Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. Commission File Number 1-12431 Unity Bancorp, Inc. (Exact name of registrant as specified in its charter) New Jersey 22-328255 ...

Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ________ Commission file number 1-12431 Unity Ban ...

Table of Contents Commission File Number 1-12431 Unity Bancorp, Inc. (Exact name of registrant as specified in its charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. New Jersey 22-32 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. Commission File Number 1-12431 Unity Bancorp, Inc. (Exact name of registrant as specified in its charter) New Jersey 22-3282551 ...

```markdown [**PART I CONSOLIDATED FINANCIAL INFORMATION**](index=3&type=section&id=PART%20I%20CONSOLIDATED%20FINANCIAL%20INFORMATION) [**ITEM 1 Consolidated Financial Statements (Unaudited)**](index=3&type=section&id=ITEM%201%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents unaudited consolidated financial statements for Q1 2021 and Q4 2020, with detailed notes on accounting policies and financial position [**Consolidated Balance Sheets at March 31, 2021 and December 31, 2020**](index=5&type=section&id=Consolidated%20Balance%20Sheets%20at%20March%2031%2C%202021%20and%20December%2031%2C%202020) Provides a snapshot of the Company's financial position, detailing assets, liabilities, and shareholders' equity at quarter-end Consolidated Balance Sheets (in thousands) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Total Assets | $2,004,818 | $1,958,914 | | Cash and cash equivalents | $239,577 | $219,311 | | Net Loans | $1,645,483 | $1,604,712 | | Total Liabilities | $1,823,632 | $1,785,003 | | Total Deposits | $1,628,393 | $1,557,959 | | Total Shareholders' Equity | $181,186 | $173,911 | [**Consolidated Statements of Income for the three months ended March 31, 2021 and 2020**](index=6&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) Details the Company's financial performance, including interest income, expenses, and net income for the first quarter of 2021 and 2020 Consolidated Statements of Income (in thousands) | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------------- | | Total Interest Income | $20,576 | $19,585 | $991 | 5.1% | | Total Interest Expense | $2,558 | $4,341 | $(1,783) | -41.1% | | Net Interest Income | $18,018 | $15,244 | $2,774 | 18.2% | | Provision for Loan Losses | $500 | $1,500 | $(1,000) | -66.7% | | Total Noninterest Income | $3,726 | $2,545 | $1,181 | 46.4% | | Total Noninterest Expense | $9,802 | $9,323 | $479 | 5.1% | | Net Income | $8,496 | $5,368 | $3,128 | 58.3% | | Net Income per Common Share - Basic | $0.81 | $0.49 | $0.32 | 65.3% | | Net Income per Common Share - Diluted | $0.80 | $0.49 | $0.31 | 63.3% | [**Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020**](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) Presents net income and other comprehensive income components, reflecting the total change in equity from non-owner sources Consolidated Statements of Comprehensive Income (in thousands) | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | | Net income | $8,496 | $5,368 | | Total other comprehensive income (loss) | $655 | $(986) | | Total comprehensive income | $9,151 | $4,382 | [**Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2021 and 2020**](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) Outlines the changes in shareholders' equity, including net income, other comprehensive income, dividends, and stock repurchases Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Balance, beginning of period | $173,911 | $160,709 (Dec 31, 2019) | | Net income | $8,496 | $5,368 | | Other comprehensive income, net of tax | $655 | $(986) | | Dividends on common stock | $(804) | $(841) | | Treasury stock purchased | $(1,349) | $(172) | | Balance, end of period | $181,186 | $164,305 (March 31, 2020) | [**Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020**](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) Summarizes cash inflows and outflows from operating, investing, and financing activities for the first quarter Consolidated Statements of Cash Flows (in thousands) | Activity | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | | Net cash provided by operating activities | $11,649 | $11,484 | | Net cash used in investing activities | $(29,567) | $(3,858) | | Net cash provided by financing activities | $38,184 | $13,353 | | Increase in cash and cash equivalents | $20,266 | $20,979 | | Cash and cash equivalents, end of period | $239,577 | $178,995 | [**Notes to the Consolidated Financial Statements**](index=10&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the consolidated financial statements, including accounting policies and specific financial instrument information [**NOTE 1. Significant Accounting Policies**](index=10&type=section&id=NOTE%201.%20Significant%20Accounting%20Policies) Outlines the key accounting principles and methods used in preparing the financial statements, including estimates and assumptions - The financial statements are unaudited and prepared in accordance with **U.S. GAAP** and **SEC rules**, with management making estimates and assumptions that could differ from actual results[21](index=21&type=chunk)[22](index=22&type=chunk) - The **COVID-19** pandemic has significantly impacted the Company's markets and may materially and adversely affect future financial condition and results of operations[23](index=23&type=chunk)[24](index=24&type=chunk) [**NOTE 2. Litigation**](index=18&type=section&id=NOTE%202.%20Litigation) Discusses ongoing legal proceedings and management's assessment of their potential impact on the Company's financial position - Management believes current litigation will not materially affect the Company's financial position or results of operations[52](index=52&type=chunk) [**NOTE 3. Net Income per Share**](index=18&type=section&id=NOTE%203.%20Net%20Income%20per%20Share) Presents the calculation of basic and diluted net income per common share for the reporting periods Net Income per Share | Metric | Q1 2021 | Q1 2020 | | :-------------------------------- | :------ | :------ | | Net income | $8,496 | $5,368 | | Weighted average common shares outstanding - Basic | 10,437 | 10,883 | | Weighted average common shares outstanding - Diluted | 10,565 | 11,037 | | Net income per common share - Basic | $0.81 | $0.49 | | Net income per common share - Diluted | $0.80 | $0.49 | [**NOTE 4. Income Taxes**](index=19&type=section&id=NOTE%204.%20Income%20Taxes) Details the Company's income tax expense and effective tax rates, including the impact of specific tax regulations Income Tax Expense (in thousands) | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :-------------------- | :--------------------- | :--------------------- | | Income tax expense | $2,946 | $1,598 | | Effective tax rate | 25.7% | 22.9% | - New Jersey's corporate income surtax of **2.5%** was retroactively extended until December 31, 2023, impacting the Company's tax rate[58](index=58&type=chunk) [**NOTE 5. Other Comprehensive (Loss) Income**](index=19&type=section&id=NOTE%205.%20Other%20Comprehensive%20(Loss)%20Income) Reports components of comprehensive income beyond net income, such as unrealized gains or losses on available-for-sale securities Other Comprehensive (Loss) Income (in thousands) | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | | Period change in other comprehensive income (loss) | $655 | $(986) | | Balance, end of period (Accumulated other comprehensive (loss) income) | $(499) | $(797) | [**NOTE 6. Fair Value**](index=20&type=section&id=NOTE%206.%20Fair%20Value) Describes the methodologies and categorization of fair value measurements for financial instruments - Fair value measurements are categorized into Level **1** (quoted prices in active markets), Level **2** (observable inputs other than quoted prices), and Level **3** (unobservable inputs)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[70](index=70&type=chunk) Fair Value Measurements (in thousands) | Asset/Liability (in thousands) | March 31, 2021 (Fair Value) | Level 1 | Level 2 | Level 3 | | :----------------------------- | :-------------------------- | :------ | :------ | :------ | | Debt securities available for sale | $32,330 | — | $27,792 | $4,538 | | Equity securities | $2,221 | — | $2,221 | — | | Loans held for sale | $10,392 | — | $10,392 | — | | Interest rate swap agreements | $(219) | — | $(219) | — | | Impaired collateral-dependent loans (non-recurring) | $12,591 | — | — | $12,591 | [**NOTE 7. Securities**](index=32&type=section&id=NOTE%207.%20Securities) Provides details on the Company's debt and equity securities portfolios, including fair values and unrealized gains or losses Securities Portfolio (in thousands) | Security Type (in thousands) | March 31, 2021 (Fair Value) | December 31, 2020 (Fair Value) | | :--------------------------- | :-------------------------- | :----------------------------- | | Total debt securities available for sale | $32,330 | $45,617 | | Total equity securities | $2,221 | $1,954 | - Unrealized losses on debt securities are primarily due to increases in interest rate spreads or interest rates, and are not considered other-than-temporarily impaired as the Company does not intend to sell them before recovery of amortized cost[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) Net Security Gains (Losses) (in thousands) | Metric (in thousands) | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Net security gains (losses) | $310 | $(170) | [**NOTE 8. Loans**](index=38&type=section&id=NOTE%208.%20Loans) Details the composition of the loan portfolio by type and provides information on internal risk rating systems Loan Portfolio by Type (in thousands) | Loan Type (in thousands) | March 31, 2021 | December 31, 2020 | | :----------------------- | :------------- | :---------------- | | SBA loans held for investment | $38,296 | $39,587 | | SBA PPP loans | $169,117 | $118,257 | | Commercial loans | $853,078 | $839,788 | | Residential mortgage loans | $448,149 | $467,586 | | Consumer loans | $60,502 | $66,100 | | Consumer construction loans | $90,497 | $87,164 | | Total loans | $1,668,448 | $1,627,817 | - The Company uses a **1-10 internal risk rating system** for SBA 7(a), SBA 504, and commercial loans, categorizing them as Pass (**1-6**), Special Mention (**7**), Substandard (**8-9**), or Loss (**10**)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Residential mortgage and consumer loans are categorized as performing or nonperforming[124](index=124&type=chunk) Loan Categories by Risk Rating (in thousands) | Loan Category (in thousands) | March 31, 2021 (Total) | December 31, 2020 (Total) | | :--------------------------- | :--------------------- | :------------------------ | | SBA & Commercial loans - Pass | $1,022,055 | $959,487 | | SBA & Commercial loans - Special mention | $28,464 | $31,264 | | SBA & Commercial loans - Substandard | $9,972 | $6,881 | | Residential mortgage & Consumer loans - Performing | $589,872 | $612,588 | | Residential mortgage & Consumer loans - Nonperforming | $9,276 | $8,262 | [**NOTE 9. Allowance for Loan Losses and Reserve for Unfunded Loan Commitments**](index=50&type=section&id=NOTE%209.%20Allowance%20for%20Loan%20Losses%20and%20Reserve%20for%20Unfunded%20Loan%20Commitments) Explains the methodology for calculating the allowance for loan losses and the reserve for unfunded loan commitments Allowance for Loan Losses (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | | :-------------------- | :------------- | :---------------- | :------------- | | Allowance for loan losses | $22,965 | $23,105 | $17,376 | | Allowance to total loans | 1.38% | 1.42% | 1.21% | | Net charge-offs (Q1) | $640 | N/A | $519 | - The allowance for loan losses methodology includes specific reserves for individually impaired loans and **TDRs**, and general reserves based on a weighted five-year historical net charge-off rate adjusted for environmental factors[148](index=148&type=chunk)[149](index=149&type=chunk)[295](index=295&type=chunk) Reserve for Unfunded Loan Commitments (in thousands) | Reserve (in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------- | :------------- | :---------------- | | Reserve for unfunded loan commitments | $310 | $288 | [**NOTE 10. New Accounting Pronouncements**](index=54&type=section&id=NOTE%2010.