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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 June 30, 2020

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

Graphic

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 (908) 730-7630

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 and post such files). Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined 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 

The number of shares outstanding of each of the registrant’s classes of common equity stock, as of July 31, 2020 common stock, no par value: 10,678,794 shares outstanding.

Table of Contents

    

Page #

PART I

CONSOLIDATED FINANCIAL INFORMATION

ITEM 1

Consolidated Financial Statements (Unaudited)

3

Consolidated Balance Sheets at June 30, 2020 and December 31, 2019

3

Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019

4

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

5

Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019

7

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

8

Notes to the Consolidated Financial Statements

9

ITEM 2

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

46

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

69

ITEM 4

Controls and Procedures

69

PART II

OTHER INFORMATION

69

ITEM 1

Legal Proceedings

69

ITEM 1A

Risk Factors

69

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

71

ITEM 3

Defaults upon Senior Securities

71

ITEM 4

Mine Safety Disclosures

72

ITEM 5

Other Information

72

ITEM 6

Exhibits

73

SIGNATURES

74

EXHIBIT INDEX

75

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

2

PART I        CONSOLIDATED FINANCIAL INFORMATION

ITEM 1        Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)

    

June 30, 2020

    

December 31, 2019

ASSETS

Cash and due from banks

$

24,066

$

21,106

Federal funds sold and interest-bearing deposits

 

162,617

 

136,910

Cash and cash equivalents

 

186,683

 

158,016

Securities:

Debt securities available for sale (amortized cost of $52,288 in 2020 and $63,883 in 2019)

 

53,102

 

64,275

Equity securities with readily determinable fair values (amortized cost of $2,112 in 2020 and $2,218 in 2019)

 

1,786

 

2,289

Total securities

 

54,888

 

66,564

Loans:

 

  

 

  

SBA loans held for sale

 

10,602

 

13,529

SBA loans held for investment

 

36,966

 

35,767

SBA PPP loans

136,039

Commercial loans

 

792,752

 

765,032

Residential mortgage loans

 

469,987

 

467,706

Consumer loans

 

146,161

 

143,524

Total loans

 

1,592,507

 

1,425,558

Allowance for loan losses

 

(20,234)

 

(16,395)

Net loans

 

1,572,273

 

1,409,163

Premises and equipment, net

 

20,751

 

21,315

Bank owned life insurance ("BOLI")

 

26,435

 

26,323

Deferred tax assets

 

7,274

 

5,559

Federal Home Loan Bank ("FHLB") stock

 

11,629

 

14,184

Accrued interest receivable

 

11,039

 

6,984

Other real estate owned ("OREO")

 

711

 

1,723

Goodwill

 

1,516

 

1,516

Prepaid expenses and other assets

 

7,575

 

7,595

Total assets

$

1,900,774

$

1,718,942

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Noninterest-bearing demand

$

429,899

$

279,793

Interest-bearing demand

 

172,950

 

176,335

Savings

 

408,416

 

389,795

Time, under $100,000

 

271,974

 

195,446

Time, $100,000 to $250,000

 

113,237

 

126,192

Time, $250,000 and over

 

86,981

 

82,553

Total deposits

 

1,483,457

 

1,250,114

Borrowed funds

 

223,000

 

283,000

Subordinated debentures

 

10,310

 

10,310

Accrued interest payable

 

228

 

455

Accrued expenses and other liabilities

 

17,172

 

14,354

Total liabilities

 

1,734,167

 

1,558,233

Shareholders’ equity:

 

  

 

  

Common stock

91,103

 

90,113

Retained earnings

 

79,253

 

70,442

Treasury stock

(2,991)

Accumulated other comprehensive (loss) income

 

(758)

 

154

Total shareholders’ equity

 

166,607

 

160,709

Total liabilities and shareholders’ equity

$

1,900,774

$

1,718,942

Shares issued

10,939

10,881

Shares outstanding

10,728

10,881

Treasury shares

211

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 June 30, 

For the six months ended June 30, 

(In thousands, except per share amounts)

    

2020

    

2019

2020

    

2019

INTEREST INCOME

 

  

 

  

  

 

  

