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Item 7. Management’s Discussion and Analysis

2026-03-04 compared with 2025-03-07 · 127 added, 113 removed, 568 unchanged (30% of the section changed)

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(the “Parent Company”) 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, Unity Bank (the “Bank” or, when consolidated with the Parent Company, the “Company”) is chartered by the New Jersey Department of Banking and Insurance and commenced operations on September 13, 1991.

The Bank provides a full range of commercial and retail banking services through online banking platforms and its twenty-one branch offices located in Bergen, Hunterdon,

Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania.

Its wholly-owned subsidiary, Unity Bank (the “Bank” or,

when consolidated with the Parent Company, the “Company”) is chartered by the New Jersey Department of Banking and Insurance and commenced operations on September 13, 1991.

The Bank provides a full range of commercial and retail banking services through online banking platforms and its twenty-two 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, SBA and other commercial credits.

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● Net income per diluted share increased 39.7 percent to $5.67 per share from $4.06 per share in the prior year.

● Net interest income increased $3.6 million, or 3.8 percent, to $98.6 million from $95.0 million in the prior year, primarily due to additional interest income primarily resulting from increases in the yield of interest-earning assets, partially offset by an increased cost of interest-bearing liabilities.

● Net interest income increased $18.4 million, or 18.7 percent, to $117.0 million from $98.6 million in the prior year, primarily due to increased volume and rate of interest-earning assets and decrease in rate of interest-bearing liabilities, partially offset by increases in the volume of interest-bearing liabilities.

● Net interest margin for the year ending December 31, 2025 increased 36 basis points to 4.52 percent compared to 4.16 percent in the prior year.

● Noninterest income was $8.5 million, a 4.0 percent increase compared to $8.1 million in the prior year, primarily due to net securities gains, branch fee income and service and loan fees increasing, partially offset by a decrease in gain on sale of SBA loans held for sale and BOLI income.

● Noninterest income was $14.8 million, a 74.5 percent increase compared to $8.5 million in the prior year, primarily due to increased net securities gains, service and loan fee and branch fee income.

The increased net

gains on securities was primarily driven by $1.7 million in unrealized gains and $3.5 million in realized gains on the Patriot National Bancorp, Inc.

● Noninterest expense totaled $52.4 million, an increase of $3.7 million when compared to $48.7 million in the prior year.

The increase was primarily due to increased compensation and benefits expenses and processing and communications expenses, partially offset by a decrease in deposit insurance expenses.

The increase was primarily due to increased compensation and benefits, processing and communications, director fees and occupancy expenses, partially offset by a decrease in loan related expenses.

● Net income before provision for income taxes increased 38.8 percent to $75.5 million from $54.4 million in the prior year.

● The effective tax rate decreased to 23.3 percent compared to 23.8 percent in the prior year.

● Total securities decreased $21.0 million, or 14.5 percent from the prior year.

The decrease was driven by a decrease in debt securities available for sale and held to maturity, primarily resulting from principal paydowns, calls and maturities, partially offset by purchases and mark to market gains of debt securities available for sale.

● Total gross loans increased $284.1 million, or 12.6 percent from the prior year.

The increase was primarily driven by a 10.5 percent increase in commercial loans, partially offset by a 30.7 percent decrease in residential construction loans.

The increase was primarily driven by a 18.5 percent increase in commercial loans, 13.1 percent increase in commercial construction and 7.3 percent increase in residential mortgage loans, partially offset by a 19.4 percent decrease in residential construction loans.

● Total deposits increased $223.7 million, or 10.7 percent from the prior year.

The increase was primarily driven by increases in time deposits, partially offset by a decrease in savings deposits.

● Total securities increased $9.3 million, or 6.9 percent from the prior year.

The increase was primarily driven by an increase in debt securities held to maturity and equity securities.

● Total borrowed funds decreased $135.9 million, or 38.1 percent from the prior year.

The decrease was primarily due to customer deposit growth.

The increase was primarily driven by increases in brokered deposits, time deposits, interest-bearing demand deposits, savings deposits and noninterest-bearing demand deposits.

