What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-07 compared with 2024-03-07 · 317 added, 339 removed, 1456 unchanged (31% of the section changed)

7 unchanged sentences

Cash and cash equivalents

Debt securities available for sale (net of allowance for credit losses of $ 1,283 as of December 31, 2023 and $ 0 as of December 31, 2022)

Debt securities available for sale (net of valuation allowance of $ 2,824 as of December 31, 2024 and $ 1,283 as of December 31, 2023)

Debt securities held to maturity

18 unchanged sentences

Interest-bearing demand

Brokered time deposits

Brokered deposits

Time deposits

6 unchanged sentences

Shareholders’ equity:

Preferred stock, no par value, 500 shares authorized, no shares issued and no shares outstanding as of December 31, 2024 and December 31, 2023

Common stock, no par value, 12,000 shares authorized, 11,616 shares issued and 10,026 shares outstanding as of December 31, 2024 ;

21 unchanged sentences

Savings deposits

Brokered deposits

Time deposits

4 unchanged sentences

Provision for credit losses, off-balance sheet

Provision for impairment losses, AFS securities

Provision for credit losses, AFS securities

Net interest income after provision for credit losses

4 unchanged sentences

Gain on sale of mortgage loans, net

Net securities gains (losses)

Net securities gains

Total noninterest income

20 unchanged sentences

Other comprehensive income

Investment securities available for sale:

Debt securities available for sale:

Unrealized holding gains on securities arising during the period

reclassification adjustment for losses on securities included in net income

reclassification adjustments on securities included in net income

Total unrealized gains on securities available for sale

Net unrealized losses from cash flow hedges:

Unrealized holding losses on cashflow hedges arising during the period

reclassification adjustment for losses on cashflow hedges included in net income

Unrealized holding losses on cash flow hedges arising during the period

reclassification adjustment for losses on cash flow hedges included in net income

Total unrealized losses on cash flow hedges

5 unchanged sentences

Debt securities available for sale:

Unrealized holding losses on securities arising during the period

Total unrealized losses on securities available for sale

Net unrealized gains from cash flow hedges:

Unrealized holding gains on cash flow hedges arising during the period

reclassification adjustment for gains on cashflow hedges included in net income

Total unrealized gains on cash flow hedges

Total other comprehensive losses

Unrealized holding gains on securities arising during the period

reclassification adjustment for losses on securities included in net income

Total unrealized gains on securities available for sale

Net unrealized losses from cash flow hedges:

Unrealized holding losses on cash flow hedges arising during the period

reclassification adjustment for losses on cash flow hedges included in net income

Total unrealized losses on cash flow hedges

Total other comprehensive income

Total comprehensive income

6 unchanged sentences

Balance, December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Dividends on common stock ($ 0.48 per share)

Effect of adopting Accounting Standards Update ("ASU") No.

2016-13 ("CECL") (2)

Share-based compensation (1)

3 unchanged sentences

Dividends on common stock ($ 0.52 per share)

Effect of adopting Accounting Standards Update ("ASU") No.

2016-13 ("CECL") (2)

Share-based compensation (1)

11 unchanged sentences

Provision for credit losses, AFS securities

Net amortization of purchase premiums and discounts on securities

Net accretion of purchase premiums and discounts on securities

Depreciation and amortization, net

11 unchanged sentences

Purchases of securities available for sale

Proceeds from sale of (purchases of) FHLB stock, at cost

Proceeds from sale of FHLB stock, at cost

Maturities and principal payments on debt securities held to maturity

8 unchanged sentences

Net increase in deposits

(Repayments of) proceeds from short-term borrowings, net

Repayments of short-term borrowings, net

Proceeds from long-term borrowings, net

3 unchanged sentences

Net cash provided by financing activities

Increase (decrease) in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

4 unchanged sentences

Noncash investing activities:

Establishment of lease liability and right-of-use asset, net of terminations

Capitalization of servicing rights

7 unchanged sentences

Unity Bancorp, Inc.

is a bank holding company incorporated in New Jersey and registered under the Bank Holding Company Act of 1956, as amended.

is a financial holding company incorporated in New Jersey and registered under the Bank Holding Company Act of 1956, as amended.

Its wholly-owned subsidiary, the Bank, is chartered by the New Jersey Department of Banking and Insurance.

The Bank provides a full range of commercial and retail banking services through twenty-one branch offices located in Bergen, Hunterdon, Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania.

These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, Small Business Administration (“SBA”) and other commercial credits.

These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, SBA and other commercial credits.

Unity Investment Services, Inc.

1 unchanged sentence

Unity Investment Services, Inc.

has one subsidiary, Unity Delaware Investment 2, Inc., which has one subsidiary, Unity NJ REIT, Inc., which was formed in 2013 to hold real estate related loans.

has one subsidiary, Unity Delaware Investment 2, Inc., which has three subsidiaries.

Unity Strategic Investment I, Inc.

and Unity Strategic Investment II, Inc.

and Unity NJ REIT, Inc., which was formed in 2013 to hold real estate related loans.

The Company has a wholly-owned subsidiary:

5 unchanged sentences

In preparing the consolidated financial statements in conformity with U.S.

GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheet and Income Statement for the periods indicated.

Amounts requiring the use of significant estimates include the allowance for credit losses, valuation of deferred tax and servicing assets, the valuation of securities and the determination of impairment for securities and fair value disclosures.

GAAP, Management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheet and Statement of Income for the periods indicated.

Amounts requiring the use of significant estimates include the allowance for credit losses.

Actual results could differ from those estimates.

2 unchanged sentences

Restrictions on Cash

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.

In addition, the Company’s contract with its current electronic funds transfer 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.

The required balance was $ 262 thousand as of December 31, 2024 and 2023, respectively.

This balance can be adjusted periodically to reflect actual transaction volume and seasonal factors.

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

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

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

Unrealized gains and losses on securities available for sale are excluded from results of operations and are reported as other comprehensive income, a separate component of shareholders’ equity, net of taxes.

Unrealized gains and losses on debt securities available for sale are excluded from results of operations and are reported in other comprehensive income, a separate component of shareholders’ equity, net of taxes.

Debt securities classified as available for sale include debt securities that may be sold in response to changes in interest rates, changes in prepayment risks, for asset/liability management purposes or liquidity needs.

3 unchanged sentences

Such debt securities are stated at cost, adjusted for unamortized purchase premiums and discounts.

For debt securities, purchase discounts are amortized using the interest method over the stated terms of the securities, where purchase premiums are amortized through the earliest call date.

For debt securities, purchase discounts are accreted using the interest method over the stated terms of the securities;

whereas purchase premiums are amortized through the earliest call date.

Equity securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes.

Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings.