%20New%20Accounting%20Pronouncements) Discusses recently adopted and pending accounting standards and their impact on the Company's financial statements - The Company adopted **ASU 2019-12 (Income Taxes)** and **ASU 2020-01 (Equity Securities)** as of January 1, 2021, with no material impact on its consolidated financial statements[161](index=161&type=chunk)[162](index=162&type=chunk) - The Company is currently evaluating the impact of **ASU 2016-13 (Credit Losses)**, **ASU 2020-03 (Financial Instruments)**, **ASU 2020-04 (Reference Rate Reform)**, and **ASU 2020-06 (Convertible Instruments)** on its financial statements[159](index=159&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk) [**NOTE 11. Derivative Financial Instruments and Hedging Activities**](index=58&type=section&id=NOTE%2011.%20Derivative%20Financial%20Instruments%20and%20Hedging%20Activities) Describes the Company's use of derivative instruments, primarily interest rate swaps, for hedging purposes and their fair value - The Company uses interest rate swap agreements to hedge variable-rate debt, receiving variable interest and paying fixed interest to limit interest payment variability[175](index=175&type=chunk) Derivative Financial Instruments (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :---------------------- | :------------- | :---------------- | | Notional amount (in thousands) | $70,000 | $80,000 | | Number of contracts | 4 | 5 | | Fair value (in thousands) | $(219) | $(1,026) | | Gain (loss) recognized in OCI (Q1) (in thousands) | $807 | $(1,410) | [**NOTE 12. Employee Benefit Plans**](index=62&type=section&id=NOTE%2012.%20Employee%20Benefit%20Plans) Provides information on the Company's employee compensation plans, including stock options, restricted stock, 401(k) contributions, and executive retirement plans Employee Benefit Plan Expenses (in thousands) | Metric (in thousands) | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Stock option compensation expense | $207,602 | $192,489 | | Restricted stock compensation expense | $166,349 | $172,904 | | 401(k) contributions | $261 | $185 | - The President and CEO's Supplemental Executive Retirement Plan (SERP) provides supplemental nonqualified retirement benefits, with vesting commencing January 1, 2014, and full vesting by January 1, 2024[187](index=187&type=chunk)[188](index=188&type=chunk) [**NOTE 13. Regulatory Capital**](index=69&type=section&id=NOTE%2013.%20Regulatory%20Capital) Details the Company's and Bank's regulatory capital ratios, including the election to use the Community Bank Leverage Ratio framework - The Bank has opted into the **Community Bank Leverage Ratio (CBLR)** framework, which applies to qualifying community banking organizations with less than **$10 billion** in total consolidated assets[196](index=196&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk) Community Bank Leverage Ratio | Entity | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Company CBLR | 10.19% | 10.09% | | Bank CBLR | 9.85% | 9.80% | [**NOTE 14. Leases**](index=69&type=section&id=NOTE%2014.%20Leases) Outlines the Company's accounting for operating leases, including the recognition of right-of-use assets and lease liabilities - The Company recognizes ROU assets and lease liabilities for operating leases with terms greater than **12 months**, in accordance with **ASU 2016-02**[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) Operating Lease Information (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Operating lease ROU assets | $2,247 | $2,365 | | Operating lease liabilities | $2,302 | $2,400 (approx) | | Operating lease cost (Q1) | $149 | $148 | [**ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations**](index=73&type=section&id=ITEM%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes Unity Bancorp, Inc.'s Q1 2021 financial condition and results, covering earnings, balance sheet, COVID-19 impact, and regulatory matters [**Overview**](index=73&type=section&id=Overview) Introduces Unity Bancorp, Inc., its banking services, branch network, and corporate structure - Unity Bancorp, Inc. operates Unity Bank, offering commercial and retail banking services through **19 branches** in New Jersey and Pennsylvania, and online[210](index=210&type=chunk) - The Company's structure includes Unity (NJ) Statutory Trust II (issuing subordinated debentures treated as Tier I Capital) and Unity Risk Management, Inc. (a captive insurance company)[211](index=211&type=chunk) [**COVID-19**](index=73&type=section&id=COVID-19) Discusses the adverse economic impact of the COVID-19 pandemic and the Company's response through customer support - The **COVID-19** pandemic has adversely affected the economy, leading the Company to provide short-term payment deferrals and fee waivers to customers[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) - The full impact of the pandemic is uncertain, with potential for increased nonperforming assets and negative effects on loan demand and services due to reduced commercial activity and consumer spending[215](index=215&type=chunk)[216](index=216&type=chunk) [**CARES Act**](index=75&type=section&id=CARES%20Act) Explains the **Paycheck Protection Program (PPP)** established by the **CARES Act** to support small businesses - The **CARES Act** established the **Paycheck Protection Program (PPP)** to assist small businesses with payroll costs, offering potentially forgivable loans[217](index=217&type=chunk)[218](index=218&type=chunk) Paycheck Protection Program (PPP) Summary | Metric | Year Ended Dec 31, 2020 | As of March 31, 2021 | | :-------------------------------- | :---------------------- | :------------------- | | PPP applications approved | 1,224 | N/A | | PPP fundings (approx.) | $143.0 million | N/A | | PPP loans remaining on balance sheet | N/A | $83.5 million | [**Economic Aid Act**](index=75&type=section&id=Economic%20Aid%20Act) Details the reopening of the **PPP** program under the **Economic Aid Act**, including Second Draw **PPP Loans** - The **Economic Aid Act** reopened the **PPP** program, allowing for Second Draw **PPP Loans** for eligible small businesses with significant revenue losses[220](index=220&type=chunk)[221](index=221&type=chunk) Economic Aid Act PPP Loan Fundings | Metric | As of March 31, 2021 | | :-------------------------------- | :------------------- | | PPP loans funded under Economic Aid Act | 723 | | Total fundings under Economic Aid Act | $85.6 million | [**Deferrals**](index=77&type=section&id=Deferrals) Discusses loan payment deferrals granted due to **COVID-19** and their classification regarding **Troubled Debt Restructurings** - Loan payment deferrals granted due to **COVID-19** are not considered **Troubled Debt Restructurings (TDRs)** if borrowers were current as of December 31, 2019, or prior to deferral[223](index=223&type=chunk)[145](index=145&type=chunk) Loan Payment Deferrals (in thousands) | Loan Type (in thousands) | Unpaid principal balance of deferrals (March 31, 2021) | % total deferrals to total loans | | :----------------------- | :----------------------------------------------------- | :------------------------------- | | SBA loans held for investment | $342 | 0.89% | | Commercial loans | $18,421 | 2.16% | | Residential mortgage loans | $1,400 | 0.31% | | Total loans | $20,163 | 1.21% | [**Consent Order**](index=77&type=section&id=Consent%20Order) Addresses the Consent Order from regulatory bodies requiring Unity Bank to enhance its **BSA/AML** compliance program - Unity Bank is subject to a Consent Order from the **FDIC and NJDOBI**, requiring it to strengthen its **BSA/AML program**[225](index=225&type=chunk) - Compliance expenses related to **BSA/AML remediation** totaled **$168 thousand** for Q1 2021, up from **$63 thousand** in Q1 2020[248](index=248&type=chunk) [**Earnings Summary**](index=79&type=section&id=Earnings%20Summary) Provides an overview of the Company's financial performance, including net income, EPS, and key profitability ratios Earnings Summary | Metric | Q1 2021 | Q1 2020 | Change | | :-------------------------------- | :------ | :------ | :----- | | Net income (in millions) | $8.5 | $5.4 | $3.1 | | Net income per diluted share | $0.80 | $0.49 | $0.31 | | Return on average assets | 1.85% | 1.32% | 0.53% | | Return on average equity | 19.51% | 13.23% | 6.28% | | Efficiency ratio | 45.74% | 51.92% | -6.18% | - Key drivers for the improved earnings include an **18.2% increase** in net interest income, a **46.4% increase** in noninterest income, and a **$1.0 million decrease** in the provision for loan losses[232](index=232&type=chunk) [**Net Interest Income**](index=79&type=section&id=Net%20Interest%20Income) Analyzes the components of net interest income, including the impact of changes in earning assets and interest-bearing liabilities Net Interest Income and Margin | Metric | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Net interest income (tax-equivalent) | $18.0 million | $15.2 million | | Net interest margin | 4.09% | 3.92% | | Net interest spread | 3.82% | 3.54% | - The increase in net interest income was driven by a **$2.5 million increase** from higher average earning assets (primarily SBA **PPP**, commercial, and consumer construction loans) and a **$1.8 million decrease** in interest expense due to lower rates on interest-bearing liabilities[238](index=238&type=chunk) Net Interest Income Volume and Rate Analysis (in thousands) | Component (in thousands) | Change due to Volume | Change due to Rate | Net Change | | :----------------------- | :------------------- | :----------------- | :--------- | | Total interest income | $2,519 | $(1,535) | $984 | | Total interest expense | $33 | $(1,816) | $(1,783) | | Net interest income | $2,486 | $281 | $2,767 | [**Provision for Loan Losses**](index=83&type=section&id=Provision%20for%20Loan%20Losses) Discusses the provision for loan losses, highlighting the factors influencing its change between periods Provision for Loan Losses (in thousands) | Metric (in thousands) | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Provision for loan losses | $500 | $1,500 | - The decrease in provision for loan losses was primarily due to an improved outlook on credit quality, contrasting with increased provisions in 2020 driven by **COVID-19** related loan default risks[242](index=242&type=chunk) [**Noninterest Income**](index=84&type=section&id=Noninterest%20Income) Examines the various sources of noninterest income and their contributions to overall revenue Noninterest Income (in thousands) | Component (in thousands) | Q1 2021 | Q1 2020 | | :----------------------- | :------ | :------ | | Branch fee income | $295 | $317 | | Service and loan fee income | $625 | $376 | | Gain on sale of SBA loans held for sale, net | $245 | $473 | | Gain on sale of mortgage loans, net | $1,750 | $1,051 | | BOLI income | $129 | $173 | | Net security gains (losses) | $310 | $(170) | | Other income | $372 | $325 | | Total noninterest income | $3,726 | $2,545 | - Increased gains on mortgage loan sales (**$699 thousand increase**) and a positive swing in net security gains (**$480 thousand increase**) were the primary drivers of noninterest income growth[246](index=246&type=chunk) [**Noninterest Expense**](index=85&type=section&id=Noninterest%20Expense) Analyzes the components of noninterest expense, including compensation, processing, occupancy, and professional services Noninterest Expense (in thousands) | Component (in thousands) | Q1 2021 | Q1 2020 | | :----------------------- | :------ | :------ | | Compensation and benefits | $6,063 | $5,439 | | Processing and communications | $807 | $708 | | Occupancy | $706 | $624 | | Professional services | $380 | $269 | | Deposit insurance | $214 | $88 | | BSA expenses | $168 | $63 | | Loan collection & OREO (recoveries) expenses | $(49) | $186 | | Other expenses | $245 | $712 | | Total noninterest expense | $9,802 | $9,323 | - The increase in compensation and benefits was primarily due to higher mortgage commissions on increased origination volume[248](index=248&type=chunk) [**Income Tax Expense**](index=86&type=section&id=Income%20Tax%20Expense) Details the Company's income tax expense and effective tax rate, noting the impact of state tax regulations Income Tax Expense (in thousands) | Metric (in thousands) | Q1 2021 | Q1 2020 | | :-------------------- | :------ | :------ | | Income tax expense | $2,946 | $1,598 | | Effective tax rate | 25.7% | 22.9% | - New Jersey's **2.5% corporate income surtax** was retroactively extended until December 31, 2023, contributing to the higher effective tax rate[251](index=251&type=chunk) [**Financial Condition at March 31, 2021**](index=86&type=section&id=Financial%20Condition%20at%20March%2031%2C%202021) Provides an in-depth analysis of the Company's balance sheet components, including securities, loans, asset quality, and funding [**Securities