Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ________
Commission file number 1-12431
Unity Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
New Jersey
22-3282551
(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 (908) 730-7630
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 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 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 ☒
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by checkmark 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared its audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes ☐ No ☒
As of June 30, 2024, the aggregate market value of the registrant’s Common Stock, no par value per share, held by non-affiliates of the registrant was $212,072,602
and 7,171,884 shares of the Common Stock were outstanding to non-affiliates. As of February 28, 2025, 10,057,597 shares of the registrant’s Common Stock were outstanding.
Documents incorporated by reference:
●
Portions of Unity Bancorp’s Proxy Statement for the Annual Meeting of Shareholders to be filed no later than 120 days from December 31, 2024 are incorporated
by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
2
Index to Form 10-K
Page
Part I
Item 1.
Business
a) General
3
Item 1A. Risk Factors
11
Item 1B.
Unresolved Staff Comments
22
Item 1C.
Cybersecurity Disclosures
22
Item 2.
Properties
24
Item 3.
Legal Proceedings
24
Item 4.
Mine Safety Disclosures
24
Item 4A. Executive Officers of the Registrant
24
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
24
Item 6.
Selected Financial Data
25
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
49
Item 8.
Financial Statements, Report of Independent Auditor (PCAOB ID: 392) and Supplementary Data
50
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
106
Item 9A. Controls and Procedures
107
Item 9B.
Other Information – None
107
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
107
Part III
Item 10.
Directors, Executive Officers and Corporate Governance; Compliance with Section 16(a) of the
Exchange Act
107
Item 11.
Executive Compensation
108
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
108
Item 13.
Certain Relationships and Related Transactions and Director Independence
109
Item 14.
Principal Accountant Fees and Services
109
Part IV
Item 15.
Exhibits and Financial Statement Schedules
109
Item 16.
Form 10-K Summary
112
Signatures
113
t
Table of Contents
3
PART I
Item 1. Business:
Forward Looking Statements
This report, in Item 1, Item 7 and elsewhere, includes forward-looking statements within the meaning of Sections 27A of the
Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks
and uncertainties. These forward-looking statements concern the financial condition, results of operations, plans, objectives,
future performance and business of Unity Bancorp, Inc. and its subsidiaries, including statements preceded by, followed by or
that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,”
“pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,”
“may” or similar expressions. There are a number of important factors that could cause future results to differ materially from
historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not
limited to: (1) the potential impact of pandemics and other health emergencies and the government’s response thereto on our
operations as well as those of our clients and on the economy generally and in our market area specifically; (2) competitive
pressures among depository institutions may increase significantly; (3) changes in the interest rate environment may reduce
interest margins; (4) prepayment speeds, loan origination and sale volumes, charge-offs and credit loss provisions may vary
substantially from period to period; (5) general economic conditions may be less favorable than expected; (6) political
developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions;
(7) legislative or regulatory changes or actions may adversely affect the businesses in which Unity Bancorp, Inc. is engaged;
(8) changes and trends in the securities markets may adversely impact Unity Bancorp, Inc.; (9) a delayed or incomplete
resolution of regulatory issues could adversely impact us; (10) difficulties in integrating any businesses that we may acquire,
which may increase our expenses and delay the achievement of any benefits that we may expect from such acquisitions; (11)
the impact of reputation risk created by the developments discussed above on such matters as business generation and
retention, funding and liquidity could be significant; and (12) the outcome of any future regulatory and legal investigations
and proceedings may not be anticipated. Further information on other factors that could affect the financial results of Unity
Bancorp, Inc. are included in Item 1A of this Annual Report on Form 10-K and in Unity Bancorp, Inc.’s other filings with the
Securities and Exchange Commission. These documents are available free of charge at the Commission’s website
at http://www.sec.gov and/or from Unity Bancorp, Inc. Unity Bancorp, Inc. assumes no obligation to update forward-looking
statements at any time.
a)
General
Unity Bancorp, Inc., ("we", "us", "our", the "Company" or "Registrant"), is a bank holding company incorporated under the
laws of the State of New Jersey to serve as a holding company for Unity Bank (the “Bank”). The Company has also elected to
become a financial holding company pursuant to regulations of the Board of Governors of the Federal Reserve system (the
"FRB"). The Company was organized at the direction of the Board of Directors of the Bank for the purpose of acquiring all
the capital stock of the Bank. Pursuant to the New Jersey Banking Act of 1948 (the "Banking Act"), and pursuant to approval
of the shareholders of the Bank, the Company acquired the Bank and became its holding company on December 1, 1994. The
primary activity of the Company is ownership and supervision of the Bank. The Company also owns 100 percent of the
common equity of Unity (NJ) Statutory Trust II. The trust has issued $10.3 million of preferred securities to investors.
The principal executive offices of the Company are located at 64 Old Highway 22, Clinton, New Jersey 08809 and the
telephone number is (800) 618-2265. The Company’s website address is www.unitybank.com.
Business of the Company
The Company’s primary business is ownership and supervision of the Bank. The Company and the Bank derive a majority of
their revenue from net interest income (i.e., the difference between the interest received on loans and securities and the interest
paid on deposits and borrowings). The Company, through the Bank, conducts a traditional and community-oriented
commercial banking business and offers services, including personal and business checking accounts, time
Table of Contents
4
deposits, money market accounts, savings accounts, credit cards, debit cards, wire transfers, safe deposit boxes, access to
automated teller services and internet and mobile banking, typical of a community banking business. The Bank also offers
retirement accounts, Automated Clearing House (“ACH”) origination and Remote Deposit Capture (“RDC”). CDARS/ICS
reciprocal deposits are offered based on the Bank’s participation in the IntraFi Network LLC network which enable Federal
Deposit Insurance Corporation (“FDIC”) insurance sensitive customers to have FDIC coverage for large dollar deposits. The
Company structures its specific services and charges in a manner designed to attract the business of the small and medium
sized business, professional community and state and local municipalities, as well as that of individuals residing, working and
shopping in its service area.
Deposits serve as the primary source of funding for interest-earning assets, but also generate noninterest income through stop
payment fees, wire transfer fees, insufficient fund fees, debit card income, foreign ATM fees, interchange and other
miscellaneous fees. In addition, the Bank generates additional noninterest income through residential, commercial and Small
Business Administration (“SBA”) loan originations, servicing and sales.
The Company engages in a wide range of lending activities and offers commercial, SBA, consumer, mortgage, home equity
and personal loans. Commercial lending is primarily comprised of owner-occupied and non-owner occupied commercial
mortgages and is supplemented by commercial and industrial lending activities, secured by business assets including
receivables, inventory and equipment. Additionally, the Company engages in commercial and residential construction lending
activities.
Service Areas
The Company’s primary service area is defined as the neighborhoods served by the Bank’s offices. The Bank’s main office is
located in Clinton, New Jersey and the Bank operates twenty-one branches primarily along the Route 22/Route 78 corridors
with branches in Bergen, Hunterdon, Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and
Northampton County in Pennsylvania. Through its banking locations and online services, the Bank is able to support clients
throughout the New York City metropolitan area. The Company’s goal is to continue to expand as needed to support clients as
their businesses grow.
Competition
The banking business is highly competitive. The Company is located in an extremely competitive area. The Company’s
service area is also serviced by national banks, major regional banks, large thrift institutions, financial technology companies
and a variety of credit unions. In addition, since passage of the Gramm-Leach-Bliley Financial Modernization Act of 1999
(the “Modernization Act”), securities firms and insurance companies have been allowed to acquire or form financial
institutions, thereby increasing competition in the financial services market. Most of the Company’s competitors have
substantially more capital, and therefore greater lending limits than the Company. The Company’s competitors generally have
established positions in the service area and have greater resources than the Company with which to pay for advertising,
technologies, physical facilities, personnel and interest on deposited funds. The Company relies on the competitive pricing of
its loans, deposits and other services, as well as its ability to provide local decision-making and personal service in order to
compete with these larger institutions.
Employees and Human Capital
As of December 31, 2024, the Company employed 220 full-time and 8 part-time employees. None of the Company’s
employees are represented by any collective bargaining units. The Company believes that its relations with its employees are
good and believes its ability to attract and retain employees is a key to the Company’s success. Accordingly, the Company
strives to offer competitive salaries and employee benefits to all employees and monitors salaries in its market areas. In
addition, the principal purposes of the Company’s equity incentive plans are to attract, retain and motivate selected employees,
consultants and directors through the granting of stock-based compensation awards.
Table of Contents
5
SUPERVISION AND REGULATION
General Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal and state law and these laws are subject to
change. As an example, in the summer of 2010, Congress passed, and the President signed, the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) (discussed below). These laws and regulations are
intended to protect depositors, not stockholders. To the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in the
applicable law or regulation may have a material effect on the business and prospects of the Company and the Bank.
Management of the Company is unable to predict, at this time, the impact of future changes to laws and regulations.
General Bank Holding Company Regulation
General: As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, (the "BHCA"),
the Company is subject to the regulation and supervision of the FRB. The Company is required to file with the FRB annual
reports and other information regarding its business operations and those of its subsidiaries. Under the BHCA, activities of a
holding company and those of its subsidiaries are limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which the FRB determines to be so closely related to
banking or managing or controlling banks as to be properly incident thereto. However, as a financial holding company, the
Company may engage in a broader scope of activities. See "Financial Holding Company Status".
The BHCA requires, among other things, the prior approval of the FRB in any case where a bank holding company proposes
to; (i) acquire all or substantially all the assets of any other bank; (ii) acquire direct or indirect ownership or control of more
than 5% of the outstanding voting stock of any bank (unless it owns a majority of such bank’s voting shares); or (iii) merge or
consolidate with any other bank holding company. The FRB will not approve any acquisition, merger or consolidation that
would have a substantially anti-competitive effect, unless the anti-competitive impact of the proposed transaction is clearly
outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The FRB also
considers capital adequacy, as well as other financial and management resources, and future prospects of the companies and
banks concerned, along with the convenience and needs of the community to be served.
The BHCA also generally prohibits a bank holding company, with certain limited exceptions, from; (i) acquiring or retaining
direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or
bank holding company; or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling
banks, or performing services for its subsidiaries, unless such non-banking business is determined by the FRB to be so closely
related to banking or managing or controlling banks as to be properly incident thereto. In making such determinations, the
FRB is required to weigh the expected benefits to the public such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects such as undue concentration of resources, decreased or unfair competition,
conflicts of interest or unsound banking practices.
The BHCA was substantially amended through the Modernization Act. The Modernization Act permits bank holding
companies and banks, which meet certain capital, management and Community Reinvestment Act standards, to engage in a
broader range of non-banking activities. In addition, bank holding companies, which elect to become financial holding
companies, may engage in certain banking and non-banking activities without prior FRB approval. Finally, the Modernization
Act imposes certain privacy requirements on all financial institutions and their treatment of consumer information. The
Company has elected to become a financial holding company. See "Financial Holding Company Status" below.
There are a number of obligations and restrictions imposed on bank holding companies and their depository institution
subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository
institutions and the Federal Deposit Insurance Corporation (the “FDIC”) Deposit Insurance Fund in the event the
Table of Contents
6
depository institution becomes in danger of default. Under regulations of the FRB, a bank holding company is required to
serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRB’s
determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
Capital Adequacy Guidelines
In December 2010 and January 2011, the Basel Committee on Banking Supervision (the “Basel Committee”) published the
final reforms on capital and liquidity generally referred to as “Basel III.” In July 2013, the FRB, the FDIC and the Comptroller
of the Currency adopted final rules (the “New Rules”), which implement certain provisions of Basel III and the Dodd-Frank
Act.
Under the New Rules, the Bank is required to maintain the following minimum capital ratios, expressed as a percentage of
risk-weighted assets:
●
Common Equity Tier 1 Capital Ratio of 4.5% (the “CET1”);
●
Tier 1 Capital Ratio (CET1 capital plus “Additional Tier 1 capital”) of 6.0%;
●
Total Capital Ratio (Tier 1 capital plus Tier 2 capital) of 8.0%.
In addition, the Bank is also subject to a leverage ratio of 4% (calculated as Tier 1 capital to average consolidated assets as
reported on the consolidated financial statements).
The New Rules also require a “capital conservation buffer.” The Bank is required to maintain a 2.5% capital conservation
buffer, which is composed entirely of CET1, on top of the minimum risk-weighted asset ratios described above, resulting in
the following minimum capital ratios:
●
CET1 of 7%;
●
Tier 1 Capital Ratio of 8.5%;
●
Total Capital Ratio of 10.5%.
The purpose of the capital conservation buffer is to absorb losses during periods of economic stress. Banking institutions with
a CET1, Tier 1 Capital Ratio and Total Capital Ratio above the minimum set forth above but below the capital conservation
buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive
officers, based on the amount of the shortfall.
The New Rules provide for several deductions from and adjustments to CET1. For example, mortgage servicing rights,
deferred tax assets dependent upon future taxable income and significant investments in common equity issued by
nonconsolidated financial entities must be deducted from CET1 to the extent that any one of those categories exceeds 10% of
CET1 or all such categories in the aggregate exceed 15% of CET1.
Under the New Rules, banking organizations, such as the Company and the Bank, may make a one-time permanent election
regarding the treatment of accumulated other comprehensive income items in determining regulatory capital ratios. Effective
as of January 1, 2015, the Company and the Bank elected to exclude accumulated other comprehensive income items for
purposes of determining regulatory capital.
While the New Rules generally require the phase-out of non-qualifying capital instruments such as trust preferred securities
and cumulative perpetual preferred stock, holding companies with less than $15 billion in total consolidated assets as of
December 31, 2009, such as the Company, may permanently include non-qualifying instruments that were issued and included
in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital until they redeem such instruments or
until the instruments mature.
Table of Contents
7
The New Rules prescribe a standardized approach for calculating risk-weighted assets. Depending on the nature of the assets,
the risk categories generally range from 0% for U.S. Government and agency securities to 600% for certain equity exposures
and result in higher risk weights for a variety of asset categories. In addition, the New Rules provide more advantageous risk
weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the
scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.
Consistent with the Dodd-Frank Act, the New Rules adopt alternatives to credit ratings for calculating the risk-weighting for
certain assets.
On September 17, 2019, the federal banking agencies issued a final rule providing simplified capital requirements for certain
community banking organizations (banks and holding companies) with less than $10 billion in total consolidated assets,
implementing provisions of The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). Under
the rule, a qualifying community banking organization would be eligible to elect the community bank leverage ratio
framework, or continue to measure capital under the existing Basel III requirements set forth in the New Rules. The
community bank capital rule took effect January 1, 2020 and qualifying community banking organizations may elect to opt
into the new community bank leverage ratio (“CBLR”) in their call report for the first quarter of 2020 or any quarter
thereafter.
A qualifying community banking organization (“QCBO”) is defined as a bank, a savings association, a bank holding company
or a savings and loan holding company with:
●
a leverage capital ratio of greater than 9.0%;
●
total consolidated assets of less than $10.0 billion;
●
total off-balance sheet exposures (excluding derivatives other than credit derivatives and unconditionally
cancelable commitments) of 25% or less of total consolidated assets;
●
total trading assets and trading liabilities of 5% or less of total consolidated assets.
A QCBO opting into the CBLR must maintain a CBLR of 9.0%, subject to a two quarter grace period to come back into
compliance, provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period. A QCBO failing to
satisfy these requirements must comply with the Basel III requirements as implemented by the New Rules. The numerator of
the CBLR is Tier 1 capital, as calculated under the New Rules. The denominator of the CBLR is the QCBO’s average assets,
calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital. The Company
and the Bank have elected to opt out of the CBLR.
General Bank Regulation
As a New Jersey-chartered commercial bank, the Bank is subject to the regulation, supervision and control of the New Jersey
Department of Banking and Insurance (the “Department”). As an FDIC-insured institution, the Bank is subject to regulation,
supervision and control of the FDIC, an agency of the federal government. The regulations of the FDIC and the Department
affect virtually all activities of the Bank, including the Bank's minimum capital level, the Bank's ability to pay dividends,
expand through new branches or acquisitions and various other matters.
Insurance of Deposits: The Dodd-Frank Act has caused significant changes in the FDIC’s insurance of deposit accounts.
Among other things, the Dodd-Frank Act permanently increased the FDIC deposit insurance limit to $250 thousand per
depositor.
On February 7, 2011, the FDIC announced the approval of the assessment system mandated by the Dodd-Frank Act. Dodd-
Frank required that the base on which deposit insurance assessments are charged be revised from one based on domestic
deposits to one based on assets. The FDIC’s rule to base the assessment on average total consolidated assets minus average
tangible equity instead of domestic deposits lowered assessments for many community banks with less than $10 billion in
assets and reduced the Company’s costs.
Dividend Rights: Under the Banking Act, a bank may declare and pay dividends only if, after payment of the dividend, the
capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital
Table of Contents
8
stock or the payment of the dividend will not reduce the bank’s surplus. Unless and until the Company develops other lines of
business, payments of dividends from the Bank will remain the Company’s primary source of income and the primary source
of funds for dividend payments to the shareholders of the Company.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act, enacted on July 21, 2010, significantly changed the bank regulatory landscape and has impacted and
will continue to impact the lending, deposit, investment, trading and operating activities of insured depository institutions and
their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and
regulations. The Dodd-Frank Act, among other things:
●
capped debit card interchange fees for institutions with $10 billion in assets or more at $0.21 plus 5 basis points
times the transaction amount, a substantially lower rate than the average rate in effect prior to adoption of the
Dodd-Frank Act;
●
provided for an increase in the FDIC assessment for depository institutions with assets of $10 billion or more,
increases in the minimum reserve ratio for the Deposit Insurance Fund ("DIF") from 1.15% to 1.35% and changes
the basis for determining FDIC premiums from deposits to assets;
●
permanently increased the deposit insurance coverage to $250 thousand and allowed depository institutions to pay
interest on checking accounts;
●
created a new Consumer Financial Protection Bureau (“CFPB”) that has rulemaking authority for a wide range of
consumer financial protection laws that apply to all banks and has broad authority to enforce these laws;
●
provided for new disclosure and other requirements relating to executive compensation and corporate governance;
●
changed standards for Federal preemption of state laws related to federally-chartered institutions and their
subsidiaries;
●
provided mortgage reform provisions regarding a customer’s ability to repay, restricting variable rate lending by
requiring the ability to repay to be determined for variable rate loans by using the maximum rate that will apply
during the first five years of a variable rate loan term, and making more loans subject to provisions for higher cost
loans, new disclosures and certain other revisions;
●
created a financial stability oversight council that will recommend to the FRB increasingly strict rules for capital,
leverage, liquidity, risk management and other requirements as companies grow in size and complexity.
The Dodd-Frank Act also imposed new obligations on originators of residential mortgage loans, such as the Bank. Among
other things, the Dodd-Frank Act requires originators to make a reasonable and good faith determination based on documented
information that a borrower has a reasonable ability to repay a particular mortgage loan over the long term. If the originator
cannot meet this standard, the mortgage may be unenforceable. The Dodd-Frank Act contains an exception from this ability-
to-repay rule for “Qualified Mortgages”. The CFPB has established specific underwriting criteria for a loan to qualify as a
Qualified Mortgage. The criteria generally exclude loans that (1) are interest-only, (2) have excessive upfront points or fees or
(3) have negative amortization features, balloon payments or terms in excess of 30 years. The underwriting criteria also
impose a maximum debt to income ratio of 43%, based upon documented and verifiable information. If a loan meets these
criteria and is not a “higher priced loan” as defined in FRB regulations, the CFPB rule establishes a safe harbor preventing a
consumer from asserting the failure of the originator to establish the consumer’s ability to repay. However, a consumer may
assert the lender’s failure to comply with the ability-to-repay rule for all residential mortgage loans other than Qualified
Mortgages, and may challenge whether a loan in fact qualified as a Qualified Mortgage.
Regulation W
Regulation W codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance
with respect to affiliate transactions. Affiliates of a bank include, among other entities, the bank’s holding company and
companies that are under common control with the bank. The Company is considered to be an affiliate of the Bank. In general,
subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in covered transactions
with affiliates:
Table of Contents
9
•
to an amount equal to 10% of the Bank’s capital and surplus, in the case of covered transactions with any one
affiliate; and
•
to an amount equal to 20% of the Bank’s capital and surplus, in the case of covered transactions with all
affiliates.
In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and
under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at
the time for comparable transactions with nonaffiliated companies. A covered transaction includes:
•
a loan or extension of credit to an affiliate;
•
a purchase of, or an investment in, securities issued by an affiliate;
•
a purchase of assets from an affiliate, with some exceptions;
•
the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party;
and
•
the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
Further, under Regulation W:
•
a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
•
covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must
be on terms and conditions that are consistent with safe and sound banking practices; and
•
with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by certain
types of collateral with a market value ranging from 100% to 130% of the loan value, depending on the type
of collateral, of the amount of the loan or extension of credit.
Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates,
except to the extent that the FRB decides to treat these subsidiaries as affiliates.
Loans to Related Parties
The Company’s authority to extend credit to its directors and executive officers, as well as to entities controlled by such
persons, is currently governed by the requirements of the Sarbanes-Oxley Act of 2002 and Regulation O promulgated by the
FRB. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are
substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present
other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In addition, the Bank’s
Board of Directors must approve all extensions of credit to insiders.
USA PATRIOT Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (the “USA PATRIOT Act”) gives the federal government powers to address terrorist threats through domestic security
measures, surveillance powers, information sharing and anti-money laundering requirements. By way of
Table of Contents
10
amendments to the Bank Secrecy Act, the USA PATRIOT Act encourages information-sharing among bank regulatory
agencies and law enforcement bodies. Further, certain provisions of the USA PATRIOT Act impose affirmative obligations on
a broad range of financial institutions, including banks, thrift institutions, brokers, dealers, credit unions, money transfer
agents and parties registered under the Commodity Exchange Act.
Among other requirements, the USA PATRIOT Act imposes the following requirements with respect to financial institutions:
●
All financial institutions must establish anti-money laundering programs that include, at a minimum: (i)
internal policies, procedures and controls; (ii) specific designation of an anti-money laundering compliance
officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-
money laundering program.
●
The Secretary of the Department of Treasury, in conjunction with other bank regulators, is authorized to issue
regulations that provide for minimum standards with respect to client identification at the time new accounts
are opened.
●
Financial institutions that establish, maintain, administer, or manage private banking accounts or
correspondent accounts in the United States for non-United States persons or their representatives (including
foreign individuals visiting the United States) are required to establish appropriate, specific and, where
necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money
laundering.
●
Financial institutions are prohibited from establishing, maintaining, administering or managing correspondent
accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and will
be subject to certain record keeping obligations with respect to correspondent accounts of foreign banks.
●
Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering
when ruling on Federal Reserve Act and Bank Merger Act applications.
The United States Treasury Department has issued a number of implementing regulations which address various requirements
of the USA PATRIOT Act and are applicable to financial institutions such as the Bank. These regulations impose obligations
on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money
laundering and terrorist financing and to verify the identity of their clients.
Financial Holding Company Status
The Company has elected to become a financial holding company. Financial holding companies may engage in a broader
scope of activities than a bank holding company. In addition, financial holding companies may undertake certain activities
without prior FRB approval.
A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that
are financial in nature or incidental or complementary to activities that are financial in nature. "Financial in nature" activities
include:
●
securities underwriting, dealing and market making;
●
sponsoring, mutual funds and investment companies;
●
insurance underwriting and insurance agency activities;
●
merchant banking;
●
activities that the FRB determines to be financial in nature or incidental to a financial activity or which are
complementary to a financial activity and do not pose a safety and soundness risk.
Table of Contents
11
A financial holding company that desires to engage in activities that are financial in nature or incidental to a financial activity
but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. Also, a
financial holding company may seek FRB approval to engage in an activity that is complementary to a financial activity, if it
shows, among other things, that the activity does not pose a substantial risk to the safety and soundness of its insured
depository institutions or the financial system.
A financial holding company generally may acquire a company (other than a bank holding company, bank or savings
association) engaged in activities that are financial in nature or incidental to activities that are financial in nature without prior
approval from the FRB. Prior FRB approval is required, however, before the financial holding company may acquire control
of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association.
In addition, under the FRB’s merchant banking regulations, a financial holding company is authorized to invest in companies
that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with
the intention of limiting the duration of the investment, does not manage the company on a day-to-day basis and the company
does not cross-market its products or services with any of the financial holding company’s controlled depository institutions.
If any subsidiary bank of a financial holding company ceases to be "well capitalized" or "well managed" and fails to correct its
condition within the time period that the FRB specifies, the FRB has authority to order the financial holding company to
divest its subsidiary banks. Alternatively, the financial holding company may elect to limit its activities and the activities of its
subsidiaries to those permissible for a bank holding company that is not a financial holding company. If any subsidiary bank
of a financial holding company receives a rating under the CRA of less than "satisfactory", then the financial holding company
is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings
associations until the rating is raised to "satisfactory" or better.
Item 1A. Risk Factors:
The Company’s business, financial condition, results of operations and the trading price of its securities can be materially and
adversely affected by many events and conditions including the following:
The Company has been and may continue to be affected by national financial markets and economic conditions, as
well as local conditions.
The Company’s business and results of operations are affected by the financial markets and general economic conditions in
the United States, including factors such as the level and volatility of interest rates, inflation, home prices, unemployment and
under-employment levels, bankruptcies, household income, consumer spending, investor confidence and the strength of the
U.S. economy. The deterioration of any of these conditions can adversely affect the Company’s securities and loan portfolios,
level of charge-offs and provision for credit losses, capital levels, liquidity and results of operations.
In addition, the Company is affected by the economic conditions within its New Jersey and Pennsylvania primary trade areas.
Unlike larger banks that are more geographically diversified, the Company provides banking and financial services primarily
to customers in the New Jersey market and one county in Pennsylvania in which it has branches, so any decline in the
economy of New Jersey or eastern Pennsylvania could have an adverse impact. Additionally, certain aspects of these primary
trade areas may be adversely impacted by the economic wellbeing of the New York City metro region.
The Company’s loans, the ability of borrowers to repay these loans and the value of collateral securing these loans are
impacted by economic conditions. The Company’s financial results, the credit quality of its existing loan portfolio and the
ability to generate new loans with acceptable yield and credit characteristics may be adversely affected by changes in
prevailing economic conditions, including declines in real estate values, changes in interest rates, adverse employment
conditions and the monetary and fiscal policies of the federal government. The Company cannot assure that any positive
trends or developments discussed in this annual report will continue or that negative trends or developments will not arise.
Table of Contents
12
A significant portion of the Company’s loan portfolio is secured by real estate and events that negatively impact the
real estate market in the Company’s trade area could hurt its business.
A significant portion of the Company’s loan portfolio is secured by real estate. As of December 31, 2024,
approximately 96 percent of its loans had real estate as a primary or secondary component of collateral. The real estate
collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in
value during the time the credit is extended. Weakness in the real estate market in the Company’s primary market areas could
result in an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral
securing their loans, which in turn could have an adverse effect on the Company’s profitability and asset quality. Any future
declines in real estate values in the New Jersey, New York and Pennsylvania markets that the Company serves also may result
in increases in delinquencies and losses in its loan portfolios. Stress in the real estate market, combined with any weakness in
economic conditions could drive losses beyond that which is provided for in the Company’s allowance for credit losses. In
that event, the Company’s earnings could be adversely affected.
A significant portion of the Company’s loan portfolio is secured by commercial real estate and events that negatively
impact the commercial real estate market could adversely affect our asset quality and profitability for those loans
secured by real property and increase the number of defaults and the level of losses within our loan portfolio.
A significant portion of the Company’s loan portfolio is secured by commercial real estate. As of December 31, 2024, total
commercial real estate loans, including construction loans, represented 53.8 percent of our loan portfolio. Included in this
portfolio are loans to industries including hotel/motel, retail, educational facilities, office space, warehouses, food/beverage
services and religious facilities. Additionally, mixed-use loans, in their hybrid nature, may include these industries, as well as
others not denoted above. These types of loans generally expose a lender to a higher degree of credit risk of non-payment and
loss than residential mortgage loans do for several factors, including dependence on the successful operation of a business or a
project for repayment. Further, the Company facilitates construction-to-permanent financing, which may come with
heightened credit risks. In addition, commercial real estate loans typically involve larger loan balances to single borrowers or
groups of related borrowers compared to one-to-four family residential mortgage loans. The value of the real estate collateral
that provides an alternate source of repayment in the event of default by the borrower could deteriorate during the time the
credit is extended. Underwriting and portfolio management activities cannot completely eliminate all risks related to these
loans. Any significant failure to pay on time by our clients or a significant default by our clients would materially and
adversely affect us.
Concentrations in commercial real estate are closely monitored by regulatory agencies and subject to especially heightened
scrutiny both on a public and confidential basis. Any formal or informal action by our supervisors may require us to increase
our reserves on these loans and adversely impact our earnings.
A downturn in the real estate market in our primary market areas could result in an increase in the number of borrowers who
default on their loans and a reduction in the value of the collateral securing their loans, which in turn could have an adverse
effect on our profitability and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt
during a period of reduced real estate values, our earnings and shareholders’ equity could be adversely affected. Any
weakening of the commercial real estate market may increase the likelihood of default on these loans, which could negatively
impact our loan portfolio’s performance and asset quality. For example, any declines in commercial real estate prices in the
New Jersey, New York and Pennsylvania markets we primarily serve, along with the unpredictable long-term path of the
economy, may result in increases in delinquencies and losses in our loan portfolios. Unexpected decreases in commercial real
estate prices coupled with slow economic growth and elevated levels of unemployment could drive losses beyond those which
are provided for in our allowance for credit losses. We also may incur losses on commercial real estate loans due to declines in
occupancy rates and rental rates, which may decrease property values and may decrease the likelihood that a borrower may
find permanent financing alternatives. Any of these events could increase our costs, require Management's time and attention,
and materially and adversely affect us.
Table of Contents
13
Small Business Administration lending is an important part of our business. Our SBA lending program is dependent
upon the U.S. federal government, and we face specific risks associated with originating SBA loans.
Our SBA lending program is dependent upon the U.S. federal government. The SBA periodically reviews the lending
operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When
weaknesses are identified, the SBA may request corrective actions or impose enforcement actions. Any changes to the SBA
program, including but not limited to changes to the level of guarantee provided by the federal government on SBA loans,
changes to program specific rules impacting volume eligibility under the guaranty program, as well as changes to the program
amounts authorized by Congress or funding for the SBA program may also have a material adverse effect on our business. In
addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other
things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and
adversely affect our business, results of operations and financial condition.
The SBA’s 7(a) Loan Program is the SBA’s primary program for helping start-up and existing small businesses, with financing
guaranteed for a variety of general business purposes. Typically, we sell the guaranteed portion of our SBA 7(a) loans in the
secondary market. These sales result in premium income for us at the time of sale and create a stream of future servicing
income, as we retain the servicing rights to these loans. For the reasons described above, we may not be able to continue
originating these loans or selling them in the secondary market. Furthermore, even if we are able to continue to originate and
sell SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed
portion of these loans or the premiums may decline due to economic and competitive factors. When we originate SBA loans,
we incur credit risk on the non-guaranteed portion of the loans, and if a customer defaults on a loan, we share any loss and
recovery related to the loan pro-rata with the SBA. If the SBA establishes that a loss on an SBA guaranteed loan is attributable
to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may
seek recovery of the principal loss related to the deficiency from us. Generally, we do not maintain reserves or loss allowances
for such potential claims and any such claims could materially and adversely affect our business, financial condition or results
of operations.
The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future.
We cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects
the business and financial results of all commercial banks and bank holding companies and especially our organization,
changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to operate
profitably.
The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA
loans that we sell could expose us to various credit and default risks.
We have historically originated a significant number of SBA loans, and sold a significant portion of the guaranteed portions of
these loans on the secondary market. We generally retain the non-guaranteed portions of the SBA loans that we originate.
Consequently, as of December 31, 2024, we held $36.9 million of SBA loans on our balance sheet, $36.1 million of which
primarily consisted of the non-guaranteed portion of SBA loans. The non-guaranteed portion of SBA loans have a higher
degree of credit risk and risk of loss as compared to the guaranteed portion of such loans. We generally retain the non-
guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience
financial difficulties, our financial condition and results of operations would be adversely impacted.
When we sell the guaranteed portion of SBA loans in the ordinary course of business, we are required to make certain
representations and warranties to the purchaser about the SBA loans and the manner in which they were originated. Under
these agreements, we may be required to repurchase the guaranteed portion of the SBA loan if we have breached any of these
representations or warranties, in which case we may record a loss. In addition, if repurchase and indemnity demands increase
on loans that we sell from our portfolio, our liquidity, results of operations and financial condition could be adversely affected.
Table of Contents
14
Imposition of limits by bank regulators on commercial real estate lending activities could curtail our growth and
adversely affect our earnings.
In 2006, the OCC, the FDIC, and the FRB, or collectively, the Agencies, issued joint guidance entitled “Concentrations in
Commercial Real Estate Lending, Sound Risk Management Practices,” or the “CRE Guidance.” Although the CRE Guidance
did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure will receive
increased supervisory scrutiny where total nonowner occupied commercial real estate loans, including loans secured by
apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an
institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by
50% or more during the preceding 36 months. Using regulatory guidance definitions, the Bank’s commercial real estate loan
balance decreased 1.55% for the year ended December 31, 2024 and commercial real estate loans represented 235.05% of the
Bank’s risk-based capital at December 31, 2024, a decrease from 269.98% at December 31, 2023.
In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending, or
the “2015 Statement.” In the 2015 Statement, the Agencies, among other things, indicated the intent to continue “to pay
special attention” to commercial real estate lending activities and concentrations going forward. If the FDIC, our primary
federal regulator, were to impose restrictions on the amount of such loans we can hold in our portfolio or require us to
implement additional compliance measures, for reasons noted above or otherwise, our earnings could be adversely affected as
would our earnings per share.
There is a risk that the Company may not be repaid in a timely manner, or at all, for loans it makes or securities it
purchases.
The risk of nonpayment (or deferred or delayed payment) of loans is inherent in banking. Such nonpayment, or delayed or
deferred payment, of loans to the Company may have a material adverse effect on its earnings and overall financial condition,
such as increased provision for credit losses, asset recovery costs and lower interest income. Additionally, in compliance with
applicable banking laws and regulations and U.S. Generally Accepted Accounting Principles (“ U.S. GAAP”), the Company
maintains an allowance for credit losses created through charges against earnings. As of December 31, 2024, the Company’s
allowance for credit losses was $26.8 million, or 1.18 percent of its total loan portfolio and 204.77 percent of its nonaccrual
loans. The Company’s marketing focus on small to medium size businesses may result in the assumption by the Company of
certain lending risks that are different from or greater than those which would apply to loans made to larger companies. The
Company seeks to minimize its credit risk exposure through credit controls, which include evaluation of potential borrowers’
available collateral, liquidity and cash flow. However, there can be no assurance that such procedures will actually reduce
credit losses.
The risk of nonpayment (or deferred or delayed payment) on securities is also inherent in banking. Such nonpayment, or
delayed or deferred payment on securities held by the Company, if they occur may have a material adverse effect on the
Company’s earnings and overall financial condition. As of December 31, 2024, the Company maintained a valuation reserve
on a single available for sale security of $2.8 million. The Company seeks to minimize its credit risk exposure on securities
through ongoing monitoring and credit controls, which evaluate the financial condition of the issuer of the securities.
However, there can be no assurance that such procedures will actually reduce credit losses.
The Company’s allowance for credit losses may not be adequate to cover actual losses.
Like all financial institutions, the Company maintains an allowance for credit losses to provide for loan defaults and
nonperformance. Its allowance for credit losses may not be adequate to cover actual losses and future provisions for credit
losses could materially and adversely affect the results of operations. Risks within the loan portfolio are analyzed on a
continuous basis by Management and, periodically, by an independent loan review function and by the Audit Committee. A
risk system, consisting of multiple-grading categories, is utilized as an analytical tool to assess risk and the appropriate level
of loss reserves. Along with the risk system, Management further evaluates risk characteristics of the loan portfolio under
current economic conditions and considers such factors as the financial condition of the borrowers, past and expected credit
loss experience, historical trends and other factors that Management feels deserve recognition in establishing an adequate
reserve. This risk assessment process is performed at least quarterly and, as adjustments become necessary, they
Table of Contents
15
are realized in the periods in which they become known. The amount of future losses is susceptible to changes in economic,
operating and other conditions, including changes in interest rates that may be beyond the Company’s control, and these losses
may exceed current estimates. State and federal regulatory agencies, as an integral part of their examination process, review
the Company’s loans and allowance for credit losses and may require an increase in its allowance for credit losses. Although
the Company believes that its allowance for credit losses is adequate to cover probable and reasonably estimated losses, there
can be no assurance that the Company will not further increase the allowance for credit losses or that its regulators will not
require an increase to this allowance. Either of these occurrences could adversely affect the Company’s earnings.
The Company is subject to interest rate risk and variations in interest rates may negatively affect its financial
performance.
Net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing
liabilities, represents a significant portion of the Company’s earnings. Both increases and decreases in the interest rate
environment may reduce the Company’s profits. Interest rates are subject to factors which are beyond the Company’s control,
including general economic conditions, competition and policies of various governmental and regulatory agencies, such as the
FRB. Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company
receives on loans and investment securities and the amount of interest it pays on deposits and borrowings, but such changes
could also affect (i) the ability to originate loans and obtain deposits, (ii) the fair value of financial assets and liabilities,
including the held to maturity and available for sale securities portfolios and (iii) the average duration of interest-earning
assets. This also includes the risk that interest-earning assets may be more responsive to changes in interest rates than interest-
bearing liabilities, or vice versa (repricing risk), the risk that the individual interest rates or rate indexes underlying various
interest-earning assets and interest-bearing liabilities may not change in the same degree over a given time period (basis risk)
and the risk of changing interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability
maturities (yield curve risk). The Company monitors interest rate risk through its asset liability management process; however,
there are no assurances that this process will reduce interest rate risk exposures.
The banking business is subject to significant government regulations.
The Company is subject to extensive governmental supervision, regulation and control. These laws and regulations are subject
to change and may require substantial modifications to the Company’s operations or may cause it to incur substantial
additional compliance costs. These laws and regulations are designed to protect depositors and the public, but not the
Company’s shareholders. In addition, future legislation and government policy could adversely affect the commercial banking
industry and the Company’s operations. Such governing laws can be anticipated to continue to be the subject of future
modification. The Company’s Management cannot predict what effect any such future modifications will have on the
Company’s operations. In addition, the primary focus of federal and state banking regulation is the protection of depositors
and not the shareholders of the regulated institutions.
For example, the Dodd-Frank Act has resulted in substantial compliance costs and may restrict certain sources of revenue. The
Dodd-Frank Act was signed into law on July 21, 2011. Generally, the Act is effective the day after it is signed into law, but
different effective dates apply to specific sections of this law, many of which will not become effective until various Federal
regulatory agencies have promulgated rules implementing the statutory provisions. In addition, subsequent legislation and
regulatory action has, and future legislation and regulatory action may, amend or revise various provisions of the Dodd-Frank
Act.
Uncertainty remains as to the ultimate impact of the Dodd-Frank Act and the implementing regulations thereunder, which
could have a material adverse impact either on the financial services industry as a whole, or on the Company’s business,
results of operations and financial condition. It is difficult to predict at this time what specific impact certain provisions and
yet-to-be-finalized rules and regulations will have on the Company, including any regulations promulgated by the CFPB.
Financial reform legislation and rules could have adverse implications on the financial industry, the competitive environment
and the Company’s ability to conduct business. Management will have to apply resources to ensure compliance with all
applicable provisions of regulatory reforms, including the Dodd-Frank Act and any implementing rules, which may increase
the Company’s costs of operations and adversely impact its earnings.
