Unity Bancorp, Inc._June 30, 2025

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, 2025

☐ 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
(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 July 31, 2025 common stock, no par value: 10,033,030 shares outstanding.

Table of Contents

Table of Contents





		Page #
PART I	CONSOLIDATED FINANCIAL INFORMATION

ITEM 1	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets at June 30, 2025 and December 31, 2024	3

	Consolidated Statements of Income for the three and six months ended June 30, 2025 and 2024	4

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2025 and 2024	5

	Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2025 and 2024	7

	Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024	8

	Notes to the Consolidated Financial Statements	9

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	52

ITEM 4	Controls and Procedures	52

PART II	OTHER INFORMATION	53

ITEM 1	Legal Proceedings	53

ITEM 1A	Risk Factors	53

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	53

ITEM 3	Defaults upon Senior Securities	53

ITEM 4	Mine Safety Disclosures	53

ITEM 5	Other Information	53

ITEM 6	Exhibits	54

	EXHIBIT INDEX	55

	Exhibit 31.1

	Exhibit 31.2

	Exhibit 32.1

	SIGNATURES	56

Table of Contents

PART I CONSOLIDATED FINANCIAL INFORMATION

ITEM 1 Consolidated Financial Statements (Unaudited)

Unity Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)


(In thousands)	June 30, 2025		December 31, 2024
ASSETS
Cash and due from banks	$	26,045	$	20,206
Interest-bearing deposits		267,688		160,232
Cash and cash equivalents		293,733		180,438
Securities:
Debt securities available for sale ("AFS"), at fair value, net of valuation allowance		92,491		93,884
Debt securities held to maturity ("HTM"), at amortized cost		36,434		41,294
Equity securities, at market value		10,423		9,850
Total securities		139,348		145,028
Loans:
Loans held for sale		13,352		12,163
SBA loans held for investment		38,059		38,309
Commercial loans		1,511,129		1,411,629
Residential mortgage loans		666,560		630,927
Consumer loans		82,564		76,711
Residential construction loans		70,930		90,918
Total loans		2,382,594		2,260,657
Allowance for credit losses		(29,012)		(26,788)
Net loans		2,353,582		2,233,869
Premises and equipment, net		18,561		18,778
Bank owned life insurance ("BOLI")		26,108		25,773
Deferred tax assets, net		14,784		14,106
Federal Home Loan Bank ("FHLB") stock		19,730		12,507
Accrued interest receivable		12,411		12,691
Goodwill		1,516		1,516
Prepaid expenses and other assets		48,750		9,311
Total assets	$	2,928,523	$	2,654,017
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	464,610	$	440,803
Interest-bearing demand		321,863		321,780
Savings		505,706		491,175
Brokered deposits		237,978		217,931
Time deposits		657,209		628,624
Total deposits		2,187,366		2,100,313
Borrowed funds		377,107		220,504
Subordinated debentures		10,310		10,310
Accrued interest payable		1,463		1,702
Accrued expenses and other liabilities		32,437		25,605
Total liabilities		2,608,683		2,358,434
Shareholders’ equity:
Common stock		104,674		103,936
Retained earnings		252,606		227,331
Treasury stock		(35,515)		(33,577)
Accumulated other comprehensive loss		(1,925)		(2,107)
Total shareholders’ equity		319,840		295,583
Total liabilities and shareholders’ equity	$	2,928,523	$	2,654,017

Common shares at period end
Shares issued		11,672		11,616
Shares outstanding		10,032		10,026
Treasury shares		1,640		1,590

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

Table of Contents

Unity Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)


	For the three months ended June 30,				For the six months ended June 30,
(In thousands, except per share amounts)	2025		2024		2025		2024
INTEREST INCOME
Interest-bearing deposits	$	487	$	435	$	819	$	855
FHLB stock		130		180		312		460
Securities:
Taxable		1,735		1,749		3,521		3,598
Tax-exempt		17		17		35		35
Total securities		1,752		1,766		3,556		3,633
Loans:
SBA loans		856		1,287		1,790		2,628
Commercial loans		25,736		21,160		49,996		41,990
Residential mortgage loans		10,390		9,316		20,337		18,535
Consumer loans		1,491		1,390		2,837		2,792
Residential construction loans		1,758		2,453		3,754		5,031
Total loans		40,231		35,606		78,714		70,976
Total interest income		42,600		37,987		83,401		75,924
INTEREST EXPENSE
Interest-bearing demand deposits		1,898		2,010		3,520		3,720
Savings deposits		2,718		3,349		5,311		6,493
Brokered deposits		1,786		2,181		3,573		4,476
Time deposits		6,560		5,832		12,975		10,531
Borrowed funds and subordinated debentures		1,081		1,191		2,214		3,439
Total interest expense		14,043		14,563		27,593		28,659
Net interest income		28,557		23,424		55,808		47,265
Provision for credit losses, loans		1,725		266		3,083		907
Provision for credit losses, off-balance sheet		136		13		95		15
(Release) Provision for credit losses, securities		(2,036)		646		(2,036)		646
Net interest income after provision for credit losses		28,732		22,499		54,666		45,697
NONINTEREST INCOME
Branch fee income		465		266		912		509
Service and loan fee income		536		467		1,400		924
Gain on sale of SBA loans held for sale, net		163		305		302		543
Gain on sale of mortgage loans, net		435		266		603		586
BOLI income		183		189		334		254
Net security gains		3,600		20		3,551		74
Other income		433		520		814		861
Total noninterest income		5,815		2,033		7,916		3,751
NONINTEREST EXPENSE
Compensation and benefits		8,160		7,121		16,062		14,478
Processing and communications		980		840		1,966		1,746
Occupancy		809		815		1,689		1,613
Furniture and equipment		787		819		1,533		1,503
Professional services		350		405		714		841
Advertising		456		397		847		797
Loan related expenses		265		351		311		735
Deposit insurance		313		321		554		660
Director fees		265		231		760		478
Other expenses		634		680		1,194		1,261
Total noninterest expense		13,019		11,980		25,630		24,112
Income before provision for income taxes		21,528		12,552		36,952		25,336
Provision for income taxes		5,037		3,098		8,863		6,296
Net income	$	16,491	$	9,454	$	28,089	$	19,040
Net income per common share – Basic	$	1.64	$	0.94	$	2.79	$	1.89
Net income per common share – Diluted	$	1.61	$	0.93	$	2.74	$	1.86
Weighted average common shares outstanding – Basic		10,033		10,016		10,043		10,072
Weighted average common shares outstanding – Diluted		10,212		10,149		10,229		10,212

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

Table of Contents

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended
	June 30, 2025						June 30, 2024

			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	$	21,528	$	5,037	$	16,491	$	12,552	$	3,098	$	9,454
Other comprehensive income (loss) before reclassifications
Debt securities available for sale:
Unrealized holding gains (losses) on debt securities arising during the period		33		9		24		(118)		(29)		(89)
Less: reclassification adjustment on debt securities included in net income		—		—		—		—		—		—
Total unrealized gains (losses) on debt securities available for sale		33		9		24		(118)		(29)		(89)
Cash flow hedges:
Unrealized holding losses on cash flow hedges arising during the period		(233)		(63)		(170)		(429)		(122)		(307)
Less: reclassification adjustment for gains on cash flow hedges included in net income		(73)		(20)		(53)		(238)		(70)		(168)
Total unrealized losses on cash flow hedges		(160)		(43)		(117)		(191)		(52)		(139)
Total other comprehensive loss		(127)		(34)		(93)		(309)		(81)		(228)
Total comprehensive income	$	21,401	$	5,003	$	16,398	$	12,243	$	3,017	$	9,226

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

Table of Contents

Unity Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the six months ended
	June 30, 2025						June 30, 2024
			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	$	36,952	$	8,863	$	28,089	$	25,336	$	6,296	$	19,040
Other comprehensive income (loss) before reclassifications
Debt securities available for sale:
Unrealized holding gains (losses) on debt securities arising during the period		717		176		541		(162)		(39)		(123)
Less: reclassification adjustment on debt securities included in net income		—		—		—		—		—		—
Total unrealized gains (losses) on debt securities available for sale		717		176		541		(162)		(39)		(123)
Cash flow hedges:
Unrealized holding losses on cash flow hedges arising during the period		(722)		(197)		(525)		(780)		(222)		(558)
Less: reclassification adjustment for gains on cash flow hedges included in net income		(229)		(63)		(166)		(476)		(138)		(338)
Total unrealized losses on cash flow hedges		(493)		(134)		(359)		(304)		(84)		(220)
Total other comprehensive loss		224		42		182		(466)		(123)		(343)
Total comprehensive income	$	37,176	$	8,905	$	28,271	$	24,870	$	6,173	$	18,697

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

Table of Contents

Unity Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the three and six months ended June 30, 2025 and 2024

(Unaudited)


								Accumulated
								other		Total
	Common Stock			Retained		Treasury		comprehensive		shareholders’
(In thousands, except per share data)	Shares	Amount		earnings		stock		(loss) income		equity
Balance, December 31, 2024	10,026	$	103,936	$	227,331	$	(33,577)	$	(2,107)	$	295,583
Net income	—		—		11,598		—		—		11,598
Other comprehensive income, net of tax	—		—		—		—		275		275
Dividends on common stock ($0.14 per share)	1		56		(1,411)		—		—		(1,355)
Share-based compensation (1)	49		41		—		—		—		41
Balance, March 31, 2025	10,076	$	104,033	$	237,518	$	(33,577)	$	(1,832)	$	306,142
Net income	—		—		16,491		—		—		16,491
Other comprehensive loss, net of tax	—		—		—		—		(93)		(93)
Dividends on common stock ($0.14 per share)	1		53		(1,403)		—		—		(1,350)
Share-based compensation (1)	5		588		—		—		—		588
Treasury stock purchased, at cost	(50)		—		—		(1,938)		—		(1,938)
Balance, June 30, 2025	10,032	$	104,674	$	252,606	$	(35,515)	$	(1,925)	$	319,840


								Accumulated
								other			Total
	Common Stock			Retained		Treasury		comprehensive			shareholders’
(In thousands, except per share data)	Shares	Amount		earnings		stock		loss		aa	equity
Balance, December 31, 2023	10,063	$	100,426	$	191,108	$	(27,367)	$	(2,737)		$	261,430
Net income	—		—		9,586		—		—			9,586
Other comprehensive loss, net of tax	—		—		—		—		(115)			(115)
Dividends on common stock ($0.13 per share)	2		53		(1,314)		—		—			(1,261)
Share-based compensation (1)	129		1,197		—		—		—			1,197
Treasury stock purchased, at cost	(150)		—		—		(4,076)		—			(4,076)
Balance, March 31, 2024	10,044	$	101,676	$	199,380	$	(31,443)	$	(2,852)		$	266,761
Net income	—		—		9,454		—		—			9,454
Other comprehensive loss, net of tax	—		—		—		—		(228)			(228)
Dividends on common stock ($0.13 per share)	2		52		(1,300)		—		—			(1,248)
Share-based compensation (1)	(2)		498		—		—		—			498
Treasury stock purchased, at cost	(69)		—		—		(1,842)		—			(1,842)
Balance, June 30, 2024	9,975	$	102,226	$	207,534	$	(33,285)	$	(3,080)		$	273,395

(1)	Includes the issuance of common stock under employee benefit plans, which includes nonqualified stock options and restricted stock expense related entries, employee option exercises and the tax benefit of options exercised.

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

Table of Contents

Unity Bancorp, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the six months ended June 30,
(In thousands)	2025		2024
OPERATING ACTIVITIES:
Net income	$	28,089	$	19,040
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses, loans		3,083		907
(Release) Provision for credit losses, securities		(2,036)		646
Net accretion of purchase premiums and discounts on securities		(36)		(130)
Depreciation and amortization		979		764
PPP deferred fees and costs		(2)		(9)
Deferred income tax benefit		(719)		(618)
Net realized security gains		(3,497)		(62)
Stock compensation expense		1,029		926
Gain on sale of mortgage loans, net		(603)		(586)
Gain on sale of SBA loans held for sale, net		(302)		(543)
BOLI income		(334)		(254)
Net change in other assets and liabilities		(33,117)		(12,768)
Net cash (used in) provided by operating activities		(7,466)		7,313
INVESTING ACTIVITIES
Purchases of equity securities		(501)		(2,247)
Purchases of AFS securities		(10,500)		(10,500)
(Purchase) redemption of FHLB stock, at cost, net		(7,223)		3,478
Maturities and principal payments on HTM securities		4,893		100
Maturities and principal payments on AFS securities		10,643		2,371
Proceeds from sales on AFS securities		998		—
Proceeds from sales of equity securities		6,490		221
Net decrease in SBA PPP loans		1,449		593
Net (increase) decrease in loans		(123,633)		4,135
Purchases of premises and equipment		(466)		(215)
Net cash used in investing activities		(117,850)		(2,064)
FINANCING ACTIVITIES
Net increase in deposits		87,053		86,691
Proceeds from (repayments of) short-term borrowings, net		135,400		(96,000)
Proceeds from long-term borrowings, net		21,203		14,360
(Shares withheld for taxes), net of proceeds from stock option exercises		(400)		769
Dividends on common stock		(2,707)		(2,509)
Purchase of treasury stock, including excise tax accrual		(1,938)		(5,918)
Net cash provided by (used in) financing activities		238,611		(2,607)
Increase in cash and cash equivalents		113,295		2,642
Cash and cash equivalents, beginning of year		180,438		194,776
Cash and cash equivalents, end of period	$	293,733	$	197,418
SUPPLEMENTAL DISCLOSURES
Cash:
Interest paid	$	27,830	$	28,926
Income taxes paid		8,071		6,617
Noncash activities:
Capitalization of servicing rights		106		152

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

Table of Contents

Unity Bancorp, Inc.