Portfolio**](index=86&type=section&id=Securities%20Portfolio) Details the composition and changes in the Company's available-for-sale debt and equity securities portfolios Securities Portfolio (in thousands) | Security Type (in thousands) | March 31, 2021 | December 31, 2020 | | :--------------------------- | :------------- | :---------------- | | AFS debt securities | $32,330 | $45,617 | | Equity securities | $2,221 | $1,954 | | Total securities portfolio | $34,551 | $47,571 | - The decrease in AFS debt securities was primarily due to **$7.0 million** from sales of corporate securities and **$6.3 million** from principal payments, maturities, and called bonds[259](index=259&type=chunk) [**Loan Portfolio**](index=88&type=section&id=Loan%20Portfolio) Presents the breakdown of the loan portfolio by type and highlights the proportion secured by real estate Loan Portfolio by Type (in thousands) | Loan Type (in thousands) | March 31, 2021 | December 31, 2020 | | :----------------------- | :------------- | :---------------- | | SBA PPP loans | $169,117 | $118,257 | | Commercial loans | $853,078 | $839,788 | | Residential mortgage loans | $448,149 | $467,586 | | Consumer loans | $60,502 | $66,100 | | Total loans | $1,668,448 | $1,627,817 | - Approximately **84%** of the Company's loan portfolio was secured by real estate at March 31, 2021, down from **87%** at December 31, 2020[281](index=281&type=chunk) [**TDRs**](index=93&type=section&id=TDRs) Discusses **Troubled Debt Restructurings (TDRs)**, their valuation methods, and the absence of specific reserves for performing **TDRs** Troubled Debt Restructurings (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total TDRs | $1,079 | $663 | | Number of TDRs | 3 | 1 | - **TDRs** are evaluated for impairment using discounted cash flows or collateral fair value, but no specific reserves were held for the current **TDRs** as they are performing[283](index=283&type=chunk)[146](index=146&type=chunk) [**Asset Quality**](index=95&type=section&id=Asset%20Quality) Reports on the Company's asset quality, including nonperforming loans, nonperforming assets, and potential problem loans Asset Quality Metrics (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | | :-------------------- | :------------- | :---------------- | :------------- | | Total nonperforming loans | $11,788 | $12,060 | $9,655 | | Total nonperforming assets | $11,788 | $12,060 | $11,178 | | Nonperforming assets to total assets | 0.59% | 0.62% | 0.64% | | Loans past due 90 days or more and still accruing interest | $2,540 | $449 | $0 | - Potential problem loans, categorized by non-passing risk ratings and performing status, totaled **$37.5 million** at March 31, 2021, an increase of **$791 thousand** from year-end[291](index=291&type=chunk)[293](index=293&type=chunk) [**Allowance for Loan Losses and Reserve for Unfunded Loan Commitments**](index=97&type=section&id=Allowance%20for%20Loan%20Losses%20and%20Reserve%20for%20Unfunded%20Loan%20Commitments) Details the methodology and balances for the allowance for loan losses and the reserve for unfunded loan commitments Allowance for Loan Losses and Reserve (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Allowance for loan losses | $22,965 | $23,105 | | Allowance to total loans | 1.38% | 1.42% | | Net charge-offs (Q1) | $640 | N/A | | Reserve for unfunded loan commitments | $310 | $288 | - The allowance for loan losses is determined quarterly based on specific and general reserves, considering loan portfolio risks, historical charge-off rates, and environmental factors[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) [**Deposits**](index=98&type=section&id=Deposits) Provides a breakdown of the Company's deposit base by type, highlighting the composition of funding sources Deposit Composition (in thousands) | Deposit Type (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Total deposits | $1,628,393 | $1,557,959 | | Savings deposits | $502,300 | $455,449 | | Interest-bearing demand | $217,714 | $204,236 | | Noninterest-bearing demand | $465,511 | $459,677 | | Time deposits | $442,868 | $438,597 | - Deposit composition at March 31, 2021: **30.8% savings**, **28.6% noninterest-bearing demand**, **27.2% time**, and **13.4% interest-bearing demand**[305](index=305&type=chunk) [**Borrowed Funds and Subordinated Debentures**](index=100&type=section&id=Borrowed%20Funds%20and%20Subordinated%20Debentures) Details the Company's borrowed funds, including FHLB advances and subordinated debentures, and their use in managing interest rate risk Borrowed Funds and Subordinated Debentures (in thousands) | Borrowing Type (in thousands) | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | FHLB fixed rate advances | $40,000 | $40,000 | | FHLB adjustable rate advances | $20,000 | $30,000 | | FHLB overnight advances | $110,000 | $130,000 | | Subordinated debentures | $10,310 | $10,310 | | Total borrowed funds and subordinated debentures | $180,310 | $210,310 | - The Company uses swap instruments to modify FHLB adjustable rate advances to fixed rates, managing interest rate uncertainty[308](index=308&type=chunk)[310](index=310&type=chunk) [**Interest Rate Sensitivity**](index=102&type=section&id=Interest%20Rate%20Sensitivity) Explains how the Company measures and manages the impact of interest rate changes on its equity and financial performance - The Company uses **Modified Duration of Equity** and **Economic Value of Portfolio Equity (EVPE)** models to measure the impact of interest rate changes on equity[312](index=312&type=chunk) Economic Value of Portfolio Equity (EVPE) Sensitivity | Metric (EVPE with 200 bps rate shock) | March 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------- | :---------------- | | Increase in rising-rate environment | 4.2% | 4.1% | | Decrease in falling-rate environment | 10.7% | 7.5% | - All **EVPE** variances at March 31, 2021, were within the Board-approved guidelines of **+/- 20.0%**[312](index=312&type=chunk) [**Liquidity**](index=102&type=section&id=Liquidity) Describes the Company's liquidity management strategy and primary sources of funds to meet operational needs - The Company's liquidity is managed to meet loan demand, deposit outflows, and interest rate opportunities, with primary sources including deposits, loan payments, security sales, and borrowings[313](index=313&type=chunk)[314](index=314&type=chunk) Cash and Cash Equivalents (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $239,577 | $219,311 | - Operating activities provided **$11.6 million** in net cash, investing activities used **$29.6 million** (primarily for SBA **PPP loans**), and financing activities provided **$38.2 million** (due to deposit growth and new borrowings) in Q1 2021[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) [**Regulatory Capital**](index=104&type=section&id=Regulatory%20Capital) Details the Company's and Bank's regulatory capital ratios and their adherence to the **Community Bank Leverage Ratio** framework - The Bank has elected to use the **Community Bank Leverage Ratio (CBLR)** framework, which simplifies capital requirements for qualifying community banking organizations with less than **$10 billion** in total consolidated assets[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) Regulatory Capital Ratios | Entity | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Company CBLR | 10.19% | 10.09% | | Bank CBLR | 9.85% | 9.80% | [**Shareholders' Equity**](index=106&type=section&id=Shareholders%27%20Equity) Explains the changes in total shareholders' equity, driven by net income, comprehensive income, and share repurchases Total Shareholders' Equity (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total shareholders' equity | $181,186 | $173,911 | - The increase was primarily due to **$8.5 million** in net income and **$655 thousand** in accumulated other comprehensive income, partially offset by **$1.3 million** in treasury stock purchases and **$804 thousand** in dividends paid[327](index=327&type=chunk) [**Repurchase Plan**](index=106&type=section&id=Repurchase%20Plan) Describes the Company's common stock repurchase plan, including authorized shares and shares repurchased - On February 4, 2021, the Company authorized a new plan to repurchase up to **750 thousand shares** of common stock[328](index=328&type=chunk) Share Repurchase Activity | Metric | Q1 2021 | | :-------------------------------- | :------ | | Shares repurchased | 70,000 | | Average price paid per share | $19.29 | | Shares available for repurchase | 701,000 | [**Impact of Inflation and Changing Prices**](index=108&type=section&id=Impact%20of%20Inflation%20and%20Changing%20Prices) Assesses the relative impact of interest rates versus general inflation on the Company's financial performance - Interest rates have a greater impact on the Company's performance than general inflation due to the monetary nature of its assets and liabilities[332](index=332&type=chunk) [**ITEM 3 Quantitative and Qualitative Disclosures about Market Risk**](index=108&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Reports no significant changes in the Company's market risk assessment for Q1 2021 compared to the prior annual report - No significant changes in market risk assessment were reported for Q1 2021[333](index=333&type=chunk) [**ITEM 4 Controls and Procedures**](index=108&type=section&id=ITEM%204%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and no significant changes in internal control over financial reporting for Q1 2021 - The Company's disclosure controls and procedures were deemed effective as of March 31, 2021[334](index=334&type=chunk) - No significant change in the Company's internal control over financial reporting occurred during the quarterly period[334](index=334&type=chunk) [**PART II OTHER INFORMATION**](index=108&type=section&id=PART%20II%20OTHER%20INFORMATION) [**ITEM 1 Legal Proceedings**](index=108&type=section&id=ITEM%201%20Legal%20Proceedings) The Company does not expect material adverse effects from ordinary course legal proceedings on its business or financial condition - The Company does not expect any pending legal proceedings to have a material adverse effect on its business or financial condition[334](index=334&type=chunk) [**ITEM 1A Risk Factors**](index=110&type=section&id=ITEM%201A%20Risk%20Factors) Risk factors for Q1 2021 are consistent with those reported in the Company's **Form 10-K** for the year ended December 31, 2020 - Risk factors for Q1 2021 are consistent with those reported in the Company's **Form 10-K** for the year ended December 31, 2020[335](index=335&type=chunk) [**ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds**](index=110&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details on unregistered sales of equity securities and use of proceeds are provided in the Management's Discussion and Analysis - Information on unregistered sales of equity securities and use of proceeds is detailed under the "Shareholders Equity - Repurchase Plan" section in Item **2**[336](index=336&type=chunk) [**ITEM 3 Defaults upon Senior Securities**](index=110&type=section&id=ITEM%203%20Defaults%20upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - No defaults upon senior securities[336](index=336&type=chunk) [**ITEM 4 Mine Safety Disclosures**](index=110&type=section&id=ITEM%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable[337](index=337&type=chunk) [**ITEM 5 Other Information**](index=110&type=section&id=ITEM%205%20Other%20Information) No other information was reported for the period - No other information[337](index=337&type=chunk) [**ITEM 6 Exhibits**](index=111&type=section&id=ITEM%206%20Exhibits) Lists exhibits filed with the **Form 10-Q**, including **CEO and CFO** certifications and **Inline XBRL documents** - The report includes certifications by the **CEO and CFO** (Exhibits **31.1**, **31.2**, **32.1**) as required by the **Sarbanes-Oxley Act of 2002**[338](index=338&type=chunk)[340](index=340&type=chunk) - **Inline XBRL documents** (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File) are included as exhibits[340](index=340&type=chunk) [**EXHIBIT INDEX**](index=112&type=section&id=EXHIBIT%20INDEX) Provides a comprehensive list of all exhibits accompanying the **Form 10-Q** filing [**SIGNATURES**](index=113&type=section&id=SIGNATURES) - The report was signed by **George Boyan**, **Executive Vice President and Chief Financial Officer**, on May 5, 2021[343](index=343&type=chunk) ```

Table of Contents Commission file number 1-12431 Unity Bancorp, Inc. (Exact Name of Registrant as Specified in Its Charter) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE ...

