What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-11 compared with 2021-03-25 · 284 added, 278 removed, 1672 unchanged (25% of the section changed)

5 unchanged sentences

Cash and due from banks

Federal funds sold and interest-bearing deposits

Interest-bearing deposits

Cash and cash equivalents

Debt securities available for sale (amortized cost of $ 56,442 in 2021 and $ 45,921 in 2020)

Securities held to maturity (fair value of $ 14,229 in 2021)

Equity securities with readily determinable fair values (amortized cost of $ 8,163 in 2021 and $ 2,112 in 2020)

6 unchanged sentences

Consumer loans

Residential construction loans

Allowance for loan losses

4 unchanged sentences

Accrued interest receivable

Other real estate owned ("OREO")

Prepaid expenses and other assets

13 unchanged sentences

Common stock, no par value, 12,500 shares authorized, 11,094 shares issued and 10,391 shares outstanding in 2021;

10,881 shares issued and outstanding in 2019

10,961 shares issued and 10,456 shares outstanding in 2020

Retained earnings

Treasury stock, at cost ( 505 shares in 2020)

Accumulated other comprehensive (loss) income

Treasury stock, at cost ( 703 shares in 2021 and 505 shares in 2020)

Accumulated other comprehensive income (loss)

Total shareholders’ equity

5 unchanged sentences

INTEREST INCOME

Federal funds sold, interest-bearing deposits and repos

Interest-bearing deposits

Total securities

3 unchanged sentences

Consumer loans

Residential construction loans

Total interest income

13 unchanged sentences

Gain on sale of mortgage loans, net

Net security gains (losses)

Net security gains

Gain on sale of premises and equipment

5 unchanged sentences

Professional services

Director fees

Other loan expenses

Deposit insurance

Loan collection and OREO expenses (recoveries)

Director fees

Loan collection & OREO expenses

Other expenses

12 unchanged sentences

Debt securities available for sale:

Unrealized holding gains on securities arising during the period

reclassification adjustment for gains on securities included in net income

Total unrealized gains on securities available for sale

Adjustments related to defined benefit plan:

Amortization of prior service cost

Total adjustments related to defined benefit plan

Net unrealized gains from cash flow hedges:

Unrealized holding gains on cash flow hedges arising during the period

Total unrealized gains on cash flow hedges

Total other comprehensive income

Total comprehensive income

For the year ended December 31, 2020

(In thousands)

Other comprehensive income

Debt securities available for sale:

Unrealized holding losses on securities arising during the period

12 unchanged sentences

Other comprehensive income

Debt securities available for sale:

Investment securities available for sale:

Unrealized holding gains on securities arising during the period

9 unchanged sentences

Total comprehensive income

For the year ended December 31, 2018

(In thousands)

Other comprehensive income

Investment securities available for sale:

Unrealized holding losses on securities arising during the period

reclassification adjustment for losses on securities included in net income

Total unrealized losses on securities available for sale

Adjustments related to defined benefit plan:

Amortization (accretion) of prior service cost

Total adjustments related to defined benefit plan

Net unrealized gains from cash flow hedges:

Unrealized holding gains (losses) on cash flow hedges arising during the period

Total unrealized gains (losses) on cash flow hedges

Total other comprehensive loss

Total comprehensive income

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

3 unchanged sentences

(In thousands, except per share amounts)

income (loss)

(loss) income

Balance, December 31, 2018

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Dividends on common stock ($ 0.31 per share)

Common stock issued and related tax effects (1)

Retained earnings impact due to adoption of ASU 2016‑01 (3)

Tax rate adjustment to AOCI (4)

Balance, December 31, 2019

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Dividends on common stock ($ 0.32 per share)

Common stock issued and related tax effects (1)

Treasury stock purchased, at cost

Balance, December 31, 2020

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Dividends on common stock ($ 0.36 per share)

3 unchanged sentences

(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.

(2) 2017 includes the impact of implementing ASU 2016-09, “Compensation - Stock Compensation (Topic 718),” which resulted in a cumulative-effect adjustment of $ 498 thousand to retained earnings.

(3) As a result of ASU 2016-01, "Financial Instruments Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities", the Company reclassed $ 40 thousand of gains (losses) on available for sale equity securities from accumulated other comprehensive income to retained earnings.

(4) As a result of ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", the Company reclassed $ 75 thousand from accumulated other comprehensive income to retained earnings.

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

9 unchanged sentences

Deferred income tax benefit

Net security (gains) losses

Net security gains

Stock compensation expense

11 unchanged sentences

INVESTING ACTIVITIES

Purchases of securities held to maturity

Purchase of equity securities

7 unchanged sentences

Proceeds from sale of OREO

Net increase in SBA PPP loans

Net decrease (increase) in SBA PPP loans

Net increase in loans

13 unchanged sentences

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

20 unchanged sentences

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.

Unity Bank has nine wholly-owned subsidiaries:

Unity Investment Services, Inc., AJB Residential Realty Enterprises, Inc., AJB Commercial Realty, Inc., MKCD Commercial, Inc., JAH Commercial, Inc., UB Commercial LLC, ASBC Holdings LLC, Unity Property Holdings 1, Inc., and Unity Property Holdings 2, Inc.

Unity Investment Services, Inc.

is used to hold and administer part of the Bank’s investment portfolio.

The other subsidiaries hold, administer and maintain the Bank’s other real estate owned (“OREO”) properties.

is a wholly-owned subsidiary of Unity Bank and is used to hold and administer part of the Bank’s investment portfolio.

Unity Investment Services, Inc.

15 unchanged sentences

The COVID-19 pandemic has adversely affected local, national and global economic activity.

Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, localized quarantines, and government-mandated closures of certain businesses.

Actions taken to help mitigate the spread of COVID-19 included restrictions on travel, localized quarantines, and government-mandated closures of certain businesses.

The spread of the outbreak has caused significant disruptions to the U.S.

economy and has disrupted banking and other financial activity in the areas in which the Company operates.

