10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____.

Commission File Number 1-12431

Unity Bancorp, Inc.

(Exact name of registrant as specified in its charter)

New Jersey	22-3282551
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
64 Old Highway 22, Clinton, NJ	08809
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (800) 618-2265

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	UNTY	NASDAQ

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark 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, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes ⌧    No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer  ◻	Accelerated filer  ⌧	Nonaccelerated filer  ◻	Smaller reporting company ☒
Emerging Growth Company ☐

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) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act:    Yes ☐    No ⌧

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuand 240.10D-1(b) ◻

The number of shares outstanding of each of the registrant’s classes of common equity stock, as of April 30, 2023 common stock, no par value: 10,068,593 shares outstanding.

Table of Contents

		Page #
PART I	CONSOLIDATED FINANCIAL INFORMATION
ITEM 1	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at March 31, 2023 and December 31, 2022	3
	Consolidated Statements of Income for the three months ended March 31, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	7
	Notes to the Consolidated Financial Statements	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	54
ITEM 4	Controls and Procedures	54
PART II	OTHER INFORMATION	54
ITEM 1	Legal Proceedings	54
ITEM 1A	Risk Factors	54
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	54
ITEM 3	Defaults upon Senior Securities	55
ITEM 4	Mine Safety Disclosures	55
ITEM 5	Other Information	55
ITEM 6	Exhibits	56
	EXHIBIT INDEX	57
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	SIGNATURES	58

2

PART I        CONSOLIDATED FINANCIAL INFORMATION

ITEM 1        Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	23,893	$	19,699
Interest-bearing deposits		103,194		95,094
Cash and cash equivalents		127,087		114,793
Securities:
Debt securities available for sale		94,113		95,393
Debt securities held to maturity		35,824		35,760
Equity securities with readily determinable fair values		8,327		9,793
Total securities		138,264		140,946
Loans:
SBA loans held for sale		23,314		27,928
SBA loans held for investment		39,370		38,468
SBA PPP loans		2,545		5,908
Commercial loans		1,205,642		1,187,543
Residential mortgage loans		619,140		605,091
Consumer loans		76,784		78,164
Residential construction loans		164,124		163,457
Total loans		2,130,919		2,106,559
Allowance for credit losses		(26,201)		(25,196)
Net loans		2,104,718		2,081,363
Premises and equipment, net		19,868		20,002
Bank owned life insurance ("BOLI")		26,856		26,776
Deferred tax assets, net		12,360		12,345
Federal Home Loan Bank ("FHLB") stock		18,688		19,064
Accrued interest receivable		14,314		13,403
Other real estate owned ("OREO"), net		176		—
Goodwill		1,516		1,516
Prepaid expenses and other assets		12,004		14,740
Total assets	$	2,475,851	$	2,444,948
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	450,058	$	494,184
Interest-bearing demand		289,451		276,218
Savings		560,711		591,826
Brokered time deposits		197,792		189,644
Time deposits		325,909		235,656
Total deposits		1,823,921		1,787,528
Borrowed funds		374,000		383,000
Subordinated debentures		10,310		10,310
Accrued interest payable		932		691
Accrued expenses and other liabilities		26,229		24,192
Total liabilities		2,235,392		2,205,721
Shareholders’ equity:
Common stock		98,197		97,204
Retained earnings		165,335		156,958
Treasury stock		(19,894)		(11,675)
Accumulated other comprehensive loss		(3,179)		(3,260)
Total shareholders’ equity		240,459		239,227
Total liabilities and shareholders’ equity	$	2,475,851	$	2,444,948
Shares issued		11,335		11,289
Shares outstanding		10,292		10,584
Treasury shares		1,043		705

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

3

Unity Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

	For the three months ended March 31,
(In thousands, except per share amounts)	2023		2022
INTEREST INCOME
Interest-bearing deposits	$	333	$	96
FHLB stock		331		33
Securities:
Taxable		1,739		652
Tax-exempt		19		6
Total securities		1,758		658
Loans:
SBA loans		1,404		923
SBA PPP loans		77		777
Commercial loans		17,401		11,497
Residential mortgage loans		8,109		4,390
Consumer loans		1,354		921
Residential construction loans		2,586		1,824
Total loans		30,931		20,332
Total interest income		33,353		21,119
INTEREST EXPENSE
Interest-bearing demand deposits		982		164
Savings deposits		1,953		345
Time deposits		2,709		480
Borrowed funds and subordinated debentures		3,799		226
Total interest expense		9,443		1,215
Net interest income		23,910		19,904
Provision (benefit) for credit losses		108		(178)
Net interest income after provision (benefit) for credit losses		23,802		20,082
NONINTEREST INCOME
Branch fee income		235		275
Service and loan fee income		503		584
Gain on sale of SBA loans held for sale, net		309		852
Gain on sale of mortgage loans, net		244		521
BOLI income		80		163
Net security losses		(322)		(557)
Other income		368		401
Total noninterest income		1,417		2,239
NONINTEREST EXPENSE
Compensation and benefits		7,090		6,508
Processing and communications		804		752
Occupancy		770		775
Furniture and equipment		689		576
Professional services		427		447
Advertising		260		225
Other loan expenses		128		135
Deposit insurance		348		269
Director fees		217		233
Loan collection expenses		47		58
Other expenses		648		432
Total noninterest expense		11,428		10,410
Income before provision for income taxes		13,791		11,911
Provision for income taxes		3,504		2,803
Net income	$	10,287	$	9,108
Net income per common share – Basic	$	0.98	$	0.87
Net income per common share – Diluted	$	0.96	$	0.85
Weighted average common shares outstanding – Basic		10,538		10,446
Weighted average common shares outstanding – Diluted		10,686		10,664

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

4

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended
	March 31, 2023						March 31, 2022
			Income tax						Income tax
		Before tax		expense		Net of tax		Before tax		expense		Net of tax
(In thousands)	amount		(benefit)		amount		amount		(benefit)		amount
Net income	$	13,791		3,504		10,287	$	11,911		2,803		9,108
Other comprehensive income (loss) before reclassifications
Debt securities available for sale:
Unrealized holding gains (losses) on securities arising during the period		359		93		266		(1,627)		(375)		(1,252)
Less: reclassification adjustment for losses on securities included in net income		—		—		—		(557)		(118)		(439)
Total unrealized gains (losses) on securities available for sale		359		93		266		(1,070)		(257)		(813)
Net unrealized (losses) gains from cash flow hedges:
Unrealized holding (losses) gains on cash flow hedges arising during the period		(433)		(92)		(341)		1,533		434		1,099
Less: reclassification adjustment for gains on cash flow hedges included in net income		(198)		(42)		(156)		—		—		—
Total unrealized (losses) gains on cash flow hedges		(235)		(50)		(185)		1,533		434		1,099
Total other comprehensive income		124		43		81		463		177		286
Total comprehensive income	$	13,915	$	3,547	$	10,368	$	12,374	$	2,980	$	9,394

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

5

Unity Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended March 31, 2023 and 2022

(Unaudited)

									Accumulated
									other		Total
	Common Stock				Retained		Treasury		comprehensive		shareholders’
(In thousands)	Shares		Amount		earnings		stock		loss		equity
Balance, December 31, 2022	10,584		$	97,204	$	156,958	$	(11,675)	$	(3,260)	$	239,227
Net income	—	A		—		10,287		—		—		10,287
Other comprehensive income, net of tax	—			—		—		—		81		81
Dividends on common stock ($0.12 per share)	2			46		(1,261)		—		—		(1,215)
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")	—			—		(649)		—		—		(649)
Common stock issued & related tax effects (1)	44			947		—		—		—		947
Treasury stock purchased, at cost	(338)			—		—		(8,219)		—		(8,219)
Balance, March 31, 2023	10,292			98,197		165,335		(19,894)		(3,179)		240,459

									Accumulated
									other			Total
	Common Stock				Retained		Treasury		comprehensive			shareholders’
(In thousands)	Shares		Amount		earnings		stock		income		aa	equity
Balance, December 31, 2021	10,391		$	94,003	$	123,037	$	(11,633)	$	322		$	205,729
Net income	—	A		—		9,108		—		—			9,108
Other comprehensive income, net of tax	—			—		—		—		286			286
Dividends on common stock ($0.10 per share)	—			37		(1,045)		—		—			(1,008)
Common stock issued & related tax effects (1)	102			813		—		—		—			813
Balance, March 31, 2022	10,493			94,853		131,100		(11,633)		608			214,928

(1) Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

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Unity Bancorp, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended March 31,
(In thousands)	2023		2022
OPERATING ACTIVITIES:
Net income	$	10,287	$	9,108
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses		108		(178)
Net amortization of purchase premiums and discounts on securities		36		11
Depreciation and amortization		(738)		447
PPP deferred fees and costs		(68)		(686)
Deferred income tax (benefit) expense		91		(63)
Net realized security gains		(222)		—
Stock compensation expense		417		394
Valuation writedowns on OREO		113		—
Gain on sale of mortgage loans, net		(244)		(521)
Gain on sale of SBA loans held for sale, net		(309)		(852)
BOLI income		(80)		(163)
Net change in other assets and liabilities		4,359		12,114
Net cash provided by operating activities		13,750		19,611
INVESTING ACTIVITIES
Purchases of securities held to maturity		—		(18,666)
Purchases of equity securities		(126)		—
Purchases of securities available for sale		—		(24,245)
Proceeds from redemption of FHLB stock, at cost		376		9
Maturities and principal payments on securities held to maturity		—		2,584
Maturities, calls and principal payments on securities available for sale		1,639		1,756
Proceeds from sales of equity securities		1,269		—
Net decrease in SBA PPP loans		3,431		18,521
Net increase in loans		(26,339)		(68,439)
Proceeds from BOLI		—		119
Purchases of premises and equipment		(195)		(41)
Net cash used in investing activities		(19,945)		(88,402)
FINANCING ACTIVITIES
Net increase in deposits		36,393		12,288
Repayments of borrowings		(9,000)		—
Proceeds from exercise of stock options		754		639
Fair market value of shares withheld to cover employee tax liability		(224)		(220)
Dividends on common stock		(1,215)		(1,008)
Purchase of treasury stock		(8,219)		—
Net cash provided by financing activities		18,489		11,699
Increase (decrease) in cash and cash equivalents		12,294		(57,092)
Cash and cash equivalents, beginning of year		114,793		244,818
Cash and cash equivalents, end of period	$	127,087	$	187,726
SUPPLEMENTAL DISCLOSURES
Cash:
Interest paid	$	9,202	$	1,213
Income taxes paid		3,557		2,145
Noncash investing activities:
Establishment of lease liability and right-of-use asset		—		582
Capitalization of servicing rights		159		131
Transfer of loans to OREO		288		—

The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.

7

Unity Bancorp, Inc.

Notes to the Consolidated Financial Statements (Unaudited)

March 31, 2023

NOTE 1. Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"). The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings or shareholders’ equity. The financial information has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has not been audited. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods. Actual results could differ from those estimates. Amounts requiring the use of significant estimates include the allowance for credit losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of impairment for securities and fair value disclosures. Management believes that the allowance for credit losses is adequate. While management uses available information to recognize credit losses, future additions to the allowance for credit losses may be necessary based on changes in economic conditions.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments, that in the opnion of management, are necessary for the fair presentation of interim results. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results which may be expected for the entire year. As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context. Certain information and financial disclosures required by U.S. GAAP have been condensed or omitted from interim reporting pursuant to SEC rules. Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Risks and Uncertainties

Overall, the markets and customers serviced by the Company may be significantly impacted by ongoing macro-economic trends, such as inflation and recessionary pressures created by a higher interest rate environment. The Company assesses the impact of inflation on an ongoing basis.

Recent industry events transpired, including the failures of Silicon Valley Bank (“SVB”) headquartered in Santa Clara, California and Signature Bank headquartered in New York, New York in March 2023, have led to uncertainty and concerns regarding the liquidity positions of the banking sector. SVB was placed into receivership on March 10, 2023, marking the second largest bank failure in U.S. history. Signature Bank was placed into receivership on March 12, 2023, marking the third largest bank failure in U.S. history.

Both banks appear to have had high ratios of uninsured deposits to total deposits, when compared to industry average. These failures underscore the importance of maintaining access to diverse sources of funding. The Company’s deposit base includes a combination of consumer, commercial and public funds deposits, without a high level of industry concentration.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. The Company believes the sources of liquidity presented in the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements are sufficient to meet its needs on the balance sheet date.

8

An unexpected influx of withdrawals of deposits could adversely impact the Company's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, federal funds lines of credit from correspondent banks and out-of market time deposits.

Such reliance on secondary funding sources could increase the Company's overall cost of funding and thereby reduce net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures or other investments, or liquidating assets.

New Accounting Guidance adopted in the First Quarter 2023

Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” amends the accounting guidance on the impairment of financial instruments. The Financial Accounting Standards Board (“FASB”) issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (“CECL”) model.  Under the new guidance, the Company is required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities. CECL also applies to certain off-balance sheet exposures.

The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used upon adoption. At adoption, the Company recorded $0.8 million increase to its allowance for credit losses, entirely related to loans. Further the Company increased its reserve for unfunded credit commitments by $0.1 million. The reserve for unfunded credit commitments is recorded in Accrued expenses and other liabilities on the consolidated balance sheet. These increases in reserves were recorded through retained earnings and was $0.6 million, net of tax.

For available for sale securities in an unrealized loss position, the Company first asseses whether it intends to sell, or is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securiy’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

For other assets within the scope of the new CECL accounting guidance, such as held to maturity debt securities, available for sale securities and other receivables, management noted the impact from adoption to be inconsequential. Additionally, the Company noted the adoption of CECL had no significant impact on regulatory capital ratios of the Company and/or the Bank.

ASU 2022-01, “Derivatives and Hedging (Topic 815)”: ASU 2022-01 was issued to clarify the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended

9

guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023. The Company adopted the guidance effective January 1, 2023, noting no material impact.

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”: ASU 2022-02 eliminates the guidance on troubled debt restructurings (“TDRs”) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 requires that entities disclose if the modifications result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The Company adopted ASU 2022-02 effective January 1, 2023, noting no material impact.

New Accounting Guidance issued in the First Quarter 2023

There were no material ASUs to the Company issued in the first quarter of 2023.

NOTE 2. Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.

NOTE 3. Net Income per Share

Basic net income per common share is calculated as net income divided by the weighted average common shares outstanding during the reporting period. Common shares include vested and unvested restricted shares.

Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period utilizing the treasury stock method.

The following is a reconciliation of the calculation of basic and diluted income per share:

	For the three months ended March 31,
(In thousands, except per share amounts)	2023		2022
Net income	$	10,287	$	9,108
Weighted average common shares outstanding - Basic		10,538		10,446
Plus: Potential dilutive common stock equivalents		148		218
Weighted average common shares outstanding - Diluted		10,686		10,664
Net income per common share - Basic	$	0.98	$	0.87
Net income per common share - Diluted		0.96		0.85
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		—		—

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NOTE 4. Other Comprehensive Income (Loss)

The following tables show the changes in other comprehensive (loss) income for the three months ended March 31, 2023 and 2022, net of tax:

	For the three months ended March 31, 2023
					Accumulated
	Net unrealized		Net unrealized		other
	(losses) gains on		gains (losses) from		comprehensive
(In thousands)	securities		cash flow hedges		income (loss)
Balance, beginning of period	$	(4,381)	$	1,121	$	(3,260)
Other comprehensive income before reclassifications		266		(341)		(75)
Less amounts reclassified from accumulated other comprehensive loss		—		(156)		(156)
Period change		266		(185)		81
Balance, end of period	$	(4,115)	$	936	$	(3,179)

	For the three months ended March 31, 2022
			Net unrealized		Accumulated
	Net unrealized		gains		other
	gains (losses) on		from cash flow		comprehensive
(In thousands)	securities		hedges		income (loss)
Balance, beginning of period	$	29	$	293	$	322
Other comprehensive (loss) income before reclassifications		(1,252)		1,099		(153)
Less amounts reclassified from accumulated other comprehensive loss		(439)		—		(439)
Period change		(813)		1,099		286
Balance, end of period	$	(784)	$	1,392	$	608

NOTE 5. Fair Value

Fair Value Measurement

The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

Level 1 Inputs

● Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

● Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

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Level 2 Inputs

● Quoted prices for similar assets or liabilities in active markets.

● Quoted prices for identical or similar assets or liabilities in inactive markets.

● Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e. interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

● Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

● Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

● These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis:

Debt Securities Available for Sale

The fair value of available for sale ("AFS") debt securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2023, the fair value of the Company’s AFS debt securities portfolio was $94.1 million. Most of the Company’s AFS debt securities were classified as Level 2 assets at March 31, 2023. The valuation of AFS debt securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities.

Included in the Company’s AFS debt securities are two corporate bonds which are classified as Level 3 assets at March 31, 2023.  The valuation of these corporate bonds is determined using broker quotes or third-party vendor prices that are not adjusted by management.  Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads and trade execution data. 

Equity Securities with Readily Determinable Fair Values

The fair value of equity securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2023, the fair value of the Company’s equity securities portfolio was $8.3 million.

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All of the Company’s equity securities were classified as Level 2 assets at March 31, 2023. The valuation of equity securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information.

There were no changes in the inputs or methodologies used to determine fair value during the period ended March 31, 2023, as compared to the periods ended December 31, 2022 and March 31, 2022.

Interest Rate Swap Agreements

The fair value of interest rate swap agreements is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

The Company’s derivative instruments are classified as Level 2 assets, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data.

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

	Fair Value Measurements at March 31, 2023
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,398	$	—	$	16,398	$	—
State and political subdivisions		593		—		593		—
Residential mortgage-backed securities		15,410		—		15,410		—
Corporate and other securities		61,712		—		57,202		4,510
Total debt securities available for sale	$	94,113	$	—	$	89,603	$	4,510
Equity securities with readily determinable fair values		8,327		—		8,327		—
Total equity securities	$	8,327	$	—	$	8,327	$	—
Interest rate swap agreements		1,302		—		1,302		—
Total swap agreements	$	1,302	$	—	$	1,302	$	—

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	Fair value Measurements at December 31, 2022
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,305	$	—	$	16,305	$	—
State and political subdivisions		613		—		613		—
Residential mortgage-backed securities		15,475		—		15,475		—
Corporate and other securities		63,000		—		58,325		4,675
Total debt securities available for sale	$	95,393	$	—	$	90,718	$	4,675
Equity securities with readily determinable fair values		9,793		—		9,793		—
Total equity securities	$	9,793	$	—	$	9,793	$	—
Interest rate swap agreements		1,537		—		1,537		—
Total swap agreements	$	1,537	$	—	$	1,537	$	—

Fair Value on a Nonrecurring Basis

The following tables present the assets and liabilities subject to fair value adjustments on a non-recurring basis carried on the balance sheet by caption and by level within the hierarchy (as described above):

	Fair Value Measurements at March 31, 2023
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans & OREO	$	9,984	$	—	$	—	$	9,984

	Fair Value Measurements at December 31, 2022
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans		8,803		—		—		8,803

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis:

Collateral-Dependent Loans

Fair value is determined based on the fair value of the collateral. Partially charged-off loans are measured for impairment based upon a third-party appraisal for collateral-dependent loans. When an updated appraisal is received for a nonperforming loan, the value on the appraisal may be discounted. If there is a deficiency in the value after the Company applies these discounts, management applies a specific reserve, and the loan remains in nonaccrual status. The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans

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from nonaccrual status generally when the borrower makes six months of contractual payments and demonstrates the ability to service the debt going forward. Charge-offs are determined based upon the loss that management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency.

The valuation allowance for individually evaluated loans is included in the allowance for credit losses in the consolidated balance sheets. At March 31, 2023, the valuation allowance for impaired loans was $1.7 million, compared to $1.8 million at December 31, 2022.

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of March 31, 2023 and December 31, 2022 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value. The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis are discussed above.

The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

For these short-term instruments, the carrying value is a reasonable estimate of fair value.

Securities

The fair value of securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

SBA Loans Held for Sale

The fair value of SBA loans held for sale is estimated by using a market approach that includes significant other observable inputs.

Loans

The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed impaired loans.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value). The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates.

Borrowed Funds and Subordinated Debentures

The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates.

Standby Letters of Credit

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At March 31, 2023, the Bank had standby letters of credit outstanding of $5.8 million, as compared to $5.6 million at December 31, 2022. The fair value of these commitments is nominal.

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments presented as of March 31, 2023 and December 31, 2022:

		March 31, 2023				December 31, 2022
	Fair value	Carrying		Estimated		Carrying		Estimated
(In thousands)	level	amount		fair value		amount		fair value
Financial assets:
Cash and cash equivalents	Level 1	$	127,087	$	127,087	$	114,793	$	114,793
Securities (1)	Level 2		138,264		132,272		140,946		133,764
SBA loans held for sale	Level 2		23,314		25,031		27,928		30,141
Loans, net of allowance for credit losses (2)	Level 2		2,081,404		2,022,666		2,053,435		1,990,010
Financial liabilities:
Deposits	Level 2		1,823,921		1,810,997		1,787,528		1,772,270
Borrowed funds and subordinated debentures	Level 2		384,310		382,585		393,310		391,312

(1) Includes corporate securities that are considered Level 3 and reported separately in the table under the “Fair Value on a Recurring Basis” heading. These securities had book values of $5.3 million and market values of $4.7 million.

(2) Includes collateral-dependent loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Collateral-dependent loans, net of specific reserves totaled $9.8 million and $8.8 million at March 31, 2023 and December 31, 2022, respectively.

Limitations

Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates.

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NOTE 6. Securities

This table provides the major components of debt securities available for sale ("AFS") and held to maturity (“HTM”) at amortized cost and estimated fair value at March 31, 2023 and December 31, 2022:

	March 31, 2023								December 31, 2022
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
(In thousands)	cost		gains		losses		fair value		cost		gains		losses		fair value
Available for sale:
U.S. Government sponsored entities	$	16,969	$	—	$	(571)	$	16,398	$	16,961	$	—	$	(656)	$	16,305
State and political subdivisions		633		—		(40)		593		635		—		(22)		613
Residential mortgage-backed securities		16,734		31		(1,355)		15,410		17,097		32		(1,654)		15,475
Corporate and other securities		65,213		121		(3,622)		61,712		66,495		106		(3,601)		63,000
Total debt securities available for sale	$	99,549	$	152	$	(5,588)	$	94,113	$	101,188	$	138	$	(5,933)	$	95,393
Held to maturity:
U.S. Government sponsored entities	$	28,000	$	—	$	(4,222)	$	23,778	$	28,000	$	—	$	(5,310)	$	22,690
State and political subdivisions		1,128		74		—		1,202		1,115		67		—		1,182
Residential mortgage-backed securities		6,696		—		(1,844)		4,852		6,645		—		(1,939)		4,706
Total securities held to maturity	$	35,824	$	74	$	(6,066)	$	29,832	$	35,760	$	67	$	(7,249)	$	28,578

This table provides the remaining contractual maturities within the investment portfolios. The carrying value of securities at March 31, 2023 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

				After one through		After five through				Total carrying
		Within one year		five years		ten years		After ten years		value
(In thousands)
Available for sale at fair value:
U.S. Government sponsored entities	$	1,218	$	15,180	$	—	$	—	$	16,398
State and political subdivisions		201		160		—		232		593
Residential mortgage-backed securities		2		358		986		14,064		15,410
Corporate and other securities		—		12,365		12,642		36,705		61,712
Total debt securities available for sale	$	1,421	$	28,063	$	13,628	$	51,001	$	94,113
Held to maturity at cost:
U.S. Government sponsored entities	$	—	$	—	$	3,000	$	25,000	$	28,000
State and political subdivisions		—		—		—		1,128		1,128
Residential mortgage-backed securities		—		—		—		6,696		6,696
Total securities held to maturity	$	—	$	—	$	3,000	$	32,824	$	35,824

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The fair value of debt securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,905	$	(567)	$	493	$	(4)	$	16,398	$	(571)
State and political subdivisions		—		—		393		(40)		393		(40)
Residential mortgage-backed securities		8,623		(665)		6,647		(690)		15,270		(1,355)
Corporate and other securities		13,166		(466)		45,925		(3,156)		59,091		(3,622)
Total	$	37,694	$	(1,698)	$	53,458	$	(3,890)	$	91,152	$	(5,588)
Held to maturity:
U.S. Government sponsored entities	$	10,394	$	(606)	$	13,384	$	(3,616)	$	23,778	$	(4,222)
Residential mortgage-backed securities		150	$	(72)		4,702		(1,772)		4,852		(1,844)
Total	$	10,544	$	(678)	$	18,086	$	(5,388)	$	28,630	$	(6,066)

	December 31, 2022
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,817	$	(622)	$	1,432	$	(34)	$	17,249	$	(656)
State and political subdivisions		160		(5)		253		(17)		413		(22)
Residential mortgage-backed securities		14,023		(1,448)		1,311		(206)		15,334		(1,654)
Corporate and other securities		23,445		(966)		31,948		(2,635)		55,393		(3,601)
Total temporarily impaired AFS securities	$	53,445	$	(3,041)	$	34,944	$	(2,892)	$	88,389	$	(5,933)
Held to maturity:
U.S. Government sponsored entities	$	15,659	$	(2,341)	$	7,031	$	(2,969)	$	22,690	$	(5,310)
Residential mortgage-backed securities		4,707		(1,939)		—		—		4,707		(1,939)
Total temporarily impaired HTM securities	$	20,366	$	(4,280)	$	7,031	$	(2,969)	$	27,397	$	(7,249)

Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate fluctuations. Residential mortgage-backed securities are guaranteed by either Ginnie Mae, Freddie Mac or Fannie Mae.

Allowance for Credit Losses

The Company has zero-loss expectation for certain securities within the held to maturity and available for sale portfolios, and therefore is not required to estimate an allowance for credit losses related to these securities under the CECL standard. The Company does not provide credit quality indicators for held to maturity securities that have zero-loss expectation. After an evaluation of quantitative factors, the following securities types are believed to qualify for this exclusion: U.S Government sponsored entities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac.

Management recognized no impairment for held to maturity debt securities during the three months ended March 31, 2023 and 2022. There was no allowance for credit losses for held to maturity debt securities at March 31, 2023 and 2022.

Available for sale debt securities in unrealized loss positions are evaluated for impairment on a quarterly basis. The Company has evaluated available for sale securities that are in an unrealized loss position and has determined that the declines in fair value are attributable to market volatility, not credit quality or other factors. Management recognized no

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impairment during the three months ended March 31, 2023 and 2022. There was no allowance for credit losses for available for sale debt securities at March 31, 2023 and 2022.

Realized Gains and Losses on Debt Securities

Net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains. There were no realized gains or losses on available sale securities three months ended March 31, 2023 and March 31, 2022. There was no gross realized gain or loss for held for maturity debt securities during the three months ended March 31, 2023 and 2022.

Equity Securities

Included in this category are Community Reinvestment Act ("CRA") investments and the Company’s current other equity holdings of financial institutions. Equity securities are defined to include (a) preferred, common and other ownership interests in entities including partnerships, joint ventures and limited liability companies and (b) rights to acquire or dispose of ownership interests in entities at fixed or determinable prices.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Net unrealized losses occurring during the period on equity securities	$	(544)	$	(557)
Net realized gains recognized during the period on equity securities sold during the period		222		—
Net losses recognized during the reporting period on equity securities	$	(322)	$	(557)

NOTE 7. Loans

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses as of March 31, 2023 and December 31, 2022:

(In thousands)	March 31, 2023		December 31, 2022
SBA loans held for investment	$	39,370	$	38,468
SBA PPP loans		2,545		5,908
Commercial loans
SBA 504 loans		34,678		35,077
Commercial other		117,428		117,566
Commercial real estate		907,260		903,126
Commercial real estate construction		146,276		131,774
Residential mortgage loans		619,140		605,091
Consumer loans
Home equity		68,071		68,310
Consumer other		8,713		9,854
Residential construction loans		164,124		163,457
Total loans held for investment	$	2,107,605	$	2,078,631
SBA loans held for sale		23,314		27,928
Total loans	$	2,130,919	$	2,106,559

Loans held for investment are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination

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costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off.

Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company’s different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses’ major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Loans will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination.

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Residential Mortgage, Consumer and Residential Construction Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans and residential construction lines. The Company originates qualified mortgages which are generally sold in the secondary market and nonqualified mortgages which are generally held for investment. Each loan type is evaluated on debt to income, type of collateral, loan to collateral value, credit history and the Company’s relationship with the borrower.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when the Company initiates contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The commercial loan portfolio is then subject to on-going internal reviews for credit quality which in part is derived from ongoing collection and review of borrowers’ financial information, as well as independent credit reviews by an outside firm.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. This policy and the underlying procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

The Company places all SBA 7(a) and commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten and then annually based on set criteria in the loan policy.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Pass: Loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: These loans have a potential weakness that deserves management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loss: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values. Once a borrower is deemed incapable of repayment of unsecured debt, the loan is termed a “Loss”, and charged off immediately.

For residential mortgage, consumer and residential construction loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated

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on an ongoing basis, as a loan is placed on nonaccrual status as soon as management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

At March 31, 2023, the Company owned $0.2 million in commercial properties that were included in OREO in the Consolidated Balance Sheets, compared to none at December 31, 2022. Additionally, there were $3.3 million in the process of foreclosure at March 31, 2023, compared to $2.1 million at December 31, 2022.

Nonperforming and Past Due Loans

Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans and generally represent loans that are well collateralized and in the process of collection. When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The Company values its collateral through the use of appraisals, broker price opinions and knowledge of its local market.

The following tables set forth an aging analysis of past due and nonaccrual loans as of March 31, 2023 and December 31, 2022:

	March 31, 2023
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	—	$	—	$	4,325	$	4,325	$	35,045	$	39,370
Commercial loans
SBA 504 loans		—		—		—		—		—		34,678		34,678
Commercial other		—		1,675		—		975		2,650		114,778		117,428
Commercial real estate		—		—		—		169		169		907,091		907,260
Commercial real estate construction		—		—		—		—		—		146,276		146,276
Residential mortgage loans		2,800		—		—		5,565		8,365		610,775		619,140
Consumer loans
Home equity		697		—		—		—		697		67,374		68,071
Consumer other		50		—		—		—		50		8,663		8,713
Residential construction loans		—		—		—		3,473		3,473		160,651		164,124
Total loans held for investment, excluding SBA PPP		3,547		1,675		—		14,507		19,729		2,085,331		2,105,060
SBA loans held for sale		—		—		—		—		—		23,314		23,314
Total loans, excluding SBA PPP	$	3,547	$	1,675	$	—	$	14,507	$	19,729	$	2,108,645	$	2,128,374

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At March 31, 2023 The Company had $3.5 million of nonaccrual loans with no related allowance for credit loss.

	December 31, 2022
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	576	$	—	$	690	$	1,266	$	37,202	$	38,468
Commercial loans
SBA 504 loans		—		—		—		—		—		35,077		35,077
Commercial other		198		300		—		777		1,275		116,291		117,566
Commercial real estate		22		188		—		805		1,015		902,111		903,126
Commercial real estate construction		—		—		—		—		—		131,774		131,774
Residential mortgage loans		—		982		—		3,361		4,343		600,748		605,091
Consumer loans
Home equity		—		—		—		—		—		68,310		68,310
Consumer other		18		7		—		—		25		9,829		9,854
Residential construction loans		—		—		—		3,432		3,432		160,025		163,457
Total loans held for investment, excluding SBA PPP		238		2,053		—		9,065		11,356		2,061,367		2,072,723
SBA loans held for sale		2,195		—		—		—		2,195		25,733		27,928
Total loans, excluding SBA PPP	$	2,433	$	2,053	$	—	$	9,065	$	13,551	$	2,087,100	$	2,100,651

At December 31, 2022, the Company had $1.4 million of SBA PPP loans past due. The Company is in process of working through these past due credits with the SBA and the relevant customers.

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The following table shows the internal loan classification risk by loan portfolio classification by origination year as of March 31, 2023:

	Term Loans
	Amortized Cost Basis by Origination Year
(In thousands)			2023		2022		2021		2020		2019		2018 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass		$	58	$	7,186	$	5,017	$	6,289	$	2,970	$	12,006	$	-	$	33,526
Special Mention			-		-		-		702		-		745		-		1,447
Substandard			-		1,361		2,240		-		-		796		-		4,397
Total SBA loans held for investment		$	58	$	8,547	$	7,257	$	6,991	$	2,970	$	13,547	$	-	$	39,370
SBA loans held for investment
Current-period gross writeoffs		$	-	$	-	$	-	$	-	$	113	$	-	$	-	$	113
SBA PPP loans
Risk Rating:
Pass		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Special Mention			-		-		-		-		-		-		-		-
Substandard			-		-		-		-		-		-		-		-
Total SBA PPP loans		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Commercial loans
Risk Rating:
Pass		$	30,004	$	343,451	$	189,080	$	141,544	$	104,763	$	298,849	$	78,084	$	1,185,775
Special Mention			-		90		2,103		-		2,269		12,041		396		16,899
Substandard			-		-		-		20		-		2,648		300		2,968
Total commercial loans		$	30,004	$	343,541	$	191,183	$	141,564	$	107,032	$	313,538	$	78,780	$	1,205,642
Residential mortgage loans
Risk Rating:
Performing		$	40,533	$	274,612	$	80,711	$	56,606	$	34,653	$	126,460	$	-	$	613,575
Nonperforming			-		307		550		904		1,355		2,449		-		5,565
Total residential mortgage loans		$	40,533	$	274,919	$	81,261	$	57,510	$	36,008	$	128,909	$	-	$	619,140
Consumer loans
Risk Rating:
Performing		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Nonperforming			-		-		-		-		-		-		-		-
Total consumer loans		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Consumer loans
Current-period gross writeoffs		$	-	$	22	$	98	$	-	$	-	$	-	$	-	$	120
Residential construction
Risk Rating:
Performing		$	4,670	$	87,778	$	50,623	$	12,672	$	3,676	$	1,232	$	-	$	160,651
Nonperforming			-		-		257		-		-		1,781		1,435		3,473
Total residential construction loans		$	4,670	$	87,778	$	50,880	$	12,672	$	3,676	$	3,013	$	1,435	$	164,124
Total loans held for investment		$	78,354	$	720,510	$	339,314	$	219,486	$	153,293	$	467,689	$	128,959	$	2,107,605

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The following table shows the internal loan classification risk by loan portfolio classification as of December 31, 2022:

	December 31, 2022
	SBA & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held for investment	$	37,163	$	558	$	747	$	38,468
SBA PPP loans		5,908		—		—		5,908
Commercial loans
SBA 504 loans		35,077		—		—		35,077
Commercial other		110,107		6,220		1,239		117,566
Commercial real estate		894,110		6,228		2,788		903,126
Commercial real estate construction		131,774		—		—		131,774
Total commercial loans		1,171,068		12,448		4,027		1,187,543
Total SBA and commercial loans	$	1,214,139	$	13,006	$	4,774	$	1,231,919
			Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans			$	601,730	$	3,361	$	605,091
Consumer loans
Home equity				68,310		—		68,310
Consumer other				9,854		—		9,854
Total consumer loans				78,164		—		78,164
Residential construction loans				160,025		3,432		163,457
Total residential mortgage, consumer and residential construction loans			$	839,919	$	6,793	$	846,712

Modifications

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for creditlosses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted-average remaining maturity model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modificiation.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concessions, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

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The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of gross loans and type of concession granted (numbers in thousands) during the three months ended March 31, 2023:

	Term Extension
		Amortized Cost Basis	% of Total Class of
		at 3/31/2023	Gross Loans
Commercial	$	743	0.06	%

Modifications for the quarter made to borrowers exerpiencing financial difficulty added a weighted average of 5.7 years to the life of the modified loans, which reduced monthly payment amounts for the borrowers.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. No loans that were modified during the quarter had a payment default during the period and all loans were current as of March 31, 2023.

NOTE 8. Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

Allowance for Credit Losses

The Company has an established methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses inherent in the loan portfolio. At a minimum, the adequacy of the allowance for credit losses is reviewed by management on a quarterly basis. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. For purposes of determining the allowance for credit losses, the Company has segmented the loans in its portfolio by loan type. Loans are segmented into the following pools: SBA, commercial, residential mortgages, consumer and residential construction loans. Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan. Commercial loans are divided into the following four classes: commercial real estate, commercial real estate construction, commercial other and SBA 504. Consumer loans are divided into two classes as follows:  home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. The same standard methodology is used, regardless of loan type. Specific reserves are evaluated for individually evaluated loans. The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. Within the historical net charge-off rate, the Company weights the data dating back to 2015 on a straight line basis and projects the losses on a weighted average remaining maturity basis for each segment. All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk. Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics.

● For SBA and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. It also incorporates analysis of the type of collateral and the relative loan to value ratio.

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● For residential mortgage, consumer and residential construction loans, the estimate of loss is based on pools of loans with similar characteristics. Factors such as credit score, delinquency status and type of collateral are evaluated. Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for credit losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited. This charge-off policy is followed for all loan types.

The following tables detail the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022:

	For the three months ended March 31, 2023
									Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	875	$	15,254	$	5,450	$	990	$	2,627	$	25,196
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")		163		171		376		101		36		847
Charge-offs		(113)		—		—		(120)		—		(233)
Recoveries		—		271		—		12		—		283
Net (charge-offs) recoveries		(113)		271		—		(108)		—		50
Provision for (credit to) credit losses charged to expense		178		(395)		309		37		(21)		108
Balance, end of period	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642	$	26,201

	For the three months ended March 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Balance, beginning of period	$	1,074	$	15,053	$	4,114	$	671	$	1,390		$	22,302
Charge-offs		—		—		—		(6)		—	a		(6)
Recoveries		22		28		—		—		—			50
Net recoveries (charge-offs)		22		28		—		(6)		—			44
Provision for (credit to) credit losses charged to expense		(155)		(376)		170		(23)		206			(178)
Balance, end of period	$	941	$	14,705	$	4,284	$	642	$	1,596		$	22,168

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The following tables present loans and their related allowance for credit losses, by portfolio segment, as of March 31, 2023 and December 31, 2022:

	March 31, 2023
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated	$	173	$	331	$	36	$	—	$	1,130	a	$	1,670
Collectively evaluated		930		14,970		6,099		1,020		1,512			24,531
Total	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642		$	26,201
Loan ending balances:
Individually evaluated	$	658	$	1,602	$	5,760	$	—	$	3,458		$	11,478
Collectively evaluated		64,571		1,204,040		613,380		76,784		160,666			2,119,441
Total	$	65,229	$	1,205,642	$	619,140	$	76,784	$	164,124		$	2,130,919

	December 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated for impairment	$	115	$	516	$	36	$	—	$	1,112	a	$	1,779
Collectively evaluated for impairment		760		14,738		5,414		990		1,515			23,417
Total	$	875	$	15,254	$	5,450	$	990	$	2,627		$	25,196
Loan ending balances:
Individually evaluated for impairment	$	690	$	3,101	$	3,361	$	—	$	3,432		$	10,584
Collectively evaluated for impairment		71,614		1,184,442		601,730		78,164		160,025			2,095,975
Total	$	72,304	$	1,187,543	$	605,091	$	78,164	$	163,457		$	2,106,559

Reserve for Unfunded Loan Commitments

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities. At March 31, 2023, a $0.6 million commitment reserve was reported on the balance sheet as “Accrued expenses and other liabilities”, compared to a $0.5 million commitment reserve at December 31, 2022.

NOTE 9. Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments

The Company has derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s balance sheet as “Prepaid expenses and other assets” or “Accrued expenses and other liabilities”.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to any derivative agreement. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations. The Company deals only with primary dealers.

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Derivative instruments are generally either negotiated over the counter (“OTC”) contracts or standardized contracts executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

Risk Management Policies – Hedging Instruments

The primary focus of the Company’s asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Company evaluates the effectiveness of entering into any derivative agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

Interest Rate Risk Management – Cash Flow Hedging Instruments

The Company has variable rate debt as a source of funds for use in the Company’s lending and investment activities and for other general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore hedges its variable-rate interest payments. To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments during the contract period.

A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at March 31, 2023 and December 31, 2022, respectively is as follows:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Notional amount	$	20,000		$	20,000
Fair value	$	1,302		$	1,537
Weighted average pay rate		0.83	%		0.83	%
Weighted average receive rate		4.75	%		1.50	%
Weighted average maturity in years		1.95			2.57
Number of contracts		1			1

During the three months ended March 31, 2023, the Company received variable rate London Interbank Offered Rate ("LIBOR") payments from and paid fixed rates in accordance with its interest rate swap agreements. At March 31, 2023, the unrealized gain relating to interest rate swaps was recorded as a derivative asset and is included in “Prepaid expenses and other assets” on the Company’s Balance Sheet. Changes in the fair value of the interest rate swaps designated as hedging instruments of the variability of cash flows associated with long-term debt are reported in other comprehensive income. The following table presents the net gains and losses recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at March 31, 2023 and 2022, respectively:

	For the three months ended March 31,
(In thousands)	2023		2022
(Loss) Gain recognized in OCI	$	(235)	$	1,534
Gain reclassified from AOCI into net income	$	198	$	85

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NOTE 10. Employee Benefit Plans

Stock Option Plans

The Company has maintained option plans and maintains an equity incentive plan, which allow for the grant of options to officers, employees and members of the Board of Directors. Grants of options under the Company’s plans generally vest over 3 years and must be exercised within 10 years of the date of grant. Transactions under the Company’s plans for the three months ended March 31, 2023 are summarized in the following table:

				Weighted
		Weighted		average
		average		remaining	Aggregate
		exercise		contractual	intrinsic
	Shares	price		life in years	value
Outstanding at December 31, 2022	559,499	$	18.09	5.9	$	5,168,740
Options granted	—		—
Options exercised	(37,201)		20.27
Options forfeited	(666)		18.64
Options expired	—		—
Outstanding at March 31, 2023	521,632	$	17.94	5.7	$	2,542,366
Exercisable at March 31, 2023	481,142	$	17.84	5.5	$	2,390,353

On April 25, 2019, the Company adopted the 2019 Equity Compensation Plan providing for grants of up to 500,000 shares to be allocated between incentive and non-qualified stock options, restricted stock awards, performance units and deferred stock. The Plan replaced all previously approved and established equity plans then currently in effect. As of March 31, 2023, 281,500 options and 227,400 shares of restricted stock have been awarded from the plan. In addition, 16,162 unvested options and 14,000 unvested shares of restricted stock were cancelled and returned to the plan leaving 21,262 shares available for future grants.

The fair values of the options granted are estimated on the date of grant using the Black-Scholes option-pricing model. There were no options granted during the three months ended March 31, 2023 or 2022.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
	2023		2022
Number of options exercised		37,201		47,374
Total intrinsic value of options exercised	$	241,904	$	746,292
Cash received from options exercised	$	753,894	$	639,214
Tax deduction realized from options	$	72,777	$	224,522

The following table summarizes information about stock options outstanding and exercisable at March 31, 2023:

	Options outstanding					Options exercisable
			Weighted average	Weighted			Weighted
		Options	remaining contractual	average		Options	average
Range of exercise prices		outstanding	life (in years)	exercise price		exercisable	exercise price
$7.25 - 16.51		139,633	3.8	$	11.96	139,633	$	11.96
16.52 - 19.26		127,499	6.5		18.06	103,342		18.07
19.27 - 20.88		132,300	6.4		20.34	115,967		20.31
20.89 - 22.57		122,200	6.2		22.02	122,200		22.02
Total		521,632	5.7	$	17.94	481,142	$	17.84

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Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period). Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2023 and 2022 are detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	85	$	163
Income tax benefit	$	25	$	47

As of March 31, 2023, unrecognized compensation costs related to nonvested share-based stock option compensation arrangements granted under the Company’s plans totaled approximately $260 thousand. That cost is expected to be recognized over a weighted average period of 0.9 years.

Restricted Stock Awards

Restricted stock is issued under the 2019 Equity Compensation Plan to reward employees and directors and to retain them by distributing stock over a period of time. Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period. The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2023:

		Average grant
	Shares	date fair value
Nonvested restricted stock at December 31, 2022	164,570	$	24.77
Granted	18,000		27.33
Cancelled	(1,600)		25.94
Vested	(34,973)		23.34
Nonvested restricted stock at March 31, 2023	145,997	$	25.41

Restricted stock awards granted during the three months ended March 31, 2023 and 2022 were as follows:

	For the three months ended March 31,
	2023		2022
Number of shares granted		18,000		70,000
Average grant date fair value	$	27.33	$	27.52

Compensation expense related to restricted stock for the three months ended March 31, 2023 and 2022 is detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	332	$	231
Income tax benefit	$	80	$	67

As of March 31, 2023, there was approximately $3.4 million of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s equity plans. That cost is expected to be recognized over a weighted average period of 2.9 years.

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401(k) Savings Plan

The Bank has a 401(k) savings plan covering substantially all employees. Under the Plan, an employee can contribute up to 75 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the Plan. The Bank contributed $233 thousand and $203 thousand to the Plan during the three months ended March 31, 2023 and 2022, respectively.

Deferred Compensation Plan

The Company has a deferred fee plan for Directors and eligible management. Directors of the Company have the option

to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of

management has the option to elect to defer up to 100 percent of their total compensation. Director and executive deferred compensation totaled $794 thousand and $535 thousand during the three months ended March 31, 2023 and 2022, respectively. The interest paid on the deferred balances totaled $91 thousand and $36 thousand during the three months ended March 31, 2023 and 2022, respectively. The fees distributed on the deferred balances totaled $3 thousand and $2 thousand during the three months ended March 31, 2023 and 2022, respectively.

Benefit Plans

In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer (“CEO”) and unfunded, non-qualified deferred retirement plans for certain other key executives.

On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The retirement benefit under the SERP is an amount equal to sixty percent (60%) of the average of the President and CEO’s base salary for the thirty-six (36) months immediately preceding the executive’s separation from service after age 66, adjusted annually thereafter by a percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers (CPI-U). The total benefit is to be made payable in fifteen annual installments. The future

payments are estimated to total $7.2 million. A discount rate of four percent (4%) was used to calculate the present value

of the benefit obligation.

The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and vests an additional three percent (3%) each year until fully vested on January 1, 2024. In the event that the President and CEO’s separation from service from the Company were to occur prior to full vesting, the President and CEO would be entitled to and shall be paid the vested portion of the retirement benefit calculated as of the date of separation from service. Notwithstanding the foregoing, upon a Change in Control, and provided that within 6 months following the Change in Control the President and CEO is involuntarily terminated for reasons other than “cause” or the President and CEO resigns for “good reason,” as such is defined in the SERP, or the President and CEO voluntarily terminates his employment after being offered continued employment in a position that is not a “Comparable Position,” as such is also defined in the SERP, the President and CEO shall become one hundred percent (100%) vested in the full retirement benefit.

No contributions or payments have been made during the three months ended March 31, 2023. The following table summarizes the components of the net periodic pension cost of the defined benefit plan recognized during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Service cost	$	39	$	37
Interest cost		50		47
Net periodic benefit cost	$	89	$	84

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The following table summarizes the changes in benefit obligations of the defined benefit plan during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Benefit obligation, beginning of year	$	4,857	$	4,521
Service cost		39		37
Interest cost		50		47
Benefit obligation, end of period	$	4,946	$	4,605

On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with certain key executive officers other than the President and CEO. The Plan has an effective date of January 1, 2015.

The Plan is an unfunded, nonqualified deferred compensation plan. For any Plan Year, a guaranteed annual Deferral Award percentage of seven and one half percent (7.5%) of the participant’s annual base salary will be credited to each Participant’s Deferred Benefit Account. A discretionary annual Deferral Award equal to seven and one half percent (7.5%) of the participant’s annual base salary may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix. The total Deferral Award shall never exceed fifteen percent (15%) of the participant’s base salary for any given Plan Year. Each Participant shall be one hundred percent (100%) vested in all Deferral Awards as of the date they are awarded.

As of March 31, 2023, the Company had total year to date expenses of $34 thousand related to the Plan. The Plan is reflected on the Company’s balance sheet as accrued expenses.

Certain members of management are also enrolled in a split-dollar life insurance plan with a post retirement death benefit of $250 thousand. Total expenses related to this plan were $1 thousand and $6 thousand for the three months ended March 31, 2023 and 2022, respectively. Additionally, $55 thousand of prior period expense was reversed during the three months ended March 31, 2022. This was related to changes to the members of management participating in the plan.

NOTE 11. Regulatory Capital

Under the Economic Growth, Regulatory Relief and Consumer Protection Act, the Bank is considered a qualifying community banking organization, which allows the Bank to elect to opt into the community bank leverage ratio (“CBLR”) in its regulatory filings. The Bank has opted into the CBLR, and is therefore is not required to comply with the Basel III capital requirements.

The following table shows the CBLR ratio for the Company and the Bank as of March 31, 2023 and December 31, 2022:

	At March 31, 2023				At December 31, 2022
	Company		Bank		Company		Bank
CBLR	10.38	%	9.96	%	10.88	%	10.34	%

NOTE 12. Leases

Operating leases in which the Bank is the lessee and the term is greater than 12 months, are recorded as right of use (“ROU”) assets and lease liabilities, and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee.

33

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Bank’s incremental borrowing rate. The borrowing rate for each lease is unique based on the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates.

Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Operating lease ROU assets totaled $5.4 million at March 31, 2023, compared to $5.6 million at December 31, 2022. As of March 31, 2023, operating lease liabilities totaled $5.5 million, compared to $5.6 million at December 31, 2022.

The table below summarizes the Company’s net lease cost:

	For the three months ended March 31,
(In thousands)	2023		2022
Operating lease cost	$	209	$	188

The table below summarizes the cash and non-cash activities associated with the Company’s leases:

	For the three months ended March 31,
(In thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	199	$	182
ROU assets obtain in exchange for new operating lease liabilities	$	—	$	582

The table below summarizes other information related to the Company’s operating leases:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Weighted average remaining lease term in years		10.63			10.77
Weighted average discount rate		3.18	%		3.21	%

The table below summarizes the future payments of remaining lease liabilities:

(In thousands)	March 31, 2023
2023	$	538
2024		695
2025		691
2026		702
2027		656
2028 and thereafter		3,010
Total lease payments	$	6,292
Less: Imputed Interest		(810)
Present value of lease liabilities	$	5,482

As of March 31, 2023, the Company had not entered into any material leases that have not yet commenced.

34

NOTE 13. Subsequent Events

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements.

On April 27, 2023 the Company announced that its Board of Directors approved a new Share Repurchase Program. Under this new program, the Company may repurchase up to 500,000 shares, or approximately 5.0% of its outstanding common stock. The timing and amount of purchases will be dicated by a number of factors.

On April 27, 2023 the shareholders of the Company approved the 2023 Equity Compensation Plan (“The Plan”), which allows up to 500,000 shares of Common Stock or equivalents to be issued. The Plan will assist the Company in attracting and retaining the highest quality of experienced persons as directors and officers and in aligining the interest of such persons more closely with the interest of the Company’s shareholders by encouraging such parties to maintain an equity interest in the Company.

ITEM 2          Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the 2022 consolidated audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. When necessary, reclassifications have been made to prior period data throughout the following discussion and analysis for purposes of comparability. This Quarterly Report on Form 10-Q contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated” and “potential”. Examples of forward looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Unity Bancorp, Inc. that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, in addition to those items contained in the Company’s Annual Report on Form 10-K under Item IA-Risk Factors, as updated by our subsequent filings with the Securities and Exchange Commission, the following: changes in general, economic and market conditions, legislative and regulatory conditions and the development of an interest rate environment that adversely affects Unity Bancorp, Inc.’s interest rate spread or other income anticipated from operations and investments and the impact of the COVID-19 pandemic on our employees, operations and customers.

Overview

Unity Bancorp, Inc. (the “Parent Company”) is a bank holding company incorporated in New Jersey and registered under the Bank Holding Company Act of 1956, as amended. Its wholly-owned subsidiary, Unity Bank (the “Bank” or, when consolidated with the Parent Company, the “Company”) is chartered by the New Jersey Department of Banking and Insurance and commenced operations on September 13, 1991. The Bank provides a full range of commercial and retail banking services through the Internet and its twenty branch offices located in Bergen, Hunterdon, Middlesex, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania. These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, Small Business Administration ("SBA") and other commercial credits. The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios.

35

Earnings Summary

Net income totaled $10.3 million, or $0.96 per diluted share for the quarter ended March 31, 2023, compared to $9.1 million, or $0.85 per diluted share for the same period in 2022. Return on average assets and average common equity for the quarter were 1.72 percent and 17.14 percent, respectively, compared to 1.80 percent and 17.64 percent for the same period in 2022.

First quarter highlights include:

● Net interest income increased 20.1 percent compared to the prior year’s quarter, primarily due to loan growth.

● Net interest margin equaled 4.19 percent this quarter compared to 4.11 percent in the prior year’s quarter.

● The provision for credit losses was $108 thousand for the quarter ended March 31, 2023, compared to the release of $178 thousand in provision for loan losses for the prior year’s quarter.

● Noninterest income decreased 36.7 percent compared to the prior year’s quarter, primarily due to a decrease in the volume of residential mortgage and SBA loan sales.

● Noninterest expense increased 9.8 percent compared to the prior year’s quarter, primarily due to increased compensation expenses.

● The effective tax rate was 25.4 percent compared to 23.5 percent in the prior year’s quarter.

The Company’s performance ratios may be found in the table below.

	For the three months ended March 31,
	2023			2022
Net income per common share - Basic (1)	$	0.98		$	0.87
Net income per common share - Diluted (2)	$	0.96		$	0.85
Return on average assets		1.72	%		1.80	%
Return on average equity (3)		17.14	%		17.64	%
Efficiency ratio (4)		44.56	%		45.86	%

(1) Defined as net income divided by weighted average shares outstanding.

(2) Defined as net income divided by the sum of the weighted average shares and the potential dilutive impact of the exercise of outstanding options.

(3) Defined as net income divided by average shareholders’ equity.

(4) The efficiency ratio is a non-GAAP measure of operational performance. It is defined as noninterest expense divided by the sum of net interest income plus noninterest income less any gains or losses on securities.

Net Interest Income

The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on interest-earning assets and fees earned on loans, versus interest paid on interest-bearing liabilities. Interest-earning assets include loans to individuals and businesses, investment securities and interest-earning deposits. Interest-bearing liabilities include interest-bearing demand, savings and time deposits, FHLB advances and other borrowings. Net interest income is determined by the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities (“net interest spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s net interest spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand, deposit flows and general levels of nonperforming assets.

During the quarter ended March 31, 2023, tax-equivalent net interest income amounted to $23.9 million, an increase of $4.0 million or 20.1 percent when compared to the same period in 2022. The net interest margin increased 8 basis points to 4.19 percent for the three months ended March 31, 2023, compared to 4.11 percent for the same period in 2022. The net interest spread was 3.57 percent for the first quarter of 2023, a 41 basis point decrease compared to the same period in 2022.

36

During the three months ended March 31, 2023, tax-equivalent interest income was $33.4 million, an increase of $12.2 million or 57.9 percent when compared to the same period in 2022. This increase was mainly driven by the increases in the balance of average securities, the yield on securities, the balance of average loans and the increase in the yield on loans.

