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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, 2023

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

Graphic

Unity Bancorp, Inc.

(Exact name of registrant as specified in its charter)

New Jersey

22-3282551

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

64 Old Highway 22, Clinton, NJ

08809

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (800) 618-2265

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock

UNTY

NASDAQ

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes     No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer  

Accelerated filer  

Nonaccelerated filer  

Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act:    Yes     No 

The number of shares outstanding of each of the registrant’s classes of common equity stock, as of October 31, 2023 common stock, no par value: 10,057,712 shares outstanding.

Table of Contents

the three months ended September 30, 2023 and 2022

    

Page #

PART I

CONSOLIDATED FINANCIAL INFORMATION

ITEM 1

Consolidated Financial Statements (Unaudited)

3

Consolidated Balance Sheets at September 30, 2023 and December 31, 2022

3

Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022

4

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022

5

Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022

7

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

9

Notes to the Consolidated Financial Statements

10

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

54

ITEM 4

Controls and Procedures

54

PART II

OTHER INFORMATION

54

ITEM 1

Legal Proceedings

54

ITEM 1A

Risk Factors

54

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

55

ITEM 3

Defaults upon Senior Securities

55

ITEM 4

Mine Safety Disclosures

55

ITEM 5

Other Information

55

ITEM 6

Exhibits

56

EXHIBIT INDEX

57

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

SIGNATURES

58

2

PART I        CONSOLIDATED FINANCIAL INFORMATION

ITEM 1        Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)

    

September 30, 2023

    

December 31, 2022

ASSETS

Cash and due from banks

$

26,224

$

19,699

Interest-bearing deposits

 

135,223

 

95,094

Cash and cash equivalents

 

161,447

 

114,793

Securities:

Debt securities available for sale, at market value

 

92,122

 

95,393

Debt securities held to maturity, at amortized cost

 

35,956

 

35,760

Equity securities, at market value

 

8,013

 

9,793

Total securities

 

136,091

 

140,946

Loans:

 

  

 

  

SBA loans held for sale

 

19,387

 

27,928

SBA loans held for investment

 

40,873

 

38,468

SBA PPP loans

2,507

5,908

Commercial loans

 

1,276,156

 

1,187,543

Residential mortgage loans

 

628,628

 

605,091

Consumer loans

72,189

78,164

Residential construction loans

 

133,450

 

163,457

Total loans

 

2,173,190

 

2,106,559

Allowance for credit losses

 

(25,918)

 

(25,196)

Net loans

 

2,147,272

 

2,081,363

Premises and equipment, net

 

19,783

 

20,002

Bank owned life insurance ("BOLI")

 

25,223

 

26,776

Deferred tax assets, net

 

13,249

 

12,345

Federal Home Loan Bank ("FHLB") stock

 

19,882

 

19,064

Accrued interest receivable

 

16,101

 

13,403

Goodwill

 

1,516

 

1,516

Prepaid expenses and other assets

 

22,442

 

14,740

Total assets

$

2,563,006

$

2,444,948

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Noninterest-bearing demand

$

425,436

$

494,184

Interest-bearing demand

 

297,705

 

276,218

Savings

 

548,325

 

591,826

Brokered time deposits

 

197,636

 

189,644

Time deposits

 

415,808

 

235,656

Total deposits

 

1,884,910

 

1,787,528

Borrowed funds

 

388,610

 

383,000

Subordinated debentures

 

10,310

 

10,310

Accrued interest payable

 

1,412

 

691

Accrued expenses and other liabilities

 

25,380

 

24,192

Total liabilities

 

2,310,622

 

2,205,721

Shareholders’ equity:

 

  

 

  

Common stock

99,741

 

97,204

Retained earnings

 

182,557

 

156,958

Treasury stock

(25,954)

(11,675)

Accumulated other comprehensive loss

 

(3,960)

 

(3,260)

Total shareholders’ equity

 

252,384

 