Notes to the Consolidated Financial Statements (Unaudited)

June 30, 2025

NOTE 1. Significant Accounting Policies

The accompanying Consolidated Financial Statements include the accounts of Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned subsidiary, Unity Bank (the "Bank" or when consolidated with the Parent Company, the "Company"). The Bank has multiple subsidiaries used to hold part of its investment, and loan portfolios and which may be used to hold other real estate owned when the Bank takes title to properties securing loans. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current year presentation, with no impact on current earnings or shareholders’ equity. The financial information has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has not been audited. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting periods. Actual results could differ from those estimates. Amounts requiring the use of significant estimates include the allowance for credit losses. Management believes that the allowance for credit losses is adequate. While Management uses available information to recognize credit losses, future additions to the allowance for credit losses may be necessary based on changes in economic conditions, changes in customer-related circumstances, and the general credit quality of the loan portfolio.

The interim unaudited Consolidated Financial Statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”) and consist of normal recurring adjustments, that in the opinion of Management, are necessary for the fair presentation of interim results. The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results which may be expected for the entire year. As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc., and its consolidated subsidiary, Unity Bank, depending on the context. Certain information and financial disclosures required by U.S. GAAP have been condensed or omitted from interim reporting pursuant to SEC rules. Interim financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The Company continues to operate as a single reportable segment as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Risks and Uncertainties

Overall, the markets and customers serviced by the Company may be significantly impacted by ongoing macro-economic trends, such as pressures created by a lower interest rate environment and uncertainty surrounding tariffs. Additionally, the Company assesses the impact of inflation on an ongoing basis.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry. Additionally, the current interest rate environment has increased competition for liquidity. The Company believes the sources of liquidity presented in the Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements are sufficient to meet its needs as of the balance sheet date.

An unexpected withdrawal of deposits could adversely impact the Company's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from Federal Home Loan Bank (“FHLB”) advances, sales of securities and loans, federal funds lines of credit from correspondent banks, out-of-market time deposits and other wholesale funding sources.

Such reliance on secondary funding sources could increase the Company's overall cost of funding and thereby reduce net income. While the Company believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures or other investments, or liquidating assets.

Table of Contents

New Accounting Guidance Adopted in 2025

Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740)”, requires public entities to enhance transparency of certain income tax related disclosures, including the rate reconciliation and taxes paid disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-09 effective January 1, 2025, noting no material impact.

Recent Accounting Pronouncements

ASU 2024-03, “Disaggregation of Income Statement Expenses”, requires public entities to provide further disclosure surrounding expenses, including but not limited to, employee compensation, depreciation and intangible asset amortization. ASU 2025-01 clarified the effective date of ASU 2024-03. This ASU is effective for fiscal years beginning after December 31, 2026. The Company expects ASU 2024-03 to have no material impact to its financials.

NOTE 2. Litigation

The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. In the best judgment of Management, based upon consultation with counsel, the consolidated financial position and results of operations of the Company will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments.

NOTE 3. Net Income per Share

Basic net income per common share is calculated as net income divided by the weighted average common shares outstanding during the reporting period. Common shares include vested and unvested restricted shares.

Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period utilizing the treasury stock method.

The following is a reconciliation of the calculation of basic and diluted income per share:


	For the three months ended June 30,				For the six months ended June 30,
(In thousands, except per share amounts)	2025		2024		2025		2024
Net income	$	16,491	$	9,454	$	28,089	$	19,040
Weighted average common shares outstanding - Basic		10,033		10,016		10,043		10,072
Plus: Potential dilutive common stock equivalents		179		133		186		140
Weighted average common shares outstanding - Diluted		10,212		10,149		10,229		10,212
Net income per common share - Basic	$	1.64	$	0.94	$	2.79	$	1.89
Net income per common share - Diluted		1.61		0.93		2.74		1.86
Stock options and common stock excluded from the income per share calculation as their effect would have been anti-dilutive		—		—		—		—

Table of Contents

NOTE 4. Other Comprehensive (Loss) Income

The following tables show the changes in other comprehensive (loss) income for the three and six months ended June 30, 2025 and 2024, net of tax:


	For the three months ended June 30, 2025
					Accumulated
	Net unrealized		Net unrealized		other
	(losses) gains		gains (losses) from		comprehensive
(In thousands)	on securities		cash flow hedges		(loss)
Balance, beginning of period	$	(2,136)	$	304	$	(1,832)
Other comprehensive income (loss) before reclassifications		24		(170)		(146)
Less: amounts reclassified from accumulated other comprehensive loss		—		(53)		(53)
Period change		24		(117)		(93)
Balance, end of period	$	(2,112)	$	187	$	(1,925)


	For the three months ended June 30, 2024

			Net unrealized		Accumulated
	Net unrealized		gains (losses)		other
	losses on		from cash flow		comprehensive
(In thousands)	securities		hedges		loss
Balance, beginning of period	$	(3,442)	$	590	$	(2,852)
Other comprehensive loss before reclassifications		(89)		(307)		(396)
Less amounts reclassified from accumulated other comprehensive loss		—		(168)		(168)
Period change		(89)		(139)		(228)
Balance, end of period	$	(3,531)	$	451	$	(3,080)


	For the six months ended June 30, 2025
			Net unrealized		Accumulated
	Net unrealized		gains (losses)		other
	(losses) gains		from cash flow		comprehensive
(In thousands)	on securities		hedges		(loss) income
Balance, beginning of period	$	(2,653)	$	546	$	(2,107)
Other comprehensive income (loss) before reclassifications		541		(525)		16
Less amounts reclassified from accumulated other comprehensive loss		—		(166)		(166)
Period change		541		(359)		182
Balance, end of period	$	(2,112)	$	187	$	(1,925)

Table of Contents


	For the six months ended June 30, 2024
			Net unrealized		Accumulated
	Net unrealized		gains (losses)		other
	losses on		from cash flow		comprehensive
(In thousands)	securities		hedges		loss
Balance, beginning of period	$	(3,408)	$	671	$	(2,737)
Other comprehensive loss before reclassifications		(123)		(558)		(681)
Less amounts reclassified from accumulated other comprehensive loss		—		(338)		(338)
Period change		(123)		(220)		(343)
Balance, end of period	$	(3,531)	$	451	$	(3,080)

NOTE 5. Fair Value

Fair Value Measurement

The Company follows Financial Accounting Standards Board (“FASB”) ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Company’s assets and liabilities that are measured at fair value. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

Level 1 Inputs

●

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Generally, this includes debt and equity securities and derivative contracts that are traded in an active exchange market (i.e. New York Stock Exchange), as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Inputs

●

Quoted prices for similar assets or liabilities in active markets.

●

Quoted prices for identical or similar assets or liabilities in inactive markets.

●

Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (i.e. interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.”

●

Generally, this includes U.S. Government and sponsored entity mortgage-backed securities, corporate debt securities and derivative contracts.

Level 3 Inputs

●

Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities.

Table of Contents

●

These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fair Value on a Recurring Basis

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis:

Debt Securities Available for Sale

As of June 30, 2025, the fair value of the Company’s AFS debt securities portfolio was $92.5 million. Most of the Company’s AFS debt securities were classified as Level 2 assets at June 30, 2025. The valuation of AFS debt securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. It includes third-party model pricing, defined as valuing securities based upon their relationship with other benchmark securities.

Included in the Company’s AFS debt securities are select corporate bonds which are classified as Level 3 assets at June 30, 2025. The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices, or other valuation techniques, such as discounted cash flow techniques. Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads and trade execution data.

Equity Securities

As of June 30, 2025, the fair value of the Company’s equity securities portfolio was $10.4 million. All of the Company’s equity securities were classified as Level 1 assets at June 30, 2025.

The following table presents a reconciliation of the Level 3 securities measured at fair value on a recurring basis for the six months ended June 30, 2025 and 2024:


	For the six months ended
	June 30, 2025					June 30, 2024
(In thousands)	Corporate Debt		Restricted Stock		Corporate Debt		Restricted Stock
Balance of recurring Level 3 assets at January 1	$	6,488	$	—	$	7,979	$	—
Activity
Transfers from corporate debt to restricted stock		(1,375)		1,375		—		—
Transfers from restricted stock to unrestricted equity securities categorized as Level 1		—		(3,000)		—		—
Release/(Provision) of valuation allowance		411		1,625		(646)		—
Unrealized holding gains (losses) included in other comprehensive income		27		—		—		—
Balance of recurring Level 3 assets at June 30	$	5,551	$	—	$	7,333	$	—

Interest Rate Swap Agreements

The Company’s derivative instruments are classified as Level 2 assets, as the readily observable market inputs to these models are validated to external sources, such as industry pricing services, or are corroborated through recent trades, dealer quotes, yield curves, implied volatility or other market-related data.

There were no material changes in the inputs or methodologies used to determine fair value during the period ended June 30, 2025, as compared to the periods ended December 31, 2024 and June 30, 2024.

Table of Contents

The tables below present the balances of assets measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024:

Fair Value Measurements at June 30, 2025

Quoted Prices in

Assets

Active Markets

Significant Other

Significant

Measured at Fair

for Identical

Observable

Unobservable

(In thousands)

Value

Assets (Level 1)

Inputs (Level 2)

Inputs (Level 3)

Measured on a recurring basis:

Assets:

Debt securities available for sale:

U.S. Government sponsored entities

14,892

—

14,892

—

State and political subdivisions

160

—

160

—

Residential mortgage-backed securities

12,107

—

12,107

—

Asset backed securities

34,583

—

34,583

—

Corporate and other securities

30,749

—

25,198

5,551

Total debt securities available for sale

92,491

—

86,940

5,551

Equity securities

10,423

—

Total equity securities

10,423

—

Interest rate swap agreements

246

—

246

—

Total interest rate swap agreements

246

—

246

—


	Fair value Measurements at December 31, 2024
			Quoted Prices in
	Assets		Active Markets		Significant Other		Significant
	Measured at Fair		for Identical		Observable		Unobservable
(In thousands)	Value		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Measured on a recurring basis:
Assets:
Debt securities available for sale:
U.S. Government sponsored entities	$	14,759	$	—	$	14,759	$	—
State and political subdivisions		333		—		333		—
Residential mortgage-backed securities		12,286		—		12,286		—
Asset backed securities		39,392		—		39,392		—
Corporate and other securities		27,114		—		20,626		6,488
Total debt securities available for sale	$	93,884	$	—	$	87,396	$	6,488

Equity securities	$	9,850	$	9,850	$	—	$	—
Total equity securities	$	9,850	$	9,850	$	—	$	—

Interest rate swap agreements	$	742	$	—	$	742	$	—
Total interest rate swap agreements	$	742	$	—	$	742	$	—

There were no liabilities measured on a recurring basis as of June 30, 2025 or December 31, 2024.

Table of Contents

Fair Value on a Nonrecurring Basis

The following tables present the assets and liabilities subject to fair value adjustments on a non-recurring basis carried on the balance sheet by caption and by level within the hierarchy (as described above):

Fair Value Measurements at June 30, 2025

Quoted Prices

Significant

in Active

Other

Significant

Assets

Markets for

Observable

Unobservable

Measured at Fair

Identical Assets

Inputs

(In thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Measured on a non-recurring basis:

Financial assets:

Collateral-dependent loans

8,053

—

8,053

Fair Value Measurements at December 31, 2024

Quoted Prices

Significant

in Active

Other

Significant

Assets

Markets for

Observable

Unobservable

Measured at Fair

Identical Assets

Inputs

(In thousands)

Value

(Level 1)

(Level 2)

(Level 3)

Measured on a non-recurring basis:

Financial assets:

Collateral-dependent loans

6,520

—

6,520

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis:

Collateral-Dependent Loans

Fair value is determined based on the fair value of the collateral and is measured for impairment based upon a third-party appraisal. When an updated appraisal is received for a nonperforming loan, the value on the appraisal may be discounted. If there is a deficiency in the value after the Company applies these discounts, Management applies a specific reserve and the loan remains in nonaccrual status. The receipt of an updated appraisal would not qualify as a reason to put a loan back into accruing status. The Company removes loans from nonaccrual status generally when the ability to collect is reasonably assured or when the loan is brought current as to principal and interest. Charge-offs are determined based upon the loss that Management believes the Company will incur after evaluating collateral for impairment based upon the valuation methods described above and the ability of the borrower to pay any deficiency.

The allowance for individually evaluated loans is included in the allowance for credit losses in the Consolidated Balance Sheets. At June 30, 2025, the allowance for individually evaluated loans was $0.8 million, compared to $1.0 million at December 31, 2024.

Fair Value of Financial Instruments

FASB ASC Topic 825, “Financial Instruments,” requires the disclosure of the estimated fair value of certain financial instruments, including those financial instruments for which the Company did not elect the fair value option. These estimated fair values as of June 30, 2025 and December 31, 2024 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could

Table of Contents

have had a material effect on these estimates of fair value. The methodology for estimating the fair value of financial assets and liabilities that are measured on a recurring or nonrecurring basis is discussed above.

The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:

Securities

The fair value of securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).

Loans Held for Sale

The fair value of loans held for sale is estimated by using a market approach that includes significant other observable inputs.

Loans

The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed loans.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e. carrying value). The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using current market rates.

Borrowed Funds and Subordinated Debentures

The fair value of borrowings is estimated by discounting the projected future cash flows using current market rates.

The table below presents the carrying amount and estimated fair values of the Company’s financial instruments presented as of June 30, 2025 and December 31, 2024:


	June 30, 2025
	Carrying
(In thousands)	amount		Level 1		Level 2		Level 3
Financial assets:
Debt securities held to maturity	$	36,434	$	—	$	29,651	$	—
Loans held for sale		13,352		—		13,936		—
Loans, net of allowance for credit losses		2,340,230		—		2,286,506		8,053
Financial liabilities:
Deposits		2,187,366		—		2,183,344		—
Borrowed funds and subordinated debentures		387,417		—		387,512		—

Table of Contents


	December 31, 2024
	Carrying
(In thousands)	amount		Level 1		Level 2		Level 3
Financial assets:
Debt securities held to maturity	$	41,294	$	—	$	33,814	$	—
Loans held for sale		12,163		—		12,896		—
Loans, net of allowance for credit losses		2,221,706		—		2,152,080		6,520
Financial liabilities:
Deposits		2,100,313		—		2,095,365		—
Borrowed funds and subordinated debentures		230,814		—		230,576		—

Limitations

Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the effect of fair value estimates have not been considered in the above estimates.