Table of Contents
16
The provisions of the Dodd-Frank Act, as well as any other aspects of current or proposed regulatory or legislative changes to
laws or regulations applicable to the financial industry, may impact the profitability of business activities and may change
certain business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and
achieve satisfactory interest spreads, and could expose the Company to additional costs, including increased compliance costs.
These changes also may require the Company to invest significant management attention and resources to make any necessary
changes to operations in order to comply, and could therefore also materially and adversely affect business, financial condition
and results of operations.
The Company is subject to changes in accounting policies or accounting standards.
Understanding the Company’s accounting policies is fundamental to understanding its financial results. Some of these policies
require the use of estimates and assumptions that may affect the value of assets or liabilities and financial results. The
Company has identified its accounting policies regarding the allowance for credit losses to be critical because they require
Management to make difficult, subjective and complex judgments about matters that are inherently uncertain. Under these
policies, it is possible that materially different amounts would be reported under different conditions, using different
assumptions, or as new information becomes available.
From time to time, the Financial Accounting Standards Board (“FASB”) and the U.S. Securities and Exchange Commission
(“SEC”) change their guidance governing the form and content of the Company’s external financial statements. In addition,
accounting standard setters and those who interpret U.S. GAAP, such as the FASB, SEC, banking regulators and the
Company’s outside auditors, may change or even reverse their previous interpretations or positions on how these standards
should be applied. Such changes are expected to continue. Changes in U.S. GAAP and changes in current interpretations are
beyond the Company’s control, can be hard to predict and could materially impact how it reports financial results and
condition. In certain cases, the Company could be required to apply a new or revised guidance retroactively or apply existing
guidance differently, which may result in restating prior period financial statements for material amounts. Additionally,
significant changes to U.S. GAAP may require costly technology changes, additional training and personnel and other
expenses that would negatively impact results of operations.
We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling
approaches could negatively impact our decision-making ability or possibly subject us to regulatory scrutiny in the
future.
The use of statistical and quantitative models, and other quantitative and qualitative analyses, is necessary for bank decision-
making, and the employment of such analyses is becoming increasingly widespread in our operations.
Liquidity stress testing, interest rate sensitivity analysis, the identification of possible violations of anti-money laundering
regulations and the estimation of credit losses are all examples of areas in which we are dependent on models and the data that
underlies them. The use of statistical and quantitative models is also becoming more prevalent in regulatory compliance.
While we are not currently subject to annual Dodd-Frank stress testing and the Comprehensive Capital Analysis and Review
submissions, we anticipate that model-derived testing may become more extensively implemented by regulators in the future.
We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as
the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing
applications. While we believe these quantitative techniques and approaches improve our decision-making, they also create
the possibility that faulty data or flawed quantitative approaches could negatively impact our decision-making ability or, if we
become subject to regulatory stress-testing in the future, adverse regulatory scrutiny. Secondarily, because of the complexity
inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-
making.
Table of Contents
17
Liquidity risk.
Liquidity risk is the potential that the Company will be unable to meet its obligations as they come due because of an inability
to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances.
Liquidity is required to fund various obligations, including credit commitments to borrowers, mortgage and other loan
originations, withdrawals by depositors, repayment of borrowings, dividends to shareholders, operating expenses and capital
expenditures.
Liquidity is derived primarily from deposit growth and retention; principal and interest payments on loans; principal and
interest payments on investment securities; sale, maturity and prepayment of investment securities; net cash provided from
operations and access to other funding sources. Customer account balances can decrease when customers perceive alternative
investments, such as fixed income securities or money market funds, as providing a better risk/return trade off or if customers
are concerned about the safety of their deposits. If customers move money out of bank deposits and into other investments, or
if customers perceive a risk in leaving their deposits with the Bank and transfer the deposits to larger institutions seen as less
risky, the Company could lose a low-cost source of funds, increasing its funding costs and reducing the Company’s net interest
income and net income.
As of December 31, 2024, $815.1 million, or 38.8%, of the Company’s deposits were time deposits with $768.6 million, or
94.3% of those time deposits, maturing within one year. The Company’s liquidity position could be impacted by these deposits
if its customers decide to withdraw funds at maturity and invest in non-deposit products, including but not limited to U.S.
Treasuries. Additionally, the Company’s earnings could be impacted if interest rates increase and the Company needs to
increase the rates offered on time deposits to retain these funds. The Company’s management monitors the deposit
composition of its Consolidated Balance Sheet through various Board and Management reporting on a regular basis.
The Company maintains elevated wholesale funding balances, including brokered deposits, FHLB advances and other
borrowing and deposit sources. These types of wholesale funding typically result in higher funding costs compared to other
sources and reduce the Company’s net interest income and net income. Additionally, these sources typically are only available
to the Company if the Bank maintains certain capital levels. The Company’s management team monitors wholesale funding as
a composition of its Consolidated Balance Sheet via the risk management process; however, wholesale deposits may be more
prone to liquidity risk.
The Company’s access to funding sources in amounts adequate to finance its activities could be impaired by factors that affect
the Company specifically or the financial services industry in general. Factors that could detrimentally impact access to
liquidity sources include a decrease in the level of business activity due to persistent weakness, or downturn, in the economy
or adverse regulatory action against the Company. The Company’s ability to borrow could also be impaired by factors that are
not necessarily specific to it, such as a severe disruption of the financial markets or negative views and expectations about the
prospects for the financial services industry as a whole.
There are current proposals from the Federal Housing Finance Agency (“FHFA”), the regulatory of the Federal Home Loan
Bank (“FHLB”) system, to refocus on the FHLB’s housing mission. This proposal would require many banks to hold at least
10% of their assets in residential mortgages in order to maintain access to FHLB funding. If these proposals change or
progress, this could impact the Company’s ability to borrow from the FHLB and require it to find other sources of credit,
including borrowing directly from the FRB.
The Company is in competition with many other banks, including larger commercial banks which have greater
resources, as well as “fintech” companies for loan and deposit customers.
The banking industry within the State of New Jersey is highly competitive. The Company’s principal market area is also
served by branch offices of large commercial banks and thrift institutions. In addition, the Modernization Act permits other
financial entities, such as insurance companies and securities firms, to acquire or form financial institutions, thereby further
increasing competition. In addition, financial technology companies, either directly or in partnership with other insured
depository institutions, compete for loan and deposit customers. Similarly, larger legacy non-financial companies, such as
Table of Contents
18
Apple, Alphabet and Amazon, are further increasing competition to compete for loans, deposits and payments. A number of
the Company’s competitors have substantially greater resources than it does to expend upon advertising and marketing, and
their substantially greater capitalization enables them to make much larger loans. Additionally, many of these competitors
have less regulation than the Company as they are not financial institutions. The Company’s success depends a great deal
upon its judgment that large and mid-size financial institutions do not adequately serve small businesses in its principal market
area and upon the Company’s ability to compete favorably for such customers. In addition to competition from larger
institutions, the Company also faces competition for individuals and small businesses from small community banks seeking to
compete as “hometown” institutions. Most of these smaller institutions have focused their marketing efforts on the smaller end
of the small business market the Company serves.
In January 2022, the Federal Reserve issued “Money Payments: The U.S. Dollar in the Age of Digital Transformation” which
discusses a U.S. central bank digital currency (“CBDC”). While this is in the earliest of stages, if this CBDC is implemented
by the Federal Reserve, it could change banking on a larger scale as Americans would be able to transact directly with the
Federal Reserve and may not need Banks to serve as intermediaries.
The Company has also been active in competing for New Jersey governmental and municipal deposits. At December 31, 2024,
the Company held approximately $400.5 million in governmental and municipal deposits. The governor of New Jersey has
proposed that the state form and own a bank in which governmental and municipal entities would deposit their excess funds,
with the state owned bank then financing small businesses and municipal projects in New Jersey. While no legislation has
been introduced in the state legislature, the New Jersey Public Bank Implementation Board has provided its final
recommendations to the governor, including that the public bank entity should not be a depository institution but should seek
funding from a diverse range of investors and non-depository investment vehicles. However, should this proposal be adopted
and a state owned bank formed, it could impede the Company’s ability to attract and retain governmental and municipal
deposits, thereby impairing the Company’s liquidity.
The nature and growth rate of our loan portfolio may expose us to increased lending risks.
Given the significant growth in our loan portfolio, many of our loans are unseasoned, meaning that they were originated
relatively recently. Approximately 53.0% of our loan portfolio has been originated in the past three years. As a result, it may
be difficult to predict the future performance of our loan portfolio. These loans may have delinquency or charge-off levels
above our expectations, which could negatively affect our performance.
Additionally, although the majority of residential mortgages historically originated by the Bank would be considered Qualified
Mortgages, the Bank has and may continue to make residential mortgage loans that would not qualify. As a result, the Bank
might experience increased compliance costs, loan losses, litigation related expenses and delays in taking title to real estate
collateral, if these loans do not perform and borrowers challenge whether the Bank satisfied the ability-to-repay rule upon
originating the loan.
Future offerings of common stock may adversely affect the market price of the Company’s stock.
In the future, if the Company’s or the Bank’s capital ratios fall below the prevailing regulatory required minimums, or should
the Company seek to expand through acquisitions, the Company or the Bank could be forced to raise additional capital by
making additional offerings of common stock or preferred stock. Additional equity offerings may dilute the holdings of
existing shareholders or reduce the market price of common stock, or both.
The Company cannot predict how changes in technology will impact its business.
The financial services market, including banking services, is increasingly affected by advances in technology, including
developments in:
●
telecommunications;
●
data processing;
●
artificial intelligence, (“AI”);
●
automation;
Table of Contents
19
●
Internet-based banking;
●
Tele-banking;
●
debit cards/smart cards
The Company’s ability to compete successfully in the future will depend on whether it can anticipate and respond to
technological changes. Due to the rise of AI, technological advances are occurring in the industry at an unprecedented pace.
To develop these and other new technologies and protect against cyber security threats, the Company will likely have to make
additional capital investments. Although the Company continually invests in new technology, it cannot assure that it will have
sufficient resources or access to the necessary proprietary technology to remain competitive in the future.
The Company’s information systems may experience an interruption or breach in security.
The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or
breach in security of these systems could result in failures or disruptions in the Company’s customer-relationship
management, general ledger, deposit, loan and other systems.
The Company is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or
will be subject to the same risk of fraud or operational errors by their respective employees) and to the risk that the Company’s
(or its vendors’) business continuity and data security systems prove to be inadequate. The Company maintains a system of
comprehensive policies and a control framework designed to monitor vendor risks including, among other things, (i) changes
in the vendor’s organizational structure or internal controls; (ii) changes in the vendor’s financial condition; (iii) changes in
the vendor’s support for existing products and services and (iv) changes in the vendor’s strategic focus. In addition, the
Company maintains cyber liability insurance to mitigate against certain losses it may incur.
While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security
breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not
occur; or, if they do occur, that they will be adequately addressed. Further cyber risk exposure will likely remain elevated in
the future as a result of the Company’s expansion of internet and mobile banking tools and new product roll out. The
occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage the
Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny or expose
the Company to civil litigation and possible financial liability; any of which could have a material adverse effect on the
Company’s financial condition and results of operations.
For further information, please refer to Item 1C in this document.
The Company’s business strategy could be adversely affected if it is not able to attract and retain skilled employees
and manage expenses.
The Company expects to continue to experience growth in the scope of its operations and, correspondingly, in the number of
its employees and customers. The Company may not be able to successfully manage its business as a result of the strain on
Management and operations that may result from this growth. The Company’s ability to manage this growth will depend upon
its ability to continue to attract, hire and retain skilled employees. The Company’s success will also depend on the ability of
its officers and key employees to continue to implement and improve operational and other systems, to manage multiple,
concurrent customer relationships and to hire, train and manage employees. Further, given the rise of “remote” and “hybrid”
working models, the Company is in competition with more companies and industries for employee retention. The Company’s
potential inability to retain key employees could have a material adverse effect on its financial condition and results of
operations. As a community banking organization, the Company is highly reliant on key employees, including its Chief
Executive Officer, Chief Financial Officer, heads of key operational areas, area managers, business development officers and
loan officers. The loss of these employees could have an adverse impact on the Company’s operating capacities and the ability
to implement growth strategies and adversely impact the financial performance.
Table of Contents
20
Pandemic or other health related events may have a material adverse effect on operations and financial condition.
The outbreak of disease or other health related events on a regional, national or global level and the government’s reaction to
such events, may have a material adverse effect on commerce, which may, in turn impact the Company’s lines of business as
well as the businesses of its customers.
Climate change, hurricanes, flooding, earthquakes, terrorism or other adverse events could negatively affect local
economies or disrupt operations, which would have an adverse effect on the Company’s business or results of
operations.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. Climate
change presents (i) physical risks from the direct impacts of changing climate patterns and acute weather events and (ii)
transition risks from changes in regulations, disruptive technologies, and shifting market dynamics towards a lower carbon
economy. The physical risks of climate change include discrete events such as hurricanes, flooding, earthquakes that can
disrupt the Company’s operations, result in damage to its properties and negatively affect the local economies in which it
operates. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may
result in higher regulatory, compliance, credit and reputational risks and costs. Climate change could also present incremental
risks to the execution of the Company’s long-term strategy. Additionally, transitioning to a low-carbon economy may entail
extensive policy, legal, technology and market initiatives.
In addition, our reputation and client relationships may be damaged as a result of our practices related to climate change,
including our involvement, or our clients’ involvement, in certain industries or projects, in the absence of mitigation and/or
transition measures, associated with causing or exacerbating climate change, as well as any decisions we make to continue to
conduct or change our activities in response to considerations relating to climate change. As climate risk is interconnected
with all key risk types, the Company continues to embed climate risk considerations into risk management strategies.
Furthermore, these weather events may result in a decline in value or destruction of properties securing loans and an increase
in delinquencies, foreclosures and credit losses. The Company does maintain property insurance policies to cover certain costs
associated with these events; however, it is possible that the expenses may exceed coverage, may not be covered at all or may
ultimately increase costs associated with future insurance premiums.
Additionally, New York City and New Jersey remain central targets for potential acts of terrorism against the United States.
Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding
loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause
the Company to incur additional expenses. The occurrence of any such event in the future could have material adverse effect
on the business, which in turn, could have a materially adverse impact on the financial condition and results of operations of
the Company.
The Company may be adversely affected by changes in U.S. federal tax laws and state and local tax laws.
The Company’s business may be adversely affected by changes in tax laws if there are any increases in its federal income tax
rates. Further, the Company’s business may be adversely affected by changes in tax laws if there are any increases in its state
and local tax rates in markets where it has locations.
The Company’s financial results and condition may be adversely impacted by banking failures or future similar events.
Certain events impacting the banking industry, including the bank failures in March and April 2023, resulted in significant
disruption and volatility in the capital markets, reduced valuation of bank securities, and decreased confidence in banks among
certain depositors and counterparties. While the U.S. Department of Treasury, the Federal Reserve, and the FDIC took steps to
ensure the depositors of the failed banks in early 2023 would have access to their insured and uninsured deposits, there is no
assurance that these or similar actions will restore customer confidence in the baking system, and the Company may be further
impacted by concerns regarding the soundness, real or perceived, of
Table of Contents
21
other financial institutions or other future bank failures or disruptions. Any loss in client deposits or changes in the Company’s
perception could increase the cost of funding, limit access to capital markets or negatively impact the Company’s overall
liquidity or capitalization. Further, the cost of resolving the bank failures also prompted the FDIC to issue a special assessment
to recover costs to the DIF. The special assessment did not impact the Company; however, the FDIC maintains the ability to
impose additional shortfall special assessments, which may adversely impact the Company, in the future.
Claims and litigation could result in significant expenses, losses and damage to the Company’s reputation.
From time to time, as a part of the Company’s normal course of business, customers, bankruptcy trustees, former customers,
contractual counterparties, third parties and current and former employees may make claims and take legal action against the
Company based on the actions or inactions of the Company. If such claims and legal actions are undertaken and are not
resolved in a manner favorable to the Company, they may result in financial liability and/or adversely affect the market
perception of the Company. Any financial liability could have a material impact on the Company’s financial condition and
results of operations. Any reputational damages could have a material adverse effect on the Company’s business.
Failure to successfully implement the Company’s growth strategies could cause it to incur substantial costs, which may
not be recouped and adversely affect its future profitability.
From time to time, the Company may implement new lines of business, open new branches or offer new products and
services. There are substantial risks and uncertainties associated with these efforts. The Company may invest significant time
and resources, which may not be fully recouped if profitability targets are not proven feasible. External factors such as
compliance with regulations, competitive alternatives and shifting customer preferences may also impact successful
implementation. Failure to successfully manage these risks may have a material adverse impact on the Company’s business,
results of operations and financial condition.
Further, in order to continue growth, the Company may need to seek additional capital. The Company will be required to
maintain its regulatory capital levels at levels higher than the minimum set by its regulators. If the Company were required to
raise capital to implement growth strategies, the Company can offer no assurances that it will be able to raise capital in the
future or that the terms of the capital will be beneficial to its existing shareholders. In the event that the Company is unable to
raise capital in the future, the Company may not be able to continue its growth strategy.
A component of the Company’s growth strategies may include merger & acquisition opportunities. Attractive merger and
acquisition opportunities may not be available to the Company in the future as other banking and financial service companies,
many of which have greater resources, will compete with the Company in acquiring potential target companies. This
competition could increase prices of potential acquisitions that may be attractive. Additionally mergers and acquisitions are
subject to various regulatory approvals. If regulatory approvals are not obtained, the Company would not be able to
consummate a merger or acquisition that may be in the Company’s best interests. Lastly, the Company has limited merger and
acquisition experience, which may minimize the deals available or the ability to appropriately analyze and operationally
execute a merger or acquisition. This may adversely impact the operating results.
The Company may not be able to detect money laundering and other illegal or improper activities fully, or on a timely
basis, which could expose the company to additional liability and could have a material adverse effect.
The Company is required to comply with anti-money laundering, anti-terrorism and other laws and regulations in the United
States. These laws and regulations require the Company to adopt and enforce “know-your-customer” policies and procedures
and to report suspicious and larger transactions to applicable regulatory authorities. These laws and regulations have become
increasingly complex and detailed, require improved systems, sophisticated monitoring and compliance personnel and have
become the subject of enhanced government supervision.
Although the Company has policies and procedures aimed at detecting and preventing the use of its banking network for
money laundering and related activities, those policies and procedures may not eliminate instances in which the Company
may be used by customers to engage in illegal or improper activities. To the extent that the Company fails to fully comply
Table of Contents
22
with the applicable laws and regulations, banking agencies may have the authority to impose fines, other penalties and
sanctions on the Company.
The Company’s ability to maintain its reputation is critical to the success of the business and the failure to do so may
adversely impact its performance.
The Company’s reputation is one of the most valuable components of its business. As such, the Company strives to conduct its
business in a manner that maintains its reputation. If the Company’s reputation is negatively impacted by the actions of an
employee, certain litigations, regulatory actions, or certain financial concerns, the business and therefore the operating results
may be adversely impacted.
In addition, stakeholder expectations regarding environmental, social, and governance matters continue to evolve and are not
uniform. We have established, and may continue to establish, various goals and initiatives on these matters. We cannot
guarantee that we will achieve these goals and initiatives. Any failure, or perceived failure, by us to achieve these goals and
initiatives could adversely affect our reputation and results of operations.
The Company’s controls and procedures may fail or be circumvented, which may result in a material adverse effect on
its business, results of operations and financial condition.
The Company’s Management periodically reviews and updates its internal controls, policies and procedures. Any system of
controls is in part based on certain assumptions and can only provide reasonable, not absolute, assurances that the objectives
of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations
related to controls and procedures could have a material adverse effect on the Company and its results of operations and
financial condition.
Anti-takeover provisions in corporate documents and in New Jersey corporate law may make it difficult and expensive
to remove current management.
Anti-takeover provisions in corporate documents and in New Jersey law may render the removal of the existing Board of
Directors and management more difficult. Consequently, it may be difficult and expensive for the shareholders to remove
current management, even if current management is not performing adequately.
Item 1B. Unresolved Staff Comments: None
Item 1C. Cybersecurity Disclosures
Risk Management and Governance
Cybersecurity is a material part of Unity Bank’s business. As a technology forward financial institution offering products
through multiple digital delivery channels, cybersecurity incidents could have a material effect on the Company, its results of
operations and its reputation. To date, the Company has not experienced any cybersecurity incident which has had a material
effect on the Company’s business strategy, results of operations or financial condition, although increased use of technology
will expose us to greater risk of breaches in security and or service disruptions.
Cybersecurity risk is initially overseen by the management Information Technology Steering Committee (the “ITSC”). The
members of this committee include the Company’s Chief Information Officer, Chief Compliance Officer (who is also the
Information Security Officer), Chief Executive Officer, Chief Financial officer and other critical executive management
members. The ITSC also includes a non-voting member that is an outsourced cybersecurity expert.
Over his 17-year career, the Company’s Chief Information Officer has served in multiple Information Technology and
Cybersecurity roles, such as Senior Engineer, responsible for implementing hardened infrastructure for both physical and
Table of Contents
23
cloud applications; Solutions Architect, designing infrastructures for highly regulated industries including Financial Services,
Local/State Government and Healthcare; Director of Service Delivery, overseeing engineering, solutions architecture and
maintaining the System and Organization Controls (SOC) program prior to joining Unity Bank. During his tenure at Unity
Bank, he is a member of various Risk and Cybersecurity Committees of the New Jersey Bankers Association, is a member of
FS-ISAC, The Independent Community Bankers of America and our primary banking vendors advisory and risk management
committees.
The Company’s Chief Compliance Officer was appointed as the Company’s Information Security Officer in 2016.
The Virtual Information Security Officer (vISO), an outsourced consultant, has an over 19-year career in Information
Technology, Cybersecurity and both Internal/External Audit experience. He presently holds a position of Partner of Herbein,
COA Advisor & Audit, where he’s held multiple positions within Information Technology and Cybersecurity.
The Company’s Information Technology Manager has an over 26-year career in Information Technology, the prior 13-years of
which have been in Information Technology, Security and Cybersecurity, working primarily in regulated industries.
In order to ensure that cybersecurity risk management is integrated into the Company’s overall risk management plans,
systems and processes, the ITSC and Chief Information Officer provide reports and updates to the Board of Directors, or a
Committee thereof on a quarterly basis.
The Company’s cybersecurity risk mitigation program involves a combination of internal resources and the use of third
parties. The Company’s internal IT team performs monthly vulnerability scanning and performs an annual risk assessment
based on the National Institute of Standards and Technology Cybersecurity Framework. The results are reported to the ITSC.
The Company’s IT and compliance staff also review potential cybersecurity threats associated with the Company’s third party
vendors, including performing a review of and obtaining a System of Organization Controls report from all vendors rated as
“high risk” by the Company’s internal vendor management program. The Company also has an internal Incident Response
Plan and Team, which is charged with overseeing the Company’s response to any cybersecurity incident. The team performs a
table top exercise at least annually to prepare to respond in the event of any actual cybersecurity incident.
In addition to these internal resources, the Company uses a third party vendor to complete annual penetration and vulnerability
testing, with the results reported to the ITSC. Finally, the Company’s cybersecurity compliance program is audited by the
Bank’s outsourced internal auditor.
The Company also maintains insurance which may provide coverage for expenses and certain losses incurred in connection
with a cybersecurity incident.
Cybersecurity Incident Response Planning
The Company has established a comprehensive cybersecurity incident response plan to ensure the swift and effective handling
of any potential security breaches. This plan includes detailed procedures for identifying, assessing, and mitigating
cybersecurity threats, as well as protocols for communication and coordination with relevant stakeholders. Regular training
and simulations are conducted to keep the Company’s response team prepared for various scenarios, ensuring minimal
disruption to its operations and safeguarding the Company’s customers’ data.
Table of Contents
24
Item 2. Properties:
The Company presently conducts its business through its main office located at 64 Old Highway 22, Clinton, New Jersey and
its twenty-one branch offices. The Company is currently leasing additional back office space in Clinton, New Jersey, in a
building adjacent to its main office. The Company’s facilities are adequate to meet its needs.
The following table sets forth certain information regarding the Company’s properties from which it conducts business as of
December 31, 2024.
Location
Leased or Owned Date Leased or Acquired Lease Expiration
North Plainfield, NJ
Owned
1991
—
Linden, NJ
Owned
1997
—
Whitehouse, NJ
Owned
1998
—
Union, NJ
Leased
2021
2036
Scotch Plains, NJ
Owned
2004
—
Flemington, NJ
Owned
2005
—
Forks Township, PA
Leased
2006
2036
Middlesex, NJ
Owned
2007
—
Somerset, NJ
Leased
2012
2027
Washington, NJ
Owned
2012
—
Highland Park, NJ
Owned
2013
—
South Plainfield, NJ
Owned
2013
—
Edison, NJ
Owned
2013
—
Clinton, NJ*
Owned
2016
—
Somerville, NJ
Owned
2016
—
Emerson, NJ
Owned
2016
—
Phillipsburg, NJ
Leased
2017
2027
Clinton, NJ**
Leased
2018
2036
Bethlehem, PA
Leased
2018
2028
Parsippany, NJ
Owned
2023
—
Lakewood, NJ
Leased
2022
2037
Fort Lee, NJ
Leased
2022
2037
*Headquarters Space
**Back Office Space
Item 3. Legal Proceedings:
From time to time, the Company is subject to 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 operating results of the Company.
Item 4. Mine Safety Disclosures: N/A
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities:
(a)
Market Information
The Company’s Common Stock is quoted on the NASDAQ Global Market under the symbol “UNTY.” The Company
declared cash dividends of $0.13 per share in each of the first, second, third and fourth quarters of 2024. The declaration and
payment of future dividends to holders of the Company’s common stock is at the discretion of our Board and
Table of Contents
25
depends upon many factors, including our financial condition, earnings, capital requirements, legal requirements, regulatory
constraints and other factors that our Board deems relevant.
(b)
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. A total of 229 thousand shares were repurchased at
an average price of $27.05 during 2024, all of which were repurchased under the prior repurchase plan, leaving 685 thousand
shares available for repurchase as of December 31, 2024. A total of 656 thousand shares were repurchased at an average price
of $23.69 during 2023, leaving 414 thousand shares available for repurchase as of December 31, 2023. 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.
Maximum
Total Number of
Number of
Total
Shares Purchased
Shares that May
Number of
Weighted
as Part of Publicly
Yet be Purchased
Shares
Average Price
Announced Plans
Under the Plans
Period
Purchased
Paid per Share
or Programs
or Programs
January 1, 2024 through January 31, 2024
-
$
-
-
413,747
February 1, 2024 through February 29, 2024
28,709
26.91
28,709
385,038
March 1, 2024 through March 31, 2024
121,288
27.23
121,288
263,750
April 1, 2024 through April 30, 2024
4,190
26.73
4,190
259,560
May 1, 2024 through May 31, 2024
35,100
26.99
35,100
224,460
June 1, 2024 through June 30, 2024
29,481
26.51
29,481
194,979
July 1, 2024 through July 31, 2024
10,334
27.27
10,334
184,645
August 1, 2024 through August 31, 2024
-
-
-
684,645
September 1, 2024 through September 30, 2024
-
-
-
684,645
October 1, 2024 through October 31, 2024
-
-
-
684,645
November 1, 2024 through November 30, 2024
-
-
-
684,645
December 1, 2024 through December 31, 2024
-
-
-
684,645
The above table excludes stock repurchase excise taxes accrued or paid.
Item 6. Reserved: N/A
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations:
The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company’s
results of operations and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader
is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under Item 8 of this
report and statistical data presented in this document.
Overview
Unity Bancorp, Inc. (the “Parent Company”) is a financial holding company incorporated in New Jersey and registered under
the Bank Holding Company Act of 1956, as amended. Its wholly-owned subsidiary, Unity Bank (the “Bank” or, when
consolidated with the Parent Company, the “Company”) is chartered by the New Jersey Department of Banking and Insurance
and commenced operations on September 13, 1991. The Bank provides a full range of commercial and retail banking services
through online banking platforms and its twenty-one branch offices located in Bergen, Hunterdon,
Table of Contents
26
Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania.
These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, SBA
and other commercial credits. The Bank has multiple subsidiaries used to hold part of its investment, other real estate owned
and loan portfolios.
The below table reflects a 5-year trend of the Company’s net income and return on average equity, (“ROE”):
Results of Operations
Net income totaled $41.5 million, or $4.06 per diluted share for the year ended December 31, 2024, compared to $39.7
million, or $3.84 per diluted share for the year ended December 31, 2023.
Highlights for the year include:
●
Net income increased 4.4 percent to $41.5 million from $39.7 million in the prior year.
●
Net income per diluted share increased 5.7 percent to $4.06 per share from $3.84 per share in the prior year.
●
Net interest income increased $3.6 million, or 3.8 percent, to $98.6 million from $95.0 million in the prior year,
primarily due to additional interest income primarily resulting from increases in the yield of interest-earning
assets, partially offset by an increased cost of interest-bearing liabilities.
●
Net interest margin for the year ending December 31, 2024 increased 10 basis points to 4.16 percent compared to
4.06 percent in the prior year.
●
Noninterest income was $8.5 million, a 4.0 percent increase compared to $8.1 million in the prior year, primarily
due to net securities gains, branch fee income and service and loan fees increasing, partially offset by a decrease in
gain on sale of SBA loans held for sale and BOLI income.
Table of Contents
27
●
Noninterest expense totaled $48.7 million, an increase of $1.7 million when compared to $47.0 million in the
prior year. The increase was primarily due to increased compensation and benefits expenses and processing and
communications expenses, partially offset by a decrease in deposit insurance expenses.
●
Net income before provision for income taxes increased 2.6 percent to $54.4 million from $53.0 million in the
prior year.
●
The effective tax rate decreased to 23.8 percent compared to 25.1 percent in the prior year.
●
Total gross loans increased $88.6 million, or 4.1 percent from the prior year. The increase was primarily driven by
a 10.5 percent increase in commercial loans, partially offset by a 30.7 percent decrease in residential construction
loans.
●
Total deposits increased $176.2 million, or 9.2 percent from the prior year. The increase was primarily driven by
increases in time deposits, partially offset by a decrease in savings deposits.
●
Total securities increased $9.3 million, or 6.9 percent from the prior year. The increase was primarily driven by an
increase in debt securities held to maturity and equity securities.
●
Total borrowed funds decreased $135.9 million, or 38.1 percent from the prior year. The decrease was primarily
due to customer deposit growth.
The Company’s performance ratios for the past two years are listed in the following table:
For the years ended December 31,
2024
2023
Net income per common share - Basic (1)
$
4.13
$
3.89
Net income per common share - Diluted (2)
$
4.06
$
3.84
Return on average assets
1.68 %
1.63 %
Return on average equity (3)
14.99 %
16.05 %
Efficiency ratio (4)
45.77 %
45.55 %
Dividend payout ratio (5)
12.81 %
12.50 %
Average equity to average assets (6)
11.24 %
10.14 %
(1) Defined as net income divided by weighted average shares outstanding.
(2) Defined as net income divided by the sum of 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, excluding net securities gains.
(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
28
The below table provides net income for 2023 and the component reconciliation to net income for 2024
:
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 net deferred fees earned on loans, versus interest paid on interest-bearing
liabilities. Interest-earning assets include loans to consumers and businesses, investment securities, Federal Home Loan Bank
(“FHLB”) stock, and interest-earning deposits. Interest-bearing liabilities include interest-bearing demand, savings, brokered
and time deposits, borrowed funds and subordinated debentures.
2024 compared to 2023
During 2024, tax-equivalent net interest income amounted to $98.6 million, an increase of $3.6 million, or 3.8 percent, when
compared to the same period in 2023. The net interest margin increased 10 basis points to 4.16 percent for the year ended
December 31, 2024, compared to 4.06 percent for the same period in 2023. The net interest spread was 3.29 percent for 2024,
a 3 basis point decrease compared to 3.32 for the same period in 2023.
During 2024, tax-equivalent interest income was $155.7 million, an increase of $12.2 million, or 8.5 percent, when compared
to the same period in the prior year. This increase was mainly driven by increases in the yield on loans and the balance of
average loans.
●
Of the $12.2 million increase in interest income on a tax-equivalent basis, $1.0 million was due to the increased
average volume of interest-earning assets and $11.2 million was due to increased yields on average interest-
earning assets.
●
The average volume of interest-earning assets increased $30.2 million to $2.4 billion for 2024 compared to $2.3
billion for 2023. This was primarily due to a $29.1 million increase in average loans, with growth in commercial.
The increase was complemented by a $4.3 million and $3.9 million increase in average interest-bearing deposits
and average investment securities, respectively, partially offset by a $7.1 million decrease in average FHLB stock.
●
The yield on total interest-earning assets increased 44 basis points to 6.57 percent for the year ended December 31,
2024 when compared to 2023. The yield on the loan portfolio increased 47 basis points to 6.56 percent.
Table of Contents
29
Total interest expense was $57.1 million in 2024, an increase of $8.6 million or 17.8 percent compared to 2023. This increase
was primarily driven by the increases in the rate on time deposits, interest-bearing demand deposits and savings deposits and
the increased balance of average time deposits, which were partially offset by a decrease in the rate paid on and the average
balance of borrowed funds and subordinated debentures.
●
Of the $8.6 million increase in interest expense, $11.1 million was due to increased rates on average interest-
bearing deposits, while $6.5 million was due to the increased volume of average interest-bearing deposits, which
was offset by a decrease of $6.7 million related to volume and $2.3 million related to rate for borrowed funds and
subordinated debentures.
●
The average cost of interest-bearing liabilities increased 47 basis points to 3.28 percent in 2024 when compared to
2023. The cost of interest-bearing deposits increased 84 basis points in 2024. The cost of borrowed funds and
subordinated debentures decreased 90 basis points in 2024.
●
Interest-bearing liabilities averaged $1.7 billion in 2024, an increase of $18.0 million, compared to 2023. The
increase in interest-bearing liabilities was primarily due to an increase in time deposits and interest-bearing
demand deposits, partially offset by a decrease in borrowed funds and subordinated debentures and brokered
deposits.
The following table provides a 5 year look back at yield on interest-earning assets, cost of interest-bearing liabilities and net
interest margin.
Consolidated Average Balance Sheets
The following table reflects the components of net interest income, setting forth for the periods presented herein: (1) average
assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on
interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on
Table of Contents
30
interest-bearing liabilities, (4) net interest spread and (5) net interest income/margin on average interest-earning assets.
Rates/yields are computed on a fully tax-equivalent basis, assuming a federal income tax rate of 21 percent.
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the years ended December 31,
2024
2023
Average
Average
balance
Interest
Rate/Yield
balance
Interest
Rate/Yield
ASSETS
Interest-earning assets:
Interest-bearing deposits
$
38,491
$
2,033
5.28 % $
34,233
$
1,724
5.03 %
Federal Home Loan Bank ("FHLB") stock
8,440
789
9.34
15,508
1,369
8.83
Securities:
Taxable
139,800
7,312
5.23
135,806
7,271
5.35
Tax-exempt
1,599
72
4.49
1,698
76
4.38
Total securities (A)
141,399
7,384
5.22
137,504
7,347
5.34
Loans:
SBA loans
54,524
4,857
8.91
61,834
5,489
8.88
SBA PPP loans
1,783
30
1.68
2,919
137
4.69
Commercial loans
1,321,083
87,773
6.54
1,240,783
76,966
6.12
Residential mortgage loans
625,365
37,770
6.04
624,146
34,194
5.48
Consumer loans
71,010
5,607
7.77
75,018
5,742
7.55
Residential construction loans
108,558
9,497
8.61
148,520
10,530
6.99
Total loans (B)
2,182,323
145,534
6.56
2,153,220
133,058
6.09
Total interest-earning assets
$ 2,370,653
$ 155,740
6.57 % $ 2,340,465
$ 143,498
6.13 %
Noninterest-earning assets:
Cash and due from banks
23,396
22,478
Allowance for credit losses
(26,492)
(26,149)
Other assets
92,687
102,204
Total noninterest-earning assets
89,591
98,533
Total assets
$ 2,460,244
$ 2,438,998
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits
$
326,943
$
7,176
2.19 % $
305,265
$
5,227
1.71 %
Savings deposits
512,405
13,006
2.54
512,526
9,175
1.79
Brokered deposits
227,070
8,412
3.70
239,601
7,916
3.29
Time deposits
535,297
22,918
4.28
363,367
11,567
3.17
Total interest-bearing deposits
1,601,715
51,512
3.22
1,420,759
33,885
2.38
Borrowed funds and subordinated debentures
141,489
5,615
3.90
304,419
14,612
4.80
Total interest-bearing liabilities
$ 1,743,204
$ 57,127
3.28 % $ 1,725,178
$ 48,497
2.81 %
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits
411,148
439,653
Other liabilities
29,421
26,780
Total noninterest-bearing liabilities
440,569
466,433
Total shareholders' equity
276,471
247,387
Total liabilities and shareholders' equity
$ 2,460,244
$ 2,438,998
Net interest spread
$ 98,613
3.29 %
$ 95,001
3.32 %
Tax-equivalent basis adjustment
(2)
(4)
Net interest income
$
98,611
$ 94,997
Net interest margin
4.16 %
4.06 %
(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 in 2024 and 2023.
(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
31
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 years ended December 31,
2024 versus 2023
Increase (decrease) due to change in:
(In thousands on a tax-equivalent basis)
Volume
Rate
Net
Interest income:
Interest-bearing deposits
$
220
$
89
$
309
FHLB stock
(655)
75
(580)
Securities
203
(166)
37
Loans
1,201
11,275
12,476
Total interest income
$
969
$
11,273
$
12,242
Interest expense:
Demand deposits
$
394
$
1,555
$
1,949
Savings deposits
(2)
3,833
3,831
Brokered deposits
(434)
930
496
Time deposits
6,524
4,827
11,351
Total interest-bearing deposits
6,482
11,145
17,627
Borrowed funds and subordinated debentures
(6,663)
(2,334)
(8,997)
Total interest expense
(181)
8,811
8,630
Net interest income - fully tax-equivalent
$
1,150
$
2,462
$
3,612
Decrease in tax-equivalent adjustment
2
Net interest income
$
3,614
Provision for Credit Losses
The provision for credit losses for loans totaled $2.4 million for 2024, compared to $1.8 million in 2023. The provision for
credit losses for loans increased $0.6 million for the year ended 2024 primarily due to loan growth.
The provision for credit losses for off-balance sheet exposures totaled to $1 thousand for the year ended December 31, 2024,
compared to $53 thousand at December 31, 2023.
The provision for credit losses for AFS debt securities was $1.5 million for the year ended December 31, 2024, compared to
$1.3 million for the prior year. The impairment was entirely attributable to one corporate senior debt security in the AFS
portfolio. The Company owns $5 million in par value of this position and maintains it in nonaccrual status. The net carrying
value of the position was $2.0 million as of December 31, 2024.
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.”
Table of Contents
32
Noninterest Income
The following table shows the components of noninterest income for the past two years:
For the years ended December 31,
(In thousands)
2024
2023
Branch fee income
$
1,391
$
997
Service and loan fee income
2,165
1,928
Gain on sale of SBA loans held for sale, net
660
1,299
Gain on sale of mortgage loans, net
1,488
1,546
BOLI income
544
852
Net securities gains
586
7
Other income
1,635
1,513
Total noninterest income
$
8,469
$
8,142
Noninterest income was $8.5 million for 2024, a $0.4 million increase compared to $8.1 million for 2023. This increase was
primarily due to increased net unrealized gains on securities, branch fee income and service and loan fee income, partially
offset by a decrease in gain on sale of SBA loans and BOLI income.