On March 3, 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate range by 50 basis points to 1.00 percent to 1.25 percent.

This range was further reduced to 0 percent to 0.25 percent on March 16, 2020.

economy and disrupted banking and other financial activity in the areas in which the Company operates.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

These reductions in interest rates and other effects of the COVID-19 pandemic may materially and

adversely affect the Company's financial condition and results of operations in future periods.

Other effects of the COVID-19 pandemic may materially and adversely affect the Company's financial condition and results of operations in future periods.

It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company.

3 unchanged sentences

The announcement also indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after

2021, although LIBOR rates of certain tenors may be published until June 2023.

Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide LIBOR submissions to the LIBOR administrator or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.

2 unchanged sentences

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and interest-bearing deposits.

The Company classifies its securities into three categories, available for sale, held to maturity and equity investments.

Cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits.

The Company classifies its securities into three categories, debt securities available for sale, securities held to maturity and equity securities with readily determinable fair values ("equity securities").

Securities that are classified as available for sale are stated at fair value.

17 unchanged sentences

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation.

This evaluation considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary.

This evaluation considers relevant facts and circumstances

in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary.

Relevant facts and circumstances considered include:

2 unchanged sentences

(3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a forecasted period of time that allows for the recovery in value.

Management assesses its intent to sell or whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses.

For debt securities that are considered other-than-temporarily impaired where management has no intent to sell and the Company has no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors.

20 unchanged sentences

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.

Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash

flows using market-based assumptions.

Any impairment, if temporary, would generally be reported as a valuation allowance.

65 unchanged sentences

Subsequently, OREO is carried at the lower of cost or fair value, as determined by current appraisals.

Certain costs that increase the value or extend the useful life in preparing properties for sale are capitalized to the extent that the appraisal amount exceeds the carry value, and expenses of holding foreclosed properties are charged to operations as incurred.

Certain costs that increase the value or extend the useful life in preparing properties for sale are capitalized to the extent that the appraisal amount exceeds the carrying value, and expenses of holding foreclosed properties are charged to operations as incurred.

The Company accounts for goodwill and other intangible assets in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other,” which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

64 unchanged sentences

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost.

For public business entities, ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019.

In May 2019, FASB issued ASU 2019-05, "Financial Instruments - Credit Losses (Topic 326):

14 unchanged sentences

The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13.

ASU 2017-04, "Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment."

ASU 2017-04 was issued in an effort to simplify accounting in a new standard.

The amendments in this update require that an entity perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

The amendment states that an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

For public business entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performing on testing dates after January 1, 2017.

The Company adopted this standard as of January 1, 2020.

The adoption of this ASU did not have an impact on the Company’s consolidated financial statements since the fair values of our reporting units were not lower than their respective carrying amounts at the time of our goodwill impairment analysis.

ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” ASU 2018-14 removes, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

For public business entities, ASU 2018-14 is effective for interim and annual periods beginning after December 15, 2020.

ASU 2019- 12, "Income Taxes (Topic 740):

3 unchanged sentences

For public business entities, ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020.

The Company adopted this standard as of January 1, 2021.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

1 unchanged sentence

ASU 2020-01 clarifies that the observable price changes in orderly transactions that should be considered when applying the measurement alternative in accordance with ASC 321 include transactions that require it to either apply or discontinue the equity method of accounting under ASC 323.

ASU 2020-01 also addresses questions about how to apply the guidance in Topic 815, “Derivatives and Hedging,” for certain forward contracts and purchased options to purchase securities that, upon settlement or exercise, would be accounted for under the equity method of accounting.

2020-01 also addresses questions about how to apply the guidance in Topic 815, “Derivatives and Hedging,” for certain forward contracts and purchased options to purchase securities that, upon settlement or exercise, would be accounted for under the equity method of accounting.

The ASU clarifies that, for the purpose of applying ASC 815-10-15- 141(a), an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with the financial instruments guidance in Topic 825, “Financial Instruments.” For public business entities, ASU 2020-01 is effective for interim and annual periods beginning after December 15, 2020.

The Company adopted this standard as of January 1, 2021.

The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2020- 03, "Codification Improvement to Financial Instruments."

2 unchanged sentences

The effective date and transition requirements for the amendment are the same as the effective date and transition requirements in ASU 2016-13.

The Company is currently evaluating the impact of the adoption of ASU 2020-03 on its consolidated financial statements.

ASU 2020- 04, "Reference Rate Reform (Topic 848):

9 unchanged sentences

ASU 2020-04 was effective upon its issuance on March 12, 2020.

cannot be applied to contract modifications that occur after December 31, 2022.

However, it cannot be applied to contract modifications that occur after December 31, 2022.

With certain exceptions, the ASU also cannot be applied to hedging relationships entered into or evaluated after that date.

The company is currently evaluating the various optional expedients as well as impact of the adoption of ASU 2020-04 on its consolidated financial statements.

ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

5 unchanged sentences

For public business entities, ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021.

ASU 2020-10, “Codification Improvements.” ASU 2020-10 was issued to make changes to clarify the Codification, corrects unintended application of guidance, and makes minor improvements to the Codification that are not expected to have a significant effect on current accounting practice.

The transition and effective date guidance in this ASU is based on the facts and circumstances of each amendment.

The Company is currently evaluating the impact of the adoption of ASU 2020-06 on its consolidated financial statements.

ASU 2021-01, “Reference Rate Reform (Topic 848):

Scope.” ASU 2021-01 was issued to clarify certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting applied to derivatives that are affected by the discounting transaction.

In addition, the ASU clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered eligible as a hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of the reference rate reform.

ASU 2021-01 became effective January 7, 2021.

The Company currently uses the shortcut method as the practical expedient.

Revenue Recognition

12 unchanged sentences

Federal law requires depository institutions to hold reserves in the form of vault cash or, if vault cash is insufficient, in the form of a deposit maintained with a Federal Reserve Bank.