● Of the $12.2 million net increase in interest income on a tax-equivalent basis, $5.4 million is due to an increase in yields on earning assets and $6.8 million is due to an increase in average earning assets.

● The average volume of interest-earning assets increased $350.4 million to $2.3 billion for the first quarter of 2023 compared to $2.0 billion for the same period in 2022. This was due primarily to a $460.6 million increase in average loans and a $54.4 million increase in average investment securities, partially offset by a $177.8 million decrease in average interest-bearing deposits.

● The yield on total interest-earning assets increased 148 basis points to 5.84 percent for the three months ended March 31, 2023 when compared to the same period in 2022. The yield on the loan portfolio increased 87 basis points to 5.82 percent.

Total interest expense was $9.4 million for the three months ended March 31, 2023, an increase of $8.2 million or 677.2 percent compared to the same period in 2022. This increase was driven by the increased rates and volume of time deposits, increased rates of savings deposits and increased rates and volume of borrowed funds and subordinated debentures, partially offset by a decrease in the volume of savings deposits compared to a year ago.

● Of the $8.2 million increase in interest expense, $5.0 million was due to an increase in the rates on interest-bearing liabilities and $3.2 million was due to increased volume of average interest-bearing liabilities.

● Interest-bearing liabilities averaged $1.7 billion for the first quarter of 2023, an increase of $398.6 million or 30.9 percent compared to the prior year’s quarter.

● The average cost of total interest-bearing liabilities increased 189 basis points to 2.27 percent. The cost of interest-bearing deposits increased 138 basis points to 1.70 percent for the first quarter of 2023 and the cost of borrowed funds and subordinated debentures increased 262 basis points to 4.44 percent.

The following table reflects the components of net interest income, setting forth for the periods presented herein: (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) net interest spread, and (5) net interest income/margin on average earning assets. Rates/Yields are computed on a fully tax-equivalent basis, assuming a federal income tax rate of 21 percent in 2023 and 2022

37

Consolidated Average Balance Sheets

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)

	For the three months ended
	March 31, 2023						March 31, 2022
	Average						Average
	Balance		Interest		Rate/Yield		Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Interest-bearing deposits	$	32,778	$	333	4.12	%	$	210,601	$	96	0.18	%
Federal Home Loan Bank ("FHLB") stock		16,776		331	7.99			3,550		33	3.81
Securities:
Taxable		138,379		1,739	5.03			84,739		652	3.12
Tax-exempt		1,753		20	4.49			990		8	3.07
Total securities (A)		140,132		1,759	5.02			85,729		660	3.12
Loans:
SBA loans		66,625		1,404	8.43			63,543		923	5.89
SBA PPP loans		4,243		77	7.26			36,989		777	8.52
Commercial loans		1,199,577		17,401	5.80			949,948		11,497	4.91
Residential mortgage loans		614,936		8,109	5.27			413,308		4,390	4.31
Consumer loans		77,121		1,354	7.02			78,989		921	4.73
Residential construction loans		163,821		2,586	6.31			122,993		1,824	6.01
Total loans (B)		2,126,323		30,931	5.82			1,665,770		20,332	4.95
Total interest-earning assets	$	2,316,009	$	33,354	5.84	%	$	1,965,650	$	21,121	4.36	%
Noninterest-earning assets:
Cash and due from banks		22,738						23,679
Allowance for loan losses		(25,778)						(22,331)
Other assets		111,104						79,631
Total noninterest-earning assets		108,064						80,979
Total assets	$	2,424,073					$	2,046,629
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	287,749	$	982	1.38	%	$	249,329	$	164	0.27	%
Savings deposits		571,843		1,953	1.39			701,281		345	0.20
Time deposits		485,679		2,709	2.26			288,155		480	0.68
Total interest-bearing deposits		1,345,271		5,644	1.70			1,238,765		989	0.32
Borrowed funds and subordinated debentures		342,398		3,799	4.44			50,310		226	1.82
Total interest-bearing liabilities	$	1,687,669	$	9,443	2.27	%	$	1,289,075	$	1,215	0.38	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		468,407						526,931
Other liabilities		24,541						21,217
Total noninterest-bearing liabilities		492,948						548,148
Total shareholders' equity		243,456						209,406
Total liabilities and shareholders' equity	$	2,424,073					$	2,046,629
Net interest spread			$	23,911	3.57	%			$	19,906	3.98	%
Tax-equivalent basis adjustment				(1)						(2)
Net interest income			$	23,910					$	19,904
Net interest margin					4.19	%					4.11	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 21 percent and applicable state rates.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

38

The rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volume and rates over the periods presented. Changes that are not solely due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Amounts have been computed on a tax-equivalent basis, assuming a federal income tax rate of 21 percent.

	For the three months ended March 31, 2023 versus March 31, 2022
	Increase (decrease) due to change in:
(In thousands on a tax-equivalent basis)	Volume		Rate		Net
Interest income:
Interest-bearing deposits	$	(143)	$	380	$	237
FHLB stock		230		68		298
Securities		552		548		1,100
Loans		6,201		4,398		10,599
Total interest income	$	6,840	$	5,394	$	12,234
Interest expense:
Demand deposits	$	30	$	788	$	818
Savings deposits		(76)		1,684		1,608
Time deposits		507		1,722		2,229
Total interest-bearing deposits		461		4,194		4,655
Borrowed funds and subordinated debentures		2,778		795		3,573
Total interest expense		3,239		4,989		8,228
Net interest income - fully tax-equivalent	$	3,601	$	405	$	4,006
Decrease in tax-equivalent adjustment						1
Net interest income					$	4,007

Provision for Credit Losses

The provision for credit losses was $108 thousand during the three months ended March 31, 2023, compared to a release of $178 thousand during the three months ended March 31, 2022. The increase was primarily due to an increase in the general reserve.

Each period’s credit loss provision is the result of management’s analysis of the loan portfolio and reflects changes in the size and composition of the portfolio, the level of net charge-offs, delinquencies, current economic conditions and other internal and external factors impacting the risk within the loan portfolio. Additional information may be found under the captions “Financial Condition - Asset Quality” and “Financial Condition - Allowance for Credit Losses and Reserve for Unfunded Loan Commitments.” The current provision is considered appropriate under management’s assessment of the adequacy of the allowance for credit losses.

Noninterest Income

The following table shows the components of noninterest income for the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Branch fee income	$	235	$	275
Service and loan fee income		503		584
Gain on sale of SBA loans held for sale, net		309		852
Gain on sale of mortgage loans, net		244		521
BOLI income		80		163
Net security losses		(322)		(557)
Other income		368		401
Total noninterest income	$	1,417	$	2,239

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Noninterest income was $1.4 million for the three months ended March 31, 2023, a $822 thousand decrease compared to $2.2 million for the three months ended March 31, 2022. This decrease was primarily due to decreased gains on sales of SBA loans held for sale and mortgage loans, as there was decreased volume of sales in 2023.

Noninterest Expense

The following table presents a breakdown of noninterest expense for the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation and benefits	$	7,090	$	6,508
Processing and communications		804		752
Occupancy		770		775
Furniture and equipment		689		576
Professional services		427		447
Advertising		260		225
Other loan expenses		128		135
Deposit insurance		348		269
Director fees		217		233
Loan collection expenses		47		58
Other expenses		648		432
Total noninterest expense	$	11,428	$	10,410

Noninterest expense increased $1.0 million to $11.4 million for the three months ended March 31, 2023, compared to $10.4 million for the three months ended March 31, 2022. The increase was primarily due to a one-time severance payment of $500 thousand as a result of the Company’s Chief Administrative Officer resigning.

Income Tax Expense

For the quarter ended March 31, 2023, the Company reported income tax expense of $3.5 million for an effective tax rate of 25.4 percent, compared to income tax expense of $2.8 million and an effective tax rate of 23.5 percent for the prior year’s quarter.

Financial Condition at March 31, 2023

Total assets increased $30.9 million or 1.3 percent, to $2.5 billion at March 31, 2023, when compared to year end 2022. This increase was primarily due to increases of $24.4 million in gross loans, mostly due to commercial and residential mortgage loan growth, and $12.3 million in cash and cash equivalents, partially offset by a decrease of $2.7 million in total securities.

Total deposits increased $36.4 million, due to increases of $98.4 million in time deposits and $13.2 million in interest-bearing demand deposits, partially offset by a decrease of $44.1 million in noninterest-bearing demand deposits and $31.1 million in savings deposits.

Total shareholders’ equity increased $1.2 million over year end 2022, due to earnings, an increase in common stock and net accumulated other comprehensive gain, partially offset by the repurchase of shares and dividends paid during the three months ended March 31, 2023.

These fluctuations are discussed in further detail in the paragraphs that follow.

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Securities Portfolio

The Company’s securities portfolio consists of AFS debt securities, HTM debt securities and equity investments. Management determines the appropriate security classification of AFS and HTM at the time of purchase. The investment securities portfolio is maintained for asset-liability management purposes, as well as for liquidity and earnings purposes.

The following table provides the major components of AFS debt securities, HTM debt securities and equity investments at their carrying value as of March 31, 2023 and December 31, 2022:

(In thousands)		March 31, 2023		December 31, 2022
Available for sale, at fair value:
U.S. Government sponsored entities	$	16,398	$	16,305
State and political subdivisions		593		613
Residential mortgage-backed securities		15,410		15,475
Corporate and other securities		61,712		63,000
Total securities available for sale	$	94,113	$	95,393
Held to maturity, at amortized cost:
U.S. Government sponsored entities	$	28,000	$	28,000
State and political subdivisions		1,128		1,115
Residential mortgage-backed securities		6,696		6,645
Total securities held to maturity	$	35,824	$	35,760
Equity Securites, at fair value:
Total Equity Securites	$	8,327	$	9,793

AFS debt securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. AFS debt securities consist primarily of obligations of U.S. Government, state and political subdivisions, mortgage-backed securities, corporate and other securities.

AFS debt securities totaled $94.1 million at March 31, 2023, a decrease of $1.3 million or 1.3 percent, compared to $95.4 million at December 31, 2022. This net decrease was the result of:

● $1.6 million principal payments, maturities and called bonds and,

● The dcrease was partially offset by $359 thousand in appreciation in the market value of the portfolio. At March 31, 2023, the portfolio had a net unrealized loss of $5.4 million compared to a net unrealized loss of $5.8 million at December 31, 2022. These net unrealized losses are reflected net of tax in shareholder’s equity as accumulated other comprehensive loss.

The weighted average life of AFS debt securities, adjusted for prepayments, amounted to 6.2 years and 6.4 years at March 31, 2023 and December 31, 2022, respectively. The effective duration of AFS debt securities amounted to 1.9 years at March 31, 2023 and December 31, 2022.

HTM debt securities, which are carried at amortized cost, are investments for which there is the positive intent and ability to hold to maturity. The portfolio is primarily comprised of U.S. Government, mortgage-backed securities and obligations of state and political subdivisions.

HTM debt securities were $35.8 million at March 31, 2023, an increase of $64 thousand or 0.2 percent, compared to $35.8 million at December 31, 2022. This net increase was the result of:

● $64 thousand in book value accretion

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The weighted average life of HTM securities, adjusted for prepayments, amounted to 18.0 years at March 31, 2023 and December 31, 2022. As of March 31, 2023, the fair value of HTM securities was $29.8 million and $28.6 million at December 31, 2022. The effective duration of HTM securities amounted to 10.8 years and 10.5 years at March 31, 2023 and December 31, 2022, respectively.

Equity securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. Equity securities consist of Community Reinvestment Act ("CRA") mutual fund investments and the equity holdings of other financial institutions.

Equity securities totaled $8.3 million at March 31, 2023, a decrease of $1.5 million or 15.0 percent, compared to $9.8 million at December 31, 2022. This net decrease was primarily due to equity sales and net market value decreases throughout the year.

The followings table provides the remaining contractual maturities and average yields within the investment portfolios. The carrying value of securities at March 31, 2023 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

		Within one year				After one through five years				After five through ten years				After ten years				Total carrying value
		Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield
(In thousands, except percentages)
Available for sale at fair value:
U.S. Government sponsored entities	$	1,218	2.45	%	$	15,180	3.66	%	$	—	-	%	$	—	-	%	$	16,398	3.57	%
State and political subdivisions		201	4.00			160	1.90			—	-			232	2.75			593	2.94
Residential mortgage-backed securities		2	2.84			358	2.63			986	2.61			14,064	3.43			15,410	3.36
Corporate and other securities		—	-			12,365	7.73			12,642	5.33			36,705	6.78			61,712	6.67
Total debt securities available for sale	$	1,421	2.67	%	$	28,063	5.43	%	$	13,628	5.13	%	$	51,001	5.84	%	$	94,113	5.57	%
Held to maturity at cost
U.S. Government sponsored entities		—	-	%		—	-	%		3,000	4.00	%		25,000	3.47	%		28,000	3.53	%
State and political subdivisions		—	-			—	-			—	-			1,128	5.19			1,128	5.19
Residential mortgage-backed securities		—	-			—	-			—	-			6,696	3.03			6,696	3.03
Total debt securities held for maturity	$	—	-	%	$	—	-	%	$	3,000	4.00	%	$	32,824	3.44	%	$	35,824	3.49	%
Equity Securities at fair value:
Total equity securities	$	—	-	%	$	—	-	%	$	—	-	%	$	8,327	2.21	%	$	8,327	2.21	%

Securities with a carrying value of $814 thousand and $835 thousand at March 31, 2023 and December 31, 2022, respectively, were held at the FHLB and FRB and can be pledged for borrowing purposes; however, no securities were pledged in connection with borrowings as of March 31, 2023.

Approximately 64 percent of the total investment portfolio had a fixed rate of interest at March 31, 2023.

See Note 6 to the accompanying Consolidated Financial Statements for more information regarding Securities.

Loan Portfolio

The loan portfolio, which represents the Company’s largest asset group, is a significant source of both interest and fee income. The portfolio consists of SBA, commercial, residential mortgage, consumer and residential construction loans. Each of these segments is subject to differing levels of credit and interest rate risk.

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Total loans increased $24.4 million or 1.2 percent to $2.1 billion at March 31, 2023, compared to year end 2022. Commercial, residential mortgage, SBA held for investment and residential construction loans increased $18.1 million, $14.0 million, $0.9 million and $0.7 million, respectively, partially offset by decreases of $3.4 million and $1.4 million in SBA PPP and consumer loans, respectively.

The following table sets forth the classification of loans by major category, including unearned fees and deferred costs and excluding the allowance for loan losses as of March 31, 2023 and December 31, 2022:

	March 31, 2023				December 31, 2022
			% of				% of
(In thousands, except percentages)	Amount		total		Amount		total
SBA loans held for investment	$	39,370	1.8	%	$	38,468	1.8	%
SBA PPP loans		2,545	0.1			5,908	0.3
Commercial loans		1,205,642	56.6			1,187,543	56.4
Residential mortgage loans		619,140	29.1			605,091	28.7
Consumer loans		76,784	3.6			78,164	3.7
Residential construction loans		164,124	7.7			163,457	7.8
Total loans held for investment	$	2,107,605	98.9	%	$	2,078,631	98.7	%
SBA loans held for sale		23,314	1.1			27,928	1.3
Total loans	$	2,130,919	100.0	%	$	2,106,559	100.0	%

During the three months ended March 31, 2023 the Company sold $7.1 million of portfolio residential mortgage loans and $3.5 million of SBA held for sale loans, realizing gains of $0.1 million and $0.3 million, respectively.

Average loans increased $460.6 million or 27.6 percent to $2.1 billion at March 31, 2023 from $1.7 billion for the same period in 2022. The increase in average loans was due to increases in average commercial, residential construction, residential mortgage and SBA loans, partially offset by decreases in average SBA PPP and consumer loans. The yield on the overall loan portfolio increased 87 basis points to 5.82 percent for the three months ended March 31, 2023 when compared to the same period in the prior year.

SBA 7(a) loans, on which the SBA historically has provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. These loans are made for the purposes of providing working capital or financing the purchase of equipment, inventory or commercial real estate. Generally, an SBA 7(a) loan has a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the SBA provides the guarantee. The deficiency may be a higher loan to value (“LTV”) ratio, lower debt service coverage (“DSC”) ratio or weak personal financial guarantees. In addition, many SBA 7(a) loans are for startup businesses where there is no history or financial information. Finally, many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work with the Bank on a single transaction. The guaranteed portion of the Company’s SBA loans are generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment.

SBA 7(a) loans held for sale, carried at the lower of cost or market, amounted to $23.3 million at March 31, 2023, a decrease of $4.6 million from $27.9 million at December 31, 2022. SBA 7(a) loans held for investment amounted to $39.4 million at March 31, 2023, an increase of $0.9 million from $38.5 million at December 31, 2022. The yield on SBA loans, which are generally floating and adjust quarterly to the Prime rate, was 8.43 percent for the three months ended March 31, 2023, compared to 5.89 percent for the same period in the prior year.

The guarantee rates on SBA 7(a) loans range from 50 percent to 90 percent, with the majority of the portfolio having a guarantee rate of 75 percent at origination. The guarantee rates are determined by the SBA and can vary from year to year depending on government funding and the goals of the SBA program. Approximately $72.4 million and $72.1 million in SBA loans were sold but serviced by the Company at March 31, 2023 and December 31, 2022, respectively, and are not included on the Company’s balance sheet. There is no relationship or correlation between the guarantee percentages and the level of charge-offs and recoveries on the Company’s SBA 7(a) loans. Charge-offs taken

43

on SBA 7(a) loans effect the unguaranteed portion of the loan. SBA loans are underwritten to the same credit standards irrespective of the guarantee percentage.

Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. These loans amounted to $1.2 billion at March 31, 2023, an increase of $18.1 million from year end 2022. The yield on commercial loans was 5.80 percent for the three months ended March 31, 2023, compared to 4.91 percent for the same period in 2022. The SBA 504 program, which consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property, is included in the Commercial loan portfolio. Generally, the Company has a 50 percent LTV ratio on SBA 504 program loans at origination.

Residential mortgage loans consist of loans secured by 1 to 4 family residential properties. These loans amounted to $619.1 million at March 31, 2023, an increase of $14.0 million from year end 2022. Sales of conforming mortgage loans totaled $16.1 million for the three months ended March 31, 2023. The yield on residential mortgages was 5.27 percent for the three months ended March 31, 2023, compared to 4.31 percent in the 2022. Residential mortgage loans maintained in portfolio are generally to individuals that do not qualify for conventional financing. In extending credit to this category of borrowers, the Bank considers other mitigating factors such as credit history, equity and liquid reserves of the borrower. As a result, the residential mortgage loan portfolio of the Bank includes adjustable rate mortgages with rates that exceed the rates on conventional fixed-rate mortgage loan products but which are not considered high priced mortgages.

Consumer loans consist of home equity loans and loans for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the personal property being purchased. These loans amounted to $76.8 million, a decrease of $1.4 million from year end 2022. The yield on consumer loans was 7.02 percent for the three months ended March 31, 2023, compared to 4.73 percent for the same period in 2022.

Residential construction loans consist of short-term loans for the purpose of funding the costs of building a home. These loans amounted to $164.1 million, an increase of $0.7 million from year end 2022. The yield on residential construction loans was 6.31 percent for the three months ended March 31, 2023, compared to 6.01 percent for the same period in 2022.

There are no concentrations of loans to any borrowers or group of borrowers exceeding 10 percent of the total loan portfolio.

In the normal course of business, the Company may originate loan products whose terms could give rise to additional credit risk. Interest-only loans, loans with high LTV or debt service ratios, construction loans with payments made from interest reserves and multiple loans supported by the same collateral (e.g. home equity loans) are examples of such products. However, these products are not material to the Company’s financial position and are closely managed via credit controls designed to mitigate their additional inherent risk. Management does not believe that these products create a concentration of credit risk in the Company’s loan portfolio. The Company does not have any option adjustable rate mortgage loans.

The majority of the Company’s loans are secured by real estate. Declines in the market values of real estate in the Company’s trade area impact the value of the collateral securing its loans. This could lead to greater losses in the event of defaults on loans secured by real estate. At March 31, 2023 approximately 96 percent of the Company’s loan portfolio was secured by real estate compared to 96 percent at December 31, 2022.

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Asset Quality

The following table sets forth information concerning nonperforming assets and loans past due 90 days or more and still accruing interest at each of the periods presented:

(In thousands, except percentages)	March 31, 2023			December 31, 2022			March 31, 2022
Nonperforming by category:
SBA loans held for investment	$	4,325		$	690		$	537
Commercial loans		1,144			1,582			2,292
Residential mortgage loans		5,565			3,361			2,999
Consumer loans		—			—			200
Residential construction loans		3,473			3,432			3,273
Total nonperforming loans	$	14,507		$	9,065		$	9,301
OREO		176			—			—
Total nonperforming assets	$	14,683		$	9,065		$	9,301
Less: Amount guaranteed by SBA		3,625			—			1,102
Nonperforming assets, net of SBA guarantee	$	11,058		$	9,065		$	8,199
Past due 90 days or more and still accruing interest:
Residential mortgage loans	$	—		$	—		$	488
Total past due 90 days or more and still accruing interest	$	—		$	—		$	488
Nonperforming loans to total loans		0.68	%		0.43	%		0.55	%
Nonperforming assets to total loans		0.69			0.43			0.55
Nonperforming assets to total assets		0.59			0.37			0.45

Nonperforming loans were $14.5 million at March 31, 2023, a $5.4 million increase from $9.1 million at December 31, 2022 and a $5.2 million increase from $9.3 million at March 31, 2022, respectively. Since year end 2022, nonperforming loans in the commercial segment decreased, offset by an increase in nonperforming SBA, residential mortgage and residential construction loans. In addition, there were no loans past due 90 days or more and still accruing interest at March 31, 2023 and December 31, 2022, compared to $0.5 million at March 31, 2022.

The Company also monitors potential problem loans. Potential problem loans are those loans where information about possible credit problems of borrowers causes management to have doubts as to the ability of such borrowers to comply with loan repayment terms. These loans are categorized by their non-passing risk rating and performing loan status. Potential problem loans totaled $19.4 million at March 31, 2023.

See Note 7 to the accompanying Consolidated Financial Statements for more information regarding Asset Quality.

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

The allowance for credit losses totaled $26.2 million at March 31, 2023, compared to $25.2 million at December 31, 2022 and $22.2 million at March 31, 2022, with a resulting allowance to total loan ratio of 1.23 percent at March 31, 2023, 1.20 percent at December 31, 2022 and 1.30 percent at March 31, 2022, respectively. Net recoveries amounted to $50 thousand for the three months ended March 31, 2023, compared to $44 thousand for the same period in 2022.

The following table is a summary of the changes to the allowance for credit losses for March 31, 2023 and 2022, including net recoveries (charge-offs) to average loan ratios for each major loan category:

	For the three months ended March 31,
(In thousands, except percentages)	2023			2022
Balance, beginning of period	$	25,196		$	22,302
Impact of the adoption of ASU 2016-13 ("CECL")		847			—
Provision (benefit) for credit losses charged to expense		108			(178)
Less: Charge-offs
SBA loans held for investment		(113)			—
Consumer loans		(120)			(6)
Total charge-offs		(233)			(6)
Add: Recoveries
SBA loans held for investment		—			22
Commercial loans		271			28
Consumer loans		12			—
Total recoveries		283			50
Net recoveries		50			44
Balance, end of period	$	26,201		$	22,168
Selected loan quality ratios:
Net charge-offs (recoveries) to average loans, annualized:
SBA loans held for investment		0.64	%		(0.09)	%
Commercial loans		(0.02)			(0.01)
Residential mortgage loans		—			—
Consumer loans		(0.56)			0.03
Total loans		(0.01)			—
Allowance to total loans		1.23			1.30
Allowance to nonperforming loans		180.61	%		238.34	%

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The following table sets forth, for each of the major lending categories, the amount and percentage of the allowance for credit losses allocated to each as of March 31, 2023 and 2022. The allocated allowance is the total of identified specific and general reserves by loan category. The allocation is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of the portfolio.

	March 31, 2023				March 31, 2022
			%				%
			Allocated				Allocated
	Reserve		to total		Reserve		to total
(In thousands, except percentages)	amount		loans		amount		loans
Balance applicable to:
SBA loans	$	1,103	2.63	%	$	941	1.53	%
Commercial loans		15,301	1.27			14,705	1.50
Residential mortgage loans		6,135	0.99			4,284	1.00
Consumer loans		1,020	1.33			642	0.83
Residential construction loans		2,642	1.61			1,596	1.23
Allowance for loans as a % total loans	$	26,201	1.23	%	$	22,168	1.30	%

See Note 8 to the accompanying Consolidated Financial Statements for more information regarding the Allowance for Credit Losses and Reserve for Unfunded Loan Commitments.

Deposits

Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, savings deposits and time deposits, are the primary source of the Company’s funds. The Company offers a variety of products designed to attract and retain customers, with primary focus on building and expanding relationships. The Company continues to focus on establishing a comprehensive relationship with business borrowers, seeking deposits as well as lending relationships.

The following table shows period-end deposits and the concentration of each category of deposits:

	March 31, 2023				December 31, 2022
(In thousands, except percentages)	Amount		% of total		Amount		% of total
Ending balance:
Noninterest-bearing demand deposits	$	450,058	24.7	%	$	494,184	27.6	%
Interest-bearing demand deposits		289,451	15.9			276,218	15.5
Savings deposits		560,711	30.7			591,826	33.1
Time deposits		523,701	28.7			425,300	23.8
Total deposits	$	1,823,921	100.0	%	$	1,787,528	100.0	%

The following table presents the expected maturities of time deposits over the next five years and thereafter:

(In thousands)	2023		2024		2025		2026		2027		Thereafter		Total
Balance maturing	$	249,817	$	181,509	$	64,604	$	16,787	$	10,562	$	422	$	523,701

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The following table details the maturity distribution of time deposits as of March 31, 2023 and December 31, 2022:

			More than		More than
			three		six months
	Three		months		through		More than
	months or			through six	twelve		twelve
(In thousands)	less		months		months		months		Total
At March 31, 2023:
Less than $250,000	$	151,056	$	25,879	$	77,468	$	159,193	$	413,596
$250,000 or more		22,096		12,238		33,510		42,261		110,105
At December 31, 2022:
Less than $250,000	$	134,611	$	39,583	$	35,208	$	148,554	$	357,956
$250,000 or more		3,528		19,787		16,509		27,520		67,344

Total deposits increased $36.4 million to $1.8 billion at March 31, 2023 from year-end 2022. This increase was due to increases of $98.4 million in time deposits, of which $8.1 million was in brokered time deposits, and $13.2 million in interest-bearing demand deposits, partially offset by a decrease of $44.1 million in noninterest-bearing demand deposits and $31.1 million in savings deposits. The change in the composition of the portfolio from December 31, 2022 reflects a 23.1 percent increase in time deposits and a 4.8 percent increase in interest-bearing demand deposits, partially offset by a 8.9 percent decrease in noninterest-bearing demand deposits and a 5.3 percent decrease in savings deposits.

As of March 31, 2023 the Bank had $334.8 million in uninsured/uncollateralized deposits, or 18.4 percent of total deposits and the average deposit account size was approximately $38 thousand. Further, the Bank’s deposit base was 44.8 percent retail, 27.1 percent business, 17.3 percent municipal and 10.8 percent brokered time deposits.