Noninterest Expense
The following table shows the components of noninterest expense for the past two years:
For the years ended December 31,
(In thousands)
2024
2023
Compensation and benefits
$
29,749
$
29,051
Processing and communications
3,473
2,994
Occupancy
3,184
3,087
Furniture and equipment
3,140
2,780
Professional services
1,683
1,563
Advertising
1,611
1,436
Loan related expenses
1,138
918
Deposit insurance
1,100
1,715
Director fees
956
847
Other expenses
2,707
2,585
Total noninterest expense
$
48,741
$
46,976
Noninterest expense totaled $48.7 million for the year ended December 31, 2024, an increase of $1.7 million when compared
to $47.0 million in 2023. The majority of this increase is attributable to increased compensation and benefits, processing and
communications and furniture and equipment expenses, partially offset by decreased deposit insurance expense.
Income Tax Expense
For 2024, the Company reported income tax expense of $12.9 million for an effective tax rate of 23.8%, compared to
an income tax expense of $13.3 million and an effective tax rate of 25.1% in 2023.
For additional information on income taxes, see Note 11 to the Consolidated Financial Statements.
Table of Contents
33
Financial Condition
Total assets increased $75.5 million, or 2.9 percent, to $2.7 billion at December 31, 2024, when compared to year end 2023.
This increase was primarily due to an increase of $88.6 million in gross loans, mostly due to commercial loan growth,
partially offset by decreases in residential construction. Total assets also included an increase of $9.3 million in securities,
offset by a decrease of $14.3 million in total cash and cash equivalents.
Total deposits increased $176.2 million, or 9.2 percent, to $2.1 billion at December 31, 2024. This increase was primarily due
to increases of $202.2 million in time deposits, $21.2 million in noninterest-bearing demand deposits, $18.3 million in
brokered deposits and $8.4 million in interest-bearing demand deposits, offset by a decrease of $73.9 million in savings
deposits. Borrowed funds decreased $135.9 million to $220.5 million at December 31, 2024.
Total shareholders’ equity increased $34.2 million when compared to December 31, 2023, due to earnings and an increase in
common stock, offset by dividends paid and share repurchases.
These fluctuations are discussed in further detail in the sections that follow.
Securities
The Company’s securities portfolio consists of available for sale (“AFS”) debt securities, held to maturity (“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.
The following table provides the major components of AFS debt securities, HTM debt securities and equity investments at
their carrying value as of December 31, 2024 and December 31, 2023:
(In thousands)
December 31, 2024
December 31, 2023
Available for sale, at fair value:
U.S. Government sponsored entities
$
14,759
$
16,033
State and political subdivisions
333
360
Residential mortgage-backed securities
12,286
14,077
Asset backed securities
39,393
35,403
Corporate and other securities
27,113
25,892
Total securities available for sale
$
93,884
$
91,765
Held to maturity, at amortized cost:
U.S. Government sponsored entities
$
28,000
$
28,000
State and political subdivisions
1,234
1,272
Residential mortgage-backed securities
12,060
6,850
Total securities held to maturity
$
41,294
$
36,122
Equity Securities, at fair value:
Total Equity Securities
$
9,850
$
7,802
AFS debt securities are investments carried at fair value that may be sold in response to changing market and interest rate
conditions, liquidity management purposes, 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 sponsored
entities, state and political subdivisions, residential mortgage-backed securities, asset backed securities and corporate and
other securities.
Table of Contents
34
AFS debt securities totaled $93.9 million at December 31, 2024, an increase of $2.1 million or 2.3 percent, compared to $91.8
million at December 31, 2023. This net increase was the result of:
●
Purchases of $10.5 million,
●
$1.0 million of appreciation in the market value of the portfolio. At December 31, 2024, the portfolio had a net
unrealized loss of $3.5 million compared to a net unrealized loss of $4.5 million at December 31, 2023. These net
unrealized losses are reflected net of tax in shareholders’ equity as accumulated other comprehensive loss,
●
$7.8 million in principal payments, maturities and called bonds; and
●
$0.2 million of nonaccrual interest paid. At December 31, 2024 the portfolio had $2.8 million in valuation
allowance compared to $1.3 million at December 31, 2023
The provision for credit losses on AFS debt securities was $1.5 million at December 31, 2024. The provision was entirely
attributable to the same corporate debt security for which a partial provision was taken in the second quarter of 2024 and the
fourth quarter of 2023. The company owns $5 million in par of this position and maintains it in nonaccrual status.
The weighted average life of AFS debt securities, adjusted for prepayments, amounted to 4.9 years and 5.6 years at
December 31, 2024 and 2023, respectively. The effective duration of AFS debt securities amounted to 1.4 and 1.7 years at
December 31, 2024 and 2023, 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 comprised of obligations of U.S. Government sponsored entities, state and political
subdivisions and residential mortgage-backed securities.
HTM debt securities totaled $41.3 million at December 31, 2024, an increase of $5.2 million, or 14.3 percent, compared to
$36.1 million at December 31, 2023. The increase was due to:
●
Purchases of $5.0 million; and
●
$0.2 million in net accretion
The weighted average life of HTM debt securities, adjusted for prepayments, amounted to 14.3 years and 17.1 years at
December 31, 2024 and 2023, respectively. As of December 31, 2024, the fair value of HTM debt securities was $33.8
million, compared to $29.7 million at December 31, 2023. The effective duration of HTM debt securities amounted to 9.0 and
10.9 years at December 31, 2024 and 2023, 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 interest
rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of
earnings. Additionally, equity securities consist of Community Reinvestment Act ("CRA") investments and the equity
holdings of financial institutions.
Equity securities totaled $9.8 million at December 31, 2024, an increase of $2.0 million, or 26.2 percent, compared to $7.8
million at December 31, 2023. This net increase was the result of:
●
Purchases of $2.2 million,
●
$0.5 million of net unrealized gains; and
●
$0.8 million in proceeds from sales, including $0.1 million of realized gains
Table of Contents
35
The following table provides the remaining contractual maturities and average yields, calculated on a yield-to-maturity basis,
within the investment portfolios. The carrying value of securities at December 31, 2024 is distributed by contractual maturity.
Residential mortgage-backed securities and other securities, which may have principal prepayment provisions, are distributed
based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of early
prepayments and calls.
Within one year
After one
through five
years
After five
through ten
years
After ten years
Total carrying
value
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(In thousands, except
percentages)
Available for sale, at fair
value:
U.S. Government
sponsored entities
$
—
- %
$ 14,759
3.72 %
$
—
- %
$
—
- % $ 14,759
3.72 %
State and political
subdivisions
165
1.90
—
-
—
-
168
2.75
333
2.33
Residential mortgage-
backed securities
20
2.95
206
2.71
590
2.96
11,470
3.58
12,286
3.53
Asset backed securities
—
-
—
-
14,322
7.11
25,070
6.97
39,392
7.02
Corporate and other
securities
3,079
6.98
11,920
6.65
12,115
6.67
—
-
27,114
6.69
Total debt securities
available for sale
$
3,264
6.70 %
$ 26,885
5.01 %
$ 27,027
6.82 %
$ 36,708
5.89 % $ 93,884
5.93 %
Held to maturity, at cost:
U.S. Government
sponsored entities
$
—
- %
$
3,000
4.00 %
$
—
- %
$ 25,000
3.48 % $ 28,000
3.54 %
State and political
subdivisions
—
-
—
-
—
-
1,234
5.19
1,234
5.19
Residential mortgage-
backed securities
—
-
—
-
—
-
12,060
4.50
12,060
4.50
Total debt securities
held for maturity
$
—
- %
$
3,000
4.00 %
$
—
- %
$ 38,294
3.86 % $ 41,294
3.87 %
Securities with a carrying value of $11.5 million and $9.7 million at December 31, 2024 and December 31, 2023, respectively,
were pledged to secure other borrowings and for other purposes required or permitted by law. There were no securities
encumbered at December 31, 2024 and December 31, 2023.
Approximately 63 percent and 66 percent of the total investment portfolio had a fixed rate of interest at December 31, 2024
and December 31, 2023, respectively.
For additional information on securities, see Note 2 to the Consolidated Financial Statements.
Loans
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.
Table of Contents
36
Total loans were $2.3 billion at December 31, 2024, an increase of $88.6 million or 4.1 percent when compared to year end
2023. Commercial and consumer loans increased $134.2 million and $4.0 million, respectively, partially offset by decreases in
residential construction, SBA loans held for investment, SBA PPP and residential mortgage loans of $40.4 million, $1.7
million, $0.9 million and $0.6 million, respectively. The average outstanding principal balance for the entire portfolio is $0.6
million as of December 31, 2024.
The following table sets forth the classification of loans by loan type, including unearned fees and deferred costs and
excluding the allowance for credit losses as of December 31, 2024 and December 31, 2023:
In thousands, except percentages
December 31,
2024
%
December 31,
2023
%
SBA loans
SBA loans held for sale
$
12,163
0.5%
$
18,242
0.8%
SBA loans held for investment
36,859
1.6%
38,584
1.8%
SBA PPP
1,450
0.1%
2,318
0.1%
Total SBA loans
50,472
2.2%
59,144
2.7%
Commercial loans
Commercial construction
130,193
5.8%
129,159
6.0%
SBA 504
48,479
2.1%
33,669
1.7%
Commercial & industrial
147,186
6.5%
128,402
5.9%
Commercial mortgage - owner occupied
577,541
25.6%
502,397
23.1%
Commercial mortgage - nonowner occupied
428,600
19.0%
424,490
19.5%
Other
79,630
3.5%
59,343
2.7%
Total commercial loans
1,411,629
62.5%
1,277,460
58.9%
Residential mortgage loans
630,927
27.9%
631,506
29.1%
Consumer loans
Home equity
73,223
3.2%
67,037
3.0%
Consumer other
3,488
0.2%
5,639
0.3%
Total consumer loans
76,711
3.4%
72,676
3.3%
Residential construction
90,918
4.0%
131,277
6.0%
Total gross loans
$
2,260,657
100.0%
$ 2,172,063
100.0%
Below is a table of the geographic loan allocation of the Bank’s Commercial loan portfolio at December 31, 2024:
New Jersey
New York
Pennsylvania
Other
Commercial loans
Commercial construction
95.5 %
3.0 %
1.5 %
— %
SBA 504
89.1
1.5
9.1
0.3
Commercial & industrial
92.8
1.6
4.3
1.3
Commercial mortgage - owner occupied
87.5
6.8
2.6
3.1
Commercial mortgage - nonowner occupied
86.3
3.9
3.7
6.1
Other
98.3
0.5
0.8
0.4
Total
89.2 %
4.5 %
3.1 %
3.2 %
Table of Contents
37
The following table presents the estimated weighted average loan-to-value ratio for the commercial mortgage portfolio as of
December 31, 2024:
2024
(In thousands, except percentages)
Amount
Loan-to-Value*
Commercial loans
Commercial mortgage - owner occupied
$
577,541
56.0 %
Commercial mortgage - nonowner occupied
428,600
60.5
Total commercial mortgage loans
$
1,006,141
57.9 %
* The above includes last known appraised value on real estate collateral only.
The table below shows the breakdown of industry of the commercial mortgage – owner occupied portfolio as of December 31,
2024.
(In thousands)
Commercial mortgage -
owner occupied
Industry type:
Mixed-use
$
84,991
Hotel/Motel
82,608
Retail
53,682
Educational facilities
48,146
Warehouse
44,286
Office
42,417
Food/Beverage services
38,952
Religious facilities
26,357
Other
156,102
Total as of December 31, 2024
$
577,541
The Other category above is predominantly comprised of land, airports, automotive and gas station loans.
The table below shows the breakdown of industry of the commercial mortgage – nonowner occupied portfolio as of December
31, 2024.
(In thousands)
Commercial mortgage -
nonowner occupied
Industry type:
Mixed-use
$
118,935
Retail
86,502
Office
68,707
Warehouse
53,090
Educational facilities
16,179
Other
85,187
Total as of December 31, 2024
$
428,600
The Other category above is predominantly comprised of multi-family, land and automotive loans.
SBA 7(a) loans, on which the SBA historically has provided guarantees of up to 90 percent of the principal balance, are
considered a higher risk loan product for the Company than its other loan products. These loans are made to small
Table of Contents
38
businesses for the purposes of providing working capital and for financing the purchase of equipment, inventory or
commercial real estate. Generally, an SBA 7(a) loan has a lower quality credit profile that would not allow the borrower to
qualify for a traditional commercial loan, which is why the SBA provides the guarantee. These loans may have a higher loan
to value (“LTV”) ratio, lower debt service coverage (“DSC”) ratio and/or weak personal financial guarantees. In addition,
many SBA 7(a) loans are for startup businesses where there is no historical financial information. Finally, many SBA
borrowers do not have an ongoing and continuous banking relationship with the Bank and 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 7(a) loans held for sale, carried at the lower of cost or market, amounted to $12.2 million at December 31, 2024, a
decrease of $6.0 million from $18.2 million at December 31, 2023. SBA 7(a) loans held for investment amounted to $36.9
million at December 31, 2024, a decrease of $1.7 million from $38.6 million at December 31, 2023. The yield on SBA
7(a) loans, which is generally floating and adjusts quarterly to the Prime Rate, was 8.91 percent for the year ended
December 31, 2024, compared to 8.88 percent in the prior year.
The guarantee rates on SBA 7(a) loans range from 75 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 $72.6 million and $75.6 million in SBA
loans were sold but serviced by the Company at December 31, 2024 and December 31, 2023, respectively, and are not
included on the Company’s Balance Sheet. There is no direct relationship or correlation between the guarantee percentages
and the level of charge-offs and recoveries on the Company’s SBA 7(a) loans. 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 $1.4
billion at December 31, 2024, an increase of $134.2 million from year end 2023. The yield on commercial loans was
6.54 percent for 2024, compared to 6.12 percent for the same period in 2023. The SBA 504 program, which consists of real
estate backed commercial mortgages where the Company has the first mortgage and the SBA has the second mortgage on the
property, is included in the Commercial loan portfolio. The Commercial Real Estate sub-category includes both owner
occupied and non-owner occupied commercial real estate related loans.
Residential mortgage loans consist of loans secured by 1 to 4 family residential properties. These loans amounted to $630.9
million at December 31, 2024, a decrease of $0.6 million from year end 2023. Sales of mortgage loans totaled $65.3 million
and $71.7 million for 2024 and 2023, respectively. Approximately $75.4 million and $79.0 million in residential loans were
sold but serviced by the Company at December 31, 2024 and December 31, 2023, respectively, and are not included on the
Company’s Balance Sheet. The yield on residential mortgages was 6.04 percent for 2024, compared to 5.48 percent for 2023.
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 fixed and adjustable
rate mortgages with rates that exceed the rates on conventional fixed-rate mortgage loan products but are typically 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 residential properties. These loans amounted to
$76.7 million at December 31, 2024, an increase of $4.0 million from December 31, 2023. The yield on consumer loans
was 7.77 percent for 2024, compared to 7.55 percent for 2023.
Residential construction loans consist of short-term loans for the purpose of funding the costs of building a home. These loans
amounted to $90.9 million at December 31, 2024, a decrease of $40.4 million from December 31, 2023. The yield on
residential construction loans was 8.61 percent for 2024, compared to 6.99 percent for 2023.
There are no concentrations of loans to any borrowers or group of borrowers exceeding 10 percent of the total loan portfolio.
Table of Contents
39
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 ratios, 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 that 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 December 31, 2024 and 2023, approximately 96 percent of the Company’s loan portfolio was
secured by real estate.
The table below shows the balances of loans serviced for others as of December 31, 2024 and 2023:
2024
2023
(In thousands)
Amount
Amount
Ending balance:
SBA loans held for investment
$
72,619
$
75,559
Residential mortgage
75,417
79,010
Commercial
30,984
29,624
Total loans serviced for others
$
179,020
$
184,193
The following table presents the maturity distribution of the loan portfolio at December 31, 2024:
December 31, 2024
(In thousands)
One year or less One to five years Five to fifteen years
Over fifteen years
Total
SBA loans
$
162
$
1,803
$
14,297
$
32,760
$
49,022
SBA PPP loans
—
1,450
—
— sd
1,450
Commercial loans
SBA 504 loans
9,878
198
3,123
35,280
48,479
Commercial & industrial
75,775
28,702
29,632
13,077
147,186
Commercial real estate
33,835
54,399
215,748
781,789
1,085,771
Commercial real estate
construction
28,853
17,401
4,716
79,223
130,193
Residential mortgage loans
701
1,972
54,551
573,703
630,927
Consumer loans
Home equity
1,799
4,376
10,275
56,773
73,223
Consumer other
1,759
720
941
68
3,488
Residential construction loans
85,283
5,635
—
—
90,918
Total
$
238,045
$
116,656
$
333,283
$
1,572,673
$ 2,260,657
Total (as a percentage of total
loans)
10.5 %
5.2 %
14.7 %
69.6 %
100.0 %
Table of Contents
40
The following table presents the contractual maturities after one year for fixed and adjustable rate loans within each loan
category at December 31, 2024:
(In thousands)
Loans Maturing After One Year
Loan Type
Fixed Rate
Adjustable Rate
Total
SBA loans
$
3,670
$
45,190
$
48,860
SBA PPP loans
1,450
-
1,450
Commercial loans
SBA 504 loans
-
38,601
38,601
Commercial & industrial
40,047
31,364
71,411
Commercial real estate
112,801
939,135
1,051,936
Commercial real estate construction
4,934
96,406
101,340
Residential mortgage loans
260,629
369,597
630,226
Consumer loans
Home equity
15,254
56,170
71,424
Consumer other
1,720
9
1,729
Residential construction loans
2,618
3,017
5,635
Total
$
443,123
$
1,579,489
$
2,022,612
For additional information on loans, see Note 3 to the Consolidated Financial Statements.
Asset Quality
The following table sets forth information concerning nonperforming assets and loans past due 90 days or more and still
accruing interest at December 31, 2024 and December 31, 2023:
(In thousands, except percentages)
2024
2023
Nonaccrual by category:
SBA loans held for investment
$
3,850
$
3,444
Commercial loans
2,974
1,948
Residential mortgage loans
5,711
10,326
Consumer loans
—
381
Residential construction loans
547
2,141
Total nonaccrual loans
$
13,082
$
18,240
Debt securities available for sale, net of valuation allowance
1,964
—
Total nonaccrual assets
$
15,046
$
18,240
Past due 90 days or more and still accruing interest:
Residential mortgage loans
760
946
Total past due 90 days or more and still accruing interest
$
760
$
946
Nonaccrual loans to total loans
0.58 %
0.88
Nonaccrual assets to total assets
0.57
0.74
Nonaccrual loans were $13.1 million at December 31, 2024, a $5.1 million decrease from $18.2 million at year end 2023.
Since year-end 2023, nonaccrual loans in the commercial and SBA held for investment loan segments increased, partially
offset by a decrease in nonaccrual residential mortgage, residential construction and consumer loans. In addition, there was
$0.8 million in loans past due 90 days or more and still accruing interest at December 31, 2024, compared to $0.9 million at
December 31, 2023.
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.
Table of Contents
41
Potential problem loans totaled $14.6 million at December 31, 2024, a decrease of $0.5 million from $15.1 million at
December 31, 2023.
Nonaccrual securities were $2.0 million at December 31, 2024, compared to none at December 31, 2023. The Company owns
$5 million in par of this position and moved the position into nonaccrual status during the third quarter of 2024.
For additional information on asset quality, see Note 3 to the Consolidated Financial Statements.
Allowance for Credit Losses and Reserve for Unfunded Loan Commitments
The allowance for credit losses totaled $26.8 million at December 31, 2024, compared to $25.9 million at December 31, 2023,
with resulting allowance to total loan ratios of 1.18 percent and 1.19 percent, respectively. Net charge-offs amounted to $1.5
million for 2024, compared to $2.0 million for 2023.
The following table is a summary of the changes to the allowance for credit losses for December 31, 2024 and 2023, including
net charge-offs to average loan ratios for each major loan category:
(In thousands, except percentages)
2024
2023
Balance, beginning of period
$
25,854
$
25,196
Impact of the adoption of ASU 2016-13 ("CECL")
—
847
Provision for credit losses for loans charged to expense
2,407
1,832
Less: Charge-offs
SBA loans held for investment
(370)
(213)
Commercial loans
(633)
(752)
Residential mortgage loans
(150)
(93)
Consumer loans
(361)
(578)
Residential construction loans
(277)
(1,000)
Total charge-offs
(1,791)
(2,636)
Add: Recoveries
SBA loans held for investment
47
20
Commercial loans
204
400
Residential mortgage loans
—
—
Consumer loans
67
84
Residential construction loans
—
111
Total recoveries
318
615
Net charge-offs
(1,473)
(2,021)
Balance, end of period
$
26,788
$
25,854
Selected loan quality ratios:
Net charge-offs to average loan segment:
SBA loans held for investment
0.85 %
0.46 %
Commercial loans
0.03
0.03
Residential mortgage loans
0.02
0.01
Consumer loans
0.41
0.66
Residential construction loans
0.26
0.60
Total loans
0.07
0.09
Allowance to total loans
1.18
1.19
Allowance to nonaccrual loans
204.77 %
141.74 %
The following table sets forth, for each of the major lending categories, the amount of reserve allocated to nonaccrual loans of
each category and the amount of the allowance for credit losses allocated to each category and the percentage of total loans
represented by such category as of December 31, 2024 and 2023. The allocated allowance is the total of
Table of Contents
42
identified specific and general reserves by loan category. The allocation is not necessarily indicative of the categories in which
future losses may occur. The total allowance is available to absorb losses from any segment of the portfolio.
2024
2023
% of
% of
% of
% of
reserve to
loans
reserve to
loans
Reserve
nonaccrual
to total
Reserve
nonaccrual
to total
(In thousands, except percentages)
amount
loans
loans
amount
loans
loans
Balance applicable to:
SBA loans
$ 1,535
39.9 %
2.2 % $ 1,221
35.5 %
2.7 %
Commercial loans
17,361
583.8
62.5
15,876
815.0
58.8
Residential mortgage loans
6,254
109.5
27.9
6,529
63.2
29.1
Consumer loans
775
NM
3.4
1,022
268.2
3.4
Residential construction loans
863
157.8
4.0
1,206
56.3
6.0
Total loans
$ 26,788
204.8 % 100.0 % $ 25,854
141.7 % 100.0 %
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 as Accrued expenses and other liabilities. At December 31, 2024 and December 31, 2023, a $0.6 million
commitment reserve was reported.
See Note 4 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, brokered
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.
The following table shows year-end deposits and the concentration of each category of deposits for the past two years:
2024
2023
(In thousands, except percentages)
Amount
% of total
Amount
% of total
Ending balance:
Noninterest-bearing demand deposits
$
440,803
21.0 % $
419,636
21.8 %
Interest-bearing demand deposits
321,780
15.3
313,352
16.3
Savings deposits
491,175
23.4
565,088
29.4
Brokered deposits
217,931
10.4
199,667
10.4
Time deposits
628,624
29.9
426,397
22.1
Total deposits
$ 2,100,313
100.0 % $ 1,924,140
100.0 %
The following table details the maturity distribution of time deposits as of December 31, 2024 and 2023.
More than
More than
three
six months
Three
months
through
More than
months or
through six
twelve
twelve
(In thousands)
less
months
months
months
Total
At December 31, 2024:
Less than $250,000
$
197,392
$
186,828
$
150,942
$
41,260
$
576,422
$250,000 or more
85,296
100,173
47,951
5,261
238,681
Table of Contents
43
At December 31, 2023:
Less than $250,000
$
157,742
$
140,052
$
104,619
$
88,311
$
490,724
$250,000 or more
21,649
63,783
36,830
13,078
135,340
Total deposits increased $176.2 million to $2.1 billion at December 31, 2024. This increase in deposits was due to increases of
$202.2 million in time deposits, $21.2 million in noninterest-bearing demand deposits, $18.3 million in brokered deposits and
$8.4 million in interest-bearing demand deposits, partially offset by a decrease of $73.9 million in savings deposits. The
change in the composition of the portfolio from December 31, 2023 reflects a 47.4 percent increase in time deposits, 9.1
percent increase in brokered time deposits, 5.0 percent increase in noninterest-bearing demand deposits and a 2.7 percent
increase in interest-bearing demand deposits, partially offset by a 13.1 percent decrease in savings deposits.
The Company’s brokered deposit portfolio contains time deposit type products, savings type products and interest-bearing
demand deposit type products. The Company’s deposit composition by deposit product type at December 31, 2024, consisted
of 21.0 percent noninterest-bearing demand deposits, 16.8 percent interest-bearing demand deposits, 23.4 percent savings
deposits and 38.8 percent time deposits.
The following table shows average deposits and the concentration of each category of deposits for the past two years:
For the years ended December 31,
2024
2023
(In thousands, except percentages)
Amount
% of total
Amount
% of total
Average balance:
Noninterest-bearing demand deposits
$
411,148
20.4 % $
439,653
23.7 %
Interest-bearing demand deposits
326,943
16.2
306,820
16.5
Savings deposits
512,405
25.5
552,864
29.7
Brokered deposits
227,070
11.3
197,708
10.6
Time deposits
535,297
26.6
363,367
19.5
Total deposits
$ 2,012,863
100.0 % $ 1,860,412
100.0 %
As of December 31, 2024, the Company's municipal deposits consisted of $374.8 million from New Jersey and $25.8 million
from Pennsylvania which are collateralized by Municipal Letter of Credits (“MULOCs”) issued by the FHLB.
The following table represents uninsured/uncollateralized deposits broken out between consumer, business and municipal
customers (excluding brokered deposits) as of December 31, 2024:
(In thousands)
Consumer
Business
Municipal
Brokered
At December 31, 2024:
Total deposits
$
1,068,046
$
413,767
$
400,569
$
217,931
Uninsured/uncollateralized deposits
181,579
230,612
—
—
As of December 31, 2024 and December 31, 2023, uninsured and uncollateralized deposits amounted to $412.2 million and
$334.5 million respectively. This represented 19.6 percent of total deposits as of December, 31 2024 and 17.2 percent as of
December 31, 2023.
Table of Contents
44
The following table represents uninsured/uncollateralized time deposits by maturity date as of December 31, 2024:
More than
More than
three
six months
Three
months
through
More than
months or
through six
twelve
twelve
(In thousands)
less
months
months
months
Total
At December 31, 2024:
Uninsured/uncollateralized time
deposits
$
49,154
$
55,620
$
24,386
$
2,786
$
131,946
For additional information on deposits, see Note 6 to the Consolidated Financial Statements.
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 real estate loans collateralize these
borrowings.
Borrowed funds and subordinated debentures totaled $230.8 million and $366.7 million at December 31, 2024 and
December 31, 2023, respectively, and are broken down in the following table:
(In thousands)
December 31, 2024 December 31, 2023
FHLB borrowings:
Non-overnight, fixed rate advances
$
20,504
$
109,438
Overnight advances
140,000
217,000
Puttable advances
60,000
30,000
Subordinated debentures
10,310
10,310
Total borrowed funds and subordinated debentures
$
230,814
$
366,748
In December 2024, the FHLB issued a $180.0 million municipal deposits 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, compared to a letter of credit with a balance of $142.0 million as of December 31, 2023. In December 2024, FHLB
issued an additional $28.0 million municipal deposits letter of credit in the name of Unity Bank naming certain townships in
Pennsylvania as beneficiary, to secure municipal deposits as required under Pennsylvania law, compared to a letter of credit
with a balance of $25.0 million as of December 31, 2023.
At December 31, 2024, the Company had $292.2 million of additional credit available at the FHLB and the Company had
$245.9 million of additional credit available at the FRB. 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 year ending December 31, 2024, average FHLB borrowings were $131.2 million with a weighted average cost of
3.68%. The maximum borrowing during the year was $299.4 million.
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. For 2023 and 2024, the floating interest rate on the subordinated
debentures is the three-month CME term Secured Overnight Financing Rate (“SOFR”) plus 262 basis points and reprices
quarterly. The floating interest rate was 6.189% at December 31, 2024 and 7.212% at December 31, 2023.
Table of Contents
45
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 Liability Committee (“ALCO”) manages this risk. The principal objectives of
the ALCO are to establish prudent risk management guidelines, evaluate and control the level of interest rate risk in balance
sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital and liquidity
requirements and actively manage risk within Board-approved guidelines. The ALCO reviews the maturities and repricing of
loans, investments, deposits and borrowings, cash flow needs, current market conditions and interest rate levels.
The following table presents the Company’s EVE and NII sensitivity exposure related to an instantaneous and sustained
parallel shift in market interest rate of 100, 200 and 300 bps, which were all in compliance with Board approved tolerances at
December 31, 2024 and December 31, 2023:
Estimated (Decrease)/Increase in EVE
Estimated 12 mo. (Decrease)/Increase in NII
(In thousands, except percentages)
EVE
Amount
Percent
NII
Amount
Percent
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)
December 31, 2023
+300
$
215,239
$
(53,748)
(19.98)% $
91,747
$
(7,977)
(8.00)%
+200
235,749
(33,238)
(12.36)
94,405
(5,319)
(5.33)
+100
254,242
(14,745)
(5.48)
96,984
(2,740)
(2.75)
0
268,987
—
—
99,724
—
—
-100
273,517
4,530
1.68
101,391
1,667
1.67
-200
286,813
17,826
6.63
102,987
3,263
3.27
-300
281,661
12,674
4.71
102,858
3,134
3.14
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 borrowings and to take advantage of interest
rate opportunities in the marketplace. The Company’s liquidity is monitored by management and the Board of Directors which
reviews historical funding requirements, the 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.
The goal is to maintain sufficient asset-based liquidity to cover potential funding requirements in order to minimize
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
interest 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. As the Consolidated Bank comprises the majority of the
assets of the Company, the Consolidated Statement of Cash Flows is indicative of the Consolidated Bank’s activity. At
December 31, 2024, the balance of cash and cash equivalents was $180.4 million, a decrease of $14.3 million from
December 31, 2023. A discussion of the cash provided by and used in operating, investing and financing activities follows.
Table of Contents
46
Operating activities provided $47.9 million and $46.9 million in net cash for the years ended December 31, 2024 and 2023,
respectively The primary sources of funds were net income from operations and adjustments to net income, such as the
provision for credit losses and depreciation and amortization.
Investing activities used $92.8 million and $57.8 million in net cash for the years ended December 31, 2024 and 2023,
respectively. Cash was primarily used to originate loans and purchase securities, partially offset by cash inflows from
investment securities and loans.
●
Securities. The Company’s available for sale investment portfolio amounted to $93.9 million and $91.8 million at
December 31, 2024 and December 31, 2023, respectively.
●
Loans. The SBA loans held for sale portfolio amounted to $12.2 million and $18.2 million at December 31, 2024
and December 31, 2023, respectively. Sales of these loans provide an additional source of liquidity for the
Company.
●
Outstanding Commitments and Lines of Credit. The Company was committed to advance approximately $322.3
million to its borrowers as of December 31, 2024, compared to $312.5 million at December 31, 2023. At
December 31, 2024, $167.1 million of these commitments expire within one year, compared to $149.3 million at
December 31, 2023. The Company had $5.5 million and $5.7 million in standby letters of credit at
December 31, 2024 and December 31, 2023, respectively, 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.
Financing activities provided $30.5 million and $90.9 million in net cash for the years ended December 31, 2024 and 2023,
respectively, primarily due to an increase in the Company’s deposits, partially offset by a decrease in the Company’s borrowed
funds.
●
Deposits. As of December 31, 2024, deposits included $400.6 million of Government deposits, as compared to
$346.3 million at year end 2023. 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 $7.7 million as of December 31, 2024.
●
Borrowed Funds. Total FHLB borrowings amounted to $220.5 million and $356.4 million as of
December 31, 2024 and 2023, 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 December 31, 2024,
pledging provided an additional $292.2 million in borrowing potential from the FHLB, $245.9 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, consumer loans, commercial loans or investment securities to increase these
lines with the FHLB and FRB. As of December 31, 2024, total available funding plus cash on hand represented
182.5% of uninsured or uncollateralized deposits.
Off-Balance-Sheet Arrangements and Contractual Obligations
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit. These transactions may involve
elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheet. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on
management’s credit evaluation of the borrower. As of December 31, 2024, the Bank had
Table of Contents
47
$239.3 million in unused lines of credit and $77.5 million in outstanding commitments to borrowers. As of
December 31, 2023, the Bank had $256.3 million in unused lines of credit and $50.6 million in outstanding commitments to
borrowers.
The following table shows the amounts and expected maturities or payment periods of off-balance-sheet arrangements and
contractual obligations as of December 31, 2024:
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
$
3,090
$
879
$
120
$ 1,406
$
5,495
Contractual obligations:
Time deposits (including brokered time deposits)
768,582
44,565
1,848
108
815,103
Borrowed funds and subordinated debentures
150,504
—
70,000
10,310
230,814
Total off-balance-sheet arrangements and contractual
obligations
$ 922,176
$ 45,444
$ 71,968
$ 11,824
$ 1,051,412
Standby letters of credit represent guarantees of payment issued by the Bank on behalf of a client that is used as "payment of
last resort" should the client fail to fulfill a contractual commitment with a third party.
Time deposits have stated maturity dates. For additional information on time deposits, see Note 6 to the Consolidated
Financial Statements.
Borrowed funds and subordinated debentures include fixed 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. For additional information on borrowed funds and subordinated debentures, see Note 7 to the Consolidated Financial
Statements.
Capital Adequacy
A significant measure of the strength of a financial institution is its capital base. Shareholders’ equity increased $34.2 million
to $295.6 million at December 31, 2024, compared to $261.4 million at December 31, 2023, primarily due to net income of
$41.5 million. Other increases were due to $0.6 million in other comprehensive income and $3.3 million from the issuance of
common stock under employee benefit plans, net of tax. These increases were partially offset by $6.2 million in treasury stock
purchased at cost and $5.0 million in dividends paid on common stock.
For additional information on shareholders’ equity, see Note 10 to the Consolidated Financial Statements.
Consistent with our goal to operate as a sound and profitable financial organization, Unity Bancorp and Unity Bank actively
seek to maintain our well capitalized status in accordance with regulatory standards. As of December 31, 2024, Unity Bank
exceeded all capital requirements of the federal banking regulators and was considered well capitalized.
For additional information on regulatory capital, see Note 13 to the Consolidated Financial Statements.
Forward-Looking Statements
This report contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in
understanding anticipated future financial performance. These statements involve certain risks, uncertainties, estimates and
assumptions by Management.
Factors that may cause actual results to differ from those results expressed or implied, include, but are not limited to those
listed under “Item 1A - Risk Factors” in this Annual Report; the overall economy and the interest rate environment; the ability
of customers to repay their obligations; the adequacy of the allowance for credit losses; competition; significant
Table of Contents
48
changes in tax, accounting or regulatory practices and requirements; and technological changes. Although Management has
taken certain steps to mitigate the negative effect of the aforementioned items, significant unfavorable changes could severely
impact the assumptions used and have an adverse effect on future profitability.
Critical Accounting Policies and Estimates
New Authoritative Accounting Guidance
See Note 1 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the
dates of adoption and the anticipated effect on our results of operations and financial condition.
Allowance for Credit Losses on Loans and Valuation Allowance on AFS Debt Securities
Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” amends the accounting guidance on the impairment of financial instruments. The Financial
Accounting Standards Board (“FASB”) issued an amendment to replace the incurred loss impairment methodology under
prior accounting guidance with a new current expected credit loss (“CECL”) model. Under the guidance, the Company is
required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses.
The measurement of expected credit losses is based on relevant information about past events, including historical experience,
current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The
measurement of expected credit losses under CECL methodology is applicable to financial assets measured at amortized cost,
including loans and held to maturity debt securities. CECL also applies to certain off-balance sheet exposures.
The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach for all financial assets
measured at amortized cost and off-balance sheet credit exposures. The Company established a governance structure to
implement the CECL accounting guidance and has developed a methodology and set of models to be used upon adoption. At
adoption, the Company recorded an $0.8 million increase to its allowance for credit losses, related to loans. Further, the
Company increased its reserve for unfunded credit commitments by $0.1 million. The reserve for unfunded credit
commitments is recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheet. These increases in
reserves were recorded through retained earnings and were $0.6 million, net of tax.
For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more
likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria
regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through
income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair
value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which
fair value is less than amortized cost and adverse conditions related to the security, among other factors. If this assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the
amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized
cost basis, a credit loss exists and a valuation allowance is recorded for the credit loss, limited by the amount that the fair
value is less than the amortized cost. Any impairment that has not been recorded through a valuation allowance is recognized
in other comprehensive income, net of tax.
The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and
agencies for available for sale and held to maturity debt securities. These securities are either explicitly or implicitly
guaranteed by the U.S. Government, are highly rated by major agencies and have a long history of no credit losses.
For other assets within the scope of the new CECL accounting guidance, such as other held to maturity debt securities and
other receivables, management noted the impact from adoption to be inconsequential. Additionally, the Company noted the
adoption of CECL had no significant impact on regulatory capital ratios of the Company and/or the Bank.
Table of Contents
49
For additional information on the valuation allowance on AFS debt securities, see Note 2 to the Consolidated Financial
Statements. For additional information on the allowance for credit losses, see Note 4 to the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
For information regarding Quantitative and Qualitative Disclosures about Market Risk, see Part II, Item 7, "Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."