NOTE 6. Securities

This table provides the major components of debt securities available for sale ("AFS") and held to maturity (“HTM”) at amortized cost and estimated fair value at June 30, 2025 and December 31, 2024:

June 30, 2025

Gross

Amortized

unrealized

Valuation

Estimated

(In thousands)

cost

gains

losses

Allowance

fair value

Available for sale:

U.S. Government sponsored entities

15,000

—

(108)

—

14,892

State and political subdivisions

188

—

(28)

—

160

Residential mortgage-backed securities

13,257

(1,178)

—

12,107

Asset backed securities

34,500

(5)

—

34,583

Corporate and other securities

33,121

(1,653)

(788)

30,749

Total debt securities available for sale

96,066

185

(2,972)

(788)

92,491

Held to maturity:

U.S. Government sponsored entities

28,000

—

(4,348)

—

23,652

State and political subdivisions

1,266

—

1,295

Residential mortgage-backed securities

7,168

—

(2,464)

—

4,704

Total debt securities held to maturity

36,434

(6,812)

—

29,651

Table of Contents


	December 31, 2024
			Gross		Gross
	Amortized		unrealized		unrealized			Valuation	Estimated
(In thousands)	cost		gains		losses			Allowance	fair value
Available for sale:
U.S. Government sponsored entities	$	15,000	$	—	$	(241)	$	—	$	14,759
State and political subdivisions		357		—		(24)		—		333
Residential mortgage-backed securities		13,814		27		(1,555)		—		12,286
Asset backed securities		39,300		94		(2)		—		39,392
Corporate and other securities		31,741		165		(1,968)		(2,824)		27,114
Total debt securities available for sale	$	100,212	$	286	$	(3,790)	$	(2,824)	$	93,884
Held to maturity:
U.S. Government sponsored entities	$	28,000	$	—	$	(4,932)	$	—	$	23,068
State and political subdivisions		1,234		59		—		—		1,293
Residential mortgage-backed securities		12,060		—		(2,607)		—		9,453
Total debt securities held to maturity	$	41,294	$	59	$	(7,539)	$	—	$	33,814

There was a $2.0 million release for credit losses on securities for the the six months ended June 30, 2025 compared to the $0.6 million provision in the six months ended June 30, 2024. During the quarter ended June 30, 2025, with respect to the debt securities held by the Company issued by Patriot National Bancorp, Inc., the Company elected to convert a portion of the principal and past due interest into shares of Patriot National Bancorp, Inc. common stock, bringing the Company’s total holdings to 4.4 million shares. The Company sold all 4.4 million shares, resulting in $6.5 million in net proceeds and a realized gain of $3.5 million. As of June 30, 2025, the Company continues to hold $2.0 million in par of the modified senior debt position in the AFS portfolio with a carrying value of $1.0 million.

The contractual maturities of AFS and HTM debt securities at June 30, 2025 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.



		Amortized		Fair
(In thousands)		Cost		Value
Available for sale:
Due in one year	$	—	$	—
Due after one year through five years		30,784		29,212
Due after five years through ten years		41,837		40,992
Due after ten years		10,188		10,180
Residential mortgage-backed securities		13,257		12,107
Total	$	96,066	$	92,491
Held to maturity:
Due in one year	$	—	$	—
Due after one year through five years		3,000		2,978
Due after five years through ten years		—		—
Due after ten years		26,266		21,969
Residential mortgage-backed securities		7,168		4,704
Total	$	36,434	$	29,651

Actual maturities of AFS and HTM debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

Table of Contents

The fair value of debt securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2025 and December 31, 2024 are as follows:

June 30, 2025

Less than 12 months

12 months and greater

Total

Estimated

Unrealized

Estimated

Unrealized

Estimated

Unrealized

(In thousands)

fair value

loss

fair value

loss

fair value

loss

Available for sale:

U.S. Government sponsored entities

—

14,892

(108)

14,892

(108)

State and political subdivisions

—

160

(28)

160

(28)

Residential mortgage-backed securities

—

11,976

(1,178)

11,976

(1,178)

Asset backed securities

3,995

(5)

—

3,995

(5)

Corporate and other securities

2,499

(1)

9,843

(1,652)

11,342

(1,653)

Total

6,494

(6)

36,871

(2,966)

42,365

(2,972)

Held to maturity:

U.S. Government sponsored entities

—

23,652

(4,348)

23,652

(4,348)

Residential mortgage-backed securities

—

4,704

(2,464)

4,704

(2,464)

Total

—

28,356

(6,812)

28,356

(6,812)


	December 31, 2024
	Less than 12 months				12 months and greater				Total

	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
(In thousands)	fair value		loss		fair value		loss		fair value		loss
Available for sale:
U.S. Government sponsored entities	$	—	$	—	$	14,759	$	(241)	$	14,759	$	(241)
State and political subdivisions		—		—		333		(24)		333		(24)
Residential mortgage-backed securities		8		(1)		12,145		(1,554)		12,153		(1,555)
Asset backed securities		3,998		(1)		3,000		(1)		6,998		(2)
Corporate and other securities		—		—		14,609		(1,968)		14,609		(1,968)
Total temporarily impaired AFS securities	$	4,006	$	(2)	$	44,846	$	(3,788)	$	48,852	$	(3,790)
Held to maturity:
U.S. Government sponsored entities	$	—	$	—	$	23,068	$	(4,932)	$	23,068	$	(4,932)
Residential mortgage-backed securities		—		—		4,453		(2,607)		4,453		(2,607)
Total temporarily impaired HTM securities	$	—	$	—	$	27,521	$	(7,539)	$	27,521	$	(7,539)

Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate fluctuations. Residential mortgage-backed securities are guaranteed by either Ginnie Mae, Freddie Mac or Fannie Mae.

The Company is using the practical expedient to exclude accrued interest receivable from credit loss measurement. At June 30, 2025, there was $1.0 million of accrued interest on securities. At December 31, 2024, there was $1.2 million of accrued interest on securities.

Realized Gains and Losses on Debt Securities

Net realized gains (losses) on debt securities are included in noninterest income in the Consolidated Statements of Income as net security gains (losses). There was no loss on available for sale debt securities during the three months ended June 30, 2025 and $11 thousand in losses for the six months ended June 30, 2025 compared to no realized gains or losses during the three and six months ended June 30, 2024. There were no realized gains or losses for held to maturity debt securities during the six and three months ended June 30, 2025 and 2024.

Table of Contents

Equity Securities

Included in this category are Community Reinvestment Act ("CRA") investments and the Company’s current other equity holdings of financial institutions. Equity securities are defined to include (a) preferred, common and other ownership interests in entities including partnerships, joint ventures and limited liability companies and (b) rights to acquire or dispose of ownership interests in entities at fixed or determinable prices.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and six months ended June 30, 2025 and 2024:


	For the three months ended June 30,				For the six months ended June 30,
(In thousands)	2025		2024		2025		2024
Net unrealized gains (losses) occurring during the period on equity securities	$	91	$	(21)	$	53	$	12
Net gains recognized during the period on equity securities sold during the period		3,509		41		3,509		62
Gains recognized during the reporting period on equity securities	$	3,600	$	20	$	3,562	$	74

NOTE 7. Loans

The following table sets forth the classification of loans by class, including unearned fees and deferred costs and excluding the allowance for credit losses as of June 30, 2025 and December 31, 2024:


(In thousands)	June 30, 2025		December 31, 2024
SBA loans held for investment		38,059		38,309
Commercial loans
SBA 504		49,947		48,479
Commercial & industrial		164,176		147,186
Commercial real estate²		1,195,016		1,085,771
Commercial real estate construction		101,990		130,193
Residential mortgage loans		666,560		630,927
Consumer loans
Home equity		79,828		73,223
Consumer other		2,736		3,488
Residential construction loans		70,930		90,918
Total loans held for investment	$	2,369,242	$	2,248,494
Loans held for sale¹		13,352		12,163
Total loans	$	2,382,594	$	2,260,657

¹Loans held for sale included SBA and residential mortgage loans of $7.8 million and $5.6 million as of June 30, 2025, respectively. Loans held for sale included SBA loans of $12.2 million as of December 31, 2024.

²Commercial real estate includes Commercial Mortgage – Owner Occupied, Commercial Mortgage – Nonowner Occupied and Commercial Mortgage – Other. Commercial Mortgage – Other primarily includes multifamily and land loans.

Loans are made to individuals and commercial entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that a majority of the loan customers are located in the markets serviced by the Bank, most notably in New Jersey. Additionally, the New Jersey credit concentration is primarily focused within the counties that the Company operates in. Loan performance may be adversely affected by factors impacting the general

Table of Contents

economy or conditions specific to the real estate market such as geographic location and/or property type. A description of the Company’s different loan segments follows:

SBA Loans: SBA 7(a) loans, on which the SBA has historically provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. The guaranteed portion of the Company’s SBA loans is generally sold in the secondary market with the nonguaranteed portion held in the portfolio as a loan held for investment. SBA loans are for the purpose of providing working capital, business acquisitions, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. Loans are guaranteed by the businesses’ major owners. SBA loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Loans held for sale includes the guaranteed portion of SBA loans and are reflected at the lower of aggregate cost or market value. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Serviced loans sold to others are not included in the accompanying Consolidated Balance Sheets. Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets, in the accompanying Consolidated Statements of Income.

Commercial Loans: Commercial credit is extended primarily to middle market and small business customers. Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. The SBA 504 program consists of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property. Loans will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the business and secondarily on the underlying collateral provided.

Residential Mortgage, Consumer and Residential Construction Loans: The Company originates mortgage and consumer loans including principally residential real estate and home equity lines and loans and residential construction lines. The Company originates qualified mortgages which are generally sold in the secondary market and nonqualified mortgages which are generally held for investment. Each loan type is evaluated on debt to income, type of collateral, loan to collateral value, credit history and Company relationship with the borrower.

Loans held for sale includes a portion of residential mortgage loans and are reflected at the lower of aggregate cost or market value. When sales of residential mortgage loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets are recognized in income. All criteria for sale accounting must be met in order for the loan sales to occur.

Inherent in the lending function is credit risk, which is the possibility a borrower may not perform in accordance with the contractual terms of their loan. A borrower’s inability to pay their obligations according to the contractual terms can create the risk of past due loans and, ultimately, credit losses, especially on collateral deficient loans. The Company minimizes its credit risk by loan diversification and adhering to credit administration policies and procedures. Due diligence on loans begins when the Company initiates contact regarding a loan with a borrower. Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source of funds for repayment of the loan and other factors, are analyzed before a loan is submitted for approval. The commercial loan portfolio is then subject to on-going internal reviews for credit quality which in part is

Table of Contents

derived from ongoing collection and review of borrowers’ financial information, as well as, independent credit reviews performed by an independent external firm.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. This policy and the underlying procedures are reviewed and approved by the Board of Directors on a regular basis.

Credit Ratings

The Company places all SBA, commercial and residential construction loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. The credit risk rating is evaluated at the time of loan approval and subsequently during the annual reviews, in accordance with the guidelines set forth in the Loan Policy.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Pass: Risk ratings of 1 through 6 are used for loans that are performing, as they meet, and are expected to continue to meet, all of the terms and conditions set forth in the original loan documentation, and are generally current on principal and interest payments. These performing loans are termed “Pass”.

Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loss: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values. Once a borrower is deemed incapable of repayment of unsecured debt, the loan is termed a “Loss” and charged off immediately, subject to government guarantee.

For residential mortgage and consumer loans, Management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis, as a loan is placed on nonaccrual status as soon as Management believes there is sufficient doubt as to the ultimate ability to collect interest on a loan.

Nonaccrual and Past Due Loans

Nonaccrual loans consist of loans that are not accruing interest as a result of principal or interest being in default, typically for a period of 90 days or more or when the ability to collect principal and interest according to the contractual terms is in doubt. When a loan is classified as nonaccrual, interest accruals are discontinued and all past due interest previously recognized as income is reversed and charged against current period earnings. Generally, until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as Management determines that the financial condition of the borrower and other factors merit recognition of a portion of such payments as interest income. Loans may be returned to an accrual status when the ability to collect is reasonably assured and when the loan is brought current as to principal and interest. The risk of loss is difficult to quantify and is

Table of Contents

subject to fluctuations in collateral values, general economic conditions and other factors. The Company values its collateral through the use of appraisals, broker price opinions and knowledge of its local market.

The following tables set forth an aging analysis of past due and nonaccrual loans as of June 30, 2025 and December 31, 2024:

June 30, 2025

90+ days

30‑59 days

60‑89 days

and still

Total past

(In thousands)

past due

accruing

Nonaccrual

due

Current

Total loans

SBA loans held for investment

6,209

—

4,177

10,417

27,642

38,059

Commercial loans

SBA 504

—

49,947

Commercial & industrial

131

194

—

1,243

1,568

162,608

164,176

Commercial real estate

1,809

2,232

2,876

2,269

9,186

1,185,830

1,195,016

Commercial real estate construction

—

101,990

Residential mortgage loans

10,165

5,133

—

7,980

23,278

643,282

666,560

Consumer loans

Home equity

350

3,037

—

3,387

76,441

79,828

Consumer other

—

2,705

2,736

Residential construction loans

—

171

70,759

70,930

Total loans held for investment

18,687

10,635

2,876

15,840

48,038

2,321,204

2,369,242

Loans held for sale

—

13,352

Total loans

18,687

10,635

2,876

15,840

48,038

2,334,556

2,382,594


	December 31, 2024
					90+ days
	30‑59 days		60‑89 days		and still				Total past
(In thousands)	past due		past due		accruing		Nonaccrual		due		Current		Total loans
SBA loans held for investment	$	1,006	$	451	$	—	$	3,850	$	5,307	$	33,002	$	38,309
Commercial loans
SBA 504		—		—		—		—		—		48,479		48,479
Commercial & industrial		941		—		—		1,228		2,169		145,017		147,186
Commercial real estate		22,378		2,339		—		1,746		26,463		1,059,308		1,085,771
Commercial real estate construction		—		—		—		—		—		130,193		130,193
Residential mortgage loans		15,654		4,094		760		5,711		26,219		604,708		630,927
Consumer loans
Home equity		479		2,162		—		—		2,641		70,582		73,223
Consumer other		36		5		—		—		41		3,447		3,488
Residential construction loans		—		—		—		547		547		90,371		90,918
Total loans held for investment		40,494		9,051		760		13,082		63,387		2,185,107		2,248,494
Loans held for sale		—		—		—		—		—		12,163		12,163
Total loans	$	40,494	$	9,051	$	760	$	13,082	$	63,387	$	2,197,270	$	2,260,657

The Company is using the practical expedient to exclude accrued interest receivable from credit loss measurement. At June 30, 2025 and December 31, 2024, there was $11.2 million and $11.3 million of accrued interest on loans, respectively.