The following table shows average deposits and the concentration of each category of deposits:

	March 31, 2023				Full Year December 31, 2022
(In thousands, except percentages)	Amount		% of total		Amount		% of total
Average balance:
Noninterest-bearing demand deposits	$	468,407	25.8	%	$	518,244	29.1	%
Interest-bearing demand deposits		287,749	15.9			269,789	15.2
Savings deposits		571,843	31.5			674,335	37.9
Time deposits		485,679	26.8			315,910	17.8
Total deposits	$	1,813,678	100.0	%	$	1,778,278	100.0	%

Borrowed Funds and Subordinated Debentures

As part of the Company’s overall funding and liquidity management program, from time to time the Company borrows from the Federal Home Loan Bank of New York. Residential mortgages and commercial loans collateralize these borrowings.

Borrowed funds and subordinated debentures totaled $384.3 million and $393.3 million at March 31, 2023 and December 31, 2022, respectively, and are broken down in the following table:

(In thousands)	March 31, 2023		December 31, 2022
FHLB borrowings:
Non-overnight, fixed rate advances	$	195,000	$	180,000
Overnight advances		179,000		203,000
Subordinated debentures		10,310		10,310
Total borrowed funds and subordinated debentures	$	384,310	$	393,310

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In March 2023, the FHLB issued a $146.0 million municipal deposit letter of credit in the name of Unity Bank naming the New Jersey Department of Banking and Insurance as beneficiary, to secure municipal deposits as required under New Jersey law. The FHLB issued an additional $17.0 million municipal deposit letter of credit in the name of Unity Bank naming Forks Township in Pennslyvania as beneficiary, to secure municipal deposits as required under Pennsylvania law.

At March 31, 2023, the Company had $253.6 million of additional credit available at the FHLB. Pledging additional collateral in the form of 1 to 4 family residential mortgages, commercial loans and investment securities can increase the line with the FHLB.

For the three months ending March 31, 2023, average FHLB Borrowings were $332.1 million with a weighted average cost of 4.4%. The maximum borrowing during the year was $374.0 million.

Subordinated Debentures

On July 24, 2006, Unity (NJ) Statutory Trust II, a statutory business trust and wholly-owned subsidiary of Unity Bancorp, Inc., issued $10.0 million of floating rate capital trust pass through securities to investors due on July 24, 2036. The subordinated debentures are redeemable in whole or part, prior to maturity but after July 24, 2011. The floating interest rate on the subordinated debentures is three-month LIBOR plus 159 basis points and reprices quarterly. The floating interest rate was 6.608 percent at March 31, 2023 and 6.319 percent at December 31, 2022.

Market Risk

The principal objectives of the asset and liability management function are to establish prudent risk management guidelines, evaluate and control the level of interest-rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital and liquidity requirements and actively manage risk within the Board approved guidelines. The Company seeks to reduce the vulnerability of operations to changes in interest rates and actions in this regard are taken under the guidance of the Asset/Liability Management Committee (“ALCO”) of the Board of Directors. The ALCO reviews the maturities and re-pricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions and interest rate levels.

The Company utilizes Modified Duration of Equity and Economic Value of Equity (“EVE”) models to measure the impact of longer-term asset and liability mismatches beyond two years. The modified duration of equity measures the potential price risk of equity to changes in interest rates. A longer modified duration of equity indicates a greater degree of risk to rising interest rates. Because of balance sheet optionality, an EVE analysis is also used to dynamically model the present value of asset and liability cash flows with rate shocks of 200 basis points. The EVE is likely to be different as interest rates change. Results falling outside prescribed ranges require action by the ALCO. The Company’s variance in the EVE, as a percentage of assets with rate shocks of 200 basis points at March 31, 2023, is a decrease of 12.9 percent in a rising-rate environment and an increase of 5.6 percent in a falling-rate environment. The variances in the EVE at March 31, 2023 are within the Board-approved guidelines of +/- 20.0 percent. In a falling rate environment with a rate shock of 200 basis points, benchmark interest rates are assumed to have floors of 0.0 percent. At December 31, 2022, the EVE as a percentage of assets with rate shocks of 200 basis points was a decrease of 12.1 percent in a rising-rate environment and an increase of 6.8 percent in a falling-rate environment. The variances in the EVE at December 31, 2022 are within the Board-approved guidelines of +/- 20.0 percent.

49

The following table presents the Company’s EVE and NII sensitivity exposure related to an instantenous and substained parallel shift in market interest rate of 100, 200 and 300 bps at March 31, 2023 and December 31, 2022.

	Estimated Increase/ (Decrease) in EVE						Estimated 12 mo. Increase/ (Decrease) In NII
(In thousands, except percentages)	EVE		Amount		Percent		NII		Amount		Percent
March 31, 2023:
+300	$	248,555	$	(60,964)	(19.70)	%	$	90,433	$	(8,124)	(8.24)	%
+200		269,480		(40,039)	(12.94)			93,083		(5,474)	(5.55)
+100		290,326		(19,193)	(6.20)			95,705		(2,852)	(2.89)
0		309,519		—	—			98,557		—	—
-100		322,187		12,668	4.09			100,574		2,017	2.05
-200		326,786		17,267	5.58			99,990		1,433	1.45
-300		326,161		16,642	5.38			98,053		(504)	(0.51)
December 31, 2022:
+300	$	269,493	$	(61,049)	(18.47)	%	$	92,822	$	(8,275)	(8.19)	%
+200		290,558		(39,984)	(12.10)			95,567		(5,530)	(5.47)
+100		311,453		(19,089)	(5.78)			98,280		(2,817)	(2.79)
0		330,542		—	—			101,097		—	—
-100		346,750		16,208	4.90			102,688		1,591	1.57
-200		352,944		22,402	6.78			101,927		830	0.82
-300		353,361		22,819	6.90			100,183		(914)	(0.90)

Off Balance Sheet Arrangements and Contractual Obligations

The following table shows the amounts and expected maturities or payment periods of off-balance sheet arrangements and contractual obligations as of March 31, 2023:

	One year		One to		Three to		Over five
(In thousands)	or less		three years		five years		years		Total
Off-balance sheet arrangements:
Standby letters of credit	$	3,703	$	1,395	$	120	$	593	$	5,811
Contractual obligations:
Time deposits		322,247		188,372		12,964		118		523,701
Borrowed funds and subordinated debentures		329,000		40,000		5,000		10,310		384,310
Total off-balance sheet arrangements and contractual obligations	$	654,950	$	229,767	$	18,084	$	11,021	$	913,822

Standby letters of credit represent guarantees of payment issued by the Bank on behalf of a client that is used as “payments of last resort” should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are typically short-term in duration, maturing in one year of less.

Time deposits have stated maturity dates.

Borrowed funds and subordinated debentures include fixed and adjustable rate borrowings from the Federal Home Loan Bank and subordinated debentures. The borrowings have defined terms and under certain circumstances are callable at the option of the lender.

50

Liquidity

Consolidated Bank Liquidity

Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace. Our liquidity is monitored by management and the Board of Directors, which reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient asset-based liquidity to cover potential funding requirements in order to minimize our dependence on volatile and potentially unstable funding markets.

The principal sources of funds at the Bank are deposits, scheduled amortization and prepayments of investment and loan principal, sales and maturities of investment securities, additional borrowings and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit inflows and outflows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Consolidated Statement of Cash Flows provides detail on the Company’s sources and uses of cash, as well as an indication of the Company’s ability to maintain an adequate level of liquidity. At March 31, 2023, the balance of cash and cash equivalents was $127.1 million, a decrease of $12.3 million from December 31, 2022. A discussion of the cash provided by and used in operating, investing and financing activities follows.

Operating activities provided $13.8 million and $19.6 million of net cash for the three months ended March 31, 2023 and 2022, respectively. The primary sources of funds were net income from operations and adjustments to net income, such as stock compensation expense and the net change in other assets and liabilities.

Investing activities used $19.9 million and $88.4 million in net cash for the three months ended March 31, 2023 and 2022, respectively. Cash was primarily used to fund new loans.

● Securities. The Consolidated Bank’s available for sale investment portfolio amounted to $94.1 million and $95.4 million at March 31, 2023 and December 31, 2022, respectively. This excludes the Parent Company’s securities discussed under the heading “Parent Company Liquidity” below. Projected cash flows from securities based on current estimates over the next twelve months are $9.1 million.

● Loans. The SBA loans held for sale portfolio amounted to $23.3 million and $27.9 million at March 31, 2023 and December 31, 2022, respectively. Sales of these loans provide an additional source of liquidity for the Company.

● Outstanding Commitments. The Company was committed to advance approximately $489.5 million to its borrowers as of March 31, 2023, compared to $514.8 million at December 31, 2022. At March 31, 2023, $167.3 million of these commitments expire within one year, compared to $177.7 million at December 31, 2022. The Company had $5.8 million and $5.6 million in standby letters of credit at March 31, 2023 and December 31, 2022, which are included in the commitments amount noted above. The estimated fair value of these guarantees is not significant. The Company believes it has the necessary liquidity to honor all commitments. Many of these commitments will expire and never be funded.

Financing activities provided $18.5 million and $11.7 million in net cash for the three months ended March 31, 2023 and 2022, primarily due to net increase in deposits.

● Deposits. As of March 31, 2023, deposits included $315.3 million of government deposits, as compared to $296.5 million at year end 2022.  These deposits are generally short in duration and are very sensitive to price competition. The Company believes that the current level of these types of deposits is appropriate. Included in the portfolio were $286.7 million of deposits from nineteen municipalities with account balances in excess of $5.0 million. The withdrawal of these deposits, in whole or in part, would not create a liquidity shortfall for the Company.

51

● Borrowed Funds. Total FHLB borrowings amounted to $374.0 million and $383.0 million as of March 31, 2023 and December 31, 2022, respectively. As a member of the Federal Home Loan Bank of New York, the Company can borrow additional funds based on the market value of collateral pledged. At March 31, 2023, pledging provided an additional $253.6 million in borrowing capacity from the FHLB.

Parent Company Liquidity

The Parent Company’s cash needs are funded by dividends paid by and rental payments on corporate headquarters from the Bank. Other than its investment in the Bank, Unity Risk Management, Inc. and Unity Statutory Trust II, the Parent Company does not actively engage in other transactions or business. Only expenses specifically for the benefit of the Parent Company are paid using its cash, which typically includes the payment of operating expenses, cash dividends on common stock and payments on trust preferred debt.

At March 31, 2023, the Parent Company had $0.8 million in cash and cash equivalents and $4.2 million in investment securities valued at fair market value, compared to $2.2 million and $5.7 million at December 31, 2022.

Regulatory Capital

On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets, implementing provisions of The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). Under the proposal, a qualifying community banking organization (“QCBO”) would be eligible to elect the community bank leverage ratio framework, or continue to measure capital under the existing Basel III requirements. The new rule, effective beginning January 1, 2020, allowed qualifying community banking organizations to opt into the new community bank leverage ratio (“CBLR”) in their call report beginning in the first quarter of 2020.

A QCBO is defined as a bank, a savings association, a bank holding company or a savings and loan holding company with:

● A leverage capital ratio of greater than 9.0 percent;

● Total consolidated assets of less than $10.0 billion;

● Total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally cancelable commitments) of 25 percent or less of total consolidated assets; and

● Total trading assets and trading liabilities of 5 percent or less of total consolidated assets.

The numerator of the CBLR is Tier 1 capital, as calculated under the Basel III rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions less assets deducted from Tier 1 capital.

The Bank has opted into the CBLR, and is therefore not required to comply with the Basel III capital requirements.

52

The following table shows the CBLR ratio for the Company and the Bank at March 31, 2023 and at December 31, 2022.

In addition, below are the ratios under the Basel III risk-based capital guidelines for the Company and the Bank at March 31, 2023 and December 31, 2022, all of which are above minimum capital requirements:

	At March 31, 2023				At December 31, 2022
	Company		Bank		Company		Bank
CBLR (Tier 1 Leverage Capital)	10.38	%	9.96	%	10.88	%	10.34	%
Common Equity Tier 1 Capital	11.76		11.78		11.76		11.69
Tier 1 Risk-based Capital	12.25		11.78		12.25		11.69
Total Risk-based Capital	13.50		13.03		13.48		12.93

For additional information on regulatory capital, see Note 11 to the Consolidated Financial Statements.

Shareholders’ Equity

Shareholders’ equity increased $1.2 million to $240.5 million at March 31, 2023 compared to $239.2 million at

December 31, 2022, primarily due to net income of $10.3 million partially offset by $8.2 million treasury stock purchased, at cost. Other items impacting shareholders’ equity included $1.3 million in dividends paid on common stock, $947 thousand from the issuance of common stock under employee benefit plans and a one-time adjustment to retained earnings of $649 thousand relating to ASU No. 2016-13 ("CECL"). The issuance of common stock under employee benefit plans includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

Repurchase Plan

On February 4, 2021, the Company authorized the repurchase of up to 750 thousand shares, or approximately 7.5 percent of its outstanding common stock. The new plan took effect after the Company’s prior share repurchase program was completed and all authorized shares were repurchased on February 16, 2021. A total 337,945 shares were repurchased at an average price of $25.14 during the three months ended March 31, 2023. As of March 31, 2023, 232 thousand shares are available for repurchase. The timing and amount of additional purchases, if any, will depend upon a number of factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for loan losses and the market price of the Company’s stock.

				Total Number of	Maximum Number
	Total		Weighted	Shares Purchased	of Shares that may
	Number of		Average	as Part of Publicly	yet be Purchased
	Shares		Price Paid	Announced Plans	Under the Plans
Period	Purchased		per Share	or Programs	or Programs
January 1, 2023 through January 31, 2023	35,854	$	26.27	35,854	534,290
February 1, 2023 through February 28, 2023	15,761		26.41	15,761	518,529
March 1, 2023 through March 31, 2023	286,330		23.93	286,330	232,199

Impact of Inflation and Changing Prices

The financial statements and notes thereto, presented elsewhere herein have been prepared in accordance with U.S.
GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the operations. Unlike most industrial companies, nearly all the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

53

ITEM 3         Quantitative and Qualitative Disclosures about Market Risk

During the three months ended March 31, 2023, there have been no significant changes in the Company’s assessment of market risk as reported in Item 6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. (See Interest Rate Sensitivity in Management’s Discussion and Analysis herein.)

ITEM 4         Controls and Procedures

a) The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2023. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.

b) No significant change in the Company’s internal control over financial reporting has occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s controls over financial reporting.

PART II          OTHER INFORMATION

ITEM 1            Legal Proceedings

From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition, or the results of the operation of the Company.

ITEM 1A         Risk Factors

Information regarding this item as of March 31, 2023 appears under the heading, “Risk Factors” within the Company’s Form 10-K for the year ended December 31, 2022, in addition to the following:

Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets.  These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession.  These recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business.  Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization.  We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses.  The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

ITEM 2          Unregistered Sales of Equity Securities and Use of Proceeds

54

See the discussion under the heading “Shareholders Equity - Repurchase Plan” under Item 2 “Management’s Discussion and Analysis of Financial Condition and results of Operations.”

ITEM 3          Defaults upon Senior Securities – None

ITEM 4          Mine Safety Disclosures - N/A

ITEM 5          Other Information – None

55

ITEM 6          Exhibits

(a) Exhibits		Description
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a 14(a) or Rule 15d 14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a 14(a) or Rule 15d 14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a 14(b) or Rule 15d 14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

56

EXHIBIT INDEX

QUARTERLY REPORT ON FORM 10-Q

Exhibit No.	Description
31.1	Exhibit 31.1-Certification of James A. Hughes. Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Exhibit 31.2-Certification of George Boyan. Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Exhibit 32.1-Certification of James A. Hughes and George Boyan. Required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
**101.INS	Inline XBRL Instance Document
**101.SCH	Inline XBRL Taxonomy Extension Schema Document
**101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
**104	Cover Page Interactive Data File (formatted as Inline XBRL and contained as Exhibit 101)

57

SIGNATURES

Pursuant to the requirements 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.

		UNITY BANCORP, INC.
Dated:	May 10, 2023	/s/ George Boyan
		George Boyan
		Executive Vice President and Chief Financial Officer

58

EX-31.1

EXHIBIT 31.1

I, James A. Hughes, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Unity Bancorp, Inc;

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 the 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 certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (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)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) 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):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:	May 10, 2023	/s/ James A. Hughes
		James A. Hughes
		President and Chief Executive Officer

EX-32.2

໿EXHIBIT 31.2

I, George Boyan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Unity Bancorp, Inc;

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 the 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 certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (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)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, 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;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) 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):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:	May 10, 2023	/s/ George Boyan
		George Boyan
		Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Unity Bancorp, Inc. (the “Company”), certifies that, to the best of their knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	May 10, 2023	/s/ James A. Hughes
		James A. Hughes
		President and Chief Executive Officer
Dated:	May 10, 2023	/s/ George Boyan
		George Boyan
		Executive Vice President and Chief Financial Officer

This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2023	Apr. 30, 2023
Document and Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
Document Transition Report	false
Entity File Number	1-12431
Entity Registrant Name	Unity Bancorp, Inc.
Entity Incorporation, State or Country Code	NJ
Entity Tax Identification Number	22-3282551
Entity Address, Address Line One	64 Old Highway 22
Entity Address, City or Town	Clinton
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08809
City Area Code	800
Local Phone Number	618-2265
Title of 12(b) Security	Common stock
Trading Symbol	UNTY
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		10,068,593
Entity Central Index Key	0000920427
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
ASSETS
Cash and due from banks	$ 23,893	$ 19,699
Interest-bearing deposits	103,194	95,094
Cash and cash equivalents	127,087	114,793
Securities:
Debt securities available for sale	94,113
Debt securities available for sale		95,393
Debt securities held to maturity		35,760
Debt securities held to maturity	35,824
Equity securities with readily determinable fair values	8,327	9,793
Total securities	138,264	140,946
Loans:
Total loans	2,130,919
Allowance for credit losses	(26,201)
Net loans	2,104,718
Loans:
Total loans		2,106,559
Allowance for credit losses		(25,196)
Net loans		2,081,363
Premises and equipment, net	19,868	20,002
Bank owned life insurance ("BOLI")	26,856	26,776
Deferred tax assets, net	12,360	12,345
Federal Home Loan Bank ("FHLB") stock	18,688	19,064
Accrued interest receivable	14,314	13,403
Other real estate owned ("OREO"), net	176	0
Goodwill	1,516	1,516
Prepaid expenses and other assets	12,004	14,740
Total assets	2,475,851	2,444,948
Deposits:
Noninterest-bearing demand	450,058	494,184
Interest-bearing demand	289,451	276,218
Savings	560,711	591,826
Brokered time deposits	197,792	189,644
Time deposits	325,909	235,656
Total deposits	1,823,921	1,787,528
Borrowed funds	374,000	383,000
Subordinated debentures	10,310	10,310
Accrued interest payable	932	691
Accrued expenses and other liabilities	26,229	24,192
Total liabilities	2,235,392	2,205,721
Shareholders' equity:
Common stock	98,197	97,204
Retained earnings	165,335	156,958
Treasury stock	(19,894)	(11,675)
Accumulated other comprehensive loss	(3,179)	(3,260)
Total shareholders' equity	240,459	239,227
Total liabilities and shareholders' equity	2,475,851	2,444,948
SBA loans held for sale
Loans:
Total loans	23,314
Loans:
Total loans	23,314	27,928
SBA loans held for investment
Loans:
Total loans	39,370
Allowance for credit losses	(1,103)
Loans:
Total loans		38,468
Allowance for credit losses		(875)
SBA PPP loans
Loans:
Total loans	2,545
Loans:
Total loans		5,908
Commercial loans
Loans:
Total loans	1,205,642
Allowance for credit losses	(15,301)
Loans:
Total loans		1,187,543
Allowance for credit losses		(15,254)
Residential mortgage loans
Loans:
Total loans	619,140
Allowance for credit losses	(6,135)
Loans:
Total loans		605,091
Allowance for credit losses		(5,450)
Consumer loans
Loans:
Total loans	76,784
Allowance for credit losses	(1,020)
Loans:
Total loans		78,164
Allowance for credit losses		(990)
Residential construction loans
Loans:
Total loans	164,124
Allowance for credit losses	$ (2,642)
Loans:
Total loans		163,457
Allowance for credit losses		$ (2,627)

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Consolidated Balance Sheets (Parenthetical) - shares shares in Thousands	Mar. 31, 2023	Dec. 31, 2022
Statement of Financial Position
Common stock, shares issued (in shares)	11,335	11,289
Common stock, shares outstanding (in shares)	10,292	10,584
Treasury shares	1,043	705

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
INTEREST INCOME
Interest-bearing deposits	$ 333	$ 96
FHLB stock	331	33
Securities:
Taxable	1,739	652
Tax-exempt	19	6
Total securities	1,758	658
Loans:
SBA loans	1,404	923
SBA PPP loans	77	777
Commercial loans	17,401	11,497
Residential mortgage loans	8,109	4,390
Consumer loans	1,354	921
Residential construction loans	2,586	1,824
Total loans	30,931	20,332
Total interest income	33,353	21,119
INTEREST EXPENSE
Interest-bearing demand deposits	982	164
Savings deposits	1,953	345
Time deposits	2,709	480
Borrowed funds and subordinated debentures	3,799	226
Total interest expense	9,443	1,215
Net interest income	23,910	19,904
Provision (benefit) for credit losses	108	(178)
Net interest income after provision (benefit) for credit losses	23,802	20,082
NONINTEREST INCOME
Gain on sale of SBA loans held for sale, net	309	852
Gain on sale of mortgage loans, net	244	521
BOLI income	80	163
Net security losses	(322)	(557)
Other income	368	401
Total noninterest income	1,417	2,239
NONINTEREST EXPENSE
Compensation and benefits	7,090	6,508
Processing and communications	804	752
Occupancy	770	775
Furniture and equipment	689	576
Professional services	427	447
Advertising	260	225
Other loan expenses	128	135
Deposit insurance	348	269
Director fees	217	233
Loan collection expenses	47	58
Other expenses	648	432
Total noninterest expense	11,428	10,410
Income before provision for income taxes	13,791	11,911
Provision for income taxes	3,504	2,803
Net income	$ 10,287	$ 9,108
Net income per common share - Basic	$ 0.98	$ 0.87
Net income per common share - Diluted	$ 0.96	$ 0.85
Weighted average common shares outstanding - Basic	10,538	10,446
Weighted average common shares outstanding - Diluted	10,686	10,664
Branch fee income
NONINTEREST INCOME
Noninterest income	$ 235	$ 275
Service and loan fee income
NONINTEREST INCOME
Noninterest income	$ 503	$ 584

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Statement of Comprehensive Income
Net income, before tax amount	$ 13,791	$ 11,911
Income tax expense (benefit)	3,504	2,803
Net income	10,287	9,108
Debt securities available for sale:
Unrealized holding gains (losses) on securities arising during the period, before tax	359	(1,627)
Unrealized holding gains (losses) on securities arising during the period, tax	93	(375)
Unrealized holding gains (losses) on securities arising during the period, net	266	(1,252)
Less: reclassification adjustment for losses on securities included in net income, before tax		(557)
Less: reclassification adjustment for losses on securities included in net income, tax		(118)
Less: reclassification adjustment for losses on securities included in net income, net of tax		(439)
Total unrealized gains (losses) on securities available for sale, before tax	359	(1,070)
Total unrealized gains (losses) on securities available for sale, tax	93	(257)
Total unrealized gains (losses) on securities available for sale, net of tax	266	(813)
Net unrealized (losses) gains from cash flow hedges:
Unrealized holding (losses) gains on cash flow hedges arising during the period, before tax	(433)	1,533
Unrealized holding (losses) gains on cash flow hedges arising during the period, tax	(92)	434
Unrealized holding (losses) gains on cash flow hedges arising during the period, net of tax	(341)	1,099
Less: reclassification adjustment for gains on cash flow hedges included in net income, before tax	(198)
Less: reclassification adjustment for gains on cash flow hedges included in net income, tax	(42)
Less: reclassification adjustment for gains on cash flow hedges included in net income, net of tax	(156)
Total unrealized (losses) gains on cash flow hedges, before tax	(235)	1,533
Total unrealized (losses) gains on cash flow hedges, tax	(50)	434
Total unrealized (losses) gains on cash flow hedges, net of tax	(185)	1,099
Total other comprehensive income, before tax	124	463
Total other comprehensive income, tax	43	177
Total other comprehensive income, net of tax	81	286
Total comprehensive income, before tax	13,915	12,374
Total comprehensive income, tax	3,547	2,980
Total comprehensive income, net of tax	$ 10,368	$ 9,394

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Consolidated Statements of Changes in Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands		Common stock	Retained earnings Cumulative Effect, Period of Adoption, Adjustment	Retained earnings	Treasury stock	Accumulated other comprehensive income (loss)	Cumulative Effect, Period of Adoption, Adjustment	Total
Beginning Balance (in shares) at Dec. 31, 2021		10,391
Beginning balance at Dec. 31, 2021		$ 94,003		$ 123,037	$ (11,633)	$ 322		$ 205,729
Increase (Decrease) in Stockholders' Equity
Net income				9,108				9,108
Other comprehensive income, net of tax						286		286
Dividends on common stock		$ 37		(1,045)				(1,008)
Common stock issued & related tax effects (in shares)	[1]	102
Common stock issued & related tax effects	[1]	$ 813						813
Ending Balance (in shares) at Mar. 31, 2022		10,493
Ending balance at Mar. 31, 2022		$ 94,853		131,100	(11,633)	608		214,928
Increase (Decrease) in Stockholders' Equity
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")								$ (156,958)
Beginning Balance (in shares) at Dec. 31, 2022		10,584						10,584
Beginning balance at Dec. 31, 2022		$ 97,204		156,958	(11,675)	(3,260)		$ 239,227
Increase (Decrease) in Stockholders' Equity
Net income				10,287				10,287
Other comprehensive income, net of tax						81		81
Dividends on common stock (in shares)		2
Dividends on common stock		$ 46		(1,261)				(1,215)
Common stock issued & related tax effects (in shares)	[1]	44
Common stock issued & related tax effects	[1]	$ 947						947
Treasury stock purchased, at cost (in shares)		(338)
Treasury stock purchased, at cost					(8,219)			$ (8,219)
Ending Balance (in shares) at Mar. 31, 2023		10,292						10,292
Ending balance at Mar. 31, 2023		$ 98,197		$ 165,335	$ (19,894)	$ (3,179)		$ 240,459
Increase (Decrease) in Stockholders' Equity
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")			$ (649)				$ (649)	$ (165,335)

[1] Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

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Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Statement of Stockholders' Equity
Common stock, dividends, per share, cash paid (in dollars per share)	$ 0.12	$ 0.10

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Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
OPERATING ACTIVITIES:
Net income	$ 10,287,000	$ 9,108,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses	108,000	(178,000)
Net amortization of purchase premiums and discounts on securities	36,000	11,000
Depreciation and amortization	(738,000)	447,000
PPP deferred fees and costs	(68,000)	(686,000)
Deferred income tax (benefit) expense	91,000	(63,000)
Net realized security gains	(222,000)	0
Stock compensation expense	417,000	394,000
Valuation writedowns on OREO	113,000	0
Gain on sale of mortgage loans, net	(244,000)	(521,000)
Gain on sale of SBA loans held for sale, net	(309,000)	(852,000)
BOLI income	(80,000)	(163,000)
Net change in other assets and liabilities	4,359,000	12,114,000
Net cash provided by operating activities	13,750,000	19,611,000
INVESTING ACTIVITIES
Purchases of securities held to maturity	0	(18,666,000)
Purchases of equity securities	(126,000)	0
Purchases of securities available for sale	0	(24,245,000)
Proceeds from redemption of FHLB stock, at cost	376,000	9,000
Maturities and principal payments on securities held to maturity	0	2,584,000
Maturities, calls and principal payments on securities available for sale	1,639,000	1,756,000
Proceeds from sales of equity securities	1,269,000	0
Net decrease in SBA PPP loans	3,431,000	18,521,000
Net increase in loans	(26,339,000)	(68,439,000)
Proceeds from BOLI	0	119,000
Purchases of premises and equipment	(195,000)	(41,000)
Net cash used in investing activities	(19,945,000)	(88,402,000)
FINANCING ACTIVITIES
Net increase in deposits	36,393,000	12,288,000
Repayments of borrowings	(9,000,000)	0
Proceeds from exercise of stock options	753,894	639,214
Fair market value of shares withheld to cover employee tax liability	(224,000)	(220,000)
Dividends on common stock	(1,215,000)	(1,008,000)
Purchase of treasury stock	(8,219,000)	0
Net cash provided by financing activities	18,489,000	11,699,000
Increase (decrease) in cash and cash equivalents	12,294,000	(57,092,000)
Cash and cash equivalents, beginning of year	114,793,000	244,818,000
Cash and cash equivalents, end of period	127,087,000	187,726,000
SUPPLEMENTAL DISCLOSURES
Interest paid	9,202,000	1,213,000
Income taxes paid	3,557,000	2,145,000
Noncash investing activities:
Establishment of lease liability and right-of-use asset	0	582,000
Capitalization of servicing rights	159,000	131,000
Transfer of loans to OREO	$ 288,000	$ 0

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Significant Accounting Policies

Significant Accounting Policies

NOTE 1. Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"). The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings or shareholders’ equity. The financial information has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has not been audited. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods. Actual results could differ from those estimates. Amounts requiring the use of significant estimates include the allowance for credit losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of impairment for securities and fair value disclosures. Management believes that the allowance for credit losses is adequate. While management uses available information to recognize credit losses, future additions to the allowance for credit losses may be necessary based on changes in economic conditions.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments, that in the opnion of management, are necessary for the fair presentation of interim results. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results which may be expected for the entire year. As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context. Certain information and financial disclosures required by U.S. GAAP have been condensed or omitted from interim reporting pursuant to SEC rules. Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Risks and Uncertainties

Overall, the markets and customers serviced by the Company may be significantly impacted by ongoing macro-economic trends, such as inflation and recessionary pressures created by a higher interest rate environment. The Company assesses the impact of inflation on an ongoing basis.

