 Plan are authorized and unissued shares of the Bank. In 2013, the Bank’s board of directors and stockholders approved an amendment to the 2012 Plan that increased the maximum number of shares that mayaa be subject to options under the 2012 Plan from 100,000 to 600,000, all of which may be issued as Incentive Stock Options or as Non-Qualifieff d Stock Options. Vesting periods range from immediate to four years from the date of grant. At December 31, 2021 there were 54,738 shares remaining available for future issuance under the 2012 Plan. No incentive stock options may be granted under the 2012 Plan afteff r April 30, 2023. In 2014, the Bank adopted an amendment to each of the 2007 Plan and to the 2012 Plan, which amendments were approved by our Board of Directors, to provide that all outstanding options under the 2007 Plan and the 2012 Plan will become fully vested and exercisable upon a change in control of the Bank and to furthet the consideration respect to outstanding awards upon anynn such change in control. that may be exchanged witht r specifyff In 2018, the Bank adopted The Bank of Princeton 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by our board of directors in February 2018 and by our stockholders in May 2018. The 2018 Plan enabled the board of directors to grant stock options restricted stock, or restricted stock units to employees, directors, consultants and r individuals who provide services to the Bank. At December 31, 2021 there were 287,221 shares remaining othet available for issuance under the 2018 Plan. 89 Note 15 – Stock-Based Compensation (Continued) The following is a summaryrr of the status of the Bank’s stock option activity and related information for the year ended December 31, 2021: Balance at January 1, 2021 Grantenn d Exerciseii d Forfeiff teii d Expixx reii d Balance at December 31, 2021 Exercisaii blell at December 31, 2021 Number of Stock Options Weighted Average Exercise Pricrr e Weighted Avg. Remaining Contractualaa ff Life Average Intrinrr sic alVV ue V 431,980 - (22,480) (1,350) (500) 407,650 395,125 $ $ $ 19.73 - 13.22 25.49 12.00 20.08 3.28 Years 19.68 3.19 Years $ $ 4,069,054 4,069,054 The Bank granted 19,830 RSU’s during 2021, with a fair value of $21.43, which reflected the markaa et value of the Bank’s common stock on the date of the grant. Of the 19,830 RSU’s granted during 2021, 3,500 RSU’s have a vesting and period of one year and the remaining 16,330 RSU’s vest over the next three years. The following is a summary of the status of the Bank’s stock option and warrantaa the year ended Decembem r 31, 2020: activity and related information for Balance at January 1, 2020 Grantenn d Exerciseii d Forfeiff teii d Expixx reii d Balance at December 31, 2020 Exercisaii blell at December 31, 2020 Number of Stock Options Weighted Average Exercise Pricrr e Weighted Avg. Remaining Contractualaa ff Life Average Intrinrr sic alVV ue V 462,625 - (21,520) (9,025) (100) 431,980 400,305 $ $ $ 19.58 - 13.31 27.49 12.00 19.73 4.13 Years 18.72 3.89 Years $ $ 2,460,852 2,460,852 The Bank granted 7,454 RSU’s during 2020, with a fair value of $31.16, which refleff cted the market value of the Bank’s common stock on the date of grant. Of the 7,454 RSU’s granted during 2020, 1,600 RSU’s have a vesting period of two years and the remaining 5,854 RSU’s have three one-year vesting periods. The expected lifeff of stock options granted is generally derived from historical experience. Expected volatilities are general based on the average of three peers’ historical volatilities due to the limited liquidity of the Bank’s stock in the open market. The Bank uses an estimated forfeiff ture rate due to limited historical data. At the time of the grant, the Bank had not declarea d anyn cash dividend thereforff e no dividend yield was used. The risk-freff e rate for periods within the contractuatt l term of the share option is based on the U.S. Treasury for a comparabla e term. Stock option expenses included in salaries and employee benefits expense in the consolidated statements of income were $335,000 (which includes RSU’s expense of $214,000) and $278,000 (which includes RSU expense of $81,000) for the years ended December 31, 2021and 2020, respectively. A tax benefit was recognized of $70,000 and $59,000 for the years ended December 31, 2021 and 2020, respectively. Stock option expex nses recorded within other expex nses were $70,000 and $3,000 for the years ended December 31, 2021 and 2020, respectively. A tax benefit was recognized of $15,000 and $1,000 for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, there 90 Note 15 – Stock-Based Compensation (Continued) was approximately $309,000 of unrecognized expense related to outstanding stock options and RSU’s, which will be recognized over a period of approximately 1.82 years. Note 16 – Regulatory Matters Regue latory Capita a l Current FDIC capital standards require institutions to satisfy a common equity Tier 1 capital requirement, a leverage capia tal requirement and a risk-based capital requirement. The common equiqq ty Tier 1 capital component generally consists of retained earnings and common stock instrut ments and must equal at least 4.5% of risk-weighted assets. Leverage capital, also known as “core” capiaa tal, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capia tal generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all othet ng associations, which effeff ctively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated bankaa s are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniforff m Financial Institutions Rating System. Under the risk-based capiaa tal requirements, Tier 1 Capital to risk-weighted assets ratio must equal at least 6.0% (and 8.0% for the Bank to be considered “well capitalized”) and total capia tal to risk-weighted assets ratio must equal at least 8.0% (10.0% to be considered “well capitalized”). The FDIC also is authorized to imposm e capital requirements in excess of these standards on individual institutions on a case-by-case basis. aa r banki d a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of The final capital rules introducedd risk-weighted assets which is in addition to the othet r minimum risk-based capia tal standards in the rule. Institutions that do not maintain this required capia tal buffer will become subject to progressively more stringent limitations on the ent of percentage of earna ings that can be paid out in dividends or used for stock repurchases and on the paymaa discretionary bonuses to senior executive management. At December 31, 2021, the Bank met all capital adequacy requirements on a fully phased-in basis. ff Any banking organization that fails any of the capiaa tal requirements is subjeb ct to possible enforcement action by the FDIC. Such action could include a capia tal directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. 91 Note 16 – Regulatory Matters (Continued) The Bank’s actual capital amounts and ratios at December 31, 2021 and 2020 are presented below: December 31, 2021: Actual Amount Ratiaa o tiaa on For capital conservarr requirement Ratio bufferff Amount (Dollall rs in the thousoo ands) To be well capitalized under prompt corrective action provision Amount Ratio $ 221,113 15.085% $ 153,906 10.500% $ 146,577 10.000% $ 204,493 13.951% $ 124,591 8.500% $ 117,262 8.000% -weighi eighi -wkk tehh d assets) tehh d tierii 1 capitaii l (to- Total capitaii l (to riskii Tierii 1 capital (to riskii assets) Commonmm equiqq tyii riskii weighi Tierii 1 leverage capitaii assets) tehh d assets -weighi eighi -wkk tehh d assets) tehh d tierii 1 capitaii l (to- Total capitaii l (to riskii Tierii 1 capital (to riskii assets) Commonmm equiqq tyii riskii weighi Tierii 1 leverage capitaii assets) tehh d assets December 31, 2020: l (to average $ 204,493 13.951% $ 102,604 7.000% $ 204,493 12.062% $ 110,193 6.500% $ $ 95,275 6.500% 84,764 5.000% $ 211,165 16.030% $ 138,351 10.500% $ 131,762 10.000% $ 195,138 14.810% $ 111,998 8.500% $ 105,410 8.000% l (to average $ 195,138 14.810% $ 92,234 7.000% $ 195,138 12.480% $ 101,609 6.500% $ $ 85,646 6.500% 78,161 5.000% The Bank is subject to certain restrictions on the amount of dividends that it mayaa declare due to regulatoryrr considerations. 92 Note 17 – Subsequent Events On January 26, 2022, the Board of Directors declared a cash dividend of $0.25 per share of common stock. The dividend was paid on Februarr ry 28, 2022 to shareholders of record at the close of business on Februarya 11, 2022. On March 1, 2022, The Bank of Princeton announced its intent form a bank holding company, subject to stockholder and regulatory approval. If approved the Bank would become a subsidiary of Princeton Bancorp,rr Inc., the newly- formed bank holding company. Current stockholders of the Bank would become shareholders of the newly-formed bank holding company and current stockholders will have the same rights and ownership percentage in the new holding company as they currently have in the Bank. Note 18 – Risk and Uncertainties ted, and continuen s to adversely affecff On March 11, 2020, the World Health Organiaa zation declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and aroundu the world. The COVID-19 pandemic has adversely t economic activity globally, nationally and locally. It is unknown how long affecff the adverse conditions associated with the COVID-19 pandemic will last and what the complete financaa ial effeff ct will be to the Bank. It is reasonabla y possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loan receivables. aa ng agencies conclude that short-term modificff ations (e.g. six monthst On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affeff cted by the Coronavirus”. This guidance encourages financial institutions to work prudently witht borrowers that mayaa be unable to meet their contractual obligations becausaa e of the effeff cts of COVID-19. The guidance goes on to explain that in consultation with the FASB staff that the federal banki ) made on a good faitht basis to borrowers who were current as of the implm ementation date of a relief program are not TDRs. The CARES Act was passed by Congress on March 27, 2020. Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Bank actively assisted customers by providing short-term modifications in the form of deferrals of interest, principal and/or escrow for terms ranging from one to six months. On December 27, 2020 the 2021 r suspension Consolidated Appropriations Act (“CAA”) was signed into, law, providing for, among other (ending the earlier of January 1, 2022 or 60 days after the date the national emergency concernirr ng COVID-19 terminates) of the exception for loan modifications to not be classified as TDRs if certain criteria are met. As of December 31, 2021, the Bank had 1 deferred loan with a balance of $9.0 million remaining. things, furthet t interest at its original contractual terms. The Bank determined, based on stress testing indicators, prudr The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is met and as such, these loans are considered curru ent and continue to accruer ent underwriting policies and loan concentration diversificff ation including but not limited industries that were impact by the pandemic, such as hospitality and restaurants, the Bank currently expects to be able to manage the economic risks and uncertainties associated witht the pandemic. All of these factors were considered in our allowance for loan loss methodology in determining our allowance for loan losses as of December 31, 2021. At this time, we are unable to predict with any certainty the potential adverse effeff ct these loans may have on the Bank, whether these borrowers will be able to resume making payments once the deferral period expires, and if they are able to resume payments, whether they will require a change in the terms of the loan to be able to do so. The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the SBA. This program is known as the PPP. PPP loans are forgivable, in whole or in part, if the proceeds are used for r permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate payroll and othet of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA. The SBA pays the originating bankaa a processing fee ranging from 1% to 5%, based on the size of the loan. As of December 31, 2021, the Bank held approximately 565 loans totaling $79.7 million in PPP loans with $2.4 million in deferred fees remaining to be amortized. 