● Total borrowed funds increased $35.3 million, or 16.0 percent from the prior year.

The Company’s performance ratios for the past two years are listed in the following table:

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Return on average equity (3)

Efficiency ratio (4)

Dividend payout ratio (4)

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

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

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

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

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The below table provides net income for 2024 and the component reconciliation to net income for 2025:

The table below an annualized non-GAAP reconciliation of adjustments called out in the chart above:

For the 12 months ended

(In thousands, except percentages and per share amounts)

December 31, 2025

December 31, 2024

Adjusted net income:

Net income (GAAP)

Release of credit losses, securities

Net securities gains, pertaining to one-time sales

Net securities gains, unrealized

Adjusted release of income taxes

Adjusted net income (non-GAAP)

Net Interest Income

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The net interest margin increased 36 basis points to 4.52 percent for the year ended December 31, 2025, compared to 4.16 percent for the same period in 2024.

The net interest spread was 3.29 percent for 2024, a 3 basis point decrease compared to 3.32 for the same period in 2023.

The net interest spread was 3.69 percent for 2025, a 40 basis point increase compared to 3.29 for the same period in 2024.

During 2025, tax-equivalent interest income was $173.6 million, an increase of $17.9 million, or 11.5 percent, when compared to the same period in the prior year.

This increase was mainly driven by increases in the yield on loans and the balance of average loans.

This increase was mainly driven by the increase in the average balance of loans and in the yield on loans.

● Of the $17.9 million increase in interest income on a tax-equivalent basis, $12.9 million was due to the increased average volume of interest-earning assets and $5.0 million was due to increased yields on average interest-earning assets.

● The average volume of interest-earning assets increased $216.5 million to $2.6 billion for 2025 compared to $2.4 billion for 2024.

This was primarily due to a $29.1 million increase in average loans, with growth in commercial.

The increase was complemented by a $4.3 million and $3.9 million increase in average interest-bearing deposits and average investment securities, respectively, partially offset by a $7.1 million decrease in average FHLB stock.

This was primarily due to a $214.0 million increase in average loans, with growth in commercial and residential mortgage loans.

The increase was complemented by a $7.4 million increase in average interest-bearing deposits, partially offset by a $3.8 million and $1.1 million decrease in average investment securities and FHLB stock, respectively.

● The yield on total interest-earning assets increased 14 basis points to 6.71 percent for the year ended December 31, 2025 when compared to 2024.

The yield on the loan portfolio increased 20 basis points to 6.76 percent.

Total interest expense was $57.1 million in 2024, an increase of $8.6 million or 17.8 percent compared to 2023.

This increase was primarily driven by the increases in the rate on time deposits, interest-bearing demand deposits and savings deposits and the increased balance of average time deposits, which were partially offset by a decrease in the rate paid on and the average balance of borrowed funds and subordinated debentures.

● Of the $8.6 million increase in interest expense, $11.1 million was due to increased rates on average interest-bearing deposits, while $6.5 million was due to the increased volume of average interest-bearing deposits, which was offset by a decrease of $6.7 million related to volume and $2.3 million related to rate for borrowed funds and subordinated debentures.

● The average cost of interest-bearing liabilities increased 47 basis points to 3.28 percent in 2024 when compared to 2023.

The cost of interest-bearing deposits increased 84 basis points in 2024.

Total interest expense was $56.6 million in 2025, a decrease of $0.5 million or 0.9 percent compared to 2024.

This decrease was primarily driven by the decrease in the cost of deposits and the decreased average balance of borrowed funds and subordinated debentures, which was partially offset by an increase in the volume of time deposits and interest-bearing demand deposits.

● Of the $0.5 million decrease in interest expense, $4.9 million was due to decreased rates on average interest-bearing deposits, while $1.0 million and $0.3 million was due to the decreased volume and rate of borrowed funds and subordinated debentures, respectively, which was partially offset by an increase of $5.7 million related to volume of average interest-bearing deposits.

● The average cost of interest-bearing liabilities decreased 26 basis points to 3.02 percent in 2025 when compared to 2024.

The cost of interest-bearing deposits decreased 25 basis points in 2025.