Recent industry events transpired, including the failures of Silicon Valley Bank (“SVB”) headquartered in Santa Clara, California and Signature Bank headquartered in New York, New York in March 2023, have led to uncertainty and concerns regarding the liquidity positions of the banking sector. SVB was placed into receivership on March 10, 2023, marking the second largest bank failure in U.S. history. Signature Bank was placed into receivership on March 12, 2023, marking the third largest bank failure in U.S. history.

Both banks appear to have had high ratios of uninsured deposits to total deposits, when compared to industry average. These failures underscore the importance of maintaining access to diverse sources of funding. The Company’s deposit base includes a combination of consumer, commercial and public funds deposits, without a high level of industry concentration.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. The Company believes the sources of liquidity presented in the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements are sufficient to meet its needs on the balance sheet date.

An unexpected influx of withdrawals of deposits could adversely impact the Company's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, federal funds lines of credit from correspondent banks and out-of market time deposits.

Such reliance on secondary funding sources could increase the Company's overall cost of funding and thereby reduce net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures or other investments, or liquidating assets.

New Accounting Guidance adopted in the First Quarter 2023

Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” amends the accounting guidance on the impairment of financial instruments. The Financial Accounting Standards Board (“FASB”) issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (“CECL”) model.  Under the new guidance, the Company is required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities. CECL also applies to certain off-balance sheet exposures.

The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used upon adoption. At adoption, the Company recorded $0.8 million increase to its allowance for credit losses, entirely related to loans. Further the Company increased its reserve for unfunded credit commitments by $0.1 million. The reserve for unfunded credit commitments is recorded in Accrued expenses and other liabilities on the consolidated balance sheet. These increases in reserves were recorded through retained earnings and was $0.6 million, net of tax.

For available for sale securities in an unrealized loss position, the Company first asseses whether it intends to sell, or is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securiy’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

For other assets within the scope of the new CECL accounting guidance, such as held to maturity debt securities, available for sale securities and other receivables, management noted the impact from adoption to be inconsequential. Additionally, the Company noted the adoption of CECL had no significant impact on regulatory capital ratios of the Company and/or the Bank.

ASU 2022-01, “Derivatives and Hedging (Topic 815)”: ASU 2022-01 was issued to clarify the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended

guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023. The Company adopted the guidance effective January 1, 2023, noting no material impact.

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”: ASU 2022-02 eliminates the guidance on troubled debt restructurings (“TDRs”) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 requires that entities disclose if the modifications result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The Company adopted ASU 2022-02 effective January 1, 2023, noting no material impact.

New Accounting Guidance issued in the First Quarter 2023

There were no material ASUs to the Company issued in the first quarter of 2023.

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Litigation

3 Months Ended

Mar. 31, 2023

Litigation

Litigation

NOTE 2. Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In the best judgment of management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.

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Net Income per Share

3 Months Ended

Mar. 31, 2023

Net Income per Share

Net Income per Share

NOTE 3. Net Income per Share

Basic net income per common share is calculated as net income divided by the weighted average common shares outstanding during the reporting period. Common shares include vested and unvested restricted shares.

Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period utilizing the treasury stock method.

The following is a reconciliation of the calculation of basic and diluted income per share:

	For the three months ended March 31,
(In thousands, except per share amounts)	2023		2022
Net income	$	10,287	$	9,108
Weighted average common shares outstanding - Basic		10,538		10,446
Plus: Potential dilutive common stock equivalents		148		218
Weighted average common shares outstanding - Diluted		10,686		10,664
Net income per common share - Basic	$	0.98	$	0.87
Net income per common share - Diluted		0.96		0.85
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		—		—

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Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2023

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

NOTE 4. Other Comprehensive Income (Loss)

The following tables show the changes in other comprehensive (loss) income for the three months ended March 31, 2023 and 2022, net of tax:

	For the three months ended March 31, 2023
					Accumulated
	Net unrealized		Net unrealized		other
	(losses) gains on		gains (losses) from		comprehensive
(In thousands)	securities		cash flow hedges		income (loss)
Balance, beginning of period	$	(4,381)	$	1,121	$	(3,260)
Other comprehensive income before reclassifications		266		(341)		(75)
Less amounts reclassified from accumulated other comprehensive loss		—		(156)		(156)
Period change		266		(185)		81
Balance, end of period	$	(4,115)	$	936	$	(3,179)

	For the three months ended March 31, 2022
			Net unrealized		Accumulated
	Net unrealized		gains		other
	gains (losses) on		from cash flow		comprehensive
(In thousands)	securities		hedges		income (loss)
Balance, beginning of period	$	29	$	293	$	322
Other comprehensive (loss) income before reclassifications		(1,252)		1,099		(153)
Less amounts reclassified from accumulated other comprehensive loss		(439)		—		(439)
Period change		(813)		1,099		286
Balance, end of period	$	(784)	$	1,392	$	608

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Fair Value

3 Months Ended

Mar. 31, 2023

Fair Value

Fair Value

NOTE 5. Fair Value

Fair Value Measurement

The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

Level 1 Inputs

● Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

● Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury, U.S. Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Inputs

● Quoted prices for similar assets or liabilities in active markets.

● Quoted prices for identical or similar assets or liabilities in inactive markets.

● Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e. interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

● Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

● Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

● These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis:

Debt Securities Available for Sale

The fair value of available for sale ("AFS") debt securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2023, the fair value of the Company’s AFS debt securities portfolio was $94.1 million. Most of the Company’s AFS debt securities were classified as Level 2 assets at March 31, 2023. The valuation of AFS debt securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities.

Included in the Company’s AFS debt securities are two corporate bonds which are classified as Level 3 assets at March 31, 2023.  The valuation of these corporate bonds is determined using broker quotes or third-party vendor prices that are not adjusted by management.  Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads and trade execution data. 

Equity Securities with Readily Determinable Fair Values

The fair value of equity securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of March 31, 2023, the fair value of the Company’s equity securities portfolio was $8.3 million.

All of the Company’s equity securities were classified as Level 2 assets at March 31, 2023. The valuation of equity securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information.

There were no changes in the inputs or methodologies used to determine fair value during the period ended March 31, 2023, as compared to the periods ended December 31, 2022 and March 31, 2022.

Interest Rate Swap Agreements

The fair value of interest rate swap agreements is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

The Company’s derivative instruments are classified as Level 2 assets, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data.

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

	Fair Value Measurements at March 31, 2023
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,398	$	—	$	16,398	$	—
State and political subdivisions		593		—		593		—
Residential mortgage-backed securities		15,410		—		15,410		—
Corporate and other securities		61,712		—		57,202		4,510
Total debt securities available for sale	$	94,113	$	—	$	89,603	$	4,510
Equity securities with readily determinable fair values		8,327		—		8,327		—
Total equity securities	$	8,327	$	—	$	8,327	$	—
Interest rate swap agreements		1,302		—		1,302		—
Total swap agreements	$	1,302	$	—	$	1,302	$	—

	Fair value Measurements at December 31, 2022
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,305	$	—	$	16,305	$	—
State and political subdivisions		613		—		613		—
Residential mortgage-backed securities		15,475		—		15,475		—
Corporate and other securities		63,000		—		58,325		4,675
Total debt securities available for sale	$	95,393	$	—	$	90,718	$	4,675
Equity securities with readily determinable fair values		9,793		—		9,793		—
Total equity securities	$	9,793	$	—	$	9,793	$	—
Interest rate swap agreements		1,537		—		1,537		—
Total swap agreements	$	1,537	$	—	$	1,537	$	—

Fair Value on a Nonrecurring Basis

The following tables present the assets and liabilities subject to fair value adjustments on a non-recurring basis carried on the balance sheet by caption and by level within the hierarchy (as described above):

	Fair Value Measurements at March 31, 2023
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans & OREO	$	9,984	$	—	$	—	$	9,984

	Fair Value Measurements at December 31, 2022
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans		8,803		—		—		8,803

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis:

Collateral-Dependent Loans

Fair value is determined based on the fair value of the collateral. Partially charged-off loans are measured for impairment based upon a third-party appraisal for collateral-dependent loans. When an updated appraisal is received for a nonperforming loan, the value on the appraisal may be discounted. If there is a deficiency in the value after the Company applies these discounts, management applies a specific reserve, and the loan remains in nonaccrual status. The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans

from nonaccrual status generally when the borrower makes six months of contractual payments and demonstrates the ability to service the debt going forward. Charge-offs are determined based upon the loss that management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency.

The valuation allowance for individually evaluated loans is included in the allowance for credit losses in the consolidated balance sheets. At March 31, 2023, the valuation allowance for impaired loans was $1.7 million, compared to $1.8 million at December 31, 2022.

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of March 31, 2023 and December 31, 2022 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value. The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis are discussed above.

The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

For these short-term instruments, the carrying value is a reasonable estimate of fair value.

Securities

The fair value of securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

SBA Loans Held for Sale

The fair value of SBA loans held for sale is estimated by using a market approach that includes significant other observable inputs.

Loans

The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed impaired loans.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value). The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates.

Borrowed Funds and Subordinated Debentures

The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates.

Standby Letters of Credit

At March 31, 2023, the Bank had standby letters of credit outstanding of $5.8 million, as compared to $5.6 million at December 31, 2022. The fair value of these commitments is nominal.

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments presented as of March 31, 2023 and December 31, 2022:

		March 31, 2023				December 31, 2022
	Fair value	Carrying		Estimated		Carrying		Estimated
(In thousands)	level	amount		fair value		amount		fair value
Financial assets:
Cash and cash equivalents	Level 1	$	127,087	$	127,087	$	114,793	$	114,793
Securities (1)	Level 2		138,264		132,272		140,946		133,764
SBA loans held for sale	Level 2		23,314		25,031		27,928		30,141
Loans, net of allowance for credit losses (2)	Level 2		2,081,404		2,022,666		2,053,435		1,990,010
Financial liabilities:
Deposits	Level 2		1,823,921		1,810,997		1,787,528		1,772,270
Borrowed funds and subordinated debentures	Level 2		384,310		382,585		393,310		391,312

(1) Includes corporate securities that are considered Level 3 and reported separately in the table under the “Fair Value on a Recurring Basis” heading. These securities had book values of $5.3 million and market values of $4.7 million.

(2) Includes collateral-dependent loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Collateral-dependent loans, net of specific reserves totaled $9.8 million and $8.8 million at March 31, 2023 and December 31, 2022, respectively.

Limitations

Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-statement of condition financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates.

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Securities

3 Months Ended

Mar. 31, 2023

Securities

Securities

NOTE 6. Securities

This table provides the major components of debt securities available for sale ("AFS") and held to maturity (“HTM”) at amortized cost and estimated fair value at March 31, 2023 and December 31, 2022:

	March 31, 2023								December 31, 2022
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
(In thousands)	cost		gains		losses		fair value		cost		gains		losses		fair value
Available for sale:
U.S. Government sponsored entities	$	16,969	$	—	$	(571)	$	16,398	$	16,961	$	—	$	(656)	$	16,305
State and political subdivisions		633		—		(40)		593		635		—		(22)		613
Residential mortgage-backed securities		16,734		31		(1,355)		15,410		17,097		32		(1,654)		15,475
Corporate and other securities		65,213		121		(3,622)		61,712		66,495		106		(3,601)		63,000
Total debt securities available for sale	$	99,549	$	152	$	(5,588)	$	94,113	$	101,188	$	138	$	(5,933)	$	95,393
Held to maturity:
U.S. Government sponsored entities	$	28,000	$	—	$	(4,222)	$	23,778	$	28,000	$	—	$	(5,310)	$	22,690
State and political subdivisions		1,128		74		—		1,202		1,115		67		—		1,182
Residential mortgage-backed securities		6,696		—		(1,844)		4,852		6,645		—		(1,939)		4,706
Total securities held to maturity	$	35,824	$	74	$	(6,066)	$	29,832	$	35,760	$	67	$	(7,249)	$	28,578

This table provides the remaining contractual maturities within the investment portfolios. The carrying value of securities at March 31, 2023 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

				After one through		After five through				Total carrying
		Within one year		five years		ten years		After ten years		value
(In thousands)
Available for sale at fair value:
U.S. Government sponsored entities	$	1,218	$	15,180	$	—	$	—	$	16,398
State and political subdivisions		201		160		—		232		593
Residential mortgage-backed securities		2		358		986		14,064		15,410
Corporate and other securities		—		12,365		12,642		36,705		61,712
Total debt securities available for sale	$	1,421	$	28,063	$	13,628	$	51,001	$	94,113
Held to maturity at cost:
U.S. Government sponsored entities	$	—	$	—	$	3,000	$	25,000	$	28,000
State and political subdivisions		—		—		—		1,128		1,128
Residential mortgage-backed securities		—		—		—		6,696		6,696
Total securities held to maturity	$	—	$	—	$	3,000	$	32,824	$	35,824

The fair value of debt securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,905	$	(567)	$	493	$	(4)	$	16,398	$	(571)
State and political subdivisions		—		—		393		(40)		393		(40)
Residential mortgage-backed securities		8,623		(665)		6,647		(690)		15,270		(1,355)
Corporate and other securities		13,166		(466)		45,925		(3,156)		59,091		(3,622)
Total	$	37,694	$	(1,698)	$	53,458	$	(3,890)	$	91,152	$	(5,588)
Held to maturity:
U.S. Government sponsored entities	$	10,394	$	(606)	$	13,384	$	(3,616)	$	23,778	$	(4,222)
Residential mortgage-backed securities		150	$	(72)		4,702		(1,772)		4,852		(1,844)
Total	$	10,544	$	(678)	$	18,086	$	(5,388)	$	28,630	$	(6,066)

	December 31, 2022
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,817	$	(622)	$	1,432	$	(34)	$	17,249	$	(656)
State and political subdivisions		160		(5)		253		(17)		413		(22)
Residential mortgage-backed securities		14,023		(1,448)		1,311		(206)		15,334		(1,654)
Corporate and other securities		23,445		(966)		31,948		(2,635)		55,393		(3,601)
Total temporarily impaired AFS securities	$	53,445	$	(3,041)	$	34,944	$	(2,892)	$	88,389	$	(5,933)
Held to maturity:
U.S. Government sponsored entities	$	15,659	$	(2,341)	$	7,031	$	(2,969)	$	22,690	$	(5,310)
Residential mortgage-backed securities		4,707		(1,939)		—		—		4,707		(1,939)
Total temporarily impaired HTM securities	$	20,366	$	(4,280)	$	7,031	$	(2,969)	$	27,397	$	(7,249)

Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate fluctuations. Residential mortgage-backed securities are guaranteed by either Ginnie Mae, Freddie Mac or Fannie Mae.

Allowance for Credit Losses

The Company has zero-loss expectation for certain securities within the held to maturity and available for sale portfolios, and therefore is not required to estimate an allowance for credit losses related to these securities under the CECL standard. The Company does not provide credit quality indicators for held to maturity securities that have zero-loss expectation. After an evaluation of quantitative factors, the following securities types are believed to qualify for this exclusion: U.S Government sponsored entities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae or Freddie Mac.

Management recognized no impairment for held to maturity debt securities during the three months ended March 31, 2023 and 2022. There was no allowance for credit losses for held to maturity debt securities at March 31, 2023 and 2022.

Available for sale debt securities in unrealized loss positions are evaluated for impairment on a quarterly basis. The Company has evaluated available for sale securities that are in an unrealized loss position and has determined that the declines in fair value are attributable to market volatility, not credit quality or other factors. Management recognized no

impairment during the three months ended March 31, 2023 and 2022. There was no allowance for credit losses for available for sale debt securities at March 31, 2023 and 2022.

Realized Gains and Losses on Debt Securities

Net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains. There were no realized gains or losses on available sale securities three months ended March 31, 2023 and March 31, 2022. There was no gross realized gain or loss for held for maturity debt securities during the three months ended March 31, 2023 and 2022.

Equity Securities

Included in this category are Community Reinvestment Act ("CRA") investments and the Company’s current other equity holdings of financial institutions. Equity securities are defined to include (a) preferred, common and other ownership interests in entities including partnerships, joint ventures and limited liability companies and (b) rights to acquire or dispose of ownership interests in entities at fixed or determinable prices.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Net unrealized losses occurring during the period on equity securities	$	(544)	$	(557)
Net realized gains recognized during the period on equity securities sold during the period		222		—
Net losses recognized during the reporting period on equity securities	$	(322)	$	(557)

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Loans

3 Months Ended

Mar. 31, 2023

Loans

Loans

NOTE 7. Loans

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses as of March 31, 2023 and December 31, 2022:

(In thousands)	March 31, 2023		December 31, 2022
SBA loans held for investment	$	39,370	$	38,468
SBA PPP loans		2,545		5,908
Commercial loans
SBA 504 loans		34,678		35,077
Commercial other		117,428		117,566
Commercial real estate		907,260		903,126
Commercial real estate construction		146,276		131,774
Residential mortgage loans		619,140		605,091
Consumer loans
Home equity		68,071		68,310
Consumer other		8,713		9,854
Residential construction loans		164,124		163,457
Total loans held for investment	$	2,107,605	$	2,078,631
SBA loans held for sale		23,314		27,928
Total loans	$	2,130,919	$	2,106,559

Loans held for investment are stated at the unpaid principal balance, net of unearned discounts and deferred loan origination fees and costs. In accordance with the level yield method, loan origination fees, net of direct loan origination

costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield. Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans when the borrower is in arrears for two or more monthly payments; open end credit for two or more billing cycles; and single payment notes if interest or principal remains unpaid for 30 days or more.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient. These include: 1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors. All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged off.

Loans are made to individuals as well as commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company’s different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses’ major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Loans held for sale represent the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. The net amount of loan origination fees on loans sold is included in the carrying value and in the gain or loss on the sale. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Loans will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided. Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination.

Residential Mortgage, Consumer and Residential Construction Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans and residential construction lines. The Company originates qualified mortgages which are generally sold in the secondary market and nonqualified mortgages which are generally held for investment. Each loan type is evaluated on debt to income, type of collateral, loan to collateral value, credit history and the Company’s relationship with the borrower.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when the Company initiates contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan, and other factors, are analyzed before a loan is submitted for approval. The commercial loan portfolio is then subject to on-going internal reviews for credit quality which in part is derived from ongoing collection and review of borrowers’ financial information, as well as independent credit reviews by an outside firm.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. This policy and the underlying procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

The Company places all SBA 7(a) and commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten and then annually based on set criteria in the loan policy.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Pass: Loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: These loans have a potential weakness that deserves management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loss: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values. Once a borrower is deemed incapable of repayment of unsecured debt, the loan is termed a “Loss”, and charged off immediately.

For residential mortgage, consumer and residential construction loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated

on an ongoing basis, as a loan is placed on nonaccrual status as soon as management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

At March 31, 2023, the Company owned $0.2 million in commercial properties that were included in OREO in the Consolidated Balance Sheets, compared to none at December 31, 2022. Additionally, there were $3.3 million in the process of foreclosure at March 31, 2023, compared to $2.1 million at December 31, 2022.

Nonperforming and Past Due Loans

Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. Loans past due 90 days or more and still accruing interest are not included in nonperforming loans and generally represent loans that are well collateralized and in the process of collection. When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest. The risk of loss is difficult to quantify and is subject to fluctuations in collateral values, general economic conditions and other factors. The Company values its collateral through the use of appraisals, broker price opinions and knowledge of its local market.

The following tables set forth an aging analysis of past due and nonaccrual loans as of March 31, 2023 and December 31, 2022:

	March 31, 2023
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	—	$	—	$	4,325	$	4,325	$	35,045	$	39,370
Commercial loans
SBA 504 loans		—		—		—		—		—		34,678		34,678
Commercial other		—		1,675		—		975		2,650		114,778		117,428
Commercial real estate		—		—		—		169		169		907,091		907,260
Commercial real estate construction		—		—		—		—		—		146,276		146,276
Residential mortgage loans		2,800		—		—		5,565		8,365		610,775		619,140
Consumer loans
Home equity		697		—		—		—		697		67,374		68,071
Consumer other		50		—		—		—		50		8,663		8,713
Residential construction loans		—		—		—		3,473		3,473		160,651		164,124
Total loans held for investment, excluding SBA PPP		3,547		1,675		—		14,507		19,729		2,085,331		2,105,060
SBA loans held for sale		—		—		—		—		—		23,314		23,314
Total loans, excluding SBA PPP	$	3,547	$	1,675	$	—	$	14,507	$	19,729	$	2,108,645	$	2,128,374

At March 31, 2023 The Company had $3.5 million of nonaccrual loans with no related allowance for credit loss.

	December 31, 2022
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	576	$	—	$	690	$	1,266	$	37,202	$	38,468
Commercial loans
SBA 504 loans		—		—		—		—		—		35,077		35,077
Commercial other		198		300		—		777		1,275		116,291		117,566
Commercial real estate		22		188		—		805		1,015		902,111		903,126
Commercial real estate construction		—		—		—		—		—		131,774		131,774
Residential mortgage loans		—		982		—		3,361		4,343		600,748		605,091
Consumer loans
Home equity		—		—		—		—		—		68,310		68,310
Consumer other		18		7		—		—		25		9,829		9,854
Residential construction loans		—		—		—		3,432		3,432		160,025		163,457
Total loans held for investment, excluding SBA PPP		238		2,053		—		9,065		11,356		2,061,367		2,072,723
SBA loans held for sale		2,195		—		—		—		2,195		25,733		27,928
Total loans, excluding SBA PPP	$	2,433	$	2,053	$	—	$	9,065	$	13,551	$	2,087,100	$	2,100,651

At December 31, 2022, the Company had $1.4 million of SBA PPP loans past due. The Company is in process of working through these past due credits with the SBA and the relevant customers.

The following table shows the internal loan classification risk by loan portfolio classification by origination year as of March 31, 2023:

	Term Loans
	Amortized Cost Basis by Origination Year
(In thousands)			2023		2022		2021		2020		2019		2018 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass		$	58	$	7,186	$	5,017	$	6,289	$	2,970	$	12,006	$	-	$	33,526
Special Mention			-		-		-		702		-		745		-		1,447
Substandard			-		1,361		2,240		-		-		796		-		4,397
Total SBA loans held for investment		$	58	$	8,547	$	7,257	$	6,991	$	2,970	$	13,547	$	-	$	39,370
SBA loans held for investment
Current-period gross writeoffs		$	-	$	-	$	-	$	-	$	113	$	-	$	-	$	113
SBA PPP loans
Risk Rating:
Pass		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Special Mention			-		-		-		-		-		-		-		-
Substandard			-		-		-		-		-		-		-		-
Total SBA PPP loans		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Commercial loans
Risk Rating:
Pass		$	30,004	$	343,451	$	189,080	$	141,544	$	104,763	$	298,849	$	78,084	$	1,185,775
Special Mention			-		90		2,103		-		2,269		12,041		396		16,899
Substandard			-		-		-		20		-		2,648		300		2,968
Total commercial loans		$	30,004	$	343,541	$	191,183	$	141,564	$	107,032	$	313,538	$	78,780	$	1,205,642
Residential mortgage loans
Risk Rating:
Performing		$	40,533	$	274,612	$	80,711	$	56,606	$	34,653	$	126,460	$	-	$	613,575
Nonperforming			-		307		550		904		1,355		2,449		-		5,565
Total residential mortgage loans		$	40,533	$	274,919	$	81,261	$	57,510	$	36,008	$	128,909	$	-	$	619,140
Consumer loans
Risk Rating:
Performing		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Nonperforming			-		-		-		-		-		-		-		-
Total consumer loans		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Consumer loans
Current-period gross writeoffs		$	-	$	22	$	98	$	-	$	-	$	-	$	-	$	120
Residential construction
Risk Rating:
Performing		$	4,670	$	87,778	$	50,623	$	12,672	$	3,676	$	1,232	$	-	$	160,651
Nonperforming			-		-		257		-		-		1,781		1,435		3,473
Total residential construction loans		$	4,670	$	87,778	$	50,880	$	12,672	$	3,676	$	3,013	$	1,435	$	164,124
Total loans held for investment		$	78,354	$	720,510	$	339,314	$	219,486	$	153,293	$	467,689	$	128,959	$	2,107,605

The following table shows the internal loan classification risk by loan portfolio classification as of December 31, 2022:

	December 31, 2022
	SBA & Commercial loans - Internal risk ratings
(In thousands)	Pass		Special mention		Substandard		Total
SBA loans held for investment	$	37,163	$	558	$	747	$	38,468
SBA PPP loans		5,908		—		—		5,908
Commercial loans
SBA 504 loans		35,077		—		—		35,077
Commercial other		110,107		6,220		1,239		117,566
Commercial real estate		894,110		6,228		2,788		903,126
Commercial real estate construction		131,774		—		—		131,774
Total commercial loans		1,171,068		12,448		4,027		1,187,543
Total SBA and commercial loans	$	1,214,139	$	13,006	$	4,774	$	1,231,919
			Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming
(In thousands)			Performing		Nonperforming		Total
Residential mortgage loans			$	601,730	$	3,361	$	605,091
Consumer loans
Home equity				68,310		—		68,310
Consumer other				9,854		—		9,854
Total consumer loans				78,164		—		78,164
Residential construction loans				160,025		3,432		163,457
Total residential mortgage, consumer and residential construction loans			$	839,919	$	6,793	$	846,712

Modifications

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for creditlosses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted-average remaining maturity model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modificiation.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concessions, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of gross loans and type of concession granted (numbers in thousands) during the three months ended March 31, 2023:

	Term Extension
		Amortized Cost Basis	% of Total Class of
		at 3/31/2023	Gross Loans
Commercial	$	743	0.06	%

Modifications for the quarter made to borrowers exerpiencing financial difficulty added a weighted average of 5.7 years to the life of the modified loans, which reduced monthly payment amounts for the borrowers.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. No loans that were modified during the quarter had a payment default during the period and all loans were current as of March 31, 2023.

