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Letter to the Shareholders.....................i -ii
2021 Form 10-K...................................................1
Who We Are...................................................... 105
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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
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improvement in earnings performance. At the same time, during this year, we
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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
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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
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Edward J. Dietzler
President
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i
2021
ANNUAL
REPORT
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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
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to end 2021 with record
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strong position.
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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
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the highest level of service
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to our customers. ”
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Edward J. Dietzler
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consumer and business customers within our footprint and surrounding
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customer service paralleled with strong partnerships in the communities
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ii
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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
___
___
__
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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