The cost of borrowed funds and subordinated debentures decreased 24 basis points in 2025.

● Interest-bearing liabilities averaged $1.9 billion in 2025, an increase of $132.9 million, compared to 2024.

The increase in interest-bearing liabilities was primarily due to an increase in time deposits and interest-bearing demand deposits, partially offset by a decrease in borrowed funds and subordinated debentures and brokered deposits.

The increase in interest-bearing liabilities was primarily due to increases in time deposits and interest-bearing demand deposits, partially offset by increases in borrowed funds and subordinated debentures and brokered deposits.

The following table provides a 5 year look back at yield on interest-earning assets, cost of interest-bearing liabilities and net interest margin.

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The following table reflects the components of net interest income, setting forth for the periods presented herein:

interest-bearing liabilities, (4) net interest spread and (5) net interest income/margin on average interest-earning assets.

(1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) net interest spread and (5) net interest income/margin on average interest-earning assets.

Rates/yields are computed on a fully tax-equivalent basis, assuming a federal income tax rate of 21 percent.

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Total securities (A)

SBA PPP loans

Commercial loans

Commercial construction loans

Residential mortgage loans

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The provision for credit losses for loans totaled $6.7 million for 2025, compared to $2.4 million in 2024.

The provision for credit losses for loans increased $0.6 million for the year ended 2024 primarily due to loan growth.

The provision for credit losses for loans increased $4.3 million for the year ended 2025 primarily due to loan growth, with additional increases in qualitative adjustments due to increased nonaccrual assets.

The provision for credit losses for off-balance sheet exposures totaled to $66 thousand for the year ended December 31, 2025, compared to $1 thousand at December 31, 2024.

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

The impairment was entirely attributable to one corporate senior debt security in the AFS portfolio.

The Company owns $5 million in par value of this position and maintains it in nonaccrual status.

The net carrying value of the position was $2.0 million as of December 31, 2024.

For the year ending December 31, 2025, there was a release in credit losses for debt securities of $2.8 million compared to a provision for credit losses for debt securities of $1.5 million for the prior year.

The $2.8 million of release relates to the Patriot National Bancorp, Inc.

position that was converted to restricted stock in 2025.

There were no nonaccrual securities at December 31, 2025, compared to $2.0 million at December 31, 2024.

Each period’s credit loss provision is the result of Management’s analysis of the loan portfolio and reflects changes in the size and composition of the portfolio, the level of net charge-offs, delinquencies, current and expected economic conditions and other internal and external factors impacting the risk within the loan portfolio.

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Noninterest income was $14.8 million for 2025, a $6.3 million increase compared to $8.5 million for 2024.

This increase was primarily due to increased net unrealized gains on securities, branch fee income and service and loan fee income, partially offset by a decrease in gain on sale of SBA loans and BOLI income.

This increase was primarily due to increased net gains on securities, service and loan fee income, branch fee income and BOLI income.

The increased net gains on securities was primarily driven by $1.7 million in unrealized gains and $3.5 million in realized gains on the Patriot National Bancorp, Inc.

Noninterest Expense

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Noninterest expense totaled $52.4 million for the year ended December 31, 2025, an increase of $3.7 million when compared to $48.7 million in 2024.

The majority of this increase is attributable to increased compensation and benefits, processing and communications and furniture and equipment expenses, partially offset by decreased deposit insurance expense.

The majority of this increase is attributable to increased compensation and benefits, processing and communications, director fee and occupancy expenses, partially offset by decreased loan related expense.

Income Tax Expense

For 2025, the Company reported income tax expense of $17.6 million for an effective tax rate of 23.3%, compared to an income tax expense of $12.9 million and an effective tax rate of 23.8% in 2024.

During the fourth quarter of 2025, Unity purchased $8.0 million of federal tax credits for $7.5 million, resulting in $0.5 million of tax savings.

The Company intends to evaluate other tax credit opportunities on an ongoing basis, subject to market availability and regulatory considerations.

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

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Total assets increased $312.6 million, or 11.8 percent, to $3.0 billion at December 31, 2025, when compared to year end 2024.