Table of Contents
50
Item 8. Financial Statements and Supplementary Data:
Consolidated Balance Sheets
(In thousands)
December 31, 2024 December 31, 2023
ASSETS
Cash and due from banks
$
20,206
$
20,668
Interest-bearing deposits
160,232
174,108
Cash and cash equivalents
180,438
194,776
Securities:
Debt securities available for sale (net of valuation allowance of $2,824 as of December 31, 2024 and
$1,283 as of December 31, 2023)
93,884
91,765
Debt securities held to maturity
41,294
36,122
Equity securities with readily determinable fair values
9,850
7,802
Total securities
145,028
135,689
Loans:
SBA loans held for sale
12,163
18,242
SBA loans held for investment
36,859
38,584
SBA PPP loans
1,450
2,318
Commercial loans
1,411,629
1,277,460
Residential mortgage loans
630,927
631,506
Consumer loans
76,711
72,676
Residential construction loans
90,918
131,277
Total loans
2,260,657
2,172,063
Allowance for credit losses
(26,788)
(25,854)
Net loans
2,233,869
2,146,209
Premises and equipment, net
18,778
19,567
Bank owned life insurance ("BOLI")
25,773
25,230
Deferred tax assets
14,106
12,552
Federal Home Loan Bank ("FHLB") stock
12,507
18,435
Accrued interest receivable
12,691
13,582
Goodwill
1,516
1,516
Prepaid expenses and other assets
9,311
10,951
Total assets
$
2,654,017
$
2,578,507
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand
$
440,803
$
419,636
Interest-bearing demand
321,780
313,352
Savings
491,175
565,088
Brokered deposits
217,931
199,667
Time deposits
628,624
426,397
Total deposits
2,100,313
1,924,140
Borrowed funds
220,504
356,438
Subordinated debentures
10,310
10,310
Accrued interest payable
1,702
1,924
Accrued expenses and other liabilities
25,605
24,265
Total liabilities
2,358,434
2,317,077
Shareholders’ equity:
Preferred stock, no par value, 500 shares authorized, no shares issued and no shares outstanding as of
December 31, 2024 and December 31, 2023
—
—
Common stock, no par value, 12,000 shares authorized, 11,616 shares issued and 10,026 shares
outstanding as of December 31, 2024; 12,000 shares authorized, 11,424 shares issued and 10,063 shares
outstanding as of December 31, 2023
103,936
100,426
Retained earnings
227,331
191,108
Treasury stock, at cost (1,590 shares as of December 31, 2024 and 1,361 shares as of December 31, 2023)
(33,577)
(27,367)
Accumulated other comprehensive loss
(2,107)
(2,737)
Total shareholders’ equity
295,583
261,430
Total liabilities and shareholders’ equity
$
2,654,017
$
2,578,507
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
Table of Contents
51
Consolidated Statements of Income
For the years ended December 31,
(In thousands, except per share amounts)
2024
2023
INTEREST INCOME
Interest-bearing deposits
$
2,033
$
1,724
FHLB stock
789
1,369
Securities:
Taxable
7,312
7,271
Tax-exempt
70
72
Total securities
7,382
7,343
Loans:
SBA loans
4,857
5,489
SBA PPP loans
30
137
Commercial loans
87,773
76,966
Residential mortgage loans
37,770
34,194
Consumer loans
5,607
5,742
Residential construction loans
9,497
10,530
Total loans
145,534
133,058
Total interest income
155,738
143,494
INTEREST EXPENSE
Interest-bearing demand deposits
7,176
5,227
Savings deposits
13,006
9,175
Brokered deposits
8,412
7,916
Time deposits
22,918
11,567
Borrowed funds and subordinated debentures
5,615
14,612
Total interest expense
57,127
48,497
Net interest income
98,611
94,997
Provision for credit losses, loans
2,407
1,832
Provision for credit losses, off-balance sheet
1
53
Provision for credit losses, AFS securities
1,541
1,283
Net interest income after provision for credit losses
94,662
91,829
NONINTEREST INCOME
Branch fee income
1,391
997
Service and loan fee income
2,165
1,928
Gain on sale of SBA loans held for sale, net
660
1,299
Gain on sale of mortgage loans, net
1,488
1,546
BOLI income
544
852
Net securities gains
586
7
Other income
1,635
1,513
Total noninterest income
8,469
8,142
NONINTEREST EXPENSE
Compensation and benefits
29,749
29,051
Processing and communications
3,473
2,994
Occupancy
3,184
3,087
Furniture and equipment
3,140
2,780
Professional services
1,683
1,563
Advertising
1,611
1,436
Loan related expenses
1,138
918
Deposit insurance
1,100
1,715
Director fees
956
847
Other expenses
2,707
2,585
Total noninterest expense
48,741
46,976
Income before provision for income taxes
54,390
52,995
Provision for income taxes
12,940
13,288
Net income
$
41,450
$
39,707
Net income per common share - Basic
$
4.13
$
3.89
Net income per common share - Diluted
$
4.06
$
3.84
Weighted average common shares outstanding – Basic
10,031
10,207
Weighted average common shares outstanding – Diluted
10,202
10,338
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
Table of Contents
52
Consolidated Statements of Comprehensive Income
For the year ended December 31, 2024
Income tax
Before tax
expense
Net of tax
(In thousands)
amount
(benefit)
amount
Net income
$
54,390
$
12,940
$
41,450
Other comprehensive income
Debt securities available for sale:
Unrealized holding gains on securities arising during the period
1,002
247
755
Less: reclassification adjustments on securities included in net income
—
—
—
Total unrealized gains on securities available for sale
1,002
247
755
Net unrealized losses from cash flow hedges:
Unrealized holding losses on cash flow hedges arising during the period
(1,097)
(301)
(796)
Less: reclassification adjustment for losses on cash flow hedges included in
net income
(925)
(254)
(671)
Total unrealized losses on cash flow hedges
(172)
(47)
(125)
Total other comprehensive income
830
200
630
Total comprehensive income
$
55,220
$
13,140
$
42,080
For the year ended December 31, 2023
Income tax
Before tax
expense
Net of tax
(In thousands)
amount
(benefit)
amount
Net income
$
52,995
$
13,288
$
39,707
Other comprehensive income
Debt securities available for sale:
Unrealized holding gains on securities arising during the period
1,153
283
870
Less: reclassification adjustment for losses on securities included in net
income
(136)
(33)
(103)
Total unrealized gains on securities available for sale
1,289
316
973
Net unrealized losses from cash flow hedges:
Unrealized holding losses on cash flow hedges arising during the period
(1,518)
(433)
(1,085)
Less: reclassification adjustment for losses on cash flow hedges included in
net income
(899)
(264)
(635)
Total unrealized losses on cash flow hedges
(619)
(169)
(450)
Total other comprehensive income
670
147
523
Total comprehensive income
$
53,665
$
13,435
$
40,230
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
Table of Contents
53
Consolidated Statements of Changes in Shareholders’ Equity
Accumulated
other
Total
Common stock
Retained
comprehensive
Treasury
Shareholders’
(In thousands, except per share amounts)
Shares
Amount
earnings
(loss) income
stock
equity
Balance, December 31, 2022
10,584
$
97,204
$ 156,958
$
(3,260)
$ (11,675)
$
239,227
Net income
—
—
39,707
—
—
39,707
Other comprehensive income, net of tax
—
—
—
523
—
523
Dividends on common stock ($0.48 per
share)
7
187
(4,908)
—
—
(4,721)
Effect of adopting Accounting Standards
Update ("ASU") No. 2016-13 ("CECL") (2)
—
—
(649)
—
—
(649)
Share-based compensation (1)
128
3,035
—
—
—
3,035
Treasury stock purchased, at cost
(656)
—
—
—
(15,692)
(15,692)
Balance, December 31, 2023
10,063
$ 100,426
$ 191,108
$
(2,737)
$ (27,367)
$
261,430
Net income
—
—
41,450
—
—
41,450
Other comprehensive income, net of tax
—
—
—
630
—
630
Dividends on common stock ($0.52 per
share)
7
206
(5,227)
—
—
(5,021)
Share-based compensation (1)
185
3,304
—
—
—
3,304
Treasury stock purchased, at cost
(229)
—
—
—
(6,210)
(6,210)
Balance, December 31, 2024
10,026
$ 103,936
$ 227,331
$
(2,107)
$ (33,577)
$
295,583
(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.
(2) See further disclosure surrounding CECL transition in Note 1 to the Consolidated Financial Statements.
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
Table of Contents
54
Consolidated Statements of Cash Flows
For the twelve months ended December 31,
(In thousands)
2024
2023
OPERATING ACTIVITIES:
Net income
$
41,450
$
39,707
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses, loans
2,407
1,832
Provision for credit losses, AFS securities
1,541
1,283
Net accretion of purchase premiums and discounts on securities
(256)
(264)
Depreciation and amortization, net
2,580
2,383
SBA PPP deferred fees and costs
(12)
(92)
Deferred income tax benefit
(1,747)
(87)
Net securities realized gains
(94)
(345)
Stock compensation expense
1,823
1,751
Gain on sale of mortgage loans, net
(1,488)
(1,546)
Gain on sale of SBA loans held for sale, net
(660)
(1,299)
BOLI income
(544)
(852)
Net change in other assets and liabilities
2,987
4,438
Net cash provided by operating activities
47,987
46,909
INVESTING ACTIVITIES:
Purchases of securities held to maturity
(5,000)
(100)
Purchase of equity securities
(2,247)
(126)
Purchases of securities available for sale
(10,500)
(650)
Proceeds from sale of FHLB stock, at cost
5,928
629
Maturities and principal payments on debt securities held to maturity
100
—
Maturities and principal payments on debt securities available for sale
7,824
4,286
Proceeds from sales of equity securities
785
2,166
Net decrease in SBA PPP loans
880
3,682
Net increase in loans
(89,890)
(69,177)
Proceeds from BOLI
—
2,398
Purchases of premises and equipment, net
(693)
(955)
Net cash used in investing activities
(92,813)
(57,847)
FINANCING ACTIVITIES:
Net increase in deposits
176,173
136,612
Repayments of short-term borrowings, net
(137,000)
(66,000)
Proceeds from long-term borrowings, net
1,066
39,438
Proceeds from exercise of stock options, net of withheld taxes
1,480
1,284
Cash dividends on common stock
(5,021)
(4,721)
Purchase of treasury stock
(6,210)
(15,692)
Net cash provided by financing activities
30,488
90,921
(Decrease) increase in cash and cash equivalents
(14,338)
79,983
Cash and cash equivalents, beginning of period
194,776
114,793
Cash and cash equivalents, end of period
$
180,438
$
194,776
SUPPLEMENTAL DISCLOSURES
Cash:
Interest paid
$
57,349
$
47,264
Income taxes paid
14,074
13,216
Noncash investing activities:
Capitalization of servicing rights
186
576
Transfer of loans to OREO
—
251
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
Table of Contents
55
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Overview
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”).
All significant intercompany balances and transactions have been eliminated in consolidation.
Unity Bancorp, Inc. is a financial holding company incorporated in New Jersey and registered under the Bank Holding
Company Act of 1956, as amended. Its wholly-owned subsidiary, the Bank, is chartered by the New Jersey Department of
Banking and Insurance. The Bank provides a full range of commercial and retail banking services through twenty-one branch
offices located in Bergen, Hunterdon, Middlesex, Morris, Ocean, Somerset, Union and Warren counties in New Jersey and
Northampton County in Pennsylvania. These services include the acceptance of demand, savings and time deposits and the
extension of consumer, real estate, SBA and other commercial credits.
Unity Investment Services, Inc. is a wholly-owned subsidiary of Unity Bank and is used to hold and administer part of the
Bank’s investment portfolio. Unity Investment Services, Inc. has one subsidiary, Unity Delaware Investment 2, Inc., which has
three subsidiaries. Unity Strategic Investment I, Inc. and Unity Strategic Investment II, Inc. and Unity NJ REIT, Inc., which
was formed in 2013 to hold real estate related loans.
The Company has a wholly-owned subsidiary: Unity (NJ) Statutory Trust II. For additional information on Unity (NJ)
Statutory Trust II, see Note 7 to the Consolidated Financial Statements. In 2023, the Company dissolved Unity Risk
Management, Inc. which was the Company’s captive insurance company that insured risks to the Bank not insured by the
traditional commercial insurance market.
Use of Estimates in the Preparation of Financial Statements
In preparing the consolidated financial statements in conformity with U.S. GAAP, Management has made estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheet and
Statement of Income for the periods indicated. Amounts requiring the use of significant estimates include the allowance for
credit losses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits.
Restrictions on Cash
In addition, the Company’s contract with its current electronic funds transfer provider requires a predetermined balance be
maintained in a settlement account controlled by the provider equal to the Company’s average daily net settlement position
multiplied by four days. The required balance was $262 thousand as of December 31, 2024 and 2023, respectively. This
balance can be adjusted periodically to reflect actual transaction volume and seasonal factors.
Securities
The Company classifies its securities into three categories, debt securities available for sale (“AFS”), debt securities held to
maturity (“HTM”) and equity securities with readily determinable fair values ("equity securities").
Table of Contents
56
Debt securities that are classified as available for sale are stated at fair value. Unrealized gains and losses on debt securities
available for sale are excluded from results of operations and are reported in other comprehensive income, a separate
component of shareholders’ equity, net of taxes. Debt securities classified as available for sale include debt securities that may
be sold in response to changes in interest rates, changes in prepayment risks, for asset/liability management purposes or
liquidity needs. The cost of debt securities sold is determined on a specific identification basis. Gains and losses on sales of
debt securities are recognized in the Consolidated Statements of Income on a trade date basis.
Debt securities are classified as held to maturity based on Management’s intent and ability to hold them to maturity. Such debt
securities are stated at cost, adjusted for unamortized purchase premiums and discounts.
For debt securities, purchase discounts are accreted using the interest method over the stated terms of the securities; whereas
purchase premiums are amortized through the earliest call date.
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 interest
rate risk, to take advantage of market conditions that create economically attractive returns and as an additional source of
earnings. Periodic net gains and losses on equity investments are recognized in the Consolidated Statements of Income as
realized gains and losses.
For additional information on securities, see Note 2 to the Consolidated Financial Statements.
Valuation Allowance – Debt Securities
The Company has a process in place to identify debt securities that could potentially incur credit impairment. This process
involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements,
revenue forecasts and cash flow projections as indicators of credit issues. Management evaluates debt securities for
impairment at least on a quarterly basis and more frequently when economic or market concern warrants such evaluation. This
evaluation considers relevant facts and circumstances in evaluating whether there is credit or interest rate-related impairment
of a security.
The CECL standard requires credit losses on both HTM and AFS debt securities to be recognized through a valuation
allowance instead of as a direct write-down to the amortized cost basis of the security. Management assesses its intent to sell
and whether it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis less
any current-period credit losses. For debt securities that are considered impaired where Management has no intent to sell and
the Company has no requirement to sell prior to recovery of its amortized cost basis, the amount of the impairment is
separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss
component is recognized in earnings as provision expense and is the difference between the security’s amortized cost basis
and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the
present value of future expected cash flows due to factors that are not credit related is recognized in other comprehensive
income. For debt securities where Management has the intent to sell, the amount of the impairment is reflected in earnings as
realized losses.
The present value of expected future cash flows is determined using the best estimate cash flows discounted at the effective
interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate
security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of
security. The asset-backed securities cash flow estimates are based on bond specific facts and circumstances that may include
collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural
support, including subordination and guarantees. The corporate bond cash flow estimates are derived from scenario-based
outcomes of expected corporate restructurings or the disposition of assets using bond specific facts and circumstances
including timing, security interests and loss severity. The Company elected the practical expedient of zero loss estimates for
securities issued by U.S. government entities and agencies for available for sale and held to maturity securities. These
securities are either explicitly or implicitly guaranteed by the U.S. Government, are highly rated by major agencies and have a
long history of no credit losses.
Table of Contents
57
The Company considers a debt security to be past due in terms of payment based on its contractual terms. A debt security may
be placed on nonaccrual, with interest no longer recognized, when collectability of principal or interest is doubtful.
A security may be partially or fully charged-off against the allowance if it is determined to be uncollectible. Recoveries of
previously charged-off available for sale securities are recognized when received, while recoveries on held to maturity
securities are recognized when expected.
For additional information on the allowance for credit losses, see Note 4 to the Consolidated Financial Statements.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company; (ii) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred
assets and (iii) the Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
During the normal course of business, the Company may transfer a portion of a financial asset, for example, a participation in
a loan or the government guaranteed portion of a loan. In order to be eligible for sales treatment, the transfer of the portion of
the loan must meet the criteria of a participating interest. If it does not meet the criteria of a participating interest, the transfer
must be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the
loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no
recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or
exchange the entire loan.
Loans
Loans Held for Sale
Loans held for sale represent the guaranteed portion of certain SBA loans, other than loans originated under the Paycheck
Protection Program (“PPP”), that the Company has elected to hold for sale and are reflected at the lower of aggregate cost or
market value. The Company originates loans to customers under an SBA program that historically has provided for SBA
guarantees of up to 90 percent of each loan. The Company may sell the guaranteed portion of its SBA loans to a third party
and retains the servicing, holding the nonguaranteed portion in its portfolio. The net amount of loan origination fees on loans
sold is included in the carrying value and in the gain or loss on the sale. 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; see details under the “Transfers of Financial Assets” heading
above.
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. Any impairment, if temporary, would generally be reported as a valuation allowance.
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.
For additional information on servicing assets, see Note 3 to the Consolidated Financial Statements.
Loans Held for Investment
Loans held for investment are stated at the unpaid principal balance, net of unearned discounts, deferred loan origination fees
and costs and net charge-offs. In accordance with the level yield method, loan origination fees, net of direct loan
Table of Contents
58
origination costs, are deferred and recognized over the estimated life of the related loans as an adjustment to the loan yield.
Interest is credited to operations primarily based upon the principal balance outstanding.
Loans are reported as past due when either interest or principal is unpaid in the following circumstances: fixed payment loans
when (i) the borrower is in arrears for two or more monthly payments; (ii) open end credit for two or more billing cycles or
(iii) single payment notes if interest or principal remains unpaid for 30 days or more.
Nonaccrual loans consist of loans that are not accruing interest as a result of principal or interest being delinquent 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
(nonaccrual loans). 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 or when the loan
is brought current as to principal and interest.
Loans are charged-off when collection is in doubt and when the Company can no longer justify maintaining the loan as an
asset on the Consolidated Balance Sheet. Loans qualify for charge-off when, after thorough analysis, all possible sources of
repayment are insufficient. These include: (i) potential future cash flows; (ii) value of collateral and/or (iii) strength of co-
makers and guarantors. Additionally, all loans classified as a loss or that portion of the loan classified as a loss is charged-off,
subject to government guarantee. All loan charge-offs are approved by Executive Management.
For additional information on loans, see Note 3 to the Consolidated Financial Statements.
Allowance for Credit Losses for Loans and Reserve for Unfunded Loan Commitments
Effective January 1, 2023, the Company adopted the provisions of ASC 326 and modified its accounting policy for the
allowance for credit losses on loans. The allowance for credit losses represents the estimated amount considered necessary to
cover lifetime expected credit losses inherent in financial assets at the Balance Sheet date. The measurement of expected
credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet
credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for
credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a
critical accounting policy by Management because of the high degree of judgment involved, the subjectivity of the
assumptions used and the potential for changes in the forecasted economic environment that could result in changes to the
amount of the recorded allowance for credit losses.
The allowance for credit losses is reported separately as a contra-asset on the Consolidated Balance Sheet. The expected credit
losses for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Balance Sheet in
Accrued expenses and other liabilities.
The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount
expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which
share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to
exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other
loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the
loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The
Company generally considers those loans for individual evaluation to be those on nonaccrual. Loans are charged off against
the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not
exceed the aggregate of amounts previously charged-off or expected to be charged-off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments
include SBA, Commercial, Residential mortgage, Consumer and Residential construction. The Commercial segment is further
sub-segmented into SBA 504, Commercial & industrial, Commercial real estate and Commercial
Table of Contents
59
construction. The Consumer segment is further bifurcated into Home equity and Consumer other. For most segments the
Company calculates estimated credit losses using a weighted average remaining maturity methodology.
The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available
information from internal and external sources related to past events and current conditions, as well as the incorporation of
reasonable and supportable forecasts. The Company evaluates a variety of factors including third party economic forecasts,
industry trends and other available published economic information in arriving at its forecasts. After the reasonable and
supportable forecast period, the Company reverts, after four quarters, on a straight-line basis over the following four quarters,
to the historical average economic variables. Expected credit losses are estimated over the contractual term of the loans,
adjusted for expected prepayments when appropriate.
Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the
Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above.
Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and
size of the portfolio, portfolio concentrations and the volume and severity of past due loans and nonaccrual loans.
On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its
disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other
loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows
or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as
applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will record a
provision for the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized
cost basis of the loan.
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance
calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each
applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected
funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment.
There were no changes to the Company’s methodology for credit loss estimates during the year ended December 31, 2024.
For additional information on the allowance for credit losses and reserve for unfunded loan commitments, see Note 4 to the
Consolidated Financial Statements.
Premises and Equipment, net
Land is carried at cost. All other fixed assets are carried at cost less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The useful life of buildings is not to exceed 30 years,
furniture and fixtures is generally 10 years or less and equipment is 3 to 5 years. Leasehold improvements are depreciated over
the lesser of the useful life of the asset or the life of the underlying lease.
For additional information on premises and equipment, see Note 5 to the Consolidated Financial Statements.
Bank Owned Life Insurance
The Company purchased life insurance policies on certain members of Management. Bank owned life insurance is recorded at
its cash surrender value or the amount that can be realized and the appreciation and death benefits from Bank owned life
insurance are not subject to income tax.
Table of Contents
60
Federal Home Loan Bank (“FHLB”) Stock
Federal law requires a member institution of the Federal Home Loan Bank system to hold stock of its district FHLB according
to a predetermined formula. The stock is carried at cost. Management reviews the stock for impairment based on the ultimate
recoverability of the cost basis in the stock. The stock’s value is determined by the ultimate recoverability of the par value
rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net
assets, if any, of the FHLB, the length of time this situation has persisted, commitments by the FHLB to make payments
required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLB and the
liquidity position of the FHLB.
Accrued Interest Receivable
Accrued interest receivable consists of amounts earned on investments and loans. The Company recognizes accrued interest
receivable as it is earned. The Company is using the practical expedient to exclude accrued interest receivable from credit loss
measurement.
Other Real Estate Owned
Other real estate owned (“OREO”) is recorded at the fair value, less estimated costs to sell at the date of acquisition, with a
charge to the allowance for credit losses for any excess of the loan carrying value over such amount. Subsequently, OREO is
carried at the lower of cost or fair value, as determined by current appraisals. Certain costs that increase the value or extend
the useful life in preparing properties for sale are capitalized to the extent that the appraisal amount exceeds the carrying value
and expenses of holding foreclosed properties are charged to operations as incurred.
Goodwill
The Company accounts for goodwill and other intangible assets in accordance with Financial Accounting Standards Board
Accounting Standards Codification (“FASB ASC”) Topic 350, “Intangibles – Goodwill and Other,” which allows an entity to
first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. Based
on a qualitative assessment, Management determined that the Company’s recorded goodwill totaling $1.5 million, which
resulted from the 2005 acquisition of its Phillipsburg, New Jersey branch, is not impaired as of December 31, 2024.
Reclassification
Certain reclassifications have been made in the Consolidated Financial Statements to conform to the current year presentation.
Such reclassifications had no impact on net income or stockholders’ equity as previously reported.
Appraisals
All appraisals must be performed in accordance with the Uniform Standards of Professional Appraisal Practice (“USPAP”).
Appraisals are certified to the Company and performed by appraisers on the Company’s approved list of appraisers.
Evaluations are completed by a person independent of Company Management. The content of the appraisal depends on the
complexity and location of the property.
Derivative Instruments and Hedging Activities
The Company utilizes derivative instruments in the form of interest rate swaps to hedge its exposure to interest rate risk in
conjunction with its overall asset and liability risk management process. In accordance with accounting requirements, the
Company formally designates all of its hedging relationships as either fair value hedges or cash flow hedges. The Company’s
derivative instruments currently consist of cash flow hedges.
Table of Contents
61
The Company recognizes all derivative instruments at fair value in either Prepaid expense and other assets or Accrued
expenses and other liabilities on the Consolidated Balance Sheet and the related cash flows in the Operating Activities section
of the Consolidated Statement of Cash Flows.
For derivatives designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows), the
gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods
during which the hedged transaction affects earnings.
Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as
undesignated derivatives and would be recorded at fair value with changes in fair value recorded in income.
The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting
changes in cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that
the forecasted transaction will no longer occur or (d) Management determines that designating the derivative as a hedging
instrument is no longer appropriate. In all cases in which hedge accounting is discontinued and a derivative remains
outstanding, the Company will carry the derivative at fair value in the Consolidated Financial Statements, recognizing changes
in fair value in current period income in the Consolidated Statement of Income.
For additional information on derivative instruments and hedging activities, see Note 7 to the Consolidated Financial
Statements.
Income Taxes
The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement
recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax
return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income
for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation
reserves are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not
be realized. Increases or decreases in the valuation reserve are charged or credited to the income tax provision.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that
ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during
which, based on all available evidence, Management believes it is more likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is
considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not
recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized
upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance
sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are recognized in income tax expense on the Consolidated
Statements of Income.
For additional information on income taxes, see Note 11 to the Consolidated Financial Statements.
Table of Contents
62
Net Income Per Share
Basic net income per common share is calculated as net income available to common shareholders divided by the weighted
average common shares outstanding during the reporting period.
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; however, when a net loss rather than net income is recognized, diluted earnings per share equals basic earnings
per share.
For additional information on net income per share, see Note 12 to the Consolidated Financial Statements.
Stock-Based Compensation
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, “Compensation –
Stock Compensation,” which requires recognition of compensation expense related to stock-based compensation awards over
the period during which an employee is required to provide service for the award. Compensation expense is equal to the fair
value of the award, net of estimated forfeitures, and is recognized over the vesting period of such awards.
For additional information on the Company’s stock-based compensation, see Note 14 to the Consolidated Financial
Statements.
Fair Value
The Company follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which provides a framework for
measuring fair value under generally accepted accounting principles.
For additional information on the fair value of the Company’s financial instruments, see Note 15 to the Consolidated Financial
Statements.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of the change in unrealized gains (losses) on securities available for sale and
derivative related items that were reported as a component of shareholders’ equity, net of tax.
For additional information on other comprehensive income (loss), see Note 9 to the Consolidated Financial Statements.
Dividend Restrictions
Banking regulations require maintaining certain capital levels that may limit the dividends paid by the Bank to the holding
company or by the holding company to the shareholders.
Operating Segments
While Management, whom includes the President and Chief Executive Officer and acts as the Chief Operating Decision
Maker (“CODM”), monitors the revenue streams of its various products and services, operating results and financial
performance are evaluated on a company-wide basis. The accounting policies of the segment are the same as those described
in the summary of significant accounting policies. The CODM uses net income reporting in the Company’s Consolidated
Statements of Income to make operating and strategic decisions. Accordingly, there is only one reportable segment. The
Company adopted ASU 2023-07 during the year ended December 31, 2024 noting no material impact.
For further description of the Company’s products and services, refer to Item 1. Business.
Table of Contents
63
Revenue Recognition
FASB ASC 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about
the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or
services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or
services recognized as performance obligations are satisfied.
The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from
financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to
mortgage servicing activities, as these activities are subject to other U.S. GAAP discussed elsewhere within the Company’s
disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are
presented in its income statements as components of non-interest income are as follows:
●
Branch fee income - these represent general service fees for monthly account maintenance and activity or
transaction based fees and consist of transaction-based revenue, time-based revenue (service period), item-based
revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s
performance obligation is completed which is generally monthly for account maintenance services or when a
transaction has been completed (such as a wire transfer). Payments for such performance obligations are generally
received at the time the performance obligations are satisfied.
●
Other non-interest income primarily includes items such as loan-related fees, bank owned life insurance income,
dividends on FHLB and FRB stock and other general operating income, none of which are subject to the
requirements of ASC 606.
Recent Accounting Pronouncements
Accounting Standard
Update (“ASU”)
Required Adoption
Date
Brief Description
Effect on the
Company’s Financial
Statements
ASU 2023-09, Income
Taxes (Topic 740)
Fiscal years beginning
after December 15,
2024
Improve transparency of certain
income tax related disclosures,
including the rate reconciliation and
taxes paid disclosures.
No significant impact
ASU 2024-03, Income
Statement – Reporting
comprehensive income –
Expense Disaggregation
Disclosures (Subtopic 220-
40)
Fiscal years beginning
after December 15,
2026
Improve transparency of specific
expense categories, which is generally
not presented in the financial
statements today.
No significant impact
Table of Contents
64
2. Securities
This table provides the major components of debt securities AFS, HTM and equity securities at amortized cost and estimated
fair value at December 31, 2024 and December 31, 2023:
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
Equity securities:
Total equity securities
$
10,606
$
64
$
(820)
$
—
$
9,850
December 31, 2023
Gross
Gross
Amortized
unrealized
unrealized
Valuation
Estimated
(In thousands)
cost
gains
losses
allowance
fair value
Available for sale:
U.S. Government sponsored entities
$
16,490
$
—
$
(457)
$
—
$
16,033
State and political subdivisions
388
—
(28)
—
360
Residential mortgage-backed securities
15,473
30
(1,426)
—
14,077
Asset backed securities
35,750
—
(347)
—
35,403
Corporate and other securities
29,453
251
(2,529)
(1,283)
25,892
Total debt securities available for sale
$
97,554
$
281
$
(4,787)
$
(1,283)
$
91,765
Held to maturity:
U.S. Government sponsored entities
$
28,000
$
—
$
(4,419)
$
—
$
23,581
State and political subdivisions
1,272
90
—
—
1,362
Residential mortgage-backed securities
6,850
—
(2,137)
—
4,713
Total debt securities held to maturity
$
36,122
$
90
$
(6,556)
$
—
$
29,656
Equity securities:
Total equity securities
$
9,050
$
99
$
(1,347)
$
—
$
7,802
For the year ended December 31, 2024, the provision for credit losses on AFS debt securities was $1.5 million, compared to
$1.3 million for the year ended December 31, 2023.
Table of Contents
65
The following table summarizes the amortized cost of HTM debt securities by external credit rating at December 31, 2024 and
2023:
Non-investment
(In thousands)
AAA/AA/A rated
BBB rated
grade rated
Non-rated
Total
December 31, 2024
U.S. Government sponsored entities
$
28,000
$
—
$
—
$
—
$
28,000
State and political subdivisions
1,234
—
—
—
1,234
Residential mortgage-backed securities
12,060
—
—
—
12,060
Total
$
41,294
$
—
$
—
$
—
$
41,294
December 31, 2023
U.S. Government sponsored entities
$
28,000
$
—
$
—
$
—
$
28,000
State and political subdivisions
1,172
—
—
100
1,272
Residential mortgage-backed securities
6,850
—
—
—
6,850
Total
$
36,022
$
—
$
—
$
100
$
36,122
This table provides the remaining contractual maturities within the investment portfolios. The carrying value of securities at
December 31, 2024 is distributed by contractual maturity. Securities, which may have principal prepayment provisions, are
distributed based on contractual maturity. Expected maturities will differ materially from contractual maturities as a result of
early prepayments and calls.
Amortized
Fair
(In thousands)
cost
value
Available for sale, at fair value:
Due in one year
$
3,285
$
3,243
Due after one year through five years
30,283
26,678
Due after five years through ten years
27,639
26,437
Due after ten years
25,191
25,240
Residential mortgage-backed securities
13,814
12,286
Total
$
100,212
$
93,884
Held to maturity, at amortized cost:
Due in one year
$
—
$
—
Due after one year through five years
3,000
2,927
Due after five years through ten years
—
—
Due after ten years
26,234
21,434
Residential mortgage-backed securities
12,060
9,453
Total
$
41,294
$
33,814
The number of securities in an unrealized loss position as of December 31, 2024 totaled 75, compared to 98 at December 31,
2023. This decrease is primarily due to market interest rate fluctuations.
As of December 31, 2024, the company had accrued interest receivable of $1.2 million relating to debt securities, compared to
$1.5 million at December 31, 2023. During the year ended December 31, 2024, $125 thousand in interest income was reversed
relating to nonaccrual debt securities compared to none during the year ended December 31, 2023. During the
Table of Contents
66
year ended December 31, 2024, $213 thousand in interest payments were recorded as a reduction of principal relating to
nonaccrual debt securities compared to none during the year ended December 31, 2023.
At the year-end 2024 and 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its
agencies, in an amount greater than 10% of shareholders’ equity.
The fair value of securities with unrealized losses by length of time where the individual securities have been in a continuous
unrealized loss position at December 31, 2024 and December 31, 2023 are as follows:
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)
December 31, 2023
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
$
—
$
—
$ 16,033
$
(457)
$ 16,033
$
(457)
State and political subdivisions
—
—
360
(28)
360
(28)
Residential mortgage-backed securities
—
—
13,949
(1,426)
13,949
(1,426)
Asset backed securities
—
—
35,403
(347)
35,403
(347)
Corporate and other securities
—
—
19,424
(2,529)
19,424
(2,529)
Total temporarily impaired AFS securities
$
—
$
—
$ 85,169
$ (4,787)
$ 85,169
$ (4,787)
Held to maturity:
U.S. Government sponsored entities
$
—
$
—
$ 23,581
$ (4,419)
$ 23,581
$ (4,419)
Residential mortgage-backed securities
—
—
4,713
(2,137)
4,713
(2,137)
Total temporarily impaired HTM securities
$
—
$
—
$ 28,294
$ (6,556)
$ 28,294
$ (6,556)
Unrealized losses in each of the categories presented in the tables above were primarily driven by market interest rate
fluctuations.
Realized Gains and Losses
There were no available for sale or held to maturity gross realized gains or losses relating to sales in 2024 or 2023.
Pledged Securities
Securities with a carrying value of $11.5 million and $9.7 million at December 31, 2024 and December 31, 2023, respectively,
were pledged to secure other borrowings and for other purposes required or permitted by law.
Table of Contents
67
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 the gains and losses recognized in net income on equity securities for the past two years:
For the year ended December 31,
(In thousands)
2024
2023
Net unrealized gains (losses) recognized during the period on equity securities
$
492
$
(338)
Net gains recognized during the period on equity securities sold during the period
94
345
Gains recognized during the reporting period on equity securities
$
586
$
7
3. Loans
The following table sets forth the classification of loans by class, including unearned fees, deferred costs and excluding the
allowance for credit losses for the past two years:
(In thousands)
December 31, 2024 December 31, 2023
SBA loans held for investment
$
36,859
$
38,584
SBA PPP loans
1,450
2,318
Commercial loans
SBA 504 loans
48,479
33,669
Commercial & industrial
147,186
128,402
Commercial real estate (1)
1,085,771
986,230
Commercial real estate construction
130,193
129,159
Residential mortgage loans
630,927
631,506
Consumer loans
Home equity
73,223
67,037
Consumer other
3,488
5,639
Residential construction loans
90,918
131,277
Total loans held for investment
$
2,248,494
$
2,153,821
SBA loans held for sale
12,163
18,242
Total loans
$
2,260,657
$
2,172,063
(1) Commercial 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. Loan
performance may be adversely affected by factors impacting the general 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
Table of Contents
68
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 represent 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 market place 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 are generally 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, 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.
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 loan portfolio is then subject to on-
going internal reviews for credit quality, as well as independent credit reviews by an outside 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. These policies and 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. This credit risk rating analysis is performed when the loan is initially underwritten
and then annually based on set criteria in the loan policy.
Table of Contents
69
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/or paying capacity of the obligor or of the
collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation
of the debt. They are characterized by the distinct possibility that the institution may 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 delinquent 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.
Table of Contents
70
The following table shows the internal loan classification risk by loan portfolio classification by origination year as of
December 31, 2024:
Term Loans
Amortized Cost Basis by Origination Year
(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
$
4,961
$
5,570
$
10,085
$
-
$
29,568
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
$
7,433
$
6,194
$
10,815
$
-
$
36,859
SBA loans held for investment
Current-period gross writeoffs
$
-
$
-
$
300
$
70
$
-
$
-
$
-
$
370
SBA PPP loans
Risk Rating:
Pass
$
-
$
-
$
-
$
1,450
$
-
$
-
$
-
$
1,450
Total SBA PPP loans
$
-
$
-
$
-
$
1,450
$
-
$
-
$
-
$
1,450
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
71
The following table shows the internal loan classification risk by loan portfolio classification by origination year as of
December 31, 2023:
Term Loans
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
2018 and
Earlier
Revolving
Loans
Amortized
Cost Basis
Total
SBA loans held for investment
Risk Rating:
Pass
$
1,938 $
5,339 $
4,723 $
6,083 $
2,634 $
10,996 $
- $
31,713
Special Mention
-
1,765
356
510
-
31
-
2,662
Substandard
-
1,256
2,186
190
-
577
-
4,209
Total SBA loans held for investment
$
1,938 $
8,360 $
7,265 $
6,783 $
2,634 $
11,604 $
- $
38,584
SBA loans held for investment
Current-period gross writeoffs
$
- $
100 $
- $
- $
113 $
- $
- $
213
SBA PPP loans
Risk Rating:
Pass
$
- $
- $
2,318 $
- $
- $
- $
- $
2,318
Total SBA PPP loans
$
- $
- $
2,318 $
- $
- $
- $
- $
2,318
Commercial loans
Risk Rating:
Pass
$ 139,622 $ 343,755 $ 181,419 $ 128,165 $ 101,274 $ 271,469 $
96,988 $ 1,262,692
Special Mention
-
-
1,815
-
1,570
7,423
395
11,203
Substandard
-
-
59
14
288
3,204
-
3,565
Total commercial loans
$ 139,622 $ 343,755 $ 183,293 $ 128,179 $ 103,132 $ 282,096 $
97,383 $ 1,277,460
Commercial loans
Current-period gross writeoffs
$
- $
- $
150 $
- $
350 $
252 $
- $
752
Residential mortgage loans
Risk Rating:
Performing
$ 102,892 $ 253,919 $
72,586 $
51,999 $
30,482 $ 109,302 $
- $
621,180
Nonperforming
-
2,964
2,714
1,054
945
2,649
-
10,326
Total residential mortgage loans
$ 102,892 $ 256,883 $
75,300 $
53,053 $
31,427 $ 111,951 $
- $
631,506
Residential mortgage loans
Current-period gross writeoffs
$
- $
- $
25 $
- $
- $
68 $
- $
93
Consumer loans
Risk Rating:
Performing
$
3,428 $
4,777 $
3,681 $
670 $
2,481 $
7,507 $
49,751 $
72,295
Nonperforming
-
-
-
125
-
256
-
381
Total consumer loans
$
3,428 $
4,777 $
3,681 $
795 $
2,481 $
7,763 $
49,751 $
72,676
Consumer loans
Current-period gross writeoffs
$
- $
26 $
552 $
- $
- $
- $
- $
578
Residential construction loans
Risk Rating:
Performing
$
28,827 $
72,257 $
25,395 $
1,418 $
491 $
748 $
- $
129,136
Nonperforming
-
-
-
547
-
1,594
-
2,141
Total residential construction loans
$
28,827 $
72,257 $
25,395 $
1,965 $
491 $
2,342 $
- $
131,277
Residential construction
Current-period gross writeoffs
$
- $
- $
- $
- $
- $
600 $
400 $
1,000
Total loans held for investment
$ 276,707 $ 686,031 $ 297,252 $ 190,775 $ 140,165 $ 415,756 $
147,134 $ 2,153,821
Table of Contents
72
Nonaccrual and Past Due Loans
Nonaccrual loans consist of loans that are not accruing interest as a result of principal or interest being delinquent 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 or when the loan is brought current as to principal and interest.
The risk of loss is difficult to quantify and is 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 December 31, 2024 and
December 31, 2023:
December 31, 2024
90+ days
30‑59 days
60‑89 days
and still
Total past
(In thousands)
past due
past due
accruing
Nonaccrual
due (1)
Current
Total loans
SBA loans held for investment
$
1,006
$
451
$
—
$
3,850
$
5,307
$
31,552
$
36,859
Commercial loans
SBA 504 loans
—
—
—
—
—
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
2,183,657
2,247,044
SBA loans held for sale
—
—
—
—
—
12,163
12,163
Total loans, excluding SBA PPP
$ 40,494
$ 9,051
$
760
$ 13,082
$ 63,387
$ 2,195,820
$ 2,259,207
Table of Contents
73
December 31, 2023
90+ days
30‑59 days
60‑89 days
and still
Total past
(In thousands)
past due
past due
accruing
Nonaccrual
due (1)
Current
Total loans
SBA loans held for investment
$
551
$
185
$
—
$
3,444
$
4,180
$
34,404
$
38,584
Commercial loans
SBA 504 loans
—
—
—
—
—
33,669
33,669
Commercial & industrial
288
78
—
283
649
127,753
128,402
Commercial real estate
1,732
—
—
1,665
3,397
982,833
986,230
Commercial real estate
construction
—
—
—
—
—
129,159
129,159
Residential mortgage loans
8,719
1,378
946
10,326
21,369
610,137
631,506
Consumer loans
Home equity
14
—
—
381
395
66,642
67,037
Consumer other
28
55
—
—
83
5,556
5,639
Residential construction loans
2,580
—
—
2,141
4,721
126,556
131,277
Total loans held for investment
13,912
1,696
946
18,240
34,794
2,116,709
2,151,503
SBA loans held for sale
—
—
—
—
—
18,242
18,242
Total loans, excluding SBA PPP
$ 13,912
$ 1,696
$
946
$ 18,240
$ 34,794
$ 2,134,951
$ 2,169,745
(1) At December 31, 2024 and 2023, the Company had no SBA PPP loans past due.
As of December 31, 2024 and 2023, the Company had accrued interest receivable of $11.3 million and $11.7 million relating
to loans receivable, respectively. During the years ended December 31, 2024 and 2023 the company reversed $0.6 million and
$0.9 million in interest income from nonaccrual loans, respectively.