The dollar amount of a depository institution’s reserve

requirement is determined by applying the reserve ratios specified in the FRB’s Regulation D to an institution’s reservable liabilities.

The dollar amount of a depository institution’s reserve requirement is determined by applying the reserve ratios specified in the FRB’s Regulation D to an institution’s reservable liabilities.

In response to COVID-19, on March 15, 2020, the FRB announced the reduction of the reserve requirement ratios to zero percent, effective March 26, 2020.

This action eliminated the reserve requirement for depository institutions to help support lending to households and businesses.

At December 31, 2019, the Company had $ 25.5 million of reserves to meet its reserve requirements.

In addition, the Company’s contract with its current electronic funds transfer (“EFT”) provider requires a predetermined balance be maintained in a settlement account controlled by the provider equal to the Company’s average daily net settlement position multiplied by four days.

settlement position multiplied by four days.

The required balance was $ 156 thousand as of December 31, 2021 and 2020.

12 unchanged sentences

Total debt securities available for sale

Held to maturity:

Government sponsored entities

State and political subdivisions

Residential mortgage-backed securities

Commercial mortgage-backed securities

Corporate and other securities

Total securities held to maturity

Equity securities:

2 unchanged sentences

The carrying value of securities at December 31, 2021 is distributed by contractual maturity.

Yields for all debt securities are calculated based on amortized cost.

Mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed based on contractual maturity.

7 unchanged sentences

Available for sale at fair value:

Government sponsored entities

State and political subdivisions

2 unchanged sentences

Total debt securities available for sale

Held to maturity at cost

Government sponsored entities

Residential mortgage-backed securities

Total debt securities held for maturity

Equity Securities at fair value:

7 unchanged sentences

Available for sale:

State and political subdivisions

Residential mortgage-backed securities

Corporate and other securities

Total temporarily impaired securities

Held to maturity:

Government sponsored entities

Residential mortgage-backed securities

Total temporarily impaired securities

December 31, 2020

4 unchanged sentences

Available for sale:

Government sponsored entities

State and political subdivisions

Residential mortgage-backed securities

Corporate and other securities

5 unchanged sentences

The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investments.

Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of December 31, 2020 or December 31, 2019.

Residential and commercial mortgage-backed securities:

Because the Company does not intend to sell the investments and it is

not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than temporarily impaired as of December 31, 2021 or December 31, 2020.

Residential mortgage-backed securities:

The unrealized losses on investments in mortgage-backed securities were caused by increases in interest rate spreads or the increase in interest rates at the long end of the Treasury curve.

19 unchanged sentences

The net realized gains are included in noninterest income in the Consolidated Statements of Income as net security gains.

There were $ 317 thousand of gross realized gains in 2020, compared to $ 35 thousand of gross realized gains in 2019 and no gross realized gains in 2018.

There were no gross realized losses in 2020 or 2019, compared to $ 4 thousand in 2018.

There were $ 44 thousand of gross realized gains in 2021, compared to $ 317 thousand of gross realized gains in 2020 and $ 35 thousand of gross realized gains in 2019.

There were no gross realized losses in 2021, 2020, or 2019.

● The net gain during 2021 is attributed to the sale of six corporate bonds with a total book value of $ 7.0 million and resulting gains of $ 39 thousand, and the call of one taxable municipal security with a total book value of $ 496 thousand and resulting gains of $ 5 thousand.

● The net gain during 2020 is attributed to the sale of two corporate bonds with a total book value of $ 2.7 million and resulting gains of $ 77 thousand, three mortgage-backed securities with a total book value of $ 2.8 million and resulting gains of $ 57 thousand, one taxable municipal security with a book value of $ 456 thousand and resulting gains of $ 140 thousand, one tax-exempt municipal security with a book value of $ 381 thousand and resulting gains of $ 27 thousand, and the call of three tax-exempt municipal securities with a total book value of $ 1.8 million and resulting gains of $ 16 thousand

● The net gain during 2019 is attributed to the sale of two commercial mortgage-backed securities with a total book value of $ 3.5 million and resulting gains of $ 64 thousand offset by the sale of two agency securities with a total book value of $ 2.1 million and resulting losses of $ 29 thousand.

● The net loss during 2018 is attributed to the partial call of one tax-exempt municipal security with a book value of $ 174 thousand which resulted in a loss of $ 4 thousand.

Equity Securities

1 unchanged sentence

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 interest in entities at fixed or determinable prices.

The following is a summary of the gains and losses recognized in net income on equity securities for the past two years:

The following is a summary of the gains and losses recognized in net income on equity securities for the past three years:

For the year ended December 31,

(In thousands)

Net (losses) gains recognized during the period on equity securities

Net gains (losses) recognized during the period on equity securities

Net gains recognized during the period on equity securities sold during the period

Unrealized (losses) gains recognized during the reporting period on equity securities still held at the reporting date

Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date

Pledged Securities

Securities with a carrying value of $ 1.6 million and $ 4.0 million at December 31, 2020 and December 31, 2019, respectively, were pledged to secure Government deposits, secure other borrowings and for other purposes required or permitted by law.

Securities with a carrying value of $ 1.2 million and $ 1.6 million at December 31, 2021 and December 31, 2020, respectively, were pledged to secure other borrowings and for other purposes required or permitted by law.

The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the allowance for loan losses for the past two years:

11 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Residential construction loans

Total loans held for investment

6 unchanged sentences

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.

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.

2 unchanged sentences

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law.

It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The CARES Act includes a range of other provisions designed to support the U.S.

It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The CARES Act included a range of other provisions designed to support the U.S.

economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various relief programs and measures that the U.S.

Department of the Treasury, the Small Business Administration, the Federal Reserve Board (“FRB”) and other federal banking agencies have implemented or may implement.

The CARES Act provides assistance to small businesses through the establishment of the SBA Paycheck Protection Program (“PPP”).