PART I CONSOLIDATED FINANCIAL INFORMATION [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements present Unity Bancorp's financial position, operations, and cash flows, reflecting COVID-19 impacts, PPP loan growth, and a net income decrease from higher loan loss provisions [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$1,930,836** | **$1,718,942** | | Cash and cash equivalents | $201,395 | $158,016 | | Net loans | $1,591,054 | $1,409,163 | | - SBA PPP loans | $138,895 | $0 | | Total securities | $50,387 | $66,564 | | **Total Liabilities** | **$1,761,602** | **$1,558,233** | | Total deposits | $1,493,440 | $1,250,114 | | Borrowed funds | $240,000 | $283,000 | | **Total Shareholders' Equity** | **$169,234** | **$160,709** | - Total assets grew by **12.3%** to **$1.93 billion** at September 30, 2020, from **$1.72 billion** at year-end 2019, primarily driven by a **$181.9 million** increase in net loans, which includes **$138.9 million** in SBA PPP loans[10](index=10&type=chunk)[260](index=260&type=chunk) - Total deposits increased by **19.5%** to **$1.49 billion**, largely due to a significant rise in noninterest-bearing demand deposits, which grew from **$279.8 million** to **$412.9 million**[10](index=10&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $16,327 | $14,404 | $47,099 | $42,829 | | Provision for Loan Losses | $2,000 | $750 | $6,000 | $1,600 | | Noninterest Income | $3,336 | $2,710 | $8,692 | $7,143 | | Noninterest Expense | $10,037 | $8,729 | $28,540 | $25,997 | | **Net Income** | **$5,760** | **$5,959** | **$16,299** | **$17,533** | | **Diluted EPS** | **$0.54** | **$0.54** | **$1.50** | **$1.59** | - For the nine months ended September 30, 2020, the provision for loan losses increased significantly to **$6.0 million** from **$1.6 million** in the prior-year period, reflecting increased risk due to the COVID-19 pandemic[12](index=12&type=chunk)[248](index=248&type=chunk) - Net interest income for Q3 2020 rose to **$16.3 million** from **$14.4 million** in Q3 2019, driven by loan growth, including **$1.0 million** in interest income from SBA PPP loans[12](index=12&type=chunk) - Noninterest income for Q3 2020 was boosted by a **$1.7 million** gain on the sale of mortgage loans, a substantial increase from the **$545 thousand** gain in Q3 2019[12](index=12&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) - For the nine months ended September 30, 2020, the company reported a total other comprehensive loss of **$1.4 million**, net of tax, compared to other comprehensive income of **$89 thousand** in the same period of 2019[17](index=17&type=chunk) - The comprehensive loss in 2020 was primarily driven by unrealized losses on cash flow hedges amounting to **$1.1 million** and unrealized losses on securities available for sale of **$383 thousand**[17](index=17&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) - Shareholders' equity increased from **$160.7 million** at December 31, 2019, to **$169.2 million** at September 30, 2020[19](index=19&type=chunk) - Key changes in shareholders' equity during the first nine months of 2020 included net income of **$16.3 million**, offset by the acquisition of treasury stock for **$5.1 million** and payment of common stock dividends totaling **$2.5 million**[19](index=19&type=chunk)[24](index=24&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,813 | $25,028 | | Net cash used in investing activities | ($182,354) | ($67,475) | | Net cash provided by financing activities | $192,920 | $63,692 | | **Increase in cash and cash equivalents** | **$43,379** | **$21,245** | - Investing activities in 2020 were dominated by the origination of **$142.8 million** in SBA PPP Loans and a net increase in other loans of **$57.3 million**[24](index=24&type=chunk) - Financing activities were a significant source of cash, driven by a **$243.3 million** net increase in deposits, which more than offset the net repayment of borrowings and the purchase of treasury stock[24](index=24&type=chunk) [Notes to the Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) - The company adopted the Community Bank Leverage Ratio (CBLR) framework effective January 1, 2020. As of September 30, 2020, the Bank's CBLR was **9.62%** and the Company's was **9.95%**, both exceeding the **8.00%** requirement[197](index=197&type=chunk)[192](index=192&type=chunk) - The company has not yet adopted ASU 2016-13 regarding credit losses (CECL), with the effective date deferred for smaller reporting companies to fiscal years beginning after December 15, 2022[156](index=156&type=chunk)[157](index=157&type=chunk) - The company has interest rate swaps with a notional amount of **$100.0 million** as of September 30, 2020, designated as cash flow hedges against variable rate debt[175](index=175&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=ITEM%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses COVID-19's impact, including PPP loans, higher loan loss provisions, and BSA/AML consent order expenses, with total assets growing and net income flat - Net income was **$5.8 million** for Q3 2020, compared to **$6.0 million** for Q3 2019. Diluted EPS was flat at **$0.54** for both periods[222](index=222&type=chunk) - The company is addressing a Consent Order from the FDIC issued in July 2020 to strengthen its Bank Secrecy Act (BSA)/anti-money laundering (AML) program, which resulted in **$626 thousand** of BSA expenses in Q3 2020[221](index=221&type=chunk)[252](index=252&type=chunk) - As of September 30, 2020, the company had approved **1,224** PPP loan applications totaling **$143.0 million**, earning gross origination fees of **$5.5 million**[215](index=215&type=chunk) Loan Deferrals as of September 30, 2020 (in thousands) | Loan Type | Total Portfolio Balance | Unpaid Principal on Deferral | % Deferrals to Total Loans | | :--- | :--- | :--- | :--- | | Commercial loans | $799,573 | $36,387 | 4.55% | | Residential mortgage loans | $473,420 | $24,255 | 5.12% | | **Total** | **$1,613,291** | **$60,643** | **3.76%** | [Net Interest Income](index=48&type=section&id=Net%20Interest%20Income) - For Q3 2020, tax-equivalent net interest income increased **13.3%** to **$16.3 million** compared to Q3 2019. This was driven by a **$250.2 million** increase in average earning assets, primarily from PPP and commercial loans[230](index=230&type=chunk)[238](index=238&type=chunk) - Net interest margin (NIM) decreased by **12** basis points to **3.78%** in Q3 2020 from **3.90%** in Q3 2019, primarily due to lower yields on assets following interest rate cuts by the Federal Reserve[224](index=224&type=chunk)[230](index=230&type=chunk) - The average cost of total interest-bearing liabilities decreased significantly by **53** basis points to **1.15%** in Q3 2020, helping to mitigate the decline in asset yields[238](index=238&type=chunk) [Provision for Loan Losses](index=54&type=section&id=Provision%20for%20Loan%20Losses) - The provision for loan losses was **$2.0 million** for Q3 2020, a significant increase from **$750 thousand** in Q3 2019[248](index=248&type=chunk) - For the first nine months of 2020, the provision totaled **$6.0 million**, compared to **$1.6 million** for the same period in 2019. The increase is attributed to the heightened risk of loan defaults resulting from the COVID-19 pandemic[248](index=248&type=chunk) [Noninterest Income](index=55&type=section&id=Noninterest%20Income) - Noninterest income increased **23.1%** to **$3.3 million** in Q3 2020, primarily driven by a substantial increase in gains on the sale of mortgage loans, which rose to **$1.7 million** from **$545 thousand** in Q3 2019[231](index=231&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) - Gain on sale of SBA loans was **$534 thousand** in Q3 2020, compared to zero in the prior year's quarter when the company elected not to sell SBA loans[251](index=251&type=chunk) [Noninterest Expense](index=56&type=section&id=Noninterest%20Expense) - Noninterest expense increased **15.0%** to **$10.0 million** in Q3 2020 from **$8.7 million** in Q3 2019[231](index=231&type=chunk)[252](index=252&type=chunk) - The increase was primarily driven by **$626 thousand** in BSA expenses related to the FDIC consent order and a **$408 thousand** increase in compensation and benefits, mainly from higher mortgage commissions[252](index=252&type=chunk)[253](index=253&type=chunk) [Financial Condition](index=57&type=section&id=Financial%20Condition) - Total assets increased by **$211.9 million** (**12.3%**) to **$1.9 billion** at September 30, 2020, compared to year-end 2019, largely due to the funding of **$138.9 million** in SBA PPP loans[260](index=260&type=chunk) - Total loans increased by **$187.7 million** (**13.2%**) to **$1.6 billion**, while the securities portfolio decreased by **$16.2 million** to **$50.4 million**[260](index=260&type=chunk)[272](index=272&type=chunk) - Total deposits grew by **$243.3 million**, with noninterest-bearing demand deposits increasing by **$133.1 million**[261](index=261&type=chunk) - Nonperforming loans increased to **$9.0 million** (**0.56%** of total loans) at September 30, 2020, up from **$5.6 million** (**0.40%** of total loans) at year-end 2019[297](index=297&type=chunk) - The allowance for loan losses increased to **$22.2 million**, representing **1.38%** of total loans, up from **1.15%** at year-end 2019, reflecting the increased provision due to COVID-19[305](index=305&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=69&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reported no significant changes in its assessment of market risk during the nine months ended September 30, 2020, from what was disclosed in its 2019 Annual Report on Form 10-K - There have been no significant changes in the Company's assessment of market risk during the first nine months of 2020 compared to the disclosures in the 2019 Form 10-K[341](index=341&type=chunk) [Controls and Procedures](index=69&type=section&id=ITEM%204%20Controls%20and%20Procedures) Management, including the CEO and Interim CFO, evaluated the company's disclosure controls and procedures as of September 30, 2020, and concluded they were effective - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[345](index=345&type=chunk) - No significant changes in internal control over financial reporting occurred during the third quarter of 2020[345](index=345&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=69&type=section&id=ITEM%201%20Legal%20Proceedings) The company is subject to ordinary course legal proceedings but is not aware of any that would have a material adverse effect on its business, financial condition, or results of operations - The Company is not aware of any pending legal proceedings that would materially affect its financial position or results of operations[342](index=342&type=chunk) [Risk Factors](index=69&type=section&id=ITEM%201A%20Risk%20Factors) The company highlights significant new risks arising from the COVID-19 pandemic and a regulatory Consent Order, impacting operations, loan quality, and financial condition - A significant new risk factor is the COVID-19 pandemic, which could materially adversely affect the company's operations, customer businesses, loan portfolio quality, and overall financial condition due to economic disruptions[343](index=343&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - The company is subject to a Consent Order from the FDIC and NJDOBI related to deficiencies in its BSA/AML program. Compliance is expected to cost approximately **$1.8 million** and may involve operational restrictions[354](index=354&type=chunk)[356](index=356&type=chunk) - Potential impacts from the pandemic include decreased demand for products, increased loan delinquencies, higher allowance for loan losses, and reduced net interest margin[352](index=352&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase plan authorized on July 16, 2019, for up to **525,000** shares, with **161,554** shares repurchased in Q3 2020 Share Repurchases in Q3 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 50,000 | $13.56 | | August 2020 | 111,554 | $13.07 | | September 2020 | - | - | - During the nine months ended September 30, 2020, a total of **373,000** shares were repurchased at an average price of **$13.72**. As of the end of the quarter, **152,000** shares were still available for repurchase under the current plan[339](index=339&type=chunk) [Exhibits](index=73&type=section&id=ITEM%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and Interim CFO, and documents related to a change in control agreement and the FDIC Consent Order - Exhibits filed include CEO and CFO certifications (**31.1**, **31.2**, **32.1**) and documents related to the FDIC Consent Order (**10.2**, **10.3**), which were incorporated by reference from prior Form 8-K filings[361](index=361&type=chunk)[363](index=363&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. Commission File Number 1-12431 Unity Bancorp, Inc. (Exact name of registrant as specified in its charter) New Jersey 22-3282551 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____. Commission File Number 1-12431 | New Jersey | 22-3282551 | | --- | --- | | (State or other jurisdiction of incorporation or organization) | ...