239,227

Total liabilities and shareholders’ equity

$

2,563,006

$

2,444,948

Shares issued

11,411

11,289

Shares outstanding

10,115

10,584

Treasury shares

1,296

705

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

3

Unity Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

For the three months ended September 30, 

For the nine months ended September 30, 

(In thousands, except per share amounts)

    

2023

    

2022

2023

    

2022

INTEREST INCOME

 

  

 

  

  

 

  

Interest-bearing deposits

$

483

$

168

$

1,257

$

416

FHLB stock

 

364

 

93

 

1,037

 

176

Securities:

 

 

 

 

Taxable

 

1,848

 

1,397

 

5,385

 

3,164

Tax-exempt

 

17

 

18

 

55

 

34

Total securities

 

1,865

 

1,415

 

5,440

 

3,198

Loans:

 

  

 

 

  

 

  

SBA loans

 

1,379

 

1,083

 

4,186

 

2,933

SBA PPP loans

25

277

129

1,546

Commercial loans

 

20,299

 

14,017

 

56,320

 

37,928

Residential mortgage loans

 

8,462

 

5,912

25,103

 

15,284

Consumer loans

1,525

1,075

4,351

2,914

Residential construction loans

 

2,588

 

2,184

 

7,911

 

6,018

Total loans

 

34,278

 

24,548

 

98,000

 

66,623

Total interest income

 

36,990

 

26,224

 

105,734

 

70,413

INTEREST EXPENSE

 

  

 

 

  

 

  

Interest-bearing demand deposits

 

1,429

 

320

 

3,761

 

682

Savings deposits

 

3,178

 

878

 

7,632

 

1,635

Time deposits

 

5,033

 

600

 

11,637

 

1,499

Borrowed funds and subordinated debentures

 

3,817

 

688

 

11,740

 

1,199

Total interest expense

 

13,457

 

2,486

 

34,770

 

5,015

Net interest income

 

23,533

 

23,738

 

70,964

65,398

Provision for credit losses

 

534

 

1,517

 

1,419

 

2,526

Net interest income after provision for credit losses

 

22,999

 

22,221

 

69,545

 

62,872

NONINTEREST INCOME

 

  

 

 

  

 

  

Branch fee income

 

278

 

336

 

741

 

892

Service and loan fee income

 

385

 

543

 

1,379

 

1,815

Gain on sale of SBA loans held for sale, net

 

 

 

896

 

852

Gain on sale of mortgage loans, net

 

488

 

280

 

1,195

 

1,231

BOLI income

 

679

 

170

 

843

 

494

Net security losses

 

(123)

 

(576)

 

(610)

 

(1,631)

Other income

 

336

 

357

 

1,131

 

2,446

Total noninterest income

 

2,043

 

1,110

 

5,575

 

6,099

NONINTEREST EXPENSE

 

  

 

 

  

 

  

Compensation and benefits

7,440

 

6,471

 

21,801

 

19,790

Processing and communications

705

 

708

 

2,172

 

2,166

Occupancy

763

 

702

 

2,312

 

2,205

Furniture and equipment

645

 

617

 

2,024

 

1,811

Professional services

348

221

 

1,071

 

1,060

Advertising

405

 

307

 

1,108

 

873

Other loan expenses

125

 

109

 

298

 

238

Deposit insurance

397

 

233

1,362

752

Director fees

209

 

240

 

629

 

698

Loan collection expenses

90

 

45

 

222

 

138

Other expenses

868

 

411

 

2,175

 

1,454

Total noninterest expense

 

11,995

 

10,064

 

35,174

 

31,185

Income before provision for income taxes

 

13,047

 

13,267

 

39,946

 

37,786

Provision for income taxes

 

3,097

 

3,325

 

10,009

 

9,285

Net income

$

9,950

$

9,942

$

29,937

$

28,501

Net income per common share – Basic

$

0.98

$

0.94

$

2.92

$

2.72

Net income per common share – Diluted

$

0.97

$

0.93

$

2.88

$

2.67

Weighted average common shares outstanding – Basic

 