The PPP generally provides eligible small businesses with funds to pay up to 24 weeks of payroll costs, including certain benefits.

The funds are provided in the form of loans that may be fully or partially forgiven when used for payroll costs, interest on mortgages, rent, or utilities.

The CARES Act provided assistance to small businesses through the establishment of the SBA Paycheck Protection Program (“PPP”).

The PPP provided eligible small businesses with funds to pay up to 24 weeks of payroll costs, including certain benefits.

The funds were provided in the form of loans that may be fully or partially forgiven when used for payroll costs, interest on mortgages, rent, or utilities.

The payments on these loans will be deferred for up to six months.

4 unchanged sentences

Among other things, the Economic Aid Act extended the PPP through March 31, 2021 and allocated additional funds for new PPP loans, to be guaranteed by the SBA.

extension included an authorization to make new PPP loans to existing PPP loan borrowers, and to make loans to parties that did not previously obtain a PPP loan.

The extension included an authorization to make new PPP loans to existing PPP loan borrowers, and to make loans to parties that did not previously obtain a PPP loan.

Loans originated under the extended PPP will have substantially the same terms as existing PPP loans.

7 unchanged sentences

Generally, the Company has a 50 percent loan to value ratio on SBA 504 program loans at origination.

Residential Mortgage and Consumer Loans:

The Company originates mortgage and consumer loans including principally residential real estate, home equity lines and loans and consumer construction lines.

Residential Mortgage, Consumer and Residential Construction Loans:

The Company originates mortgage and consumer loans including principally residential real estate, 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 and loan to collateral value, credit history and Company relationship with the borrower.

During the quarter ended September 30, 2021, the Company enrolled in the “Upgrade Consumer Unsecured Loan Program” to purchase consumer unsecured loans.

This loan product has a fixed rate, fully amortizing term for up to five years and a maximum loan amount of $ 50 thousand.

Restrictions were placed on the loans purchased to limit the purchases to borrowers residing in New Jersey, southern New York, and eastern Pennsylvania and to limit purchases to borrowers with higher credit quality with a 700 FICO minimum.

Upgrade services the loans on behalf of the Company.

Upgrade is a financial technology company that utilizes artificial intelligence to underwrite personal loan and credit card installment loans to retail customers, in addition to credit monitoring and education tools.

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.

2 unchanged sentences

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.

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 loan portfolio is then subject to on-going internal reviews for credit quality, as well as independent credit reviews by an outside firm.

17 unchanged sentences

Regulatory agencies have agreed on a consistent definition of “Special Mention” as an asset with potential weaknesses which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

This definition is intended to ensure that the “Special Mention” category is

not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset.

This definition is intended to ensure that the “Special Mention” category is not used to identify assets that have as their sole weakness credit data exceptions or collateral documentation exceptions that are not material to the repayment of the asset.

Classified loans are assigned a risk rating of an 8 or 9, depending upon the prospect for collection, and deemed “Substandard”.

15 unchanged sentences

This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be affected in the future.

For residential mortgage and consumer loans, management uses performing versus nonperforming as the best indicator of credit quality.

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 delinquent 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.

14 unchanged sentences

Total SBA and commercial loans

Residential mortgage & Consumer loans - Performing/Nonperforming

Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming

(In thousands)

2 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Total consumer loans

Total residential mortgage and consumer loans

Residential construction loans

Total residential mortgage, consumer and residential construction loans

The tables below detail the Company’s loan portfolio by class according to their credit quality indicators discussed in the paragraphs above as of December 31, 2020:

12 unchanged sentences

Total SBA and commercial loans

Residential mortgage & Consumer loans - Performing/Nonperforming

Residential mortgage, Consumer & Residential construction loans - Performing/Nonperforming

(In thousands)

2 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Total consumer loans

Total residential mortgage and consumer loans

Residential construction loans

Total residential mortgage, consumer and residential construction loans

Nonperforming and Past Due Loans

15 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Residential construction loans

Total loans held for investment

12 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Residential construction loans

Total loans held for investment

10 unchanged sentences

Commercial loans

Commercial other

Commercial real estate

2 unchanged sentences

Consumer loans:

Consumer construction

Consumer other

Residential construction loans

Total impaired loans with no related allowance

7 unchanged sentences

Consumer loans:

Consumer construction

Consumer other

Residential construction loans

Total impaired loans with a related allowance

7 unchanged sentences

Consumer loans:

Consumer construction

Consumer other

Residential construction loans

Total individually evaluated impaired loans

7 unchanged sentences

Total commercial loans

Residential mortgage loans

Consumer loans:

Residential construction loans

Total impaired loans with no related allowance

5 unchanged sentences

Total commercial loans

Residential mortgage loans

Total impaired loans with a related allowance

5 unchanged sentences

Total commercial loans

Residential mortgage loans

Consumer loans:

Residential construction loans

Total individually evaluated impaired loans

14 unchanged sentences

Consumer loans

Consumer construction

Consumer other

Residential construction loans

(1) Balances are reduced by the average amount guaranteed by the SBA of $ 201 thousand, $ 719 thousand and $ 124 thousand for years ended December 31, 2021, 2020 and 2019, respectively.

7 unchanged sentences

This process is used, regardless of loan type, and for loans modified as TDRs that subsequently default on their modified terms.

The company had one performing TDR with a balance of $ 663 thousand and $ 705 thousand as of December 31, 2020 and December 31, 2019, respectively, which was included in the impaired loan numbers as of such dates.

The loan remains in accrual status since it continues to perform in accordance with the restructured terms.

To date, the Company’s TDRs consisted of interest rate reductions, interest only periods, principal balance reductions, and maturity extensions.

There were no loans modified as a TDR within the previous 12 months that subsequently

defaulted at some point during the years ended December 31, 2020 or 2019.

TDRs of $ 1.0 million and $ 663 thousand are included in the impaired loan numbers as of December 31, 2021 and December 31, 2020, respectively.