93 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The information required by this Item is set fortht under the headings, “MATTER NO. 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS - Change in Accountants,” in the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation not later than 120 daysaa December 31, 2021 in connection with its 2022 Annual Meeting of Stockholders and incorpor afteff ated by reference. rr r Item 9A. Controls and Procedures Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financaa ial reporting, as defined in Rules 13a-15(f)ff and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonabla e assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States, which is commonly referred to as GAAP. The effeff ctiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the Bank’s internal control over financial reporting. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the preparation of financial statements in accordancaa e witht GAAP and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thataa our internal control over financial reporting may become inadequate because of changes in conditions or other factors, or that the degree of compliance with the policies or procedures may deteriorate. Management, with the participation of the Bank’s President and Chief Financial Officeff r, evaluated the effeff ctiveness of the Bank’s internal control over financaa ial reporting as of December 31, 2021 using the criteria in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”). Based on this assessment, management determined that, as of December 31, 2021, the Bank’s internal controt l over financial reporting was effeff ctive to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles. Disclosure Controls and Procedures Management, with the participation of the Bank’s President and Chief Financial Officeff r, evaluated the effeff ctiveness of the design and operation of the Bank’s disclosure controls and procedures (as defined in Rule l3a- l5(e) promulgated under the Exchange Act) as of December 31, 2021. Based on this evaluatioaa n, the Bank’s President and Chief Financial Offiff cer have concluded that the Bank’s disclosure controls and procedures are effeff ctive as of December 31, 2021 to ensure that the information required to be disclosed by the Bank in the reports that the Bank files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in FDIC rules and forms. Changes in Internal Control Over Financial Reporting There was no change in the Bank’s internal control over financial reporting identified during the quarter t, the Bank’s internal ended December 31, 2021 that has materially affeff cted, or is reasonabla y likely to materially affecff control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable 94 Item 10. Directors, Executive Officff ers and Corporate Governance PART III The information required by this Item is set forth under the headings, “MATTER NO. 1 ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS AND COMPENSATION – Executive Officff ers,” “SECTION 16(A) BENEFICIAL OWNEWW RSHIP REPORTING COMPLIANCAA E,” “BOARD OF DIRECTORS AND COMMITTEES” in the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation not later than 120 days afteff r December 31, 2021 in connection with the solicitation of proxies for its 2022 Annual Meeting of Stockholders and incorporated by refereff “CODE OF CONDUCT,” nce. The members of the Board have a diversity of expex rience and a wide variety of backgrounds, skills, to carry out their oversight role on behalf of our qualificff ations, and viewpoints that stret ngthen their abilitytt stockholders. The following matrix is provided to illustrate the knowledge, skills and experience of the directors that serve on our Board. The matrix does not encompass all of the knowledge, skills and experience of our directors, and the fact that a particular knowledge, skill or expex rience is not listed does not mean that a director does not possess it. In addition, the absence of a particular knowledge, skill or experience with respect to any of our directors does not mean the director in question is unablea to contribute to the decision-making process in that area. However, a mark area of focus or expertise that the director brings to our Board. More information on each director’s indicates a specificff can be found in the director biographies above. We regularly review the attributes qualificff ations and backgroundu required of Board members in order to better facilitate our long-term goals and operational perforff marr nce, enhance our corporate culture and promote diversity and inclusiveness at our company. ss generationii Finaii nce arketingii Category Busineii M&A Publu icll Companynn Executive Accounoo tinn ng/ ii Brandin ngii /Mgg Regulatoryo Real estate Asset/Liabii IT Communiuu tyii Reinvenn stmett Gender -Malell -Femalell nt ilitll y Management Dietzle r X X X X X X X X X X Demographicii Backgrk ounduu or Nativeii Amermm ican - Afriff caii n Amermm ican or Blacll k - Alasll kan Nativeii - Asianii - Hispii anicnn or Latinxii - Nativeii Hawaiian or Pacifiii cii Islander - Whithh e - Two or More Races or Ethnicn ities