10,128

 

10,522

 

10,255

 

10,491

Weighted average common shares outstanding – Diluted

 

10,258

 

10,714

 

10,381

 

10,694

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

4

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

For the three months ended

September 30, 2023

September 30, 2022

    

    

    

    

    

Income tax

Income tax

Before tax

expense

Net of tax

Before tax

expense

Net of tax

(In thousands)

amount

(benefit)

amount

     

amount

(benefit)

amount

Net income

$

13,047

3,097

9,950

13,267

3,325

9,942

Other comprehensive (loss) income before reclassifications

Debt securities available for sale:

 

Unrealized holding losses on securities arising during the period

 

(342)

(87)

(255)

(1,238)

(281)

(957)

Less: reclassification adjustment for losses on securities included in net income

 

(576)

(121)

(455)

Total unrealized losses on securities available for sale

 

(342)

 

(87)

 

(255)

 

(662)

 

(160)

 

(502)

Net unrealized (losses) gains from cash flow hedges:

 

  

 

  

 

  

 

  

 

  

 

  

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

 

(377)

(125)

(252)

452

128

324

Less: reclassification adjustment for (gains) on cash flow hedges included in net income

(238)

 

(68)

 

(170)

Total unrealized (losses) gains on cash flow hedges

 

(139)

(57)

(82)

 

452

 

128

 

324

Total other comprehensive loss

 

(481)

(144)

(337)

 

(210)

 

(32)

 

(178)

Total comprehensive income

$

12,566

$

2,953

$

9,613

$

13,057

$

3,293

$

9,764

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

5

For the nine months ended

September 30, 2023

September 30, 2022

    

    

Income tax

    

    

Income tax

    

Before tax

expense

Net of tax

Before tax

expense

Net of tax

(In thousands)

amount

(benefit)

amount

amount

(benefit)

amount

Net income

$

39,946

10,009

29,937

37,786

9,285

28,501

Other comprehensive (loss) income

 

Debt securities available for sale:

 

Unrealized holding losses on securities arising during the period

 

(660)

(155)

(505)

(6,875)

(1,612)

(5,263)

Less: reclassification adjustment for losses on securities included in net income

 

(1,630)

(342)

(1,288)

Total unrealized losses on securities available for sale

 

(660)

 

(155)

 

(505)

 

(5,245)

 

(1,270)

 

(3,975)

Net unrealized (losses) gains from cash flow hedges:

 

  

 

  

 

  

 

  

 

  

 

  

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

 

(929)

(265)

(664)

1,190

337

853

Less: reclassification adjustment for (gains) on cash flow hedges included in net income

 

(656)

(187)

(469)

Total unrealized (losses) gains on cash flow hedges

 

(273)

 

(78)

 

(195)

 

1,190

 

337

 

853

Total other comprehensive loss

 

(933)

 

(233)

 

(700)

 

(4,055)

 

(933)

 

(3,122)

Total comprehensive income

$

39,013

$

9,776

$

29,237

$

33,731

$

8,352

$

25,379

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

6

Unity Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the three and nine months ended September 30, 2023 and 2022

(Unaudited)

<

    

    

    

Accumulated

    

other

Total

Common Stock

Retained

Treasury

comprehensive

shareholders’

(In thousands)

Shares

Amount

earnings

stock

(loss) income

equity

Balance, December 31, 2022

 

10,584

$

97,204

$

156,958

$

(11,675)

$

(3,260)

$

239,227

Net income

 

A

10,287

 

10,287

Other comprehensive income, net of tax

 

81

 

81

Dividends on common stock ($0.12 per share)

 

2

46

(1,261)

 

(1,215)

Effect of adopting Accounting Standards Update ("ASU") No. 2016-13 ("CECL")

(649)

(649)

Share-based compensation (1)

 

44

947