The increase in TDRs was due to the addition of two loans, partially offset by principal pay downs.

At December 31, 2021 and December 31, 2020, there were no specific reserves on the TDRs.

The TDRs are in accrual status since they are performing in accordance with the restructured terms.

There are no commitments to lend additional funds on these loans.

To date, the Company’s TDRs consisted of principal reduction, interest only periods and maturity extensions.

There were no loans modified as a TDR within the previous 12 months that subsequently defaulted at some point during the year ended December 31, 2021.

In this case, the subsequent default is defined as 90 days past due or transferred to nonaccrual status.

13 unchanged sentences

Balance, end of year

In addition, the Company had a $ 1.3 million discount related to the retained portion of the unsold SBA loans at December 31, 2020 and 2019, respectively.

In addition, the Company had a $ 915 thousand and $ 1.3 million discount related to the retained portion of the unsold SBA loans at December 31, 2021 and 2020, respectively.

Officer and Director Loans:

17 unchanged sentences

The Company has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio.

At a minimum, the adequacy of the allowance for loan losses is reviewed by management on a quarterly basis.

At a minimum, the adequacy of the allowance for loan losses is

reviewed by management on a quarterly basis.

For purposes of determining the allowance for loan losses, the Company has segmented the loans in its portfolio by loan type.

Loans are segmented into the following pools:

commercial, residential mortgages, and consumer loans.

SBA 7(a), 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.

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It also incorporates analysis of the type of collateral and the relative loan to value ratio.

● For residential mortgage and consumer loans, the estimate of loss is based on pools of loans with similar characteristics.

● 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.

7 unchanged sentences

The total allowance is available to absorb losses from any segment of the portfolio.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in methodologies for estimating allocated and general reserves in the portfolio.

The following tables detail the activity in the allowance for loan losses by portfolio segment for the past three years:

2 unchanged sentences

Balance, beginning of period

Net recoveries (charge-offs)

Provision for loan losses charged to expense

Net (charge-offs) recoveries

Provision for (credit to) loan losses charged to expense

Balance, end of period

2 unchanged sentences

Balance, beginning of period

Net (charge-offs) recoveries

Provision for (credit to) loan losses charged to expense

Net recoveries (charge-offs)

Provision for loan losses charged to expense

Balance, end of period

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Net premises and equipment

Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.6 million and $ 1.7 million in 2020 and 2019, respectively.

Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.6 million in 2021 and 2020.

The detail of other assets as of December 31 st for the past two years is as follows:

3 unchanged sentences

Right-of-use assets

Escrow advances

Prepaid insurance

Prepaid expenses

Servicing assets:

1 unchanged sentence

SBA servicing asset

Mortgage gains receivable

Prepaid expenses

Prepaid insurance

Net receivable due from SBA

Escrow advances

Unrealized gains on interest rate swap agreements

Net receivable due from SBA

Mortgage gains receivable

Total other assets

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Maximum outstanding

Repurchase agreements:

At December 31,

Year-to-date average

Maximum outstanding

Subordinated debentures:

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FHLB Borrowings

FHLB borrowings at December 31, 2020 included a $ 130.0 million overnight line of credit advance, compared to $ 193.0 million at December 31, 2019.

FHLB borrowings at December 31, 2020 also consisted of one $ 40.0 million fixed rate advance, one $ 20.0 million advance and one $ 10.0 million advance.

Comparatively, FHLB borrowings at December 31, 2019 consisted of one $ 40.0 million fixed rate advance, two $ 20.0 million advances and one $ 10.0 million advance.

The terms of these transactions at year end 2020 are as follows:

● A $ 130.0 million FHLB overnight line of credit advance issued on December 31, 2020 was at a rate of 0.340 % and was repaid on January 4, 2021.

● A $ 10.0 million FHLB advance that was issued on August 18, 2020 and has an adjustable interest rate equal to 3 month LIBOR plus 0.130 % that matured on February 18, 2021.

This borrowing was swapped to a 5 year fixed rate borrowing at 1.232 % .

● A $ 20.0 million FHLB advance that was issued on July 6, 2020 and has an adjustable interest rate equal to 3 month LIBOR plus 0.165 % that matured on January 6, 2021.

This borrowing was swapped to a 5 year fixed rate borrowing at 1.212 % .

● A $ 40.0 million FHLB advance that was issued on August 22, 2019 and has a fixed interest rate at 1.810 % that matures on August 22, 2024.

At December 31, 2021 and December 31, 2020, the Company had $ 40.0 million in fixed rate advances.

The terms of this transaction are as follows:

● A $ 40.0 million FHLB borrowing with a maturity date of August 22, 2024, at a rate of 1.810 % .

At December 31, 2021, there were no adjustable rate (“ARC”) advances.

At December 31,2020, the $ 30.0 million FHLB adjustable rate advances consisted of one $ 20.0 million advance and one $ 10.0 million advance.

Subordinated Debentures

At December 31, 2021 and 2020, the Company was a party in the following subordinated debenture transactions:

● 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.

2 unchanged sentences

At December 31, 2020 and 2019, the subordinated debentures had a swap instrument which modified the borrowing to a 3 year fixed rate borrowing at 3.435 % .

The swap instrument matured on June 23, 2021.

● In connection with the formation of the statutory business trust, the trust also issued $ 465 thousand of common equity securities to the Company, which together with the proceeds stated above were used to purchase the subordinated debentures, under the same terms and conditions.

1 unchanged sentence

The capital securities in the above transaction have preference over the common securities with respect to liquidation and other distributions and qualify as Tier I capital.

Under the terms of the Dodd-Frank Wall Street Reform and Consumer Protection Act, these securities will continue to qualify as Tier 1 capital as the Company has less than $ 10 billion in assets.

Under the terms of the Dodd-Frank Wall Street Reform and

Consumer Protection Act, these securities will continue to qualify as Tier 1 capital as the Company has less than $ 10 billion in assets.