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.
Table of Contents
74
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 December 31, 2024 and December 31, 2023:
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
75
December 31, 2023
Unpaid
Allowance for
principal
Recorded
Credit Losses
(In thousands)
balance
investment
Allocated
With no related allowance:
SBA loans held for investment
$
2,264
$
2,186
$
—
Commercial loans
Commercial real estate
2,734
1,607
—
Total commercial loans
2,734
1,607
—
Residential mortgage loans
7,146
7,121
—
Consumer loans
Home equity
390
388
—
Total consumer loans
390
388
—
Residential construction loans
2,757
2,141
—
Total individually evaluated loans with no related allowance
15,291
13,443
—
With an allowance:
SBA loans held for investment
1,383
1,258
348
Commercial loans
Commercial & industrial
638
283
283
Commercial real estate
209
58
58
Total commercial loans
847
341
341
Residential mortgage loans
4,182
4,151
306
Total individually evaluated loans with a related allowance
6,412
5,750
995
Total individually evaluated loans:
SBA loans held for investment
3,647
3,444
348
Commercial loans
Commercial & industrial
638
283
283
Commercial real estate
2,943
1,665
58
Total commercial loans
3,581
1,948
341
Residential mortgage loans
11,328
11,272
306
Consumer loans:
Home equity
390
381
—
Total consumer loans
390
381
—
Residential construction loans
2,757
2,141
—
Total individually evaluated loans
$ 21,703
$ 19,186
$
995
The Company did not recognize interest income on nonaccrual loans for the years ended December 31, 2024 and December
31, 2023.
Other Loan Information
Servicing Assets:
Loans sold to others and serviced by the Company are not included in the accompanying Consolidated Balance Sheets. The
total amount of such loans serviced, but owned by third party investors, amounted to approximately $179.0 million and $184.2
million at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, the carrying value of
Table of Contents
76
servicing assets was $0.7 million and $0.9 million, respectively, and is included in Prepaid expenses and other assets. A
summary of the changes in the related servicing assets for the past two years follows:
For the years ended December 31,
(In thousands)
2024
2023
Balance, beginning of year
$
881
$
691
Servicing assets capitalized
186
576
Amortization of expense, net
(404)
(386)
Balance, end of year
$
663
$
881
In addition, the Company had $0.5 million and $0.6 million in discounts related to the retained portion of unsold SBA loans at
December 31, 2024 and 2023, respectively. These discounts are amortized to income over the same period of the balance of
the loans sold.
As of December 31, 2024 and 2023, the Company held $3.4 million and $5.0 million, respectively, in Residential mortgage
loans in the process of being sold.
Officer and Director Loans:
In the ordinary course of business, the Company may extend credit to officers, directors or their associates. These loans are
subject to the Company’s normal lending policy. An analysis of such loans, all of which are current as to principal and interest
payments, is as follows:
(In thousands)
December 31, 2024 December 31, 2023
Balance, beginning of year
$
7,894
$
8,124
New loans and advances
1,500
788
Loan repayments
(1,078)
(953)
Loans removed
—
(65)
Balance, end of year
$
8,316
$
7,894
Loan Portfolio Collateral:
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 December 31, 2024 and December 31, 2023, approximately 96% of the Company’s loan
portfolio was secured by real estate.
Modifications
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset 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.
Table of Contents
77
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 twelve
months ended December 31, 2024 and December 31, 2023:
Payment Delay
Term Extension
Principal
Percentage
Principal
Percentage
(In thousands)
Balance
of Loan Class
Balance
of Loan Class
SBA loans held for investment
$
93
0.3 %
$
—
— %
Commercial loans
Commercial real estate
632
0.1
—
—
Commercial & industrial
—
—
1,882
2.4
Residential mortgage loans
—
—
1,033
0.2
Consumer loans
Home equity
—
—
2,162
3.0
Balance, December 31, 2024
$
725
0.1 %
$
5,077
0.2 %
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
$
9
0.1 %
$
—
— %
$
—
— %
Commercial loans
Commercial & industrial
—
—
—
—
835
0.1
Commercial real estate
—
—
1,290
0.1
732
0.1
Consumer loans
Home equity
—
—
—
—
103
0.1
Balance, December 31, 2023
$
9
0.1 %
$
1,290
0.1 %
$
1,670
0.1 %
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 charged-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 $2.2 million home equity loan, that
was modified during the year ended December 31, 2024 was not in compliance with the modified terms as of December 31,
2024 compared to none as of December 31, 2023.
4. 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 mortgages, 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 mortgage, commercial real estate construction, commercial & industrial and SBA 504. Consumer loans are
divided into two classes as follows: home equity and other.
Table of Contents
78
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 evaluated 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 to 2015 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), commercial and residential construction 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 and consumer 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.
The allocated allowance is the total of identified specific and general reserves by loan category. The allocation is not
necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses
from any segment of the portfolio.
The following tables detail the activity in the allowance for credit losses by portfolio segment for the past two years:
For the year ended December 31, 2024
Residential
(In thousands)
SBA
Commercial Residential Consumer
Construction
Total
Balance, beginning of period
$ 1,221 $
15,876 $
6,529 $ 1,022 $
1,206 $ 25,854
Charge-offs
(370)
(633)
(150)
(361)
(277)
(1,791)
Recoveries
47
204
—
67
—
318
Net charge-offs
(323)
(429)
(150)
(294)
(277)
(1,473)
Provision for (credit to) credit losses charged to expense
637
1,914
(125)
47
(66)
2,407
Balance, end of period
$ 1,535 $
17,361 $
6,254 $
775 $
863 $ 26,788
Table of Contents
79
For the year ended December 31, 2023
Residential
(In thousands)
SBA
Commercial Residential Consumer Construction
Total
Balance, beginning of period
$
875 $
15,254 $
5,450 $
990 $
2,627 $ 25,196
Impact of adoption of ASU 2016-13 ("CECL")
163
171
376
101
36
847
Charge-offs
(213)
(752)
(93)
(578)
(1,000)
(2,636)
Recoveries
20
400
—
84
111
615
Net charge-offs
(193)
(352)
(93)
(494)
(889)
(2,021)
Provision for (credit to) credit losses charged to expense
376
803
796
425
(568)
1,832
Balance, end of period
$ 1,221 $
15,876 $
6,529 $ 1,022 $
1,206 $ 25,854
The following tables present loans and related allowance for credit losses, by portfolio segment, as of December 31st for the
past two years:
December 31, 2024
SBA, Held
Residential
(In thousands)
for Investment
Commercial
Residential
Consumer
Construction
Total
Allowance for credit losses ending balance:
Individually evaluated for impairment
$
755 $
62 $
52 $
— $
102 $
971
Collectively evaluated for impairment
780
17,299
6,202
775
761
25,817
Total
$
1,535 $
17,361 $
6,254 $
775 $
863 $
26,788
Loan ending balances:
Individually evaluated for impairment
$
3,850 $
2,974 $
6,471 $
— $
547 $
13,842
Collectively evaluated for impairment
34,459 1,408,655 624,456 76,711
90,371 2,234,652
Total loans held for investment
$
38,309 $ 1,411,629 $ 630,927 $ 76,711 $
90,918 $ 2,248,494
December 31, 2023
SBA, Held
Residential
(In thousands)
for Investment
Commercial
Residential
Consumer
Construction
Total
Allowance for credit losses ending balance:
Individually evaluated for impairment
$
348 $
341 $
306 $
— $
— $
995
Collectively evaluated for impairment
873
15,535
6,223
1,022
1,206
24,859
Total
$
1,221 $
15,876 $
6,529 $
1,022 $
1,206 $
25,854
Loan ending balances:
Individually evaluated for impairment
$
3,444 $
1,948 $
11,272 $
381 $
2,141 $
19,186
Collectively evaluated for impairment
37,458 1,275,512 620,234 72,295
129,136 2,134,635
Total loans held for investment
$
40,902 $ 1,277,460 $ 631,506 $ 72,676 $
131,277 $ 2,153,821
The Company allocated an additional reserve for loans with a substandard rating, not otherwise considered for specific
reserves. The change in the allowance for credit losses for the year-ended December 31, 2024 was mainly due to loan growth,
partially offset by charge-offs.
Reserve for Unfunded Loan Commitments
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance
calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each
applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected
funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted
above, the allowance for credit losses on unfunded loan commitments is included in Other liabilities on the Consolidated
Balance Sheet. At December 31, 2024 and 2023, a $0.6 million commitment reserve was reported.
Table of Contents
80
Valuation Allowance: Debt Security Available for Sale
The Company maintains a valuation allowance on AFS debt securities. Adjustments to the reserve are made through provision
for credit losses and applied to the reserve which is classified in “Debt securities available for sale” on the Consolidated
Balance Sheet. At December 31, 2024, a $2.8 million reserve was reported, compared to $1.3 million at December 31, 2023.
The Company maintains a valuation allowance on HTM debt securities at a level that Management believes is adequate to
absorb estimated probable losses. At December 31, 2024 and December 31, 2023, 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 and have a long history of no credit losses.
5. Premises and Equipment
The detail of premises and equipment as of December 31st for the past two years is as follows:
(In thousands)
December 31, 2024
December 31, 2023
Land and buildings
$
23,319 $
24,582
Furniture, fixtures and equipment
3,429
13,322
Leasehold improvements
1,534
3,205
Gross premises and equipment
28,282
41,109
Less: Accumulated depreciation
(9,504)
(21,542)
Net premises and equipment
$
18,778
$
19,567
Amounts charged to noninterest expense for depreciation of premises and equipment amounted to $1.5 and $1.4 million in
2024 and 2023, respectively.
6. Deposits
The following table details the maturity distribution of time deposits as of December 31st for the past two years:
More than
More than
three
six months
Three
months
through
More than
months or
through six
twelve
twelve
(In thousands)
less
months
months
months
Total
At December 31, 2024:
Less than $250,000
$
197,392
$
186,828
$
150,942
$
41,260
$
576,422
$250,000 or more
85,296
100,173
47,951
5,261
238,681
At December 31, 2023:
Less than $250,000
$
157,742
$
140,052
$
104,619
$
88,311
$
490,724
$250,000 or more
21,649
63,783
36,830
13,078
135,340
The following table presents the expected maturities of time deposits over the next five years:
(In thousands)
2025
2026
2027
2028
2029
Thereafter
Total
Balance maturing
$ 768,582
$ 33,387
$
11,178
$
1,306
$
542
$
108
$ 815,103
Time deposits with balances of $250 thousand or more totaled $238.7 million and $135.3 million at December 31, 2024 and
2023, respectively.
Deposits from principal officers, directors, and their affiliates at year-end 2024 and 2023 were $30.6 million and $33.0
million, respectively.
Table of Contents
81
7. Borrowed Funds, Subordinated Debentures and Derivatives
The following table presents the period-end and weighted average rate for borrowed funds and subordinated debentures as of
the past two year end dates:
2024
2023
(In thousands)
Amount
Rate
Amount
Rate
FHLB borrowings:
Non-overnight, fixed rate advances
$
20,504
4.36 % $
109,438
3.86 %
Overnight advances
140,000
4.67
217,000
5.61
Puttable advances
60,000
3.70
30,000
3.91
Subordinated debentures:
$
10,310
6.19 % $
10,310
7.21 %
The following table presents borrowed funds and subordinated debentures by maturity over the next five years:
(In thousands)
2025
2026
2027
2028
2029
Thereafter
Total
FHLB borrowings:
Non-overnight, fixed rate
advances
$
10,504
$
$
—
$ 10,000
$
$
—
$
20,504
Overnight advances
140,000
—
—
—
—
—
140,000
Puttable advances
—
—
—
20,000
40,000
—
60,000
Subordinated debentures:
—
—
—
—
—
10,310
10,310
Total borrowings
$
150,504
$
—
$
—
$ 30,000
$ 40,000
$ 10,310
$ 230,814
Subordinated Debentures
At December 31, 2024 and 2023, the Company was a party in the following subordinated debenture transactions:
●
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, prior to maturity but after July 24, 2011. The
floating interest rate on the subordinated debentures is the three-month CME term SOFR plus 262 basis points and
reprices quarterly. The floating interest rate was 6.189% at December 31, 2024 and 7.212% at
December 31, 2023.
●
In connection with the formation of the statutory business trust, the trust also issued $465 thousand of common
equity securities to the Company, which together with the proceeds stated above were used to purchase the
subordinated debentures, under the same terms and conditions. At December 31, 2024 and 2023, $310 thousand of
the common equity securities remained.
The capital securities in the above transaction have preference over the common securities with respect to liquidation and
other distributions and qualify as Tier 1 capital. Under the terms of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, these securities will continue to qualify as Tier 1 capital as the Company has less than $15 billion in assets. In
accordance with FASB ASC Topic 810, “Consolidation,” the Company does not consolidate the accounts and related activity
of Unity (NJ) Statutory Trust II because it is not the primary beneficiary. The additional capital from this transaction was used
to bolster the Company’s capital ratios and for general corporate purposes, including among other things, capital contributions
to the Bank.
The Company has the ability to defer interest payments on the subordinated debentures for up to 5 years without being in
default. Due to the redemption provisions of these securities, the expected maturity could differ from the contractual maturity.
Table of Contents
82
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 Consolidated 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 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.
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 interest rate 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.
At December 31, 2024, and 2023 the Company had no cash collateral pledged for these derivatives. A summary of the
Company’s outstanding interest rate swap agreements used to hedge variable rate debt at December 31, 2024 and 2023,
respectively is as follows:
(Dollars in thousands)
December 31, 2024
December 31, 2023
Notional amount
$
20,000
$
20,000
Fair value
$
139
$
918
Weighted average pay rate
0.83 %
0.83 %
Weighted average receive rate
5.12 %
5.27 %
Weighted average maturity in years
0.19
1.57
Number of contracts
1
1
In the third quarter of 2024, to hedge floating rate liability exposure, the Company entered into a forward starting pay-fix,
receive-float interest rate swap which will commence in the first quarter of 2025, maturing in the first quarter of 2028. The
interest rate swap, which qualifies for hedge accounting, is tied to the Secured Overnight Financing Rate (SOFR) for a
Table of Contents
83
notional amount of $20.0 million. The effective fixed rate interest rate obligation to the Company is 2.89%. As of December
31, 2024, the fair value of the swap was $0.6 million.
During the twelve months ended December 31, 2024 the Company received variable rate SOFR payments from and paid fixed
rates in accordance with its interest rate swap agreements. The unrealized gains relating to interest rate swaps are recorded as a
derivative asset and are included in Prepaid expenses and other assets in the Company’s Consolidated Balance Sheet. The
unrealized losses are recorded as a derivative liability and are included in Accrued expenses and other liabilities. Changes in
the fair value of 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 amount included in accumulated other comprehensive income
would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the
hedges to remain fully effective during the remaining terms of the swaps.
The following table presents the net losses recorded in other comprehensive income and the Consolidated Financial
Statements relating to the cash flow derivative instruments at December 31, 2024 and 2023, respectively:
For the years ended December 31,
(In thousands)
2024
2023
Loss recognized in OCI
Gross of tax
$
(172)
$
(619)
Net of tax
(125)
(450)
Loss reclassified from AOCI into net income
Gross of tax
(925)
(899)
Net of tax
(671)
(635)
8. Leases and Commitments
Leases
Operating leases in which the Company is the lessee and the term is greater than 12 months, are recorded as right of use
("ROU") assets and lease liabilities, and are included in Prepaid expenses and other assets and Accrued expenses and other
liabilities, respectively, on the Company’s Consolidated Balance Sheets. The Company does not currently have any finance
leases in which it is the lessee.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease
liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are
recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that
represents the Company’s incremental borrowing rate. The borrowing rate for each lease is unique based on the lease term.
Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the
operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in Occupancy expense in the
Consolidated Statements of Income.
The Company’s leases relate primarily to the Company’s bank branches and office space with remaining lease terms of
generally 1 to 10 years. Certain lease arrangements contain extension options which typically range from 1 to 5 years at the
then fair market rental rates. Extension options which are reasonably certain to be exercised are included in the calculation of
the ROU asset and lease liability.
Certain real estate leases have lease payments that adjust based on annual changes in the Consumer Price Index ("CPI"). The
leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included
in the measurement of the lease liability.
Operating lease ROU assets totaled $4.6 million at December 31, 2024, compared to $5.2 million at December 31, 2023.
As of December 31, 2024, operating lease liabilities totaled $4.8 million, compared to $5.3 million at December 31,
2023.
Table of Contents
84
The table below summarizes the Company’s net lease cost:
For the years ended December 31,
(In thousands)
2024
2023
Operating lease cost
$
732
$
777
Net lease cost
$
732
$
777
The table below summarizes the cash and non-cash activities associated with the Company’s leases:
For the years ended December 31,
(In thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
711
$
742
As of December 31, 2024 and December 31, 2023, the Company had no lease terminations.
The table below summarizes other information related to the Company’s operating leases:
December 31, 2024
December 31, 2023
Weighted average remaining lease term in years
9.47
10.20
Weighted average discount rate
2.94 %
3.04 %
The table below summarizes the maturity of remaining lease liabilities:
(In thousands)
December 31, 2024
2025
$
703
2026
716
2027
672
2028
436
2029
428
2030 and thereafter
2,399
Total lease payments
$
5,354
Less: Interest
(580)
Present value of lease liabilities
$
4,774
As of December 31, 2024 the Company had not entered into any material leases that have not yet commenced.
Commitments to Borrowers
Commitments to extend credit are legally binding loan commitments with set expiration dates. They are intended to be
disbursed, subject to certain conditions, upon the request of the borrower. The Company was committed to advance
approximately $322.3 million to its borrowers as of December 31, 2024, compared to $312.5 million at December 31, 2023.
At December 31, 2024, $167.1 million of these commitments expire within one year, compared to $149.3 million a year
earlier. At December 31, 2024, the Company had $5.5 million in standby letters of credit, compared to $5.7 million at
December 31, 2023. The estimated fair value of these guarantees is not significant. The Company believes it has the necessary
liquidity to honor all commitments.
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.
Table of Contents
85
9. Accumulated Other Comprehensive (Loss) Income
The following tables shows the changes in other comprehensive (loss), net of tax income for the past two years:
For the year ended December 31, 2024
Net unrealized
Net unrealized
Accumulated
(losses) gains on
gains (losses) from
other
securities
cash flow hedges
comprehensive
(In thousands)
net of tax
net of tax
(loss) income
Balance, beginning of period
$
(3,408)
$
671 $
(2,737)
Other comprehensive income (loss) before reclassifications
755
(796)
(41)
Less amounts reclassified from accumulated other comprehensive
loss
—
(671)
(671)
Period change
755
(125)
630
Balance, end of period
$
(2,653)
$
546
$
(2,107)
For the year ended December 31, 2023
Net unrealized
Net unrealized
Accumulated
(losses) gains on
gains (losses) from
other
securities
cash flow hedges
comprehensive
(In thousands)
net of tax
net of tax
(loss) income
Balance, beginning of period
$
(4,381)
$
1,121 $
(3,260)
Other comprehensive income (loss) before reclassifications
870
(1,085)
(215)
Less amounts reclassified from accumulated other comprehensive
loss
(103)
(635)
(738)
Period change
973
(450)
523
Balance, end of period
$
(3,408)
$
671
$
(2,737)
10. 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. A total of 229 thousand shares were repurchased at
an average price of $27.05 during 2024, all of which were repurchased under the prior repurchase plan, leaving 685 thousand
shares available for repurchase as of December 31, 2024. A total of 656 thousand shares were repurchased at an average price
of $23.69 during 2023, leaving 414 thousand shares available for repurchase as of December 31, 2023. 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.
Table of Contents
86
11. Income Taxes
The components of the provision for income taxes for the past two years are as follows:
For the years ended December 31,
(In thousands)
2024
2023
Federal - current provision
$
12,236
$
10,625
Federal - deferred benefit
(1,401)
(285)
Total federal provision
10,835
10,340
State - current provision
2,451
2,750
State - deferred (benefit) provision
(346)
198
Total state provision
2,105
2,948
Total provision for income taxes
$
12,940
$
13,288
Reconciliation between the reported income tax provision and the amount computed by multiplying income before taxes by
the statutory Federal income tax rate for the past two years is as follows:
For the years ended December 31,
(In thousands, except percentages)
2024
2023
Federal income tax provision at statutory rate of 21%
$
11,422
$
11,129
(Decreases) increases resulting from:
Stock option and restricted stock
(536)
(52)
Bank owned life insurance
(114)
(179)
Tax-exempt income
(15)
(3)
Meals and entertainment
48
64
Captive insurance premium
—
(244)
Non-deductible compensation
250
—
State income taxes, net of federal benefit
1,663
2,329
Other
222
244
Provision for income taxes
$
12,940
$
13,288
Effective tax rate
23.8 %
25.1 %
Table of Contents
87
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities. The components of the net deferred tax asset at December 31, 2024 and 2023 are as follows:
(In thousands)
December 31, 2024 December 31, 2023
Deferred tax assets:
Allowance for credit losses
$
7,168
$
6,940
SERP
1,788
1,669
Stock-based compensation
1,010
1,070
Deferred compensation
1,750
1,329
Depreciation
701
674
Deferred loan fees and costs, net
227
—
Net unrealized securities losses
1,755
1,759
Commitment reserve
171
172
Net other deferred tax assets
820
698
Gross deferred tax assets
15,390
14,311
Deferred tax liabilities:
Goodwill
413
418
Deferred servicing fees
40
74
REIT deferral
596
929
Bond accretion
32
49
Deferred loan fees and costs, net
—
35
Interest rate swaps
203
253
Gross deferred tax liabilities
1,284
1,758
Net deferred tax asset
$
14,106
$
12,553
The Company computes deferred income taxes under the asset and liability method. Deferred income taxes are recognized for
tax consequences of “temporary differences” by applying enacted statutory tax rates to differences between the financial
reporting and the tax basis of existing assets and liabilities. A deferred tax liability is recognized for all temporary differences
that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in
future tax deductions subject to reduction of the asset by a valuation allowance.
Included as a component of deferred tax assets is an income tax expense (benefit) related to unrealized gains (losses) on AFS
debt securities and interest rate swaps. The after-tax component of each of these is included in other comprehensive income
(loss) in shareholders’ equity. The after-tax component related to AFS debt securities was an unrealized loss of $2.7 million in
2024, compared to unrealized loss of $3.4 million in 2023. The after tax component related to the interest rate swaps was an
unrealized gain of $0.5 million for 2024, compared to an unrealized gain of $0.7 million for 2023.
The Company follows FASB ASC Topic 740, “Income Taxes,” which prescribes a threshold for the financial statement
recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax
return. ASC 740 also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition of income taxes. The Company did not recognize or accrue any interest or penalties related to income
taxes during the years ended December 31, 2024 or 2023. The Company does not have an accrual for uncertain tax positions
as of December 31, 2024 or 2023, as deductions taken or benefits accrued are based on widely understood administrative
practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2021 and thereafter are
subject to future examination by tax authorities.
Table of Contents
88
12. Net Income per Share
The following is a reconciliation of the calculation of basic and diluted net income per share for the past two years:
For the years ended December 31,
(In thousands, except per share amounts)
2024
2023
Net income
$
41,450
$
39,707
Weighted average common shares outstanding - Basic
10,031
10,207
Plus: Potential dilutive common stock equivalents
171
131
Weighted average common shares outstanding - Diluted
10,202
10,338
Net income per common share - Basic
$
4.13
$
3.89
Net income per common share - Diluted
4.06
3.84
Stock options and common stock excluded from the income per share calculation as their
effect would have been anti-dilutive
—
—
13. 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 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 capital ratio of
4.5%; (iii) a Tier 1 capital ratio of 6%; and (iv) a total capital ratio 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 capital ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total 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.
The following table shows information regarding the Company’s and the Bank’s regulatory capital levels at December 31,
2024 and at December 31, 2023, as if the Company were subject to consolidated capital requirements. As of December 31,
2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based,
common equity Tier 1 risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no
conditions or events since the notification that Management believes have changed the Bank’s category. Management believes
that the Company and the Bank meet all capital adequacy requirements to which they are subject. Due to a Federal Reserve
policy applicable to bank holding companies with less than $3 billion in consolidated assets, the Company is not subject to
consolidated capital requirements:
Table of Contents
89
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 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
As of December 31, 2023 (1)
Total risk-based capital (to risk-weighted assets)
Company Consolidated
$ 298,293
14.43 % $ 165,370
8.00 % $ 206,712
10.00 %
Bank
287,206
14.02
163,911
8.00
204,889
10.00
Common equity tier 1 (to risk-weighted assets)
Company Consolidated
262,454
12.70
93,020
4.50
134,363
6.50
Bank
261,584
12.76
92,200
4.50
133,178
6.50
Tier 1 capital (to risk-weighted assets)
Company Consolidated
272,454
13.18
124,027
6.00
165,370
8.00
Bank
261,584
12.76
122,934
6.00
163,911
8.00
Tier 1 capital (to average total assets)
Company Consolidated
272,454
11.14
97,800
4.00
122,250
5.00
Bank
261,584
10.74
97,355
4.00
121,693
5.00
*Prompt Corrective Action requirements only apply to the Bank
(1) The Bank elected to cease being subject to the CBLR effective December 31, 2023 and to report its capital ratios
using standard regulatory measures.
Table of Contents
90
14. Employee Benefit Plans
Stock Option Plans
The Company has maintained option plans and maintains an equity incentive plan, which allow for the grant of options to
officers, employees and members of the Board of Directors. Grants of options under the Company’s plans generally vest over
3 years and must be exercised within 10 years of the date of grant. Transactions under the Company’s stock option plans for
2024 and 2023 are summarized in the following table:
Weighted
Weighted
average
average
remaining
Aggregate
exercise
contractual
intrinsic
Shares
price
life in years
value
Outstanding at December 31, 2022
559,499
$
18.09
5.9
$ 5,168,740
Options granted
—
—
Options exercised
(87,701)
19.03
Options forfeited
(666)
18.64
Options expired
—
—
Outstanding at December 31, 2023
471,132
$
17.92
4.9
$ 5,500,080
Options granted
—
—
Options exercised
(130,733)
14.81
Options forfeited
—
—
Options expired
—
—
Outstanding at December 31, 2024
340,399
$
19.11
4.4
$ 8,340,435
Exercisable at December 31, 2024
340,399
$
19.11
4.4
$ 8,340,435
On May 5, 2023, the Company adopted the 2023 Equity Compensation Plan providing for grants of up to 500,000 shares to be
allocated between incentive and non-qualified stock options, restricted stock awards, performance units and
deferred stock. The Plan, along with the 2019 Equity Compensation Plan adopted on April 25, 2019, replaced all previously
approved and established equity plans then currently in effect. As of December 31, 2024, 281,500 options and 345,850 shares
of restricted stock have been awarded from the plans. In addition, 16,162 unvested options and 24,537 unvested shares of
restricted stock were cancelled and returned to the plans, leaving 402,574 shares available for future grants.
There were no options granted during 2024 and 2023.
Upon exercise, the Company issues shares from its authorized but unissued common stock to satisfy the options. The
following table presents information about options exercised during 2024 and 2023:
For the years ended December 31,
2024
2023
Number of options exercised
130,733
87,701
Total intrinsic value of options exercised
$
2,639,413
$
607,936
Cash received from options exercised
1,936,351
1,669,237
Tax deduction realized from options
741,939
182,898
Table of Contents
91
The following table summarizes information about stock options outstanding at December 31, 2024:
Options outstanding
Options exercisable
Weighted average
Weighted
Weighted
Range of
Options
remaining contractual
average
Options
average
exercise prices
outstanding
life (in years)
exercise price
exercisable
exercise price
$
8.94-12.34
23,000
1.1
$
10.00
23,000
$
10.00
12.35-15.75
7,333
2.0
15.70
7,333
15.70
15.76-19.16
118,666
4.9
17.71
118,666
17.71
19.17-22.57
191,400
4.6
21.20
191,400
21.20
Total
340,399
4.4
$
19.11
340,399
$
19.11
FASB ASC Topic 718, “Compensation - Stock Compensation,” requires an entity to recognize the fair value of equity awards
as compensation expense over the period during which an employee is required to provide service in exchange for such an
award (vesting period). Compensation expense related to stock options and the related income tax benefit for the years ended
December 31, 2024 and 2023 are detailed in the following table:
For the years ended December 31,
2024
2023
Compensation expense
$
33
$
312
Income tax benefit
9
90
As of December 31, 2024, there was no unrecognized compensation costs related to nonvested share-based stock option
compensation arrangements granted under the Company’s plans as all options were fully vested.
Restricted Stock Awards
Restricted stock is issued under the Company’s active Equity Compensation plans to reward employees and directors and to
retain them by distributing stock over a period of time. Restricted stock awards granted to date vest over a period of 4 years
and are recognized as compensation to the recipient over the vesting period. The awards are recorded at fair market value at
the time of grant and amortized into salary expense on a straight line basis over the vesting period. The following table
summarizes nonvested restricted stock activity for the year ended December 31, 2024:
Average grant
Shares
date fair value
Nonvested restricted stock at December 31, 2023
164,634
24.46
Granted
77,950
28.84
Cancelled
(9,287)
27.02
Vested
(58,049)
23.87
Nonvested restricted stock at December 31, 2024
175,248
26.47
Restricted stock awards granted during the years ended December 31, 2024 and 2023 were as follows:
For the years ended December 31,
2024
2023
Number of shares granted
77,950
58,500
Average grant date fair value
$
28.84
$
22.93
Table of Contents
92
Compensation expense related to the restricted stock for the years ended December 31, 2024 and 2023, is detailed in the
following table:
For the years ended December 31,
2024
2023
Compensation expense
$
1,790
$
1,439
Income tax benefit
501
416
As of December 31, 2024, there was approximately $3.3 million of unrecognized compensation cost related to nonvested
restricted stock awards granted under the Company’s stock incentive plans. That cost is expected to be recognized over a
weighted average period of 2.4 years.
401(k) Savings Plan
The Bank has a 401(k) savings plan covering substantially all employees. Under the 401(k) plan, an employee can contribute
up to 75 percent of their salary on a tax deferred basis. The Bank may also make discretionary contributions to the 401(k)
plan. The Bank contributed $0.9 million and $0.8 million to the Plan in 2024 and 2023, respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan for Directors and eligible Management. Directors of the Company have the
option to elect to defer up to 100 percent of their respective retainer and Board of Director fees, and each eligible member of
Management has the option to elect to defer up to 100 percent of their cash based compensation. Director and Management
deferred compensation totaled $1.0 million in 2024 and $1.0 million in 2023, and the interest paid on deferred balances totaled
$0.5 million in 2024 and $0.4 million in 2023. The deferred balances distributed totaled $14 thousand in 2024 and $724
thousand in 2023. The total deferred balances included in the Company’s Consolidated Balance Sheet were $6.4 million and
$4.8 million as of December 31, 2024 and 2023, respectively.
Benefit Plans
In addition to the 401(k) savings plan which covers substantially all employees, in 2015 the Company established an unfunded
supplemental defined benefit plan to provide additional retirement benefits for the President and Chief Executive Officer
(“CEO”) and unfunded, non-qualified deferred retirement plans for certain other key executives.
On June 4, 2015, the Company approved the Supplemental Executive Retirement Plan (“SERP”) pursuant to which the
President and CEO is entitled to receive certain supplemental nonqualified retirement benefits. The retirement benefit under
the SERP is an amount equal to sixty percent (60%) of the average of the President and CEO’s base salary for the thirty-six
(36) months immediately preceding the executive’s separation from service after age 66, adjusted annually thereafter by a
percentage equal to the Consumer Price Index as reported by the U.S. Bureau of Labor Statistics for All Urban Consumers
(CPI-U). The total benefit is to be made payable in fifteen annual installments. The future payments are estimated to total $8.8
million. A discount rate of four percent (4%) was used to calculate the present value of the benefit obligation.
The President and CEO commenced vesting in this retirement benefit on January 1, 2014, and fully vested on January 1, 2024.
Table of Contents
93
No contributions or payments have been made for the year 2024 or 2023. The following table summarizes the components of
the net periodic pension cost of the defined benefit plan recognized during the years ended December 31, 2024 and 2023:
For the years ended December 31,
(In thousands)
2024
2023
Service cost
$
797
$
224
Interest cost
241
203
Net periodic benefit cost
$
1,038
$
427
For the years ended December 31, 2024 and 2023, service cost and interest cost were included in Compensation and benefits
expense on the Consolidated Statements of Income.
The following table summarizes the changes in benefit obligations of the defined benefit plan recognized during the years
ended December 31, 2024 and 2023:
For the years ended December 31,
(In thousands)
2024
2023
Benefit obligation, beginning of year
$
5,284
$
4,857
Service cost
797
224
Interest cost
241
203
Benefit obligation, end of period
$
6,322
$
5,284
On October 22, 2015, the Company entered into an Executive Incentive Retirement Plan (the “EIRP”) with key executive
officers other than the President and CEO. The EIRP has an effective date of January 1, 2015.
The EIRP is an unfunded, nonqualified deferred compensation plan. For any EIRP Year, a guaranteed annual Deferral
Award, equal to seven and one half percent (7.5%) of the participant’s annual base salary, may be credited to each Participant’s
Deferred Benefit Account. A discretionary annual Deferral Award, equal to seven and one half percent (7.5%) of the
participant’s annual base salary, may be credited to the Participant’s account in addition to the guaranteed Deferral Award, if
the Bank exceeds the benchmarks set forth in the Annual Executive Bonus Matrix. The total Deferral Award shall never
exceed fifteen percent (15%) of the participant’s base salary for any given Plan Year. Each Participant shall be one
hundred percent (100%) vested in all Deferral Awards as of the date they are awarded.
As of December 31, 2024, the Company had total expenses related to the EIRP of $124 thousand, compared to $132 thousand
in 2023. The EIRP is reflected on the Company’s Consolidated Balance Sheet as Accrued expenses and other assets.
Certain members of Management are also enrolled in a split-dollar life insurance plan with a post retirement death
benefit of $250 thousand.
15. Fair Value
Fair Value Measurement
The Company follows 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
Table of Contents
94
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).
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 sponsored mortgage-backed securities, asset 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.
●
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
The fair value of available for sale ("AFS") debt securities is the market value based on quoted market prices, when available,
or market prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value is
based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or models that use
unobservable inputs due to limited or no market activity of the instrument (Level 3).
As of December 31, 2024, the fair value of the Company’s AFS debt securities portfolio was $93.9 million. The portfolio
contains residential mortgage-backed securities, most of which, are guaranteed by the Government National Mortgage
Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage
Corporation (“FHLMC”). The underlying loans for these securities are residential mortgages that are geographically dispersed
throughout the United States.
Most of the Company’s AFS debt securities were classified as Level 2 assets at December 31, 2024. 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 model pricing, defined as valuing securities
based upon their relationship with other benchmark securities.
Included in the Company’s AFS debt securities are certain corporate bonds which are classified as Level 3 assets at
December 31, 2024. The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices,
Table of Contents
95
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.
The following table presents a reconciliation of the Level 3 AFS debt securities measured at fair value on a
recurring basis for the years ended December 31, 2024 and 2023:
Corporate and Other Securities
(In thousands)
2024
2023
Balance of Recurring Level 3 assets at January 1
$
7,979
$
4,675
Activity
Unrealized holding gains (losses) included in other comprehensive income
263
(413)
Principal Payments
(213)
—
Transfers into Level 3
—
3,717
Unrealized holding losses included in net income
(1,541)
—
Balance of recurring Level 3 assets at December 31
$
6,488
$
7,979
Equity Securities with Readily Determinable Fair Values
The fair value of equity securities is the market value based on quoted market prices, when available, or market prices
provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value 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).
As of December 31, 2024, the fair value of the Company’s equity securities portfolio was $9.9 million.
All of the Company’s equity securities were classified as Level 1 assets at December 31, 2024 and 2023. The valuation of
securities using Level 1 inputs was primarily determined by active markets with readily determinable fair value using quoted
market prices.
There were no changes in the inputs or methodologies used to determine fair value during the period ended
December 31, 2024, as compared to the period ended December 31, 2023.
Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the market value based on quoted market prices, when available, or market
prices provided by recognized broker dealers (Level 1). If listed prices or quotes are not available, fair value 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).
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.
Table of Contents
96
The tables below present the balances of assets measured at fair value on a recurring basis as of December 31st for the past
two years:
Fair Value Measurements at December 31, 2024 Using
Quoted Prices in
Assets/Liabilities
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 with readily determinable fair values
$
9,850
$
9,850
$
—
$
—
Total equity securities
$
9,850
$
9,850
$
—
$
—
Interest rate swap agreements
$
742
$
—
$
742
$
—
Total swap agreements
$
742
$
—
$
742
$
—
Fair value Measurements at December 31, 2023 Using
Quoted Prices in
Assets/Liabilities
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
$
16,033
$
—
$
16,033
$
—
State and political subdivisions
360
—
360
—
Residential mortgage-backed securities
14,077
—
14,077
—
Asset backed securities
35,403
—
35,403
—
Corporate and other securities
25,892
—
17,913
7,979
Total debt securities available for sale
$
91,765
$
—
$
83,786
$
7,979
Equity securities with readily determinable fair values
$
7,802
$
7,802
$
—
$
—
Total equity securities
$
7,802
$
7,802
$
—
$
—
Interest rate swap agreements
$
918
$
—
$
918
$
—
Total swap agreements
$
918
$
—
$
918
$
—
There were no liabilities measured on a recurring basis as of December 31, 2024 and 2023.
Table of Contents
97
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 December 31, 2024 Using
Quoted Prices
Significant
in Active
Other
Significant
Assets/Liabilities
Markets for
Observable
Unobservable
Measured at Fair
Identical Assets
Inputs
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
Fair Value Measurements at December 31, 2023 Using
Quoted Prices
Significant
in Active
Other
Significant
Assets/Liabilities
Markets for
Observable
Unobservable
Measured at Fair
Identical Assets
Inputs
Inputs
(In thousands)
Value
(Level 1)
(Level 2)
(Level 3)
Measured on a non-recurring basis:
Financial assets:
Collateral-dependent loans
$
4,755
$
—
$
—
$
4,755
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. Partially charged-off loans are measured for impairment
based upon a third-party appraisal for collateral-dependent loans. 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 valuation allowance for individually evaluated loans is included in the allowance for credit losses in the Consolidated
Balance Sheets. The valuation allowance for individually evaluated loans was $1.0 million at December 31, 2023 and
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 December 31, 2024 and December 31, 2023 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 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 are discussed above.
Table of Contents
98
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).
SBA Loans Held for Sale
The fair value of SBA 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 individually evaluated 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.
Table of Contents
99
The table below presents the carrying amount and estimated fair values of the Company’s financial instruments (not presented
previously) presented as of December 31st for the past two years:
December 31, 2024
Carrying
(In thousands)
amount
Level 1
Level 2
Level 3
Financial assets:
Debt securities held to maturity
$
41,294
$
—
$
33,814
$
—
SBA loans held for sale
12,163
—
12,896
—
Loans, net of allowance for credit losses
2,221,707
—
2,152,080
6,520
Financial liabilities:
Deposits
2,100,313
—
2,095,365
—
Borrowed funds and subordinated debentures
230,814
—
230,576
—
December 31, 2023
Carrying
(In thousands)
amount
Level 1
Level 2
Level 3
Financial assets:
Debt securities held to maturity
$
36,122
$
—
$
29,656
$
—
SBA loans held for sale
18,242
—
19,175
—
Loans, net of allowance for credit losses
2,127,967
—
2,027,084
4,755
Financial liabilities:
Deposits
1,924,140
—
1,915,022
—
Borrowed funds and subordinated debentures
366,748
—
365,879
—
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-statement of condition 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.
