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, 2024

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 ⌧

The number of shares outstanding of each of the registrant’s classes of common equity stock, as of April 30, 2024 common stock, no par value: 10,039,119 shares outstanding.

Table of Contents

the three months ended September 30, 2023 and 2022
		Page #
PART I	CONSOLIDATED FINANCIAL INFORMATION
ITEM 1	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at March 31, 2024 and December 31, 2023	3
	Consolidated Statements of Income for the three months ended March 31, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023	7
	Notes to the Consolidated Financial Statements	8
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	52
ITEM 4	Controls and Procedures	52
PART II	OTHER INFORMATION	53
ITEM 1	Legal Proceedings	53
ITEM 1A	Risk Factors	53
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	53
ITEM 3	Defaults upon Senior Securities	53
ITEM 4	Mine Safety Disclosures	53
ITEM 5	Other Information	53
ITEM 6	Exhibits	54
	EXHIBIT INDEX	55
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	SIGNATURES	56

2

PART I        CONSOLIDATED FINANCIAL INFORMATION

ITEM 1        Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)	March 31, 2024		December 31, 2023
ASSETS
Cash and due from banks	$	20,619	$	20,668
Interest-bearing deposits		162,367		174,108
Cash and cash equivalents		182,986		194,776
Securities:
Debt securities available for sale, at market value		94,682		91,765
Debt securities held to maturity, at amortized cost		36,089		36,122
Equity securities, at market value		7,931		7,802
Total securities		138,702		135,689
Loans:
SBA loans held for sale		18,439		18,242
SBA loans held for investment		39,009		38,584
SBA PPP loans		2,168		2,318
Commercial loans		1,291,319		1,277,460
Residential mortgage loans		627,464		631,506
Consumer loans		72,275		72,676
Residential construction loans		123,783		131,277
Total loans		2,174,457		2,172,063
Allowance for credit losses		(26,080)		(25,854)
Net loans		2,148,377		2,146,209
Premises and equipment, net		19,281		19,567
Bank owned life insurance ("BOLI")		25,295		25,230
Deferred tax assets, net		12,681		12,552
Federal Home Loan Bank ("FHLB") stock		15,896		18,435
Accrued interest receivable		13,165		13,582
Goodwill		1,516		1,516
Prepaid expenses and other assets		10,189		10,951
Total assets	$	2,568,088	$	2,578,507
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	395,520	$	419,636
Interest-bearing demand		325,174		312,208
Savings		504,210		497,491
Brokered deposits		235,755		268,408
Time deposits		500,611		426,397
Total deposits		1,961,270		1,924,140
Borrowed funds		299,397		356,438
Subordinated debentures		10,310		10,310
Accrued interest payable		1,551		1,924
Accrued expenses and other liabilities		28,799		24,265
Total liabilities		2,301,327		2,317,077
Shareholders’ equity:
Common stock		101,676		100,426
Retained earnings		199,380		191,108
Treasury stock		(31,443)		(27,367)
Accumulated other comprehensive loss		(2,852)		(2,737)
Total shareholders’ equity		266,761		261,430
Total liabilities and shareholders’ equity	$	2,568,088	$	2,578,507
Shares issued		11,555		11,424
Shares outstanding		10,044		10,063
Treasury shares		1,511		1,361

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)	2024		2023
INTEREST INCOME
Interest-bearing deposits	$	420	$	333
FHLB stock		280		331
Securities:
Taxable		1,849		1,739
Tax-exempt		18		19
Total securities		1,867		1,758
Loans:
SBA loans		1,333		1,404
SBA PPP loans		8		77
Commercial loans		20,830		17,401
Residential mortgage loans		9,219		8,109
Consumer loans		1,402		1,354
Residential construction loans		2,578		2,586
Total loans		35,370		30,931
Total interest income		37,937		33,353
INTEREST EXPENSE
Interest-bearing demand deposits		1,710		965
Savings deposits		3,144		1,554
Brokered deposits		2,295		1,562
Time deposits		4,699		1,563
Borrowed funds and subordinated debentures		2,248		3,799
Total interest expense		14,096		9,443
Net interest income		23,841		23,910
Provision for credit losses, loans		641		108
Provision for credit losses, off-balance sheet		2		—
Net interest income after provision for credit losses		23,198		23,802
NONINTEREST INCOME
Branch fee income		243		235
Service and loan fee income		457		503
Gain on sale of SBA loans held for sale, net		238		309
Gain on sale of mortgage loans, net		320		244
BOLI income		65		80
Net security gains (losses)		54		(322)
Other income		341		368
Total noninterest income		1,718		1,417
NONINTEREST EXPENSE
Compensation and benefits		7,357		7,090
Processing and communications		906		804
Occupancy		798		770
Furniture and equipment		684		689
Professional services		436		427
Advertising		400		260
Loan related expenses		384		175
Deposit insurance		339		348
Director fees		247		217
Other expenses		581		648
Total noninterest expense		12,132		11,428
Income before provision for income taxes		12,784		13,791
Provision for income taxes		3,198		3,504
Net income	$	9,586	$	10,287
Net income per common share – Basic	$	0.95	$	0.98
Net income per common share – Diluted	$	0.93	$	0.96
Weighted average common shares outstanding – Basic		10,127		10,538
Weighted average common shares outstanding – Diluted		10,276		10,686