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

3 Months Ended

Mar. 31, 2023

Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

NOTE 8. Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

Allowance for Credit Losses

The Company has an established methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses inherent in the loan portfolio. At a minimum, the adequacy of the allowance for credit losses is reviewed by management on a quarterly basis. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. For purposes of determining the allowance for credit losses, the Company has segmented the loans in its portfolio by loan type. Loans are segmented into the following pools: SBA, commercial, residential mortgages, consumer and residential construction loans. Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan. Commercial loans are divided into the following four classes: commercial real estate, commercial real estate construction, commercial other and SBA 504. Consumer loans are divided into two classes as follows:  home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. The same standard methodology is used, regardless of loan type. Specific reserves are evaluated for individually evaluated loans. The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. Within the historical net charge-off rate, the Company weights the data dating back to 2015 on a straight line basis and projects the losses on a weighted average remaining maturity basis for each segment. All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk. Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics.

● For SBA and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. It also incorporates analysis of the type of collateral and the relative loan to value ratio.

● For residential mortgage, consumer and residential construction loans, the estimate of loss is based on pools of loans with similar characteristics. Factors such as credit score, delinquency status and type of collateral are evaluated. Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for credit losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited. This charge-off policy is followed for all loan types.

The following tables detail the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022:

	For the three months ended March 31, 2023
									Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	875	$	15,254	$	5,450	$	990	$	2,627	$	25,196
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")		163		171		376		101		36		847
Charge-offs		(113)		—		—		(120)		—		(233)
Recoveries		—		271		—		12		—		283
Net (charge-offs) recoveries		(113)		271		—		(108)		—		50
Provision for (credit to) credit losses charged to expense		178		(395)		309		37		(21)		108
Balance, end of period	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642	$	26,201

	For the three months ended March 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Balance, beginning of period	$	1,074	$	15,053	$	4,114	$	671	$	1,390		$	22,302
Charge-offs		—		—		—		(6)		—	a		(6)
Recoveries		22		28		—		—		—			50
Net recoveries (charge-offs)		22		28		—		(6)		—			44
Provision for (credit to) credit losses charged to expense		(155)		(376)		170		(23)		206			(178)
Balance, end of period	$	941	$	14,705	$	4,284	$	642	$	1,596		$	22,168

The following tables present loans and their related allowance for credit losses, by portfolio segment, as of March 31, 2023 and December 31, 2022:

	March 31, 2023
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated	$	173	$	331	$	36	$	—	$	1,130	a	$	1,670
Collectively evaluated		930		14,970		6,099		1,020		1,512			24,531
Total	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642		$	26,201
Loan ending balances:
Individually evaluated	$	658	$	1,602	$	5,760	$	—	$	3,458		$	11,478
Collectively evaluated		64,571		1,204,040		613,380		76,784		160,666			2,119,441
Total	$	65,229	$	1,205,642	$	619,140	$	76,784	$	164,124		$	2,130,919

	December 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated for impairment	$	115	$	516	$	36	$	—	$	1,112	a	$	1,779
Collectively evaluated for impairment		760		14,738		5,414		990		1,515			23,417
Total	$	875	$	15,254	$	5,450	$	990	$	2,627		$	25,196
Loan ending balances:
Individually evaluated for impairment	$	690	$	3,101	$	3,361	$	—	$	3,432		$	10,584
Collectively evaluated for impairment		71,614		1,184,442		601,730		78,164		160,025			2,095,975
Total	$	72,304	$	1,187,543	$	605,091	$	78,164	$	163,457		$	2,106,559

Reserve for Unfunded Loan Commitments

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable losses. Adjustments to the reserve are made through other expense and applied to the reserve which is classified as other liabilities. At March 31, 2023, a $0.6 million commitment reserve was reported on the balance sheet as “Accrued expenses and other liabilities”, compared to a $0.5 million commitment reserve at December 31, 2022.

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Derivative Financial Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2023

Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments and Hedging Activities

NOTE 9. Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments

The Company has derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s balance sheet as “Prepaid expenses and other assets” or “Accrued expenses and other liabilities”.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to any derivative agreement. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations. The Company deals only with primary dealers.

Derivative instruments are generally either negotiated over the counter (“OTC”) contracts or standardized contracts executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

Risk Management Policies – Hedging Instruments

The primary focus of the Company’s asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Company evaluates the effectiveness of entering into any derivative agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

Interest Rate Risk Management – Cash Flow Hedging Instruments

The Company has variable rate debt as a source of funds for use in the Company’s lending and investment activities and for other general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore hedges its variable-rate interest payments. To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments during the contract period.

A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at March 31, 2023 and December 31, 2022, respectively is as follows:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Notional amount	$	20,000		$	20,000
Fair value	$	1,302		$	1,537
Weighted average pay rate		0.83	%		0.83	%
Weighted average receive rate		4.75	%		1.50	%
Weighted average maturity in years		1.95			2.57
Number of contracts		1			1

During the three months ended March 31, 2023, the Company received variable rate London Interbank Offered Rate ("LIBOR") payments from and paid fixed rates in accordance with its interest rate swap agreements. At March 31, 2023, the unrealized gain relating to interest rate swaps was recorded as a derivative asset and is included in “Prepaid expenses and other assets” on the Company’s Balance Sheet. Changes in the fair value of the interest rate swaps designated as hedging instruments of the variability of cash flows associated with long-term debt are reported in other comprehensive income. The following table presents the net gains and losses recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at March 31, 2023 and 2022, respectively:

	For the three months ended March 31,
(In thousands)	2023		2022
(Loss) Gain recognized in OCI	$	(235)	$	1,534
Gain reclassified from AOCI into net income	$	198	$	85

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2023

Employee Benefit Plans

Employee Benefit Plans

NOTE 10. Employee Benefit Plans

Stock Option Plans

The Company has maintained option plans and maintains an equity incentive plan, which allow for the grant of options to officers, employees and members of the Board of Directors. Grants of options under the Company’s plans generally vest over 3 years and must be exercised within 10 years of the date of grant. Transactions under the Company’s plans for the three months ended March 31, 2023 are summarized in the following table:

				Weighted
		Weighted		average
		average		remaining	Aggregate
		exercise		contractual	intrinsic
	Shares	price		life in years	value
Outstanding at December 31, 2022	559,499	$	18.09	5.9	$	5,168,740
Options granted	—		—
Options exercised	(37,201)		20.27
Options forfeited	(666)		18.64
Options expired	—		—
Outstanding at March 31, 2023	521,632	$	17.94	5.7	$	2,542,366
Exercisable at March 31, 2023	481,142	$	17.84	5.5	$	2,390,353

On April 25, 2019, the Company adopted the 2019 Equity Compensation Plan providing for grants of up to 500,000 shares to be allocated between incentive and non-qualified stock options, restricted stock awards, performance units and deferred stock. The Plan replaced all previously approved and established equity plans then currently in effect. As of March 31, 2023, 281,500 options and 227,400 shares of restricted stock have been awarded from the plan. In addition, 16,162 unvested options and 14,000 unvested shares of restricted stock were cancelled and returned to the plan leaving 21,262 shares available for future grants.

The fair values of the options granted are estimated on the date of grant using the Black-Scholes option-pricing model. There were no options granted during the three months ended March 31, 2023 or 2022.

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
	2023		2022
Number of options exercised		37,201		47,374
Total intrinsic value of options exercised	$	241,904	$	746,292
Cash received from options exercised	$	753,894	$	639,214
Tax deduction realized from options	$	72,777	$	224,522

The following table summarizes information about stock options outstanding and exercisable at March 31, 2023:

	Options outstanding					Options exercisable
			Weighted average	Weighted			Weighted
		Options	remaining contractual	average		Options	average
Range of exercise prices		outstanding	life (in years)	exercise price		exercisable	exercise price
$7.25 - 16.51		139,633	3.8	$	11.96	139,633	$	11.96
16.52 - 19.26		127,499	6.5		18.06	103,342		18.07
19.27 - 20.88		132,300	6.4		20.34	115,967		20.31
20.89 - 22.57		122,200	6.2		22.02	122,200		22.02
Total		521,632	5.7	$	17.94	481,142	$	17.84

Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards as compensation expense over the period during which an employee is required to provide service in exchange for such an award (vesting period). Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2023 and 2022 are detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	85	$	163
Income tax benefit	$	25	$	47

As of March 31, 2023, unrecognized compensation costs related to nonvested share-based stock option compensation arrangements granted under the Company’s plans totaled approximately $260 thousand. That cost is expected to be recognized over a weighted average period of 0.9 years.

Restricted Stock Awards

Restricted stock is issued under the 2019 Equity Compensation Plan to reward employees and directors and to retain them by distributing stock over a period of time. Restricted stock awards granted to date vest over a period of 4 years and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at the time of grant and amortized into salary expense on a straight line basis over the vesting period. The following table summarizes nonvested restricted stock activity for the three months ended March 31, 2023:

		Average grant
	Shares	date fair value
Nonvested restricted stock at December 31, 2022	164,570	$	24.77
Granted	18,000		27.33
Cancelled	(1,600)		25.94
Vested	(34,973)		23.34
Nonvested restricted stock at March 31, 2023	145,997	$	25.41

Restricted stock awards granted during the three months ended March 31, 2023 and 2022 were as follows:

	For the three months ended March 31,
	2023		2022
Number of shares granted		18,000		70,000
Average grant date fair value	$	27.33	$	27.52

Compensation expense related to restricted stock for the three months ended March 31, 2023 and 2022 is detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	332	$	231
Income tax benefit	$	80	$	67

As of March 31, 2023, there was approximately $3.4 million of unrecognized compensation cost related to nonvested restricted stock awards granted under the Company’s equity plans. That cost is expected to be recognized over a weighted average period of 2.9 years.

401(k) Savings Plan

The Bank has a 401(k) savings plan covering substantially all employees. Under the Plan, an employee can contribute up to 75 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the Plan. The Bank contributed $233 thousand and $203 thousand to the Plan during the three months ended March 31, 2023 and 2022, respectively.

Deferred Compensation Plan

The Company has a deferred fee plan for Directors and eligible management. Directors of the Company have the option

to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of

management has the option to elect to defer up to 100 percent of their total compensation. Director and executive deferred compensation totaled $794 thousand and $535 thousand during the three months ended March 31, 2023 and 2022, respectively. The interest paid on the deferred balances totaled $91 thousand and $36 thousand during the three months ended March 31, 2023 and 2022, respectively. The fees distributed on the deferred balances totaled $3 thousand and $2 thousand during the three months ended March 31, 2023 and 2022, respectively.

Benefit Plans

In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer (“CEO”) and unfunded, non-qualified deferred retirement plans for certain other key executives.

On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The retirement benefit under the SERP is an amount equal to sixty percent (60%) of the average of the President and CEO’s base salary for the thirty-six (36) months immediately preceding the executive’s separation from service after age 66, adjusted annually thereafter by a percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers (CPI-U). The total benefit is to be made payable in fifteen annual installments. The future

payments are estimated to total $7.2 million. A discount rate of four percent (4%) was used to calculate the present value

of the benefit obligation.

The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and vests an additional three percent (3%) each year until fully vested on January 1, 2024. In the event that the President and CEO’s separation from service from the Company were to occur prior to full vesting, the President and CEO would be entitled to and shall be paid the vested portion of the retirement benefit calculated as of the date of separation from service. Notwithstanding the foregoing, upon a Change in Control, and provided that within 6 months following the Change in Control the President and CEO is involuntarily terminated for reasons other than “cause” or the President and CEO resigns for “good reason,” as such is defined in the SERP, or the President and CEO voluntarily terminates his employment after being offered continued employment in a position that is not a “Comparable Position,” as such is also defined in the SERP, the President and CEO shall become one hundred percent (100%) vested in the full retirement benefit.

No contributions or payments have been made during the three months ended March 31, 2023. The following table summarizes the components of the net periodic pension cost of the defined benefit plan recognized during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Service cost	$	39	$	37
Interest cost		50		47
Net periodic benefit cost	$	89	$	84

The following table summarizes the changes in benefit obligations of the defined benefit plan during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Benefit obligation, beginning of year	$	4,857	$	4,521
Service cost		39		37
Interest cost		50		47
Benefit obligation, end of period	$	4,946	$	4,605

On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with certain key executive officers other than the President and CEO. The Plan has an effective date of January 1, 2015.

The Plan is an unfunded, nonqualified deferred compensation plan. For any Plan Year, a guaranteed annual Deferral Award percentage of seven and one half percent (7.5%) of the participant’s annual base salary will be credited to each Participant’s Deferred Benefit Account. A discretionary annual Deferral Award equal to seven and one half percent (7.5%) of the participant’s annual base salary may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix. The total Deferral Award shall never exceed fifteen percent (15%) of the participant’s base salary for any given Plan Year. Each Participant shall be one hundred percent (100%) vested in all Deferral Awards as of the date they are awarded.

As of March 31, 2023, the Company had total year to date expenses of $34 thousand related to the Plan. The Plan is reflected on the Company’s balance sheet as accrued expenses.

Certain members of management are also enrolled in a split-dollar life insurance plan with a post retirement death benefit of $250 thousand. Total expenses related to this plan were $1 thousand and $6 thousand for the three months ended March 31, 2023 and 2022, respectively. Additionally, $55 thousand of prior period expense was reversed during the three months ended March 31, 2022. This was related to changes to the members of management participating in the plan.

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Regulatory Capital

3 Months Ended

Mar. 31, 2023

Regulatory Capital

Regulatory Capital

NOTE 11. Regulatory Capital

Under the Economic Growth, Regulatory Relief and Consumer Protection Act, the Bank is considered a qualifying community banking organization, which allows the Bank to elect to opt into the community bank leverage ratio (“CBLR”) in its regulatory filings. The Bank has opted into the CBLR, and is therefore is not required to comply with the Basel III capital requirements.

The following table shows the CBLR ratio for the Company and the Bank as of March 31, 2023 and December 31, 2022:

	At March 31, 2023				At December 31, 2022
	Company		Bank		Company		Bank
CBLR	10.38	%	9.96	%	10.88	%	10.34	%

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Leases

3 Months Ended

Mar. 31, 2023

Leases

Leases

NOTE 12. Leases

Operating leases in which the Bank is the lessee and the term is greater than 12 months, are recorded as right of use (“ROU”) assets and lease liabilities, and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Bank’s incremental borrowing rate. The borrowing rate for each lease is unique based on the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates.

Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Operating lease ROU assets totaled $5.4 million at March 31, 2023, compared to $5.6 million at December 31, 2022. As of March 31, 2023, operating lease liabilities totaled $5.5 million, compared to $5.6 million at December 31, 2022.

The table below summarizes the Company’s net lease cost:

	For the three months ended March 31,
(In thousands)	2023		2022
Operating lease cost	$	209	$	188

The table below summarizes the cash and non-cash activities associated with the Company’s leases:

	For the three months ended March 31,
(In thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	199	$	182
ROU assets obtain in exchange for new operating lease liabilities	$	—	$	582

The table below summarizes other information related to the Company’s operating leases:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Weighted average remaining lease term in years		10.63			10.77
Weighted average discount rate		3.18	%		3.21	%

The table below summarizes the future payments of remaining lease liabilities:

(In thousands)	March 31, 2023
2023	$	538
2024		695
2025		691
2026		702
2027		656
2028 and thereafter		3,010
Total lease payments	$	6,292
Less: Imputed Interest		(810)
Present value of lease liabilities	$	5,482

As of March 31, 2023, the Company had not entered into any material leases that have not yet commenced.

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Subsequent Events

3 Months Ended

Mar. 31, 2023

Subsequent Events

Subsequent Events

NOTE 13. Subsequent Events

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements.

On April 27, 2023 the Company announced that its Board of Directors approved a new Share Repurchase Program. Under this new program, the Company may repurchase up to 500,000 shares, or approximately 5.0% of its outstanding common stock. The timing and amount of purchases will be dicated by a number of factors.

On April 27, 2023 the shareholders of the Company approved the 2023 Equity Compensation Plan (“The Plan”), which allows up to 500,000 shares of Common Stock or equivalents to be issued. The Plan will assist the Company in attracting and retaining the highest quality of experienced persons as directors and officers and in aligining the interest of such persons more closely with the interest of the Company’s shareholders by encouraging such parties to maintain an equity interest in the Company.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Significant Accounting Policies

Overview

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"). The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings or shareholders’ equity. The financial information has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has not been audited. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods. Actual results could differ from those estimates. Amounts requiring the use of significant estimates include the allowance for credit losses, valuation of deferred tax and servicing assets, the carrying value of loans held for sale and other real estate owned, the valuation of securities and the determination of impairment for securities and fair value disclosures. Management believes that the allowance for credit losses is adequate. While management uses available information to recognize credit losses, future additions to the allowance for credit losses may be necessary based on changes in economic conditions.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments, that in the opnion of management, are necessary for the fair presentation of interim results. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results which may be expected for the entire year. As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context. Certain information and financial disclosures required by U.S. GAAP have been condensed or omitted from interim reporting pursuant to SEC rules. Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Risks and Uncertainties

Risks and Uncertainties

Overall, the markets and customers serviced by the Company may be significantly impacted by ongoing macro-economic trends, such as inflation and recessionary pressures created by a higher interest rate environment. The Company assesses the impact of inflation on an ongoing basis.

Recent industry events transpired, including the failures of Silicon Valley Bank (“SVB”) headquartered in Santa Clara, California and Signature Bank headquartered in New York, New York in March 2023, have led to uncertainty and concerns regarding the liquidity positions of the banking sector. SVB was placed into receivership on March 10, 2023, marking the second largest bank failure in U.S. history. Signature Bank was placed into receivership on March 12, 2023, marking the third largest bank failure in U.S. history.

Both banks appear to have had high ratios of uninsured deposits to total deposits, when compared to industry average. These failures underscore the importance of maintaining access to diverse sources of funding. The Company’s deposit base includes a combination of consumer, commercial and public funds deposits, without a high level of industry concentration.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. The Company believes the sources of liquidity presented in the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements are sufficient to meet its needs on the balance sheet date.

An unexpected influx of withdrawals of deposits could adversely impact the Company's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, federal funds lines of credit from correspondent banks and out-of market time deposits.

Such reliance on secondary funding sources could increase the Company's overall cost of funding and thereby reduce net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures or other investments, or liquidating assets.

New Accounting Guidance adopted and issued in the First Quarter 2023

New Accounting Guidance adopted in the First Quarter 2023

Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” amends the accounting guidance on the impairment of financial instruments. The Financial Accounting Standards Board (“FASB”) issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (“CECL”) model.  Under the new guidance, the Company is required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities. CECL also applies to certain off-balance sheet exposures.

The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used upon adoption. At adoption, the Company recorded $0.8 million increase to its allowance for credit losses, entirely related to loans. Further the Company increased its reserve for unfunded credit commitments by $0.1 million. The reserve for unfunded credit commitments is recorded in Accrued expenses and other liabilities on the consolidated balance sheet. These increases in reserves were recorded through retained earnings and was $0.6 million, net of tax.

For available for sale securities in an unrealized loss position, the Company first asseses whether it intends to sell, or is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securiy’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses.

For other assets within the scope of the new CECL accounting guidance, such as held to maturity debt securities, available for sale securities and other receivables, management noted the impact from adoption to be inconsequential. Additionally, the Company noted the adoption of CECL had no significant impact on regulatory capital ratios of the Company and/or the Bank.

ASU 2022-01, “Derivatives and Hedging (Topic 815)”: ASU 2022-01 was issued to clarify the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended

guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023. The Company adopted the guidance effective January 1, 2023, noting no material impact.

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”: ASU 2022-02 eliminates the guidance on troubled debt restructurings (“TDRs”) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 requires that entities disclose if the modifications result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The Company adopted ASU 2022-02 effective January 1, 2023, noting no material impact.

New Accounting Guidance issued in the First Quarter 2023

There were no material ASUs to the Company issued in the first quarter of 2023.

Benefit Plans

Benefit Plans

In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer (“CEO”) and unfunded, non-qualified deferred retirement plans for certain other key executives.

On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The retirement benefit under the SERP is an amount equal to sixty percent (60%) of the average of the President and CEO’s base salary for the thirty-six (36) months immediately preceding the executive’s separation from service after age 66, adjusted annually thereafter by a percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers (CPI-U). The total benefit is to be made payable in fifteen annual installments. The future

payments are estimated to total $7.2 million. A discount rate of four percent (4%) was used to calculate the present value

of the benefit obligation.

The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and vests an additional three percent (3%) each year until fully vested on January 1, 2024. In the event that the President and CEO’s separation from service from the Company were to occur prior to full vesting, the President and CEO would be entitled to and shall be paid the vested portion of the retirement benefit calculated as of the date of separation from service. Notwithstanding the foregoing, upon a Change in Control, and provided that within 6 months following the Change in Control the President and CEO is involuntarily terminated for reasons other than “cause” or the President and CEO resigns for “good reason,” as such is defined in the SERP, or the President and CEO voluntarily terminates his employment after being offered continued employment in a position that is not a “Comparable Position,” as such is also defined in the SERP, the President and CEO shall become one hundred percent (100%) vested in the full retirement benefit.

Leases

Leases

Operating leases in which the Bank is the lessee and the term is greater than 12 months, are recorded as right of use (“ROU”) assets and lease liabilities, and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets. The Bank does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Bank’s incremental borrowing rate. The borrowing rate for each lease is unique based on the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates.

Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability.

Operating lease ROU assets totaled $5.4 million at March 31, 2023, compared to $5.6 million at December 31, 2022. As of March 31, 2023, operating lease liabilities totaled $5.5 million, compared to $5.6 million at December 31, 2022.

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Net Income per Share (Tables)

3 Months Ended

Mar. 31, 2023

Net Income per Share

Reconciliation of Calculation of Basic and Diluted Income Per Share

The following is a reconciliation of the calculation of basic and diluted income per share:

	For the three months ended March 31,
(In thousands, except per share amounts)	2023		2022
Net income	$	10,287	$	9,108
Weighted average common shares outstanding - Basic		10,538		10,446
Plus: Potential dilutive common stock equivalents		148		218
Weighted average common shares outstanding - Diluted		10,686		10,664
Net income per common share - Basic	$	0.98	$	0.87
Net income per common share - Diluted		0.96		0.85
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		—		—

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Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2023

Other Comprehensive Income (Loss)

Changes in Other Comprehensive (Loss) Income

The following tables show the changes in other comprehensive (loss) income for the three months ended March 31, 2023 and 2022, net of tax:

	For the three months ended March 31, 2023
					Accumulated
	Net unrealized		Net unrealized		other
	(losses) gains on		gains (losses) from		comprehensive
(In thousands)	securities		cash flow hedges		income (loss)
Balance, beginning of period	$	(4,381)	$	1,121	$	(3,260)
Other comprehensive income before reclassifications		266		(341)		(75)
Less amounts reclassified from accumulated other comprehensive loss		—		(156)		(156)
Period change		266		(185)		81
Balance, end of period	$	(4,115)	$	936	$	(3,179)

	For the three months ended March 31, 2022
			Net unrealized		Accumulated
	Net unrealized		gains		other
	gains (losses) on		from cash flow		comprehensive
(In thousands)	securities		hedges		income (loss)
Balance, beginning of period	$	29	$	293	$	322
Other comprehensive (loss) income before reclassifications		(1,252)		1,099		(153)
Less amounts reclassified from accumulated other comprehensive loss		(439)		—		(439)
Period change		(813)		1,099		286
Balance, end of period	$	(784)	$	1,392	$	608

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value

Balances of Assets And Liabilities Measured at Fair Value on Recurring Basis

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

	Fair Value Measurements at March 31, 2023
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,398	$	—	$	16,398	$	—
State and political subdivisions		593		—		593		—
Residential mortgage-backed securities		15,410		—		15,410		—
Corporate and other securities		61,712		—		57,202		4,510
Total debt securities available for sale	$	94,113	$	—	$	89,603	$	4,510
Equity securities with readily determinable fair values		8,327		—		8,327		—
Total equity securities	$	8,327	$	—	$	8,327	$	—
Interest rate swap agreements		1,302		—		1,302		—
Total swap agreements	$	1,302	$	—	$	1,302	$	—

	Fair value Measurements at December 31, 2022
			Quoted Prices in
	Assets/Liabilities		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	16,305	$	—	$	16,305	$	—
State and political subdivisions		613		—		613		—
Residential mortgage-backed securities		15,475		—		15,475		—
Corporate and other securities		63,000		—		58,325		4,675
Total debt securities available for sale	$	95,393	$	—	$	90,718	$	4,675
Equity securities with readily determinable fair values		9,793		—		9,793		—
Total equity securities	$	9,793	$	—	$	9,793	$	—
Interest rate swap agreements		1,537		—		1,537		—
Total swap agreements	$	1,537	$	—	$	1,537	$	—

Assets and Liabilities Carried on the Balance Sheet by Caption And By Level Within The Hierarchy

The following tables present the assets and liabilities subject to fair value adjustments on a non-recurring basis carried on the balance sheet by caption and by level within the hierarchy (as described above):

	Fair Value Measurements at March 31, 2023
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans & OREO	$	9,984	$	—	$	—	$	9,984

	Fair Value Measurements at December 31, 2022
			Quoted Prices		Significant
			in Active		Other		Significant
	Assets/Liabilities		Markets for		Observable		Unobservable
	Measured at Fair		Identical Assets		Inputs		Inputs
(In thousands)	Value		(Level 1)		(Level 2)		(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans		8,803		—		—		8,803

Carrying Amount and Estimated Fair Values of Financial Instruments

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments presented as of March 31, 2023 and December 31, 2022:

		March 31, 2023				December 31, 2022
	Fair value	Carrying		Estimated		Carrying		Estimated
(In thousands)	level	amount		fair value		amount		fair value
Financial assets:
Cash and cash equivalents	Level 1	$	127,087	$	127,087	$	114,793	$	114,793
Securities (1)	Level 2		138,264		132,272		140,946		133,764
SBA loans held for sale	Level 2		23,314		25,031		27,928		30,141
Loans, net of allowance for credit losses (2)	Level 2		2,081,404		2,022,666		2,053,435		1,990,010
Financial liabilities:
Deposits	Level 2		1,823,921		1,810,997		1,787,528		1,772,270
Borrowed funds and subordinated debentures	Level 2		384,310		382,585		393,310		391,312

(1) Includes corporate securities that are considered Level 3 and reported separately in the table under the “Fair Value on a Recurring Basis” heading. These securities had book values of $5.3 million and market values of $4.7 million.

(2) Includes collateral-dependent loans that are considered Level 3 and reported separately in the tables under the “Fair Value on a Nonrecurring Basis” heading. Collateral-dependent loans, net of specific reserves totaled $9.8 million and $8.8 million at March 31, 2023 and December 31, 2022, respectively.