Periodic net gains and losses on equity investments are recognized in the income statement as realized gains and losses.

Periodic net gains and losses on equity investments are recognized in the Consolidated Statements of Income as realized gains and losses.

For additional information on securities, see Note 2 to the Consolidated Financial Statements.

Allowance for Credit Losses - Securities

Valuation Allowance – Debt Securities

The Company has a process in place to identify debt securities that could potentially incur credit impairment.

This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.

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

Management evaluates debt securities for 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 there is credit or interest rate-related impairment of a security.

The CECL standard requires credit losses on both held to maturity and available for sale securities to be recognized through a valuation allowance, ACL, instead of as a direct write-down to the amortized cost basis of the security.

The CECL standard requires credit losses on both HTM and AFS debt securities to be recognized through a valuation allowance instead of as a direct write-down to the amortized cost basis of the security.

Management assesses its intent to sell and 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.

1 unchanged sentence

The credit loss component is recognized in earnings as provision expense and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows.

The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.

The remaining difference between the security’s fair value and the present value of future expected cash flows due to factors that are not credit related is recognized in other comprehensive income.

For debt securities where Management has the intent to sell, the amount of the impairment is reflected in earnings as realized losses.

4 unchanged sentences

The Company elected the practical expedient of zero loss estimates for securities issued by U.S.

government entities and agencies for AFS and HTM securities.

government entities and agencies for available for sale and held to maturity securities.

These securities are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

The Company considers a debt security to be past due in terms of payment based on its contractual terms.

As debt security may be placed on nonaccrual, with interest no longer recognized, when collectability of principal or interest is doubtful.

As of December 31,2023, there were no nonaccrual or past due held-to-maturity and available for sale debt securities.

The Company elected the practical expedient of zero loss estimates for securities issued by U.S.

government entities and agencies for available for sale and held to maturity debt securities.

These securities are either explicitly or implicitly guaranteed by the U.S.

Government, are highly rated by major agencies and have a long history of no credit losses.

A debt security may be placed on nonaccrual, with interest no longer recognized, when collectability of principal or interest is doubtful.

A security may be partially or fully charged-off against the allowance if it is determined to be uncollectible.

3 unchanged sentences

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation loan or the government guaranteed portion of a loan.

Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company;

(ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation in a loan or the government guaranteed portion of a loan.

In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a participating interest.

2 unchanged sentences

Loans Held for Sale

Loans held for sale represent the guaranteed portion of certain SBA loans, other than loans originated under the Paycheck Protection Program, that the Company has elected to hold for sale and are reflected at the lower of aggregate cost or market value.

Loans held for sale represent the guaranteed portion of certain SBA loans, other than loans originated under the Paycheck Protection Program (“PPP”), that the Company has elected to hold for sale and are reflected at the lower of aggregate cost or market value.

The Company originates loans to customers under an SBA program that historically has provided for SBA guarantees of up to 90 percent of each loan.

14 unchanged sentences

Loans held for investment are stated at the unpaid principal balance, net of unearned discounts, deferred loan origination fees and costs and net charge-offs.

In accordance with the level yield method, loan origination fees, net of direct loan origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield.

In accordance with the level yield method, loan origination fees, net of direct loan

origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield.

Interest is credited to operations primarily based upon the principal balance outstanding.

Loans are reported as past due when either interest or principal is unpaid in the following circumstances:

fixed payment loans when the borrower is in arrears for two or more monthly payments;

open end credit for two or more billing cycles;

and single payment notes if interest or principal remains unpaid for 30 days or more.

Nonperforming loans consist of loans that are not accruing interest 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 (nonaccrual loans).

fixed payment loans when (i) the borrower is in arrears for two or more monthly payments;

(ii) open end credit for two or more billing cycles or (iii) single payment notes if interest or principal remains unpaid for 30 days or more.

Nonaccrual loans consist of loans that are not accruing interest 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 (nonaccrual loans).

When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings.

1 unchanged sentence

Loans may be returned to an accrual status when the ability to collect is reasonably assured or when the loan is brought current as to principal and interest.

Loans are charged off when collection is sufficiently questionable and when the Company can no longer justify maintaining the loan as an asset on the balance sheet.

Loans are charged-off when collection is in doubt and when the Company can no longer justify maintaining the loan as an asset on the Consolidated Balance Sheet.

Loans qualify for charge-off when, after thorough analysis, all possible sources of repayment are insufficient.

These include:

1) potential future cash flows, 2) value of collateral, and/or 3) strength of co-makers and guarantors.

All unsecured loans are charged off upon the establishment of the loan’s nonaccrual status.

(i) potential future cash flows;

(ii) value of collateral and/or (iii) strength of co-makers and guarantors.

Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged-off, subject to government guarantee.

All loan charge-offs are approved by executive management and the Board of Directors.

All loan charge-offs are approved by Executive Management.

For additional information on loans, see Note 3 to the Consolidated Financial Statements.

7 unchanged sentences

The allowance for credit losses is reported separately as a contra-asset on the Consolidated Balance Sheet.

The expected credit losses for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Balance Sheet in other liabilities.

The expected credit losses for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Balance Sheet in Accrued expenses and other liabilities.

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected.

3 unchanged sentences

If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis.

The Company generally considers those loans for individual evaluation to be those on nonaccrual.

Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible.

2 unchanged sentences

Such segments include SBA, Commercial, Residential mortgage, Consumer and Residential construction.

The Commercial segment is further bifurcated into SBA 504, Commercial & industrial, Commercial real estate and Commercial real estate construction.

The Commercial segment is further sub-segmented into SBA 504, Commercial & industrial, Commercial real estate and Commercial

construction.

The Consumer segment is further bifurcated into Home equity and Consumer other.

2 unchanged sentences

The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts.

After the reasonable and supportable forecast period, the Company reverts, after four quarters, on a straight-line basis, to the historical average economic variables.

After the reasonable and supportable forecast period, the Company reverts, after four quarters, on a straight-line basis over the following four quarters, to the historical average economic variables.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above.

Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations and the volume and severity of past due loans and non-accrual loans.

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics.

When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will record a provision for the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable.

1 unchanged sentence

To determine the expected funding rate, the Company uses a historical utilization rate for each segment.

As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the Consolidated Balance Sheet.

Prior to January 1, 2023

As further noted in the New Accounting Pronouncements Adopted in 2023 section, on January 1, 2023, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (or CECL) methodology.

Prior to the adoption of ASC 326, the ACL on loans and leases was maintained at a level that the Company believed was adequate to provide for probable loan losses as of the balance sheet date.

The level of the allowance was based on management’s evaluation of probable losses in the loan portfolio, after consideration of prevailing economic conditions in the Company’s market area, the volume and composition of the loan portfolio and historical loan loss experience.