Part I [Business Overview](index=4&type=section&id=Item%201.%20Business) Unity Bancorp, Inc. is a New Jersey bank holding company providing comprehensive commercial and consumer financial services through its 19-branch subsidiary, Unity Bank, competing with larger institutions via localized services - Unity Bancorp, Inc. is a New Jersey bank holding company primarily offering commercial and consumer financial services through its wholly-owned subsidiary, Unity Bank[10](index=10&type=chunk)[13](index=13&type=chunk) - As of December 31, 2019, the company had **197 full-time and 12 part-time employees**[16](index=16&type=chunk) - Unity Bank operates **17 branches in New Jersey and 2 in Pennsylvania**, primarily serving specific areas in New Jersey and Eastern Pennsylvania[11](index=11&type=chunk)[14](index=14&type=chunk) - The company faces intense competition from national, major regional banks, large savings institutions, and credit unions, which often possess greater capital and resources[15](index=15&type=chunk) [General Information](index=4&type=section&id=a)%20General) As Unity Bank's holding company, Unity Bancorp, Inc. provides diverse deposit and loan products, focusing its services on specific counties in New Jersey and Pennsylvania - The company's primary business is owning and overseeing Unity Bank, offering comprehensive commercial and community banking services, including various deposit and loan products[10](index=10&type=chunk)[13](index=13&type=chunk) - The bank operates **19 branches** in New Jersey and Pennsylvania, serving Hunterdon, Somerset, Union, Middlesex, Warren, and Bergen counties in New Jersey, and Northampton County in Pennsylvania[11](index=11&type=chunk)[14](index=14&type=chunk) - The company competes with larger financial institutions by offering competitively priced loans, deposits, and other services, along with local decision-making and personalized service[15](index=15&type=chunk) [Supervision and Regulation](index=5&type=section&id=SUPERVISION%20AND%20REGULATION) The company, as a bank and financial holding company, is extensively regulated by federal and state authorities, with new regulations like Dodd-Frank and Basel III significantly impacting capital, consumer protection, and operations - As a bank holding company, the company is regulated by the FRB and has elected to be a financial holding company, allowing it to engage in a broader range of financial activities[19](index=19&type=chunk)[22](index=22&type=chunk)[45](index=45&type=chunk) - The company and bank must comply with Basel III and Dodd-Frank Act capital adequacy guidelines, including minimum **CET1, Tier 1, and total capital ratios**, plus a **2.5% capital conservation buffer**[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[30](index=30&type=chunk) - The Dodd-Frank Act significantly impacted the banking regulatory landscape, permanently increasing **FDIC deposit insurance limits to $250,000**, establishing the Consumer Financial Protection Bureau (CFPB), and imposing new obligations on mortgage originators[37](index=37&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - Unity Bank, a New Jersey-chartered commercial bank, is regulated by the New Jersey Department of Banking and Insurance and the FDIC, with regulations impacting its capital levels, dividend payment ability, and expansion[36](index=36&type=chunk)[39](index=39&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from economic downturns, real estate market volatility, loan defaults, interest rate fluctuations, stringent regulations, and operational challenges, including technology disruptions and tax law changes - The company's business and operating results are influenced by U.S. financial markets and macroeconomic conditions (e.g., interest rates, inflation, home prices, unemployment rates), as well as economic conditions in its New Jersey and Pennsylvania trade areas[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - A significant portion of the company's loan portfolio is collateralized by real estate (approximately **94% as of December 31, 2019**), making it vulnerable to increased defaults and declining collateral values if the real estate market weakens[53](index=53&type=chunk) - The company faces the risk that loans may not be repaid on time or in full, and its allowance for loan losses may be insufficient to cover actual losses, especially during deteriorating economic conditions[55](index=55&type=chunk)[56](index=56&type=chunk) - Net interest income constitutes a significant portion of the company's earnings, and interest rate fluctuations could negatively impact its financial performance[57](index=57&type=chunk) - The company is subject to extensive government regulation, and laws like the Dodd-Frank Act may increase compliance costs and restrict revenue sources[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - The company relies on communication and information systems for its operations, and system failures, disruptions, or security breaches could harm its reputation, lead to customer loss, and incur financial liabilities[74](index=74&type=chunk)[77](index=77&type=chunk) - Changes in U.S. tax laws and New Jersey legislation (e.g., temporary surtaxes and mandatory combined reporting) could increase the company's tax expenses[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - LIBOR reform and uncertainty could adversely affect the value and returns of the company's LIBOR-based financial assets and liabilities, potentially requiring significant changes to contracts and systems[83](index=83&type=chunk)[84](index=84&type=chunk) [Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This report contains no unresolved staff comments - There are no unresolved staff comments in this report[86](index=86&type=chunk) [Properties](index=16&type=section&id=Item%202.%20Properties) The company operates from its main office and 19 branches, owning 10 properties and leasing 9 with total annual rent of **$414,728** as of December 31, 2019 - The company operates through its main office in Clinton, New Jersey, and **19 branches**, also leasing additional back-office space in Clinton[86](index=86&type=chunk) Company Property Information (As of December 31, 2019) | Location | Leased or Owned | 2019 Annual Rent (USD) | | :--- | :--- | :--- | | North Plainfield, NJ | Owned | — | | Linden, NJ | Owned | — | | Whitehouse, NJ | Owned | — | | Union, NJ | Leased | 18,750 | | Scotch Plains, NJ | Owned | — | | Flemington, NJ | Owned | — | | Forks Township, PA | Leased | 62,677 | | Middlesex, NJ | Owned | — | | Somerset, NJ | Leased | 128,895 | | Washington, NJ | Owned | — | | Highland Park, NJ | Owned | — | | South Plainfield, NJ | Owned | — | | Edison, NJ | Owned | — | | Clinton, NJ | Owned | — | | Somerville, NJ | Owned | — | | Emerson, NJ | Owned | — | | Ramsey, NJ | Leased | 60,987 | | Phillipsburg, NJ | Leased | 60,000 | | Clinton, NJ | Leased | 27,600 | | Bethlehem, PA | Leased | 76,719 | [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings or claims that would materially adversely affect its business or financial performance - The company is currently unaware of any legal proceedings or claims that could have a material adverse effect on its business, financial condition, or operating results[89](index=89&type=chunk) [Mine Safety Disclosures](index=16&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable - Mine safety disclosures are not applicable[90](index=90&type=chunk) [Executive Officers of the Registrant](index=17&type=section&id=Item%204A.%20Executive%20Officers%20of%20the%20Registrant) As of December 31, 2019, key executive officers included the COO, CFO (resigned Jan 2020), CAO, and Interim Chief Accounting and Financial Officer Executive Officers of the Company (As of December 31, 2019) | Name | Age | Position | Tenure | | :--- | :--- | :--- | :--- | | John Kauchak | 66 | Chief Operating Officer and Executive Vice President | 2002 | | Alan J. Bedner | 48 | Chief Financial Officer and Executive Vice President | 2003* | | Janice Bolomey | 51 | Chief Administrative Officer and Executive Vice President | 2013 | | Laureen S. Cook | 51 | Interim Chief Accounting and Financial Officer and Senior Vice President | 2020* | *Alan J. Bedner resigned on January 24, 2020, and Laureen S. Cook assumed an interim role in 2020 Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under "UNTY"; a 2019 authorization allows repurchasing up to **525,000 shares**, though no shares were repurchased in fiscal years 2017-2019 - The company's common stock is listed on the Nasdaq Global Market under the trading symbol **“UNTY”**[94](index=94&type=chunk) - On July 16, 2019, the company authorized the repurchase of up to **525,000 shares** of common stock, representing approximately **5%** of its outstanding common stock[94](index=94&type=chunk) - As of December 31, 2019, 2018, and 2017, the company did not repurchase any shares[94](index=94&type=chunk) [Selected Financial Data](index=18&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents selected financial data for fiscal year 2017, highlighting the **$1.7 million** one-time income tax expense increase due to the Tax Act, and presenting non-GAAP metrics for better performance reflection Key Financial Data for Fiscal Year 2017 (GAAP vs. Non-GAAP) | Metric | GAAP ($ thousand) | Tax Act Adjustment ($ thousand) | Non-GAAP ($ thousand) | | :--- | :--- | :--- | :--- | | Federal and State Income Tax Expense | 9,540 | (1,733) | 7,807 | | Net Income | 12,893 | 1,733 | 14,626 | | Basic Earnings Per Share | 1.22 | 0.16 | 1.38 | | Diluted Earnings Per Share | 1.20 | 0.16 | 1.36 | | Return on Average Assets | 1.02% | 0.13% | 1.15% | | Return on Average Equity | 11.47% | 1.55% | 13.02% | | Effective Tax Rate | 42.50% | (7.70)% | 34.80% | - The 2017 Tax Cuts and Jobs Act reduced the corporate tax rate from **35% to 21%**, resulting in a one-time net tax expense increase of **$1.7 million**, impacting GAAP financial metrics[97](index=97&type=chunk) - The company believes that non-GAAP financial metrics, excluding the tax act's impact, better reflect its financial performance[97](index=97&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's 2019-2017 performance, highlighting **$23.7 million** net income in 2019 driven by loan growth, increased assets and liabilities, and a detailed discussion of market risk, liquidity, capital, and accounting policies Operating Performance Highlights for Fiscal Years 2019-2017 | Metric | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Net Income ($ million) | 23.7 | 21.9 | 12.9 | | Diluted EPS ($) | 2.14 | 2.01 | 1.20 | | Return on Average Assets | 1.54% | 1.53% | 1.02% | | Return on Average Equity | 15.86% | 17.10% | 11.47% | | Efficiency Ratio | 52.00% | 53.07% | 55.57% | | Net Interest Income ($ million) | 57.6 | 53.7 | 45.9 | | Net Interest Margin | 3.95% | 3.97% | 3.83% | | Noninterest Income ($ million) | 9.5 | 9.0 | 8.3 | | Noninterest Expense ($ million) | 34.7 | 33.4 | 30.0 | | Effective Tax Rate | 22.0% | 19.7% | 42.5% | | Total Loan Growth | 9.3% | - | - | | Total Deposit Growth | 3.5% | - | - | - In 2019, net interest income grew **7.2% to $57.6 million**, primarily due to strong loan growth, though net interest margin slightly decreased by **2 basis points to 3.95%** due to Federal Reserve rate cuts[106](index=106&type=chunk)[109](index=109&type=chunk) - In 2019, total assets grew **8.9% to $1.7 billion**, driven by a **$120 million increase in net loans**, with strong growth in commercial, residential, and consumer loans[133](index=133&type=chunk) - In 2019, total deposits increased by **$42.4 million**, primarily from growth in time deposits and noninterest-bearing demand deposits; borrowings increased by **$73 million**, mainly from new fixed-rate advances and overnight borrowings[134](index=134&type=chunk)[181](index=181&type=chunk)[185](index=185&type=chunk) - At year-end 2019, the company's shareholder equity increased by **$22.2 million to $160.7 million**, primarily driven by **$23.7 million in net income**[135](index=135&type=chunk)[209](index=209&type=chunk) [Overview](index=20&type=section&id=Overview) Unity Bancorp, Inc., through its subsidiary Unity Bank, offers comprehensive commercial and retail banking services via 19 branches and the internet, including various deposit and credit products - Unity Bancorp, Inc. is a New Jersey bank holding company whose wholly-owned subsidiary, Unity Bank, provides comprehensive commercial and retail banking services[103](index=103&type=chunk) - The bank operates through the internet and **19 branches** in New Jersey and Pennsylvania, offering deposit and various credit services[103](index=103&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) In 2019, net income reached **$23.7 million** with **$2.14 diluted EPS**, driven by **11.0% pretax income growth**, **7.2% net interest income growth to $57.6 million**, and increased loans and deposits Operating Performance Overview for Fiscal Years 2019-2017 | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Income ($ million) | 23.7 | 21.9 | 12.9 | | Diluted EPS ($) | 2.14 | 2.01 | 1.20 | | Return on Average Assets | 1.54% | 1.53% | 1.02% | | Return on Average Equity | 15.86% | 17.10% | 11.47% | | Efficiency Ratio | 52.00% | 53.07% | 55.57% | - In 2019, pretax net income increased by **11.0% to $30.3 million**[106](index=106&type=chunk) - In 2019, net interest income grew **7.2% to $57.6 million**, primarily driven by strong loan growth[106](index=106&type=chunk) - In 2019, net interest margin decreased by **2 basis points to 3.95%**, mainly due to recent Federal Reserve rate cuts[106](index=106&type=chunk) - In 2019, noninterest income was **$9.5 million**, an increase of **$0.508 million** year-over-year, driven by equity securities market fluctuations, increased gains on securities sales, and higher mortgage banking income[106](index=106&type=chunk) - In 2019, total noninterest expense was **$34.7 million**, an increase of **$1.3 million** year-over-year, primarily due to higher compensation and mortgage commissions[106](index=106&type=chunk) - In 2019, the effective tax rate increased to **22.0%**, mainly due to recent New Jersey tax law changes[106](index=106&type=chunk) - In 2019, total loans grew **9.3%**, with consumer loans increasing **15.8%**, commercial loans **10.2%**, and residential mortgage loans **7.3%**[106](index=106&type=chunk) - In 2019, total deposits grew **3.5%**, with time deposits increasing **13.2%** and noninterest-bearing demand deposits **3.6%**[106](index=106&type=chunk) [Net Interest Income](index=21&type=section&id=Net%20Interest%20Income) Net interest income, the primary revenue source, reached **$57.6 million** in 2019, with net interest margin slightly declining to **3.95%** due to rate cuts, while 2018 saw significant growth from loan expansion and rising rates - In 2019, net interest income after tax was **$57.6 million**, an increase of **$3.8 million** from 2018; net interest margin decreased by **2 basis points to 3.95%**[109](index=109&type=chunk) - In 2019, interest income after tax was **$75.7 million**, a **12.5%** year-over-year increase, driven by a **$105.3 million increase** in average interest-earning assets (primarily loans) and a **21 basis point rise in yield to 5.18%**[110](index=110&type=chunk)[112](index=112&type=chunk) - In 2019, total interest expense was **$18.1 million**, a **33.6%** year-over-year increase, driven by higher rates on interest-bearing deposits and increased time deposit volumes, with the average cost of interest-bearing liabilities rising by **32 basis points