Table of Contents

Individually Evaluated Loans

The Company has defined individually evaluated loans to be all nonperforming loans. Management individually evaluates a loan when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract.

The following tables provide detail on the Company’s loans individually evaluated in the Company’s CECL evaluation with the associated allowance amount, if applicable, as of June 30, 2025 and December 31, 2024:


	June 30, 2025
	Unpaid				Allowance for
	principal		Recorded		Credit Losses
(In thousands)	balance		investment		Allocated
With no related allowance:
SBA loans held for investment	$	286	$	188	$	—
Commercial loans
Commercial & industrial		638		33		—
Commercial real estate		4,850		4,236		—
Total commercial loans		5,488		4,269		—
Residential mortgage loans		6,668		6,668		—
Total individually evaluated loans with no related allowance		12,442		11,125		—

With an allowance:
SBA loans held for investment		4,940		3,990		416
Commercial loans
Commercial & industrial		1,510		1,210		150
Commercial real estate		912		909		1
Total commercial loans		2,422		2,119		151
Residential mortgage loans		1,437		1,312		168
Residential construction loans		171		171		44
Total individually evaluated loans with a related allowance		8,970		7,592		779

Total individually evaluated loans:
SBA loans held for investment		5,226		4,178		416
Commercial loans
Commercial & industrial		2,148		1,243		150
Commercial real estate		5,762		5,145		1
Total commercial loans		7,910		6,388		151
Residential mortgage loans		8,105		7,980		168
Residential construction loans		171		171		44
Total individually evaluated loans	$	21,412	$	18,717	$	779

Table of Contents


	December 31, 2024
	Unpaid				Allowance for
	principal		Recorded		Credit Losses
(In thousands)	balance		investment		Allocated
With no related allowance:
SBA loans held for investment	$	432	$	334	$	—
Commercial loans
Commercial & industrial		638		33		—
Commercial real estate		2,055		1,746		—
Total commercial loans		2,693		1,779		—
Residential mortgage loans		4,238		4,238		—
Total individually evaluated loans with no related allowance		7,363		6,351		—

With an allowance:
SBA loans held for investment		4,011		3,516		755
Commercial loans
Commercial & industrial		1,672		1,195		62
Total commercial loans		1,672		1,195		62
Residential mortgage loans		2,413		2,233		52
Residential construction loans		547		547		102
Total individually evaluated loans with a related allowance		8,643		7,491		971

Total individually evaluated loans:
SBA loans held for investment		4,443		3,850		755
Commercial loans
Commercial & industrial		2,310		1,228		62
Commercial real estate		2,055		1,746		—
Total commercial loans		4,365		2,974		62
Residential mortgage loans		6,651		6,471		52
Residential construction loans		547		547		102
Total individually evaluated loans	$	16,006	$	13,842	$	971

Table of Contents

The following tables show the internal loan classification risk by loan portfolio classification by origination year as of June 30, 2025 and December 31, 2024, respectively, as well as gross write-offs for the six months ended June 30, 2025 and the twelve months ended December 31, 2024:


	Term Loans
	Amortized Cost Basis by Origination Year, June 30, 2025

(In thousands)		2025		2024		2023		2022		2021		2020 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans
Risk Rating:
Pass	$	1,094	$	3,051	$	1,282	$	4,578	$	6,417	$	14,433	$	-	$	30,855
Special Mention		-		-		732		1,572		354		126		-		2,784
Substandard		-		-		368		1,599		2,116		337		-		4,420
Total SBA loans held for investment	$	1,094	$	3,051	$	2,382	$	7,749	$	8,887	$	14,896	$	-	$	38,059
SBA loans held for investment
Current-period gross writeoffs	$	-	$	-	$	-	$	455	$	-	$	-	$	-	$	455

Commercial loans
Risk Rating:
Pass	$	156,458	$	201,932	$	144,153	$	330,429	$	151,458	$	410,059	$	99,005	$	1,493,494
Special Mention		-		-		-		1,531		914		2,948		140		5,533
Substandard		-		2,876		-		1,860		1,162		6,204		-		12,102
Total commercial loans	$	156,458	$	204,808	$	144,153	$	333,820	$	153,534	$	419,211	$	99,145	$	1,511,129
Commercial loans
Current-period gross writeoffs	$	-	$	-	$	-	$	-	$	1	$	101	$	-	$	102

Residential mortgage loans
Risk Rating:
Performing	$	86,936	$	82,320	$	61,946	$	211,180	$	61,952	$	154,221	$	-	$	658,555
Nonperforming		-		-		-		2,897		1,224		3,884		-		8,005
Total residential mortgage loans	$	86,936	$	82,320	$	61,946	$	214,077	$	63,176	$	158,105	$	-	$	666,560
Residential mortgage loans
Current-period gross writeoffs	$	-	$	-	$	-	$	182	$	230	$	-	$	-		412

Consumer loans
Risk Rating:
Performing	$	8,966	$	5,120	$	1,488	$	2,834	$	1,021	$	8,489	$	54,646	$	82,564
Total consumer loans	$	8,966	$	5,120	$	1,488	$	2,834	$	1,021	$	8,489	$	54,646	$	82,564
Consumer loans
Current-period gross writeoffs	$	-	$	-	$	-	$	11	$	60	$	-	$	-	$	71

Residential construction
Risk Rating:
Pass	$	14,907	$	33,761	$	6,519	$	10,101	$	1,783	$	3,688	$	-	$	70,759
Substandard		-		-		-		-		-		171		-		171
Total residential construction loans	$	14,907	$	33,761	$	6,519	$	10,101	$	1,783	$	3,859	$	-	$	70,930
Residential construction
Current-period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Total loans held for investment	$	268,361	$	329,060	$	216,488	$	568,581	$	228,401	$	604,560	$	153,791	$	2,369,242

Table of Contents


	Term Loans
	Amortized Cost Basis by Origination Year, December 31, 2024
(In thousands)		2024		2023		2022		2021		2020		2019 and Earlier		Revolving Loans Amortized Cost Basis		Total
SBA loans held for investment
Risk Rating:
Pass	$	2,167	$	1,580	$	5,205	$	6,411	$	5,570	$	10,085	$	-	$	31,018
Special Mention		-		769		1,740		356		508		729		-		4,102
Substandard		-		-		956		2,116		116		1		-		3,189
Total SBA loans held for investment	$	2,167	$	2,349	$	7,901	$	8,883	$	6,194	$	10,815	$	-	$	38,309
SBA loans held for investment
Current-period gross writeoffs	$	-	$	-	$	300	$	70	$	-	$	-	$	-	$	370

Commercial loans
Risk Rating:
Pass	$	189,371	$	167,190	$	331,349	$	161,508	$	123,225	$	330,131	$	94,369	$	1,397,143
Special Mention		-		-		6,269		1,737		-		3,108		17		11,131
Substandard		-		-		-		2		1,187		2,157		9		3,355
Total commercial loans	$	189,371	$	167,190	$	337,618	$	163,247	$	124,412	$	335,396	$	94,395	$	1,411,629
Commercial loans
Current-period gross writeoffs	$	-	$	-	$	38	$	138	$	200	$	107	$	150	$	633

Residential mortgage loans
Risk Rating:
Performing	$	93,825	$	73,862	$	224,295	$	65,192	$	44,366	$	122,916	$	-	$	624,456
Nonperforming		-		227		1,488		2,238		-		2,518		-		6,471
Total residential mortgage loans	$	93,825	$	74,089	$	225,783	$	67,430	$	44,366	$	125,434	$	-	$	630,927
Residential mortgage loans
Current-period gross writeoffs	$	-	$	-	$	-	$	150	$	-	$	-	$	-	$	150

Consumer loans
Risk Rating:
Performing	$	5,898	$	2,602	$	3,275	$	1,515	$	667	$	10,409	$	52,345	$	76,711
Total consumer loans	$	5,898	$	2,602	$	3,275	$	1,515	$	667	$	10,409	$	52,345	$	76,711
Consumer loans
Current-period gross writeoffs	$	-	$	-	$	63	$	100	$	-	$	198	$	-	$	361

Residential construction
Risk Rating:
Pass	$	36,522	$	16,889	$	26,683	$	7,766	$	1,154	$	1,357	$	-	$	90,371
Substandard		-		-		-		-		547		-		-		547
Total residential construction loans	$	36,522	$	16,889	$	26,683	$	7,766	$	1,701	$	1,357	$	-	$	90,918
Residential construction
Current-period gross writeoffs	$	-	$	-	$	-	$	-	$	-	$	277	$	-	$	277

Total loans held for investment	$	327,783	$	263,119	$	601,260	$	248,841	$	177,340	$	483,411	$	146,740	$	2,248,494

Table of Contents

Modifications

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on in-scope assets upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted-average remaining maturity model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of gross loans and type of concession granted during the six months ended June 30, 2025 and 2024, respectively:


		Payment Delay				Term Extension				Interest Rate Reduction
		Principal	Percentage			Principal	Percentage			Principal	Percentage
(In thousands)		Balance	of Loan Class			Balance	of Loan Class			Balance	of Loan Class
SBA loans held for investment	$	187	0.5	%	$	214	0.6	%	$	—	—	%
Commercial loans
Commercial & industrial		—	—			—	—			—	—
Commercial real estate		628	0.1			—	—			1,860	0.2
Residential mortgage loans		1,123	0.2			—	—			—	—
Consumer loans
Home equity		—	—			53	0.1			—	—
Balance as of June 30, 2025	$	1,938	0.1	%	$	267	0.1	%	$	1,860	0.1	%


		Principal Forgiveness				Payment Delay				Term Extension
		Principal	Percentage			Principal	Percentage			Principal	Percentage
(In thousands)		Balance	of Loan Class			Balance	of Loan Class			Balance	of Loan Class
SBA loans held for investment	$	4	—	%	$	99	0.3	%	$	—	—	%
Commercial loans
Commercial & industrial		—	—			—	—			2,074	1.4
Commercial real estate		—	—			2,619	0.3			—	—
Residential mortgage loans		—	—			1,036	0.2			—	—
Consumer loans
Home equity		—	—			—	—			2,309	3.5
Balance as of June 30, 2024	$	4	—	%	$	3,754	0.2	%	$	4,383	0.2	%

Table of Contents

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. One loan, a $0.6 million residential mortgage loan that was modified during the twelve months ended June 30, 2025 was not in compliance with the modified terms.

NOTE 8. Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

Allowance for Credit Losses

The Company has an established methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses inherent in the loan portfolio. At a minimum, the adequacy of the allowance for credit losses is reviewed by Management on a quarterly basis. The allowance is increased by provisions charged to expense and is reduced by net charge-offs. For purposes of determining the allowance for credit losses, the Company has segmented the loans in its portfolio by loan type. Loans are segmented into the following pools: SBA, commercial, residential mortgage, consumer and residential construction loans. Certain portfolio segments are further broken down into classes based on the associated risks within those segments and the type of collateral underlying each loan. Commercial loans are divided into the following four classes: commercial real estate, commercial real estate construction, commercial & industrial and SBA 504. Consumer loans are divided into two classes as follows: home equity and other.

The standardized methodology used to assess the adequacy of the allowance includes the allocation of specific and general reserves. The same standard methodology is used, regardless of loan type. Specific reserves are established for individually evaluated loans. The general reserve is set based upon a representative average historical net charge-off rate adjusted for the following environmental factors: delinquency and impairment trends, charge-off and recovery trends, volume and loan term trends, changes in risk and underwriting policy trends, staffing and experience changes, national and local economic trends, industry conditions and credit concentration changes. These environmental factors include reasonable and supportable forecasts. Within the historical net charge-off rate, the Company weights the data dating back ten years on a straight line basis and projects the losses on a weighted average remaining maturity basis for each segment. All of the environmental factors are ranked and assigned a basis points value based on the following scale: low, low moderate, moderate, high moderate and high risk. Each environmental factor is evaluated separately for each class of loans and risk weighted based on its individual characteristics.

●

For SBA 7(a) and commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The loan grading system incorporates reviews of the financial performance of the borrower, including cash flow, debt-service coverage ratio, earnings power, debt level and equity position, in conjunction with an assessment of the borrower’s industry and future prospects. It also incorporates analysis of the type of collateral and the relative loan to value ratio.

●

For residential mortgage, consumer and residential construction loans, the estimate of loss is based on pools of loans with similar characteristics. Factors such as delinquency status and type of collateral are evaluated. Factors are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies, and adjustments to the reserve factors are made as needed.

According to the Company’s policy, a loss (“charge-off”) is to be recognized and charged to the allowance for credit losses as soon as a loan is recognized as uncollectable. All credits which are 90 days past due must be analyzed for the Company’s ability to collect on the credit. Once a loss is known to exist, the charge-off approval process is immediately expedited. This charge-off policy is followed for all loan types.