In accordance with FASB ASC Topic 810, “Consolidation,” the Company does not consolidate the accounts and related activity of Unity (NJ) Statutory Trust II because it is not the primary beneficiary.

20 unchanged sentences

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.

These debt obligations expose the Company to variability in interest payments due to changes in interest rates.

If interest rates increase, interest expense increases.

2 unchanged sentences

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.

The Company had a total of 5 interest rate swaps designated as cash flow hedging instruments with a notional amount of $ 80.0 million at December 31, 2020, compared to 4 with a notional amount of $ 60.0 million at December 31, 2019.

At December 31, 2020, the Company had $ 1.5 million in cash collateral pledged for these derivatives which was included in federal funds sold and interest-bearing deposits, compared to none at December 31, 2019.

A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at December 31, 2020 and 2019, respectively is as follows:

The Company had a total of two interest rate swaps designated as cash flow hedging instruments with a notional amount of $ 40.0 million at December 31, 2021, compared to five interest rate swaps with a notional amount of $ 80.0 million at December 31, 2020.

At December 31, 2021, the Company had $ 1.3 million in cash collateral pledged for these derivatives which was included in cash and due from banks, compared to $ 1.5 million at December 31, 2020.

summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at December 31, 2021 and 2020, respectively is as follows:

(In thousands, except percentages and years)

8 unchanged sentences

The unrealized gains relating to interest rate swaps are recorded as a derivative asset and are included in Prepaid expenses and other assets in the Company’s Balance Sheet, and the unrealized losses are recorded as a derivative liability and are included in Accrued expenses and other liabilities.

Changes in the fair value of interest rate swaps designated as hedging instruments of the variability of cash flows associated with long-term debt are reported in other comprehensive (loss) income.

The following table presents the net losses recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at December 31, 2020, 2019, and 2018 respectively:

Changes in the fair value of 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 amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective.

The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

The following table presents the net gains (losses) recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at December 31, 2021, 2020 and 2019 respectively:

For the years ended December 31,

(In thousands)

(Loss) gain recognized in OCI on derivatives

(Loss) gain reclassified from AOCI into interest expense

During the next twelve months, the Company estimates that $ 514 thousand will be reclassified as an increase in interest expense.

Gain (loss) recognized in OCI

Loss reclassified from AOCI into interest expense

Leases and Commitments

3 unchanged sentences

The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use"

Operating leases in which we are the lessee 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 our Consolidated Balance Sheets.

We do not currently have any finance leases in which we are the lessee.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our 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 our incremental borrowing rate.

Operating leases in which the Bank is the lessee 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 our incremental borrowing rate.

The incremental borrowing rate was calculated for each lease by taking a variable rate FHLB ARC product (based on Libor plus a spread) and then swapping it to a fixed rate borrowing by adding a fixed mid swap rate for the desired term.

7 unchanged sentences

Operating lease ROU assets totaled $ 5.2 million at December 31, 2021, compared to $ 2.4 million at December 31, 2020.

Operating lease liabilities totaled $ 2.4 million, compared to $ 2.8 million at December 31, 2019.

As of December 31, 2021, operating lease liabilities totaled $ 5.3 million, compared to $ 2.4 million at December 31, 2020.

The table below summarizes our net lease cost:

22 unchanged sentences

Present value of lease liabilities

As of December 31, 2020, the Corporation had not entered into any material leases that have not yet commenced.

As of December 31, 2021, the Company had not entered into any material leases that have not yet commenced.

Commitments to Borrowers

14 unchanged sentences

Accrued expenses

Deferred compensation

Lease liabilities

Unrealized losses on interest rate swap agreements

Deferred compensation

Loan expense advances

Reserve for commitments

Unrealized losses on interest rate swap agreements

Total other liabilities

Accumulated Other Comprehensive Income (Loss)

The following table shows the changes in other comprehensive income (loss) for the past three years:

The following tables shows the changes in other comprehensive (loss) income for the past three years:

For the year ended December 31, 2021

1 unchanged sentence

Net unrealized

gains (losses)

gains (losses) on

(losses) gains

(losses) gains on

defined benefit

2 unchanged sentences

(In thousands)

income (loss)

(loss) income

Balance, beginning of period

Other comprehensive loss before reclassifications

Other comprehensive income before reclassifications

Less amounts reclassified from accumulated other comprehensive income (loss)

5 unchanged sentences

gains (losses)

(losses) gains on

gains (losses) on

defined benefit

2 unchanged sentences

(In thousands)

(loss) income

income (loss)

Balance, beginning of period (1)

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

Less amounts reclassified from accumulated other comprehensive income (loss)

8 unchanged sentences

Net unrealized

gains (losses)

(losses) gains on

defined benefit

gains from cash

from cash flow

comprehensive

(In thousands)

income (loss)

(loss) income

Balance, beginning of period

Other comprehensive (loss) income before reclassifications

Less amounts reclassified from accumulated other comprehensive (loss) income

Other comprehensive income (loss) before reclassifications

Less amounts reclassified from accumulated other comprehensive income (loss)

Period change

2 unchanged sentences

Shareholders’ equity increased $ 31.8 million to $ 205.7 million at December 31, 2021 compared to $ 173.9 million at December 31, 2020, primarily due to net income of $ 36.1 million.

Other items impacting shareholders’ equity included treasury stock purchases of $ 7.4 million, $ 3.3 million in dividends paid on common stock, $ 1.6 million from the issuance of common stock under employee benefit plans and $ 1.3 million in accumulated other comprehensive loss net of tax.

Other items impacting shareholders’ equity included treasury stock purchases of $ 4.2 million, $ 3.6 million in dividends paid on common stock, $ 2.0 million from the issuance of common stock under employee benefit plans and $ 1.5 million in accumulated other comprehensive income net of tax.

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 July 16, 2019, the Company authorized the repurchase of up to 525 thousand shares, or approximately 5 percent of its outstanding common stock.