The allowance for loan losses consists of specific reserves for individually impaired credits, reserves for nonimpaired loans based on historical loss factors adjusted for general economic factors and other qualitative risk factors such as changes in delinquency trends, industry concentrations or local/national economic trends.

This risk assessment process was performed at least quarterly and, as adjustments become necessary, they were realized in the periods in which they become known.

There were no changes to the Company’s methodology for credit loss estimates during the year ended December 31, 2024.

For additional information on the allowance for credit losses and reserve for unfunded loan commitments, see Note 4 to the Consolidated Financial Statements.

3 unchanged sentences

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

The useful life of buildings is not to exceed 30 years ;

furniture and fixtures is generally 10 years or less, and equipment is 3 to 5 years .

Leasehold improvements are depreciated over the life of the underlying lease.

The useful life of buildings is not to exceed 30 years , furniture and fixtures is generally 10 years or less and equipment is 3 to 5 years .

Leasehold improvements are depreciated over the lesser of the useful life of the asset or the life of the underlying lease.

For additional information on premises and equipment, see Note 5 to the Consolidated Financial Statements.

16 unchanged sentences

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 quantitative goodwill impairment test.

The Company accounts for goodwill and other intangible assets in accordance with Financial Accounting Standards Board Accounting Standards Codification (“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 quantitative goodwill impairment test.

Based on a qualitative assessment, Management determined that the Company’s recorded goodwill totaling $ 1.5 million, which resulted from the 2005 acquisition of its Phillipsburg, New Jersey branch, is not impaired as of December 31, 2024.

10 unchanged sentences

The Company’s derivative instruments currently consist of cash flow hedges.

The Company recognizes all derivative instruments at fair value as either Other assets or Other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section of the Consolidated Statement of Cash Flows.

For derivatives designated cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

The Company recognizes all derivative instruments at fair value in either Prepaid expense and other assets or Accrued expenses and other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section of the Consolidated Statement of Cash Flows.

For derivatives designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as undesignated derivatives and would be recorded at fair value with changes in fair value recorded in income.

1 unchanged sentence

(b) the derivative expires or is sold, terminated or exercised;

or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate.

(c) probability exists that the forecasted transaction will no longer occur or (d) Management determines that designating the derivative as a hedging instrument is no longer appropriate.

In all cases in which hedge accounting is discontinued and a derivative remains outstanding, the Company will carry the derivative at fair value in the Consolidated Financial Statements, recognizing changes in fair value in current period income in the Consolidated Statement of Income.

For additional information on derivative instruments and hedging activities, see Note 7 to the Consolidated Financial Statements.

The Company follows Financial Accounting Standards Board Accounting Standards Codification ("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.

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.

ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes.

9 unchanged sentences

The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are recognized in income tax expense on the income statement.

Interest and penalties associated with unrecognized tax benefits are recognized in income tax expense on the Consolidated Statements of Income.

For additional information on income taxes, see Note 11 to the Consolidated Financial Statements.

16 unchanged sentences

Operating Segments

While management monitors the revenue streams of its various products and services, operating results and financial performance are evaluated on a company-wide basis.

The Company’s management uses consolidated results to make operating and strategic decisions.

While Management, whom includes the President and Chief Executive Officer and acts as the Chief Operating Decision Maker (“CODM”), monitors the revenue streams of its various products and services, operating results and financial performance are evaluated on a company-wide basis.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

The CODM uses net income reporting in the Company’s Consolidated Statements of Income to make operating and strategic decisions.

Accordingly, there is only one reportable segment.

The Company adopted ASU 2023-07 during the year ended December 31, 2024 noting no material impact.

For further description of the Company’s products and services, refer to Item 1.

Revenue Recognition

ASC 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.

FASB ASC 606, Revenue from Contracts with Customers ("ASC 606") , establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.

The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures.

GAAP discussed elsewhere within the Company’s disclosures.

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in its income statements as components of non-interest income are as follows:

2 unchanged sentences

Payments for such performance obligations are generally received at the time the performance obligations are satisfied.

● Other non-interest income primarily includes items such as letter of credit fees, bank owned life insurance income, dividends on FHLB and FRB stock and other general operating income, none of which are subject to the requirements of ASC 606.

● Other non-interest income primarily includes items such as loan-related fees, bank owned life insurance income, dividends on FHLB and FRB stock and other general operating income, none of which are subject to the requirements of ASC 606.

Recent Accounting Pronouncements

ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.

Under ASU 2023-07, public entities must disclose significant expense categories and amounts for each reportable segment, where significant expense categories are defined as those that are regularly reported to an entity’s chief operating decision-maker and included in a segment’s reported measures of profit or loss.

Additionally, public entities must disclose the amount of other segment items and a description of its composition.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023.

As the Company has only one reportable segment, ASU 2023-07is not expected to have a significant impact on the Company’s consolidated financial statements.

Accounting Standard Update (“ASU”)

Required Adoption Date

Brief Description

Effect on the Company’s Financial Statements

ASU 2023-09, Income Taxes (Topic 740)

Improvements to Income Tax Disclosures” requires entities to improve the transparency of certain income tax related disclosures, including the rate reconciliation and taxes paid disclosures.

This ASU is effective for public business entities for the annual periods beginning after December 15, 2024.

ASU 2023-09 is not expected to have a significant impact on the Company’s consolidated financial statements.

New Accounting Guidance Adopted in 2023

2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” amends the accounting guidance regarding the impairment of financial instruments.

The FASB issued this guidance to replace the incurred loss impairment methodology with a new current expected credit loss (“CECL”) model.

Under the new guidance, the Company will be required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount.

The measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost, including loans and held to maturity debt securities.

CECL also applies to certain off-balance sheet exposures.

The Company adopted the new CECL accounting guidance effective January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The Company established a governance structure to implement the CECL accounting guidance and developed a methodology and set of models to be used upon adoption.

At December 31, 2022, the Company’s loan portfolio totaled, $ 2.1 billion with a corresponding allowance for loan losses of $ 25.2 million under then-current GAAP.

Based on the Company’s day one CECL model results that it performed alongside the then-current process, the Company saw adoption of the new guidance resulting in an increase to the allowance for credit losses , including the reserve for off-balance sheet credit exposure (recorded in other liabilities) of $ 0.9 million.

For other assets within the scope of the new CECL accounting guidance, such as held to maturity debt securities and other receivables, management determined that the impact from adoption was inconsequential.

ASU 2022-01, “Derivatives and Hedging (Topic 815)”:

ASU 2022-01 was issued to clarify the guidance in ACS 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets.

Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method.