Table of Contents

The following tables detail the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2025 and 2024:

For the three months ended June 30, 2025

SBA

Residential

(In thousands)

Held for Investment

Commercial

Residential

Consumer

construction

Total

Balance, beginning of period

1,095

18,640

6,527

760

629

27,651

Charge-offs

(105)

(100)

(282)

(21)

—

(508)

Recoveries

102

—

144

Net (charge-offs) recoveries

(103)

(282)

—

(364)

Provision (credit) for credit losses charged to expense

185

895

671

(32)

1,725

Balance, end of period

1,177

19,537

6,916

785

597

29,012


	For the three months ended June 30, 2024
	SBA									Residential
(In thousands)	Held for Investment		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	1,209	$	16,187	$	6,394	$	922	$	1,368	$	26,080
Charge-offs		—		(138)		—		(130)		—		(268)
Recoveries		6		12		—		11		—		29
Net recoveries (charge-offs)		6		(126)		—		(119)		—		(239)
Provision (credit) for credit losses charged to expense		242		627		(181)		32		(454)		266
Balance, end of period	$	1,457	$	16,688	$	6,213	$	835	$	914	$	26,107

For the six months ended June 30, 2025

SBA

Residential

(In thousands)

Held for Investment

Commercial

Residential

Consumer

construction

Total

Balance, beginning of period

1,535

17,361

6,254

775

863

26,788

Charge-offs

(455)

(102)

(412)

(71)

—

(1,040)

Recoveries

107

—

181

Net (charge-offs) recoveries

(448)

(412)

(4)

—

(859)

Provision for (credit to) credit losses charged to expense

2,171

1,074

(266)

3,083

Balance, end of period

1,177

19,537

6,916

785

597

29,012


	For the six months ended June 30, 2024
	SBA									Residential
(In thousands)	Held for Investment		Commercial		Residential		Consumer		construction		Total
Balance, beginning of period	$	1,221	$	15,876	$	6,529	$	1,022	$	1,206	$	25,854
Charge-offs		—		(236)		—		(200)		(277)		(713)
Recoveries		14		24		—		21		—		59
Net recoveries (charge-offs)		14		(212)		—		(179)		(277)		(654)
Provision for (credit to) credit losses charged to expense		222		1,024		(316)		(8)		(15)		907
Balance, end of period	$	1,457	$	16,688	$	6,213	$	835	$	914	$	26,107

Table of Contents

Reserve for Unfunded Loan Commitments

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded loan commitments at a level that Management believes is adequate to absorb estimated probable losses. At June 30, 2025, a $0.7 million commitment reserve was reported on the Balance Sheet as “Accrued expenses and other liabilities” and reported on the income statement as “Provision for credit losses, off-balance sheet”, compared to a reserve of $0.6 million at December 31, 2024.

Reserve for Security Impairment

The Company maintains a reserve for credit losses on AFS debt securities. Adjustments to the reserve are made through the provision for credit losses and applied to the reserve, which is classified in “Debt securities available for sale” on the Balance Sheet. At June 30, 2025, a $0.8 million reserve was reported, compared to a $2.8 million reserve at December 31, 2024.

The Company maintains a reserve for credit losses on equity securities which are restricted. Adjustments to the reserve are made through the provision for credit losses and applied to the reserve, which is classified in “Equity securities” on the Balance Sheet. At June 30, 2025, there was no reserve compared to a $1.2 million reserve at December 31, 2024.

The Company maintains a reserve for credit losses on HTM debt securities at a level that Management believes is adequate to absorb estimated probable losses. At June 30, 2025 and December 31, 2024, no reserve was reported on the Consolidated Balance Sheet as these securities are either explicitly or implicitly guaranteed by the U.S. Government, are highly rated by major agencies or have a long history of no credit losses.

NOTE 9. Derivative Financial Instruments and Hedging Activities

Derivative Financial Instruments

The Company has derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s Balance Sheet as “Prepaid expenses and other assets” or “Accrued expenses and other liabilities”.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to any derivative agreement. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures and does not expect any counterparties to fail their obligations. The Company deals only with primary dealers.

Derivative instruments are generally either negotiated via over the counter (“OTC”) contracts or standardized contracts executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity.

Risk Management Policies – Hedging Instruments

The primary focus of the Company’s asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Company evaluates the effectiveness of entering into any derivative agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

Table of Contents

Interest Rate Risk Management – Cash Flow Hedging Instruments

The Company has variable rate debt as a source of funds for use in the Company’s lending and investment activities and for other general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and therefore hedges its variable-rate interest payments. To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments during the contract period.

A summary of the Company’s outstanding interest rate swap agreements used to hedge variable rate debt at June 30, 2025 and December 31, 2024, respectively is as follows:


(Dollars in thousands)	June 30, 2025			December 31, 2024
Notional amount	$	20,000		$	20,000
Fair value	$	246		$	139
Weighted average pay rate		2.89	%		0.83	%
Weighted average receive rate		4.34	%		5.12	%
Weighted average maturity in years		2.70			0.19
Number of contracts		1			1

During the three and six months ended June 30, 2025, the Company received variable rate Secured Overnight Financing Rate (“SOFR”) payments from and paid fixed rates in accordance with its interest rate swap agreements. At June 30, 2025, the unrealized gain relating to interest rate swaps was recorded as a derivative asset and is included in “Prepaid expenses and other assets” on the Company’s Balance Sheet. Changes in the fair value of the interest rate swaps designated as hedging instruments of the variability of cash flows associated with long-term debt are reported in other comprehensive income. The following table presents the net gains and losses recorded in other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments at June 30, 2025 and 2024, respectively:


	For the three months ended June 30,				For the six months ended June 30,
(In thousands)	2025		2024		2025		2024
Loss recognized in OCI
Gross of tax	$	(160)	$	(191)	$	(493)	$	(304)
Net of tax		(117)		(139)		(359)		(220)
Gain reclassified from AOCI into net income
Gross of tax		73		238		229		476
Net of tax		53		168		166		338

NOTE 10. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s and consolidated Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

The minimum capital level requirements include: (i) a Tier 1 leverage ratio of 4%; (ii) common equity Tier 1 risk weighted capital ratio of 4.5%; (iii) a Tier 1 risk weighted capital ratio of 6%; and (iv) a total risk weighted capital ratio

Table of Contents

of 8% for all institutions. The Bank is also required to maintain a “capital conservation buffer” of 2.5% above the regulatory minimum capital ratios which results in the following minimum ratios: (i) a common equity Tier 1 risk weighted capital ratio of 7.0%; (ii) a Tier 1 risk weighted capital ratio of 8.5%; and (iii) a total risk weighted capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under a policy of the Federal Reserve applicable to bank holding companies with consolidated assets of less than $3 billion, the Company is not subject to capital regulations.

The following table shows information regarding the Company’s and the Bank’s regulatory capital levels at June 30, 2025 and at December 31, 2024, as if the Company were subject to minimum capital requirements.


		Actual			Required for Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Regulations *
		Amount	Ratio		Amount		Ratio		Amount		Ratio

		(Dollars in thousands)
As of June 30, 2025
Total risk-based capital (to risk-weighted assets)
Company Consolidated	$	358,827	15.65	%	$	183,480	8.00	%	$	229,350	10.00	%
Bank		345,184	15.10			182,824	8.00			228,531	10.00
Common equity tier 1 (to risk-weighted assets)
Company Consolidated		320,145	13.96			103,208	4.50			149,078	6.50
Bank		316,603	13.85			102,839	4.50			148,545	6.50
Tier 1 capital (to risk-weighted assets)
Company Consolidated		330,145	14.39			137,610	6.00			183,480	8.00
Bank		316,603	13.85			137,118	6.00			182,824	8.00
Tier 1 capital (to average total assets)
Company Consolidated		330,145	12.50			105,604	4.00			132,006	5.00
Bank		316,603	12.04			105,212	4.00			131,515	5.00

As of December 31, 2024
Total risk-based capital (to risk-weighted assets)
Company Consolidated	$	332,700	15.62	%	$	170,364	8.00	%	$	212,955	10.00	%
Bank		324,763	15.37			169,013	8.00			211,266	10.00
Common equity tier 1 (to risk-weighted assets)
Company Consolidated		296,071	13.90			95,830	4.50			138,421	6.50
Bank		298,342	14.12			95,070	4.50			137,323	6.50
Tier 1 capital (to risk-weighted assets)
Company Consolidated		306,071	14.37			127,773	6.00			170,364	8.00
Bank		298,342	14.12			126,760	6.00			169,013	8.00
Tier 1 capital (to average total assets)
Company Consolidated		306,071	12.22			100,150	4.00			125,187	5.00
Bank		298,342	11.95			99,844	4.00			124,806	5.00

*Prompt Corrective Action requirements only apply to the Bank.

Table of Contents

NOTE 11. Subsequent Events

The Company has evaluated all events or transactions that occurred through the date the Company issued these financial statements.

On July 4, 2025, subsequent to the end of the Company’s second fiscal quarter, the one big beautiful bill act (“OBBB”) was enacted into law. The legislation includes a number of significant tax-related provisions, including changes affecting corporate tax incentives, international tax provisions, and various business credits and deductions. Pursuant to ASC 740, Income Taxes, the Company will recognize the effects of the OBBB in the third fiscal quarter of 2025, the period in which the legislation was enacted. The Company is currently evaluating the potential impact of the OBBB on its financial statements, provided that, based on its preliminary assessment, it does not expect the legislation to have a material impact.

On July 25, 2025, subsequent to the end of the Company’s second fiscal quarter, the Company provided notice to Patriot National Bancorp, Inc. of its intent to convert the remaining $2.0 million par value in Senior Debt to Common Stock. Subject to market fluctuations, Management anticipates this event to have a positive material impact on third quarter 2025 earnings.

Table of Contents

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the 2024 consolidated audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024. When necessary, reclassifications have been made to prior period data throughout the following discussion and analysis for purposes of comparability. This Quarterly Report on Form 10-Q contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated” and “potential”. Examples of forward looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Unity Bancorp, Inc. that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, in addition to those items contained in the Company’s Annual Report on Form 10-K under Item IA-Risk Factors, as updated by our subsequent filings with the Securities and Exchange Commission, the following: changes in general, economic and market conditions, including the impact of inflation, tariffs, legislative and regulatory conditions and the development of an interest rate environment that adversely affects Unity Bancorp, Inc.’s interest rate spread or other income anticipated from operations and investments and the impact of health or other emergencies on our employees, operations and customers.

Overview

Unity Bancorp, Inc. (the “Parent Company”) is a bank holding company incorporated in New Jersey and registered under the Bank Holding Company Act of 1956, as amended. Its wholly-owned subsidiary, Unity Bank (the “Bank” or, when consolidated with the Parent Company, the “Company”) is chartered by the New Jersey Department of Banking and Insurance and commenced operations on September 13, 1991. The Bank provides a full range of commercial and retail banking services through online banking platforms and its robust branch network located throughout Bergen, Hunterdon, Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania. These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, Small Business Administration ("SBA") and other commercial credits. The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios and to hold other real estate owned if the Bank takes title to property securing loans.

Earnings Summary

Net income totaled $16.5 million, or $1.61 per diluted share for the three months ended June 30, 2025, compared to $9.5 million, or $0.93 per diluted share for the same period in 2024. Return on average assets and return on average common equity for the quarter were 2.51 percent and 21.15 percent, respectively, compared to 1.56 percent and 14.07 percent for the same period in 2024. The increase in net income was partially attributable to pre-tax one-time gains of $3.5 million realized on the sale of securities and $2.0 million release for credit losses on securities, each related to securities of Patriot National Bancorp, Inc. held by the Company. Excluding this one-time event, on a non-GAAP basis, net income totaled $12.2 million, or $1.20 per diluted share for the three months ended June 30, 2025, representing return on average assets and return on average common equity of 1.86% and 15.70%, respectively.

Current quarter highlights include:

●

Net interest income increased 21.9 percent compared to the prior year’s quarter, primarily due to the increased yield and volume on loans and decreased yield on deposits, partially offset by increased volume of deposits.

●

Net interest margin equaled 4.49 percent this quarter compared to 4.01 percent in the prior year’s quarter. The increase was primarily due to the yield on interest-earning assets, complemented by a decrease in the cost of interest-bearing liabilities.

●

The provision for credit losses on loans and off-balance sheet items was $1.9 million for the three months ended June 30, 2025, compared to $0.3 million in provision for credit losses on loans and off-balance sheet items for the prior year’s quarter. The increase was primarily due to loan growth.

Table of Contents

●

During the quarter ended June 30, 2025, with respect to the debt securities held by the Company issued by Patriot National Bancorp, Inc., the Company elected to convert a portion of the principal and past due interest into shares of Patriot National Bancorp, Inc. common stock, bringing the Company’s total holdings to 4.4 million shares. The Company sold all 4.4 million shares, resulting in $6.5 million in net proceeds and a realized gain of $3.5 million. The Company was also able to release $2.0 million from reserve for credit losses on securities. As of June 30, 2025, the Company holds $2.0 million in par of the modified senior debt position in the AFS portfolio with a carrying value of $1.0 million.

●

Noninterest income increased 186.0 percent compared to the prior year’s quarter, primarily due to the realized gain of $3.5 million discussed above. The increased was complemented by increases of branch fee income and gains on sale of mortgage loans, partially offset by decreased gains on sale of SBA loans.

●

Noninterest expense increased 8.7 percent compared to the prior year’s quarter, primarily due to increases in compensation and benefits.

●

The effective tax rate was 23.4 percent compared to 24.7 percent in the prior year’s quarter.

The Company’s performance ratios may be found in the table below.


	For the three months ended June 30,						For the six months ended June 30,
	2025			2024			2025			2024
Net income per common share - Basic (1)	$	1.64		$	0.94		$	2.79		$	1.89
Net income per common share - Diluted (2)	$	1.61		$	0.93		$	2.74		$	1.86
Return on average assets		2.51	%		1.56	%		2.18	%		1.57	%
Return on average equity (3)		21.15	%		14.07	%		18.42	%		14.28	%
Efficiency ratio (4)		42.31	%		47.10	%		42.59	%		47.33	%
Dividend payout ratio (5)		8.70	%		13.98	%		10.22	%		13.98	%
Average equity to average assets (6)		11.85	%		11.09	%		11.82	%		11.01	%

(1)	Defined as net income divided by weighted average shares outstanding.

(2)	Defined as net income divided by the sum of the weighted average shares and the potential dilutive impact of the exercise of outstanding options.

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

(4)	The efficiency ratio is a non-GAAP measure of operational performance. It is defined as noninterest expense divided by the sum of net interest income plus noninterest income less any gains or losses on securities.

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

(6)	Defined as average equity divided by average total assets.

Table of Contents

The Company’s quarterly non-GAAP reconciliation may be found in the table below.