Table of Contents
100
16. Condensed Financial Statements of Unity Bancorp, Inc.
(Parent Company Only)
Balance Sheets
December 31,
December 31,
(In thousands)
2024
2023
ASSETS
Cash and cash equivalents
$
350
$
1,410
Debit securities, available for sale
—
1,478
Equity securities
3,732
3,559
Investment in subsidiaries
297,853
260,879
Premises and equipment, net
3,506
3,480
Other assets
482
1,303
Total assets
$
305,923
$
272,109
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other liabilities
30
369
Subordinated debentures
10,310
10,310
Shareholders’ equity
295,583
261,430
Total liabilities and shareholders’ equity
$
305,923
$
272,109
Statements of Income
For the year ended December 31,
(In thousands)
2024
2023
Dividend from Bank
$
6,196
$
15,188
Dividend from Nonbank subsidiary
—
1,235
Gain on sales of securities
54
345
Market value appreciation on equity securities
575
—
Other income
793
760
Total income
7,618
17,528
Interest expenses
718
695
Market value depreciation on equity securities
—
444
Other expenses
170
265
Total expenses
888
1,404
Income before provision for income taxes and equity in undistributed net income of
subsidiary
6,730
16,124
Income tax expense (benefit)
121
(114)
Income before equity in undistributed net income of subsidiary
6,609
16,238
Equity in undistributed net income of subsidiaries
34,841
23,469
Net income
$
41,450
$
39,707
Table of Contents
101
Statements of Cash Flows
For the year ended December 31,
(In thousands)
2024
2023
OPERATING ACTIVITIES
Net income
$
41,450
$
39,707
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries
(34,841)
(23,469)
Gain on sales of securities
(54)
(345)
Net accretion of purchase premiums and discounts on securities
(17)
—
Net change in other assets and other liabilities
280
349
Net cash provided by operating activities
6,818
16,242
INVESTING ACTIVITIES
Purchases of equity securities
(247)
(126)
Proceeds from business divestitures
—
2,034
Maturities and principal payments on securities available for sale
1,495
—
Purchases of premises and equipment
(160)
—
Proceeds from sales of securities
785
2,166
Net cash (used in) provided by investing activities
1,873
4,074
FINANCING ACTIVITIES
Proceeds from exercise of stock based compensation, net of taxes
1,480
1,284
Repayment of advances from subsidiaries
—
(2,002)
Purchase of treasury stock
(6,210)
(15,692)
Cash dividends paid on common stock
(5,021)
(4,721)
Net cash used in financing activities
(9,751)
(21,131)
Decrease in cash and cash equivalents
(1,060)
(815)
Cash and cash equivalents, beginning of period
1,410
2,225
Cash and cash equivalents, end of period
$
350
$
1,410
SUPPLEMENTAL DISCLOSURES
Interest paid
$
722
$
786
Table of Contents
102
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Unity Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Unity Bancorp, Inc. and its subsidiaries (the Company) as
of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to
the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013 and our report dated March 7, 2025 expressed an unqualified opinion on the effectiveness of
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Table of Contents
103
Allowance for Credit Losses – Collectively Evaluated Loans
As described in Notes 1, 3 and 4 to the financial statements, the Company has recorded an allowance for credit losses (ACL)
in the amount of $26.8 million as of December 31, 2024, representing management’s estimate of credit losses over the
remaining expected life of the Company’s loan portfolio as of that date. Management determined these amounts, and
corresponding provision for credit loss expense, pursuant to the application of Accounting Standards Codification Topic 326,
Financial Instruments – Credit Losses.
The Company’s methodology to determine its allowance for credit losses incorporates quantitative and qualitative assessments
of its historical losses, current loan portfolio and economic conditions, the application of forecasted economic conditions, and
related modeling. We determined that performing procedures relating to the qualitative and forecasted components of the
Company’s methodology are a critical audit matter.
The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of
management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating
audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology, significant
assumptions and calculations.
How the Critical Audit Matter was addressed in the Audit
Following are some of the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collectively
evaluated ACL, including controls over the following:
●
Model validation of the model for appropriateness of model usage along with recalculation of model results.
●
Completeness and accuracy of loan data.
●
Mathematical accuracy of the calculation.
●
Development of qualitative adjustments to model results.
●
Evaluation of the reasonableness and relevance of management’s assumptions including general qualitative factors
and economic forecasts.
Addressing the matters above involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures also included, among others, reviewing the
Company’s model oversight ensuring appropriate recalculation of the model used along with management’s review of model
validation results, testing various assumptions used in the calculation, testing management’s process for determining the
qualitative reserve component, evaluating the appropriateness of management’s methodology relating to the qualitative
reserve component and testing the completeness and accuracy of data utilized by management.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 7, 2025
We have served as the Company's auditor since 2023.
Table of Contents
104
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Unity Bancorp, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Unity Bancorp, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December
31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in 2013. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal
Control — Integrated Framework issued by the COSO in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements of the Company and our report dated March 7, 2025 expressed an unqualified
opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Table of Contents
105
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 7, 2025
Table of Contents
106
Supplementary Data (Unaudited)
Quarterly Financial Information
The following quarterly financial information for the years ended December 31, 2024 and 2023 is unaudited. However, in the
opinion of Management, all adjustments, which include normal recurring adjustments necessary to present fairly the results of
operations for the periods, are reflected.
2024
(In thousands, except per share data)
December 31 September 30
June 30
March 31
Total interest income
$
40,264
$
39,550
$ 37,987
$ 37,937
Total interest expense
13,774
14,694
14,563
14,096
Net interest income
26,490
24,856
23,424
23,841
Provision for credit losses
1,300
1,080
926
643
Net interest income after provision for credit losses
25,190
23,776
22,498
23,198
Total noninterest income
1,916
2,803
2,032
1,718
Total noninterest expense
12,617
12,012
11,980
12,132
Income before provision for income taxes
14,489
14,567
12,550
12,784
Provision for income taxes
2,984
3,662
3,096
3,198
Net income
$
11,505
$
10,905
$
9,454
$
9,586
Net income per common share - Basic
$
1.15
$
1.09
$
0.94
$
0.95
Net income per common share - Diluted
1.13
1.07
0.92
0.94
2023
(In thousands, except per share data)
December 31 September 30
June 30
March 31
Total interest income
$
37,758
$
36,990
$ 35,392
$ 33,354
Total interest expense
13,727
13,457
11,870
9,443
Net interest income
24,031
23,533
23,522
23,911
Provision for credit losses
1,811
556
693
108
Net interest income after provision for credit losses
22,220
22,977
22,829
23,803
Total noninterest income
2,568
2,043
2,115
1,416
Total noninterest expense
11,740
11,973
11,835
11,428
Income before provision for income taxes
13,048
13,047
13,109
13,791
Provision for income taxes
3,278
3,097
3,409
3,504
Net income
$
9,770
$
9,950
$
9,700
$ 10,287
Net income per common share - Basic
$
0.97
$
0.98
$
0.96
$
0.98
Net income per common share - Diluted
0.96
0.97
0.95
0.96
Table of Contents
107
Supplementary Data (Unaudited)
At or for the years ended December 31,
(In thousands, except percentages and per share data)
2024
2023
Selected Results of Operations
Interest income
$
155,738
$
143,494
Interest expense
57,127
48,497
Net interest income
98,611
94,997
Provision for credit losses
3,949
3,168
Noninterest income
8,469
8,142
Noninterest expense
48,741
46,976
Provision for income taxes
12,940
13,288
Net income
41,450
39,707
Per Share Data
Net income per common share - Basic
$
4.13
$
3.89
Net income per common share - Diluted
4.06
3.84
Book value per common share
29.48
25.98
Market value per common share
43.61
29.59
Cash dividends declared on common shares
0.52
0.48
Selected Balance Sheet Data
Assets
$
2,654,017
$
2,578,507
Loans
2,260,657
2,172,063
Allowance for credit losses
(26,788)
(25,854)
Securities
145,028
135,689
Deposits
2,100,313
1,924,140
Borrowed funds and subordinated debentures
230,814
366,748
Shareholders’ equity
295,583
261,430
Common shares outstanding
10,026
10,063
Performance Ratios
Return on average assets
1.68 %
1.63 %
Return on average equity
14.99
16.05
Efficiency ratio (1)
45.77
45.55
Net interest spread
3.29
3.32
Net interest margin
4.16
4.06
Asset Quality Ratios
Allowance for credit losses to loans
1.18 %
1.19 %
Allowance for credit losses to nonaccrual loans
204.77
134.75
Nonaccrual loans to total loans
0.58
0.88
Nonaccrual assets to total assets
0.57
0.74
Net charge-offs to average loans
0.07
0.09
Capital Ratios - Company
Leverage Ratio
12.22
11.14
Common Equity Tier 1 risk-based capital ratio
13.90
12.70
Tier 1 risk-based capital ratio
14.37
13.18
Total risk-based capital ratio
15.62
14.43
Capital Ratios - Bank
Leverage Ratio
11.95
10.75
Common Equity Tier 1 risk-based capital ratio
14.12
12.77
Tier 1 risk-based capital ratio
14.12
12.77
Total risk-based capital ratio
15.37
14.02
(1) The efficiency ratio is a non-GAAP measure of operational performance. It is defined as noninterest expense divided
by the sum of net interest income plus noninterest income, excluding net gains and losses on securities.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
None.
Table of Contents
108
Item 9A. Controls and Procedures:
(a)
Evaluation of disclosure controls and procedures:
Based on their evaluation, as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-
14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b)
Management’s Report on Internal Control Over Financial Reporting:
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the
participation of the principal executive officer and the principal financial officer, management conducted an evaluation of the
effectiveness of our control over financial reporting based on the 2013 Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the
framework, Management has concluded that our internal controls over financial reporting were effective as of
December 31, 2024.
Wolf & Company, P.C., the independent registered public accounting firm that audited the Company’s consolidated financial
statements included in this Annual Report on Form 10-K, has issued an audit report on the Company’s internal control over
financial reporting as of December 31, 2024. The report is included in this item under the heading “Report of Independent
Registered Public Accounting Firm.”
(c)
Changes in internal controls:
There were not any significant changes in internal controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
Item 9B. Other Information:
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections:
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance; Compliance with Section 16(a) of the Exchange
Act:
The information concerning the directors and executive officers of the Company under the caption “Election of Directors,”
and the information under the captions, “Compliance with Section 16(a) of the Securities Exchange Act of 1934,” and
"Governance of the Company," in the Proxy Statement for the Company’s 2025 Annual Meeting of Shareholders, is
incorporated by reference herein. It is expected that such Proxy Statement will be filed with the Securities and Exchange
Commission no later than April 24, 2025.
Table of Contents
109
The following table sets forth certain information as of December 31, 2024, regarding each executive officer of the Company
who is not also a director.
Name, Age and Position
Officer Since
Principal Occupation During Past Five Years
Item 11. Executive Compensation:
The information concerning executive compensation under the caption, “Executive Compensation,” in the Proxy Statement
for the Company’s 2025 Annual Meeting of Shareholders, is incorporated by reference herein. It is expected that such Proxy
Statement will be filed with the Securities and Exchange Commission no later than April 29, 2025.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:
The information concerning the security ownership of certain beneficial owners and management under the caption, “Security
Ownership of Certain Beneficial Owners and Management,” in the Proxy Statement for the Company’s 2025 Annual Meeting
of Shareholders is incorporated by reference herein. It is expected that such Proxy Statement will be filed with the Securities
and Exchange Commission no later than April 29, 2025.
George Boyan, 43, Chief Financial Officer and
Executive Vice President of the Company and Bank
2021
Previously, Mr. Boyan had served as First Senior
Vice President, Treasurer & Controller with Bank
Leumi USA since January 2014. He also served
as President of Leumi Investment Services, since
October 2018.
Vincent Geraci, 58, Director of Mortgage Lending and
First Senior Vice President of the Company and Bank
2010
Mr. Geraci joined the bank in 2010 as the Director
of Mortgage Lending.
James Donovan, 61, Chief Lending Officer and First
Senior Vice President of the Company and Bank
2022
Previously, Mr. Donovan had served as Group
Vice President, Pennsylvania Market Manager
Business Banking for M&T Bank since 2005. He
also served as Senior Vice President, Head of
Commercial & Industrial Banking for Bryn Mawr
Trust since April 2019.
James Davies, 33, Controller and Senior Vice President
of the Company and Bank
2022
Previously, Mr. Davies worked at Bank Leumi
USA and its successor Valley Bank in various
capacities since April 2016, including Co-
Controller. He also served as the Chief Financial
Officer of Leumi Investment Services since
December 2020.
Daniel Sharabba, 36, Chief Retail Officer and Senior
Vice President of the Company and Bank
2023
Previously, Mr. Sharabba served as Vice
President, Regional Manager with Citizens Bank
since March 2021. He also served as Vice
President, Private Client Branch Manager for JP
Morgan Chase from June 2016 to March 2021.
Minsu Kim, 32, Chief Credit Officer and Senior Vice
President of the Company and the Bank
2023
Previously, Mr. Kim served as Vice President,
Commercial Loan Officer at Unity Bank from
2018 to 2022.
David Bove, 39, Chief Information Officer and Senior
Vice President of the Company and Bank
2015
Previously, Mr. Bove served as Senior Vice
President, Chief Technology Officer at Unity
Bank from 2015 to 2024.
Table of Contents
110
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information with respect to the equity securities that are authorized for issuance under the
Company’s equity compensation plans as of December 31, 2024.
Equity Compensation Plan Information
Number of securities
Number of securities
remaining available
to be issued upon
Weighted-average
for issuance under
exercise of
exercise price of
equity compensation
outstanding options,
outstanding options,
plans (excluding
warrants and rights
warrants and rights
securities reflected in
(A)
(B)
column (A)) (C) (1)
Equity compensation plans approved by security holders (stock
options)
340,399
$
19.11
402,574
Equity compensation plans approved by security holders
(restricted stock)
175,248
—
—
Equity compensation plans not approved by security holders
N/A
N/A
N/A
Total
515,647
$
19.11
402,574
(1) Represents securities available for issuance under the Company’s active Equity Compensation Plans to be allocated
between incentive and non-qualified stock options, restricted stock awards, performance units and deferred stock.
Item 13. Certain Relationships and Related Transactions and Director Independence:
The information concerning certain relationships and related transactions under the caption, “Interest of Management and
Others in Certain Transactions; Review, Approval or Ratification of Transactions with Related Persons,” in the Proxy
Statement for the Company’s 2025 Annual Meeting of Shareholders is incorporated by reference herein. It is expected that
such Proxy Statement will be filed with the Securities and Exchange Commission no later than April 29, 2025.
Item 14. Principal Accountant Fees and Services:
The information concerning principal accountant fees and services, as well as related pre-approval policies, under the caption,
“Independent Registered Public Accounting Firm,” in the Proxy Statement for the Company’s 2025 Annual Meeting of
Shareholders is incorporated by reference herein. It is expected that such Proxy Statement will be filed with the Securities and
Exchange Commission no later than April 29, 2025.
PART IV
Item 15. Exhibits and Financial Statement Schedules:
a)
DOCUMENTS:
1.
The following Consolidated Financial Statements and Supplementary Data of the Company and subsidiaries are
filed as part of this annual report:
●
Consolidated Balance Sheets as of December 31, 2024 and 2023
●
Consolidated Statements of Income for the years ended December 31, 2024 and 2023
●
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024 and 2023
Table of Contents
111
●
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024
and 2023
●
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
●
Notes to Consolidated Financial Statements
●
Report of Independent Registered Public Accounting Firm
2.
All Financial Statement Schedules are omitted as the required information is inapplicable or the information is
presented in the Consolidated Financial Statements or related notes.
Table of Contents
112
b)
EXHIBITS:
Exhibit
Number
Description of Exhibits
3(i)
Certificate of Incorporation of the Company, as amended (1)
3(ii)
Bylaws of the Company (2)
4(i)
Form of Stock Certificate (2)
4(vi)
Description of the Registrant’s Securities
10(i)
Amended and Restated Employment Agreement dated June 4, 2015 with James A. Hughes (7), as amended by
Amendment Agreement dates February, 6 2020 (12)
10(vi)
2015 Stock Option Plan (6)
10(vii)
Supplemental Executive Retirement Plan dated January 1, 2014 with James A. Hughes (17), as amended
Supplemental Executive Retirement Plan dated October 25, 2018 with James A. Hughes (10)
10(viii)
Executive Incentive Retirement Plan dated October 22, 2015 (8)
10(ix)
2017 Stock Option Plan (9)
10(x)
2019 Equity Compensation Plan (11)
10(xi)
Form of Indemnification Agreement entered into on January 23, 2020 by and among the Registrant, Unity
Bank and each of their respective Directors (13)
10(xii)
Joinder Agreement with Executive Vice President and Chief Financial Officer George Boyan dated February
24, 2022 (14), as amended by Amendment Agreement dated November 10, 2022 (15)
10(xiii)
Change in Control Agreement for FSVP, Chief Lending Officer James Donovan (16)
10(xiv)
Change in Control Agreement for SVP, Controller James Davies
10(xvi)
2023 Equity Compensation Plan (18)
10(xvii)
Deferred Compensation Plan for James A. Hughes, George Boyan, James Davies, Minsu Kim and Daniel
Sharabba
10(xviii)
Change in Control Agreement for FSVP, Director of Mortgage Lending Vincent Geraci
10(xix)
Change in Control Agreement for SVP, Chief Credit Officer Minsu Kim
10(xx)
Change in Control Agreement for SVP, Chief Technology Officer David Bove
10(xxi)
Separation Agreement with Donald E. Souders, Jr.
19
Insider Trading Policy
21
Subsidiaries of the Registrant
23.1
Consent of Wolf & Company, PC
31.1
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of President, Chief Executive Officer, and Chief Financial Officer pursuant to Section 906
97
Compensation Recoupment Policy
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained as Exhibit 101)
(1) Previously filed with the Securities and Exchange Commission as an Exhibit to the Current Report on Form 8-K filed on
July 22, 2002 and incorporated by reference herein.
(2) Previously filed with the Securities and Exchange Commission as an Exhibit to the Current Report on Form 8-K filed
February 24, 2017.
(3) Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on May 26, 2011 and
incorporated by reference herein.
(4) Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on July 12, 2013 and
incorporated by reference herein.
Table of Contents
113
(5) Previously filed with the Securities and Exchange Commission as an Exhibit to the Current Report on Form 8-K filed
October 10, 2017.
(6) Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on May 22, 2015 and
incorporated by reference herein.
(7) Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on June 5, 2015 and
incorporated by reference herein.
(8) Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on October 27, 2015 and
incorporated by reference herein.
(9) Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on May 22, 2017 and
incorporated by reference herein.
(10)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on October 30, 2018 and
incorporated by reference herein.
(11) Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on June 4, 2019 and
incorporated by reference herein.
(12)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on February 6, 2020 and
incorporated by reference herein.
(13)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on January 28, 2020 and
incorporated by reference herein.
(14)Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 24, 2022.
(15)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on November 10, 2022
and incorporated herein.
(16)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on August 7, 2024 and
incorporated herein.
(17)Previously filed with the Securities and Exchange Commission as an Exhibit to Form 8-K filed on June 5, 2015 and
incorporated herein.
(18)Previously filed with the Securities and Exchange Commission as an Exhibit to Form S-8 filed on May 3, 2023 and
incorporated herein.
c)
Not applicable
Item 16. Form 10-K Summary:
None.
Table of Contents
114
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITY BANCORP, INC.
By:
/s/ George Boyan
George Boyan
Executive Vice President and Chief Financial Officer
Date:
March 7, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ David D. Dallas
Chairman of the Board and Director
March 7, 2025
David D. Dallas
/s/ James A. Hughes
President, Chief Executive Officer and Director
March 7, 2025
James A. Hughes
/s/ George Boyan
Executive Vice President and Chief Financial Officer
March 7, 2025
George Boyan
/s/ Aaron Tucker
Vice Chairman of the Board and Director
March 7, 2025
Aaron Tucker
/s/ Dr. Mark S. Brody
Director
March 7, 2025
Dr. Mark S. Brody
/s/ Wayne Courtright
Director
March 7, 2025
Wayne Courtright
/s/ Robert H. Dallas, II
Director
March 7, 2025
Robert H. Dallas, II
/s/ Dr. Mary E. Gross
Director
March 7, 2025
Dr. Mary E. Gross
/s/ Peter E. Maricondo
Director
March 7, 2025
Peter E. Maricondo
/s/ Raj Patel
Director
March 7, 2025
Raj Patel
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT (this "Agreement") made as of this 25 day of
October, 2023, by and among UNITY BANK, a New Jersey state bank with its principal place of
business located at 64 Old Highway 22, Clinton, New Jersey 08809 (the "Bank"), UNITY
BANCORP, INC. a New Jersey corporation with its principal place of business located at 64 Old
Highway 22, Clinton, New Jersey 08809 ("Unity", and collectively with the Bank, the "Employer"),
and James Davies, an individual, residing at [ ] (the "Executive").
WITNESSETH:
WHEREAS, Executive holds the position of Senior Vice President, Controller; and
WHEREAS, in connection this position, Employer and Executive wish to enter into this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein
contained, the parties hereto, intending to be legally bound, agree as follows:
Termination. Executive may be terminated at any time, without prejudice to Executive's right to
compensation or benefits pursuant to any benefit plan or policy of Employer.
Change in Control
For purposes of this Agreement, a "Change in Control" shall mean:
a reorganization, merger, consolidation or sale of all or substantially all of the assets of Unity
or a similar transaction in which Unity is not the resulting entity; or
individuals who constitute the Incumbent Board (as herein defined) of Unity cease for any
reason to constitute a majority thereof; or
the occurrence of an event of a nature that would be required to be reported in response to
Item 1.01 of the Current Report on Form 8-K, as then in effect, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or
Without limitation, a "change in control" shall be deemed to have occurred at such time as
any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act)
other than Unity or the trustees or any administrator of any employee stock ownership
plan and trust, or any other employee benefit plans, established by Employer from
time-to-time is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of securities of Unity representing 35% or more
of Unity's outstanding securities ordinarily having the right to vote at the election of
directors; or
A proxy statement soliciting proxies from stockholders of Unity is disseminated by someone
other than the current management of Unity, seeking stockholder approval of a plan of
reorganization, merger or consolidation of Unity or similar transaction
with one or more corporations as a result of which the outstanding shares of the class
of securities then subject to the plan or transaction are exchanged or converted into
cash or property or securities not issued by Unity, and the proponent of such proxy
statement shall have obtained the vote required to approve such proposal; or
A tender offer is made for 35% or more of the voting securities of Unity and shareholders
owning beneficially or of record 35% or more of the outstanding securities of Unity
have tendered or offered to sell their shares pursuant to such tender and such tendered
shares have been accepted by the tender offeror.
For these purposes, "Incumbent Board" means the Board of Directors of Unity on the date
hereof, provided that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by members or stockholders was approved by the same nominating
committee serving under an Incumbent Board, shall be considered as if he were a member of the
Incumbent Board.
Upon the occurrence of a Change in Control, and, in connection with such Change in Control,
if Executive's employment with Employer and/or its successors is terminated within 9 months of such
Change in Control, regardless of whether such termination is by Employer or its successor, through
Executive's resignation of employment with Employer or its successor with or without good cause, or
Executive's failure to accept an offer of employment with any successor to Employer, Executive shall
be entitled to receive a payment equal to 9 months of the Executive's Base Salary plus an additional
payment equal to
9 twelfths (9/12ths) of the cash bonus received by the Executive for the Employer's preceding fiscal
year. Such payment shall be made to Executive in a single lump sum payment and shall be made in
accordance with Section 17 hereof. In addition to the foregoing, Executive shall, during the 9 months
following the termination of Executive’s employment be entitled to receive from Employer or its
successor, hospital, health, medical and life insurance benefits on the terms and at the same cost to
Executive as Executive was receiving such benefits upon the date of termination of Executive's
employment. Notwithstanding the preceding sentence, in the event the Executive obtains new
employment during any period that the Employer is obligated to provide hospital, health, medical and
life insurance benefits hereunder and such new employment provides for hospital, health, medical
and life insurance benefits in a manner substantially similar to the benefits to be provided by
Employer hereunder, Employer may permanently terminate the duplicative benefits it is obligated to
provide hereunder. It is understood and agreed that Executive must provide Employer with notice of
such employment obtained while such benefits are being provided. Notwithstanding the forgoing,
upon a Change in Control, Executive shall not have the right to receive the payments provided for
above due to the Executive's resignation of employment with Employer or its successor or
Executive's failure to accept an offer of employment with any successor to Employer if, following
such transaction, (i) a majority of the individuals constituting the Board of the resulting entity are
members of the Incumbent Board and (ii) a majority of the "senior officer positions" of the resulting
entity are held by individuals who held "senior officer positions" with the Employer prior to such
transaction.
For purposes hereof, the “senior officer positions” shall include such of the following
positions as the Employer shall separately maintain prior to any such transaction: the Chairman,
Chief Executive Officer, President, Chief Financial Officer, Senior Lending Officer.
Upon the occurrence of a Change in Control, subject to paragraph (d) hereof, the vesting
period for any unvested stock options or unvested awards of Unity common stock previously granted
to Executive shall accelerate and become fully vested on the date of the Change in Control.
For purposes of this Agreement, a “Significant Acquisition” shall mean an acquisition of
another entity by Unity (either by way of merger, purchase of substantially all assets of such other
entity or purchase of all outstanding shares of securities of such other entity) pursuant to which: (i)
Unity shall, as all or part of the consideration for such acquisition, issue to the shareholders of such
other entity, such number of voting securities as shall equal 35% or more of the then outstanding
voting Unity securities (measured prior to the consummated Significant Acquisition); and (ii) in the
case of a merger, Unity shall be the surviving entity.
If Executive’s employment with Employer is terminated within 9 month of the
consummation of a Significant Acquisition, regardless of whether such termination is by Employer or
through Executive’s resignation of employment with Employer, Executive shall be entitled to receive
a payment equal to 9 months of the Executive’s Base Salary, plus an additional payment equal to 9
twelfths (9/12ths) of the cash bonus received by the Executive for the Employer's preceding fiscal
year. Such payment shall, be made to Executive in a single lump sum payment to be made in
accordance with Section 17 hereof. In addition to the foregoing, Executive shall, during the 9
(months following the termination of his/her employment be entitled to receive from Employer or its
successor, hospital, health, medical and life insurance benefits on the terms and at the same cost to
Executive as Executive was receiving such benefits upon the date of termination of Executive’s
employment. Notwithstanding the preceding sentence, in the event the Executive obtains new
employment during any period that the Employer is obligated to provide hospital, health, medical and
life insurance benefits hereunder and such new employment provides for hospital, health, medical
and life insurance benefits in a manner substantially similar to the benefits to be provided by
Employer hereunder, Employer may permanently terminate the duplicate benefits it is obligated to
provide hereunder. It is understood and agreed that Executive must provide Employer with Notice of
such employment obtained while such benefits are being provided. In the event Executive becomes
entitled to receive the amount due under this paragraph (e), subject to paragraph (f) hereof, the
unvested stock options or unvested awards of Unity common stock previously granted to Executive
shall accelerate and become fully vested on the date of Executive’s termination of employment. It is
hereby understood and agreed that payments that may become due to the Executive under this sub-
paragraph (e) shall be in lieu of, and not in addition to, any payments the Executive may be entitled
to under Section 2(b) hereof.
Notwithstanding anything contained in this Section 2 above, in the event all compensation to
be provided to Executive conditioned upon the occurrence of a Change in Control, whether under this
Agreement or in connection with any other agreement or benefit plan of the Employer
to which Executive is a party or in which he participates, exceeds 2.99 times the Executive's Base
Amount, as that term is defined under Section 280G of the Internal Revenue Code and regulations of
the Internal Revenue Service promulgated thereunder, the total compensation to be paid to the
Executive shall be reduced to an amount that is $1.00 less than 2.99 times the Executive's Base
Amount. Executive shall have the right to determine which benefits to which he would otherwise be
entitled shall be reduced.
No Guaranty of Employment. Nothing in this Agreement shall be construed to guarantee the
employment of the Executive. Executive shall remain an "employee at will" of Employer at all times
during the term of this Agreement.
Notices. Any and all notices, demands or requests required or permitted to be given under this
Agreement shall be given in writing and sent: (i) by registered or certified U.S. mail, return receipt
requested; (ii) by hand; (iii) by overnight courier; or (iv) by telecopier addressed to the parties hereto
at their addresses set forth above or such other addresses as they may from time-to time designate by
written notice, given in accordance with the terms of this Section 4, together with copies thereof as
follows:
In the case of the Executive, to the address set forth on the first page hereof or to such other
address as Executive shall provide in writing to the Employer for the provisions of notice hereunder.
In the case of Employer, to the address set forth on the first page hereof, with a copy to:
Windels Marx Lane & Mittendorf, LLP
Attn: Robert A Schwartz, Esq.
120 Albany Street Plaza
New Brunswick, NJ 08901
Telecopier No. (732) 846-8877
Notice given as provided in this Section 4 shall be deemed effective: (i) on the date hand
delivered; (ii) on the first business day following the sending thereof by overnight courier; (iii) on the
seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter)
after the depositing thereof into the exclusive custody of the U.S. Postal Service; or (iv) on the date
telecopied.
Term. Notwithstanding any provision of this Agreement, the term of this Agreement shall
immediately end upon: (i) the Bank or Unity entering into a Memorandum of Understanding with the
Federal Deposit Insurance Corporation ("FDIC") or the New Jersey Department of Banking and
Insurance ("NJDBI"); (ii) a cease-and-desist order being issued with respect to the Bank or Unity by
the FDIC or the NJDBI; or (iii) receipt by either the Bank or Unity of any notice under Federal or
state law, which in any way restricts the payment of any amount or benefits which may become due
under this Agreement. It is hereby understood and agreed that, upon the termination of the term of
this Agreement due to the occurrence of any of the events described in the foregoing clauses (i), (ii)
or (iii), this Agreement shall be deemed terminated and the Employer shall have no further obligation
to pay any amounts to the Executive or provide any further benefits to the Executive.
Notwithstanding the forgoing, upon the occurrence of the events described in clauses (i), (ii) or (iii)
above, the Boards of Directors of Unity and the Bank may, by joint resolution of both Boards, waive
the termination of this Agreement and elect to maintain this Agreement in full force and effect,
subject to the terms, including the term set forth above, of this Agreement.
Confidential Information.
As used herein, "Confidential Information" means any confidential or proprietary information
relating to the Employer and its affiliates including, without limitation, the identity of the Employer's
customers, the identity of representatives of customers with whom the Employer has dealt, the kinds
of services provided by the Employer to customers, the manner in which such services are performed
or offered to be performed, the service needs of actual or prospective customers, customer
preferences and policies, pricing information, business and marketing plans, financial information,
budgets, compensation or personnel records, information concerning the creation, acquisition or
disposition of products and services, vendors, software, data processing programs, databases,
customer maintenance listings, computer software applications, research and development data,
know-how, and other trade secrets.
Notwithstanding the above, Confidential Information does not include information which: (i)
is or becomes public knowledge without breach of this Agreement; or (ii) is received by Executive
from a third party without any violation of any obligation of confidentiality and without
confidentiality restrictions; provided, however, that nothing in this Agreement shall prevent the
Executive from participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding and participating in any monetary
award related to such participation or information or to the extent that such participation or
disclosure is required under applicable law; provided further, however, that with regard to legally
required participation or disclosure the Executive will provide the Employer with prompt notice of
such request, to the extent legally permitted to do so, so that the Employer may seek (with the
cooperation of the Executive, if so requested by the Employer), a protective order or other
appropriate remedy and/or waiver in writing of compliance with the provisions of this Agreement. If
a particular portion or aspect of Confidential Information becomes subject to any of the foregoing
exceptions, all other portions or aspects of such information shall remain subject to all of the
provisions of this Agreement. At all times, both during the period of Executive's services for the
Employer and after termination of Executive's services, the Executive will keep in strictest
confidence and trust all Confidential Information and the Executive will not directly or indirectly use
or disclose to any third-party any Confidential Information, except as may be necessary in the
ordinary course of performing the Executive’s duties for the Employer, or disclose any Confidential
Information, or permit or encourage any other person or entity to do so, without the prior written
consent of the Employer except as may be necessary in the ordinary course of performing the
Executive’s duties for the Employer.
The Executive agrees to return promptly all Confidential Information in tangible form,
including, without limitation, all photocopies, extracts and summaries thereof, and any such
information stored electronically on tapes, computer disks, mobile or remote computers (including
personal digital assistants) or in any other manner to the Employer at any time that the Employer
makes such a request and automatically, without request, within five days after the termination of the
Executive's performance of services for the Employer for any reason.
Assignability. Neither this Agreement nor the rights or obligations of Executive hereunder may be
assigned, whether by operation of law or otherwise. This Agreement shall be binding upon the
Employer, its successors and assignees. The Bank and Unity shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all
the business or assets of the Bank and Unity, to expressly and unconditionally agree to assume and
discharge the obligations of the Bank and Unity under this Agreement, in the same manner and to the
same extent that the Bank and Unity would be required to perform if no such succession or
assignment had taken place:
Waiver. The waiver by Employer or the Executive of a breach of any provision of this Agreement by
the other shall not operate or be construed as a waiver of any subsequent or other breach hereof.
Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of New Jersey without giving effect to principles of conflict of laws.
Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to
the subject matter hereof and may not be amended, waived, changed, modified or discharged, except
by an agreement in writing signed by the parties hereto.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which taken together shall constitute one and the same instrument.
Amendment. This Agreement may be modified or amended only by an amendment in writing signed
by both parties.
Severability. If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision, only to the extent it is invalid or
unenforceable, and shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid
or unenforceable provision were not contained herein.
Section Headings. The headings contained in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this Agreement.
Fees and Expenses. If any party to this Agreement institutes any action or proceeding to enforce this
Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the
non-prevailing party all legal costs and expenses incurred by the prevailing party in such action,
including, but not limited to, reasonable attorney's fees and other reasonable legal costs and expenses.
Legal Representation. The Executive hereby acknowledges that this Agreement has been prepared by
Windels Marx Lane & Mittendorf , LLP as legal counsel for Unity and the Bank and that the
Executive was given the opportunity to consult with independent legal counsel regarding this
Agreement prior to his/her execution of this Agreement
Release. All payments and benefits under Section 2 hereof shall be contingent upon Executive
executing a general release of claims in favor of Unity, its subsidiaries and affiliates, and their
respective officers, directors, shareholders, partners, members, managers, agents or employees, and
which must be executed by the Executive no later than the twenty second (22nd) day after the
termination of Executive's employment. Payments under this Agreement that are contingent upon
such release shall, subject to Section 18, commence within eight (8) days after such release becomes
effective; provided, however, that if Executive's termination of employment occurs on or after
November 15 of a calendar year, then severance payments shall, subject to the effectiveness of such
release and Section 18, commence on the first business day of the following calendar year.
Section 409A Compliance. If the Executive is a "specified employee" for purposes of Section 409A
of the Code, to the extent required to comply with Section 409A of the Code, any payments required
to be made pursuant to this Agreement which are deferred compensation and subject to Section 409A
of the Code (and do not qualify for an exemption thereunder) shall not commence until one day after
the day which is six (6) months from the date of termination. Should this Section 18 result in a delay
of payments to the Executive, on the first day any such payments may be made incurring a penalty
pursuant to Section 409A (the "409A Payment Date"), the Employer shall begin to make such
payments as described in this Section 18, provided that any amounts would have been paid earlier but
for application of this Section 18 shall be paid in lump-sum of the 409A Payment Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under their
respective hands and seals as of the day and year first above written
ATTEST:
UNITY BANK
By: _____________________
James A. Hughes:
President and CEO:
ATTEST:
UNITY BANCORP, INC.
By: _____________________
James A. Hughes:
President and CEO:
WITNESS
EMPLOYEE
By: _____________________
James A. Davies:
UNITY BANK DEFERRED COMPENSATION PLAN
THIS AGREEMENT is made as of this ___ day of _________, 20__, is by between Unity Bank
(the "Bank"), a New Jersey chartered commercial bank headquartered in Clinton, New Jersey and
__________________ (the "Manager").
INTRODUCTION
In an effort to reward past service, encourage continued service on the Bank’s Board of Directors
and/or as an Officer, and as a method to attract future members of management, the Bank is willing to
provide to the Manager a deferred fee opportunity. The Bank will pay each Manager’s benefits from the
Bank’s general assets – the obligation to make payments hereunder is an unfunded contractual commitment
by the Bank. This document is intended to comply with the provisions of Section 409A of the Internal
Revenue Code and shall be interpreted accordingly. If any provision or term of this document would be
prohibited by or inconsistent with the requirements of Section 409A of the Code, then such provision or
term shall be deemed to be reformed to comply with Section 409A of the Code.
AGREEMENT
The Manager and the Bank agree as follows:
Article 1
Definitions
1.1
Definitions. Whenever used in this Agreement, the following words and phrases shall have the
meanings specified:
1.1.1
"Anniversary Date" means December 31 of each year.
1.1.2
"Change in Control" means
(a)
a reorganization, merger, consolidation or sale of all or substantially all of the assets
of Unity Bancorp, Inc., the parent company of the Bank (“Unity”), or any similar
transaction, in any case in which the holders of a majority of the voting power of
Unity prior to such transaction fail to hold a majority of the voting power of the
resulting entity;
(b)
individuals who constitute the Incumbent Board (as herein defined) of Unity cease
for any reason to constitute a majority thereof;
(c)
Without limitation, a change in control shall be deemed to have occurred at such time
as (i) any “person” (as the term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) other than Unity, the Bank
or the trustees or any administrator of any employee stock ownership plan and trust,
or any other employee benefit plans, established by Unity or the Bank from time to
time is or becomes a “beneficial owner” (as defined in Rule 13-d under the Exchange
Act) directly or indirectly, of securities of the Bank representing 35% or more of
Unity’s outstanding securities ordinarily having the right to vote at the election of
directors; or
(d)
A tender offer is made for 35% or more of the voting securities of Unity and
shareholders owning beneficially or of record 35% or more of the outstanding
securities of Unity have tendered or offered to sell their shares pursuant to such
tender and such tendered shares have been accepted by the tender offeror.
For purposes of this provision, “Incumbent Board” means the Board of Directors of Unity on the
date hereof, provided that any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by members or stockholders was approved by the same nominating committee
serving under an Incumbent Board, shall be considered as though he were a member of the Incumbent
Board.
1.1.3
"Code" means the Internal Revenue Code of 1986, as amended.
1.1.4
"Deferral Account" means the Bank’s accounting of the Manager’s accumulated Deferrals
and accrued interest pursuant to Section 3.1.2.
1.1.5
"Deferrals" means the amount of the Fees which the Manager elects to defer according to
this Agreement.
1.1.6
"Disability" means the Manager's (i) inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than 12 months, or (ii) medically
determinable physical or mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, and which causes the Manager to receive income
replacement benefits for a period of not less than 3 months under an accident and health plan covering the
Manager. As a condition to any benefits, the Bank may require the Manager to submit to such physical or
mental evaluations and tests as the Board of Directors deems appropriate.
1.1.7
“Effective Date” means ____ __, 20__.
1.1.8
"Election Form" means the Form attached as Exhibit A.
1.1.9
"Fees" means, (i) with respect to a Manager who receives fees for service on
the Board of Directors of the Bank, the total Manager’s fees payable to the Manager for such
Board service, including any retainers, meeting fees, committee chair fees and committee
meeting fees; and (ii) with respect to a Manager who is an officer of the Bank, that portion of
such Manager’s base salary and/or year end bonus, if any, as such Manager has elected
annually in accordance with Article 2 hereof to have deferred hereunder.