ASU 2022-01 was effective January 1, 2023 and did not have a significant impact on the Company’s consolidated financial statements.

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”:

eliminates the guidance on troubled debt restructurings (“TDRs”) and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan.

ASU 2022-02 requires that entities disclose if they result in a new loan or a continuation of the existing loan.

ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases.

The Company saw inconsequential impact of the adoption of ASU 2022-02 on its consolidated financial statements and the accompanying footnotes disclose the new requirements.

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

Fiscal years beginning after December 15, 2024

Improve transparency of certain income tax related disclosures, including the rate reconciliation and taxes paid disclosures.

No significant impact

ASU 2024-03, Income Statement – Reporting comprehensive income – Expense Disaggregation Disclosures (Subtopic 220-40)

Fiscal years beginning after December 15, 2026

Improve transparency of specific expense categories, which is generally not presented in the financial statements today.

No significant impact

This table provides the major components of debt securities AFS, HTM and equity securities at amortized cost and estimated fair value at December 31, 2024 and December 31, 2023:

December 31, 2024

(In thousands)

credit losses

Available for sale:

2 unchanged sentences

Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

13 unchanged sentences

Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

7 unchanged sentences

Total equity securities

For the year ended December 31, 2023, the provision for credit loss on AFS debt securities was $ 1.3 million, compared to no provision for the year ended December 31, 2022.

The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at December 31, 2023 and 2022:

For the year ended December 31, 2024, the provision for credit losses on AFS debt securities was $ 1.5 million, compared to $ 1.3 million for the year ended December 31, 2023.

The following table summarizes the amortized cost of HTM debt securities by external credit rating at December 31, 2024 and 2023:

Non-investment

29 unchanged sentences

As of December 31, 2024, the company had accrued interest receivable of $ 1.2 million relating to debt securities, compared to $ 1.5 million at December 31, 2023.

During the year ended December 31, 2024, $ 125 thousand in interest income was reversed relating to nonaccrual debt securities compared to none during the year ended December 31, 2023.

year ended December 31, 2024, $ 213 thousand in interest payments were recorded as a reduction of principal relating to nonaccrual debt securities compared to none during the year ended December 31, 2023.

At the year-end 2024 and 2023, there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10 % of shareholders’ equity.

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

The fair value of securities with unrealized losses by length of time where the individual securities have been in a continuous unrealized loss position at December 31, 2024 and December 31, 2023 are as follows:

December 31, 2024

6 unchanged sentences

Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

Total temporarily impaired securities

Total temporarily impaired AFS securities

Held to maturity:

1 unchanged sentence

Residential mortgage-backed securities

Total temporarily impaired securities

Total temporarily impaired HTM securities

December 31, 2023

6 unchanged sentences

Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

Total temporarily impaired securities

Total temporarily impaired AFS securities

Held to maturity:

1 unchanged sentence

Residential mortgage-backed securities

Total temporarily impaired securities

Total temporarily impaired HTM securities

Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate fluctuations.

9 unchanged sentences

(In thousands)

Net unrealized losses recognized during the period on equity securities

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

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

Gains (losses) recognized during the reporting period on equity securities

Gains recognized during the reporting period on equity securities

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

15 unchanged sentences

SBA loans held for sale

(1) Commercial real estate includes Commercial Mortgage – Owner Occupied, Commercial Mortgage – Nonowner Occupied and Commercial Mortgage – Other.

Commercial Mortgage – Other primarily includes multifamily and land loans.

Loans are made to individuals and commercial entities.

6 unchanged sentences

SBA loans are for the purpose of providing working capital, business acquisitions, financing the purchase of equipment, inventory or commercial real estate and for other business purposes.

Loans are guaranteed by the businesses’ major owners.

Loans are guaranteed by

the businesses’ major owners.

SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

7 unchanged sentences

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets.

Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets.

Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets, in the accompanying Consolidated Statements of Income.

Commercial Loans:

17 unchanged sentences

Credit Ratings

The Company places all SBA and commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt.

The Company places all SBA, commercial and residential construction loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt.

The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends.

6 unchanged sentences

If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

These loans are inadequately protected by the current net worth and/or paying capacity of the obligor or of the collateral pledged, if any.

Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.

They are characterized by the distinct possibility that the institution may sustain some loss if the deficiencies are not corrected.

These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values.

Once a borrower is deemed incapable of repayment of unsecured debt, the loan is termed a “Loss” and charged-off immediately, subject to government guarantee.

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

For residential mortgage and consumer 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.

23 unchanged sentences

Consumer loans

Nonperforming

Total consumer loans

1 unchanged sentence

Current-period gross writeoffs

Residential construction loans

Nonperforming

Residential construction

Total residential construction loans

2 unchanged sentences

Total loans held for investment

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, 2022:

December 31, 2022

SBA & Commercial loans - Internal risk ratings

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

Amortized Cost Basis by Origination Year

(In thousands)

2018 and Earlier

Revolving Loans Amortized Cost Basis

SBA loans held for investment

Special Mention

Total SBA loans held for investment

SBA loans held for investment

Current-period gross writeoffs

SBA PPP loans

Total SBA PPP loans

Commercial loans

SBA 504 loans

Commercial & industrial

Commercial real estate

Commercial real estate construction

Special Mention

Total commercial loans

Total commercial loans and SBA loans held for investment

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

(In thousands)

Commercial loans

Current-period gross writeoffs

Residential mortgage loans

Nonperforming

Total residential mortgage loans

Residential mortgage loans

Current-period gross writeoffs

Consumer loans

Consumer other

Nonperforming

Total consumer loans

Consumer loans

Current-period gross writeoffs

Residential construction loans

Total residential mortgage, consumer and residential construction loans

Nonperforming

Total residential construction loans

Residential construction

Current-period gross writeoffs

Total loans held for investment

Nonaccrual and Past Due Loans

21 unchanged sentences

Total loans, excluding SBA PPP

(1) At December 31, 2023, the Company had no SBA PPP loans past due.

December 31, 2023

13 unchanged sentences

Total loans, excluding SBA PPP

(2) At December 31, 2022, the Company had $ 1.4 million of SBA PPP loans past due.

As of December 31, 2023, the company had accrued interest receivable of $ 11.7 million relating to loans receivable.

(1) At December 31, 2024 and 2023, the Company had no SBA PPP loans past due.

As of December 31, 2024 and 2023, the Company had accrued interest receivable of $ 11.3 million and $ 11.7 million relating to loans receivable, respectively.

During the years ended December 31, 2024 and 2023 the company reversed $ 0.6 million and $ 0.9 million in interest income from nonaccrual loans, respectively.