	For the three months ended
(In thousands, except percentages and per share amounts)	June 30, 2025			June 30, 2024
Adjusted net income:
Net income (GAAP)	$	16,491		$	9,454
Non-recurring transactions:
Less: Release of credit losses, securities		(2,036)			-
Less: Net securities gains pertaining to one-time sales		(3,509)			-
Add: Adjusted (provision) for income taxes		1,301			-
Adjusted net income (non-GAAP)	$	12,247		$	9,454

Adjusted net income per common share:
Weighted average common shares outstanding - Basic		10,033			10,016
Weighted average common shares outstanding - Diluted		10,212			10,149

Net income per common share - Basic (GAAP)	$	1.64		$	0.94
Net income per common share - Diluted (GAAP)		1.61			0.93

Adjusted net income per common share - Basic (non-GAAP)	$	1.22		$
Adjusted net income per common share - Diluted (non-GAAP)		1.20

Adjusted return on average assets:
Total average assets		2,638,790			2,436,335

Return on average assets (GAAP)		2.51	%		1.56	%
Adjusted return on average assets (non-GAAP)		1.86

Adjusted return on average equity:
Total average equity		312,795			270,253

Return on average equity (GAAP)		21.15	%		14.07	%
Adjusted return on average equity (non-GAAP)		15.70

Net Interest Income

The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on interest-earning assets and fees earned on loans and interest paid on interest-bearing liabilities. Interest-earning assets include loans to individuals and businesses, investment securities and interest-earning deposits. Interest-bearing liabilities include interest-bearing demand, savings, brokered and time deposits, FHLB advances and other borrowings.

During the three months ended June 30, 2025, tax-equivalent net interest income amounted to $28.6 million, an increase of $5.1 million or 21.9 percent when compared to the same period in 2024. The net interest margin increased 48 basis points to 4.49 percent for the three months ended June 30, 2025, compared to 4.01 percent for the same period in 2024.

During the three months ended June 30, 2025, tax-equivalent interest income was $42.6 million, an increase of $4.6 million or 12.1 percent when compared to the same period in 2024. This increase was mainly driven by increases in the yield of loans and the balance of average loans.

Table of Contents

●

Of the $4.6 million increase in interest income on a tax-equivalent basis, $1.5 million is due to an increase in yields on earning assets and $3.1 million due to the increased average volume of interest-earning assets.

●

The average volume of interest-earning assets increased $202.0 million to $2.6 billion for the second quarter of 2025 compared to $2.3 billion in 2024. This was due primarily to a $192.9 million increase in average loans. The increase was complemented by a $11.7 million increase in average interest-bearing deposits, partially offset by $2.3 million and $0.3 million decrease in investment securities and average FHLB stock, respectively.

●

The yield on total interest-earning assets increased 19 basis points to 6.70 percent for the three months ended June 30, 2025, when compared to the same period in 2024. The yield on the loan portfolio increased 25 basis points to 6.75 percent.

Total interest expense was $14.0 million for the three months ended June 30, 2025, a decrease of $0.5 million or 3.6 percent compared to the same period in 2024. This decrease was driven by the decrease in rate paid on interest bearing deposits and borrowed funds and subordinated debentures, which was partially offset by an increase in the volume of time deposits.

●

The $0.5 million decrease in interest expense resulted from a $1.7 million decrease in rate on average interest-bearing liabilities, partially offset by an increase of $1.2 million in volume and a shift in the mix of liability categories.

●

The average cost of interest-bearing liabilities decreased 32 basis points to 3.05 percent for the three months ended June 30, 2025 compared to 2024. The cost of interest-bearing deposits decreased 35 basis points from the prior year’s period.

●

Interest-bearing liabilities averaged $1.8 billion during the three months ended June 30 2025, an increase of $113.6 million, compared to the same period in 2024. The increase in interest-bearing liabilities was primarily due to an increase in time deposits and interest-bearing demand deposits, partially offset by a decrease in brokered and savings deposits and borrowed funds.

During the six months ended June 30, 2025, tax-equivalent interest income was $83.4 million, an increase of $7.5 million or 9.9 percent when compared to the same period in the prior year. This increase was mainly driven by the increase in the rates and volume on loans, partially offset by lower rates on securities, FHLB stock and interest-bearing deposits.

●

Of the $7.5 million net increase in interest income on a tax-equivalent basis, $2.8 million is due to an increase in yields on the earning assets and $4.7 million is due to an increase to average earning assets.

●

The average volume of interest-earning assets increased $167.5 million to $2.5 billion for the six months ended June 30, 2025 compared to $2.3 billion for the same period in 2024. This was due primarily to a $160.9 million increase in average loans, $5.7 million increase in interest-bearing deposits, $2.8 million increase in average investment securities, partially offset by a $1.9 million decrease in FHLB stock.

●

The yield on total interest-earning assets increased 18 basis points to 6.69 percent for the six months ended June 30, 2025 when compared to the same period in 2024. The yield on the loan portfolio increased 25 basis points to 6.73 percent.

Total interest expense was $27.6 million for the six months ended June 30, 2025, a decrease of $1.1 million or 3.7 percent compared to the same period in 2024. This decrease reflects decreased rates on interest-bearing deposits along with a decreased reliance on borrowed funds.

●

Of the $1.1 million decrease in interest expense, $2.9 million was due to the decreased rate of interest-bearing liabilities, partially offset by $1.8 million due to increased volumes of interest-bearing liabilities.

●

Interest-bearing liabilities averaged $1.8 billion for the six months ended June 30, 2025, an increase of $91.7 million or 5.3 percent compared to the prior year’s period.

●

The average cost of total interest-bearing liabilities decreased 28 basis points to 3.04 percent for the six months ended June 30, 2025. The cost of interest-bearing deposits decreased 24 basis points to 2.99 percent and the cost of borrowed funds and subordinated debentures decreased 40 basis points to 3.71 percent.

Table of Contents

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

Table of Contents

Consolidated Average Balance Sheets

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis, assuming a federal tax rate of 21 percent.)


	For the three months ended
	June 30, 2025						June 30, 2024
	Average						Average
	Balance		Interest		Rate/Yield		Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Interest-bearing deposits	$	43,985	$	487	4.44	%	$	32,237	$	435	5.43	%
FHLB stock		7,626		130	6.82			7,951		180	9.12
Securities:
Taxable		138,283		1,735	5.02			140,501		1,749	4.98
Tax-exempt		1,471		20	5.59			1,571		18	4.55
Total securities (A)		139,754		1,755	5.02			142,072		1,767	4.97
Loans:
SBA loans		48,646		856	7.04			57,704		1,287	8.92
Commercial loans		1,497,021		25,736	6.80			1,300,754		21,160	6.44
Residential mortgage loans		658,239		10,390	6.31			625,086		9,316	5.96
Consumer loans		82,265		1,491	7.17			69,943		1,390	7.86
Residential construction loans		72,525		1,758	9.59			112,272		2,453	8.64
Total loans (B)		2,358,696		40,231	6.75			2,165,759		35,606	6.50
Total interest-earning assets	$	2,550,061	$	42,603	6.70	%	$	2,348,019	$	37,988	6.51	%

Noninterest-earning assets:
Cash and due from banks		21,601						23,547
Allowance for credit losses		(28,067)						(26,202)
Other assets		95,195						90,971
Total noninterest-earning assets		88,729						88,316
Total assets	$	2,638,790					$	2,436,335

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	354,353	$	1,898	2.15	%	$	337,629	$	2,010	2.39	%
Savings deposits		487,307		2,718	2.24			504,685		3,349	2.67
Brokered deposits		207,128		1,786	3.46			228,276		2,181	3.84
Time deposits		682,426		6,560	3.86			535,444		5,832	4.38
Total interest-bearing deposits		1,731,214		12,962	3.00			1,606,034		13,372	3.35
Borrowed funds and subordinated debentures		118,166		1,081	3.62			129,763		1,191	3.63
Total interest-bearing liabilities	$	1,849,380	$	14,043	3.05	%	$	1,735,797	$	14,563	3.37	%

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		442,151						401,146
Other liabilities		34,464						29,139
Total noninterest-bearing liabilities		476,615						430,285
Total shareholders' equity		312,795						270,253
Total liabilities and shareholders' equity	$	2,638,790					$	2,436,335

Net interest spread			$	28,560	3.66	%			$	23,425	3.13	%
Tax-equivalent basis adjustment				(3)						(1)
Net interest income			$	28,557					$	23,424
Net interest margin					4.49	%					4.01	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis, assuming a federal tax rate of 21 percent.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

Table of Contents


	For the six months ended
	June 30, 2025						June 30, 2024
	Average						Average
	balance		Interest		Rate/Yield		balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Interest-bearing deposits	$	37,161	$	819	4.44	%	$	31,461	$	855	5.46	%
FHLB stock		7,543		312	8.34			9,476		460	9.76
Securities:
Taxable		140,552		3,521	5.01			137,688		3,598	5.23
Tax-exempt		1,533		38	5.07			1,615		36	4.51
Total securities (A)		142,085		3,559	5.01			139,303		3,634	5.22
Loans
SBA loans		49,139		1,790	7.25			59,020		2,628	8.86
Commercial loans		1,472,148		49,996	6.75			1,291,176		41,990	6.43
Residential mortgage loans		649,041		20,337	6.27			625,269		18,535	5.93
Consumer loans		78,730		2,837	7.17			70,096		2,792	7.88
Residential construction loans		78,437		3,754	9.52			120,996		5,031	8.22
Total loans (B)		2,327,495		78,714	6.73			2,166,557		70,976	6.48
Total interest-earning assets	$	2,514,284	$	83,404	6.69	%	$	2,346,797	$	75,925	6.51	%

Noninterest-earning assets:
Cash and due from banks		22,354						23,383
Allowance for credit losses		(27,763)						(26,130)
Other assets		93,385						92,486
Total noninterest-earning assets		87,976						89,739
Total assets	$	2,602,260					$	2,436,536

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	348,206	$	3,520	2.04	%	$	331,229	$	3,720	2.26	%
Savings deposits		491,158		5,311	2.18			503,878		6,493	2.59
Brokered deposits		210,305		3,573	3.43			235,934		4,476	3.82
Time deposits		660,304		12,975	3.96			500,305		10,531	4.23
Total interest-bearing deposits		1,709,973		25,379	2.99			1,571,346		25,220	3.23
Borrowed funds and subordinated debentures		118,648		2,214	3.71			165,550		3,439	4.11
Total interest-bearing liabilities	$	1,828,621	$	27,593	3.04	%	$	1,736,896	$	28,659	3.32	%

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		433,906						402,497
Other liabilities		32,161						28,943
Total noninterest-bearing liabilities		466,067						431,440
Total shareholders’ equity		307,572						268,200
Total liabilities and shareholders’ equity	$	2,602,260					$	2,436,536

Net interest spread			$	55,811	3.65	%			$	47,266	3.19	%
Tax-equivalent basis adjustment				(3)						(1)
Net interest income			$	55,808					$	47,265
Net interest margin					4.48	%					4.05	%

Table of Contents

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis, assuming a federal tax rate of 21 percent.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

The rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volume and rates over the periods presented. Changes that are not solely due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Amounts have been computed on a tax-equivalent basis, assuming a federal income tax rate of 21 percent.


	For the three months ended June 30, 2025 versus June 30, 2024						For the six months ended June 30, 2025 versus June 30, 2024
	Increase (decrease) due to change in:						Increase (decrease) due to change in:
(In thousands on a tax-equivalent basis)	Volume Mix		Rate		Net		Volume Mix		Rate		Net
Interest income:
Interest-bearing deposits	$	141	$	(89)	$	52	$	139	$	(175)	$	(36)
FHLB stock		(7)		(43)		(50)		(86)		(62)		(148)
Securities		(33)		17		(16)		72		(151)		(79)
Loans		2,967		1,658		4,625		4,597		3,141		7,738
Total interest income	$	3,068	$	1,543	$	4,611	$	4,722	$	2,753	$	7,475
Interest expense:
Demand deposits	$	97	$	(209)	$	(112)	$	180	$	(380)	$	(200)
Savings deposits		(111)		(520)		(631)		(161)		(1,021)		(1,182)
Brokered deposits		(191)		(204)		(395)		(466)		(437)		(903)
Time deposits		1,477		(749)		728		3,154		(710)		2,444
Total interest-bearing deposits		1,272		(1,682)		(410)		2,707		(2,548)		159
Borrowed funds and subordinated debentures		(107)		(3)		(110)		(912)		(313)		(1,225)
Total interest expense		1,165		(1,685)		(520)		1,795		(2,861)		(1,066)
Net interest income - fully tax-equivalent	$	1,903	$	3,228	$	5,131	$	2,927	$	5,614	$	8,541
Increase in tax-equivalent adjustment						(2)						(2)
Net interest income					$	5,133					$	8,543

Provision for Credit Losses

The provision for credit losses for loans was $1.7 and $3.1 million during the three and six months ended June 30, 2025, compared to $0.3 million and $0.9 for the same periods in 2024. The increase was primarily driven by increases in the general reserve calculation due to loan growth.

The provision for credit losses for off-balance sheet exposures totaled $0.1 million for the three and six months ended June 30, 2025, compared to $13 thousand and $15 thousand for the same periods in 2024.

There was a $2.0 million release in provision for credit losses on securities for the three and six months ended June 30, 2025, compared to a $0.6 million provision for the same periods in 2024.

Each period’s credit loss provision is the result of Management’s analysis of the loan portfolio and reflects changes in the size and composition of the portfolio, the level of net charge-offs, delinquencies, current and expected economic conditions and other internal and external factors impacting the risk within the loan portfolio. Additional information may be found under the captions “Financial Condition - Asset Quality” and “Financial Condition - Allowance for Credit Losses and Reserve for Unfunded Loan Commitments.” The current provision is considered appropriate under Management’s assessment of the adequacy of the allowance for credit losses.

Table of Contents

Income Tax Expense

For the quarter ended June 30, 2025, the Company reported income tax expense of $5.0 million for an effective tax rate of 23.4 percent, compared to income tax expense of $3.1 million and an effective tax rate of 24.7 percent for the prior year’s quarter. For the six months ended June 30, 2025, the Company reported income tax expense of $8.9 million for an effective tax rate of 24.0 percent, compared to an income tax expense of $6.3 million and an effective tax rate of 24.9 percent for the six months ended June 30, 2024.