Didii not Discii lose Demographicii Background X X Item 11. Executive Compensation Distler X X Giacin X X Gillespie X X Ridolfiff X X Shueh X X X X X X X X X X X X X X X X X X X X X Tuchman Wishnick X X X X X X X X X X X X X X X X X X X X X X X X X The information required by this Item is set forth under the headings, “MATTER NO. 3 ADVISORYRR VOTE TO APPROVE OUR NAMED EXECUTIVE OFFICER COMPENSATION,” “BOARD OF DIRECTORS AND COMMITTEES – Compensation Processes and Procedures,” “EXECUTIVE OFFICERS AND COMPENSATION – Executive Compensation,” “– Equity Compensation Plan Information,” “– Employment and Othet r Agreements,” “– Stock Option Plans,” “– Outstanding Stock Option and Other Equity Awards at Fiscal Year End,” “– Employee Stock Ownership Plan,” “– 401(k) Plan,” “BOARD OF DIRECTORS AND COMMITTEES - Compensation As It Relates to Risk Management,” –“2021 Compensation of Directors” in the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation not later than 120 days after ff December 31, 2021 in connection with its 2022 Annual Meeting of Stockholders and incorporated by referff ence. 95 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is set forth under the headings, “EQUITY COMPENSATION PLAN INFORMATION,” “EXECUTIVE OFFICERS AND COMPENSATION – Stock Option Plans,” and “SECURITY NT”, in the Bank’s definitive proxy OWNERWW statement to be filed witht r December 31, 2021 in connection with its 2022 Annual Meeting of Stockholders and incorporated by refereff the Federal Deposit Insurance Corporation not later than 120 daysaa nce. SHIP OF CERTAIN BENEFICIAL OWNEWW RS AND MANAGEME afteff AA Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is set forth under the headings, “MATTER NO. 3 CERTAIN RELATIONSHIPS AND RELATED TRANRR SACTIONS,” “BOARD OF DIRECTORS AND COMMITTEES – Director Independence,” in the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance after Decembem r 31, 2021 in connection with its 2022 Annual Meeting of Corporation not later than 120 daysaa Stockholders and incorporated by refeff rence. Item 14. Principal Accounting Fees and Services The information required by this Item is set forth under the headings, “MATTER NO. 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS,” in the Bank’s definitive proxy statement to be filed with the Federal Deposit Insurance Corporation not later than 120 days after ff December 31, 2021 in connection with its 2022 Annual Meeting of Stockholders and incorporated by referff ence. Our independent registered public u accounting firm Wolf and Company, P.C. Boston, Massachusetts, Auditor Firm ID: 392. Item 15. Exhibits, Financial Statement Schedules PART IV (a) The following portions of the Bank’s consolidated financial statements are set forth in Item 8 - “Financial Statements of Supplementary Data” of this Annual Report: i. ii. iii. iv. v. vi. Consolidated Statements of Financial Condition as of December 31, 2021 and 2020 Consolidated Statements of Income for the years ended December 31, 2021 and 2020 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020 Consolidated Statements of Changes in Stockholders’ Equiqq ty forff 2021 and 2020 the years ended December 31, Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 Notes to Consolidated Financial Statements (b) Financial Statement Schedules All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated financial statements or notes thereto. 96 (c) Exhibits Exhibit No. Description rr ation, as amended. (J) Certificff ate of Incorpor Amended and Restated Bylaws (A) Specimen form of stock certificff ate. (D) Description of Capital Stock (B) The Bank of Princeton Amended and Restated 2007 Stock Option Plan* (B) The Bank of Princeton Amended and Restated 2012 Equiqq ty Incentive Plan* (A) Form of Incentive Stock Option Agreement for 2007 Stock Option Plan* (K) Form of Incentive Stock Option Agreement for 2012 Stock Option Plan* (A) Form of Nonqualifieff d Stock Option Agreement for 2007 Stock Option Plan* (K) Form of Nonqualified Stock Option Agreement for 2012 Stock Option Plan* (A) MoreBank 2004 Incentive Equity Compensation Plan* (A) Form of Incentive Stock Option Agreement* (A) Form of Nonqualified Stock Option* 3.1 3.2 4.1 4.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 (A) Form of Option for the Purchase of Shares of the Par Value of $1.00 Per Share of MoreBank* 10.11 10.12 10.13 10.14 10.15 Intentionally Omitted Employment Agreement between the Bank and Edward J. Dietzler dated as of Decembem r 6, 2018* Employment Agreement between the Bank and Daniel J. O’Donnell dated as of December 6, 2018* The Bank of Princeton Amended and Restated Equity 2018 Equity Incentive Plan* Branch Purchase and Assumption Agreement, dated Februarr Bank (and its successor in interest) Employment Agreement between the Bank and George S. Rapp dated as of January 25, 2019* Employment Agreement between the Bank and Stephanie Adkins dated January 25, 2019* Employment Agreement between the Bank and Christopher Tonkovich dated Februarya The Bank of Princeton 2018 Director Fee Plan* 10.16 10.17 10.18 10.19 10.20 (D) Amendment to Emplm oyment Agreement between the Bank and Edward J. Dietzler dated as of December 18, ry 2, 2019, between the Bankaa (H) (H) (F) (I) (E) (E) (G) (K) and Beneficial 25, 2019* 2019* 10.21 (D) Amendment to Employment Agreement between the Bank and Daniel J. O’Donnell dated December 18, 2019* 10.22 (C) 2020 Management Incentive Plan* 10.23 (L) Dividend Reinvestmet 10.24 (M) Supplemental Executive Retirement Plan dated July 30, 2021 for the benefit of Edward J. Dietzler and nt and Stock Purchase Plan 21.1 23.0 31.1 31.2 32.1 Daniel J. O’Donnell. Subsidiaries of the Registrat nt Consent of Independent Registered Public Accounting Firms Rule 13a-14(a) Certificff ation of the Principal Executive Offff icff er Rule 13a-14(a) Certificff ation of the Principal Financial Offff icff er Section 1350 Certificff ations * Management contract or compensatory plan, contract or arrarr ngement. (A) Incorpor r ated by reference to the exhibit to registrant’s Form 10, General Form for Registration of Securities, filed with the Federal Deposit Insurance Corporation on May 2, 2011. (B) Incorpor r ated by reference to Exhibits 10.1 or 10.2, as applicable, to registrant’s Current Report on Form 8-K, filff ed with the Federal Deposit Insurance Corporation on October 20, 2014. (C) Incorporated by refeff rence to Exhibit 10.1 to the Bank’s Current Report on Form 8-K filed with the FDIC on March 23, 2020. 