This increase was primarily due to an increase of $88.6 million in gross loans, mostly due to commercial loan growth, partially offset by decreases in residential construction.

Total assets also included an increase of $9.3 million in securities, offset by a decrease of $14.3 million in total cash and cash equivalents.

This increase was primarily due to an increase of $284.1 million in gross loans, mostly due to increases of $236.7 million in commercial loan growth, $46.3 million in residential mortgages, $17.0 million in commercial construction loans and $8.5 million in consumer loans partially offset by decreases of $17.6 in residential construction, $4.1 million in SBA loans held for investment and $2.7 million in loans held for sale.

Total assets also included an increase of $36.1 million in total cash and cash equivalents, partially offset by a decrease of $21.0 million in securities.

Total deposits increased $223.7 million, or 10.7 percent, to $2.3 billion at December 31, 2025.

This increase was primarily due to increases of $202.2 million in time deposits, $21.2 million in noninterest-bearing demand deposits, $18.3 million in brokered deposits and $8.4 million in interest-bearing demand deposits, offset by a decrease of $73.9 million in savings deposits.

Borrowed funds decreased $135.9 million to $220.5 million at December 31, 2024.

This increase was primarily due to increases of $56.3 million in brokered deposits, $51.4 million in time deposits, $47.3 million in interest-bearing demand deposits, $43.9 million in savings deposits and $24.8 million in noninterest-bearing demand deposits.

Borrowed funds increased $35.3 million to $255.8 million at December 31, 2025.

Total shareholders’ equity increased $50.0 million when compared to December 31, 2024, due to earnings and an increase in common stock, offset by dividends paid and share repurchases.

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Government sponsored entities, state and political subdivisions, residential mortgage-backed securities, asset backed securities and corporate and other securities.

AFS debt securities totaled $93.9 million at December 31, 2024, an increase of $2.1 million or 2.3 percent, compared to $91.8 million at December 31, 2023.

This net increase was the result of:

● Purchases of $10.5 million,

AFS debt securities totaled $70.9 million at December 31, 2025, a decrease of $23.0 million or 24.5 percent, compared to $93.9 million at December 31, 2024.

This net decrease was the result of:

● $37.2 million in principal payments, maturities and called bonds,

● $2.0 million transfer of senior debt security modification to equity (net of valuation allowance),

● $1.0 million in proceeds from sales,

● $0.2 million in unrealized losses recognized through earnings,

● Partially offset by purchases of $15.5 million;

● $1.9 million of appreciation in the market value of the portfolio.

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These net unrealized losses are reflected net of tax in shareholders’ equity as accumulated other comprehensive loss.

● $7.8 million in principal payments, maturities and called bonds;

● $0.2 million of nonaccrual interest paid.

At December 31, 2024 the portfolio had $2.8 million in valuation allowance compared to $1.3 million at December 31, 2023

The provision for credit losses on AFS debt securities was $1.5 million at December 31, 2024.

The provision was entirely attributable to the same corporate debt security for which a partial provision was taken in the second quarter of 2024 and the fourth quarter of 2023.

The company owns $5 million in par of this position and maintains it in nonaccrual status.

For the year ended December 31, 2025, there was a release in credit losses on AFS debt securities of $2.8 million compared to a provision of $1.5 million for year ended December 31, 2024.

The change in provision was entirely attributable to Patriot National Bancorp for which a partial valuation allowance was recognized in the second quarter of 2024 and the fourth quarter of 2023.

During the year ended December 31, 2025, Unity released all valuation allowances related to the debt position and converted the position to equity.

The weighted average life of AFS debt securities, adjusted for prepayments, amounted to 5.1 years and 4.9 years at December 31, 2025 and 2024, respectively.

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Government sponsored entities, state and political subdivisions and residential mortgage-backed securities.

HTM debt securities totaled $41.3 million at December 31, 2024, an increase of $5.2 million, or 14.3 percent, compared to $36.1 million at December 31, 2023.

The increase was due to:

● Purchases of $5.0 million;

● $0.2 million in net accretion

HTM debt securities totaled $36.6 million at December 31, 2025, a decrease of $4.7 million, or 11.4 percent, compared to $41.3 million at December 31, 2024.

