Unity Bancorp(UNTY) - 2025 Q2 - Quarterly Report

PART I CONSOLIDATED FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Unity Bancorp, Inc. as of June 30, 2025, and for the three and six-month periods then ended, including balance sheets, income statements, comprehensive income, changes in shareholders' equity, cash flows, and detailed notes Consolidated Balance Sheets As of June 30, 2025, total assets grew to $2.93 billion from $2.65 billion at year-end 2024, driven by increases in net loans and cash, funded by higher deposits and borrowed funds, with shareholders' equity rising to $319.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $2,928,523 | $2,654,017 | $274,506 | 10.3% | | Net Loans | $2,353,582 | $2,233,869 | $119,713 | 5.4% | | Total Securities | $139,348 | $145,028 | ($5,680) | -3.9% | | Cash and cash equivalents | $293,733 | $180,438 | $113,295 | 62.8% | | Total Liabilities | $2,608,683 | $2,358,434 | $250,249 | 10.6% | | Total Deposits | $2,187,366 | $2,100,313 | $87,053 | 4.1% | | Borrowed funds | $377,107 | $220,504 | $156,603 | 71.0% | | Total Shareholders' Equity | $319,840 | $295,583 | $24,257 | 8.2% | Consolidated Statements of Income For Q2 2025, net income significantly increased to $16.5 million from $9.5 million in Q2 2024, with diluted EPS rising to $1.61 from $0.93, driven by a 21.9% increase in net interest income and a substantial rise in noninterest income, including a $3.6 million net security gain Key Income Statement Data (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | YoY Change | Six Months 2025 | Six Months 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $28,557 | $23,424 | +21.9% | $55,808 | $47,265 | +18.1% | | Provision for Credit Losses (Loans) | $1,725 | $266 | +548.5% | $3,083 | $907 | +239.9% | | Total Noninterest Income | $5,815 | $2,033 | +186.0% | $7,916 | $3,751 | +111.0% | | Total Noninterest Expense | $13,019 | $11,980 | +8.7% | $25,630 | $24,112 | +6.3% | | Net Income | $16,491 | $9,454 | +74.4% | $28,089 | $19,040 | +47.5% | | Diluted EPS | $1.61 | $0.93 | +73.1% | $2.74 | $1.86 | +47.3% | Consolidated Statements of Comprehensive Income Total comprehensive income for Q2 2025 was $16.4 million, up from $9.2 million in Q2 2024, driven by higher net income, with other comprehensive income primarily impacted by unrealized gains/losses on debt securities and cash flow hedges Comprehensive Income Summary (in thousands) | Period | Net Income | Other Comprehensive (Loss) Income, Net of Tax | Total Comprehensive Income | | :--- | :--- | :--- | :--- | | Q2 2025 | $16,491 | ($93) | $16,398 | | Q2 2024 | $9,454 | ($228) | $9,226 | | Six Months 2025 | $28,089 | $182 | $28,271 | | Six Months 2024 | $19,040 | ($343) | $18,697 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $295.6 million at year-end 2024 to $319.8 million at June 30, 2025, primarily due to $28.1 million in net income, partially offset by dividends paid and treasury stock purchases - Key drivers of the change in shareholders' equity in the first six months of 2025 include net income of $28.1 million, offset by common stock dividends and treasury stock purchases[16] - The company declared and paid dividends of $0.14 per share in both Q1 and Q2 2025, an increase from the $0.13 per share paid in the same periods of 2024[16] - 50,000 shares of treasury stock were purchased at a cost of $1.9 million during the second quarter of 2025[16] Consolidated Statements of Cash Flows For the six months ended June 30, 2025, cash and cash equivalents increased by $113.3 million, driven by $238.6 million in net cash from financing activities, partially offset by $117.9 million used in investing activities and $7.5 million used in operating activities Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($7,466) | $7,313 | | Net cash used in investing activities | ($117,850) | ($2,064) | | Net cash provided by (used in) financing activities | $238,611 | ($2,607) | | Increase in cash and cash equivalents | $113,295 | $2,642 | Notes to the Consolidated Financial Statements The notes provide detailed explanations of significant accounting policies, fair value measurements, and breakdowns of major financial statement components, including securities and loan portfolios, credit quality, allowance for credit losses, derivative instruments, and regulatory capital adequacy - The company's loan portfolio is geographically concentrated in New Jersey, particularly within the counties where it operates[73] - During Q2 2025, the company converted a portion of its debt holdings in Patriot National Bancorp, Inc. into common stock and subsequently sold all 4.4 million shares, realizing a gain of $3.5 million and releasing $2.0 million in credit loss reserves[63] - The Bank is subject to regulatory capital requirements and was considered 'well capitalized' as of June 30, 2025, with a Total risk-based capital ratio of 15.10% against a 10.00% requirement[120][125] ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, focusing on the significant increase in net income for Q2 2025, driven by strong growth in net interest income, a higher net interest