Individually Evaluated Loans

9 unchanged sentences

Commercial loans

Commercial & industrial

Commercial real estate

1 unchanged sentence

Residential mortgage loans

Consumer loans

Total consumer loans

Residential construction loans

Total individually evaluated loans with no related allowance

3 unchanged sentences

Commercial & industrial

Commercial real estate

Total commercial loans

Residential mortgage loans

Residential construction loans

Total individually evaluated loans with a related allowance

6 unchanged sentences

Residential mortgage loans

Consumer loans

Total consumer loans

Residential construction loans

2 unchanged sentences

Allowance for

Credit Losses

(In thousands)

2 unchanged sentences

Commercial loans

Commercial & industrial

Commercial real estate

1 unchanged sentence

Residential mortgage loans

Total impaired loans with no related allowance

Consumer loans

Total consumer loans

Residential construction loans

Total individually evaluated loans with no related allowance

With an allowance:

2 unchanged sentences

Commercial & industrial

Commercial real estate

Total commercial loans

Residential mortgage loans

Residential construction loans

Total impaired loans with a related allowance

Total impaired loans:

Total individually evaluated loans with a related allowance

Total individually evaluated loans:

SBA loans held for investment

4 unchanged sentences

Residential mortgage loans

Consumer loans:

Total consumer loans

Residential construction loans

Total impaired loans

The Company did not recognize interest income on nonaccrual loans for the year ended December 31, 2023 and recognized $ 371 thousand for the year ended December 31, 2022.

Total individually evaluated loans

The Company did no t recognize interest income on nonaccrual loans for the years ended December 31, 2024 and December 31, 2023.

Other Loan Information

2 unchanged sentences

The total amount of such loans serviced, but owned by third party investors, amounted to approximately $ 179.0 million and $ 184.2 million at December 31, 2024 and 2023, respectively.

At December 31, 2023 and 2022, the carrying value of servicing assets was $ 0.9 million and $ 0.7 million, respectively, and is included in Other assets.

At December 31, 2024 and 2023, the carrying value of

servicing assets was $ 0.7 million and $ 0.9 million, respectively, and is included in Prepaid expenses and other assets.

A summary of the changes in the related servicing assets for the past two years follows:

5 unchanged sentences

Balance, end of year

In addition, the Company had a $ 600 thousand and $ 641 thousand in discounts related to the retained portion of unsold SBA loans at December 31, 2023 and 2022, respectively.

In addition, the Company had $ 0.5 million and $ 0.6 million in discounts related to the retained portion of unsold SBA loans at December 31, 2024 and 2023, respectively.

These discounts are amortized to income over the same period of the balance of the loans sold.

As of December 31, 2024 and 2023, the Company held $ 3.4 million and $ 5.0 million, respectively, in Residential mortgage loans in the process of being sold.

Officer and Director Loans:

28 unchanged sentences

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

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

Payment Delay

Term Extension

(In thousands)

of Loan Class

SBA loans held for investment

Commercial loans

Commercial real estate

Commercial & industrial

Residential mortgage loans

Consumer loans

Balance, December 31, 2024

Principal Forgiveness

Payment Delay

Term Extension

(In thousands)

of Loan Class

SBA loans held for investment

Commercial loans

Commercial & industrial

Commercial real estate

Consumer loans

Balance, end of year

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off.

Balance, December 31, 2023

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged-off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

No loans that were modified during the year ended December 31, 2023 had a payment default during the period and all loans were current as of December 31, 2023.

One loan, a $ 2.2 million home equity loan, that was modified during the year ended December 31, 2024 was not in compliance with the modified terms as of December 31, 2024 compared to none as of December 31, 2023.

Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

8 unchanged sentences

Commercial loans are divided into the following four classes:

commercial real estate, commercial real estate construction, commercial & industrial and SBA 504.

commercial mortgage, commercial real estate construction, commercial & industrial and SBA 504.

Consumer loans are divided into two classes as follows:

5 unchanged sentences

delinquency and impairment trends, charge-off and recovery trends, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes.

These environmental factors include reasonable and supportable forecasts.

Within the historical net charge-off rate, the Company weights the data dating back to 2015 on a straight line basis and projects the losses on a weighted average remaining maturity basis for each segment.

2 unchanged sentences

Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics.

The Company also elected an economic overlay as part of its methodology which incorporates the probability of recession based upon the Federal Reserve NYFYPROB Index.

● For SBA 7(a) and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis.

● For SBA 7(a), commercial and residential construction loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis.

The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects.

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

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

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

Factors such as delinquency status and type of collateral are evaluated.

11 unchanged sentences

Balance, beginning of period

Impact of adoption of ASU 2016-13 ("CECL")

Net charge-offs

4 unchanged sentences

Balance, beginning of period

Net (charge-offs) recoveries

(Credit to) provision for loan losses charged to expense

Impact of adoption of ASU 2016-13 ("CECL")

Net charge-offs

Provision for (credit to) credit losses charged to expense

Balance, end of period

12 unchanged sentences

(In thousands)

Allowance for loan losses ending balance:

for Investment

Allowance for credit losses ending balance:

Individually evaluated for impairment

3 unchanged sentences

Collectively evaluated for impairment

Total loans held for investment

The Company allocated an additional reserve for loans with a substandard rating, not otherwise considered for specific reserves.

At December 31, 2023 and 2022, all loans individually evaluated for credit losses were secured by residential and commercial real estate.

The provision for credit losses for loans decreased $ 2.4 million for the year ended 2023 primarily due to slower loan growth, as well as management's view of current economic conditions.

The change in the allowance for credit losses for the year-ended December 31, 2024 was mainly due to loan growth, partially offset by charge-offs.

Reserve for Unfunded Loan Commitments

3 unchanged sentences

As noted above, the allowance for credit losses on unfunded loan commitments is included in Other liabilities on the Consolidated Balance Sheet.

At December 31, 2023, a $ 0.6 million commitment reserve was reported, compared to a $ 0.5 million commitment reserve at December 31, 2022.

Reserve for AFS Debt Security Impairment

The Company maintains a reserve for credit losses on AFS debt securities.

Adjustments to the reserve are made through provision for credit losses and applied to the reserve which is classified in “Debt securities available for sale” on the balance sheet.

At December 31, 2023, a $ 1.3 million reserve was reported, compared to none at December 31, 2022.

At December 31, 2024 and 2023, a $ 0.6 million commitment reserve was reported.

Valuation Allowance:

Debt Security Available for Sale

The Company maintains a valuation allowance on AFS debt securities.

Adjustments to the reserve are made through provision for credit losses and applied to the reserve which is classified in “Debt securities available for sale” on the Consolidated Balance Sheet.

At December 31, 2024, a $ 2.8 million reserve was reported, compared to $ 1.3 million at December 31, 2023.