97 (D) Incorporr rated by reference to Exhibits 4.2, 10.20, and 10.21 as applicable to registrant’s Annual Report on Form 10-K, filed with the Federal Deposit Insurance Corporation on March 16, 2020. (E) Incorporated by reference to Exhibits 10.1 and 10.2 to registrant’s Current Report on Form 8-K, filed with the Federal Deposit Insurance Corporation on Decembem r 7, 2018. (F) Incorpor rated by reference to registrant’s Current Report on Form 8-K filed with the Federal Deposit Insurance Corporation and dated Februarr rya 25, 2019. (G) Incorpor r ated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed with the Federal Deposit Insurance Corpor r ation and dated March 25, 2019. (H) Incorpor rated by reference to Exhibits 10.1 and 10.2 to registrant’s Current Report on Form 8-K filed witht the Federal Deposit Insurance Corporation and dated Januaryrr 25, 2019. (I) (J) Incorpor Corporation on March 26, 2018. rated by refeff rence to Exhibit B to registrant’s proxy materials filedff witht the Federal Deposit Insurance Incorpor r Deposit Insurance Corpor r ation on November 9, 2020. ated by reference to Exhibit 3.1 to registrant’s Quarterly Report on Form 10-Q, filed with the Federal (K) Incorporated by reference to amendment on Form 10-K/A to registrant’s Annual Report on Form 10-K, filed ff with the Federal Deposit Insurance Corporation on March 25, 2019. (L) Incorporr rated by reference to Exhibit 10.23 to registrat nt’s Annual Report on Form 10-K, filed with the Federal Deposit Insurance Corpor r ation on March 25, 2022. (M) Incorporated by reference to Exhibit 10.1 to registrant’s Current report on Form 8-K filed with the Federal Deposit Insurance Corpor r ation and dated August 2, 2021. Item 16. Form 10-K Summary None. 98 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 28, 2022. SIGNATURES The Bank of Princeton /s/ Edward Dietzler By: Edward Dietzler President and Chief Executive Officeff (Principal Executive Offiff cer) r The Bank of Princeton /s/ George S. Rapp By: George S. Rapp Executive Vice President and Chief Financial Offiff cer (Principal Financial and Accounting Officff er) 99 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signaturtt e Capacity Date /s/ Richard Gillespie Richard Gillespie /s/ Stephen Distler Stephen Distler /s/ Stephen Shueh Stephen Shueh /s/ Robert N. Ridolfi Robert N. Ridolfi,ff Esq /s/ Judith A. Giacin Judith A. Giacin /s/ Martin Tuchman Martin Tuchman /s/ Ross Wishnick Ross Wishnick /s/ Edward Dietzler Edward Dietzler /s/ George S. Rapp George S. Rapp Chairman of the Board March 28, 2022 Vice Chairman of the Board March 28, 2022 Director Director Director Director March 28, 2022 March 28, 2022 March 28, 2022 March 28, 2022 Director, Vice Chairman March 28, 2022 President, Chief Executive Offff icff er, Director (Principal Executive Offiff cer) Executive Vice President, Chief Financial Offiff cer (Principal Financial and Accounting Offiff cer) March 28, 2022 March 28, 2022 100 SUBSIDIARIES OF REGISTRANT Name of Subsidiary Bayard Lane, LLC 112 Fifthff Avenue, LLC Bayard Properties, LLC TBOP REIT, Inc. TBOP Delaware Investment Company Exhibit 21.1 Jurisdiction of Incorporation or Formation NJ NJ NJ NJ DE 101 I, Edward Dietzler, certify that: RULE 13A-14(A)/15D-14(A) CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER 1. I have reviewed this annual report on Form 10-K of The Bank of Princeton: Exhibit 31.1 2. Based on my knowledge, this report does not contain any untrue statement of a material facff t or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant’s other certifyiff ng offiff cer and I are responsible for establishing and maintaining disclosure controls and procedurdd es (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))ff for the registrant and have: a) b) c) d) Designed such disclosure contrott bbe designed under ouru supervision, to ensure that material information relating to the registrantt including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; ls and procedures, or causaa ed such disclosure controls and procedurdd es to t, Designed such internal control over financial reporting, or causaa ed such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financaa with generally accepted accounting principles; ial reporting and the preparation of financial statements for external purpu oses in accordance Evaluated the effeff ctiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effeff ctiveness of the disclosure controt the period covered by this report based on such evaluation; and ls and procedures, as of the end of Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duriu ng the registrant’s most recent fiscal quarter (thet case of an annual report) that has materially affecte registrant’s internal control over financial reporting; and registrant’s fourth fiscal quarter in the d, or is reasonably likely to materially affeff ct, the ff 5. The registrant’s othet r and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): r certifying officeff a) b) all significaff nt deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonabla y likely to adversely affeff ct the registrant’s ability to record, pprocess, summarize and report financial information; and any fraud, whethet significant role in the registrat nt’s internal control over financial reporting r or not material, that involves management or othett r emplm oyees who have a Date: March 28, 2022 /s/ Edward Dietzler Edward Dietzler President and Chief Executive Officeff (Principal Executive Offiff cer) r 102 RULE 13A-14(A)/15D-14(A) CERTIFICATIONS OF THE CHIEF FINANCIAL OFFICER Exhibit 31.2 I, George S. Rapp, certify that: 1. I have reviewed this annual report on Form 10-K of The Bank of Princeton: 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,ff and for, the periods presented in this report. 