to 1.64%**[110](index=110&type=chunk)[112](index=112&type=chunk) - In 2018, net interest income after tax was **$53.8 million**, an increase of **$7.9 million** from 2017; net interest margin increased by **14 basis points to 3.97%**, primarily due to strong loan growth and rising interest rates[111](index=111&type=chunk) - In 2018, interest income after tax was **$67.3 million**, a **21.5%** year-over-year increase, driven by a **$153.9 million increase** in average interest-earning assets (primarily loans) and a **36 basis point rise in yield to 4.97%**[113](index=113&type=chunk)[115](index=115&type=chunk) - In 2018, total interest expense was **$13.5 million**, a **43.0%** year-over-year increase, driven by higher rates on interest-bearing deposits and increased time deposit volumes, with the average cost of interest-bearing liabilities rising by **28 basis points to 1.32%**[113](index=113&type=chunk)[115](index=115&type=chunk) [Provision for Loan Losses](index=27&type=section&id=Provision%20for%20Loan%20Losses) The company's provision for loan losses was **$2.1 million** in 2019 and 2018, and **$1.7 million** in 2017, determined by continuous analysis of the loan portfolio and various risk factors Provision for Loan Losses (Fiscal Years 2017-2019) | Year | Provision for Loan Losses ($ million) | | :--- | :--- | | 2019 | 2.1 | | 2018 | 2.1 | | 2017 | 1.7 | - The provision for loan losses is determined based on an analysis of the loan portfolio, considering its size and composition, net charge-off levels, delinquency status, current economic conditions, and other internal and external risk factors[121](index=121&type=chunk) [Noninterest Income](index=27&type=section&id=Noninterest%20Income) Noninterest income reached **$9.5 million** in 2019, up **$0.508 million** from 2018, driven by equity market fluctuations, mortgage sales, and property gains, while 2018 saw growth from BOLI and mortgage sales Noninterest Income Composition (Fiscal Years 2017-2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Branch Fee Income | 1,502 | 1,519 | 1,384 | | Service and Loan Fee Income | 1,965 | 2,130 | 2,100 | | Net Gains on SBA Loan Sales | 909 | 1,680 | 1,617 | | Net Gains on Mortgage Loan Sales | 2,090 | 1,719 | 1,530 | | BOLI Income | 588 | 975 | 469 | | Net Gains (Losses) on Securities | 373 | (199) | 62 | | Gains on Sale of Property and Equipment | 766 | — | — | | Other Income | 1,346 | 1,207 | 1,108 | | **Total Noninterest Income** | **9,539** | **9,031** | **8,270** | - In 2019, noninterest income increased by **$0.508 million** year-over-year, primarily due to equity securities market fluctuations (an increase of **$0.321 million**), increased gains on mortgage loan sales (an increase of **$0.371 million**), and gains on property sales (an increase of **$0.766 million**)[123](index=123&type=chunk) - In 2019, net gains on SBA loan sales decreased by **$0.771 million to $0.909 million**, primarily due to reduced SBA loan sales volume[123](index=123&type=chunk) - In 2018, noninterest income increased by **$0.761 million** year-over-year, primarily due to increased BOLI income (an increase of **$0.506 million**, including **$0.291 million** in death benefits) and increased gains on mortgage loan sales (an increase of **$0.189 million**)[124](index=124&type=chunk) [Noninterest Expense](index=30&type=section&id=Noninterest%20Expense) Total noninterest expense reached **$34.7 million** in 2019, up **$1.3 million** from 2018, driven by increased compensation, mortgage commissions, and technology investments, following a **$3.4 million** increase in 2018 due to expansion Noninterest Expense Composition (Fiscal Years 2017-2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Salaries and Employee Benefits | 20,666 | 20,119 | 17,117 | | Occupancy Expense | 2,650 | 2,739 | 2,381 | | Processing and Communications | 2,924 | 2,788 | 2,551 | | Furniture and Equipment | 2,894 | 2,348 | 2,079 | | Professional Services | 1,061 | 934 | 1,022 | | Loan Collection and OREO Expense (Recovery) | 41 | (361) | 463 | | Other Loan Expenses | 272 | 208 | 186 | | Deposit Insurance | 301 | 782 | 546 | | Advertising | 1,358 | 1,411 | 1,179 | | Directors' Fees | 673 | 671 | 637 | | Other Expenses | 1,877 | 1,782 | 1,883 | | **Total Noninterest Expense** | **34,717** | **33,421** | **30,044** | - In 2019, noninterest expense increased by **$1.3 million** year-over-year, primarily due to a **$0.547 million increase** in salaries and benefits, a **$0.546 million increase** in furniture and equipment expenses (technology investment), and a **$0.127 million increase** in professional services fees[126](index=126&type=chunk)[128](index=128&type=chunk) - In 2019, deposit insurance expenses decreased by **$0.481 million**, primarily due to a **$0.279 million FDIC assessment credit** received in the second half of 2019[128](index=128&type=chunk) - In 2018, noninterest expense increased by **$3.4 million** year-over-year, primarily due to a **$3.0 million increase** in salaries and benefits (branch expansion and increased staffing), a **$0.358 million increase** in occupancy expenses, and a **$0.269 million increase** in furniture and equipment expenses (technology infrastructure investment)[127](index=127&type=chunk)[129](index=129&type=chunk) [Income Tax Expense](index=31&type=section&id=Income%20Tax%20Expense) Income tax expense was **$6.7 million** in 2019, with an effective tax rate of **22.0%**, influenced by the 2017 Tax Act's federal rate reduction and 2018 New Jersey tax law changes Income Tax Expense and Effective Tax Rate (Fiscal Years 2017-2019) | Year | Income Tax Expense ($ million) | Effective Tax Rate | | :--- | :--- | :--- | | 2019 | 6.7 | 22.0% | | 2018 | 5.4 | 19.7% | | 2017 | 9.5 | 42.5% | - The 2017 Tax Cuts and Jobs Act reduced the federal corporate tax rate from **35% to 21%**, resulting in significant tax benefits for the company[131](index=131&type=chunk) - On July 1, 2018, New Jersey legislation implemented a temporary surtax (**2.5% for 2018-2019, 1.5% for 2020-2021**) and mandatory unitary combined reporting, leading to changes in the effective tax rate[130](index=130&type=chunk) [Financial Condition](index=31&type=section&id=Financial%20Condition) As of December 31, 2019, total assets grew **8.9% to $1.7 billion**, driven by a **$120 million** increase in net loans, with corresponding increases in deposits, borrowings, and shareholder equity - As of December 31, 2019, total assets grew **8.9% to $1.7 billion**, primarily driven by a **$120 million increase in net loans**, with strong growth in commercial, residential, and consumer loans[133](index=133&type=chunk) - Total deposits increased by **$42.4 million**, primarily from growth in time deposits and noninterest-bearing demand deposits[134](index=134&type=chunk) - Borrowings increased by **$73 million to $283 million**, primarily from new **$40 million fixed-rate advances** and **$33 million in overnight borrowings**[134](index=134&type=chunk)[185](index=185&type=chunk) - Shareholder equity increased by **$22.2 million**, primarily due to **$23.7 million in net income**, partially offset by **$3.3 million in common stock dividends**[135](index=135&type=chunk) [Securities](index=32&type=section&id=Securities) The securities portfolio, comprising AFS, HTM, and equity investments, saw AFS debt securities grow to **$64.3 million** in 2019, with all HTM securities transferred to AFS, and **64%** of the total portfolio being fixed-rate - The company's securities portfolio includes available-for-sale (AFS), held-to-maturity (HTM), and equity investments, used for asset/liability management, liquidity, and profitability purposes[138](index=138&type=chunk) - In 2019, AFS debt securities increased to **$64.3 million**, a **37.6%** year-over-year increase, primarily due to **$14.2 million** in HTM portfolio transfers to AFS, **$13.1 million** in new securities purchases, and **$1.4 million** in market value appreciation[140](index=140&type=chunk)[146](index=146&type=chunk) - In 2019, the company transferred all its HTM securities to the AFS debt securities portfolio; HTM securities were **$14.9 million** at year-end 2018[141](index=141&type=chunk) - In 2019, equity securities increased to **$2.3 million**, a **6.7%** year-over-year increase, primarily influenced by **$0.321 million** in market value adjustments[144](index=144&type=chunk)[147](index=147&type=chunk) - As of December 31, 2019, approximately **64%** of the total investment portfolio was fixed-rate, down from **80% in 2018**[148](index=148&type=chunk) [Loans](index=33&type=section&id=Loans) The loan portfolio, the largest asset and revenue source, grew **9.3% to $1.4 billion** in 2019, driven by commercial, residential mortgage, and consumer loans, with SBA 7(a) loans being high-risk and often sold - In 2019, total loans grew **9.3% to $1.4 billion**, primarily driven by increases in commercial loans (**$70.9 million**), residential mortgage loans (**$31.7 million**), and consumer loans (**$19.6 million**)[150](index=150&type=chunk) Loan Classification (As of December 31, 2019) | Loan Category | Amount ($ thousand) | Percentage of Total Loans | | :--- | :--- | :--- | | SBA Loans (Held for Sale) | 13,529 | 0.9% | | SBA Loans (Held for Investment) | 35,767 | 2.5% | | Commercial Loans | 765,032 | 53.7% | | Residential Mortgage Loans | 467,706 | 32.8% | | Consumer Loans | 143,524 | 10.1% | | **Total Loans** | **1,425,558** | **100.0%** | - SBA 7(a) loans are considered high-risk products, with their guaranteed portions typically sold in the secondary market, while unguaranteed portions are retained as held-for-investment loans[152](index=152&type=chunk)[154](index=154&type=chunk) - Commercial loans are primarily used for working capital, equipment purchases, and commercial real estate financing, totaling **$765 million as of December 31, 2019**[156](index=156&type=chunk) - Residential mortgage loans primarily target individuals who do not qualify for traditional financing, totaling **$467.7 million as of December 31, 2019**[157](index=157&type=chunk) - Consumer loans include home equity loans, construction loans, and personal consumer loans, totaling **$143.5 million as of December 31, 2019**[158](index=158&type=chunk) [Troubled Debt Restructurings](index=36&type=section&id=Troubled%20Debt%20Restructurings) Troubled Debt Restructurings (TDRs) involve creditor concessions due to debtor financial distress; as of December 31, 2019, one **$0.705 million** loan was classified as a TDR and impaired - Troubled Debt Restructurings (TDRs) are concessions granted by creditors due to a debtor's financial difficulties, typically involving reduced interest rates, extended loan terms, or modified payment schedules[163](index=163&type=chunk) - As of December 31, 2019, the company had one loan of **$0.705 million** classified as a TDR and deemed impaired, which was modified in 2017 to reduce the principal balance and continues to perform under the restructured terms[164](index=164&type=chunk) [Asset Quality](index=36&type=section&id=Asset%20Quality) The company minimizes credit risk through diversification and strict policies; as of December 31, 2019, nonperforming loans were **$5.6 million**, OREO increased to **$1.7 million** due to new acquisitions, and potential problem loans rose to **$7.4 million** - The company minimizes credit risk through loan diversification and stringent credit management policies and procedures[166](index=166&type=chunk) - Nonperforming assets include nonperforming loans and other real estate owned (OREO); nonperforming loans are those **90 days or more past due** or where the ability to collect principal and interest is doubtful[168](index=168&type=chunk) Nonperforming Assets and Loans 90 Days Past Due and Still Accruing (Fiscal Years 2015-2019) | Metric | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | 2016 ($ thousand) | 2015 ($ thousand) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Nonperforming Loans | 5,649 | 6,873 | 2,994 | 7,237 | 7,260 | | OREO | 1,723 | 56 | 426 | 1,050 | 1,591 | | Total Nonperforming Assets | 7,372 | 6,929 | 3,420 | 8,287 | 8,851 | | Total Loans 90 Days Past Due and Still Accruing | 930 | 98 | 60 | — | — | | Nonperforming Loans to Total Loans | 0.40% | 0.53% | 0.26% | 0.74% | 0.82% | | Nonperforming Assets to Total Assets | 0.43% | 0.44% | 0.23% | 0.70% | 0.82% | - In 2019, nonperforming loans were **$5.6 million**, a **$1.2 million decrease** from year-end 2018[169](index=169&type=chunk) - In 2019, OREO properties increased to **$1.7 million**, primarily due to the company acquiring **four new properties valued at $1.7 million**[170](index=170&type=chunk) - In 2019, potential problem loans increased to **$7.4 million**, a **$2.9 million increase** from year-end 2018[171](index=171&type=chunk) [Allowance for Loan Losses and Reserve for Unfunded Loan Commitments](index=37&type=section&id=Allowance%20for%20Loan%20Losses%20and%20Reserve%20for%20Unfunded%20Loan%20Commitments) The company quarterly assesses its allowance for loan losses, totaling **$16.4 million** or **1.15% of total loans** in 2019, based on specific and general allowances, with **$1.2 million** in net charge-offs and a **$0.273 million** reserve for unfunded commitments - The allowance for loan losses is assessed using specific allowances (for individually impaired loans and TDRs) and general allowances (based on historical net charge-off rates adjusted for environmental factors)[173](index=173&type=chunk)[174](index=174&type=chunk) - In 2019, the total allowance for loan losses was **$16.4 million**, representing **1.15% of total loans**, compared to **$15.5 million** or **1.19% of total loans in 2018**[176](index=176&type=chunk) - In 2019, net charge-offs were **$1.2 million**, compared to **$0.118 million in 2018**[176](index=176&type=chunk) Summary of Allowance for Loan Losses Changes (Fiscal Years 2015-2019) | Metric | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Balance at Beginning of Year | 15,488 | 13,556 | 12,579 | | Provision Charged to Expense | 2,100 | 2,050 | 1,650 | | Total Charge-offs | 1,242 | 386 | 911 | | Total Recoveries | 49 | 268 | 238 | | Total Net Charge-offs | 1,193 | 118 | 673 | | Balance at End of Year | 16,395 | 15,488 | 13,556 | | Allowance for Loan Losses to Total Loans | 1.15% | 1.19% | 1.16% | | Allowance for Loan Losses to Nonperforming Loans | 290.23% | 225.35% | 452.77% | | Net