The Company maintains a valuation allowance on HTM debt securities at a level that Management believes is adequate to absorb estimated probable losses.

At December 31, 2024 and December 31, 2023, no reserve was reported on the Consolidated Balance Sheet as these securities are either explicitly or implicitly guaranteed by the U.S.

Government, are highly rated by major agencies and have a long history of no credit losses.

Premises and Equipment

9 unchanged sentences

Net premises and equipment

Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.4 million in 2023 and 2022, respectively.

Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $ 1.5 and $ 1.4 million in 2024 and 2023, respectively.

The following table details the maturity distribution of time deposits as of December 31 st for the past two years:

19 unchanged sentences

Subordinated debentures:

The following table presents borrowed funds and subordinated debentures by maturity or call date over the next five years:

The following table presents borrowed funds and subordinated debentures by maturity over the next five years:

(In thousands)

9 unchanged sentences

The subordinated debentures are redeemable in whole or part, prior to maturity but after July 24, 2011.

For 2023, the floating interest rate on the subordinated debentures is the three-month CME term SOFR plus 262 basis points and reprices quarterly.

For 2022, the floating interest rate on the subordinated debentures was three-month LIBOR plus 159 basis points and repriced quarterly.

The floating interest rate on the subordinated debentures is the three-month CME term SOFR plus 262 basis points and reprices quarterly.

The floating interest rate was 6.189 % at December 31, 2024 and 7.212 % at December 31, 2023.

14 unchanged sentences

Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any.

Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s Consolidated Balance Sheet as Other assets or Other liabilities.

Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s Consolidated Balance Sheet as Prepaid expenses and other assets or Accrued expenses and other liabilities.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to any derivative agreement.

1 unchanged sentence

The Company deals only with primary dealers.

Derivative instruments are generally either negotiated OTC contracts or standardized contracts executed on a recognized exchange.

Derivative instruments are generally either negotiated over the counter (“OTC”) contracts or standardized contracts executed on a recognized exchange.

Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

19 unchanged sentences

Number of contracts

In the third quarter of 2024, to hedge floating rate liability exposure, the Company entered into a forward starting pay-fix, receive-float interest rate swap which will commence in the first quarter of 2025, maturing in the first quarter of 2028.

The interest rate swap, which qualifies for hedge accounting, is tied to the Secured Overnight Financing Rate (SOFR) for a

notional amount of $ 20.0 million.

The effective fixed rate interest rate obligation to the Company is 2.89 % .

As of December 31, 2024, the fair value of the swap was $ 0.6 million.

During the twelve months ended December 31, 2024 the Company received variable rate SOFR payments from and paid fixed rates in accordance with its interest rate swap agreements.

In 2022, the Company utilized LIBOR.

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 Consolidated Balance Sheet.

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 income.

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 (losses) gains recorded in other comprehensive income and the Consolidated Financial statements relating to the cash flow derivative instruments at December 31, 2023 and 2022, respectively:

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, 2024 and 2023, respectively:

For the years ended December 31,

(In thousands)

(Loss) gain recognized in OCI

(Loss) gain reclassified from AOCI into net income

Loss recognized in OCI

Loss reclassified from AOCI into net income

Leases and Commitments

Operating leases in which the Company is the lessee and the term is greater than 12 months, are recorded as right of use ("ROU") assets and lease liabilities, and are included in Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively, on the Bank’s Consolidated Balance Sheets.

The Bank does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Bank’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Bank’s incremental borrowing rate.

The Company does not currently have any finance leases in which it is the lessee.

Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate.

The borrowing rate for each lease is unique based on the lease term.

Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in Occupancy expense in the Consolidated Statements of Income.

The Bank’s leases relate primarily to bank branches, office space and equipment with remaining lease terms of generally 1 to 10 years .

The Company’s leases relate primarily to the Company’s bank branches and office space with remaining lease terms of generally 1 to 10 years .

Certain lease arrangements contain extension options which typically range from 1 to 5 years at the then fair market rental rates.

13 unchanged sentences

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

ROU assets obtained in exchange for new operating lease liabilities

As of December 31, 2023, the Company had no lease terminations.

In 2022, the Company terminated one lease.

This decreased both the ROU asset and lease liability by $ 0.5 million.

Operating cash flows for operating leases

As of December 31, 2024 and December 31, 2023, the Company had no lease terminations.

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

21 unchanged sentences

Accumulated Other Comprehensive (Loss) Income

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

The following tables shows the changes in other comprehensive (loss), net of tax income for the past two years:

For the year ended December 31, 2024

1 unchanged sentence

Net unrealized

gains (losses)

(losses) gains on

from cash flow

gains (losses) from

cash flow hedges

comprehensive

9 unchanged sentences

Net unrealized

gains (losses) on

from cash flow

(losses) gains on

gains (losses) from

cash flow hedges

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 loss

Period change

2 unchanged sentences

Repurchase Plan

On April 27, 2023, the Board authorized a repurchase plan of up to 500 thousand shares, or approximately 5.0 % of the Company’s outstanding common stock.

This plan is in addition to the previously approved repurchase plan, under which the Company was authorized to purchase up to 750 thousand outstanding shares of common stock.

A total of 656 thousand shares were repurchased at an average price of $ 23.69 during 2023, of which 570 thousand shares were repurchased under the prior repurchase plan, leaving 414 thousand shares available for repurchase.

A total of 1,572 shares were repurchased at an average price of $ 26.49 during 2022, leaving 570 thousand shares available for repurchase as of December 31, 2022.

The timing and amount of additional purchases, if any, will depend upon several factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for credit losses and the market price of the Company’s stock.

Total Number of

Shares Purchased

Shares that May

as Part of Publicly

Yet be Purchased

Average Price

Announced Plans

Under the Plans

Paid per Share

January 1, 2023 through March 31, 2023

April 1, 2023 through June 30, 2023

July 1, 2023 through September 30, 2023

October 1, 2023 through December 31, 2023

On August 1, 2024 the Board authorized a repurchase plan permitting the repurchase of up to 500 thousand shares, or approximately 5.0 % of the Company’s outstanding common stock, in addition to the previously approved repurchase plan authorizing the repurchase of up to 500 thousand shares of common stock.

A total of 229 thousand shares were repurchased at an average price of $ 27.05 during 2024, all of which were repurchased under the prior repurchase plan, leaving 685 thousand shares available for repurchase as of December 31, 2024.

A total of 656 thousand shares were repurchased at an average price of $ 23.69 during 2023, leaving 414 thousand shares available for repurchase as of December 31, 2023.

The timing and amount of additional purchases, if any, will depend upon several factors including the Company’s capital needs, the Company’s liquidity position, the performance of its loan portfolio, the need for additional provisions for credit losses and the market price of the Company’s stock.