4. The registrant t’s othet r certifyiff ng officff procedurdd es (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controt defined in Exchange Act Rules 13a-15(f) and 15d-15(f))ff for the registrant and have: er and I are responsible for establishing and maintaining disclosure controls and l over financial reporting (as a) Designed such disclosure contrott ls and procedures, or causaa ed such disclosure controls and procedurdd es to be designed under our supeuu rvision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by othet which this report is being prepared; rs within those entities, particularly during the period in b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under ouru supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpor accounting principles; ses in accordance with generally accepted c) Evaluated the effeff ctiveness of the registrant’s disclosure controls and procedures and presented in this report our eness of the disclosure controls and procedures, as of the end of the period covered conclusions about the effectiv bby this report based on such evaluation; and ff d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred registrant’s fourth fiscal quarter in the case of an annual during the registrat nt’s most recent fiscal quarter (thett report) that has materially affeff cted, or is reasonably likely to materially affeff ct, the registrant’s internal controt l over financial reporting; and 5. The registrant t’s other certifyiff ng office l over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons perforff mi r and I have disclosed, based on our most recent evaluation of internal controt ng the equivalent functions): rr ff a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonabla y likely to adversely affeff ct the registrant’s ability to record, process, summarize and report financial information; and any fraud, whethet the registrant’s internal control over financial reporting r or not material, that involves management or othett r emplm oyees who have a significaff nt role in Date: March 28, 2022 /s/ George S. Rapp George S. Rapp Executive Vice President and Chief Financial Offff iceff (Principal Financial and Accounting Officff er) r 103 Exhibit 32.1 SECTION 1350 CERTIFICATIONS In connection with the Annual Report of The Bank of Princeton (the “Bank”) on Form 10-K for the period ended December 31, 2021 as filed with the Federal Deposit and Insurance Corporation on the date hereof (the “Report”), the undersigned certify,ff pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securiu ties and Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank. /s/ Edward Dietzler Edward Dietzler President and Chief Executive Officeff (Principal Executive Offiff cer) r /s/ George S. Rapp George S. Rapp Executive Vice President and Chief Financial Offiff cer (Principal Financial and Accounting Officff er) March 28, 2022 104 (cid:56)(cid:73)(cid:80)(cid:1)(cid:56)(cid:70)(cid:1)(cid:34)(cid:83)(cid:70) Board of Directors Richard J. Gillespie Chairman Stephen A. Distler Vice Chairman Edward J. Dietzler President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:48)(cid:622)(cid:437)(cid:423)(cid:592)(cid:584)(cid:478)(cid:616)(cid:437)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Ross E. Wishnick Vice Chairman Judith A. Giacin (cid:170)(cid:524)(cid:422)(cid:437)(cid:562)(cid:584)(cid:3)(cid:121)(cid:1582)(cid:3)(cid:170)(cid:478)(cid:430)(cid:524)(cid:502)(cid:731)(cid:1577)(cid:3)(cid:48)(cid:570)(cid:561)(cid:1582) Stephen K. Shueh Martin Tuchman (cid:1473)(cid:1472)(cid:1477) (cid:56)(cid:73)(cid:80)(cid:1)(cid:56)(cid:70)(cid:1)(cid:34)(cid:83)(cid:70) Executive Management Edward J. Dietzler President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:48)(cid:622)(cid:437)(cid:423)(cid:592)(cid:584)(cid:478)(cid:616)(cid:437)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Daniel J. O’Donnell, Esq. Executive Vice President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:132)(cid:559)(cid:437)(cid:562)(cid:394)(cid:584)(cid:478)(cid:513)(cid:464)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) (cid:1739)(cid:3)(cid:74)(cid:437)(cid:513)(cid:437)(cid:562)(cid:394)(cid:502)(cid:3)(cid:33)(cid:524)(cid:592)(cid:513)(cid:570)(cid:437)(cid:502) George S. Rapp Executive Vice President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:73)(cid:478)(cid:513)(cid:394)(cid:513)(cid:423)(cid:478)(cid:394)(cid:502)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Christopher M. Tonkovich Executive Vice President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:33)(cid:562)(cid:437)(cid:430)(cid:478)(cid:584)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Stephanie M. Adkins Executive Vice President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:109)(cid:437)(cid:513)(cid:430)(cid:478)(cid:513)(cid:464)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Matthew T. Clark Executive Vice President (cid:33)(cid:472)(cid:478)(cid:437)(cid:463)(cid:3)(cid:88)(cid:513)(cid:463)(cid:524)(cid:562)(cid:511)(cid:394)(cid:584)(cid:478)(cid:524)(cid:513)(cid:3)(cid:132)(cid:463)(cid:731)(cid:423)(cid:437)(cid:562) Established in 2007, The Bank of