Financial Condition at June 30, 2025

Total assets increased $274.5 million or 10.3 percent, to $2.9 billion at June 30, 2025, when compared to year end 2024. This increase was primarily due to increases of $121.9 million in gross loans, $113.3 million in cash and cash equivalents, $39.4 million in prepaid expenses and other assets and $7.2 million in FHLB stock, partially offset by a decrease of $5.7 million in securities.

Total shareholders’ equity increased $24.3 million, when compared to year end 2024, primarily due to earnings and an increase in common stock, partially offset by dividends paid on common stock and the repurchase of shares during the six months ended June 30, 2025.

These fluctuations are discussed in further detail in the paragraphs that follow.

Securities Portfolio

The Company’s securities portfolio consists of AFS debt securities, HTM debt securities and equity investments. Management determines the appropriate security classification of AFS and HTM at the time of purchase. The investment securities portfolio is maintained for asset-liability management purposes, as well as for liquidity and earnings purposes.

AFS debt securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. AFS debt securities consist primarily of obligations of U.S. Government, state and political subdivisions, mortgage-backed securities, asset-backed securities and corporate and other securities.

AFS debt securities totaled $92.5 million at June 30, 2025, a decrease of $1.4 million or 1.5 percent, compared to $93.9 million at December 31, 2024. This net decrease was the result of:

●

$10.7 million in principal payments, calls and maturities;

●

$1.0 million in proceeds from sales;

●

$0.9 million transfer of senior debt security modification to equity (net of valuation allowance);

●

Partially offset by $10.5 million in purchases; and

●

$0.7 million in appreciation in the market value of the portfolio. At June 30, 2025, the portfolio had a net unrealized loss of $2.8 million compared to a net unrealized loss of $3.5 million at December 31, 2024. These net unrealized losses are reflected net of tax in shareholder’s equity as accumulated other comprehensive loss.

The weighted average life of AFS debt securities, adjusted for prepayments, amounted to 4.6 years and 4.9 years at June 30, 2025 and December 31, 2024, respectively. The effective duration of AFS debt securities amounted to 1.7 and 1.4 years at June 30, 2025 and December 31, 2024, respectively.

HTM debt securities, which are carried at amortized cost, are investments for which there is the positive intent and ability to hold to maturity. The portfolio is primarily comprised of obligations of U.S. Government, state and political subdivisions and mortgage-backed securities.

Table of Contents

HTM debt securities were $36.4 million at June 30, 2025, a decrease of $4.9 million or 11.8 percent, compared to $41.3 million at December 31, 2024. The decrease was due to:

●

$4.9 million in principal payments

The weighted average life of HTM securities, adjusted for prepayments, amounted to 14.7 years and 14.3 years at June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025 and December 31, 2024, the fair value of HTM securities was $29.7 million and $33.8 million, respectively. The effective duration of HTM securities amounted to 10.9 years and 9.0 years at June 30, 2025 and December 31, 2024, respectively.

Equity securities are investments carried at fair value that may be sold in response to changing market and interest rate conditions or for other business purposes. Activity in this portfolio is undertaken primarily to manage liquidity and to take advantage of market conditions that create economically attractive returns and as an additional source of earnings. Equity securities consist of Community Reinvestment Act ("CRA") mutual fund investments and the equity holdings of other financial institutions.

Equity securities totaled $10.4 million at June 30, 2025, an increase of $0.6 million or 5.8 percent, compared to $9.9 million at December 31, 2024. This net increase was the result of:

●

$3.6 million in realized gains on sales,

●

$2.0 million in release of provision for credit losses on securities,

●

$0.9 million transfer of senior debt security modification to equity (net of valuation allowance),

●

$0.5 million in purchases,

●

Partially offset by $6.4 million in sales.

Securities with a carrying value of $60.6 million and $11.5 million at June 30, 2025 and December 31, 2024, respectively, were held at the FHLB or FRB and were pledged for borrowing purposes; however, there were no securities borrowered against at June 30, 2025 and December 31, 2024.

Approximately 56 percent of the total debt security investment portfolio had a fixed rate of interest at June 30, 2025.

See Note 6 to the accompanying Consolidated Financial Statements for more information regarding Securities.

Loan Portfolio

The loan portfolio, which represents the Company’s largest asset group, is a significant source of both interest and fee income. The portfolio consists of SBA, commercial, residential mortgage, consumer and residential construction loans. Each of these segments is subject to differing levels of credit and interest rate risk.

Total loans increased $121.9 million or 5.4 percent to $2.4 billion at June 30, 2025, compared to year end 2024. Commercial, residential mortgage, consumer and loans held for sale increased by $99.5 million, $35.6 million, $5.9 million and $1.2 million, respectively. This was offset by decreases of $20.0 million and $0.3 million in residential construction and SBA held for investment, respectively.

Table of Contents

Below is a table of the geographic loan allocation of the Bank’s Commercial loan portfolio as of June 30, 2025:


	New Jersey		New York		Pennsylvania		Other
Commercial loans
SBA 504	89.6	%	1.4	%	8.7	%	0.3	%
Commercial construction	92.5		4.5		3.0		—
Commercial & industrial	91.8		2.2		4.0		2.0
Commercial mortgage - owner occupied	86.4		7.1		3.3		3.2
Commercial mortgage - nonowner occupied	89.9		3.8		0.6		5.7
Other	83.2		15.7		0.7		0.4
Total	88.4	%	5.7	%	2.5	%	3.4	%

Average loans increased $160.9 million or 7.4 percent to $2.3 billion the six months ended June 30, 2025 from $2.2 billion for the same period in 2024. The increase in average loans was due to increases in average commercial, residential mortgages and consumer loans, partially offset by decreases in average residential construction and SBA loans. The yield on the overall loan portfolio increased 25 basis points to 6.73 percent for the six months ended June 30, 2025 when compared to the same period in the prior year.

SBA 7(a) loans, on which the SBA historically has provided guarantees of up to 90 percent of the principal balance, are considered a higher risk loan product for the Company than its other loan products. These loans are made for the purposes of providing working capital or financing the purchase of equipment, inventory or commercial real estate. Generally, an SBA 7(a) loan has a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the SBA provides the guarantee. The deficiency may be a higher loan to value (“LTV”) ratio, lower debt service coverage (“DSC”) ratio or weak personal financial guarantees. In addition, many SBA 7(a) loans are for startup businesses where there is no history or financial information. Finally, many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work with the Bank on a single transaction. The guaranteed portion of the Company’s SBA loans may be sold in the secondary market.

SBA loans held for sale, carried at the lower of cost or market, amounted to $7.8 million at June 30, 2025, a decrease of $4.4 million from $12.2 million at December 31, 2024. SBA 7(a) loans held for investment amounted to $38.1 million at June 30, 2025, a decrease of $0.2 million from $38.3 million at December 31, 2024. The yield on SBA loans, which are generally floating and adjust quarterly to the Prime rate, was 7.25 percent for the six months ended June 30, 2025 compared to 8.86 percent for the same period in the prior year. The Company sold $2.7 million of SBA loans during the three months ended June 30, 2025.

The guarantee rates on SBA 7(a) loans range from 50 percent to 90 percent, with the majority of the portfolio having a guarantee rate of 75 percent at origination. The guarantee rates are determined by the SBA and can vary from year to year depending on government funding and the goals of the SBA program. Approximately $53.9 million and $72.6 million in SBA loans were sold but serviced by the Bank at June 30, 2025 and December 31, 2024, respectively, and are not included on the Company’s Balance Sheet. There is no relationship or correlation between the guarantee percentages and the level of charge-offs and recoveries on the Company’s SBA 7(a) loans. Charge-offs taken on SBA 7(a) loans effect the unguaranteed portion of the loan. SBA loans are underwritten to the same credit standards irrespective of the guarantee percentage.

Commercial loans are generally made in the Company’s marketplace for the purpose of providing working capital, financing the purchase of equipment, inventory or commercial real estate and for other business purposes. These loans amounted to $1.5 billion at June 30, 2025, an increase of $99.5 million from year end 2024. The yield on commercial loans was 6.75 percent for the six months ended June 30, 2025, compared to 6.43 percent for the same period in 2024. In most cases, these loans are secured by underlying real estate collateral. SBA 504 program loans, which consist of real estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the property, are included in the Commercial loan portfolio. At June 30, 2025, Commercial Mortgage – Owner Occupied, Commercial Mortgage – Nonowner Occupied and Commercial Construction represent 26.5 percent, 19.9 percent and 4.3 percent of the Company’s loan portfolio, respectively. The Company will generally not exceed a

Table of Contents

combined loan-to-value ratio of 75 percent at origination. Unity continually evaluates and monitors its credit risk policies and procedures. Further, Unity continuously monitors loan portfolio concentrations across key credit characteristics (e.g., state and local geographies, industries, etc.). Loans are subject to periodic loan review procedures in accordance with the Company’s Loan Policy. A portion of the loan reviews are performed by an independent and external loan review function.

Residential mortgage loans consist of loans secured by 1 to 4 family residential properties. These loans amounted to $666.6 million at June 30, 2025, an increase of $35.6 million from year end 2024. Sales of conforming mortgage loans totaled $23.6 million for the six months ended June 30, 2025, compared to sales of $24.7 million in the prior year period. The yield on residential mortgages was 6.27 percent for the six months ended June 30, 2025, compared to 5.93 percent for the same period in 2024. Residential mortgage loans maintained in portfolio are generally to individuals that do not qualify for conventional financing. In extending credit to this category of borrowers, the Bank considers other mitigating factors such as credit history, equity and liquid reserves of the borrower. As a result, the residential mortgage loan portfolio of the Bank includes adjustable rate mortgages with rates that exceed the rates on conventional fixed-rate mortgage loan products but which are not considered high priced mortgages.

Consumer loans consist of home equity loans and loans for the purpose of financing the purchase of consumer goods, home improvements and other personal needs, and are generally secured by 1 to 4 family residences. These loans amounted to $82.6 million at June 30, 2025, an increase of $5.9 million from year end 2024. The yield on consumer loans was 7.17 percent for the six months ended June 30, 2025, compared to 7.88 percent for the same period in 2024.

Residential construction loans consist of short-term loans for the purpose of funding the costs of building a home. These loans amounted to $70.9 million at June 30, 2025, a decrease of $20.0 million from year end 2024. The yield on residential construction loans was 9.52 percent for the six months ended June 30, 2025, compared to 8.22 percent for the same period in 2024.

There are no concentrations of loans to any borrowers or group of borrowers exceeding 10 percent of the total loan portfolio.

In the normal course of business, the Company may originate loan products whose terms could give rise to additional credit risk. Interest-only loans, loans with high LTV, construction loans with payments made from interest reserves and multiple loans supported by the same collateral (e.g. home equity loans) are examples of such products. However, these products are not material to the Company’s financial position and are closely managed via credit controls designed to mitigate their additional inherent risk. Management does not believe that these products create a concentration of credit risk in the Company’s loan portfolio. The Company does not have any option adjustable rate mortgage loans.

The majority of the Company’s loans are secured by real estate. Declines in the market values of real estate in the Company’s trade area impact the value of the collateral securing its loans. This could lead to greater losses in the event of defaults on loans secured by real estate. At June 30, 2025 and December 31, 2024, approximately 96 percent of the Company’s loan portfolio was secured by real estate.

Table of Contents

The following table sets forth the classification of loans by loan type, including unearned fees and deferred costs and excluding the allowance for credit losses as of June 30, 2025 and December 31, 2024:


In thousands, except percentages	June 30, 2025		%	December 31, 2024		%
Loans held for sale	$	13,352	0.6%	$	12,163	0.5%
SBA loans		38,059	1.6%		38,309	1.7%
Commercial loans
Commercial construction		101,990	4.3%		130,193	5.8%
SBA 504		49,947	2.1%		48,479	2.1%
Commercial & industrial		164,176	6.9%		147,186	6.5%
Commercial mortgage - owner occupied		631,441	26.5%		577,541	25.6%
Commercial mortgage - nonowner occupied		474,499	19.9%		428,600	19.0%
Other		89,076	3.7%		79,630	3.5%
Total commercial loans		1,511,129	63.4%		1,411,629	62.5%
Residential mortgage loans		666,560	28.0%		630,927	27.9%
Consumer loans
Home equity		79,828	3.3%		73,223	3.2%
Consumer other		2,736	0.1%		3,488	0.2%
Total consumer loans		82,564	3.4%		76,711	3.4%
Residential construction		70,930	3.0%		90,918	4.0%
Total gross loans	$	2,382,594	100.0%	$	2,260,657	100.0%

For additional information on loans, see Note 7 to the Consolidated Financial Statements.

Asset Quality

Nonaccrual loans were $15.8 million at June 30, 2025, a $2.7 million increase from $13.1 million at December 31, 2024 and a $3.7 million increase from $12.1 million at June 30, 2024, respectively. Since year end 2024, nonaccrual loans in the residential mortgage, SBA and commercial segments increased, offset by a decrease in nonaccrual loans in the residential construction segment. In addition, there was $2.9 million in loans past due 90 days or more and still accruing interest at June 30, 2025, compared to $0.8 million at December 31, 2024 and $0.4 million at June 30, 2024.

The following table set forth an analysis of nonaccrual loans as of June 30, 2025 based off of geographical location:

Residential

(in thousands)

SBA

Commercial

Mortgage

Construction

Total

Ending balance:

New Jersey

1,370

3,479

6,046

171

11,066

New York

2,720

—

563

—

3,283

Other

1,371

—

1,491

Total

4,177

3,512

7,980

171

15,840

The Company also monitors potential problem loans. Potential problem loans are those loans where information about possible credit problems of borrowers causes Management to have doubts as to the ability of such borrowers to comply with loan repayment terms. These loans are categorized by their non-passing risk rating and performing loan status. Potential problem loans totaled $12.1 million at June 30, 2025, a decrease of $2.5 million from $14.6 million at December 31, 2024.