Charge-offs to Average Loans | 0.09% | 0.01% | 0.06% | - The company maintains a **$0.273 million reserve** for unfunded loan commitments to absorb estimated probable losses[178](index=178&type=chunk) [Deposits](index=40&type=section&id=Deposits) Deposits, the primary funding source, grew **$42.4 million to $1.3 billion** in 2019, driven by time and noninterest-bearing demand deposits, with time deposits representing **32.3%** of the total - Deposits are the company's primary source of funds, and the company focuses on building and expanding comprehensive relationships with customers[180](index=180&type=chunk) - In 2019, total deposits increased by **$42.4 million to $1.3 billion**, primarily driven by growth in time deposits (an increase of **$47.2 million**) and noninterest-bearing demand deposits (an increase of **$9.6 million**)[181](index=181&type=chunk) Deposit Composition (As of December 31, 2019) | Deposit Category | Amount ($ thousand) | Percentage of Total Deposits | | :--- | :--- | :--- | | Noninterest-Bearing Demand Deposits | 279,793 | 22.4% | | Interest-Bearing Demand Deposits | 176,335 | 14.1% | | Savings Deposits | 389,795 | 31.2% | | Time Deposits | 404,191 | 32.3% | | **Total Deposits** | **1,250,114** | **100.0%** | - Compared to year-end 2018, in 2019, time deposits increased by **2.7%**, while savings deposits and interest-bearing demand deposits decreased by **1.4% and 1.3%**, respectively[182](index=182&type=chunk) [Borrowed Funds and Subordinated Debentures](index=41&type=section&id=Borrowed%20Funds%20and%20Subordinated%20Debentures) Borrowings, primarily FHLB advances, totaled **$293.3 million** in 2019, up **$73 million** from 2018 due to new fixed-rate and overnight advances, with interest rate swaps used to convert adjustable-rate borrowings to fixed-rate - Borrowings primarily consist of Federal Home Loan Bank (FHLB) advances, used to provide liquidity or support asset growth[184](index=184&type=chunk) - In 2019, total borrowings and subordinated debentures were **$293.3 million**, an increase of **$73 million** from 2018, primarily due to new **$40 million FHLB fixed-rate advances** and **$33 million in FHLB overnight borrowings**[185](index=185&type=chunk) Composition of Borrowings and Subordinated Debentures (As of December 31, 2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | | :--- | :--- | :--- | | FHLB Fixed-Rate Advances | 40,000 | — | | FHLB Adjustable-Rate Advances | 50,000 | 50,000 | | FHLB Overnight Advances | 193,000 | 160,000 | | Subordinated Debentures | 10,310 | 10,310 | | **Total Borrowings and Subordinated Debentures** | **293,310** | **220,310** | - The company uses interest rate swap agreements to convert FHLB adjustable-rate advances into **5-year fixed-rate borrowings** to hedge against interest rate fluctuation risk[186](index=186&type=chunk) - Subordinated debentures are floating-rate (**3-month LIBOR plus 159 basis points**) and were converted to a **3-year fixed rate of 3.435%** via a new interest rate swap agreement on July 5, 2019[189](index=189&type=chunk) [Market Risk](index=42&type=section&id=Market%20Risk) The company's primary market risk is interest rate risk, managed by the RMC using gap ratios, simulation, and economic value models, with all simulated net interest income and equity economic value results within board-approved guidelines as of December 31, 2019 - The company's primary market risk is interest rate risk, managed by the Risk Management Committee (RMC) to control interest rate risk levels in balance sheet accounts[191](index=191&type=chunk) - The company uses **“gap” ratios** to measure maturity and repricing mismatches between interest-sensitive assets and liabilities, where a positive gap indicates increased net interest income when interest rates rise[192](index=192&type=chunk) - As of December 31, 2019, the company had a **$4.6 million six-month asset-sensitive gap** and a **$23.7 million one-year asset-sensitive gap**, both within the board-approved **+/-20% guidelines**[195](index=195&type=chunk) - Simulation models indicate that a **200 basis point increase in interest rates** over 12 months would increase net interest income by approximately **$0.522 million (0.9%)**; a **200 basis point decrease** would reduce net interest income by approximately **$1.8 million (2.9%)**, both within the board-approved **+/-10% guidelines**[196](index=196&type=chunk) - The Economic Value of Portfolio Equity (EVPE) model shows that under a **200 basis point interest rate shock**, the change in economic value of equity in 2019 would decrease by **1.8% in a rising rate environment** and **1.9% in a falling rate environment**, both within the board-approved **+/-20% guidelines**[197](index=197&type=chunk) [Liquidity](index=44&type=section&id=Liquidity) Liquidity, sourced from deposits, loan payments, and borrowings, saw **$33.2 million** net cash from operations, **$133.1 million** used in investing, and **$112.4 million** from financing in 2019, with off-balance sheet commitments also disclosed - Liquidity measures the company's ability to meet current and future cash flow needs, primarily sourced from deposits, principal and interest payments on loans and investment securities, securities sales, and borrowings[198](index=198&type=chunk)[199](index=199&type=chunk) Summary of Cash Flows (Fiscal Years 2018-2019) | Activity Category | 2019 ($ million) | 2018 ($ million) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 33.2 | 38.6 | | Net Cash Used in Investing Activities | 133.1 | 140.7 | | Net Cash from Financing Activities | 112.4 | 97.3 | | Cash and Cash Equivalents, End of Period | 158.0 | 145.5 | - The parent company's cash needs are primarily met by dividends paid by the bank and corporate headquarters rent[203](index=203&type=chunk) Off-Balance Sheet Arrangements and Contractual Obligations (As of December 31, 2019) | Item | Within One Year ($ thousand) | One to Three Years ($ thousand) | Three to Five Years ($ thousand) | More Than Five Years ($ thousand) | Total ($ thousand) | | :--- | :--- | :--- | :--- | :--- | :--- | | Standby Letters of Credit | 4,025 | — | — | 799 | 4,824 | | Time Deposits | 236,210 | 159,946 | 7,667 | 368 | 404,191 | | Borrowings and Subordinated Debentures | 243,000 | — | 40,000 | 10,310 | 293,310 | | Purchase Obligations | 2,062 | 4,124 | 2,234 | — | 8,420 | | **Total** | **485,297** | **164,070** | **49,901** | **11,477** | **710,745** | - As of December 31, 2019, the company had **$219.7 million** in additional FHLB credit available[208](index=208&type=chunk) [Capital Adequacy](index=46&type=section&id=Capital%20Adequacy) As of December 31, 2019, shareholder equity increased by **$22.2 million to $160.7 million**, with both the company and bank meeting all federal "well-capitalized" regulatory capital adequacy requirements - As of December 31, 2019, shareholder equity increased by **$22.2 million to $160.7 million**, primarily due to **$23.7 million in net income**[209](index=209&type=chunk) - Federal regulators categorize capital into Tier 1 capital (including common stock, qualifying preferred stock, and hybrid instruments) and Tier 2 capital (including a portion of the allowance for loan losses and qualifying long-term debt)[211](index=211&type=chunk) Regulatory Capital Ratios (As of December 31, 2019) | Ratio | Company | Bank | Capital Adequacy Requirement (Effective January 1, 2019) | To Be a 'Well-Capitalized' Bank | | :--- | :--- | :--- | :--- | :--- | | Leverage Ratio | 10.59% | 10.15% | 4.00% | 5.00% | | CET1 | 11.59% | 11.81% | 7.00% (1) | 6.50% | | Tier 1 Risk-Based Capital Ratio | 12.32% | 11.81% | 8.50% (1) | 8.00% | | Total Risk-Based Capital Ratio | 13.06% | 12.58% | 10.50% (1) | 10.00% | (1) Includes a **2.5% capital conservation buffer** - As of December 31, 2019, Unity Bank was considered **“well-capitalized”** under applicable regulatory capital adequacy guidelines[410](index=410&type=chunk) [Forward-Looking Statements](index=47&type=section&id=Forward-Looking%20Statements) This report includes forward-looking statements about future financial performance, subject to risks, uncertainties, and assumptions, with actual results potentially differing due to various economic, regulatory, and operational factors - This report contains forward-looking statements intended to help readers understand anticipated future financial performance, but these involve risks, uncertainties, estimates, and assumptions[215](index=215&type=chunk) - Actual results may differ materially from expectations due to factors such as economic and interest rate environments, customer repayment ability, allowance for loan losses adequacy, competition, changes in tax, accounting, or regulatory practices, and technological changes[216](index=216&type=chunk) [Critical Accounting Policies and Estimates](index=47&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial statement preparation requires management estimates and judgments, with critical accounting policies like non-temporary impairment of securities, servicing assets, loan loss allowance, and income taxes involving high complexity and subjective judgment - The preparation of the company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses[217](index=217&type=chunk) - Management believes that accounting policies for non-temporary impairment of securities, servicing assets, allowance for loan losses, and income taxes involve high complexity and subjective judgment, potentially having a significant impact on operating results due to changes in assumptions or estimates[217](index=217&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Quantitative and qualitative disclosures regarding market risk are provided in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk" - Quantitative and qualitative disclosures about market risk are detailed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk” section[232](index=232&type=chunk) [Financial Statements and Supplementary Data](index=50&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents consolidated financial statements for 2019-2017, including balance sheets, income statements, and cash flow statements, along with detailed notes on accounting policies and an unqualified audit opinion - This section includes the company's consolidated balance sheets as of December 31, 2019 and 2018, and consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the years ended December 31, 2019, 2018, and 2017[233](index=233&type=chunk)[235](index=235&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk)[244](index=244&type=chunk) - Notes to the financial statements elaborate on the company's accounting policies, securities, loans, allowance for loan losses, deposits, borrowings, employee benefit plans, and fair value, among other important financial information[247](index=247&type=chunk)[317](index=317&type=chunk)[330](index=330&type=chunk)[356](index=356&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk)[411](index=411&type=chunk)[428](index=428&type=chunk) - Independent registered public accounting firm RSM US LLP has issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2019 and 2018[466](index=466&type=chunk) [Consolidated Balance Sheets](index=50&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2019, total assets reached **$1.7189 billion**, with **$1.4092 billion** in net loans, **$1.2501 billion** in deposits, and **$160.7 million** in shareholder equity Consolidated Balance Sheets Summary (As of December 31, 2019 and December 31, 2018) | Item | December 31, 2019 ($ thousand) | December 31, 2018 ($ thousand) | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | 158,016 | 145,515 | | Total Securities | 66,564 | 63,732 | | Net Loans | 1,409,163 | 1,289,078 | | Total Assets | 1,718,942 | 1,579,157 | | **Liabilities and Shareholders' Equity** | | | | Total Deposits | 1,250,114 | 1,207,687 | | Borrowed Funds and Subordinated Debentures | 293,310 | 220,310 | | Total Liabilities | 1,558,233 | 1,440,669 | | Total Shareholders' Equity | 160,709 | 138,488 | | **Total Liabilities and Shareholders' Equity** | **1,718,942** | **1,579,157** | [Consolidated Statements of Income](index=52&type=section&id=Consolidated%20Statements%20of%20Income) In 2019, net income grew to **$23.653 million**, with **$57.593 million** in net interest income, **$9.539 million** in noninterest income, and **$2.14 diluted EPS** Consolidated Statements of Income Summary (Fiscal Years 2017-2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Total Interest Income | 75,648 | 67,263 | 55,310 | | Total Interest Expense | 18,055 | 13,516 | 9,453 | | Net Interest Income | 57,593 | 53,747 | 45,857 | | Provision for Loan Losses | 2,100 | 2,050 | 1,650 | | Total Noninterest Income | 9,539 | 9,031 | 8,270 | | Total Noninterest Expense | 34,717 | 33,421 | 30,044 | | Income Tax Expense | 6,662 | 5,388 | 9,540 | | **Net Income** | **23,653** | **21,919** | **12,893** | | Diluted Earnings Per Share | 2.14 | 2.01 | 1.20 | | Diluted Weighted Average Common Shares Outstanding | 11,029 | 10,916 | 10,749 | [Consolidated Statements of Comprehensive Income](index=54&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) In 2019, total comprehensive income was **$23.964 million**, consisting of **$23.653 million** net income and **$0.311 million** net other comprehensive income, primarily from AFS securities and hedging adjustments Consolidated Statements of Comprehensive Income Summary (Fiscal Years 2017-2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Net Income | 23,653 | 21,919 | 12,893 | | Net Other Comprehensive Income (Loss) | 311 | (328) | 46 | | **Total Comprehensive Income** | **23,964** | **21,591** | **12,939** | - In 2019, other comprehensive income primarily included unrealized holding gains on available-for-sale securities (**$1.332 million**), amortization of defined benefit plans (**$0.136 million**), and unrealized losses on cash flow hedges (**$0.862 million**)[237](index=237&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=56&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) As of December 31, 2019, total shareholder equity increased to **$160.7 million**, primarily from **$23.653 million** net income and **$0.311 million** other comprehensive income, partially offset by **$3.255 million** in dividends Consolidated Statements of Changes in Shareholders' Equity Summary (Fiscal Years 2017-2019) | Item | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Shareholders' Equity Balance at Beginning of Year | 138,488 | 118,105 | 106,291 | | Net Income | 23,653 | 21,919 | 12,893 | | Net Other Comprehensive Income (Loss) | 311 | (328) | 46 | | Common Stock Dividends (Per Share) | 0.31 | 0.27 | 0.23 | | Common Stock Issued and Related Tax Impact | 1,512 | 1,595 | 1,255 | | **Shareholders' Equity Balance at End of Year** | **160,709** | **138,488** | **118,105** | - In 2019, shareholder equity increased by **$22.2 million**, primarily contributed by net income and common stock issuances, partially offset by dividend payments[239](index=239&type=chunk) [Consolidated Statements of Cash Flows](index=57&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2019, cash and cash equivalents increased by **$12.501 million to $158 million**, with **$33.204 million** net cash from operations, **$133.115 million** used in investing, and **$112.412 million** from financing Consolidated Statements of Cash Flows Summary (Fiscal Years 2017-2019) | Activity Category | 2019 ($ thousand) | 2018 ($ thousand) | 2017 ($ thousand) | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | 33,204 | 38,590 | 14,449 | | Net Cash Used in Investing Activities | (133,115) | (140,653) | (219,633) | | Net Cash from Financing Activities | 112,412 | 97,324 | 249,543 | | Increase (Decrease) in Cash and Cash Equivalents | 12,501 | (4,739) | 44,359 | | Cash and Cash Equivalents, End of Period | 158,016 | 145,515 | 150,254 | - In 2019, operating activities provided **$33.204 million** in net cash, primarily from net income and gains on loan sales[200](index=200&type=chunk)[244](index=244&type=chunk) - In 2019, investing activities used **$133.115 million** in net cash, primarily for new loan originations and securities purchases[201](index=201&type=chunk)[244](index=244&type=chunk) - In 2019, financing activities provided **$112.412 million** in net cash, primarily from increased borrowings and deposits[202](index=202&type=chunk)[244](index=244&type=chunk) [Notes to Consolidated Financial Statements](index=60&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering significant accounting policies, financial instrument classifications, valuation methods, loan loss allowance, deposits, borrowings, employee benefits, and fair value measurements - The notes detail the company's significant accounting policies, including securities classification, loan valuation, allowance for loan losses, income taxes, and fair value measurements[247](index=247&type=chunk)[251](index=251&type=chunk)[253](index=253&type=chunk)[263](index=263&type=chunk)[274](index=274&type=chunk)[290](index=290&type=chunk)[299](index=299&type=chunk) - The notes disclose the composition of the company's securities portfolio, unrealized gains and losses, realized gains and losses, and equity securities information[317](index=317&type=chunk)[321](index=321&type=chunk)[324](index=324&type=chunk)[326](index=326&type=chunk) - The notes provide detailed classification of the loan portfolio, credit quality indicators, nonperforming loans, impaired loans, and troubled debt restructuring information[330](index=330&type=chunk)[335](index=335&type=chunk)[343](index=343&type=chunk)[346](index=346&type=chunk)[350](index=350&type=chunk) - The notes detail the calculation methods and changes in the allowance for loan losses and the reserve for unfunded loan commitments[356](index=356&type=chunk)[360](index=360&type=chunk)[362](index=362&type=chunk) - The notes disclose the maturity distribution and composition of deposits, as well as the balances, interest rates, and maturity profiles of borrowings and subordinated debentures, including FHLB borrowings and interest rate swap agreements[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) - The notes also include detailed disclosures on employee benefit plans, such as stock options, restricted stock, 401(k) plans, and executive retirement plans[411](index=411&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[419](index=419&type=chunk) [Quarterly Financial Information (Unaudited)](index=112&type=section&id=Quarterly%20Financial%20Information%20(Unaudited)) This section presents unaudited quarterly financial information for 2019, 2018, and 2017, covering key income statement metrics like net income and diluted EPS, with all adjustments being normal and recurring Quarterly Financial Information for 2019 (Unaudited) | Metric ($ thousand, except per share data) | March 31 | June 30 | September 30 | December 31 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | 18,500 | 18,781 | 19,055 | 19,312 | | Net Income | 5,740 | 5,834 | 5,959 | 6,120 | | Diluted Earnings Per Share | 0.52 | 0.53 | 0.54 | 0.55 | Quarterly Financial Information for 2018 (Unaudited) | Metric ($ thousand, except per share data) | March 31 | June 30 | September 30 | December 31 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | 15,640 | 16,369 | 17,194 | 18,060 | | Net Income | 5,229 | 5,397 | 5,490 | 5,803 | | Diluted Earnings Per Share | 0.48 | 0.49 | 0.50 | 0.53 | Quarterly Financial Information for 2017 (Unaudited) | Metric ($ thousand, except per share data) | March 31 | June 30 | September 30 | December 31 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | 12,594 | 13,477 | 14,195 | 15,044 | | Net Income | 3,192 | 3,444 | 3,757 | 2,500 | | Diluted Earnings Per Share | 0.30 | 0.32 | 0.35 | 0.23 | [Selected Consolidated Financial Data](index=114&type=section&id=Selected%20Consolidated%20Financial%20Data) This section presents five-year selected consolidated financial data through 2019, showing sustained growth in net income and EPS, expanded assets, robust capital ratios, and low nonperforming loans and net charge-off rates Selected Consolidated Financial Data Summary (Fiscal Years 2015-2019) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Selected Operating Results** | | | | | | | Net Income ($ thousand) | 23,653 | 21,919 | 12,893 | 13,209 | 9,557 | | **Per Share Data** | | | | | | | Diluted EPS ($) | 2.14 | 2.01 | 1.20 | 1.38 | 1.02 | | Book Value Per Share ($) | 14.77 | 12.85 | 11.13 | 10.14 | 8.45 | | Cash Dividends Per Share ($) | 0.31 | 0.27 | 0.23 | 0.18 | 0.13 | | **Selected Balance Sheet Data** | | | | | | | Assets ($ thousand) | 1,718,942 | 1,579,157 | 1,455,496 | 1,189,906 | 1,084,866 | | Loans ($ thousand) | 1,425,558 | 1,304,566 | 1,170,674 | 973,414 | 888,958 | | Deposits ($ thousand) | 1,250,114 | 1,207,687 | 1,043,137 | 945,723 | 894,493 | | Shareholders' Equity ($ thousand) | 160,709 | 138,488 | 118,105 | 106,291 | 78,470 | | **Performance Ratios** | | | | | | | Return on Average Assets | 1.54% | 1.53% | 1.02% | 1.17% | 0.96% | | Return on Average Equity | 15.86% | 17.10% | 11.47% | 15.37% | 12.92% | | Efficiency Ratio | 52.00% | 53.07% | 55.57% | 56.51% | 64.41% | | Net Interest Margin | 3.95% | 3.97% | 3.83% | 3.58% | 3.63% | | **Asset Quality Ratios** | | | | | | | Allowance for Loan Losses to Loans | 1.15% | 1.19% | 1.16% | 1.29% | 1.44% | | Nonperforming Loans to Total Loans | 0.40% | 0.53% | 0.26% | 0.74% | 0.82% | | Net Charge-offs to Average Loans | 0.09% | 0.01% | 0.06% | 0.15% | 0.04% | | **Capital Ratios - Company** | | | | | | | Leverage Ratio | 10.59% | 9.90% | 9.37% | 9.73% | 8.82% | | CET1 Risk-Based Capital Ratio | 11.59% | 11.40% | 10.81% | 11.49% | 9.37% | | Total Risk-Based Capital Ratio | 13.06% | 13.49% | 12.87% | 13.84% | 12.43% | - In 2019, net income and diluted EPS continued to grow, total assets and loan portfolio expanded, and deposits and shareholder equity increased[464](index=464&type=chunk) - In 2019, return on average assets and return on average equity remained high, and the efficiency ratio improved[464](index=464&type=chunk) - In 2019, net interest margin slightly decreased but remained at a high level[464](index=464&type=chunk) - In terms of asset quality, both the nonperforming loans to total loans ratio and net charge-offs to average loans ratio remained low[464](index=464&type=chunk) - Both the company's and the bank's capital ratios were well above regulatory requirements, indicating a strong capital position[464](index=464&type=chunk)[465](index=465&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=117&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This report indicates no changes in accountants or disagreements regarding accounting and financial disclosure - There are no changes in accountants or disagreements with accountants on accounting and financial disclosure in this report[471](index=471&type=chunk) [Controls and Procedures](index=117&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2019, the CEO and Interim CFO/CAO affirmed effective disclosure controls and internal financial reporting controls, with RSM US LLP issuing an unqualified opinion and no significant changes reported - As of December 31, 2019, the company's CEO and Interim Chief Financial and Accounting Officer assessed and determined the disclosure controls and procedures to be effective[472](index=472&type=chunk) - Management, based on the COSO 2013 framework, assessed and determined the company's internal control over financial reporting to be effective as of December 31, 2019[473](index=473&type=chunk) - Independent registered public accounting firm RSM US LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[474](index=474&type=chunk)[475](index=475&type=chunk) - No significant changes in internal control occurred during the reporting period that could materially affect these controls[474](index=474&type=chunk) [Other Information](index=119&type=section&id=Item%209B.%20Other%20Information) No other information is reported - No other information[482](index=482&type=chunk) Part III [Directors, Executive Officers and Corporate Governance; Compliance with Section 16(a) of the Exchange Act](index=120&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance%3B%20Compliance%20with%20Section%2016(a)%20of%20the%20Exchange%20Act) Information on directors, executive officers, corporate governance, and Section 16(a) compliance is incorporated by reference from the 2020 Annual Meeting proxy statement - Information regarding directors, executive officers, and corporate governance, as well as compliance with Section 16(a) of the Exchange Act, is incorporated by reference to the company's proxy statement for its 2020 Annual Meeting of Shareholders[484](index=484&type=chunk) - Some executive officer information is included in Item 4A, “Executive Officers,” of this Form 10-K Annual Report[485](index=485&type=chunk) [Executive Compensation](index=120&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the company's 2020 Annual Meeting of Shareholders proxy statement - Information regarding executive compensation is incorporated by reference to the company's proxy statement for its 2020 Annual Meeting of Shareholders[486](index=486&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=120&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information for beneficial owners and management is incorporated by reference; as of December 31, 2019, equity incentive plans included **614,311 outstanding options** and **108,740 restricted shares**, with **443,100** available for future grants - Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the company's proxy statement for its 2020 Annual Meeting of Shareholders[487](index=487&type=chunk) Equity Compensation Plan Information (As of December 31, 2019) | Item | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Security Holders (Stock Option Plan) | 614,311 | $14.78 | 443,100 | | Equity Compensation Plans Approved by Security Holders (Restricted Stock Plan) | 108,740 | — | — | | **Total** | **723,051** | **$12.56** | **443,100** | [Certain Relationships and Related Transactions and Director Independence](index=120&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Annual Meeting proxy statement - Information regarding certain relationships and related transactions and director independence is incorporated by reference to the company's proxy statement for its 2020 Annual Meeting of Shareholders[490](index=490&type=chunk) [Principal Accountant Fees and Services](index=122&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees, services, and pre-approval policies is incorporated by reference from the 2020 Annual Meeting proxy statement - Information regarding principal accountant fees and services and related pre-approval policies is incorporated by reference to the company's proxy statement for its 2020 Annual Meeting of Shareholders[491](index=491&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=122&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, supplementary data, and notes, along with the independent auditor's report and a comprehensive list of various exhibits, including corporate governance documents and equity plans - This annual report includes the consolidated financial statements and supplementary data of the company and its subsidiaries, comprising consolidated balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, along with notes to the financial statements and the independent registered public accounting firm's report[493](index=493&type=chunk) - All financial statement schedules have been omitted because the required information is not applicable or has been presented in the consolidated financial statements or related notes[493](index=493&type=chunk) - The exhibit list includes the company's articles of incorporation, stock option plans, employment agreements, equity incentive plans, subsidiary information, auditor consent letters, and various certifications required by the Sarbanes-Oxley Act[494](index=494&type=chunk) [Form 10-K Summary](index=124&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided - No Form 10-K summary[497](index=497&type=chunk) [Signatures](index=125&type=section&id=Signatures) This report is signed by authorized representatives of Unity Bancorp, Inc., including the Interim Chief Financial and Accounting Officer, Chairman, President, CEO, and other directors - This report has been signed by authorized representatives of Unity Bancorp, Inc., including Interim Chief Financial and Accounting Officer Laureen S. Cook[499](index=499&type=chunk)[501](index=501&type=chunk) - Signatories include David D. Dallas, Chairman of the Board and Director, James A. Hughes, President, Chief Executive Officer and Director, and other directors[502](index=502&type=chunk)[503](index=503&type=chunk)