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

5 unchanged sentences

State - current provision

State - deferred benefit

State - deferred (benefit) provision

Total state provision

10 unchanged sentences

Captive insurance premium

Non-deductible compensation

State income taxes, net of federal benefit

16 unchanged sentences

Deferred tax liabilities:

Prepaid insurance

Deferred servicing fees

9 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.

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

Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on AFS debt securities 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 $ 3.4 million in 2023, compared to unrealized loss of $ 4.4 million in 2022.

The after-tax component related to AFS debt securities was an unrealized loss of $ 2.7 million in 2024, compared to unrealized loss of $ 3.4 million in 2023.

The after tax component related to the interest rate swaps was an unrealized gain of $ 0.5 million for 2024, compared to an unrealized gain of $ 0.7 million for 2023.

1 unchanged sentence

ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of income taxes.

The Company accrued penalties related to income taxes during the year ended December 31, 2023 relating to prior tax years.

The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2022.

The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2024 or 2023.

The Company does not have an accrual for uncertain tax positions as of December 31, 2024 or 2023, as deductions taken or benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law.

13 unchanged sentences

Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Bank’s and consolidated Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

The minimum capital level requirements include:

2 unchanged sentences

and (iv) a total capital ratio of 8% for all institutions.

The Bank and the consolidated Company are also required to maintain a “capital conservation buffer” of 2.5 % above the regulatory minimum capital ratios which results in the following minimum ratios:

The Bank is also required to maintain a “capital conservation buffer” of 2.5 % above the regulatory minimum capital ratios which results in the following minimum ratios:

(i) a common equity Tier 1 capital ratio of 7.0 %;

4 unchanged sentences

The following table shows information regarding the Company’s and the Bank’s regulatory capital levels at December 31, 2024 and at December 31, 2023, as if the Company were subject to consolidated capital requirements.

However, due to a Federal Reserve policy applicable to bank holding companies with less than $3 billion in consolidated assets, the Company is not subject to consolidated capital requirements:

As of December 31, 2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, an institution must maintain minimum total risk-based, common equity Tier 1 risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

There are no conditions or events since the notification that Management believes have changed the Bank’s category.

Management believes that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Due to a Federal Reserve policy applicable to bank holding companies with less than $3 billion in consolidated assets, the Company is not subject to consolidated capital requirements:

Required for Capital

2 unchanged sentences

Corrective Action

Regulations *

(Dollars in thousands)

1 unchanged sentence

Total risk-based capital (to risk-weighted assets)

Company Consolidated

Common equity tier 1 (to risk-weighted assets)

Company Consolidated

Tier 1 capital (to risk-weighted assets)

Company Consolidated

Tier 1 capital (to average total assets)

Company Consolidated

As of December 31, 2023 (1)

Total risk-based capital (to risk-weighted assets)

Company Consolidated

Common equity tier 1 (to risk-weighted assets)

Company Consolidated

Tier 1 capital (to risk-weighted assets)

Company Consolidated

Tier 1 capital (to average total assets)

Company Consolidated

*Prompt Corrective Action requirements only apply to the Bank

(1) The Bank elected to cease being subject to the CBLR effective December 31, 2023 and to report its capital ratios using standard regulatory measures.

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Income tax benefit

As of December 31, 2023, unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the Company’s stock option plans totaled approximately $ 33 thousand.

That cost is expected to be recognized over a weighted average period of 0.2 years.

As of December 31, 2024, there was no unrecognized compensation costs related to nonvested share-based stock option compensation arrangements granted under the Company’s plans as all options were fully vested.

Restricted Stock Awards

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The Bank may also make discretionary contributions to the 401(k) plan.

The Bank contributed $ 846 thousand and $ 790 thousand to the Plan in 2023 and 2022 respectively.

The Bank contributed $ 0.9 million and $ 0.8 million to the Plan in 2024 and 2023, respectively.

Deferred Compensation Plan

The Company has a deferred compensation plan for Directors and eligible Management.

Directors of the Company have the option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of management has the option to elect to defer up to 100 percent of their total compensation.

Director and executive deferred compensation totaled $ 1.0 million in 2023 and $ 674 thousand in 2022, and the interest paid on deferred balances totaled $ 422 thousand in 2023 and $ 162 thousand in 2022.

Directors of the Company have the option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of Management has the option to elect to defer up to 100 percent of their cash based compensation.

Director and Management deferred compensation totaled $ 1.0 million in 2024 and $ 1.0 million in 2023, and the interest paid on deferred balances totaled $ 0.5 million in 2024 and $ 0.4 million in 2023.

The deferred balances distributed totaled $ 14 thousand in 2024 and $ 724 thousand in 2023.

The total deferred balances included in the Company’s Consolidated Balance Sheet was $ 4.8 million and $ 4.1 million as of December 31, 2023 and 2022, respectively.

The total deferred balances included in the Company’s Consolidated Balance Sheet were $ 6.4 million and $ 4.8 million as of December 31, 2024 and 2023, respectively.

Benefit Plans

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A discount rate of four percent ( 4 %) was used to calculate the present value of the benefit obligation.

The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and it will vest an additional three percent ( 3 %) each year until fully vested on January 1, 2024.

The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and fully vested on January 1, 2024.

No contributions or payments have been made for the year 2024 or 2023.

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Interest cost

Amortization of prior service cost

Net periodic benefit cost

For the years ended December 31, 2024 and 2023, service cost and interest cost were included in Compensation and benefits expense on the Consolidated Statements of Income.

The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years ended December 31, 2024 and 2023:

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The EIRP is an unfunded, nonqualified deferred compensation plan.

For any EIRP Year, a guaranteed annual Deferral Award percentage of seven and one half percent ( 7.5 %) of the participant’s annual base salary shall be credited to each Participant’s Deferred Benefit Account.

For any EIRP Year, a guaranteed annual Deferral Award, equal to seven and one half percent ( 7.5 %) of the participant’s annual base salary, may be credited to each Participant’s Deferred Benefit Account.

A discretionary annual Deferral Award, equal to seven and one half percent ( 7.5 %) of the participant’s annual base salary, may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix.

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As of December 31, 2024, the Company had total expenses related to the EIRP of $ 124 thousand, compared to $ 132 thousand in 2023.

The EIRP is reflected on the Company’s Consolidated Balance Sheet as Accrued expenses.

Certain members of senior management are also enrolled in a split-dollar life insurance plan with a post retirement death

The EIRP is reflected on the Company’s Consolidated Balance Sheet as Accrued expenses and other assets.

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 in 2023 and $ 22 thousand in 2022.

Additionally, $ 55 thousand of prior period expense was reversed during 2022.