The decrease was due to:

● $4.8 million in principal paydowns;

● Partially offset by $0.1 million in net accretion

The weighted average life of HTM debt securities, adjusted for prepayments, amounted to 14.8 years and 14.3 years at December 31, 2025 and 2024, respectively.

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This net increase was the result of:

● $3.5 million of realized gains,

● $2.1 million of unrealized gains,

● Conversion of senior debt to common equity $5.0 million,

● Purchases of $2.7 million ;

● $0.5 million of net unrealized gains;

● $0.8 million in proceeds from sales, including $0.1 million of realized gains

● Partially offset by $6.6 million in sales

The following table provides the remaining contractual maturities and average yields, calculated on a yield-to-maturity basis, within the investment portfolios.

The carrying value of securities at December 31, 2024 is distributed by contractual maturity.

The carrying value of securities at December 31, 2025 is distributed by contractual

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

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There were no securities encumbered at December 31, 2025 and December 31, 2024.

Approximately 63 percent and 66 percent of the total investment portfolio had a fixed rate of interest at December 31, 2024 and December 31, 2023, respectively.

Approximately 57 and 63 percent of the total investment portfolio had a fixed rate of interest at December 31, 2025 and December 31, 2024, respectively.

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

The loan portfolio, which represents the Company’s largest asset group, is a significant source of both interest and fee income.

The portfolio consists of SBA, commercial, residential mortgage, consumer and residential construction loans.

The portfolio consists of SBA, commercial, commercial construction, residential mortgage, consumer and residential construction loans.

Each of these segments is subject to differing levels of credit and interest rate risk.

Total loans were $2.5 billion at December 31, 2025, an increase of $284.1 million or 12.6 percent when compared to year end 2024.

Commercial and consumer loans increased $134.2 million and $4.0 million, respectively, partially offset by decreases in residential construction, SBA loans held for investment, SBA PPP and residential mortgage loans of $40.4 million, $1.7 million, $0.9 million and $0.6 million, respectively.

The average outstanding principal balance for the entire portfolio is $0.6 million as of December 31, 2024.

Commercial, residential mortgage, commercial construction and consumer loans increased $236.6 million, $46.3 million, $17.0 million and $8.5 million, respectively, partially offset by decreases in residential construction, SBA loans held for investment and loans held for sale of $17.6 million, $4.0 million and $2.7 million, respectively.

The Company’s loan portfolio had an average outstanding principal balance of $0.7 million per loan as of December 31, 2025.

The following table sets forth the classification of loans by loan type, including unearned fees and deferred costs and excluding the allowance for credit losses as of December 31, 2025 and December 31, 2024:

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December 31, 2024

SBA loans held for sale

SBA loans held for investment

Total SBA loans

Loans held for sale

Commercial loans

Commercial construction

Commercial & industrial

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Total commercial loans

Commercial construction loans

Residential mortgage loans

Primary residence

Secondary residence

Investor property

Total residential mortgage loans

Consumer loans

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Total consumer loans

Residential construction

Residential construction loans

Total gross loans

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Commercial loans

Commercial construction

Commercial & industrial

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Commercial mortgage - nonowner occupied

Commercial construction loans

The following table presents the estimated weighted average loan-to-value ratio for the commercial mortgage portfolio as of December 31, 2025:

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Industry type:

Educational facilities

Food/Beverage services

Educational facilities

Religious facilities

Healthcare facilities

Total as of December 31, 2025

The Other category above is predominantly comprised of land, airports, automotive and gas station loans.

The Other category above is predominantly comprised of land, airports and multi-family loans.

The table below shows the breakdown of industry of the commercial mortgage – nonowner occupied portfolio as of December 31, 2025:

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Industry type:

Healthcare facilities

Educational facilities

Total as of December 31, 2025

The Other category above is predominantly comprised of multi-family, land and automotive loans.

The Other category above is predominantly comprised of multi-family, land, hotels and automotive loans.

SBA 7(a) loans, on which the SBA historically has provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products.