Table of Contents

During the quarter ended June 30, 2025, with respect to the debt securities held by Unity issued by Patriot

National Bancorp, Inc., Unity elected to convert a portion of the principal and past due interest into shares of

Patriot National Bancorp, Inc. common stock, bringing Unity’s total holdings to 4.4 million shares. Subsequently,

Unity sold all 4.4 million shares, resulting in $6.5 million in net proceeds and a realized gain of $3.5 million. Unity was also able to release $2.0 million from reserve for credit losses on securities. As of June 30, 2025, Unity holds $2.0 million in par of the modified senior debt position in the AFS portfolio with a carrying value of $1.0 million.

See Note 7 to the accompanying Consolidated Financial Statements for more information regarding Asset Quality.

Allowance for Credit Losses and Reserve for Unfunded Loan Commitments

The allowance for credit losses on loans totaled $29.0 million at June 30, 2025, compared to $26.8 million at December 31, 2024 and $26.1 million at June 30, 2024, with a resulting allowance to total loan ratio of 1.22 percent at June 30, 2025, compared to 1.18 percent at December 31, 2024 and 1.20 percent at June 30, 2024. Net charge-offs amounted to $0.9 million for the six months ended June 30, 2025, compared to net charge-offs of $0.7 million for the same period in 2024.

The Company maintains a reserve for unfunded loan commitments at a level that Management believes is adequate to absorb estimated expected losses. Adjustments to the reserve are made through provision for credit losses and applied to the reserve which is classified in Other liabilities. At June 30, 2025 the commitment reserve totaled $0.7 million and $0.6 million at December 31, 2024.

See Note 8 to the accompanying Consolidated Financial Statements for more information regarding the Allowance for Credit Losses and Reserve for Unfunded Loan Commitments.

Deposits

Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, savings deposits and time deposits, are the primary source of the Company’s funds. The Company offers a variety of products designed to attract and retain customers, with primary focus on building and expanding relationships. The Company continues to focus on establishing a comprehensive relationship with business borrowers, seeking deposits as well as lending relationships.

Total deposits increased $87.1 million to $2.2 billion at June 30, 2025 from year end 2024. This increase was due to increases of $28.6 million in time deposits, $23.8 million in noninterest-bearing demand deposits, $20.1 million in brokered deposits, $14.5 million in savings deposits and $0.1 million in interest-bearing demand deposits. The change in the composition of the portfolio from December 31, 2024 reflects a 9.2 percent increase in brokered deposits, a 5.4 percent increase in noninterest-bearing demand deposits, a 4.6 percent increase in time deposits and a 3.0 percent increase in savings deposits.

As of June 30, 2025, 19.5 percent of total deposits were uninsured or uncollateralized. The Company’s deposit composition as of June 30, 2025, consisted of 21.2 percent in noninterest-bearing demand deposits, 16.2 percent in interest-bearing demand deposits, 23.2 percent in savings deposits and 39.4 percent in time deposits.

Borrowed Funds and Subordinated Debentures

As part of the Company’s overall funding and liquidity management program, from time to time the Company borrows from the Federal Home Loan Bank of New York. Residential mortgages and commercial loans collateralize these borrowings.

Table of Contents

Borrowed funds and subordinated debentures totaled $387.4 million and $230.8 million at June 30, 2025 and December 31, 2024, respectively, and are broken down in the following table:


(In thousands)	June 30, 2025		December 31, 2024
FHLB borrowings:
Non-overnight, fixed rate advances	$	47,107	$	20,504
Overnight advances		250,000		140,000
Puttable advances		80,000		60,000
Subordinated debentures		10,310		10,310
Total borrowed funds and subordinated debentures	$	387,417	$	230,814

In June 2025, the FHLB issued a $205.0 million municipal deposit letter of credit in the name of Unity Bank naming the New Jersey Department of Banking and Insurance as beneficiary, to secure municipal deposits as required under New Jersey law. The FHLB issued an additional $28.0 million municipal deposit letter of credit in the name of Unity Bank naming certain townships in Pennsylvania as beneficiary, to secure municipal deposits as required under Pennsylvania law.

At June 30, 2025, the Company had $212.0 million of additional credit available at the FHLB, $225.8 million of additional credit available at the FRB and $20.0 million of additional credit available from other sources. Pledging additional collateral in the form of 1 to 4 family residential mortgages, commercial loans and investment securities can increase the lines with the FHLB and FRB.

For the six months ended June 30, 2025, average FHLB Borrowings were $108.3 million with a weighted average cost of 3.54%.

Subordinated Debentures

On July 24, 2006, Unity (NJ) Statutory Trust II, a statutory business trust and wholly-owned subsidiary of Unity Bancorp, Inc., issued $10.0 million of floating rate capital trust pass through securities to investors due on July 24, 2036. The subordinated debentures are redeemable in whole or part. The floating interest rate on the subordinated debentures is the daily compounded SOFR rate with a 0.262 percent spread. The floating interest rate was 6.175 percent at June 30, 2025 and 6.189 percent at December 31, 2024.

Market Risk

Market risk for the Company is primarily limited to interest rate risk, which is the impact that changes in interest rates would have on future earnings. The Company’s Asset and Liability Management Committee (“ALCO”) manages this risk. The principal objectives of ALCO are to establish prudent risk management guidelines, evaluate and control the level of interest rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment and capital and liquidity requirements and actively manage risk within Board-approved guidelines. ALCO reviews the maturities and repricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions and interest rate levels.

Table of Contents

The following table presents the Company’s Economic Value of Equity (“EVE”) and Net Interest Income (“NII”) sensitivity exposure related to an instantaneous and sustained parallel shift in market interest rate of 100, 200 and 300 bps, which were all in compliance with Board approved tolerances at June 30, 2025 and December 31, 2024:


	Estimated Increase/ (Decrease) in EVE						Estimated 12 mo. Increase/ (Decrease) In NII
(In thousands, except percentages)	EVE		Amount		Percent		NII		Amount		Percent
June 30, 2025
+300	$	304,360	$	(64,686)	(17.53)	%	$	109,107	$	(8,530)	(7.25)	%
+200		327,302		(41,744)	(11.31)			112,215		(5,422)	(4.61)
+100		350,002		(19,044)	(5.16)			115,033		(2,604)	(2.21)
0		369,046		—	—			117,637		—	—
-100		369,308		262	0.07			118,506		869	0.74
-200		376,575		7,529	2.04			118,091		454	0.39
-300		366,912		(2,134)	(0.58)			117,133		(504)	(0.43)
December 31, 2024
+300	$	275,851	$	(68,710)	(19.94)	%	$	104,992	$	(7,328)	(6.52)	%
+200		299,233		(45,328)	(13.16)			107,470		(4,850)	(4.32)
+100		322,622		(21,939)	(6.37)			109,726		(2,594)	(2.31)
0		344,561		—	—			112,320		—	—
-100		344,853		292	0.08			113,029		709	0.63
-200		351,231		6,670	1.94			112,133		(187)	(0.17)
-300		340,076		(4,485)	(1.30)			111,365		(955)	(0.85)

Off Balance Sheet Arrangements and Contractual Obligations

The following table shows the amounts and expected maturities or payment periods of off-balance sheet arrangements and contractual obligations as of June 30, 2025:


	One year		One to		Three to		Over five
(In thousands)	or less		three years		five years		years		Total
Off-balance sheet arrangements:
Standby letters of credit	$	2,340	$	879	$	237	$	1,783	$	5,239
Contractual obligations:
Time deposits		756,661		103,360		1,823		108		861,952
Borrowed funds and subordinated debentures		287,107		5,000		85,000		10,310		387,417
Operating leases		637		1,090		744		2,069		4,540
Total off-balance sheet arrangements and contractual obligations	$	1,046,745	$	110,329	$	87,804	$	14,270	$	1,259,148

Standby letters of credit represent guarantees of payment issued by the Bank on behalf of a client that is used as “payments of last resort” should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are typically short-term in duration, maturing in one year or less.

Time deposits have stated maturity dates and include brokered time deposits.

Borrowed funds and subordinated debentures include fixed and adjustable rate borrowings from the Federal Home Loan Bank and subordinated debentures. The borrowings have defined terms and under certain circumstances are callable at the option of the lender.

Liquidity

Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace. Our liquidity is monitored by Management and the Board of Directors, which

Table of Contents

reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient asset-based liquidity to cover potential funding requirements in order to minimize our dependence on volatile and potentially unstable funding markets.

The principal sources of funds at the Bank are deposits, scheduled amortization and prepayments of investment and loan principal, sales and maturities of investment securities, additional borrowings and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit inflows and outflows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Consolidated Statement of Cash Flows provides detail on the Company’s sources and uses of cash, as well as an indication of the Company’s ability to maintain an adequate level of liquidity. At June 30, 2025, the balance of cash and cash equivalents was $293.7 million, an increase of $113.3 million from December 31, 2024. A discussion of on- and off-balance sheet liquidity follows.

●

Securities. The Company’s available for sale investment portfolio amounted to $92.5 million and $93.9 million at June 30, 2025 and December 31, 2024, respectively.

●

Loans. Loans held for sale portfolio amounted to $13.4 million and $12.2 million at June 30, 2025 and December 31, 2024, respectively. Sales of these loans provide an additional source of liquidity for the Company.

●

Commitments. The Company was committed to advance approximately $457.5 million to its borrowers as of June 30, 2025, compared to $322.3 million at December 31, 2024. At June 30, 2025, $225.8 million of these commitments expire within one year, compared to $167.1 million at December 31, 2024. The Company had $5.2 million and $5.5 million in standby letters of credit at June 30, 2025 and December 31, 2024, which are included in the commitments amount noted above. The estimated fair value of these guarantees is not significant. The Company believes it has the necessary liquidity to honor all commitments. Many of these commitments will expire and never be funded.

●

Deposits. As of June 30, 2025, deposits included $403.4 million of government deposits, as compared to $400.6 million at year end 2024. These deposits are generally short in duration and are very sensitive to price competition. The Company believes that the current level of these types of deposits is appropriate. Within this portfolio the average deposit size was $7.2 million as of June 30, 2025.

●

Borrowed Funds. Total FHLB borrowings amounted to $377.1 million and $220.5 million as of June 30, 2025 and December 31, 2024, respectively. As a member of the Federal Home Loan Bank of New York, the Company can borrow additional funds based on the market value of collateral pledged. At June 30, 2025, pledging provided an additional $212.0 million in borrowing potential from the FHLB, $225.8 million from the FRB and $20.0 million from other sources. In addition, the Company can pledge additional collateral in the form of 1 to 4 family residential mortgages, commercial loans or investment securities to increase these lines with the FHLB and FRB. As of June 30, 2025, total available funding plus cash on hand represented 168.8% of uninsured or uncollateralized deposits.

Regulatory Capital

Consistent with our goal to operate as a sound and profitable financial organization, Unity Bancorp, Inc. and Unity Bank actively seek to maintain our well capitalized status in accordance with regulatory standards. As of June 30, 2025, Unity Bank exceeded all capital requirements of the federal banking regulators and was considered well capitalized.

See Note 10 to the accompanying Consolidated Financial Statements for more information regarding Regulatory Capital.

Table of Contents

Shareholders’ Equity

Repurchase Plan

On August 1, 2024, the Board authorized a repurchase plan permitting the repurchase of up to 500 thousand shares, or approximately 5.0% of the Company’s outstanding common stock, in addition to the previously approved repurchase plan authorizing the repurchase of up to 500 thousand shares of common stock. For the quarter ended June 30, 2025 50 thousand shares were repurchased at a weighted average price of $38.78, leaving 635 thousand shares available for repurchase. For the quarter ended June 30, 2024, a total of 69 thousand shares were repurchased at an average price of $26.77. The timing and amount of additional purchases, if any, will depend upon several factors including the Company’s capital needs, the Company’s liquidity position, the performance of its loan portfolio, the need for additional provisions for credit losses and the market price of the Company’s stock.


				Total Number of	Maximum Number
	Total		Weighted	Shares Purchased	of Shares that may
	Number of		Average	as Part of Publicly	yet be Purchased
	Shares		Price Paid	Announced Plans	Under the Plans
Period	Purchased		per Share	or Programs	or Programs
April 1, 2025 through April 30, 2025	50,000	$	38.78	50,000	634,645
May 1, 2025 through May 31, 2025	—		—	—	634,645
June 1, 2025 through June 30, 2025	—		—	—	634,645

Impact of Inflation and Changing Prices

The financial statements and notes thereto, presented elsewhere herein have been prepared in accordance with U.S.
GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike most industrial companies, nearly all the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 3 Quantitative and Qualitative Disclosures about Market Risk

During the six months ended June 30, 2025, there have been no significant changes in the Company’s assessment of market risk as reported in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. (See Interest Rate Sensitivity in Management’s Discussion and Analysis herein.)

ITEM 4 Controls and Procedures

The Company’s Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2025. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for recording, processing, summarizing and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.

No significant change in the Company’s internal control over financial reporting has occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s controls over financial reporting.

Table of Contents

PART II OTHER INFORMATION

ITEM 1 Legal Proceedings

From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition, or the results of the operation of the Company.

ITEM 1A Risk Factors

Information regarding this item as of June 30, 2025 appears under the heading, “Risk Factors” within the Company’s Form 10-K for the year ended December 31, 2024.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

See the discussion under the heading “Shareholders Equity - Repurchase Plan” under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 3 Defaults upon Senior Securities – None

ITEM 4 Mine Safety Disclosures - N/A

ITEM 5 Other Information – None

Table of Contents

ITEM 6 Exhibits



(a) Exhibits		Description
	Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rule 13a 14(a) or Rule 15d 14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rule 13a 14(a) or Rule 15d 14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a 14(b) or Rule 15d 14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents

EXHIBIT INDEX

QUARTERLY REPORT ON FORM 10-Q


Exhibit No.	Description
31.1	Exhibit 31.1-Certification of James A. Hughes. Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Exhibit 31.2-Certification of George Boyan. Required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Exhibit 32.1-Certification of James A. Hughes and George Boyan. Required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
**101.INS	Inline XBRL Instance Document
**101.SCH	Inline XBRL Taxonomy Extension Schema Document
**101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
**104	Cover Page Interactive Data File (formatted as Inline XBRL and contained as Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.