Princeton(cid:3)(cid:524)(cid:559)(cid:437)(cid:513)(cid:437)(cid:430)(cid:3)(cid:478)(cid:584)(cid:570)(cid:3)(cid:731)(cid:562)(cid:570)(cid:584)(cid:3)(cid:422)(cid:562)(cid:394)(cid:513)(cid:423)(cid:472)(cid:3)(cid:463)(cid:524)(cid:562)(cid:3)(cid:422)(cid:592)(cid:570)(cid:478)(cid:513)(cid:437)(cid:570)(cid:570) (cid:524)(cid:513)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:1474)(cid:1475)(cid:562)(cid:430)(cid:3)(cid:524)(cid:463)(cid:3)(cid:4)(cid:559)(cid:562)(cid:478)(cid:502)(cid:1582)(cid:3)(cid:178)(cid:478)(cid:513)(cid:423)(cid:437)(cid:3)(cid:584)(cid:472)(cid:437)(cid:513)(cid:1577)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:32)(cid:394)(cid:513)(cid:498)(cid:3)(cid:472)(cid:394)(cid:570)(cid:3)(cid:464)(cid:562)(cid:524)(cid:617)(cid:513)(cid:3)(cid:584)(cid:524)(cid:3)(cid:478)(cid:513)(cid:423)(cid:502)(cid:592)(cid:430)(cid:437)(cid:3)(cid:584)(cid:617)(cid:437)(cid:513)(cid:584)(cid:623)(cid:1612)(cid:584)(cid:472)(cid:562)(cid:437)(cid:437)(cid:3)(cid:422)(cid:562)(cid:394)(cid:513)(cid:423)(cid:472) (cid:502)(cid:524)(cid:423)(cid:394)(cid:584)(cid:478)(cid:524)(cid:513)(cid:570)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:394)(cid:3)(cid:423)(cid:524)(cid:511)(cid:559)(cid:562)(cid:437)(cid:472)(cid:437)(cid:513)(cid:570)(cid:478)(cid:616)(cid:437)(cid:3)(cid:132)(cid:559)(cid:437)(cid:562)(cid:394)(cid:584)(cid:478)(cid:524)(cid:513)(cid:570)(cid:3)(cid:33)(cid:437)(cid:513)(cid:584)(cid:437)(cid:562)(cid:3)(cid:584)(cid:472)(cid:394)(cid:584)(cid:3)(cid:570)(cid:437)(cid:562)(cid:616)(cid:437)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:119)(cid:437)(cid:562)(cid:423)(cid:437)(cid:562)(cid:1577)(cid:3)(cid:32)(cid:592)(cid:562)(cid:502)(cid:478)(cid:513)(cid:464)(cid:584)(cid:524)(cid:513)(cid:1577) (cid:33)(cid:394)(cid:511)(cid:430)(cid:437)(cid:513)(cid:1577)(cid:3)(cid:74)(cid:502)(cid:524)(cid:592)(cid:423)(cid:437)(cid:570)(cid:584)(cid:437)(cid:562)(cid:1577)(cid:3)(cid:82)(cid:592)(cid:513)(cid:584)(cid:437)(cid:562)(cid:430)(cid:524)(cid:513)(cid:1577)(cid:3)(cid:119)(cid:478)(cid:430)(cid:430)(cid:502)(cid:437)(cid:570)(cid:437)(cid:622)(cid:1577)(cid:3)(cid:119)(cid:524)(cid:513)(cid:511)(cid:524)(cid:592)(cid:584)(cid:472)(cid:1577)(cid:3)(cid:132)(cid:423)(cid:437)(cid:394)(cid:513)(cid:1577)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3)(cid:178)(cid:524)(cid:511)(cid:437)(cid:562)(cid:570)(cid:437)(cid:584)(cid:3) (cid:423)(cid:524)(cid:592)(cid:513)(cid:584)(cid:478)(cid:437)(cid:570)(cid:3)(cid:478)(cid:513)(cid:3)(cid:121)(cid:437)(cid:617)(cid:3)(cid:104)(cid:437)(cid:562)(cid:570)(cid:437)(cid:623)(cid:3)(cid:394)(cid:502)(cid:524)(cid:513)(cid:464)(cid:3)(cid:617)(cid:478)(cid:584)(cid:472)(cid:3)(cid:463)(cid:524)(cid:592)(cid:562)(cid:3)(cid:422)(cid:562)(cid:394)(cid:513)(cid:423)(cid:472)(cid:437)(cid:570)(cid:3)(cid:478)(cid:513)(cid:3)(cid:584)(cid:472)(cid:437)(cid:3)(cid:119)(cid:524)(cid:513)(cid:584)(cid:464)(cid:524)(cid:511)(cid:437)(cid:562)(cid:623)(cid:3)(cid:33)(cid:524)(cid:592)(cid:513)(cid:584)(cid:623)(cid:3)(cid:394)(cid:513)(cid:430)(cid:3) (cid:167)(cid:472)(cid:478)(cid:502)(cid:394)(cid:430)(cid:437)(cid:502)(cid:559)(cid:472)(cid:478)(cid:394)(cid:3)(cid:511)(cid:394)(cid:562)(cid:498)(cid:437)(cid:584)(cid:570)(cid:3)(cid:478)(cid:513)(cid:3)(cid:167)(cid:437)(cid:513)(cid:513)(cid:570)(cid:623)(cid:502)(cid:616)(cid:394)(cid:513)(cid:478)(cid:394)(cid:1582) (cid:1473)(cid:1472)(cid:1478) Commercial Lenders William McCoy, SVP Kris Muse, SVP Paul Bencivengo, VP William McDowell, VP Michele Lewis-Fleming, AVP Market Managers Princeton Region Henrry Polanco, AVP, RRM* Rian W. Andrews, Bayard Lane Thomas Puza, Lakewood Wendy J. Evans, Monroe Darshana Jadav, Nassau Street Central Region Nedgine Douge, AVP, RRM* Paul Sabol, Bordentown Donna Craddock, Browns Mills (cid:3)(cid:3)(cid:3)(cid:178)(cid:472)(cid:394)(cid:513)(cid:513)(cid:524)(cid:513)(cid:3)(cid:32)(cid:437)(cid:513)(cid:513)(cid:437)(cid:584)(cid:584)(cid:1577)(cid:3)(cid:33)(cid:472)(cid:437)(cid:570)(cid:584)(cid:437)(cid:562)(cid:731)(cid:437)(cid:502)(cid:430) Jeralyn H. Lang, Cream Ridge Barbara A. Brehaut, Hamilton Lourdes Pagan, Quakerbridge Road Southern Region Kelly Zane, AVP, RRM* ShaQuana Moss, Arch Street Christina Lerro, Deptford Sokha Eng, North Wales Carole McGuirl, Sicklerville Western Region Karin van Garderen, AVP, RRM* Jonathan Collins, Lambertville Yvette Windsor, Lawrenceville Keisha Patrick-Davey, New Brunswick Nathalie Cassion, Pennington Miriam Colón, Piscataway Rhoda Sundhar, Princeton Junction (cid:3)(cid:3)(cid:3)(cid:1572) (cid:170)(cid:437)(cid:464)(cid:478)(cid:524)(cid:513)(cid:394)(cid:502)(cid:3)(cid:170)(cid:437)(cid:584)(cid:394)(cid:478)(cid:502)(cid:3)(cid:119)(cid:394)(cid:513)(cid:394)(cid:464)(cid:437)(cid:562) Our Team Compliance & Operations Karen D. Pfeifer, SVP Angela Bancroft, VP Jamie Wilson, VP Michelle Gorda, AVP Justin Naidoo, AVP Sandhya Paul, AVP Facilities Ryan M. Cavicchio(cid:1577)(cid:3)(cid:223)(cid:167) Finance Jeffrey T. Hanuscin(cid:1577)(cid:3)(cid:178)(cid:223)(cid:167) Carmen Lloja-MacKenzie(cid:1577)(cid:3)(cid:4)(cid:223)(cid:167) Rosemary Tumino(cid:1577)(cid:3)(cid:4)(cid:223)(cid:167) Human Resources Anna Maria Potter-Miller(cid:1577)(cid:3)(cid:178)(cid:223)(cid:167) Information Technology Kyndle E. Alig, VP John Critelli, VP Kevin Pierce, VP Loan Administration Mary Beth Gorecki, SVP Duncan Farquhar, VP Lukasz Gargas, VP Michelle Goldstein, VP Peggyann Lane, VP Clifford Livingston, VP Amela Muslic, VP Stanley Plytynski, VP Denise Youn, VP Steven Beck, AVP (cid:192)(cid:472)(cid:437)(cid:562)(cid:437)(cid:570)(cid:394)(cid:3)(cid:82)(cid:394)(cid:562)(cid:562)(cid:478)(cid:570)(cid:1612)(cid:121)(cid:524)(cid:562)(cid:732)(cid:437)(cid:437)(cid:584)(cid:1577)(cid:3)(cid:4)(cid:223)(cid:167) Roseann Kennedy, AVP Natalya Khandros, AVP Eileen McBride, AVP David Mulryne, AVP Wanda Szymanski, AVP Rebecca Vanselous, AVP Thomas Waszkiewicz, AVP Retail Administration Debra L. Von Gonten, SVP Rose Russo, VP Amy Zuccarello, AVP