These loans are made to small

businesses for the purposes of providing working capital and for financing the purchase of equipment, inventory or commercial real estate.

These loans are made to small businesses for the purposes of providing working capital and for financing the purchase of equipment, inventory or commercial real estate.

Generally, an SBA 7(a) loan has a lower quality credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the SBA provides the guarantee.

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The SBA 504 program, which consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property, is included in the Commercial loan portfolio.

The Commercial Real Estate sub-category includes both owner occupied and non-owner occupied commercial real estate related loans.

The Commercial Real Estate sub-category includes both owner occupied and non-owner occupied commercial mortgages.

Commercial construction loans amounted to $147.2 million for 2025, an increase of $17.0 million from the $130.2 million at 2024.

The yield on commercial construction loans was 8.21 percent for 2025, compared to 8.81 percent for the same period in 2024.

Residential mortgage loans consist of loans secured by 1 to 4 family residential properties.

These loans amounted to $630.9 million at December 31, 2024, a decrease of $0.6 million from year end 2023.

These loans amounted to $677.2 million at December 31, 2025, an increase of $46.3 million from year end 2024.

Sales of mortgage loans totaled $67.3 million and $65.3 million for 2025 and 2024, respectively.

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Over fifteen years

SBA PPP loans

Loans held for sale

Commercial loans

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Commercial real estate

Commercial real estate construction

Commercial construction

Residential mortgage loans

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Adjustable Rate

SBA PPP loans

Loans held for sale

Commercial loans

SBA 504 loans

Commercial & industrial

Commercial real estate

Commercial real estate construction

Commercial construction loans

Residential mortgage loans

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Nonaccrual assets to total assets

Nonaccrual loans were $13.1 million at December 31, 2024, a $5.1 million decrease from $18.2 million at year end 2023.

Since year-end 2023, nonaccrual loans in the commercial and SBA held for investment loan segments increased, partially offset by a decrease in nonaccrual residential mortgage, residential construction and consumer loans.

In addition, there was $0.8 million in loans past due 90 days or more and still accruing interest at December 31, 2024, compared to $0.9 million at December 31, 2023.

Nonaccrual loans were $29.8 million at December 31, 2025, a $16.7 million increase from $13.1 million at year end 2024.

Since year-end 2024, nonaccrual loans in the commercial, residential mortgage and consumer loan segments increased, partially offset by a decrease in nonaccrual SBA held for investment and residential construction.

The increase primarily reflects one $15.5 million well-secured commercial real estate relationship that migrated to nonaccrual status during the

In addition, there were no loans past due 90 days or more and still accruing interest at December 31, 2025, compared to $0.8 million at December 31, 2024.

The Company also monitors potential problem loans.

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Potential problem loans totaled $11.5 million at December 31, 2025, a decrease of $3.1 million from $14.6 million at December 31, 2024.

Nonaccrual securities were $2.0 million at December 31, 2024, compared to none at December 31, 2023.

The Company owns $5 million in par of this position and moved the position into nonaccrual status during the third quarter of 2024.

There were no nonaccrual securities at December 31, 2025, compared to $2.0 million at December 31, 2024.

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

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Balance, beginning of period

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

Provision for credit losses for loans charged to expense

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Selected loan quality ratios:

Net charge-offs to average loan segment:

Net charge-offs (recoveries) to average loan segment:

SBA loans held for investment

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The following table sets forth, for each of the major lending categories, the amount of reserve allocated to nonaccrual loans of each category and the amount of the allowance for credit losses allocated to each category and the percentage of total loans represented by such category as of December 31, 2025 and 2024.

The allocated allowance is the total of

identified specific and general reserves by loan category.

The allocated allowance is the total of identified specific and general reserves by loan category.

The allocation is not necessarily indicative of the categories in which future losses may occur.

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Adjustments to the reserve are made through provision for credit losses and applied to the reserve which is classified as Accrued expenses and other liabilities.

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

At December 31, 2025, a $0.7 million commitment reserve was reported, compared to a $0.6 million reserve at December 31, 2024.