The new plan replaces the Company’s prior share repurchase program.

505 thousand shares were repurchased at an average price of $ 14.70 during the twelve months ended December 31, 2021, leaving 20,475 shares remaining to be repurchased under the 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 of 199 thousand shares were repurchased at an average price of $ 21.04 during 2021, of which 20 thousand shares were repurchased from the prior repurchase plan, leaving 571 thousand shares available for repurchase.

The amount and timing of additional purchases, if any, will be dependent 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, whether related to the COVID-19 pandemic or otherwise, the market price of the Company’s stock and the general impact of the COVID-19 pandemic on the economy.

There were no shares repurchased during 2019 or 2018.

There were 504 thousand shares repurchased during 2020 and no shares repurchased during 2019.

The table below sets forth information regarding our repurchases during the year:

29 unchanged sentences

The bill, effective January 1, 2018, imposed a temporary surtax on corporations earning New Jersey allocated taxable income in excess of $1 million at a rate of 2.5 percent for tax years beginning on or after January 1, 2018, through December 31, 2019, and at 1.5 percent for tax years beginning on or after January 1, 2020, through December 31, 2021.

In addition, effective for periods on or after January 1, 2019, New Jersey requires mandatory unitary combined reporting of certain affiliates for its Corporation Business Tax.

On September 29, 2020, an amendment to the surtax was signed into law, retroactively increasing the rate back up to 2.5% for tax years beginning on January 1, 2020, and extending through December 31, 2023.

In addition, New Jersey adopted mandatory unitary combined reporting for its Corporation Business Tax.

On September 29, 2020, New Jersey’s Assembly Bill 4721 was signed into law.

The bill, retroactively effective January 1, 2020, extends the 2.5% corporate income surtax until December 31, 2023.

The components of the provision for income taxes for the past three years are as follows:

30 unchanged sentences

Deferred compensation

Deferred loan costs

Interest rate swaps

3 unchanged sentences

Commitment reserve

Net other deferred tax assets

Gross deferred tax assets

5 unchanged sentences

Deferred servicing fees

Net unrealized securities gains

Bond Accretion

Net unrealized security gains

Interest rate swaps

Net other deferred tax liabilities

Total deferred tax liabilities

4 unchanged sentences

A deferred tax asset is recognized for all temporary differences that will result in future tax deductions subject to reduction of the asset by a valuation allowance.

The Company had a $ 209 thousand and $ 140 thousand valuation allowance for deferred tax assets related to its state net operating loss carry-forward deferred tax asset at December 31, 2020 and 2019, respectively.

The Company’s state net operating loss carry-forwards totaled approximately $ 2.6 million and $ 2.0 million at December 31, 2020 and 2019, respectively, and expire between 2030 and 2037.

The Company had no valuation allowance for deferred tax assets related to its state net operating loss carry-forward deferred tax asset at December 31, 2021, compared to $ 209 thousand at December 31, 2020.

The Company had no state net operating loss carry-forwards at December 31, 2021, compared to $ 2.6 million at December 31, 2020.

Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on securities available for sale, a supplemental retirement plan (“SERP”) and interest rate swaps.

The after-tax component of each of these is included in other comprehensive income (loss) in shareholders’ equity.

The after-tax component related to securities available for sale was an unrealized loss of $ 215 thousand for 2020, compared to an unrealized gain of $ 280 thousand in 2019.

The after-tax component related to the SERP was an unrealized loss of $ 238 thousand for 2020, compared to $ 295 thousand in 2019.

The after-tax component related to the interest rate swaps was an unrealized loss of $ 736 thousand for 2020, compared to an unrealized gain of $ 168 thousand in the prior year.

The after-tax component related to securities available for sale was an unrealized gain of $ 29 thousand for 2021, compared to an unrealized loss of $ 215 thousand in 2020.

The after-tax component related to the SERP was no unrealized gain or loss for 2021, compared to an unrealized loss of $ 238 thousand in 2020.

The after-tax component related to the interest rate swaps was an unrealized gain of $ 293 thousand for 2021, compared to an unrealized loss of $ 736 thousand in the prior year.

The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return.

23 unchanged sentences

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

On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, modified the CBLR framework so that:

(i) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework;

On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, which modified the CBLR framework so that:

(i) beginning in the second quarter 2020 and until the end of 2020, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework;

and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%.

2 unchanged sentences

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 will therefore not be required to comply with the Basel III capital requirements.

As of December 31, 2020, the Bank’s CBLR was 9.80 % and the Company’s CBLR was 10.09 %.

The following table shows the CBLR ratio for the Company and the Bank at December 31, 2020, and the capital ratios for the Company and Bank under Basel III requirements at December 31, 2019:

Required for capital adequacy purposes

To be well-capitalized under prompt corrective action regulations

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

The following table shows the CBLR ratio for the Company and the Bank at December 31, 2021 and at December 31,2020:

At December 31,2021

At December 31,2020

Leverage ratio

Tier I risk-based capital ratio

Total risk-based capital ratio

(1) Excludes capital conservation buffer at December 31, 2019.

Employee Benefit Plans

23 unchanged sentences

The Plan replaced all previously approved and established equity plans then currently in effect.

As of December 31, 2020, 192,500 options and 43,150 shares of restricted stock have been awarded from the plan leaving 264,350 shares available for future grants.

As of December 31, 2021, 281,500 options and 111,700 shares of restricted stock have been awarded from the plan.

In addition, 2,000 unvested options and 1,500 unvested shares of restricted stock were cancelled and returned to the plan leaving 110,300 shares available for future grants.

The fair values of the options granted during 2021, 2020 and 2019 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

31 unchanged sentences

$ 18.01 - $ 24.00

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).

3 unchanged sentences

Income tax benefit

As of December 31, 2020, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $ 839 thousand.

As of December 31, 2021, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $ 1.0 million.

That cost is expected to be recognized over a weighted average period of 1.8 years.