Security Keith R. Bitzel(cid:1577)(cid:3)(cid:223)(cid:167) (cid:1473)(cid:1472)(cid:1479) r doubt that a smal “Never doubt that a small group of thoughtful, committed citizens ughtful, committed can change the world. Indeed, it is ange the world. Ind only thing that ever the only thing that ever has.” — Margaret Meadd Adopt A Classroom American Foundation for Suicide Prevention Anchor House Animal Alliance Arm in Arm Arts Council of Princeton Bordentown Historical Society Bordentown Regional High School Band Booster Burlington Mercer Chamber of Commerce Calvary Chapel Gloucester County Capital Health Foundation Capital Singers of Trenton Central Jersey Housing Resource Center (cid:33)(cid:472)(cid:437)(cid:570)(cid:584)(cid:437)(cid:562)(cid:731)(cid:437)(cid:502)(cid:430)(cid:3)(cid:32)(cid:394)(cid:559)(cid:584)(cid:478)(cid:570)(cid:584)(cid:3)(cid:33)(cid:472)(cid:592)(cid:562)(cid:423)(cid:472) (cid:33)(cid:472)(cid:437)(cid:570)(cid:584)(cid:437)(cid:562)(cid:731)(cid:437)(cid:502)(cid:430)(cid:3)(cid:192)(cid:524)(cid:617)(cid:513)(cid:570)(cid:472)(cid:478)(cid:559)(cid:3)(cid:82)(cid:478)(cid:570)(cid:584)(cid:524)(cid:562)(cid:478)(cid:423)(cid:394)(cid:502)(cid:3)(cid:178)(cid:524)(cid:423)(cid:478)(cid:437)(cid:584)(cid:623) Children’s Home Society of New Jersey, The Christian Caring Center (cid:33)(cid:502)(cid:394)(cid:562)(cid:478)(cid:731) Consolidated Fire Association Corner House Foundation Crossroads Theatre Company CYO Bromley Neighborhood Civic Center Delaware River Steamboat Floating Classroom, Inc., SPLASH Hope Hose-Humane Co. No. 1 Hopewell Valley Arts Council Hopewell Valley Mobile Food Bank Hopewell Valley YMCA Housing Initiatives of Princeton Hugs for Brady Hunterdon County Chamber of Commerce I Believe in Pink Isles, Inc. Jewish Family & Children’s Service of Greater Mercer County Joint Effort Community Sports Knights of Columbus Korean American Association of Greater Philadelphia Lambertville Area Education Foundation Lambertville-West Amwell Youth Baseball & Softball Association Lawrence Township Education Foundation Lawrence Township Recreation Foundation Lawrenceville Main Street Lawrenceville School Camps, The LifeTies, Inc. Mainstage Center for the Arts March of Dimes Penn Asian Senior Services Pennington Business & Professional Association Pennington Volunteer Fire Company Philabundance Pinn Memorial Baptist Church Planned Lifetime Assistance Network of NJ (cid:167)(cid:562)(cid:478)(cid:513)(cid:423)(cid:437)(cid:584)(cid:524)(cid:513)(cid:3)(cid:32)(cid:394)(cid:584)(cid:584)(cid:502)(cid:437)(cid:731)(cid:437)(cid:502)(cid:430)(cid:3)(cid:178)(cid:524)(cid:423)(cid:478)(cid:437)(cid:584)(cid:623)(cid:1577)(cid:3)(cid:192)(cid:472)(cid:437) Princeton Family YMCA Princeton High School Princeton Human Services Commission Princeton Mercer Regional Chamber Princeton Merchants Association Princeton Senior Resource Center Princeton Symphony Orchestra Princeton Tennis Program Princeton University Summer Chamber Concerts Project Freedom Puerto Rican Action Board Rebuilding Together Philadelphia Rise Robert Wood Johnson University Hospital Hamilton Foundation Rocky Hill Fire Department Saint Ann’s Church Sarala Bathena Foundation Send Hunger Packing Princeton (cid:53)(cid:73)(cid:66)(cid:79)(cid:76)(cid:1)(cid:90)(cid:80)(cid:86)(cid:1)(cid:85)(cid:80)(cid:1)(cid:80)(cid:86)(cid:83)(cid:1)(cid:68)(cid:80)(cid:78)(cid:78)(cid:86)(cid:79)(cid:74)(cid:85)(cid:90)(cid:1)(cid:81)(cid:66)(cid:83)(cid:85)(cid:79)(cid:70)(cid:83)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:69)(cid:74)(cid:71)(cid:71)(cid:70)(cid:83)(cid:70)(cid:79)(cid:68)(cid:70)(cid:1)(cid:90)(cid:80)(cid:86)(cid:1)(cid:78)(cid:66)(cid:76)(cid:70)(cid:15) Society of Young Korean Americans Spellbound Community Giving Corp Sustainable Princeton Thomas Edison State University Foundation Town Clock Community Development Corporation Township of Gloucester, The Trenton Area Soup Kitchen, The Trenton Catholic Preparatory Academy Trenton Music Makers Trinity Church Union Fire Company United Way of Hunterdon County West Windsor - Plainsboro Education Foundation West Windsor - Plainsboro High School North West Windsor Arts Council Widener University YWCA Princeton Delaware River Towns Chamber of Commerce & Visitors Bureau, The Delaware Township Schools, Partners in Education Downtown Bordentown Association Dress for Success Central New Jersey Eden Autism Services Foundation Elijah’s Promise Fal-Rooney Sports Camps & Events Fellowship CrossPoint Church George Street Playhouse Gloucester Township Fire District #5 Gloucester Township Rotary Foundation Greater Lambertville Chamber of Commerce Greater Philadelphia Asian Social Services Center Greater Philadelphia Coalition Against Hunger Greater Philadelphia Korean American Association of 5 Northern Provinces Grounds for Sculpture Habitat for Humanity of Burlington County and Greater Philadelphia Habitat for Humanity Philadelphia Habitat for Humanity, Raritan Valley Chapter Hamilton Area YMCA Hamilton Educational Foundation HomeFront Marine Toys for Tots Meals on Wheels in Greater New Brunswick Mental Health Association of Monmouth County, The Mercer County Community College Foundation Mercer County Turkey Trot Mercer Street Friends Mercerville Fire Company Middlesex County Regional Chamber of Commerce Montgomery Baseball League Montgomery Business Association Montgomery Township Volunteer Fire Company No. 1 Montgomery Township Volunteer Fire Company No. 2 Montgomery Woman’s Club Morven Museum & Garden Mount Carmel Guild of Trenton Music & Theatre Parents Association of Hopewell Valley Central High School NAMI Mercer National Junior Tennis & Learning of Trenton New Brunswick Domestic Violence Unit & Response Team New Brunswick Tomorrow North Hanover Township Om Parikh Memorial Fund Parkinson Alliance, The

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