This was related to adjustments made to the members of management participating in the plan.

Fair Value Measurement

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● Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e.

New York Stock Exchange), as well as certain U.S.

Treasury, U.S.

Government and sponsored entity agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

New York Stock Exchange).

Level 2 Inputs

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● Generally, this includes U.S.

Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Government sponsored mortgage-backed securities, asset backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

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The fair value of available for sale ("AFS") debt securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers (Level 1).

If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

If listed prices or quotes are not available, fair value is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

As of December 31, 2024, the fair value of the Company’s AFS debt securities portfolio was $ 93.9 million.

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Included in the Company’s AFS debt securities are certain corporate bonds which are classified as Level 3 assets at December 31, 2024.

The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices, or other valuation techniques, such as discounted cash flow techniques.

The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices,

or other valuation techniques, such as discounted cash flow techniques.

Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads, and trade execution data.

The following table presents a reconciliation of the Level 3 available for sale debt securities measured at fair value on a

The following table presents a reconciliation of the Level 3 AFS debt securities measured at fair value on a

recurring basis for the years ended December 31, 2024 and 2023:

Collateralized Debt Obligations

Corporate and Other Securities

(In thousands)

Balance of Recurring Level 3 assets at January 1

Losses in other comprehensive income

Unrealized holding gains (losses) included in other comprehensive income

Principal Payments

Transfers into Level 3

Unrealized holding losses included in net income

Balance of recurring Level 3 assets at December 31

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As of December 31, 2024, the fair value of the Company’s equity securities portfolio was $ 9.9 million.

All of the Company’s equity securities were classified as Level 1 assets at December 31, 2023.

All of the Company’s equity securities were classified as Level 1 assets at December 31, 2024 and 2023.

The valuation of securities using Level 1 inputs was primarily determined by active markets with readily determinable fair value using quoted market prices.

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Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

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Residential mortgage-backed securities

Asset backed securities

Corporate and other securities

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Total swap agreements

There were no liabilities measured on a recurring basis as of December 31, 2024 and 2023.

Fair Value on a Nonrecurring Basis

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The valuation allowance for individually evaluated loans is included in the allowance for credit losses in the Consolidated Balance Sheets.

At December 31, 2023, the valuation allowance for individually evaluated loans was $ 1.0 million, a decrease of $ 0.8 million from $ 1.8 million at December 31, 2022.

The valuation allowance for individually evaluated loans was $ 1.0 million at December 31, 2023 and December 31, 2024.

Fair Value of Financial Instruments

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LIABILITIES AND SHAREHOLDERS’ EQUITY

Loan due to subsidiary bank

Other liabilities

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Gain on sales of securities

Market value appreciation on equity securities

Interest expenses

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

Benefit for income taxes

Income tax expense (benefit)

Income before equity in undistributed net income of subsidiary

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Gain on sales of securities

Net accretion of purchase premiums and discounts on securities

Net change in other assets and other liabilities

1 unchanged sentence

INVESTING ACTIVITIES

Purchases of securities

Purchases of equity securities

Proceeds from business divestitures

Maturities and principal payments on securities available for sale

Purchases of premises and equipment

Proceeds from sales of securities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

FINANCING ACTIVITIES

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Net cash used in financing activities

(Decrease) increase in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

3 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Unity Bancorp, Inc.

To the Shareholders and the Board of Directors

Unity Bancorp, Inc.

Opinion on the Financial Statements

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

and its subsidiaries (the Company) as of December 31, 2023, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the year ended December 31, 2023, 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, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 and our report dated March 7, 2025 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January, 1, 2023 upon the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (ASC 326).

Basis for Opinion

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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.

(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 a 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 accounts or disclosures to which it relates.

1 unchanged sentence

As described in Notes 1, 3 and 4 to the financial statements, the Company has recorded an allowance for credit losses (ACL) in the amount of $26.8 million as of December 31, 2024, representing management’s estimate of credit losses over the remaining expected life of the Company’s loan portfolio as of that date.

Upon adoption of ASC 326 on January 1, 2023, the Company recorded a cumulative effect adjustment to opening retained earnings which increased the ACL, including the reserve for off-balance sheet credit exposure (recorded in other liabilities) by $0.9 million, net of $0.3 million of related deferred income tax effects.

Management determined these amounts, and corresponding provision for credit loss expense, pursuant to the application of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses .

The Company’s methodology to determine its allowance for credit losses incorporates quantitative and qualitative assessments of its historical losses, current loan portfolio and economic conditions, the application of forecasted economic conditions, and related modeling.

We determined that performing procedures relating to the qualitative and forecasted components of the Company’s methodology is a critical audit matter.

We determined that performing procedures relating to the qualitative and forecasted components of the Company’s methodology are a critical audit matter.

The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology, significant assumptions and calculations.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Unity Bancorp, Inc.

To the Shareholders and the Board of Directors

Unity Bancorp, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Unity Bancorp, Inc.

and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.

and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the COSO in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 7, 2025 expressed an unqualified opinion.

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March 7, 2025

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 sheet of Unity Bancorp, Inc.

and Subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows, for the year then ended, 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, 2022, and the results of its operations and its cash flows for the year then ended 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 audit.

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

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

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

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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.

Our audit 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 audit 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 audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the 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, 2022, was $25.2 million.

As described in Notes 1 and 4 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 judgment, will be adequate to absorb losses on existing loans.

The allowance consists of specific and general components in the amounts of $1.8 million and $23.4 million, respectively.

Specific reserves are made for 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 judgment 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 from 2007 to 2023.

New York, New York

March 10, 2023

Supplementary Data (Unaudited)

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Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Total noninterest income

6 unchanged sentences

At or for the years ended December 31,

(In thousands, except percentages)

(In thousands, except percentages and per share data)

Selected Results of Operations

20 unchanged sentences

Return on average equity

Average equity to average assets

Efficiency ratio (1)

Dividend payout (2)

Net interest spread

2 unchanged sentences

Allowance for credit losses to loans

Allowance for credit losses to nonperforming loans

Nonperforming loans to total loans

Nonperforming assets to total loans and OREO

Nonperforming assets to total assets

Allowance for credit losses to nonaccrual loans

Nonaccrual loans to total loans

Nonaccrual assets to total assets

Net charge-offs to average loans

9 unchanged sentences

Total risk-based capital ratio

(1) Selected Consolidated Financial Data The efficiency ratio is a non-GAAP measure of operational performance.

(1) The efficiency ratio is a non-GAAP measure of operational performance.

It is defined as noninterest expense divided by the sum of net interest income plus noninterest income, excluding net gains and losses on securities.

(2) Defined as dividends declared per share divided by diluted net income per share.

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