See Note 4 to the accompanying Consolidated Financial Statements for more information regarding the Allowance for Credit Losses and Reserve for Unfunded Loan Commitments.

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Total deposits

The following table details the maturity distribution of time deposits as of December 31, 2024 and 2023.

The following table details the maturity distribution of time deposits, inclusive of brokered time deposits, as of December 31, 2025 and 2024.

(In thousands)

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$250,000 or more

Total by maturity

At December 31, 2024:

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$250,000 or more

Total by maturity

Total deposits increased $223.7 million to $2.3 billion at December 31, 2025.

This increase in deposits was due to increases of $202.2 million in time deposits, $21.2 million in noninterest-bearing demand deposits, $18.3 million in brokered deposits and $8.4 million in interest-bearing demand deposits, partially offset by a decrease of $73.9 million in savings deposits.

The change in the composition of the portfolio from December 31, 2023 reflects a 47.4 percent increase in time deposits, 9.1 percent increase in brokered time deposits, 5.0 percent increase in noninterest-bearing demand deposits and a 2.7 percent increase in interest-bearing demand deposits, partially offset by a 13.1 percent decrease in savings deposits.

The Company’s brokered deposit portfolio contains time deposit type products, savings type products and interest-bearing demand deposit type products.

The Company’s deposit composition by deposit product type at December 31, 2024, consisted of 21.0 percent noninterest-bearing demand deposits, 16.8 percent interest-bearing demand deposits, 23.4 percent savings deposits and 38.8 percent time deposits.

This increase in deposits was due to increases of $56.3 million in brokered deposits, $51.4 million in time deposits, $47.3 million in interest-bearing demand deposits, $43.9 million in savings deposits, and $24.8 million in noninterest-bearing demand deposits.

The change in the composition of the portfolio from December 31, 2024 reflects a 25.8 percent increase in brokered deposits, 14.7 percent increase in interest-bearing demand deposits, 8.9 percent increase in savings deposits, 8.2 percent increase in time deposits and 5.6 percent increase in noninterest-bearing demand deposits.

The Company’s brokered deposit portfolio

contains time deposit type products, savings type products and interest-bearing demand deposit type products.

The Company’s deposit composition as of December 31, 2025, consisted of 20.0% in noninterest bearing demand deposits, 17.5% in interest-bearing demand deposits, 24.4% in savings deposits and 38.1% in time deposits.

The following table shows average deposits and the concentration of each category of deposits for the past two years:

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As part of the Company’s overall funding and liquidity management program, from time to time the Company borrows from the Federal Home Loan Bank of New York.

Residential mortgages and commercial real estate loans collateralize these borrowings.

Residential mortgages, commercial real estate loans and debt securities collateralize these borrowings.

Borrowed funds and subordinated debentures totaled $266.1 million and $230.8 million at December 31, 2025 and December 31, 2024, respectively, and are broken down in the following table:

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In December 2025, FHLB issued an additional $33.0 million municipal deposits letter of credit in the name of Unity Bank naming certain townships in Pennsylvania as beneficiary, to secure municipal deposits as required under Pennsylvania law, compared to a letter of credit with a balance of $28.0 million as of December 31, 2024.

At December 31, 2024, the Company had $292.2 million of additional credit available at the FHLB and the Company had $245.9 million of additional credit available at the FRB.

At December 31, 2025, the Company had $247.0 million of additional credit available at the FHLB and the Company had $232.2 million of additional credit available at the FRB and $20 million from other sources.

Pledging additional collateral in the form of 1 to 4 family residential mortgages, commercial loans and investment securities can increase the lines with the FHLB and FRB.

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The Company’s Asset Liability Committee (“ALCO”) manages this risk.

The principal objectives of the ALCO are to establish prudent risk management guidelines, evaluate and control the level of interest rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital and liquidity requirements and actively manage risk within Board-approved guidelines.

The ALCO reviews the maturities and repricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions and interest rate levels.

The principal objectives of ALCO are to establish prudent risk management guidelines, evaluate and control the level of interest rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital and liquidity requirements and actively manage risk within Board-approved guidelines.

ALCO reviews the maturities and repricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions and interest rate levels.