Federal funds sold and interest-bearing deposits

$

23

$

232

$

212

$

453

FHLB stock

 

79

 

77

 

188

 

193

Securities:

 

 

  

 

 

Taxable

 

437

 

461

 

948

 

937

Tax-exempt

 

17

 

27

 

39

 

55

Total securities

 

454

 

488

 

987

 

992

Loans:

 

  

 

  

 

  

 

  

SBA loans

 

709

 

942

 

1,694

 

1,937

SBA PPP loans

723

723

Commercial loans

 

9,815

 

9,357

 

19,748

 

18,426

Residential mortgage loans

 

5,554

 

5,535

 

11,324

 

11,095

Consumer loans

 

1,921

 

2,150

 

3,988

 

4,185

Total loans

 

18,722

 

17,984

 

37,477

 

35,643

Total interest income

 

19,278

 

18,781

 

38,864

 

37,281

INTEREST EXPENSE

 

  

 

  

 

  

 

  

Interest-bearing demand deposits

 

364

 

442

 

842

 

851

Savings deposits

 

512

 

1,188

 

1,363

 

2,306

Time deposits

 

2,454

 

2,437

 

4,900

 

4,445

Borrowed funds and subordinated debentures

 

423

 

504

 

989

 

1,253

Total interest expense

 

3,753

 

4,571

 

8,094

 

8,855

Net interest income

 

15,525

 

14,210

 

30,770

 

28,426

Provision for loan losses

 

2,500

 

350

 

4,000

 

850

Net interest income after provision for loan losses

 

13,025

 

13,860

 

26,770

 

27,576

NONINTEREST INCOME

 

  

 

  

 

  

 

  

Branch fee income

 

207

 

378

 

523

 

746

Service and loan fee income

 

390

 

569

 

766

 

1,011

Gain on sale of SBA loans held for sale, net

 

92

 

238

 

565

 

554

Gain on sale of mortgage loans, net

 

1,553

 

630

 

2,604

 

980

BOLI income

 

154

 

147

 

327

 

297

Net security gains (losses)

 

79

 

98

 

(91)

 

198

Other income

 

336

 

351

 

662

 

647

Total noninterest income

 

2,811

 

2,411

 

5,356

 

4,433

NONINTEREST EXPENSE

 

  

 

  

 

  

 

  

Compensation and benefits

 

5,553

 

5,186

 

10,992

 

10,030

Processing and communications

 

769

 

748

 

1,477

 

1,464

Furniture and equipment

 

641

 

718

 

1,296

 

1,377

Occupancy

 

630

 

653

 

1,253

 

1,346

BSA expenses

488

550

Professional services

 

261

 

277

 

531

 

565

Advertising

 

207

 

374

 

497

 

722

Director fees

 

181

 

164

 

381

 

328

Other loan expenses

 

168

 

67

 

257

 

113

Deposit insurance

 

159

 

134

 

247

 

301

Loan collection and OREO expenses (recoveries)

 

1

 

(10)

 

187

 

57

Other expenses

 

119

 

480

 

833

 

966

Total noninterest expense

 

9,177

 

8,791

 

18,501

 

17,269

Income before provision for income taxes

 

6,659

 

7,480

 

13,625

 

14,740

Provision for income taxes

 

1,488

 

1,646

 

3,086

 

3,166

Net income

$

5,171

$

5,834

$

10,539

$

11,574

Net income per common share - Basic

$

0.48

$

0.54

$

0.97

$

1.07

Net income per common share - Diluted

$

0.47

$

0.53

$

0.96

$

1.05

Weighted average common shares outstanding – Basic

 

10,792

 

10,843

 

10,838

 

10,822

Weighted average common shares outstanding – Diluted

 

10,888

 

11,026

 

10,962

 

11,011

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

June 30, 2020

June 30, 2019

    

    

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

$

6,659

$

1,488

$

5,171

$

7,480

$

1,646

$

5,834

Other comprehensive income

Debt securities available for sale:

 

  

 

  

 

  

 

  

 

  

 

  

Unrealized holding gains on securities arising during the period

 

497

 

135

 

362

 

874

 

243

 

631

Less: reclassification adjustment for gains on securities included in net income

 