2 unchanged sentences

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 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 year ended December 31, 2021:

21 unchanged sentences

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 100 percent of their total compensation.

Director and officer deferred fees totaled $ 591 thousand in 2020, $ 379 thousand in 2019 and $ 297 thousand in 2018, and the interest paid on deferred balances totaled $ 132 thousand in 2020, $ 107 thousand in 2019 and $ 67 thousand in 2018.

The fees distributed on the deferred balances totaled $ 14 thousand in 2020, 2019 and 2018.

Director and executive deferred compensation totaled $ 593 thousand in 2021, $ 591 thousand in 2020 and $ 379 thousand in 2019, and the interest paid on deferred balances totaled $ 136 thousand in 2021, $ 132 thousand in 2020 and $ 107 thousand in 2019.

The deferred balances distributed totaled $ 14 thousand in 2021, 2020 and 2019.

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 pans 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 executive’s separation from service after age 66, adjusted annually thereafter by two percent ( 2 %).

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 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.

8 unchanged sentences

(In thousands)

Service cost (1)

Interest cost

1 unchanged sentence

Net periodic benefit cost

(1) On September 27, 2018, the Company approved a change in calculation of the Retirement Benefit resulting in an additional $ 1.1 million in current expense.

The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years ended December 31, 2021, 2020 and 2019

2 unchanged sentences

Benefit obligation, beginning of year

Service cost (1)

Interest cost

Benefit obligation, end of period

(1) On September 27, 2018, the Company approved a change in calculation of the Retirement Benefit resulting in an additional $ 1.1 million in current expense.

On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with key executive officers.

On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “Plan”) with key executive officers other than the President and CEO.

The Plan has an effective date of January 1, 2015.

2 unchanged sentences

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.

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.

2 unchanged sentences

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 $ 5 thousand, $ 5 thousand and $ 18 thousand in 2020, 2019 and 2018, respectively.

Total expenses related to this plan were $ 5 thousand in 2021, 2020 and 2019.

Fair Value Measurement

148 unchanged sentences

The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated balance sheets.

At December 31, 2020, the valuation allowance for impaired loans was $ 4.1 million, an increase of $ 3.7 million from $ 414 thousand at December 31, 2019.

At December 31, 2021, the valuation allowance for impaired loans was $ 2.8 million, a decrease of $ 1.3 million from $ 4.1 million at December 31, 2020.

Fair Value of Financial Instruments

73 unchanged sentences

Gain on sales of securities

Market value appreciation on equity securities

Interest expenses

Market value depreciation (appreciation) on equity securities

Market value depreciation on equity securities

Other expenses

1 unchanged sentence

Income before provision for income taxes and equity in undistributed net income of subsidiary

(Provision) benefit for income taxes

Benefit (provision) for income taxes

Income before equity in undistributed net income of subsidiary

13 unchanged sentences

Proceeds from sales of securities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

FINANCING ACTIVITIES

4 unchanged sentences

Net cash used in financing activities

(Decrease) increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

2 unchanged sentences

Interest paid

Quarterly Financial Information (Unaudited)

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Unity Bancorp, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Unity Bancorp, Inc.

and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Allowance for Loan Losses – Qualitative Factors

The allowance for loan losses as of December 31, 2021 was $22.3 million.

As described in Notes 1 and 5 to the consolidated financial statements, the allowance for loan losses is established through a provision for loan losses and represents an amount which, in management’s judgement, will be adequate to absorb losses on existing loans.

The allowance consists of specific and general components in the amounts of $2.8 million and $19.5 million, respectively.

Specific reserves are made to individual impaired loans, which have been defined to include all nonperforming loans and troubled debt restructurings.

The general reserve is set based upon a historical net charge-off rate adjusted for the following environmental factors:

delinquency and impairment trends, charge-off and recovery trends, changes in the volume of restructured loans, 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.

evaluation of the qualitative factors requires a significant amount of judgement by management and involves a high degree of subjectivity.

We identified the qualitative factor component of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

Our audit procedures related to the qualitative factors included the following, among others:

- We obtained an understanding of the relevant controls related to management’s assessment and review of the qualitative factors, and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors.

- We obtained an understanding of how management developed the estimates and related assumptions, including:

o Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources.

o Evaluating the reasonableness of the qualitative factor established by management, including the directional consistency and magnitude, as compared to the underlying internal or external information sources.

/s/ RSM US LLP

We have served as the Company’s auditor since 2007.

New York, New York

March 11, 2022

Supplementary Data (Unaudited)

Quarterly Financial Information

The following quarterly financial information for the years ended December 31, 2021, 2020 and 2019 is unaudited.

36 unchanged sentences

Net income per common share - Diluted

Supplementary Data (Unaudited)

Selected Consolidated Financial Data

45 unchanged sentences

Total risk-based capital ratio

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Unity Bancorp, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Unity Bancorp, Inc.

and Subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or is required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Allowance for Loan Losses – Qualitative Factors

The allowance for loan losses as of December 31, 2020 was $23.1 million.

The allowance consists of specific and general components in the amounts of $4.1 million and $19.0 million, respectively.

Specific reserves are made to individual impaired loans, which have been defined to include all nonperforming loans and troubled debt restructurings.

The general reserve is set based upon a historical net charge-off rate adjusted for the following environmental factors:

delinquency and impairment trends, charge-off and recovery trends, changes in the

volume of restructured loans, 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.

The evaluation of the qualitative factors requires a significant amount of judgement by management and involves a high degree of subjectivity.

Our audit procedures related to the qualitative factors included the following, among others:

● We obtained an understanding of the relevant controls related to management’s assessment and review of the qualitative factors, and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative factors and the data used in determining the qualitative factors.

● We obtained an understanding of how management developed the estimates and related assumptions, including:

/s/ RSM US LLP

We have served as the Company’s auditor since 2007.

New York, New York

March 25, 2021

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data