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Securities (Tables)

3 Months Ended

Mar. 31, 2023

Securities

Reconciliation From Amortized Cost to Estimated Fair Value of Marketable Securities

This table provides the major components of debt securities available for sale ("AFS") and held to maturity (“HTM”) at amortized cost and estimated fair value at March 31, 2023 and December 31, 2022:

	March 31, 2023								December 31, 2022
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
(In thousands)	cost		gains		losses		fair value		cost		gains		losses		fair value
Available for sale:
U.S. Government sponsored entities	$	16,969	$	—	$	(571)	$	16,398	$	16,961	$	—	$	(656)	$	16,305
State and political subdivisions		633		—		(40)		593		635		—		(22)		613
Residential mortgage-backed securities		16,734		31		(1,355)		15,410		17,097		32		(1,654)		15,475
Corporate and other securities		65,213		121		(3,622)		61,712		66,495		106		(3,601)		63,000
Total debt securities available for sale	$	99,549	$	152	$	(5,588)	$	94,113	$	101,188	$	138	$	(5,933)	$	95,393
Held to maturity:
U.S. Government sponsored entities	$	28,000	$	—	$	(4,222)	$	23,778	$	28,000	$	—	$	(5,310)	$	22,690
State and political subdivisions		1,128		74		—		1,202		1,115		67		—		1,182
Residential mortgage-backed securities		6,696		—		(1,844)		4,852		6,645		—		(1,939)		4,706
Total securities held to maturity	$	35,824	$	74	$	(6,066)	$	29,832	$	35,760	$	67	$	(7,249)	$	28,578

Schedule of Marketable Securities By Contractual Maturity

This table provides the remaining contractual maturities within the investment portfolios. The carrying value of securities at March 31, 2023 is distributed by contractual maturity. Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early prepayments and calls.

				After one through		After five through				Total carrying
		Within one year		five years		ten years		After ten years		value
(In thousands)
Available for sale at fair value:
U.S. Government sponsored entities	$	1,218	$	15,180	$	—	$	—	$	16,398
State and political subdivisions		201		160		—		232		593
Residential mortgage-backed securities		2		358		986		14,064		15,410
Corporate and other securities		—		12,365		12,642		36,705		61,712
Total debt securities available for sale	$	1,421	$	28,063	$	13,628	$	51,001	$	94,113
Held to maturity at cost:
U.S. Government sponsored entities	$	—	$	—	$	3,000	$	25,000	$	28,000
State and political subdivisions		—		—		—		1,128		1,128
Residential mortgage-backed securities		—		—		—		6,696		6,696
Total securities held to maturity	$	—	$	—	$	3,000	$	32,824	$	35,824

Schedule of Marketable Securities In Unrealized Loss Position

The fair value of debt securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022 are as follows:

	March 31, 2023
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,905	$	(567)	$	493	$	(4)	$	16,398	$	(571)
State and political subdivisions		—		—		393		(40)		393		(40)
Residential mortgage-backed securities		8,623		(665)		6,647		(690)		15,270		(1,355)
Corporate and other securities		13,166		(466)		45,925		(3,156)		59,091		(3,622)
Total	$	37,694	$	(1,698)	$	53,458	$	(3,890)	$	91,152	$	(5,588)
Held to maturity:
U.S. Government sponsored entities	$	10,394	$	(606)	$	13,384	$	(3,616)	$	23,778	$	(4,222)
Residential mortgage-backed securities		150	$	(72)		4,702		(1,772)		4,852		(1,844)
Total	$	10,544	$	(678)	$	18,086	$	(5,388)	$	28,630	$	(6,066)

	December 31, 2022
	Less than 12 months				12 months and greater				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	15,817	$	(622)	$	1,432	$	(34)	$	17,249	$	(656)
State and political subdivisions		160		(5)		253		(17)		413		(22)
Residential mortgage-backed securities		14,023		(1,448)		1,311		(206)		15,334		(1,654)
Corporate and other securities		23,445		(966)		31,948		(2,635)		55,393		(3,601)
Total temporarily impaired AFS securities	$	53,445	$	(3,041)	$	34,944	$	(2,892)	$	88,389	$	(5,933)
Held to maturity:
U.S. Government sponsored entities	$	15,659	$	(2,341)	$	7,031	$	(2,969)	$	22,690	$	(5,310)
Residential mortgage-backed securities		4,707		(1,939)		—		—		4,707		(1,939)
Total temporarily impaired HTM securities	$	20,366	$	(4,280)	$	7,031	$	(2,969)	$	27,397	$	(7,249)

Equity Securities, Gains and Losses

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Net unrealized losses occurring during the period on equity securities	$	(544)	$	(557)
Net realized gains recognized during the period on equity securities sold during the period		222		—
Net losses recognized during the reporting period on equity securities	$	(322)	$	(557)

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Loans (Tables)

3 Months Ended

Mar. 31, 2023

Loans

Classification of Loans By Class

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses as of March 31, 2023 and December 31, 2022:

(In thousands)	March 31, 2023		December 31, 2022
SBA loans held for investment	$	39,370	$	38,468
SBA PPP loans		2,545		5,908
Commercial loans
SBA 504 loans		34,678		35,077
Commercial other		117,428		117,566
Commercial real estate		907,260		903,126
Commercial real estate construction		146,276		131,774
Residential mortgage loans		619,140		605,091
Consumer loans
Home equity		68,071		68,310
Consumer other		8,713		9,854
Residential construction loans		164,124		163,457
Total loans held for investment	$	2,107,605	$	2,078,631
SBA loans held for sale		23,314		27,928
Total loans	$	2,130,919	$	2,106,559

Aging Analysis of Past Due And Nonaccrual Loans by Loan Class

The following tables set forth an aging analysis of past due and nonaccrual loans as of March 31, 2023 and December 31, 2022:

	March 31, 2023
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	—	$	—	$	4,325	$	4,325	$	35,045	$	39,370
Commercial loans
SBA 504 loans		—		—		—		—		—		34,678		34,678
Commercial other		—		1,675		—		975		2,650		114,778		117,428
Commercial real estate		—		—		—		169		169		907,091		907,260
Commercial real estate construction		—		—		—		—		—		146,276		146,276
Residential mortgage loans		2,800		—		—		5,565		8,365		610,775		619,140
Consumer loans
Home equity		697		—		—		—		697		67,374		68,071
Consumer other		50		—		—		—		50		8,663		8,713
Residential construction loans		—		—		—		3,473		3,473		160,651		164,124
Total loans held for investment, excluding SBA PPP		3,547		1,675		—		14,507		19,729		2,085,331		2,105,060
SBA loans held for sale		—		—		—		—		—		23,314		23,314
Total loans, excluding SBA PPP	$	3,547	$	1,675	$	—	$	14,507	$	19,729	$	2,108,645	$	2,128,374

	December 31, 2022
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	—	$	576	$	—	$	690	$	1,266	$	37,202	$	38,468
Commercial loans
SBA 504 loans		—		—		—		—		—		35,077		35,077
Commercial other		198		300		—		777		1,275		116,291		117,566
Commercial real estate		22		188		—		805		1,015		902,111		903,126
Commercial real estate construction		—		—		—		—		—		131,774		131,774
Residential mortgage loans		—		982		—		3,361		4,343		600,748		605,091
Consumer loans
Home equity		—		—		—		—		—		68,310		68,310
Consumer other		18		7		—		—		25		9,829		9,854
Residential construction loans		—		—		—		3,432		3,432		160,025		163,457
Total loans held for investment, excluding SBA PPP		238		2,053		—		9,065		11,356		2,061,367		2,072,723
SBA loans held for sale		2,195		—		—		—		2,195		25,733		27,928
Total loans, excluding SBA PPP	$	2,433	$	2,053	$	—	$	9,065	$	13,551	$	2,087,100	$	2,100,651

Schedule of Loan Classification Risk by Loan Portfolio Classification by Origination Year

	Term Loans
	Amortized Cost Basis by Origination Year
(In thousands)			2023		2022		2021		2020		2019		2018 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass		$	58	$	7,186	$	5,017	$	6,289	$	2,970	$	12,006	$	-	$	33,526
Special Mention			-		-		-		702		-		745		-		1,447
Substandard			-		1,361		2,240		-		-		796		-		4,397
Total SBA loans held for investment		$	58	$	8,547	$	7,257	$	6,991	$	2,970	$	13,547	$	-	$	39,370
SBA loans held for investment
Current-period gross writeoffs		$	-	$	-	$	-	$	-	$	113	$	-	$	-	$	113
SBA PPP loans
Risk Rating:
Pass		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Special Mention			-		-		-		-		-		-		-		-
Substandard			-		-		-		-		-		-		-		-
Total SBA PPP loans		$	-	$	-	$	2,545	$	-	$	-	$	-	$	-	$	2,545
Commercial loans
Risk Rating:
Pass		$	30,004	$	343,451	$	189,080	$	141,544	$	104,763	$	298,849	$	78,084	$	1,185,775
Special Mention			-		90		2,103		-		2,269		12,041		396		16,899
Substandard			-		-		-		20		-		2,648		300		2,968
Total commercial loans		$	30,004	$	343,541	$	191,183	$	141,564	$	107,032	$	313,538	$	78,780	$	1,205,642
Residential mortgage loans
Risk Rating:
Performing		$	40,533	$	274,612	$	80,711	$	56,606	$	34,653	$	126,460	$	-	$	613,575
Nonperforming			-		307		550		904		1,355		2,449		-		5,565
Total residential mortgage loans		$	40,533	$	274,919	$	81,261	$	57,510	$	36,008	$	128,909	$	-	$	619,140
Consumer loans
Risk Rating:
Performing		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Nonperforming			-		-		-		-		-		-		-		-
Total consumer loans		$	3,089	$	5,725	$	6,188	$	749	$	3,607	$	8,682	$	48,744	$	76,784
Consumer loans
Current-period gross writeoffs		$	-	$	22	$	98	$	-	$	-	$	-	$	-	$	120
Residential construction
Risk Rating:
Performing		$	4,670	$	87,778	$	50,623	$	12,672	$	3,676	$	1,232	$	-	$	160,651
Nonperforming			-		-		257		-		-		1,781		1,435		3,473
Total residential construction loans		$	4,670	$	87,778	$	50,880	$	12,672	$	3,676	$	3,013	$	1,435	$	164,124
Total loans held for investment		$	78,354	$	720,510	$	339,314	$	219,486	$	153,293	$	467,689	$	128,959	$	2,107,605

Schedule of Disaggregated by class of gross loans and type of concession granted

	Term Extension
		Amortized Cost Basis	% of Total Class of
		at 3/31/2023	Gross Loans
Commercial	$	743	0.06	%

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments (Tables)

3 Months Ended

Mar. 31, 2023

Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

Activity in the Allowance for Loan Losses by Portfolio Segment

The following tables detail the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022:

	For the three months ended March 31, 2023
									Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	875	$	15,254	$	5,450	$	990	$	2,627	$	25,196
Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")		163		171		376		101		36		847
Charge-offs		(113)		—		—		(120)		—		(233)
Recoveries		—		271		—		12		—		283
Net (charge-offs) recoveries		(113)		271		—		(108)		—		50
Provision for (credit to) credit losses charged to expense		178		(395)		309		37		(21)		108
Balance, end of period	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642	$	26,201

	For the three months ended March 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Balance, beginning of period	$	1,074	$	15,053	$	4,114	$	671	$	1,390		$	22,302
Charge-offs		—		—		—		(6)		—	a		(6)
Recoveries		22		28		—		—		—			50
Net recoveries (charge-offs)		22		28		—		(6)		—			44
Provision for (credit to) credit losses charged to expense		(155)		(376)		170		(23)		206			(178)
Balance, end of period	$	941	$	14,705	$	4,284	$	642	$	1,596		$	22,168

Allowance for Credit Losses on Financing Receivables

The following tables present loans and their related allowance for credit losses, by portfolio segment, as of March 31, 2023 and December 31, 2022:

	March 31, 2023
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated	$	173	$	331	$	36	$	—	$	1,130	a	$	1,670
Collectively evaluated		930		14,970		6,099		1,020		1,512			24,531
Total	$	1,103	$	15,301	$	6,135	$	1,020	$	2,642		$	26,201
Loan ending balances:
Individually evaluated	$	658	$	1,602	$	5,760	$	—	$	3,458		$	11,478
Collectively evaluated		64,571		1,204,040		613,380		76,784		160,666			2,119,441
Total	$	65,229	$	1,205,642	$	619,140	$	76,784	$	164,124		$	2,130,919

	December 31, 2022
										Residential
(In thousands)	SBA		Commercial		Residential		Consumer		construction			Total
Allowance for credit losses ending balance:
Individually evaluated for impairment	$	115	$	516	$	36	$	—	$	1,112	a	$	1,779
Collectively evaluated for impairment		760		14,738		5,414		990		1,515			23,417
Total	$	875	$	15,254	$	5,450	$	990	$	2,627		$	25,196
Loan ending balances:
Individually evaluated for impairment	$	690	$	3,101	$	3,361	$	—	$	3,432		$	10,584
Collectively evaluated for impairment		71,614		1,184,442		601,730		78,164		160,025			2,095,975
Total	$	72,304	$	1,187,543	$	605,091	$	78,164	$	163,457		$	2,106,559

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Derivative Financial Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2023

Derivative Financial Instruments and Hedging Activities

Summary of Interest Rate Swaps

A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at March 31, 2023 and December 31, 2022, respectively is as follows:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Notional amount	$	20,000		$	20,000
Fair value	$	1,302		$	1,537
Weighted average pay rate		0.83	%		0.83	%
Weighted average receive rate		4.75	%		1.50	%
Weighted average maturity in years		1.95			2.57
Number of contracts		1			1

Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)

	For the three months ended March 31,
(In thousands)	2023		2022
(Loss) Gain recognized in OCI	$	(235)	$	1,534
Gain reclassified from AOCI into net income	$	198	$	85

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Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2023

Share-based Compensation Arrangement by Share-based Payment Award

Transactions under the Company's stock option plans

				Weighted
		Weighted		average
		average		remaining	Aggregate
		exercise		contractual	intrinsic
	Shares	price		life in years	value
Outstanding at December 31, 2022	559,499	$	18.09	5.9	$	5,168,740
Options granted	—		—
Options exercised	(37,201)		20.27
Options forfeited	(666)		18.64
Options expired	—		—
Outstanding at March 31, 2023	521,632	$	17.94	5.7	$	2,542,366
Exercisable at March 31, 2023	481,142	$	17.84	5.5	$	2,390,353

Schedule of Information About Options Exercised

Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The following table presents information about options exercised during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
	2023		2022
Number of options exercised		37,201		47,374
Total intrinsic value of options exercised	$	241,904	$	746,292
Cash received from options exercised	$	753,894	$	639,214
Tax deduction realized from options	$	72,777	$	224,522

Schedule of Stock Options, by Exercise Price Range

The following table summarizes information about stock options outstanding and exercisable at March 31, 2023:

	Options outstanding					Options exercisable
			Weighted average	Weighted			Weighted
		Options	remaining contractual	average		Options	average
Range of exercise prices		outstanding	life (in years)	exercise price		exercisable	exercise price
$7.25 - 16.51		139,633	3.8	$	11.96	139,633	$	11.96
16.52 - 19.26		127,499	6.5		18.06	103,342		18.07
19.27 - 20.88		132,300	6.4		20.34	115,967		20.31
20.89 - 22.57		122,200	6.2		22.02	122,200		22.02
Total		521,632	5.7	$	17.94	481,142	$	17.84

Summary of Nonvested Restricted Stock Activity

		Average grant
	Shares	date fair value
Nonvested restricted stock at December 31, 2022	164,570	$	24.77
Granted	18,000		27.33
Cancelled	(1,600)		25.94
Vested	(34,973)		23.34
Nonvested restricted stock at March 31, 2023	145,997	$	25.41

Restricted Stock Grants

Restricted stock awards granted during the three months ended March 31, 2023 and 2022 were as follows:

	For the three months ended March 31,
	2023		2022
Number of shares granted		18,000		70,000
Average grant date fair value	$	27.33	$	27.52

Summary of Components of Net Periodic Pension Cost of Defined Benefit Plan Recognized

	For the three months ended March 31,
(In thousands)	2023		2022
Service cost	$	39	$	37
Interest cost		50		47
Net periodic benefit cost	$	89	$	84

Summary Of Changes In Benefit Obligations Of Defined Benefit Plan

The following table summarizes the changes in benefit obligations of the defined benefit plan during the three months ended March 31, 2023 and 2022:

	For the three months ended March 31,
(In thousands)	2023		2022
Benefit obligation, beginning of year	$	4,857	$	4,521
Service cost		39		37
Interest cost		50		47
Benefit obligation, end of period	$	4,946	$	4,605

Stock Options

Share-based Compensation Arrangement by Share-based Payment Award

Allocation of Share-based Compensation Costs

Compensation expense related to stock options and the related income tax benefit for the three months ended March 31, 2023 and 2022 are detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	85	$	163
Income tax benefit	$	25	$	47

Restricted Stock

Share-based Compensation Arrangement by Share-based Payment Award

Allocation of Share-based Compensation Costs

Compensation expense related to restricted stock for the three months ended March 31, 2023 and 2022 is detailed in the following table:

	For the three months ended March 31,
(In thousands)	2023		2022
Compensation expense	$	332	$	231
Income tax benefit	$	80	$	67

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Regulatory Capital (Tables)

3 Months Ended

Mar. 31, 2023

Regulatory Capital

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

	At March 31, 2023				At December 31, 2022
	Company		Bank		Company		Bank
CBLR	10.38	%	9.96	%	10.88	%	10.34	%

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Leases (Tables)

3 Months Ended

Mar. 31, 2023

Leases

Net Lease Cost

The table below summarizes the Company’s net lease cost:

	For the three months ended March 31,
(In thousands)	2023		2022
Operating lease cost	$	209	$	188

The table below summarizes the cash and non-cash activities associated with the Company’s leases:

	For the three months ended March 31,
(In thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	199	$	182
ROU assets obtain in exchange for new operating lease liabilities	$	—	$	582

Summary of Other Information for Operating Leases

The table below summarizes other information related to the Company’s operating leases:

(In thousands, except percentages and years)	March 31, 2023			December 31, 2022
Weighted average remaining lease term in years		10.63			10.77
Weighted average discount rate		3.18	%		3.21	%

Summary of Maturity of Remaining Lease Liabilities

The table below summarizes the future payments of remaining lease liabilities:

(In thousands)	March 31, 2023
2023	$	538
2024		695
2025		691
2026		702
2027		656
2028 and thereafter		3,010
Total lease payments	$	6,292
Less: Imputed Interest		(810)
Present value of lease liabilities	$	5,482

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Jan. 01, 2023	Dec. 31, 2022
Property, Plant and Equipment
Increase to allowance for credit losses	$ 26,201
Reserve for unfunded credit commitments	26,229		$ 24,192
Retained earnings	165,335		$ 156,958
Cumulative effect, period of adjustment
Property, Plant and Equipment
Increase to allowance for credit losses	847
Retained earnings	649
Accounting Standards Update No. 2016-13 | Cumulative effect, period of adjustment
Property, Plant and Equipment
Increase to allowance for credit losses		$ 800
Reserve for unfunded credit commitments		$ 100
Retained earnings	$ 600

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Net Income per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Net Income per Share
Net income	$ 10,287	$ 9,108
Weighted average common shares outstanding - Basic	10,538	10,446
Plus: Potential dilutive common stock equivalents (in shares)	148	218
Weighted average common shares outstanding - Diluted (in shares)	10,686	10,664
Net income per common share - Basic	$ 0.98	$ 0.87
Net income per common share - Diluted	$ 0.96	$ 0.85

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Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	$ 239,227	$ 205,729
Period change	81	286
Ending balance	240,459	214,928
Net unrealized (losses) gains on securities
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	(4,381)	29
Other comprehensive income (loss) before reclassifications	266	(1,252)
Less amounts reclassified from accumulated other comprehensive loss		(439)
Period change	266	(813)
Ending balance	(4,115)	(784)
Net unrealized gains (losses) from cash flow hedges
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	1,121	293
Other comprehensive income (loss) before reclassifications	(341)	1,099
Less amounts reclassified from accumulated other comprehensive loss	(156)
Period change	(185)	1,099
Ending balance	936	1,392
Accumulated other comprehensive income (loss)
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	(3,260)	322
Other comprehensive income (loss) before reclassifications	(75)	(153)
Less amounts reclassified from accumulated other comprehensive loss	(156)	(439)
Period change	81	286
Ending balance	$ (3,179)	$ 608

XML

Fair Value - Fair Value on Recurring Basis - Narrative (Details) $ in Thousands	Mar. 31, 2023 USD ($) security	Dec. 31, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Securities available for sale	$ 94,113
Equity securities	$ 8,327	$ 9,793
Corporate Bond Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities classified as Level 3 assets | security	2

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Fair Value - Assets And Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		$ 95,393
Debt securities available-for-sale	$ 94,113
Equity securities	8,327	9,793
U.S. Government sponsored entities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		16,305
Debt securities available-for-sale	16,398
State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		613
Debt securities available-for-sale	593
Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		15,475
Debt securities available-for-sale	15,410
Corporate and other securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		63,000
Debt securities available-for-sale	61,712
Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		95,393
Debt securities available-for-sale	94,113
Equity securities	8,327	9,793
Swap agreements	1,302	1,537
Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		90,718
Debt securities available-for-sale	89,603
Equity securities	8,327	9,793
Swap agreements	1,302	1,537
Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		4,675
Debt securities available-for-sale	4,510
Recurring | U.S. Government sponsored entities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		16,305
Debt securities available-for-sale	16,398
Recurring | U.S. Government sponsored entities | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		16,305
Debt securities available-for-sale	16,398
Recurring | State and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		613
Debt securities available-for-sale	593
Recurring | State and political subdivisions | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		613
Debt securities available-for-sale	593
Recurring | Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		15,475
Debt securities available-for-sale	15,410
Recurring | Residential mortgage-backed securities | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		15,475
Debt securities available-for-sale	15,410
Recurring | Corporate and other securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		63,000
Debt securities available-for-sale	61,712
Recurring | Corporate and other securities | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		58,325
Debt securities available-for-sale	57,202
Recurring | Corporate and other securities | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Debt securities available-for-sale		4,675
Debt securities available-for-sale	4,510
Recurring | Interest Rate Swap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Swap agreements	1,302	1,537
Recurring | Interest Rate Swap | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Swap agreements	$ 1,302	$ 1,537

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Fair Value - Assets and Liabilities Subject to Fair Value Adjustments (Impairment) on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired collateral-dependent loans	$ 9,800	$ 8,800
Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Collateral-dependent loans & OREO	9,984	8,803
Nonrecurring | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Collateral-dependent loans & OREO	$ 9,984	$ 8,803

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Fair Value - Fair Value on a Nonrecurring Basis Narrative (Details) - USD ($) $ in Millions	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Specific reserves	$ 1.7	$ 1.8
Letters of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Standby letter of credit	$ 5.8	$ 5.6

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Fair Value - Carrying Amount and Fair Values (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Significant Unobservable Inputs (Level 3)
Financial liabilities:
Impaired collateral-dependent loans	$ 9,800	$ 8,800
Carrying amount | Significant Other Observable Inputs (Level 2)
Financial assets:
Securities	138,264	140,946
SBA loans held for sale	23,314	27,928
Loans, net of allowance for loan losses	2,081,404	2,053,435
Financial liabilities:
Deposits	1,823,921	1,787,528
Borrowed funds and subordinated debentures	384,310	393,310
Carrying amount | Significant Unobservable Inputs (Level 3) | Recurring | Corporate and other securities
Financial assets:
Securities	5,300
Estimated fair value | Significant Other Observable Inputs (Level 2)
Financial assets:
Securities	132,272	133,764
SBA loans held for sale	25,031	30,141
Loans, net of allowance for loan losses	2,022,666	1,990,010
Financial liabilities:
Deposits	1,810,997	1,772,270
Borrowed funds and subordinated debentures	382,585	$ 391,312
Estimated fair value | Significant Unobservable Inputs (Level 3) | Recurring | Corporate and other securities
Financial assets:
Securities	$ 4,700

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Securities - Amortized Cost to Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Available for sale:
Amortized cost	$ 99,549
Amortized cost		$ 101,188
Gross unrealized gains	152	138
Gross unrealized losses	(5,588)	(5,933)
Securities available for sale		95,393
Securities available for sale	94,113
Held to maturity:
Amortized cost	35,824
Amortized cost		35,760
Gross unrealized gains	74	67
Gross unrealized losses	(6,066)	(7,249)
Estimated fair value	29,832	28,578
Equity securities:
Estimated fair value	8,327	9,793
U.S. Government sponsored entities
Available for sale:
Amortized cost	16,969
Amortized cost		16,961
Gross unrealized losses	(571)	(656)
Securities available for sale		16,305
Securities available for sale	16,398
Held to maturity:
Amortized cost	28,000
Amortized cost		28,000
Gross unrealized losses	(4,222)	(5,310)
Estimated fair value	23,778	22,690
State and political subdivisions
Available for sale:
Amortized cost	633
Amortized cost		635
Gross unrealized losses	(40)	(22)
Securities available for sale		613
Securities available for sale	593
Held to maturity:
Amortized cost	1,128
Amortized cost		1,115
Gross unrealized gains	74	67
Estimated fair value	1,202	1,182
Residential mortgage-backed securities
Available for sale:
Amortized cost	16,734
Amortized cost		17,097
Gross unrealized gains	31	32
Gross unrealized losses	(1,355)	(1,654)
Securities available for sale		15,475
Securities available for sale	15,410
Held to maturity:
Amortized cost	6,696
Amortized cost		6,645
Gross unrealized losses	(1,844)	(1,939)
Estimated fair value	4,852	4,706
Corporate and other securities
Available for sale:
Amortized cost	65,213
Amortized cost		66,495
Gross unrealized gains	121	106
Gross unrealized losses	(3,622)	(3,601)
Securities available for sale		$ 63,000
Securities available for sale	$ 61,712

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Securities - Securities By Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Available for sale at fair value:
Within one year, Amount	$ 1,421
After one through five years, Amount	28,063
After five through ten years, Amount	13,628
After ten years, Amount	51,001
Securities available for sale		$ 95,393
Securities available for sale	94,113
Held to maturity at cost
After five through ten years, Amount	3,000
After ten years, Amount	32,824
Securities held to maturity	35,824
Equity securities at fair value:
Equity securities	8,327	9,793
U.S. Government sponsored entities
Available for sale at fair value:
Within one year, Amount	1,218
After one through five years, Amount	15,180
Securities available for sale		16,305
Securities available for sale	16,398
Held to maturity at cost
After five through ten years, Amount	3,000
After ten years, Amount	25,000
Securities held to maturity	28,000
State and political subdivisions
Available for sale at fair value:
Within one year, Amount	201
After one through five years, Amount	160
After ten years, Amount	232
Securities available for sale		613
Securities available for sale	593
Held to maturity at cost
After ten years, Amount	1,128
Securities held to maturity	1,128
Residential mortgage-backed securities
Available for sale at fair value:
Within one year, Amount	2
After one through five years, Amount	358
After five through ten years, Amount	986
After ten years, Amount	14,064
Securities available for sale		15,475
Securities available for sale	15,410
Held to maturity at cost
After ten years, Amount	6,696
Securities held to maturity	6,696
Corporate and other securities
Available for sale at fair value:
After one through five years, Amount	12,365
After five through ten years, Amount	12,642
After ten years, Amount	36,705
Securities available for sale		$ 63,000
Securities available for sale	$ 61,712