79

 

17

 

62

 

98

 

21

 

77

Total unrealized gains on securities available for sale

 

418

 

118

 

300

 

776

 

222

 

554

Adjustments related to defined benefit plan:

 

  

 

  

 

  

 

  

 

  

 

  

Amortization of prior service cost

 

21

 

6

 

15

 

21

 

6

 

15

Total adjustments related to defined benefit plan

 

21

 

6

 

15

 

21

 

6

 

15

Net unrealized losses from cash flow hedges:

 

  

 

  

 

  

 

  

 

  

 

  

Unrealized holding losses on cash flow hedges arising during the period

 

(340)

 

(99)

 

(241)

 

(584)

 

(169)

 

(415)

Total unrealized losses on cash flow hedges

 

(340)

 

(99)

 

(241)

 

(584)

 

(169)

 

(415)

Total other comprehensive income

 

99

 

25

 

74

 

213

 

59

 

154

Total comprehensive income

$

6,758

$

1,513

$

5,245

$

7,693

$

1,705

$

5,988

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

5

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

For the six months ended

June 30, 2020

June 30, 2019

    

    

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

$

13,625

$

3,086

$

10,539

$

14,740

$

3,166

$

11,574

Other comprehensive income

 

  

 

  

 

  

 

  

 

  

 

  

Debt securities available for sale:

 

  

 

  

 

  

 

  

 

  

 

  

Unrealized holding gains on securities arising during the period

 

331

 

100

 

231

 

1,187

 

316

 

871

Less: reclassification adjustment for (losses) gains on securities included in net income

 

(91)

 

(19)

 

(72)

 

198

 

42

 

156

Total unrealized gains on securities available for sale

 

422

 

119

 

303

 

989

 

274

 

715

Adjustments related to defined benefit plan:

 

  

 

  

 

  

 

  

 

  

 

  

Amortization of prior service cost

 

42

 

12

 

30

 

42

 

(64)

 

106

Total adjustments related to defined benefit plan

 

42

 

12

 

30

 

42

 

(64)

 

106

Net unrealized losses from cash flow hedges:

 

  

 

  

 

  

 

  

 

  

 

  

Unrealized holding losses on cash flow hedges arising during the period

 

(1,750)

 

(505)

 

(1,245)

 

(992)

 

(275)

 

(717)

Total unrealized losses on cash flow hedges

 

(1,750)

 

(505)

 

(1,245)

 

(992)

 

(275)

 

(717)

Total other comprehensive (loss) income

 

(1,286)

 

(374)

 

(912)

 

39

 

(65)

 

104

Total comprehensive income

$

12,339

$

2,712

$

9,627

$

14,779

$

3,101

$

11,678

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

6

Unity Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the three and six months ended June 30, 2020 and 2019

(Unaudited)

    

    

    

Accumulated

    

other

Total

Stock

Retained

comprehensive

Treasury

shareholders’

(In thousands)

    

Shares

    

Amount

    

earnings

    

income (loss)

    

stock

    

equity

Balance, December 31, 2019

 

10,881

$

90,113

$

70,442

$

154

$

$

160,709

Net income

 

 

 

5,368

 

 

5,368

Other comprehensive loss, net of tax

 

 

 

 

(986)

 

(986)

Dividends on common stock ($0.08 per share)

 

 

30

 

(871)

 

 

(841)

Common stock issued and related tax effects (1)

 

13

 

227

 

 

 

227

Acquisition of treasury stock, at cost

(11)

(172)

(172)

Balance, March 31, 2020

 

10,883

 

90,370

 

74,939

 

(832)

(172)

 

164,305

Net income

 

 

 

5,171

 

 

5,171

Other comprehensive income, net of tax

 

 

 

 

74

 

74

Dividends on common stock ($0.08 per share)

 

 

29

 

(857)

 

 

(828)

Common stock issued and related tax effects (1)

 

45

 

704

 

 

 

704

Acquisition of treasury stock, at cost

(200)

(2,819)

(2,819)

Balance, June 30, 2020

 

10,728

$

91,103

$

79,253

$

(758)

$

(2,991)

$

166,607