1.1.10 “Manager” means either a non-employee member of the Board of Directors of the Bank or
an officer of the Bank chosen by the Board to participate in this deferred fee arrangement.
1.1.11 "Plan Year" means the calendar year.
1.1.12 "Prime Rate" means the Prime Interest Rate reported in the Wall Street Journal on the
business day immediately prior to the Anniversary Date.
1.1.13 "Termination of Service" means (i) with respect to a Manager who is a non-employee
member of the Board of Directors, the Manager ceasing to be a member of the Bank's Board of Directors
for any reason whatsoever, and (ii) with respect to a Manager who is a senior executive officer of the Bank,
the termination of such Manager’s employment with the Bank.
Article 2
Deferral Election
2.1
Initial Election. The elections with respect to a deferral by the Manager for
a given calendar year shall be made on an election form no later than December 31st of the
preceding year; provided, however, that for the calendar year in which an individual first becomes a
Manager and so a participant in this Plan, he or she may make the deferral election for such year
regarding amounts to be earned after such elections are made within 30 days after first becoming a
Manager. An initial deferral election, if submitted to the Bank earlier than the date specified above,
may be changed by the Manager at any time prior to the date specified above. The Election Form
shall set forth the amount of Fees to be deferred. The Election Form shall be effective to defer only
Fees earned after the date the Election Form is received by the Bank for the next succeeding year.
2.2
Annual Elections.
2.2.1
Generally. Each Manager, in order to continue participation in the Plan, must file a new
Election Form with the Bank prior to the beginning of the Plan Year in which the Fees are to be deferred.
The annual deferral election shall not be effective until the Plan Year following the year in which the
subsequent Election Form is received and approved by the Bank. The annual Election Form may be used to
change the Manager’s distribution option in order to postpone and not accelerate a distribution option, or to
change the form of or number of installments elected with respect to the payment of an amount of deferred
Fees (a “Subsequent Deferral Election”) only if the following conditions are satisfied: (i) the Subsequent
Deferral Election must not take effect until 12 months after the date on which it is made, (ii) in the case of a
payment other than a payment attributable to the Manager’s death, the Subsequent Election further defers
the payment for a period of not less than 5 years from the date such payment would otherwise have been
made, or in the case of installment payments, 5 years from the date the first installment was scheduled to be
paid, and (iii) the Subsequent Election is received by the Bank at least 12 months prior to the date the
payment would otherwise have been made, or in the case of installment payments, 12 months prior to the
date the first installment was scheduled to be paid. If no new Election Form is filed prior to the beginning
of a new Plan Year, the Manager will be deemed not to have participated in the Plan for the upcoming year.
2.2.2
Hardship. If an unforeseeable financial emergency occurs, the Manager, by written
instructions to the Bank, may reduce future deferrals under this Agreement.
For purposes of this Agreement, “financial emergency” means a severe financial hardship to the Manager
resulting from an illness or accident of the Manager, the Manager’s spouse, or a dependent (as defined in
section 152(a) of the Code) of the Manager, loss of the Manager’s property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the
Manager.
Article 3
Deferral Account
3.1
Establishing and Crediting. The Bank shall establish a Deferral Account on its books for the
Manager and shall credit to the Deferral Account the following amounts:
3.1.1
Deferrals. The Fees deferred by the Manager as of the time the Fees would have otherwise
been paid to the Manager.
3.1.2
Interest. On the first day of each month and immediately prior
to the payment of any benefits, interest on the Deferral Account balance since the
preceding credit under this Section 3.1.1, if any, at an annual rate, compounded
monthly, equal to the Prime Rate for the previous Anniversary Date, plus one
percent (1%); provided, however, that the minimum rate of interest to be applied
hereunder shall be four percent (4%), regardless of the actual Prime Rate, and will
not exceed ten percent (10%) regardless of the actual prime rate.
3.2 Statement of Accounts. The Bank shall provide to the Manager, within one
hundred twenty (120) days after each Anniversary Date, a statement setting forth the
Deferral Account balance.
3.3
Accounting Device Only; Unfunded Arrangement. The Deferral Account is solely a device for
measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind
nor are any Bank assets specially segregated to satisfy the obligations represented by the Deferral Account.
The Manager is a general unsecured creditor of the Bank for the payment of benefits. The benefits
represent the mere promise by the Bank to pay such benefits. The Manager's rights are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by the Manager's creditors.
Article 4
Distribution of Benefits
4.1
Termination of Service Benefit. Upon the Manager's Termination of Service, the Bank shall pay
to the Manager the benefit described in this Section 4.1 in lieu of any other benefit under this Agreement;
provided, however, that in the event the Manager is deemed to be a “specified employee” for purposes of
Section 409A of the Code, to the extent required to comply with Section 409A of the Code, any payments required to
be made pursuant to this Agreement which are deferred compensation and subject to Section 409A of the Code (and
do not qualify for an exemption thereunder) shall not commence until one day after the day which is six (6) months
from the date of termination. Should this requirement result in a delay of payments to the Employee, on the first day
any such payments may be made without incurring a penalty pursuant to Section 409A (the “409A Payment Date”),
Bank shall begin to make such payments, provided that any amounts that would have been payable earlier but for
application of this provision shall be paid in lump-sum on the 409A Payment Date.
4.1.1
Amount of Benefit. The benefit under this Section 4.1 is the
Deferral Account balance at the Manager's Termination of Service date.
4.1.2
Payment of Benefit. The Bank shall pay the benefit to the Manager
in the form elected by the Manager on the Election Form. If the Manager elected to receive
his benefit in the form of installments, the Bank shall continue to credit interest on the
remaining Deferral Account balance during any applicable installment period fixed at the
rate in effect under Section 3.1.2 on the Manager’s date of Termination of Service.
4.2
Change of Control Benefit. Upon Termination of Service within 12 months of a
Change of Control, the Bank shall pay to the Manager the benefit described in this Section 4.2 in
lieu of any other benefit under this Agreement.
4.2.1
Amount of Benefit. The benefit under this Section 4.2 shall be the balance of
the Director's Deferral Account on the date of the Manager’s Termination of Service.
4.3
Except as otherwise provided, the Bank may not permit the acceleration of the time or schedule
of any payment or amount scheduled to be paid pursuant to the Plan, unless such acceleration of the time or
schedule is (i) necessary to fulfill a domestic relations order (as defined in section 414(p)(1)(B) of the
Code) or to comply with a certificate of divestiture (as defined in section 1043(b)(2) of the Code, (ii) de
minimis in nature (as defined in regulations promulgated under section 409A of the Code), or (iii) equal to
amounts included in the federal personal taxable income of the Manager under section 409A of the Code.
4.4
Distribution Upon Unforeseeable Emergency. Upon the Board of Director’s determination
(following petition by the Manager) that the Manager has suffered an unforeseeable financial emergency as
described in Section 2.2.2, the Bank shall distribute to the Manager all or a portion of the Deferral Account
balance as determined by the Bank, but in no event shall the distribution be greater than is necessary to
relieve the financial hardship, plus amounts necessary to pay taxes reasonably anticipated as a result of the
distribution, after taking into account the extent to which such hardship is or may be relieved through
reimbursement or compensation by insurance or otherwise or by liquidation of the Manager’s assets (to the
extent the liquidation of such assets would not itself cause severe financial hardship).
Article 5
Death Benefits
5.1
Death During Active Service. If the Manager dies while in the active service of the Bank, the
Bank shall pay to the Manager's beneficiary the benefit described in this Section 5.1 in lieu of any other
benefit under this Agreement.
5.1.1
Amount of Benefit. The benefit under Section 5.1 is the Deferral Account balance on the
date of the Manager’s death.
5.1.2
Payment of Benefit. The Bank shall pay the benefit to the beneficiary in the form elected
by the Manager on the Election Form. If the Manager elected to receive his benefit in the form of
installments, the Bank shall continue to credit interest on the remaining Deferral Account balance during
any applicable installment period fixed at the rate in effect under Section 3.1.2 on the date of the Manager’s
death.
5.2
Death During Benefit Period. If the Manager dies after benefit payments have commenced
under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to
the Manager's beneficiary at the same time and in the same amounts they would have been paid to the
Manager had the Manager survived.
Article 6
Beneficiaries
6.1
Beneficiary Designations. The Manager shall designate a beneficiary by filing a written
designation with the Bank. The Manager may revoke or modify the designation at any time by filing a new
designation. However, designations will only be effective if signed by the Manager and received and
approved by the Bank during the Manager's lifetime. The Manager's beneficiary designation shall be
deemed automatically revoked if the beneficiary predeceases the Manager, or if the Manager names a
spouse as beneficiary and the marriage is subsequently dissolved. If the Manager dies without a valid
beneficiary designation, all payments shall be made to the Manager's estate.
6.2
Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a
person incapable of handling the disposition of his or her property (as determined by the Bank), the Bank
may pay such benefit to the guardian, legal representative or person having the care or custody of such
minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority or
guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Bank from all liability with respect to such benefit.
Article 7
Amendments and Termination
7.1
This Agreement may be amended or terminated only by a written agreement signed by the Bank
and the Manager.
7.2
Notwithstanding Section 7.1, the Bank may amend or terminate this Agreement at any time if,
pursuant to legislative, judicial or regulatory action, continuation of the Agreement would (i) cause benefits
to be taxable to the Manager prior to actual receipt, or (ii) result in significant financial penalties or other
significantly detrimental ramifications to the Bank. Furthermore, this Agreement may be terminated only if
(i) all nonqualified defined contribution deferred compensation plans maintained by the Bank and its
affiliates are terminated, (ii) no payments other than payments that would be payable under the terms of this
Agreement, if the termination had not occurred, are made within 12 months of the termination of the
Agreement, (iii) all payments of a Manager’s Deferrals are made within 24 months of the termination of
this Agreement, and (iv) the Bank acknowledges to the participating Managers that it will not adopt any
new nonqualified defined contribution plans at any time within 5 years following the date of the termination
of the Agreement. In no event shall this Agreement be terminated under this Section 7.2 without payment
to the Manager of the Deferral Account balance attributable to the Manager's Deferrals and, if applicable,
interest credited on such amounts.
Article 8
Miscellaneous
8.1
Binding Effect. This Agreement shall bind the Manager and the Bank, and their beneficiaries,
survivors, executors, administrators and transferees.
8.2
No Guarantee of Service. This Agreement is not a contract for services. It does not give the
Manager the right to remain a Director of the Bank or to continue employment. It also does not require the
Manager to remain a Manager nor interfere with the Manager's right to terminate services at any
time.
8.3
Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned,
pledged, attached or encumbered in any manner.
8.4
Tax Withholding. The Bank is authorized to withhold any taxes that it believes are required to be
withheld from the benefits provided under this Agreement.
8.5
Applicable Law. The Plan and all rights hereunder shall be governed by and construed according
to the laws of the State of New Jersey, except to the extent preempted by the laws of the United States of
America. Other provisions of this Plan notwithstanding, deferrals under this Plan shall comply with the
requirements under Section 409A of the Code and in accordance with U.S. federal income tax laws and
Treasury regulations (including proposed regulations) thereunder as presently in effect or hereafter
implemented, (i) if the timing of any distribution under this Plan would result in a Manager’s constructive
receipt of income or tax penalties prior to such distribution, the distribution will be made at the earliest date
after the specified payment date that distribution can be effected without resulting in such constructive
receipt or tax penalties; (ii) the Bank shall have no authority to accelerate any payment hereunder except as
permitted under Code section 409A and regulations thereunder; and (iii) any rights of the Manager or
retained authority of the Bank with respect to deferrals hereunder shall be automatically modified and
limited to the extent necessary so that a Manager will not be deemed to be in constructive receipt of income
relating to the deferrals prior to the payment and so that the Manager shall not be subject to any penalty
under Code section 409A.
8.6
Recovery of Estate Taxes. If the Manager’s gross estate for federal estate tax purposes includes
any amount determined by reference to and on account of this Agreement, and if the beneficiary is other
than the Manager’s estate, then the Manager’s estate shall be entitled to recover from the beneficiary
receiving such benefit under the terms of the Agreement, an amount by which the total estate tax due by the
Manager’s estate, exceeds the total estate tax which would have been payable if the value of such benefit
had not been included in the Manager’s gross estate. If there is more than one person receiving such
benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability
hereunder, the beneficiary may petition the Bank for a lump sum payment in an amount not to exceed the
lesser of the beneficiary’s liability hereunder and the balance remaining in the Deferral Account.
8.7
Reorganization. In the event of any merger, consolidation or acquisition where Unity or the
Bank is not the surviving entity or resulting corporation, or upon transfer of all or substantially all of the
assets of Unity or the Bank, this Agreement shall continue and be in full force and effect and shall be
binding upon such surviving entity, resulting corporation, or transferee.
8.8
Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the
Manager as to the subject matter hereof. No rights are granted to the Manager by virtue of this Agreement
other than those specifically set forth herein.
8.9
Administration. The Bank shall have powers which are necessary to administer this Agreement,
including but not limited to:
8.9.1
Interpreting the provisions of the Agreement;
8.9.2
Establishing and revising the method of accounting for the Agreement;
8.9.3
Maintaining a record of benefit payments; and
8.9.4
Establishing rules and prescribing any forms necessary or desirable to administer
the Agreement.
8.10
Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if
applicable, the Bank shall be the named fiduciary and plan administrator under the Agreement. The named
fiduciary may delegate to others certain aspects of the management and operation responsibilities of the
plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the Manager and a duly authorized Bank officer have signed this
Agreement.
MANAGER:
BANK:
UNITY BANK
__________________________
By: _________________________________
Title: _______________________________
EXHIBIT A
TO
MANAGEMENT FEE DEFERRAL AGREEMENT
____________________________________
(Name of Manager)
[Initial and Complete]
_____
I elect to defer _____% or $_________ of my Board Fees, including committee fees.
_____
I elect to defer _____% or $_________ of my Retainer.
_____
I elect to defer _____% or $ _________ of both my Retainer and Board Fees.
_____
I elect to defer _____% of my year end bonus.
_____
I elect to defer _____% of my salary, to be withheld from each payroll.
_____
I elect not to defer my Retainer, Board Fees, salary and/or year end bonus.
I understand that I may change the amount, frequency and duration of my deferral by filing a
new election form with the Bank; provided, however, that any subsequent election (a) is in
compliance with Code section 409A and the Treasury Regulations promulgated thereunder and (b)
will not be effective until the calendar year following the year in which the new election is received
by the Bank.
Form of Benefit
I elect to receive benefits under the Agreement in the following form:
[Initial One]
_____
Lump Sum
_____
Equal monthly installments for 120 months
Beneficiary Designation
I designate the following as beneficiaries of benefits under the Management Fee Deferral
Agreement payable following my death:
Primary:
_________________________________
Contingent:
_________________________________
I understand that I may change these beneficiary designations by filing a new written
designation with the Bank. I further understand that the designations will be automatically revoked if
the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the
dissolution of our marriage.
Signature
_______________________________
Date
_______________________________
Accepted by Unity Bank this ___ day of ____________ 20__.
By
____________________________________
Title
_____________________________________
Compensation Recoupment Policy
The Board of Directors of Unity Bancorp, Inc. (the "Company") believes it is desirable, and in the best
interests of the Company and its stockholders, to maintain and enhance a culture that is focused on integrity,
accountability and that discourages conduct detrimental to the Company's risk profile and sustainable growth.
Therefore, it may be appropriate for the Company to recover Incentive Compensation (as defined herein)
provided to certain employees, and it may be appropriate for those employees to repay such Incentive
Compensation, in the event that the Company is required to prepare an accounting restatement due to the
material noncompliance of the Company with any financial reporting requirement under the securities laws,
including any required accounting restatement to correct an error in previously issued financial statements that
is material to the previously issued financial statements, or that would result in a material misstatement if the
error were corrected in the current period or left uncorrected in the current period (an “Accounting
Restatement”). The Board of Directors has adopted the following Compensation Recoupment Policy (the
"Policy") effective as of the date set forth above (the "Effective Date"). The Policy applies to the Company’s
Executive Officers (as defined below).
Additional Definitions
“Erroneously Awarded Compensation” means the amount of Incentive Compensation received that exceeds the
amount of Incentive Compensation that otherwise would have been received had it been determined based on
the amounts reflected in the Accounting Restatement, and must be computed without regard to any taxes paid.
For Incentive Compensation based on stock price or total shareholder return, where the amount of erroneously
awarded compensation is not subject to mathematical recalculation directly from the information in an
Accounting Restatement:
(A) The amount must be based on a reasonable estimate of the effect of the Accounting Restatement
on the stock price or total shareholder return upon which the Incentive Compensation was received;
and
(B) The Company must maintain documentation of the determination of that reasonable estimate and
provide such documentation to the Nasdaq.
"Executive Officer" shall mean the Company’s president, principal financial officer, principal accounting
officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge
of a principal business unit, division, or function (such as sales, administration, or finance), any other officer
who performs a policy-making function, or any other person who performs similar policy-making functions
for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers
of the Company if they perform such policy making functions for the Company. As used herein, a policy-
making function is not intended to include policy-making functions that are not significant. .
“Financial Reporting Measures” means measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, and any measures that are derived
wholly or in part from such measures. Stock price and total shareholder return shall be considered
financial reporting measures. A Financial Reporting Measure need not be presented within the financial
statements or included in a filing with the Securities and Exchange Commission.
"Incentive Compensation" shall mean any compensation payable in cash, shares of the Company's common
stock, restricted stock units or stock options, that is granted, earned or vested based wholly or in part upon the
attainment of any Financial Reporting Measure. For the avoidance of doubt, Incentive Compensation will be
deemed “received” by the Executive Officer for purposes of this policy in the fiscal period during which the
financial reporting measure is attained, even if the payment or grant occurs after the end of that period.
"Restatement Date" shall mean the date that the Company concluded (or reasonably should have concluded),
whether through its Board of Directors, a committee of the Board of Directors, or through officers of the
Company if such officers are authorized to take such action without Board action, that an Accounting
Restatement is required, or the date that a court or regulator directs the Company to prepare an Accounting
Restatement.
Recoupment of Incentive Compensation
If the Company incurs an Accounting Restatement then the Company shall promptly require each current or
former Executive Officer who received Incentive Compensation to reimburse the Company any Erroneously
Awarded Compensation received by such Executive Officer during the three completed fiscal years
immediately preceding the Restatement Date.
For the sake of clarity, Erroneously Awarded Compensation shall be recovered even if there was no
misconduct or failure of oversight on the part an individual Executive Officer.
Recoupment Amount and Procedures
The amount required to be reimbursed or returned to the Company shall be determined by the Compensation
Committee of the Board of Directors (the "Committee") and will equal the amount of the Erroneously Awarded
Compensation.
The Company will determine, in its sole discretion, the method for obtaining reimbursement or return of
payments made, which may include, but is not limited to: (i) by offsetting the amount from any compensation
owed by the Company to the affected Executive Officer (including, without limitation, amounts payable under
a deferred compensation plan at such time as is permitted by Section 409A of the Internal Revenue Code of
1986, as amended): (ii) by reducing or eliminating future salary increases, cash incentive awards or equity
awards; or (iii) by requiring the individual to pay the amount to the Company upon its written demand for such
payment.
Exceptions to Recovery.
Exceptions to the foregoing policy of recoupment are only available where:
(i)
pursuing such recovery would be impracticable because the direct expense paid to a third
party to assist in enforcing the policy would exceed the recoverable amounts and the
Company has (A) made a reasonable attempt to recover such amounts and (B) provided
documentation of such attempts to recover to the Nasdaq; or
(ii)
recoupment would likely cause an otherwise tax-qualified retirement plan, under which
benefits are broadly available to employees of the registrant, to fail to meet the requirements
of the Internal Revenue Code.
Miscellaneous
The Board of Directors intends that this Policy will be applied to the fullest extent permitted by law. In
addition, the Committee may determine that any equity award agreement, employment agreement or similar
agreement entered into or amended after the Effective Date shall, as a condition to the grant of any benefit
covered by such agreement, require the affected employee to contractually agree to abide by the terms of this
Policy. Further, the adoption of this Policy does not mitigate, and is intended to enhance, the effect of any
recoupment or similar policies in any equity award agreement, employment agreement or similar agreement in
effect prior to the Effective Date.
Binding on Successors
The terms of this Policy shall be binding and enforceable against all employees and their heirs, executors,
administrators and legal representatives.
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT (this "Agreement") made as of this 7th day of December, 2023, by
and among UNITY BANK, a New Jersey state bank with its principal place of business located at 64 Old
Highway 22, Clinton, New Jersey 08809 (the "Bank"), UNITY BANCORP, INC. a New Jersey corporation
with its principal place of business located at 64 Old Highway 22, Clinton, New Jersey 08809 ("Unity", and
collectively with the Bank, the "Employer"), and Vincent Geraci, an individual, residing at [ ] (the
"Executive").
WITNESSETH:
WHEREAS, Executive holds the position of Director of Mortgage Lending, First Senior Vice President (the
“Position”); and
WHEREAS, in connection this position, Employer and Executive wish to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties
hereto, intending to be legally bound, agree as follows:
1.
Termination. Executive may be terminated at any time, without prejudice to Executive's right to
compensation or benefits pursuant to any benefit plan or policy of Employer.
2.
Change in Control
(a)
For purposes of this Agreement, a "Change in Control" shall mean:
(i)
a reorganization, merger, consolidation or sale of all or substantially all of the assets of Unity or a
similar transaction in which Unity is not the resulting entity; or
(ii)
individuals who constitute the Incumbent Board (as herein defined) of Unity cease for any reason to
constitute a majority thereof; or
(iii)
the occurrence of an event of a nature that would be required to be reported in response to Item 1.01 of
the Current Report on Form 8-K, as then in effect, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or
(iv)
Without limitation, a "change in control" shall be deemed to have occurred at such time as any
"person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act) other than Unity or the trustees
or any administrator of any employee stock ownership plan and trust, or any other employee benefit plans,
established by Employer from time-to-time is or becomes a "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly, of securities of Unity representing 35% or more of Unity's
outstanding securities ordinarily having the right to vote at the election of directors; or
(v)
A proxy statement soliciting proxies from stockholders of Unity is disseminated by someone other
than the current management of Unity, seeking stockholder approval of a plan of reorganization, merger or
consolidation of Unity or similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or transaction are exchanged or converted
into cash or property or securities not issued by Unity, and the proponent of such proxy statement shall have
obtained the vote required to approve such proposal; or
(vi)
A tender offer is made for 35% or more of the voting securities of Unity and shareholders owning
beneficially or of record 35% or more of the outstanding securities of Unity have tendered or offered to sell
their shares pursuant to such tender and such tendered shares have been accepted by the tender offeror.
For these purposes, "Incumbent Board" means the Board of Directors of Unity on the date hereof, provided
that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by
members or stockholders was approved by the same nominating committee serving under an Incumbent
Board, shall be considered as if he were a member of the Incumbent Board.
(b)
Upon the occurrence of a Change in Control, and, in connection with such Change in Control, if
Executive's employment with Employer and/or its successors is terminated within twelve months of such
Change in Control, regardless of whether such termination is by Employer or its successor, through
Executive's resignation of employment with Employer or its successor with or without good cause, or
Executive's failure to accept an offer of employment with any successor to Employer, Executive shall be
entitled to receive a payment equal to twelve months of the Executive's Base Salary plus an additional
payment equal to twelve twelfths (12/12ths) of the cash bonus and commission received by the Executive for
the Employer's preceding fiscal year. Such payment shall be made to Executive in a single lump sum payment
and shall be made in accordance with Section 17 hereof. In addition to the foregoing, Executive shall, during
the twelve months following the termination of Executive’s employment be entitled to receive from Employer
or its successor, hospital, health, medical and life insurance benefits on the terms and at the same cost to
Executive as Executive was receiving such benefits upon the date of termination of Executive's employment.
Notwithstanding the preceding sentence, in the event the Executive obtains new employment during any
period that the Employer is obligated to provide hospital, health, medical and life insurance benefits hereunder
and such new employment provides for hospital, health, medical and life insurance benefits in a manner
substantially similar to the benefits to be provided by Employer hereunder, Employer may permanently
terminate the duplicative benefits it is obligated to provide hereunder. It is understood and agreed that
Executive must provide Employer with notice of such employment obtained while such benefits are being
provided. Notwithstanding the forgoing, upon a Change in Control, Executive shall not have the right to
receive the payments provided for above due to the Executive's resignation of employment with Employer or
its successor or Executive's failure to accept an offer of employment with any successor to Employer if,
following such transaction, (i) a majority of the individuals constituting the Board of the resulting entity are
members of the Incumbent Board and (ii) a majority of the "senior officer positions" of the resulting entity are
held by individuals who held "senior officer positions" with the Employer prior to such transaction.
For purposes hereof, the “senior officer positions” shall include such of the following positions as the
Employer shall separately maintain prior to any such transaction: the Chairman, Chief Executive Officer,
President, Chief Financial Officer, Senior Lending Officer.
(c)
Upon the occurrence of a Change in Control, subject to paragraph (d) hereof, the vesting period for
any unvested stock options or unvested awards of Unity common stock previously granted to Executive shall
accelerate and become fully vested on the date of the Change in Control.
(d)
For purposes of this Agreement, a “Significant Acquisition” shall mean an acquisition of another entity
by Unity (either by way of merger, purchase of substantially all assets of such other entity or purchase of all
outstanding shares of securities of such other entity) pursuant to which: (i) Unity shall, as all or part of the
consideration for such acquisition, issue to the shareholders of such other entity, such number of voting
securities as shall equal 35% or more of the then outstanding voting Unity securities (measured prior to the
consummated Significant Acquisition); and (ii) in the case of a merger, Unity shall be the surviving entity.
(e)
If Executive’s employment with Employer is terminated within twelve of the consummation
of a Significant Acquisition, regardless of whether such termination is by Employer or through Executive’s
resignation of employment with Employer, Executive shall be entitled to receive a payment equal to twelve
months of the Executive’s Base Salary, plus an additional payment equal to 12 twelfths (12/12ths) of the cash
bonus received by the Executive for the Employer's preceding fiscal year. Such payment shall, be made to
Executive in a single lump sum payment to be made in accordance with Section 17 hereof. In addition to the
foregoing, Executive shall, during the twelve months following the termination of his/her employment be
entitled to receive from Employer or its successor, hospital, health, medical and life insurance benefits on the
terms and at the same cost to Executive as Executive was receiving such benefits upon the date of termination
of Executive’s employment. Notwithstanding the preceding sentence, in the event the Executive obtains new
employment during any period that the Employer is obligated to provide hospital, health, medical and life
insurance benefits hereunder and such new employment provides for hospital, health, medical and life
insurance benefits in a manner substantially similar to the benefits to be provided by Employer hereunder,
Employer may permanently terminate the duplicate benefits it is obligated to provide hereunder. It is
understood and agreed that Executive must provide Employer with Notice of such employment obtained while
such benefits are being provided. In the event Executive becomes entitled to receive the amount due under
this paragraph (e), subject to paragraph (f) hereof, the unvested stock options or unvested awards of Unity
common stock previously granted to Executive shall accelerate and become fully vested on the date of
Executive’s termination of employment. It is hereby understood and agreed that payments that may become
due to the Executive under this sub-paragraph (e) shall be in lieu of, and not in addition to, any payments the
Executive may be entitled to under Section 2(b) hereof.
(f)
Notwithstanding anything contained in this Section 2 above, in the event all compensation to be
provided to Executive conditioned upon the occurrence of a Change in Control, whether under this Agreement
or in connection with any other agreement or benefit plan of the Employer to which Executive is a party or in
which he participates, exceeds 2.99 times the Executive's Base Amount, as that term is defined under Section
280G of the Internal Revenue Code and regulations of the Internal Revenue Service promulgated thereunder,
the total compensation to be paid to the Executive shall be reduced to an amount that is $1.00 less than 2.99
times the Executive's Base Amount. Executive shall have the right to determine which benefits to which he
would otherwise be entitled shall be reduced.
3.
No Guaranty of Employment. Nothing in this Agreement shall be construed to guarantee the
employment of the Executive. Executive shall remain an "employee at will" of Employer at all times during
the term of this Agreement.
4.
Notices. Any and all notices, demands or requests required or permitted to be given under this
Agreement shall be given in writing and sent: (i) by registered or certified U.S. mail, return receipt requested;
(ii) by hand; (iii) by overnight courier; or (iv) by telecopier addressed to the parties hereto at their addresses set
forth above or such other addresses as they may from time-to time designate by written notice, given in
accordance with the terms of this Section 4, together with copies thereof as follows:
In the case of the Executive, to the address set forth on the first page hereof or to such other address as
Executive shall provide in writing to the Employer for the provisions of notice hereunder.
In the case of Employer, to the address set forth on the first page hereof, with a copy to:
Windels Marx Lane & Mittendorf, LLP
Attn: Robert A Schwartz, Esq.
120 Albany Street Plaza
New Brunswick, NJ 08901
Telecopier No. (732) 846-8877
Notice given as provided in this Section 4 shall be deemed effective: (i) on the date hand delivered; (ii) on the
first business day following the sending thereof by overnight courier; (iii) on the seventh calendar day (or, if it
is not a business day, then the next succeeding business day thereafter) after the depositing thereof into the
exclusive custody of the U.S. Postal Service; or (iv) on the date telecopied.
5.
Term. The term of this Agreement shall immediately end upon (i) the termination of Executive’s
employment with the Employer, (ii) Executive no longer serving in the Position, even if still employed by
the Employer, or (iii) any material change to the terms and conditions of Executive’s employment (such as a
material reduction in hours worked) even if Executive is still employed in the Position. In addition,
notwithstanding any provision of this Agreement, the term of this Agreement shall immediately end upon: (i)
the Bank or Unity entering into a Memorandum of Understanding with the Federal Deposit Insurance
Corporation ("FDIC") or the New Jersey Department of Banking and Insurance ("NJDBI"); (ii) a cease-and-
desist order being issued with respect to the Bank or Unity by the FDIC or the NJDBI; or (iii) receipt by either
the Bank or Unity of any notice under Federal or state law, which in any way restricts the payment of any
amount or benefits which may become due under this Agreement. It is hereby understood and agreed that,
upon the termination of the term of this Agreement due to the occurrence of any of the events described in the
foregoing clauses (i), (ii) or (iii), this Agreement shall be deemed terminated and the Employer shall have no
further obligation to pay any amounts to the Executive or provide any further benefits to the Executive.
Notwithstanding the forgoing, upon the occurrence of the events described in clauses (i), (ii) or (iii) above, the
Boards of Directors of Unity and the Bank may, by joint resolution of both Boards, waive the termination of
this Agreement and elect to maintain this Agreement in full force and effect, subject to the terms, including the
term set forth above, of this Agreement.
6.
Confidential Information.
(a)
As used herein, "Confidential Information" means any confidential or proprietary information relating
to the Employer and its affiliates including, without limitation, the identity of the Employer's customers, the
identity of representatives of customers with whom the Employer has dealt, the kinds of services provided by
the Employer to customers, the manner in which such services are performed or offered to be performed, the
service needs of actual or prospective customers, customer preferences and policies, pricing information,
business and marketing plans, financial information, budgets, compensation or personnel records, information
concerning the creation, acquisition or disposition of products and services, vendors, software, data processing
programs, databases, customer maintenance listings, computer software applications, research and
development data, know-how, and other trade secrets.
(b)
Notwithstanding the above, Confidential Information does not include information which: (i) is or
becomes public knowledge without breach of this Agreement; or (ii) is received by Executive from a third
party without any violation of any obligation of confidentiality and without confidentiality restrictions;
provided, however, that nothing in this Agreement shall prevent the Executive from participating in or
disclosing documents or information in connection with any judicial or administrative investigation, inquiry or
proceeding and participating in any monetary award related to such participation or information or to the
extent that such participation or disclosure is required under applicable law; provided further, however, that
with regard to legally required participation or disclosure the Executive will provide the Employer with
prompt notice of such request, to the extent legally permitted to do so, so that the Employer may seek (with the
cooperation of the Executive, if so requested by the Employer), a protective order or other appropriate remedy
and/or waiver in writing of compliance with the provisions of this Agreement. If a particular portion or aspect
of Confidential Information becomes subject to any of the foregoing exceptions, all other portions or aspects
of such information shall remain subject to all of the provisions of this Agreement. At all times, both during
the period of Executive's services for the Employer and after termination of Executive's services, the Executive
will keep in strictest confidence and trust all Confidential Information and the Executive will not directly or
indirectly use or disclose to any third-party any Confidential Information, except as may be necessary in the
ordinary course of
performing the Executive’s duties for the Employer, or disclose any Confidential Information, or permit or
encourage any other person or entity to do so, without the prior written consent of the Employer except as may
be necessary in the ordinary course of performing the Executive’s duties for the Employer.
(c)
The Executive agrees to return promptly all Confidential Information in tangible form, including,
without limitation, all photocopies, extracts and summaries thereof, and any such information stored
electronically on tapes, computer disks, mobile or remote computers (including personal digital assistants) or
in any other manner to the Employer at any time that the Employer makes such a request and automatically,
without request, within five days after the termination of the Executive's performance of services for the
Employer for any reason.
7.
Assignability. Neither this Agreement nor the rights or obligations of Executive hereunder may be
assigned, whether by operation of law or otherwise. This Agreement shall be binding upon the Employer, its
successors and assignees. The Bank and Unity shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the
Bank and Unity, to expressly and unconditionally agree to assume and discharge the obligations of the Bank
and Unity under this Agreement, in the same manner and to the same extent that the Bank and Unity would be
required to perform if no such succession or assignment had taken place:
8.
Waiver. The waiver by Employer or the Executive of a breach of any provision of this Agreement by
the other shall not operate or be construed as a waiver of any subsequent or other breach hereof.
9.
Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of New Jersey without giving effect to principles of conflict of laws.
10.
Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to
the subject matter hereof and may not be amended, waived, changed, modified or discharged, except by an
agreement in writing signed by the parties hereto.
11.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which taken together shall constitute one and the same instrument.
12.
Amendment. This Agreement may be modified or amended only by an amendment in writing signed
by both parties.
13.
Severability. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity
or unenforceability shall attach only to such provision, only to the extent it is invalid or
unenforceable, and shall not in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable
provision were not contained herein.
14.
Section Headings. The headings contained in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this Agreement.
15.
Fees and Expenses. If any party to this Agreement institutes any action or proceeding to enforce this
Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the non-
prevailing party all legal costs and expenses incurred by the prevailing party in such action, including, but not
limited to, reasonable attorney's fees and other reasonable legal costs and expenses.
16.
Legal Representation. The Executive hereby acknowledges that this Agreement has been prepared by
Windels Marx Lane & Mittendorf , LLP as legal counsel for Unity and the Bank and that the Executive was
given the opportunity to consult with independent legal counsel regarding this Agreement prior to his/her
execution of this Agreement
17.
Release. All payments and benefits under Section 2 hereof shall be contingent upon Executive
executing a general release of claims in favor of Unity, its subsidiaries and affiliates, and their respective
officers, directors, shareholders, partners, members, managers, agents or employees, and which must be
executed by the Executive no later than the twenty second (22nd) day after the termination of Executive's
employment. Payments under this Agreement that are contingent upon such release shall, subject to Section
18, commence within eight (8) days after such release becomes effective; provided, however, that if
Executive's termination of employment occurs on or after November 15 of a calendar year, then severance
payments shall, subject to the effectiveness of such release and Section 18, commence on the first business day
of the following calendar year.
18.
Section 409A Compliance. If the Executive is a "specified employee" for purposes of Section 409A of
the Code, to the extent required to comply with Section 409A of the Code, any payments required to be made
pursuant to this Agreement which are deferred compensation and subject to Section 409A of the Code (and do
not qualify for an exemption thereunder) shall not commence until one day after the day which is six (6)
months from the date of termination. Should this Section 18 result in a delay of payments to the Executive, on
the first day any such payments may be made incurring a penalty pursuant to Section 409A (the "409A
Payment Date"), the Employer shall begin to make such payments as described in this Section 18, provided
that any amounts would have been paid earlier but for application of this Section 18 shall be paid in lump-sum
of the 409A Payment Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under their respective hands and
seals as of the day and year first above written
ATTEST:
UNITY BANK
By: _____________________
James Hughes
President & Chief Executive Officer
ATTEST:
UNITY BANCORP, INC.
By: _____________________
James Hughes
President & Chief Executive Officer
WITNESS
EMPLOYEE
By: _____________________
Vincent Geraci
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT (this "Agreement") made as of this 7th day
of December, 2023, by and among UNITY BANK, a New Jersey state bank with its principal place
of business located at 64 Old Highway 22, Clinton, New Jersey 08809 (the "Bank"), UNITY
BANCORP, INC. a New Jersey corporation with its principal place of business located at 64 Old
Highway 22, Clinton, New Jersey 08809 ("Unity", and collectively with the Bank, the "Employer"),
and Minsu Kim, an individual, residing at [ ] (the "Executive").
WITNESSETH:
WHEREAS, Executive holds the position of Chief Credit Officer, Senior Vice President (the
“Position”); and
WHEREAS, in connection this position, Employer and Executive wish to enter into this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein
contained, the parties hereto, intending to be legally bound, agree as follows:
Termination. Executive may be terminated at any time, without prejudice to Executive's right to
compensation or benefits pursuant to any benefit plan or policy of Employer.
Change in Control
For purposes of this Agreement, a "Change in Control" shall mean:
a reorganization, merger, consolidation or sale of all or substantially all of the assets of Unity
or a similar transaction in which Unity is not the resulting entity; or
individuals who constitute the Incumbent Board (as herein defined) of Unity cease for any
reason to constitute a majority thereof; or
the occurrence of an event of a nature that would be required to be reported in response to
Item 1.01 of the Current Report on Form 8-K, as then in effect, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or
Without limitation, a "change in control" shall be deemed to have occurred at such time as
any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act)
other than Unity or the trustees or any administrator of any employee stock ownership
plan and trust, or any other employee benefit plans, established by Employer from
time-to-time is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of securities of Unity representing 35% or more
of Unity's outstanding securities ordinarily having the right to vote at the election of
directors; or
A proxy statement soliciting proxies from stockholders of Unity is disseminated by someone
other than the current management of Unity, seeking stockholder approval
of a plan of reorganization, merger or consolidation of Unity or similar transaction
with one or more corporations as a result of which the outstanding shares of the class
of securities then subject to the plan or transaction are exchanged or converted into
cash or property or securities not issued by Unity, and the proponent of such proxy
statement shall have obtained the vote required to approve such proposal; or
A tender offer is made for 35% or more of the voting securities of Unity and shareholders
owning beneficially or of record 35% or more of the outstanding securities of Unity
have tendered or offered to sell their shares pursuant to such tender and such tendered
shares have been accepted by the tender offeror.
For these purposes, "Incumbent Board" means the Board of Directors of Unity on the date
hereof, provided that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by members or stockholders was approved by the same nominating
committee serving under an Incumbent Board, shall be considered as if he were a member of the
Incumbent Board.