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Securities - Securities in Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Available for sale:
Available for sale, Less than 12 months, Estimated fair value	$ 37,694	$ 53,445
Available for sale, Less than 12 months, Unrealized loss	(1,698)	(3,041)
Available for sale, 12 months and greater, Estimated fair value	53,458	34,944
Available for sale, 12 Months and greater Unrealized loss	(3,890)	(2,892)
Available for sale, Estimated fair value	91,152	88,389
Available for sale, Unrealized loss	(5,588)	(5,933)
Held to maturity:
Held to maturity, Less than 12 months Estimated fair value	10,544	20,366
Held to maturity, Less than 12 months Unrealized loss	(678)	(4,280)
Held to maturity, 12 months and greater, Estimated fair value	18,086	7,031
Held to maturity, 12 months and greater, Unrealized loss	(5,388)	(2,969)
Held to maturity, Total Estimated fair value	28,630	27,397
Held to maturity, Total Unrealized loss	(6,066)	(7,249)
U.S. Government sponsored entities
Available for sale:
Available for sale, Less than 12 months, Estimated fair value	15,905	15,817
Available for sale, Less than 12 months, Unrealized loss	(567)	(622)
Available for sale, 12 months and greater, Estimated fair value	493	1,432
Available for sale, 12 Months and greater Unrealized loss	(4)	(34)
Available for sale, Estimated fair value	16,398	17,249
Available for sale, Unrealized loss	(571)	(656)
Held to maturity:
Held to maturity, Less than 12 months Estimated fair value	10,394	15,659
Held to maturity, Less than 12 months Unrealized loss	(606)	(2,341)
Held to maturity, 12 months and greater, Estimated fair value	13,384	7,031
Held to maturity, 12 months and greater, Unrealized loss	(3,616)	(2,969)
Held to maturity, Total Estimated fair value	23,778	22,690
Held to maturity, Total Unrealized loss	(4,222)	(5,310)
State and political subdivisions
Available for sale:
Available for sale, Less than 12 months, Estimated fair value		160
Available for sale, Less than 12 months, Unrealized loss		(5)
Available for sale, 12 months and greater, Estimated fair value	393	253
Available for sale, 12 Months and greater Unrealized loss	(40)	(17)
Available for sale, Estimated fair value	393	413
Available for sale, Unrealized loss	(40)	(22)
Residential mortgage-backed securities
Available for sale:
Available for sale, Less than 12 months, Estimated fair value	8,623	14,023
Available for sale, Less than 12 months, Unrealized loss	(665)	(1,448)
Available for sale, 12 months and greater, Estimated fair value	6,647	1,311
Available for sale, 12 Months and greater Unrealized loss	(690)	(206)
Available for sale, Estimated fair value	15,270	15,334
Available for sale, Unrealized loss	(1,355)	(1,654)
Held to maturity:
Held to maturity, Less than 12 months Estimated fair value	150	4,707
Held to maturity, Less than 12 months Unrealized loss	(72)	(1,939)
Held to maturity, 12 months and greater, Estimated fair value	4,702
Held to maturity, 12 months and greater, Unrealized loss	(1,772)
Held to maturity, Total Estimated fair value	4,852	4,707
Held to maturity, Total Unrealized loss	(1,844)	(1,939)
Corporate and other securities
Available for sale:
Available for sale, Less than 12 months, Estimated fair value	13,166	23,445
Available for sale, Less than 12 months, Unrealized loss	(466)	(966)
Available for sale, 12 months and greater, Estimated fair value	45,925	31,948
Available for sale, 12 Months and greater Unrealized loss	(3,156)	(2,635)
Available for sale, Estimated fair value	59,091	55,393
Available for sale, Unrealized loss	$ (3,622)	$ (3,601)

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Securities - Realized Gains (Losses) on Debt Securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Available for sale:
Impairment for available for sale	$ 0	$ 0
Allowance for credit losses for available for sale	0	0
Held to maturity:
Realized gains	0	0
Realized losses	0	0
Impairment for held to maturity	0	0
Allowance for credit losses for held to maturity	$ 0	$ 0

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Securities - Realized Gains (Losses) for Equity Securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Securities
Net unrealized losses occurring during the period on equity securities	$ (544)	$ (557)
Net realized gains recognized during the period on equity securities sold during the period	222
Net losses recognized during the reporting period on equity securities	$ (322)	$ (557)

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Loans - Narrative (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Residential loans in process of foreclosure	$ 3.3	$ 2.1
Nonaccrual loans with no related allowance for credit loss	$ 3.5
Maximum
Guarantee percentage of SBA Loan	90.00%
Commercial properties
Other real estate owned	$ 0.2	$ 0.0

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Loans - Classification of Loans By Class (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		$ 2,106,559
Total Loans	$ 2,130,919
SBA 504 loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		35,077
Total Loans	34,678
SBA loans held for investment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		38,468
Total Loans	39,370
SBA PPP loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		5,908
Total Loans	2,545
Commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		1,187,543
Total Loans	1,205,642
Commercial loans | Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		903,126
Total Loans	907,260
Commercial loans | Commercial real estate construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		131,774
Total Loans	146,276
Commercial loans | Consumer other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		117,566
Total Loans	117,428
Residential mortgage loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		605,091
Total Loans	619,140
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		78,164
Total Loans	76,784
Consumer loans | Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		68,310
Total Loans	68,071
Consumer loans | Consumer other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		9,854
Total Loans	8,713
Residential construction loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		163,457
Total Loans	164,124
Total
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		2,078,631
Total Loans	2,107,605
SBA loans held for sale
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	23,314	$ 27,928
Total Loans	$ 23,314

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Loans - Aging Analysis of Past Due and Nonaccrual Loans by Class (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	$ 2,128,374	$ 2,100,651
Total loans		2,106,559
SBA 504 loans
Financing Receivable, Recorded Investment [Line Items]
Total loans		35,077
30-59 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	3,547	2,433
60-89 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	1,675	2,053
Nonaccrual
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	14,507	9,065
Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	19,729	13,551
Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	2,108,645	2,087,100
SBA loans held for investment
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	39,370	38,468
Total loans		38,468
SBA loans held for investment | 60-89 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		576
SBA loans held for investment | Nonaccrual
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	4,325	690
SBA loans held for investment | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	4,325	1,266
SBA loans held for investment | Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	35,045	37,202
SBA PPP loans
Financing Receivable, Recorded Investment [Line Items]
Total loans		5,908
SBA PPP loans | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans		1,400
Commercial loans
Financing Receivable, Recorded Investment [Line Items]
Total loans		1,187,543
Commercial loans | SBA 504 loans
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	34,678	35,077
Commercial loans | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	907,260	903,126
Total loans		903,126
Commercial loans | Commercial real estate construction
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	146,276	131,774
Total loans		131,774
Commercial loans | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	117,428	117,566
Total loans		117,566
Commercial loans | 30-59 days past due | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		22
Commercial loans | 30-59 days past due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		198
Commercial loans | 60-89 days past due | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		188
Commercial loans | 60-89 days past due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	1,675	300
Commercial loans | Nonaccrual | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	169	805
Commercial loans | Nonaccrual | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	975	777
Commercial loans | Past Due | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	169	1,015
Commercial loans | Past Due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	2,650	1,275
Commercial loans | Current | SBA 504 loans
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	34,678	35,077
Commercial loans | Current | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	907,091	902,111
Commercial loans | Current | Commercial real estate construction
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	146,276	131,774
Commercial loans | Current | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	114,778	116,291
Residential mortgage loans
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	619,140	605,091
Total loans		605,091
Residential mortgage loans | 30-59 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	2,800
Residential mortgage loans | 60-89 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		982
Residential mortgage loans | Nonaccrual
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	5,565	3,361
Residential mortgage loans | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	8,365	4,343
Residential mortgage loans | Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	610,775	600,748
Consumer loans
Financing Receivable, Recorded Investment [Line Items]
Total loans		78,164
Consumer loans | Home equity
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	68,071	68,310
Total loans		68,310
Consumer loans | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	8,713	9,854
Total loans		9,854
Consumer loans | 30-59 days past due | Home equity
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	697
Consumer loans | 30-59 days past due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	50	18
Consumer loans | 60-89 days past due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		7
Consumer loans | Past Due | Home equity
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	697
Consumer loans | Past Due | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	50	25
Consumer loans | Current | Home equity
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	67,374	68,310
Consumer loans | Current | Consumer other
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	8,663	9,829
Residential construction loans
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	164,124	163,457
Total loans		163,457
Residential construction loans | Nonaccrual
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	3,473	3,432
Residential construction loans | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	3,473	3,432
Residential construction loans | Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	160,651	160,025
Total
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	2,105,060	2,072,723
Total loans		2,078,631
Total | 30-59 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	3,547	238
Total | 60-89 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	1,675	2,053
Total | Nonaccrual
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	14,507	9,065
Total | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	19,729	11,356
Total | Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	2,085,331	2,061,367
SBA loans held for sale
Financing Receivable, Recorded Investment [Line Items]
Total loans	23,314	27,928
SBA loans held for sale | 30-59 days past due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		2,195
SBA loans held for sale | Past Due
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP		2,195
SBA loans held for sale | Current
Financing Receivable, Recorded Investment [Line Items]
Total loans, excluding SBA PPP	$ 23,314	$ 25,733

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Loans - Risk by loan portfolio (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
Total Loans	$ 2,130,919
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
Total loans	233
SBA loans held for investment
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	58
2022	8,547
2021	7,257
2020	6,991
2019	2,970
2018 and Earlier	13,547
Total Loans	39,370
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2019	113
Total loans	113
SBA PPP loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2021	2,545
Total Loans	2,545
Commercial loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	30,004
2022	343,541
2021	191,183
2020	141,564
2019	107,032
2018 and Earlier	313,538
Revolving Loans Amortized Cost Basis	78,780
Total Loans	1,205,642
Residential mortgage loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	40,533
2022	274,919
2021	81,261
2020	57,510
2019	36,008
2018 and Earlier	128,909
Total Loans	619,140
Consumer loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	3,089
2022	5,725
2021	6,188
2020	749
2019	3,607
2018 and Earlier	8,682
Revolving Loans Amortized Cost Basis	48,744
Total Loans	76,784
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022	22
2021	98
Total loans	120
Residential construction loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	4,670
2022	87,778
2021	50,880
2020	12,672
2019	3,676
2018 and Earlier	3,013
Revolving Loans Amortized Cost Basis	1,435
Total Loans	164,124
Total
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	78,354
2022	720,510
2021	339,314
2020	219,486
2019	153,293
2018 and Earlier	467,689
Revolving Loans Amortized Cost Basis	128,959
Total Loans	2,107,605
Performing | Residential mortgage loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	40,533
2022	274,612
2021	80,711
2020	56,606
2019	34,653
2018 and Earlier	126,460
Total Loans	613,575
Performing | Consumer loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	3,089
2022	5,725
2021	6,188
2020	749
2019	3,607
2018 and Earlier	8,682
Revolving Loans Amortized Cost Basis	48,744
Total Loans	76,784
Performing | Residential construction loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	4,670
2022	87,778
2021	50,623
2020	12,672
2019	3,676
2018 and Earlier	1,232
Total Loans	160,651
Nonperforming | Residential mortgage loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2022	307
2021	550
2020	904
2019	1,355
2018 and Earlier	2,449
Total Loans	5,565
Nonperforming | Residential construction loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2021	257
2018 and Earlier	1,781
Revolving Loans Amortized Cost Basis	1,435
Total Loans	3,473
Pass | SBA loans held for investment
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	58
2022	7,186
2021	5,017
2020	6,289
2019	2,970
2018 and Earlier	12,006
Total Loans	33,526
Pass | SBA PPP loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2021	2,545
Total Loans	2,545
Pass | Commercial loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023	30,004
2022	343,451
2021	189,080
2020	141,544
2019	104,763
2018 and Earlier	298,849
Revolving Loans Amortized Cost Basis	78,084
Total Loans	1,185,775
Special mention | SBA loans held for investment
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2020	702
2018 and Earlier	745
Total Loans	1,447
Special mention | Commercial loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2022	90
2021	2,103
2019	2,269
2018 and Earlier	12,041
Revolving Loans Amortized Cost Basis	396
Total Loans	16,899
Substandard | SBA loans held for investment
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2022	1,361
2021	2,240
2018 and Earlier	796
Total Loans	4,397
Substandard | Commercial loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2020	20
2018 and Earlier	2,648
Revolving Loans Amortized Cost Basis	300
Total Loans	$ 2,968

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Loans - Disaggregated by class of gross loans and type of concession granted (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Financing Receivable, Recorded Investment [Line Items]
Weighted Average of years	5 years 8 months 12 days
Loans	$ 0
Commercial loans
Financing Receivable, Recorded Investment [Line Items]
Amortized Cost Basis	$ 743
Total Class of Gross Loans	0.06%

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments - Activity in the Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Charge-offs	$ (233)
Recoveries	283
Net recoveries (charge-offs)	50
Provision for loan losses charged to expense	108
Balance, end of period	26,201
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	25,196	$ 22,302
Charge-offs		(6)
Recoveries		50
Net recoveries (charge-offs)		44
Provision for (credit to) loan losses charged to expense		(178)
Balance, end of period		22,168
Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	847
SBA loans held for investment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Charge-offs	(113)
Net recoveries (charge-offs)	(113)
Provision for loan losses charged to expense	178
Balance, end of period	1,103
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	875	1,074
Recoveries		22
Net recoveries (charge-offs)		22
Provision for (credit to) loan losses charged to expense		(155)
Balance, end of period		941
SBA loans held for investment | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	163
Commercial loans
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Recoveries	271
Net recoveries (charge-offs)	271
(Credit to) loan losses charged to expense	(395)
Balance, end of period	15,301
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	15,254	15,053
Recoveries		28
Net recoveries (charge-offs)		28
Provision for (credit to) loan losses charged to expense		(376)
Balance, end of period		14,705
Commercial loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	171
Residential mortgage loans
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Provision for loan losses charged to expense	309
Balance, end of period	6,135
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	5,450	4,114
Provision for (credit to) loan losses charged to expense		170
Balance, end of period		4,284
Residential mortgage loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	376
Consumer loans
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Charge-offs	(120)
Recoveries	12
Net recoveries (charge-offs)	(108)
Provision for loan losses charged to expense	37
Balance, end of period	1,020
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	990	671
Charge-offs		(6)
Net recoveries (charge-offs)		(6)
Provision for (credit to) loan losses charged to expense		(23)
Balance, end of period		642
Consumer loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	101
Residential construction loans
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
(Credit to) loan losses charged to expense	(21)
Balance, end of period	2,642
Allowance for Loan and Lease Losses [Roll Forward]
Balance, beginning of period	2,627	1,390
Provision for (credit to) loan losses charged to expense		206
Balance, end of period		$ 1,596
Residential construction loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss [Roll Forward]
Balance, end of period	$ 36

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments - Allowance for Credit Losses on Basis of Impairment Method (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		$ 1,779
Collectively evaluated for impairment		23,417
Individually evaluated	$ 1,670
Collectively evaluated	24,531
Total		25,196	$ 22,168	$ 22,302
Total	26,201
Individually evaluated for impairment	11,478	10,584
Collectively evaluated for impairment	2,119,441	2,095,975
Total loans		2,106,559
Total Loans	2,130,919
SBA held for investment
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		115
Collectively evaluated for impairment		760
Individually evaluated	173
Collectively evaluated	930
Total		875
Total	1,103
Individually evaluated for impairment	658	690
Collectively evaluated for impairment	64,571	71,614
Total loans		72,304
Total Loans	65,229
Commercial loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		516
Collectively evaluated for impairment		14,738
Individually evaluated	331
Collectively evaluated	14,970
Total		15,254	14,705	15,053
Total	15,301
Individually evaluated for impairment	1,602	3,101
Collectively evaluated for impairment	1,204,040	1,184,442
Total loans		1,187,543
Total Loans	1,205,642
Residential mortgage loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		36
Collectively evaluated for impairment		5,414
Individually evaluated	36
Collectively evaluated	6,099
Total		5,450	4,284	4,114
Total	6,135
Individually evaluated for impairment	5,760	3,361
Collectively evaluated for impairment	613,380	601,730
Total loans		605,091
Total Loans	619,140
Consumer loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment		990
Collectively evaluated	1,020
Total		990	642	671
Total	1,020
Collectively evaluated for impairment	76,784	78,164
Total loans		78,164
Total Loans	76,784
Residential construction loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment		1,112
Collectively evaluated for impairment		1,515
Individually evaluated	1,130
Collectively evaluated	1,512
Total		2,627	$ 1,596	$ 1,390
Total	2,642
Individually evaluated for impairment	3,458	3,432
Collectively evaluated for impairment	160,666	160,025
Total loans		163,457
Total Loans	164,124
Total
Financing Receivable, Allowance for Credit Losses [Line Items]
Total loans		$ 2,078,631
Total Loans	$ 2,107,605

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Allowance for Credit Losses and Reserve for Unfunded Loan Commitments - Narrative (Details) - USD ($) $ in Millions	Mar. 31, 2023	Dec. 31, 2022
Allowance for Credit Losses and Reserve for Unfunded Loan Commitments
Reserve for commitments	$ 0.6	$ 0.5

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Derivative Financial Instruments and Hedging Activities (Details) - Interest Rate Swap - Designated as hedging instrument $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023 USD ($) contract	Dec. 31, 2022 USD ($) contract
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional amount	$ 20,000	$ 20,000
Fair value	$ 1,302	$ 1,537
Weighted average pay rate	0.83%	0.83%
Weighted average receive rate	4.75%	1.50%
Weighted average maturity in years	1 year 11 months 12 days	2 years 6 months 25 days
Number of contracts | contract	1	1

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Derivative Financial Instruments and Hedging Activities - Gain (Loss) in AOCI (Details) - AOCI (loss) gain on cash flow derivative instruments - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosures [Line Items]
(Loss) Gain recognized in OCI	$ (235)	$ 1,534
Gain reclassified from AOCI into net income	$ 198	$ 85

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Employee Benefit Plans - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Apr. 25, 2019
Share-based Compensation Arrangement by Share-based Payment Award
Options granted (in shares)	0	0
Defined contribution plan, maximum annual contributions per employee, percent	75.00%
Deferred compensation	$ 794	$ 535
Interest paid on deferred fees	91	36
Deferred compensation arrangement with individual, distributions paid	3	2
Defined contribution plan employer discretionary contribution amount	233	$ 203
Contributions	$ 0
SERP
Share-based Compensation Arrangement by Share-based Payment Award
Description of defined contribution pension and other postretirement plans	The retirement benefit under the SERP is an amount equal to sixty percent (60%) of the average of the President and CEO’s base salary for the thirty-six (36) months immediately preceding the executive’s separation from service after age 66, adjusted annually thereafter by a percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers (CPI-U).
SERP | President and CEO
Share-based Compensation Arrangement by Share-based Payment Award
Annual vesting percentage	3.00%
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award
Award vesting period	3 years
Award expiration period	10 years
Compensation cost not yet recognized	$ 260
Compensation cost recognition weighted average period	10 months 24 days
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Award vesting period	4 years
Compensation cost recognition weighted average period	2 years 10 months 24 days
Nonvested awards, compensation not yet recognized, awards other than options	$ 3,400
2019 Equity Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award
Number of shares authorized (in shares)			500,000
Number of shares available for grant (in shares)	21,262
2019 Equity Compensation Plan | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award
Options granted (in shares)	281,500
Unvested options cancelled and returned	16,162
2019 Equity Compensation Plan | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Options granted (in shares)	227,400
Unvested options cancelled and returned	14,000

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Employee Benefit Plans - Stock Transactions - Stock Option Plans (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Shares
Options Outstanding, beginning shares (in shares)	559,499
Options granted (in shares)	0	0
Options exercised (in shares)	(37,201)	(47,374)
Options forfeited, shares	(666)
Options Outstanding, ending shares (in shares)	521,632		559,499
Shares Exercisable	481,142
Weighted average exercise price
Weighted Average exercise Price: Options Outstanding, beginning (in usd per share)	$ 18.09
Weighted Average Exercise Price: Options exercised (in usd per share)	20.27
Weighted Average Exercise Price: Options forfeited (in usd per share)	18.64
Weighted Average exercise Price: Options Outstanding, ending (in usd per share)	17.94		$ 18.09
Weighted average exercise price, Options Exercisable (in dollars per share)	$ 17.84
Weighted Average Remaining Contractual Life (in years): Options Outstanding	5 years 8 months 12 days		5 years 10 months 24 days
Weighted Average Remaining Contractual Life (in years): Options Exercisable	5 years 6 months
Aggregate Intrinsic Value: Options Outstanding	$ 2,542,366		$ 5,168,740
Aggregate Intrinsic Value: Options Exercisable	$ 2,390,353

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Employee Benefit Plans - Schedule of Information About Options Exercised (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Employee Benefit Plans
Number of options exercised	37,201	47,374
Total intrinsic value of options exercised	$ 241,904	$ 746,292
Cash received from options exercised	753,894	639,214
Tax deduction realized from options	$ 72,777	$ 224,522

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Employee Benefit Plans - Stock Transactions - Stock Options Outstanding And Exercisable (Details)	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Options outstanding (in shares) | shares	521,632
Options outstanding, Weighted average remaining contractual life (in years)	5 years 8 months 12 days
Options outstanding, Weighted average exercise price (in dollars per share)	$ 17.94
Options exercisable (in shares) | shares	481,142
Options exercisable, Weighted average exercise price (in dollars per share)	$ 17.84
$7.25 - $16.51
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of exercise prices, lower	7.25
Range of exercise prices, upper	$ 16.51
Options outstanding (in shares) | shares	139,633
Options outstanding, Weighted average remaining contractual life (in years)	3 years 9 months 18 days
Options outstanding, Weighted average exercise price (in dollars per share)	$ 11.96
Options exercisable (in shares) | shares	139,633
Options exercisable, Weighted average exercise price (in dollars per share)	$ 11.96
$16.52 - $19.26
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of exercise prices, lower	16.52
Range of exercise prices, upper	$ 19.26
Options outstanding (in shares) | shares	127,499
Options outstanding, Weighted average remaining contractual life (in years)	6 years 6 months
Options outstanding, Weighted average exercise price (in dollars per share)	$ 18.06
Options exercisable (in shares) | shares	103,342
Options exercisable, Weighted average exercise price (in dollars per share)	$ 18.07
$19.27 - $20.88
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of exercise prices, lower	19.27
Range of exercise prices, upper	$ 20.88
Options outstanding (in shares) | shares	132,300
Options outstanding, Weighted average remaining contractual life (in years)	6 years 4 months 24 days
Options outstanding, Weighted average exercise price (in dollars per share)	$ 20.34
Options exercisable (in shares) | shares	115,967
Options exercisable, Weighted average exercise price (in dollars per share)	$ 20.31
$20.89 - $22.57
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of exercise prices, lower	20.89
Range of exercise prices, upper	$ 22.57
Options outstanding (in shares) | shares	122,200
Options outstanding, Weighted average remaining contractual life (in years)	6 years 2 months 12 days
Options outstanding, Weighted average exercise price (in dollars per share)	$ 22.02
Options exercisable (in shares) | shares	122,200
Options exercisable, Weighted average exercise price (in dollars per share)	$ 22.02

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Employee Benefit Plans - Compensation Expense Related To Stock Options (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award
Compensation expense	$ 85	$ 163
Income tax benefit	25	47
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award
Compensation expense	332	231
Income tax benefit	$ 80	$ 67

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Employee Benefit Plans - Restricted Stock Activity (Details) - Restricted Stock - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Shares
Nonvested restricted stock, beginning balance (in shares)	164,570
Granted (in shares)	18,000	70,000
Cancelled (in shares)	(1,600)
Vested (in shares)	(34,973)
Nonvested restricted stock, ending balance (in shares)	145,997
Average grant date fair value
Nonvested restricted stock, beginning balance (in dollars per share)	$ 24.77
Granted (in dollars per share)	27.33	$ 27.52
Cancelled (in dollars per share)	25.94
Vested (in dollars per share)	23.34
Nonvested restricted stock, ending balance (in dollars per share)	$ 25.41

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Employee Benefit Plans - Stock Transactions - Restricted Stock Awards (Details) - Restricted Stock - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Share-based Compensation Arrangement by Share-based Payment Award
Number of shares granted (in shares)	18,000	70,000
Average grant date fair value (in usd per share)	$ 27.33	$ 27.52

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Employee Benefit Plans - SERP Narrative (Details) - President and CEO - SERP $ in Millions	3 Months Ended
	Mar. 31, 2023 USD ($) installment
Defined Benefit Plan Disclosure
Percent of average executive base salary	60.00%
Payment term after separation	36 months
Number of annual payments after separation | installment	15
Total estimated future payments | $	$ 7.2
Assumptions used calculating benefit obligation, discount rate	4.00%
Annual vesting percentage	3.00%
Award vesting rights, percentage	100.00%

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Employee Benefit Plans - Summary of Components of Net Periodic Pension Cost of Defined Benefit Plan Recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Employee Benefit Plans
Service cost	$ 39	$ 37
Interest cost	$ 50	$ 47
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Interest Cost, Statement of Income or Comprehensive Income [Extensible Enumeration]	Labor and Related Expense	Labor and Related Expense
Net periodic benefit cost	$ 89	$ 84

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Employee Benefit Plans - Summary of Changes in Benefit Obligations of Defined Benefit Plan Recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Employee Benefit Plans
Benefit obligation, beginning of year	$ 4,857	$ 4,521
Service cost	39	37
Interest cost	50	47
Benefit obligation, end of year	$ 4,946	$ 4,605

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Employee Benefit Plans - Executive Incentive Retirement Plan (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Executive Management
Deferred Compensation Arrangement with Individual, Postretirement Benefits
Deferred compensation arrangement, option to elect to defer fees and bonuses, percentage	100.00%
Director
Deferred Compensation Arrangement with Individual, Postretirement Benefits
Deferred compensation arrangement, option to elect to defer fees and bonuses, percentage	100.00%
Other Postretirement Benefits Plan | Executive Management
Deferred Compensation Arrangement with Individual, Postretirement Benefits
Deferred compensation arrangement, option to elect to defer fees and bonuses, percentage	7.50%
Award vesting rights, percentage	100.00%
Accrued employee benefits	$ 34
Life insurance plan with a post retirement death benefit	250
Life insurance plan aggregate expenses	$ 1	$ 6
Postemployment benefits prior period expense reversed		$ 55
Other Postretirement Benefits Plan | Executive Management | Maximum
Deferred Compensation Arrangement with Individual, Postretirement Benefits
Deferred compensation arrangement, option to elect to defer fees and bonuses, percentage	15.00%

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Regulatory Capital (Details)	Mar. 31, 2023	Dec. 31, 2022
Compliance with Regulatory Capital Requirements under Banking Regulations
Leverage ratio	0.1038	0.1088
Bank
Compliance with Regulatory Capital Requirements under Banking Regulations
Leverage ratio	0.0996	0.1034

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Leases - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
New Accounting Pronouncements or Change in Accounting Principle
Operating lease right-of-use assets	$ 5,400	$ 5,600
Lease liabilities	$ 5,482	$ 5,600
Minimum
New Accounting Pronouncements or Change in Accounting Principle
Operating lease, remaining contract term	1 year
Operating Lease renewal term	1 year
Maximum
New Accounting Pronouncements or Change in Accounting Principle
Operating lease, remaining contract term	10 years
Operating Lease renewal term	5 years

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Leases - Leases Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Leases
Operating lease cost	$ 209	$ 188
Operating cash flows from operating leases	$ 199	182
ROU assets obtained in exchange for new operating lease liabilities		$ 582
Weighted average remaining lease term in years	10 years 7 months 17 days		10 years 9 months 7 days
Weighted average discount rate	3.18%		3.21%

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Leases - Future Payments (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Leases
2023	$ 538
2024	695
2025	691
2026	702
2027	656
2028 and thereafter	3,010
Total lease payments	6,292
Less: Interest	(810)
Lease liabilities	$ 5,482	$ 5,600
Operating Lease, Liability, Statement of Financial Position [Extensible List]	Accrued Liabilities and Other Liabilities

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Subsequent Events (Details) - Subsequent Events.	Apr. 27, 2023 shares
Equity Compensation Plan, 2023
Subsequent Event Line Items
Number of shares authorized (in shares)	500,000
New Share Repurchase Program
Subsequent Event Line Items
Share repurchase authorized to be repurchased	500,000
Percentage of number of shares authorized to be repurchased	5.00%