The following table presents the Company’s EVE and NII sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rate of 100, 200 and 300 bps, which were all in compliance with Board approved tolerances at December 31, 2025 and December 31, 2024:

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As the Consolidated Bank comprises the majority of the assets of the Company, the Consolidated Statement of Cash Flows is indicative of the Consolidated Bank’s activity.

At December 31, 2024, the balance of cash and cash equivalents was $180.4 million, a decrease of $14.3 million from December 31, 2023.

At December 31, 2025, the balance of cash and cash equivalents was $216.5 million, an increase of $36.1 million from December 31, 2024.

A discussion of the cash provided by and used in operating, investing and financing activities follows.

Operating activities provided $47.9 million and $46.9 million in net cash for the years ended December 31, 2024 and 2023, respectively The primary sources of funds were net income from operations and adjustments to net income, such as the provision for credit losses and depreciation and amortization.

Operating activities provided $44.9 million and $47.9 million in net cash for the years ended December 31, 2025 and 2024, respectively.

The primary sources of funds were net income from operations and adjustments to net income, such as the provision for credit losses and depreciation and amortization.

Investing activities used $256.8 million and $92.8 million in net cash for the years ended December 31, 2025 and 2024, respectively.

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The Company’s available for sale investment portfolio amounted to $70.9 million and $93.9 million at December 31, 2025 and December 31, 2024, respectively.

The SBA loans held for sale portfolio amounted to $12.2 million and $18.2 million at December 31, 2024 and December 31, 2023, respectively.

The loans held for sale portfolio amounted to $9.5 million and $12.2 million at December 31, 2025 and December 31, 2024, respectively.

Sales of these loans provide an additional source of liquidity for the Company.

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Many of these commitments will expire and never be funded.

Financing activities provided $30.5 million and $90.9 million in net cash for the years ended December 31, 2024 and 2023, respectively, primarily due to an increase in the Company’s deposits, partially offset by a decrease in the Company’s borrowed funds.

Financing activities provided $248.0 million and $30.5 million in net cash for the years ended December 31, 2025 and 2024, respectively, primarily due to an increase in the Company’s deposits and borrowed funds.

As of December 31, 2025, deposits included $444.9 million of Government deposits, as compared to $400.6 million at year end 2024.

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The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on Management’s credit evaluation of the borrower.

As of December 31, 2024, the Bank had

$239.3 million in unused lines of credit and $77.5 million in outstanding commitments to borrowers.

As of December 31, 2025, the Bank had $363.5 million in unused lines of credit and $139.1 million in outstanding commitments to borrowers.

As of December 31, 2024, the Bank had $239.3 million in unused lines of credit and $77.5 million in outstanding commitments to borrowers.

The following table shows the amounts and expected maturities or payment periods of off-balance-sheet arrangements and contractual obligations as of December 31, 2025:

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Contractual obligations:

Time deposits (including brokered time deposits)

Time deposits

Borrowed funds and subordinated debentures

Operating Leases

Total off-balance-sheet arrangements and contractual obligations

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the adequacy of the allowance for credit losses;

changes in tax, accounting or regulatory practices and requirements;

significant changes in tax, accounting or regulatory practices and requirements;

and technological changes.

Although Management has taken certain steps to mitigate the negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and have an adverse effect on future profitability.

Although Management

has taken certain steps to mitigate the negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and have an adverse effect on future profitability.

Critical Accounting Policies and Estimates

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CECL also applies to certain off-balance sheet exposures.

The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

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

At adoption, the Company recorded an $0.8 million increase to its allowance for credit losses, related to loans.

Further, the Company increased its reserve for unfunded credit commitments by $0.1 million.

The reserve for unfunded credit commitments is recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheet.

These increases in reserves were recorded through retained earnings and were $0.6 million, net of tax.

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

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

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

Additionally, the Company noted the adoption of CECL had no significant impact on regulatory capital ratios of the Company and/or the Bank.

For additional information on the valuation allowance on AFS debt securities, see Note 2 to the Consolidated Financial Statements.

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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 7. Management’s Discussion and Analysis