margin, and a one-time gain on the sale of securities, covering portfolios, asset quality, deposits, liquidity, and capital resources Earnings Summary Net income for Q2 2025 was $16.5 million ($1.61/share), a 74% increase from $9.5 million ($0.93/share) in Q2 2024, significantly impacted by a one-time pre-tax gain of $3.5 million and a $2.0 million credit loss release related to Patriot National Bancorp securities Key Performance Ratios | Ratio | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Return on average assets | 2.51% | 1.56% | | Return on average equity | 21.15% | 14.07% | | Net interest margin | 4.49% | 4.01% | | Efficiency ratio (non-GAAP) | 42.31% | 47.10% | - The increase in net income was attributed to a 21.9% rise in net interest income and a 186.0% increase in noninterest income, the latter being driven by the one-time securities sale[134][138] Net Interest Income Tax-equivalent net interest income for Q2 2025 rose 21.9% year-over-year to $28.6 million, with the net interest margin expanding by 48 basis points to 4.49%, driven by higher yields on increased loan volume and a decrease in the average cost of interest-bearing liabilities - The increase in net interest income was primarily due to a $192.9 million increase in average loans and a 25 basis point increase in the loan portfolio yield[148] - Interest expense decreased by 3.6% YoY despite a $113.6 million increase in average interest-bearing liabilities, as the average cost of these liabilities fell from 3.37% to 3.05%[145][148] Financial Condition Total assets increased by 10.3% to $2.9 billion at June 30, 2025, from year-end 2024, led by a $121.9 million increase in total loans, particularly commercial and residential mortgages, supported by growth in deposits and borrowed funds - The loan portfolio grew 5.4% to $2.4 billion, with commercial loans increasing by $99.5 million and residential mortgage loans by $35.6 million[174] - Total deposits increased to $2.2 billion, with growth across all categories, including a $28.6 million increase in time deposits and a $23.8 million increase in noninterest-bearing demand deposits[200] - Borrowed funds, primarily from the FHLB, increased to $387.4 million from $230.8 million at year-end 2024 to support liquidity and asset growth[203] Asset Quality Asset quality indicators showed a mixed picture, with nonaccrual loans increasing to $15.8 million at June 30, 2025, from $13.1 million at year-end 2024, while potential problem loans decreased from $14.6 million to $12.1 million, and the allowance for credit losses to total loans ratio stood at 1.22% Asset Quality Metrics (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Nonaccrual Loans | $15.8 | $13.1 | $12.1 | | Potential Problem Loans | $12.1 | $14.6 | N/A | | Allowance for Credit Losses | $29.0 | $26.8 | $26.1 | Liquidity and Capital Resources The company maintained a strong liquidity position, with cash and cash equivalents increasing by $113.3 million in the first half of 2025, supported by significant borrowing capacity from the FHLB and FRB, and the bank remains well capitalized - At June 30, 2025, the company had $212.0 million of additional credit available at the FHLB and $225.8 million at the FRB[204][214] - Total available funding plus cash on hand represented 168.8% of uninsured or uncollateralized deposits as of June 30, 2025[214] ITEM 3 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with an analysis as of June 30, 2025, showing that a +200 basis point rate shock would decrease Economic Value of Equity (EVE) by 11.31% and Net Interest Income (NII) by 4.61%, remaining within Board-approved tolerance levels Interest Rate Sensitivity Analysis (June 30, 2025) | Rate Shock (bps) | Change in EVE (%) | Change in NII (%) | | :--- | :--- | :--- | | +300 | (17.53)% | (7.25)% | | +200 | (11.31)% | (4.61)% | | +100 | (5.16)% | (2.21)% | | -100 | 0.07% | 0.74% | ITEM 4 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective, with no significant changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective for timely and accurate reporting as required by the SEC[220] PART II OTHER INFORMATION ITEM 1 Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations - There are no material legal proceedings pending against the company[222] ITEM 1A Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - Risk factors remain consistent with those reported in the 2024 Form 10-K[223] ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 50,000 shares of its common stock at a weighted average price of $38.78 per share under its publicly announced repurchase plan, with 634,645 shares remaining available for repurchase Share Repurchase Activity (Q2 2025) | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | April 2025 | 50,000 | $38.78 | | May 2025 | 0 | N/A | | June 2025 | 0 | N/A | ITEM 6 Exhibits This section lists the exhibits filed with the Form 10-Q, which include the CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002, and the Interactive Data Files (XBRL) - Exhibits filed include Sarbanes-Oxley Section 302 and 906 certifications and XBRL data files[225][227]