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, 2024						March 31, 2023
			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	$	12,784		3,198		9,586		13,791		3,504		10,287
Other comprehensive (loss) income before reclassifications
Debt securities available for sale:
Unrealized holding losses (gains) on securities arising during the period		(44)		(10)		(34)		359		93		266
Less: reclassification adjustment for losses on securities included in net income		—		—		—		—		—		—
Total unrealized losses on securities available for sale		(44)		(10)		(34)		359		93		266
Net unrealized (losses) gains from cash flow hedges:
Unrealized holding losses on cash flow hedges arising during the period		(351)		(100)		(251)		(433)		(92)		(341)
Less: reclassification adjustment for gains on cash flow hedges included in net income		(238)		(68)		(170)		(198)		(42)		(156)
Total unrealized losses on cash flow hedges		(113)		(32)		(81)		(235)		(50)		(185)
Total other comprehensive (loss) income		(157)		(42)		(115)		124		43		81
Total comprehensive income	$	12,627	$	3,156	$	9,471	$	13,915	$	3,547	$	10,368

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, 2024 and 2023

(Unaudited)

									Accumulated
									other		Total
	Common Stock				Retained		Treasury		comprehensive		shareholders’
(In thousands)	Shares		Amount		earnings		stock		loss		equity
Balance, December 31, 2023	10,063		$	100,426	$	191,108	$	(27,367)	$	(2,737)	$	261,430
Net income	—	A		—		9,586		—		—		9,586
Other comprehensive loss, net of tax	—			—		—		—		(115)		(115)
Dividends on common stock ($0.13 per share)	2			53		(1,314)		—		—		(1,261)
Share-based compensation (1)	129			1,197		—		—		—		1,197
Treasury stock purchased, at cost	(150)			—		—		(4,076)		—		(4,076)
Balance, March 31, 2024	10,044		$	101,676	$	199,380	$	(31,443)	$	(2,852)	$	266,761

									Accumulated
									other			Total
	Common Stock				Retained		Treasury		comprehensive			shareholders’
(In thousands)	Shares		Amount		earnings		stock		(loss) income		aa	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)
Share-based compensation (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

(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.

6

Unity Bancorp, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended March 31,
(In thousands)	2024		2023
OPERATING ACTIVITIES:
Net income	$	9,586	$	10,287
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses, loans		641		108
Net amortization of purchase premiums and discounts on securities		34		36
Depreciation and amortization (accretion)		554		(738)
PPP deferred fees and costs		(3)		(68)
Deferred income tax (benefit) expense		(87)		91
Net realized security gains		(21)		(222)
Stock compensation expense		476		417
Valuation writedowns on OREO		—		113
Gain on sale of mortgage loans, net		(320)		(244)
Gain on sale of SBA loans held for sale, net		(238)		(309)
BOLI income		(65)		(80)
Net change in other assets and liabilities		5,205		4,359
Net cash provided by operating activities		15,762		13,750
INVESTING ACTIVITIES
Purchases of equity securities		(166)		(126)
Purchases of securities available for sale		(4,000)		—
Proceeds from redemption of FHLB stock, at cost, net		2,539		376
Maturities and principal payments on securities held to maturity		100		—
Maturities and principal payments on securities available for sale		1,041		1,639
Proceeds from sales of equity securities		91		1,269
Net decrease in SBA PPP loans		153		3,431
Net increase in loans		(2,705)		(26,339)
Purchases of premises and equipment		(78)		(195)
Net cash used in investing activities		(3,025)		(19,945)
FINANCING ACTIVITIES
Net increase in deposits		37,130		36,393
Repayments of short-term borrowings		(61,400)		(14,000)
Proceeds from long-term borrowings		4,359		5,000
Proceeds from exercise of stock options		721		530
Dividends on common stock		(1,261)		(1,215)
Purchase of treasury stock, including exise tax accrual		(4,076)		(8,219)
Net cash (used in) provided by financing activities		(24,527)		18,489
(Decrease) increase in cash and cash equivalents		(11,790)		12,294
Cash and cash equivalents, beginning of year		194,776		114,793
Cash and cash equivalents, end of period	$	182,986	$	127,087
SUPPLEMENTAL DISCLOSURES
Cash:
Interest paid	$	14,469	$	9,202
Income taxes paid		250		3,557
Noncash activities:
Establishment of lease liability and right-of-use asset		—		—
Capitalization of servicing rights		76		159
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, 2024

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 servicing assets, 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 and the general credit quality of the loan portfolio.

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 opinion of management, are necessary for the fair presentation of interim results. The results of operations for the three months ended March 31, 2024 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, 2023.

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.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the current high 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 as of 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 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.

8

New Accounting Guidance adopted in 2024

Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” requires public entities to disclose detailed information about a reportable segment’s expenses on both an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments in ASU 2023-07 should be applied retrospectively to all periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted ASU 2023-07 effective January 1, 2024, noting no material impact.

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)	2024		2023
Net income	$	9,586	$	10,287
Weighted average common shares outstanding - Basic		10,127		10,538
Plus: Potential dilutive common stock equivalents		149		148
Weighted average common shares outstanding - Diluted		10,276		10,686
Net income per common share - Basic	$	0.95	$	0.98
Net income per common share - Diluted		0.93		0.96
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		—		—

9

NOTE 4. Other Comprehensive (Loss) Income

The following tables show the changes in other comprehensive (loss) income for the three months ended March 31, 2024 and 2023, net of tax:

	For the three months ended March 31, 2024
					Accumulated
	Net unrealized		Net unrealized		other
	losses on		gains (losses) from		comprehensive
(In thousands)	securities		cash flow hedges		loss
Balance, beginning of period	$	(3,408)	$	671	$	(2,737)
Other comprehensive loss before reclassifications		(34)		(251)		(285)
Less amounts reclassified from accumulated other comprehensive loss		—		(170)		(170)
Period change		(34)		(81)		(115)
Balance, end of period	$	(3,442)	$	590	$	(2,852)