Upon the occurrence of a Change in Control, and, in connection with such Change in Control,
if Executive's employment with Employer and/or its successors is terminated within nine months of
such Change in Control, regardless of whether such termination is by Employer or its successor,
through Executive's resignation of employment with Employer or its successor with or without good
cause, or Executive's failure to accept an offer of employment with any successor to Employer,
Executive shall be entitled to receive a payment equal to nine months of the Executive's Base Salary
plus an additional payment equal to nine twelfths (9/12ths) of the cash bonus received by the
Executive for the Employer's preceding fiscal year. Such payment shall be made to Executive in a
single lump sum payment and shall be made in accordance with Section 17 hereof. In addition to the
foregoing, Executive shall, during the nine months following the termination of Executive’s
employment be entitled to receive from Employer or its successor, hospital, health, medical and life
insurance benefits on the terms and at the same cost to Executive as Executive was receiving such
benefits upon the date of termination of Executive's employment. Notwithstanding the preceding
sentence, in the event the Executive obtains new employment during any period that the Employer is
obligated to provide hospital, health, medical and life insurance benefits hereunder and such new
employment provides for hospital, health, medical and life insurance benefits in a manner
substantially similar to the benefits to be provided by Employer hereunder, Employer may
permanently terminate the duplicative benefits it is obligated to provide hereunder. It is understood
and agreed that Executive must provide Employer with notice of such employment obtained while
such benefits are being provided. Notwithstanding the forgoing, upon a Change in Control,
Executive shall not have the right to receive the payments provided for above due to the Executive's
resignation of employment with Employer or its successor or Executive's failure to accept an offer of
employment with any successor to Employer if, following such transaction, (i) a majority of the
individuals constituting the Board of the resulting entity are members of the Incumbent Board and (ii)
a majority of the "senior officer positions" of the resulting entity are held by individuals who held
"senior officer positions" with the Employer prior to such transaction.
For purposes hereof, the “senior officer positions” shall include such of the following
positions as the Employer shall separately maintain prior to any such transaction: the Chairman,
Chief Executive Officer, President, Chief Financial Officer, Senior Lending Officer.
Upon the occurrence of a Change in Control, subject to paragraph (d) hereof, the vesting
period for any unvested stock options or unvested awards of Unity common stock previously granted
to Executive shall accelerate and become fully vested on the date of the Change in Control.
For purposes of this Agreement, a “Significant Acquisition” shall mean an acquisition of
another entity by Unity (either by way of merger, purchase of substantially all assets of such other
entity or purchase of all outstanding shares of securities of such other entity) pursuant to which: (i)
Unity shall, as all or part of the consideration for such acquisition, issue to the shareholders of such
other entity, such number of voting securities as shall equal 35% or more of the then outstanding
voting Unity securities (measured prior to the consummated Significant Acquisition); and (ii) in the
case of a merger, Unity shall be the surviving entity.
If Executive’s employment with Employer is terminated within nine months of the
consummation of a Significant Acquisition, regardless of whether such termination is by Employer or
through Executive’s resignation of employment with Employer, Executive shall be entitled to receive
a payment equal to nine months of the Executive’s Base Salary, plus an additional payment equal to
nine twelfths (9/12ths) of the cash bonus received by the Executive for the Employer's preceding
fiscal year. Such payment shall, be made to Executive in a single lump sum payment to be made in
accordance with Section 17 hereof. In addition to the foregoing, Executive shall, during the nine
(months following the termination of his/her employment be entitled to receive from Employer or its
successor, hospital, health, medical and life insurance benefits on the terms and at the same cost to
Executive as Executive was receiving such benefits upon the date of termination of Executive’s
employment. Notwithstanding the preceding sentence, in the event the Executive obtains new
employment during any period that the Employer is obligated to provide hospital, health, medical and
life insurance benefits hereunder and such new employment provides for hospital, health, medical
and life insurance benefits in a manner substantially similar to the benefits to be provided by
Employer hereunder, Employer may permanently terminate the duplicate benefits it is obligated to
provide hereunder. It is understood and agreed that Executive must provide Employer with Notice of
such employment obtained while such benefits are being provided. In the event Executive becomes
entitled to receive the amount due under this paragraph (e), subject to paragraph (f) hereof, the
unvested stock options or unvested awards of Unity common stock previously granted to Executive
shall accelerate and become fully vested on the date of Executive’s termination of employment. It is
hereby understood and agreed that payments that may become due to the Executive under this sub-
paragraph (e) shall be in lieu of, and not in addition to, any payments the Executive may be entitled
to under Section 2(b) hereof.
Notwithstanding anything contained in this Section 2 above, in the event all compensation to
be provided to Executive conditioned upon the occurrence of a Change in Control, whether
under this Agreement or in connection with any other agreement or benefit plan of the Employer to
which Executive is a party or in which he participates, exceeds 2.99 times the Executive's Base
Amount, as that term is defined under Section 280G of the Internal Revenue Code and regulations of
the Internal Revenue Service promulgated thereunder, the total compensation to be paid to the
Executive shall be reduced to an amount that is $1.00 less than 2.99 times the Executive's Base
Amount. Executive shall have the right to determine which benefits to which he would otherwise be
entitled shall be reduced.
No Guaranty of Employment. Nothing in this Agreement shall be construed to guarantee the
employment of the Executive. Executive shall remain an "employee at will" of Employer at all times
during the term of this Agreement.
Notices. Any and all notices, demands or requests required or permitted to be given under this
Agreement shall be given in writing and sent: (i) by registered or certified U.S. mail, return receipt
requested; (ii) by hand; (iii) by overnight courier; or (iv) by telecopier addressed to the parties hereto
at their addresses set forth above or such other addresses as they may from time-to time designate by
written notice, given in accordance with the terms of this Section 4, together with copies thereof as
follows:
In the case of the Executive, to the address set forth on the first page hereof or to such other
address as Executive shall provide in writing to the Employer for the provisions of notice hereunder.
In the case of Employer, to the address set forth on the first page hereof, with a copy to:
Windels Marx Lane & Mittendorf, LLP
Attn: Robert A Schwartz, Esq.
120 Albany Street Plaza
New Brunswick, NJ 08901
Telecopier No. (732) 846-8877
Notice given as provided in this Section 4 shall be deemed effective: (i) on the date hand
delivered; (ii) on the first business day following the sending thereof by overnight courier; (iii) on the
seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter)
after the depositing thereof into the exclusive custody of the U.S. Postal Service; or (iv) on the date
telecopied.
Term. The term of this Agreement shall immediately end upon (i) the termination of Executive’s
employment with the Employer, (ii) Executive no longer serving in the Position, even if still
employed by the Employer, or (iii) any material change to the terms and conditions of Executive’s
employment (such as a material reduction in hours worked) even if Executive is still employed in the
Position. In addition, notwithstanding any provision of this Agreement, the term of this Agreement
shall immediately end upon: (i) the Bank or Unity entering into a Memorandum of Understanding
with the Federal Deposit Insurance Corporation ("FDIC") or the New Jersey Department of Banking
and Insurance ("NJDBI"); (ii) a cease-and-desist order being issued with respect to the Bank or Unity
by the FDIC or the NJDBI; or (iii) receipt by either the Bank or Unity of any notice under Federal or
state law, which in any way restricts the payment of any amount or benefits which may become due
under this Agreement. It is hereby understood and agreed that, upon the termination of the term of
this Agreement due to the occurrence of any of the events described in the foregoing clauses (i), (ii)
or (iii), this Agreement shall be deemed terminated and the Employer shall have no further obligation
to pay any amounts to the Executive or provide any further benefits to the Executive.
Notwithstanding the forgoing, upon the occurrence of the events described in clauses (i), (ii) or (iii)
above, the Boards of Directors of Unity and the Bank may, by joint resolution of both Boards, waive
the termination of this Agreement and elect to maintain this Agreement in full force and effect,
subject to the terms, including the term set forth above, of this Agreement.
Confidential Information.
As used herein, "Confidential Information" means any confidential or proprietary information
relating to the Employer and its affiliates including, without limitation, the identity of the Employer's
customers, the identity of representatives of customers with whom the Employer has dealt, the kinds
of services provided by the Employer to customers, the manner in which such services are performed
or offered to be performed, the service needs of actual or prospective customers, customer
preferences and policies, pricing information, business and marketing plans, financial information,
budgets, compensation or personnel records, information concerning the creation, acquisition or
disposition of products and services, vendors, software, data processing programs, databases,
customer maintenance listings, computer software applications, research and development data,
know-how, and other trade secrets.
Notwithstanding the above, Confidential Information does not include information which: (i)
is or becomes public knowledge without breach of this Agreement; or (ii) is received by Executive
from a third party without any violation of any obligation of confidentiality and without
confidentiality restrictions; provided, however, that nothing in this Agreement shall prevent the
Executive from participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding and participating in any monetary
award related to such participation or information or to the extent that such participation or
disclosure is required under applicable law; provided further, however, that with regard to legally
required participation or disclosure the Executive will provide the Employer with prompt notice of
such request, to the extent legally permitted to do so, so that the Employer may seek (with the
cooperation of the Executive, if so requested by the Employer), a protective order or other
appropriate remedy and/or waiver in writing of compliance with the provisions of this Agreement. If
a particular portion or aspect of Confidential Information becomes subject to any of the
foregoing exceptions, all other portions or aspects of such information shall remain subject to all of
the provisions of this Agreement. At all times, both during the period of Executive's services for the
Employer and after termination of Executive's services, the Executive will keep in strictest
confidence and trust all Confidential Information and the Executive will not directly or indirectly use
or disclose to any third-party any Confidential Information, except as may be necessary in the
ordinary course of performing the Executive’s duties for the Employer, or disclose any Confidential
Information, or permit or encourage any other person or entity to do so, without the prior written
consent of the Employer except as may be necessary in the ordinary course of performing the
Executive’s duties for the Employer.
The Executive agrees to return promptly all Confidential Information in tangible form,
including, without limitation, all photocopies, extracts and summaries thereof, and any such
information stored electronically on tapes, computer disks, mobile or remote computers (including
personal digital assistants) or in any other manner to the Employer at any time that the Employer
makes such a request and automatically, without request, within five days after the termination of the
Executive's performance of services for the Employer for any reason.
Assignability. Neither this Agreement nor the rights or obligations of Executive hereunder may be
assigned, whether by operation of law or otherwise. This Agreement shall be binding upon the
Employer, its successors and assignees. The Bank and Unity shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all
the business or assets of the Bank and Unity, to expressly and unconditionally agree to assume and
discharge the obligations of the Bank and Unity under this Agreement, in the same manner and to the
same extent that the Bank and Unity would be required to perform if no such succession or
assignment had taken place:
Waiver. The waiver by Employer or the Executive of a breach of any provision of this Agreement by
the other shall not operate or be construed as a waiver of any subsequent or other breach hereof.
Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of New Jersey without giving effect to principles of conflict of laws.
Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to
the subject matter hereof and may not be amended, waived, changed, modified or discharged, except
by an agreement in writing signed by the parties hereto.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which taken together shall constitute one and the same instrument.
Amendment. This Agreement may be modified or amended only by an amendment in writing signed
by both parties.
Severability. If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision, only to the extent it is invalid or
unenforceable, and shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid
or unenforceable provision were not contained herein.
Section Headings. The headings contained in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this Agreement.
Fees and Expenses. If any party to this Agreement institutes any action or proceeding to enforce this
Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the
non-prevailing party all legal costs and expenses incurred by the prevailing party in such action,
including, but not limited to, reasonable attorney's fees and other reasonable legal costs and expenses.
Legal Representation. The Executive hereby acknowledges that this Agreement has been prepared by
Windels Marx Lane & Mittendorf , LLP as legal counsel for Unity and the Bank and that the
Executive was given the opportunity to consult with independent legal counsel regarding this
Agreement prior to his/her execution of this Agreement
Release. All payments and benefits under Section 2 hereof shall be contingent upon Executive
executing a general release of claims in favor of Unity, its subsidiaries and affiliates, and their
respective officers, directors, shareholders, partners, members, managers, agents or employees, and
which must be executed by the Executive no later than the twenty second (22nd) day after the
termination of Executive's employment. Payments under this Agreement that are contingent upon
such release shall, subject to Section 18, commence within eight (8) days after such release becomes
effective; provided, however, that if Executive's termination of employment occurs on or after
November 15 of a calendar year, then severance payments shall, subject to the effectiveness of such
release and Section 18, commence on the first business day of the following calendar year.
Section 409A Compliance. If the Executive is a "specified employee" for purposes of Section 409A
of the Code, to the extent required to comply with Section 409A of the Code, any payments required
to be made pursuant to this Agreement which are deferred compensation and subject to Section 409A
of the Code (and do not qualify for an exemption thereunder) shall not commence until one day after
the day which is six (6) months from the date of termination. Should this Section 18 result in a delay
of payments to the Executive, on the first day any such payments may be made incurring a penalty
pursuant to Section 409A (the "409A Payment Date"), the Employer shall begin to make such
payments as described in this Section 18, provided that any amounts would have been paid earlier but
for application of this Section 18 shall be paid in lump-sum of the 409A Payment Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under their
respective hands and seals as of the day and year first above written
ATTEST:
UNITY BANK
By: _____________________
James Hughes
President & Chief Executive Officer
ATTEST:
UNITY BANCORP, INC.
By: _____________________
James Hughes
President & Chief Executive Officer
WITNESS
EMPLOYEE
By: _____________________
Minsu Kim
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT (this "Agreement") made as of this 7th day
of December, 2023, by and among UNITY BANK, a New Jersey state bank with its principal place
of business located at 64 Old Highway 22, Clinton, New Jersey 08809 (the "Bank"), UNITY
BANCORP, INC. a New Jersey corporation with its principal place of business located at 64 Old
Highway 22, Clinton, New Jersey 08809 ("Unity", and collectively with the Bank, the "Employer"),
and David Bove, an individual, residing at [ ] (the "Executive").
WITNESSETH:
WHEREAS, Executive holds the position of Chief Technology Officer, Senior Vice President
(the “Position”); and
WHEREAS, in connection this position, Employer and Executive wish to enter into this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein
contained, the parties hereto, intending to be legally bound, agree as follows:
Termination. Executive may be terminated at any time, without prejudice to Executive's right to
compensation or benefits pursuant to any benefit plan or policy of Employer.
Change in Control
For purposes of this Agreement, a "Change in Control" shall mean:
a reorganization, merger, consolidation or sale of all or substantially all of the assets of Unity
or a similar transaction in which Unity is not the resulting entity; or
individuals who constitute the Incumbent Board (as herein defined) of Unity cease for any
reason to constitute a majority thereof; or
the occurrence of an event of a nature that would be required to be reported in response to
Item 1.01 of the Current Report on Form 8-K, as then in effect, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or
Without limitation, a "change in control" shall be deemed to have occurred at such time as
any "person" (as the term is used in Section 13(d) and 14(d) of the Exchange Act)
other than Unity or the trustees or any administrator of any employee stock ownership
plan and trust, or any other employee benefit plans, established by Employer from
time-to-time is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of securities of Unity representing 35% or more
of Unity's outstanding securities ordinarily having the right to vote at the election of
directors; or
A proxy statement soliciting proxies from stockholders of Unity is disseminated by someone
other than the current management of Unity, seeking stockholder approval
of a plan of reorganization, merger or consolidation of Unity or similar transaction
with one or more corporations as a result of which the outstanding shares of the class
of securities then subject to the plan or transaction are exchanged or converted into
cash or property or securities not issued by Unity, and the proponent of such proxy
statement shall have obtained the vote required to approve such proposal; or
A tender offer is made for 35% or more of the voting securities of Unity and shareholders
owning beneficially or of record 35% or more of the outstanding securities of Unity
have tendered or offered to sell their shares pursuant to such tender and such tendered
shares have been accepted by the tender offeror.
For these purposes, "Incumbent Board" means the Board of Directors of Unity on the date
hereof, provided that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by members or stockholders was approved by the same nominating
committee serving under an Incumbent Board, shall be considered as if he were a member of the
Incumbent Board.
Upon the occurrence of a Change in Control, and, in connection with such Change in Control,
if Executive's employment with Employer and/or its successors is terminated within nine months of
such Change in Control, regardless of whether such termination is by Employer or its successor,
through Executive's resignation of employment with Employer or its successor with or without good
cause, or Executive's failure to accept an offer of employment with any successor to Employer,
Executive shall be entitled to receive a payment equal to nine months of the Executive's Base Salary
plus an additional payment equal to nine twelfths (9/12ths) of the cash bonus received by the
Executive for the Employer's preceding fiscal year. Such payment shall be made to Executive in a
single lump sum payment and shall be made in accordance with Section 17 hereof. In addition to the
foregoing, Executive shall, during the nine months following the termination of Executive’s
employment be entitled to receive from Employer or its successor, hospital, health, medical and life
insurance benefits on the terms and at the same cost to Executive as Executive was receiving such
benefits upon the date of termination of Executive's employment. Notwithstanding the preceding
sentence, in the event the Executive obtains new employment during any period that the Employer is
obligated to provide hospital, health, medical and life insurance benefits hereunder and such new
employment provides for hospital, health, medical and life insurance benefits in a manner
substantially similar to the benefits to be provided by Employer hereunder, Employer may
permanently terminate the duplicative benefits it is obligated to provide hereunder. It is understood
and agreed that Executive must provide Employer with notice of such employment obtained while
such benefits are being provided. Notwithstanding the forgoing, upon a Change in Control,
Executive shall not have the right to receive the payments provided for above due to the Executive's
resignation of employment with Employer or its successor or Executive's failure to accept an offer of
employment with any successor to Employer if, following such transaction, (i) a majority of the
individuals constituting the Board of the resulting entity are members of the Incumbent Board and (ii)
a majority of the "senior officer positions" of the resulting entity are held by individuals who held
"senior officer positions" with the Employer prior to such transaction.
For purposes hereof, the “senior officer positions” shall include such of the following
positions as the Employer shall separately maintain prior to any such transaction: the Chairman,
Chief Executive Officer, President, Chief Financial Officer, Senior Lending Officer.
Upon the occurrence of a Change in Control, subject to paragraph (d) hereof, the vesting
period for any unvested stock options or unvested awards of Unity common stock previously granted
to Executive shall accelerate and become fully vested on the date of the Change in Control.
For purposes of this Agreement, a “Significant Acquisition” shall mean an acquisition of
another entity by Unity (either by way of merger, purchase of substantially all assets of such other
entity or purchase of all outstanding shares of securities of such other entity) pursuant to which: (i)
Unity shall, as all or part of the consideration for such acquisition, issue to the shareholders of such
other entity, such number of voting securities as shall equal 35% or more of the then outstanding
voting Unity securities (measured prior to the consummated Significant Acquisition); and (ii) in the
case of a merger, Unity shall be the surviving entity.
If Executive’s employment with Employer is terminated within nine months of the
consummation of a Significant Acquisition, regardless of whether such termination is by Employer or
through Executive’s resignation of employment with Employer, Executive shall be entitled to receive
a payment equal to nine months of the Executive’s Base Salary, plus an additional payment equal to
nine twelfths (9/12ths) of the cash bonus received by the Executive for the Employer's preceding
fiscal year. Such payment shall, be made to Executive in a single lump sum payment to be made in
accordance with Section 17 hereof. In addition to the foregoing, Executive shall, during the nine
(months following the termination of his/her employment be entitled to receive from Employer or its
successor, hospital, health, medical and life insurance benefits on the terms and at the same cost to
Executive as Executive was receiving such benefits upon the date of termination of Executive’s
employment. Notwithstanding the preceding sentence, in the event the Executive obtains new
employment during any period that the Employer is obligated to provide hospital, health, medical and
life insurance benefits hereunder and such new employment provides for hospital, health, medical
and life insurance benefits in a manner substantially similar to the benefits to be provided by
Employer hereunder, Employer may permanently terminate the duplicate benefits it is obligated to
provide hereunder. It is understood and agreed that Executive must provide Employer with Notice of
such employment obtained while such benefits are being provided. In the event Executive becomes
entitled to receive the amount due under this paragraph (e), subject to paragraph (f) hereof, the
unvested stock options or unvested awards of Unity common stock previously granted to Executive
shall accelerate and become fully vested on the date of Executive’s termination of employment. It is
hereby understood and agreed that payments that may become due to the Executive under this sub-
paragraph (e) shall be in lieu of, and not in addition to, any payments the Executive may be entitled
to under Section 2(b) hereof.
Notwithstanding anything contained in this Section 2 above, in the event all compensation to
be provided to Executive conditioned upon the occurrence of a Change in Control, whether
under this Agreement or in connection with any other agreement or benefit plan of the Employer to
which Executive is a party or in which he participates, exceeds 2.99 times the Executive's Base
Amount, as that term is defined under Section 280G of the Internal Revenue Code and regulations of
the Internal Revenue Service promulgated thereunder, the total compensation to be paid to the
Executive shall be reduced to an amount that is $1.00 less than 2.99 times the Executive's Base
Amount. Executive shall have the right to determine which benefits to which he would otherwise be
entitled shall be reduced.
No Guaranty of Employment. Nothing in this Agreement shall be construed to guarantee the
employment of the Executive. Executive shall remain an "employee at will" of Employer at all times
during the term of this Agreement.
Notices. Any and all notices, demands or requests required or permitted to be given under this
Agreement shall be given in writing and sent: (i) by registered or certified U.S. mail, return receipt
requested; (ii) by hand; (iii) by overnight courier; or (iv) by telecopier addressed to the parties hereto
at their addresses set forth above or such other addresses as they may from time-to time designate by
written notice, given in accordance with the terms of this Section 4, together with copies thereof as
follows:
In the case of the Executive, to the address set forth on the first page hereof or to such other
address as Executive shall provide in writing to the Employer for the provisions of notice hereunder.
In the case of Employer, to the address set forth on the first page hereof, with a copy to:
Windels Marx Lane & Mittendorf, LLP
Attn: Robert A Schwartz, Esq.
120 Albany Street Plaza
New Brunswick, NJ 08901
Telecopier No. (732) 846-8877
Notice given as provided in this Section 4 shall be deemed effective: (i) on the date hand
delivered; (ii) on the first business day following the sending thereof by overnight courier; (iii) on the
seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter)
after the depositing thereof into the exclusive custody of the U.S. Postal Service; or (iv) on the date
telecopied.
Term. The term of this Agreement shall immediately end upon (i) the termination of Executive’s
employment with the Employer, (ii) Executive no longer serving in the Position, even if still
employed by the Employer, or (iii) any material change to the terms and conditions of Executive’s
employment (such as a material reduction in hours worked) even if Executive is still employed in the
Position. In addition, notwithstanding any provision of this Agreement, the term of this Agreement
shall immediately end upon: (i) the Bank or Unity entering into a Memorandum of Understanding
with the Federal Deposit Insurance Corporation ("FDIC") or the New Jersey Department of Banking
and Insurance ("NJDBI"); (ii) a cease-and-desist order being issued with respect to the Bank or Unity
by the FDIC or the NJDBI; or (iii) receipt by either the Bank or Unity of any notice under Federal or
state law, which in any way restricts the payment of any amount or benefits which may become due
under this Agreement. It is hereby understood and agreed that, upon the termination of the term of
this Agreement due to the occurrence of any of the events described in the foregoing clauses (i), (ii)
or (iii), this Agreement shall be deemed terminated and the Employer shall have no further obligation
to pay any amounts to the Executive or provide any further benefits to the Executive.
Notwithstanding the forgoing, upon the occurrence of the events described in clauses (i), (ii) or (iii)
above, the Boards of Directors of Unity and the Bank may, by joint resolution of both Boards, waive
the termination of this Agreement and elect to maintain this Agreement in full force and effect,
subject to the terms, including the term set forth above, of this Agreement.
Confidential Information.
As used herein, "Confidential Information" means any confidential or proprietary information
relating to the Employer and its affiliates including, without limitation, the identity of the Employer's
customers, the identity of representatives of customers with whom the Employer has dealt, the kinds
of services provided by the Employer to customers, the manner in which such services are performed
or offered to be performed, the service needs of actual or prospective customers, customer
preferences and policies, pricing information, business and marketing plans, financial information,
budgets, compensation or personnel records, information concerning the creation, acquisition or
disposition of products and services, vendors, software, data processing programs, databases,
customer maintenance listings, computer software applications, research and development data,
know-how, and other trade secrets.
Notwithstanding the above, Confidential Information does not include information which: (i)
is or becomes public knowledge without breach of this Agreement; or (ii) is received by Executive
from a third party without any violation of any obligation of confidentiality and without
confidentiality restrictions; provided, however, that nothing in this Agreement shall prevent the
Executive from participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding and participating in any monetary
award related to such participation or information or to the extent that such participation or
disclosure is required under applicable law; provided further, however, that with regard to legally
required participation or disclosure the Executive will provide the Employer with prompt notice of
such request, to the extent legally permitted to do so, so that the Employer may seek (with the
cooperation of the Executive, if so requested by the Employer), a protective order or other
appropriate remedy and/or waiver in writing of compliance with the provisions of this Agreement. If
a particular portion or aspect of Confidential Information becomes subject to any of the
foregoing exceptions, all other portions or aspects of such information shall remain subject to all of
the provisions of this Agreement. At all times, both during the period of Executive's services for the
Employer and after termination of Executive's services, the Executive will keep in strictest
confidence and trust all Confidential Information and the Executive will not directly or indirectly use
or disclose to any third-party any Confidential Information, except as may be necessary in the
ordinary course of performing the Executive’s duties for the Employer, or disclose any Confidential
Information, or permit or encourage any other person or entity to do so, without the prior written
consent of the Employer except as may be necessary in the ordinary course of performing the
Executive’s duties for the Employer.
The Executive agrees to return promptly all Confidential Information in tangible form,
including, without limitation, all photocopies, extracts and summaries thereof, and any such
information stored electronically on tapes, computer disks, mobile or remote computers (including
personal digital assistants) or in any other manner to the Employer at any time that the Employer
makes such a request and automatically, without request, within five days after the termination of the
Executive's performance of services for the Employer for any reason.
Assignability. Neither this Agreement nor the rights or obligations of Executive hereunder may be
assigned, whether by operation of law or otherwise. This Agreement shall be binding upon the
Employer, its successors and assignees. The Bank and Unity shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all
the business or assets of the Bank and Unity, to expressly and unconditionally agree to assume and
discharge the obligations of the Bank and Unity under this Agreement, in the same manner and to the
same extent that the Bank and Unity would be required to perform if no such succession or
assignment had taken place:
Waiver. The waiver by Employer or the Executive of a breach of any provision of this Agreement by
the other shall not operate or be construed as a waiver of any subsequent or other breach hereof.
Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of New Jersey without giving effect to principles of conflict of laws.
Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to
the subject matter hereof and may not be amended, waived, changed, modified or discharged, except
by an agreement in writing signed by the parties hereto.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which taken together shall constitute one and the same instrument.
Amendment. This Agreement may be modified or amended only by an amendment in writing signed
by both parties.
Severability. If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision, only to the extent it is invalid or
unenforceable, and shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid
or unenforceable provision were not contained herein.
Section Headings. The headings contained in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this Agreement.
Fees and Expenses. If any party to this Agreement institutes any action or proceeding to enforce this
Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the
non-prevailing party all legal costs and expenses incurred by the prevailing party in such action,
including, but not limited to, reasonable attorney's fees and other reasonable legal costs and expenses.
Legal Representation. The Executive hereby acknowledges that this Agreement has been prepared by
Windels Marx Lane & Mittendorf , LLP as legal counsel for Unity and the Bank and that the
Executive was given the opportunity to consult with independent legal counsel regarding this
Agreement prior to his/her execution of this Agreement
Release. All payments and benefits under Section 2 hereof shall be contingent upon Executive
executing a general release of claims in favor of Unity, its subsidiaries and affiliates, and their
respective officers, directors, shareholders, partners, members, managers, agents or employees, and
which must be executed by the Executive no later than the twenty second (22nd) day after the
termination of Executive's employment. Payments under this Agreement that are contingent upon
such release shall, subject to Section 18, commence within eight (8) days after such release becomes
effective; provided, however, that if Executive's termination of employment occurs on or after
November 15 of a calendar year, then severance payments shall, subject to the effectiveness of such
release and Section 18, commence on the first business day of the following calendar year.
Section 409A Compliance. If the Executive is a "specified employee" for purposes of Section 409A
of the Code, to the extent required to comply with Section 409A of the Code, any payments required
to be made pursuant to this Agreement which are deferred compensation and subject to Section 409A
of the Code (and do not qualify for an exemption thereunder) shall not commence until one day after
the day which is six (6) months from the date of termination. Should this Section 18 result in a delay
of payments to the Executive, on the first day any such payments may be made incurring a penalty
pursuant to Section 409A (the "409A Payment Date"), the Employer shall begin to make such
payments as described in this Section 18, provided that any amounts would have been paid earlier but
for application of this Section 18 shall be paid in lump-sum of the 409A Payment Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under their
respective hands and seals as of the day and year first above written
ATTEST:
UNITY BANK
By: _____________________
James Hughes
President & Chief Executive Officer
ATTEST:
UNITY BANCORP, INC.
By: _____________________
James Hughes
President & Chief Executive Officer
WITNESS
EMPLOYEE
By: _____________________
David Bove
February 26, 2025
Donald E. Souders, Jr.
3219 Marchant Drive
Bethlehem, PA 18017
Dear Don:
This letter will confirm your resignation from the Board of Directors of Unity Bancorp, Inc. and
Unity Bank, and all committees therefor and any positions related thereto, effective as of the date of
this letter. In connection with your resignation, and in light of your past service with both the
Company and the Bank and your agreements set forth herein, we agree as follows:
1.
Deferred Compensation Account.
In connection with your participation on the Unity Bank
Deferred Compensation Plan (the “Plan”), you currently have a Plan balance of $123,009.91 (the
“Plan Benefit”). In accordance with the terms of the Plan and your pre-existing elections under the
Plan, you will be paid the Plan Benefit in a lump sum within 10 business days of the date hereof.
2.
2025 Retainer.
In recognition of your service to the Bank and the Company during
2025, the Bank will pay to you a pro rata portion of the retainer for Board service for 2025 otherwise
payable to you in 2026. This payment equals $6,333 and will be paid within 10 business days of the
date hereof.
3.
Outstanding Stock Options.
You currently hold options to purchase 1,333 shares of the
Company’s common stock. These options are fully vested. Under the terms of the equity plans under
which these options have been granted, you may continue to exercise these options for ninety (90)
days from the date hereof, after which they will be forfeited and may no longer be exercised.
4.
Vested Restricted Stock.
You currently hold 8,400 shares of the Company’s common
stock awarded pursuant to the Company’s equity compensation plans and which have fully vested.
These shares are yours, and you may transfer or reregister them as you see fit and subject to any
reporting obligation you may have under Section 16 of the Securities Exchange Act of 1934, as
amended, and the Company’s Insider Trading Policy.
5.
Unvested Restricted Stock.
You currently hold 4,785 shares awarded pursuant to the
Company’s equity compensation plans which have not yet vested. These unvested shares will be
forfeited upon your resignation. However, the Company agrees to pay you the sum of $240,658 in
lieu of these shares. This payment will be paid within 10 business days of the date hereof.
6.
Non-Disparagement. You agree to forever refrain from making any disparaging remarks or
other negative or derogatory statements, written or oral, to any third party relating to the Company,
the Bank, or their parents, subsidiaries, officers, employees, members or agents or customers;. The
Company and the Bank agrees to forever refrain from making any disparaging remarks or other
negative or derogatory statements, written or oral, to any third party relating to you or your service on
the Boards; provided, however that the forgoing shall not prohibit you or us from providing truthful
testimony in any judicial or administrative proceeding, if legally compelled to so testify. For purposes
hereof, only statements made by the Chairman, Chief Executive Officer, President and Chief
Financial Officer of the Company or the Bank shall be deemed statements made by or on behalf of
the Company or the Bank.
7.
Confidentiality.
You acknowledge that during your service with the Company and the
Bank, you have become privy to Confidential Information of the Company and the Bank as described
below. You agree not to use, or disclose to others, the confidential records, business strategies or
capabilities, customer lists, administrative processes, technical MIS systems, or other information
which the Company or the Bank has identified as proprietary or confidential or which, by its nature,
is considered proprietary or confidential (hereinafter, “Confidential Information”).
Confidential Information shall include, but not be limited to, client information or records, customer
information or records, insurance policies, application forms, customer base, manuals, designs,
procedures, formulas, discoveries, inventions, improvements, concepts, ideas, future plans and
budgets, unannounced organizational or staffing changes, financial analyses or data, competitive
analyses, management information, technical data, marketing plans and market studies belonging to,
owned by or otherwise pertaining to the Company or the Bank. This obligation of confidentiality
shall apply regardless of whether the Confidential Information is in oral, written, electronic, disc,
graphic, machine-readable or other form. This agreement not to disclose includes direct and/or
indirect disclosure, regardless of the recipients of such Confidential Information.
Nothing in this Agreement shall prevent you from participating in or disclosing documents or
information in connection with any judicial or administrative proceeding to the extent that such
participation or disclosure is required under law. Prior to disclosure, you hereby agree to provide the
Company immediate notice of such request (to the extent lawfully permitted to do so) and will use
reasonable efforts to resist disclosure so that the Company may seek (with your cooperation), a
protective order or other appropriate remedy. In addition, nothing in this Agreement shall preclude
you from communicating or cooperating with any appropriate federal, state or local government
agency and participating in any monetary award related to such communication or cooperation.
8.
Entire Agreement. This Agreement is the complete agreement of the parties with respect to
the subject matter herein, and, except as otherwise provided for herein, supersedes all agreements
previously made between the parties relating to its subject matter. This Agreement may not be
amended or modified except by an agreement in writing signed by both parties.
9.
Governing Law/Forum Selection. This Agreement shall be governed by the laws of the State
of New Jersey. The parties agree that all disputes arising under this Agreement shall be
resolved in the courts of the state of New Jersey sitting in Hunterdon County, or the federal district
court for the District of New Jersey sitting on Newark, New Jersey.
Please evidence your acknowledgement of and agreement with these terms by executing this letter
below in the space provided. We thank you for your service with Unity and wish you the best
going forward.
Very truly yours,
_______________________________
_______________________________
James A. Hughes
David D. Dallas
President and CEO
Chairman of the Board
Acknowledged and Agreed to:
_______________________________
Donald E. Souders, Jr.
64 Old Highway 22 Clinton, NJ 08809
Organizational Functional Area:
Finance
Policy/Program For:
Insider Trading Policy
Department/Responsibility for Maintaining:
Finance
Updating Policy/Program:
Chief Financial Officer/Controller
PROCEDURES AND GUIDELINES GOVERNING
INSIDER TRADING
I.
PURPOSE
In order to comply with federal and state securities laws governing (a) trading in Company securities
while in the possession of "material nonpublic information" concerning the Company, and (b) tipping or
disclosing material nonpublic information to outsiders, and in order to prevent even the appearance of
improper insider trading or tipping, the Company has adopted this policy for all of its directors, officers
and employees, their family members, and specially designated outsiders who have access to the
Company's material nonpublic information.
II.
SCOPE
A.
This policy covers all directors, officers and employees of the Company and their immediate family
members (collectively referred to as "Insiders"). “Immediate family members” means a spouse,
minor child or any family member sharing the household of a director, officer or employee.
B.
The policy applies to any and all transactions in the Company's securities, including its common
stock and options to purchase common stock (except as provided for under Section VI E 3 hereof),
and any other type of securities that the Company may issue, such as preferred stock, convertible
debentures, warrants or other securities.
C.
The policy will be delivered to all directors, officers, and employees upon its adoption by the
Company, and to all new directors, officers, and employees at the start of their employment or
relationship with the Company. Section 16 Individuals and Key Employees, as defined below, may
be required to certify compliance with the policy on an annual basis.
III.
SECTION 16 INDIVIDUALS AND KEY EMPLOYEES
A. Section 16 Individuals. The Company has designated those persons listed on Exhibit A attached hereto as
the directors and officers who are subject to the reporting provisions and trading restrictions of Section
16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
underlying rules and regulations promulgated by the SEC. Section 16 Individuals must obtain prior
approval of all trades in Company securities from the Chief Financial Officer or his appointee. The
Company will amend Exhibit A from time to time as necessary to reflect the addition, resignation or
departure of Section 16 Individuals. Section 16 individuals are generally the same individuals as
Regulation O officers.
B. Key Employees. The Company has designated those persons listed on Exhibit B attached hereto as Key
Employees who are not defined as Section 16 Individuals or Reg O officers but because of their position
with the Company and their access to material nonpublic information, must obtain the prior approval of
all trades in Company securities from the Chief Financial Officer. The Company will amend Exhibit B
from time to time as necessary to reflect the addition, resignation or departure of Key Employees.
IV.
INSIDER TRADING COMPLIANCE OFFICER
The Company has designated the Chief Financial Officer as its Insider Trading Compliance Officer.
The Compliance Officer will review and either approve or prohibit all proposed trades by Section 16
Individuals and Key Employees. The Company or the Compliance Officer shall not be allowed to
prohibit any employee or any Section 16 Individual from trading in the Company’s securities, unless the
proposed trade would occur during a Blackout Period (as defined below). In addition to the trading
approval duties, the Compliance Officer will also be responsible for:
A. Administering this policy and monitoring and enforcing compliance with all policy provisions
and procedures.
B. Responding to all inquiries relating to this policy and its procedures.
C. Designating and announcing special trading Blackout Periods during which no Section 16
Individuals and Key Employees may trade in Company securities.
D. Ensuring that this policy and other appropriate materials are provided to all current and new
directors, officers and employees, and such other persons whom the Compliance Officer
determines have access to material nonpublic information concerning the Company.
E. Administering, monitoring and enforcing compliance with all federal and state insider trading
laws and regulations
F.
Revising the policy as necessary to reflect changes in federal or state insider trading laws and
regulations.
G. Maintaining the accuracy of the list of Section 16 Individuals and Key Employees as attached on
Exhibits A and B and updating them periodically as necessary to reflect additions to or deletions
from each category of individuals.
The Compliance Officer may designate one or more individuals to whom the Compliance Officer may
delegate his or her duties hereunder.
V.
DEFINITION OF "MATERIAL NONPUBLIC INFORMATION"
A.
"MATERIAL" INFORMATION
Information about the Company is "material" if it would be expected to affect the investment or
voting decisions of the reasonable shareholder or investor, or if the disclosure of the information
would be expected to significantly alter the total mix of the information in the marketplace about
the Company. In simple terms, material information is any type of information, which could
reasonably be expected to affect the price of Company securities. While it is not possible to identify
all information that would be deemed "material," the following types of information ordinarily
would be considered material:
•
Financial performance, especially quarterly and year-end earnings, and significant changes in
financial performance or liquidity.
•
Company projections and/or strategic plans that vary substantially from existing publicly
disclosed trends.
•
Potential mergers and acquisitions or the sale of material Company assets or subsidiaries.
•
New major contracts, orders, suppliers, customers, or finance sources, or the loss thereof.
•
Stock splits, public or private securities/debt offerings, or changes in Company dividend
policies or amounts.
•
Significant changes in senior management.
•
Actual or threatened major litigation or the resolution of such litigation.
B.
"NONPUBLIC" INFORMATION
Material information is "nonpublic" if it has not been widely disseminated to the public through
major newswire services, national news services and financial news services or through a filing
with the Securities Exchange Commission. For the purposes of this policy, information will be
considered public, i.e., no longer "nonpublic", after the close of trading on the second full trading
day following the Company's widespread public release of the information. Therefore, if the
Company issues its earning’s release on Monday, the release is still considered nonpublic until the
market’s close on Wednesday.
C.
CONSULT THE COMPLIANCE OFFICER FOR GUIDANCE
Any Insiders who are unsure whether the information that they possess is material or nonpublic
must consult the Compliance Officer for guidance before trading in any Company securities.
VI.
STATEMENT OF COMPANY POLICY AND PROCEDURES
A. PROHIBITED ACTIVITIES
1.
No Insider may trade in Company securities while possessing material nonpublic information
concerning the Company.
2.
No Insider may trade in Company securities outside of the applicable "trading windows"
described in Section VI.B below, or during any special trading Blackout Periods designated by
the Compliance Officer.
3.
No Section 16 Individual or Key Employee listed on Exhibits A and B attached hereto may trade
in Company securities unless the trade(s) have been approved in accordance with the procedures
set forth in Section VI.C below. To the extent possible, Section 16 Individuals and Key
Employees should retain all records and documents that support their reasons for making each
trade.
4.
The Compliance Officer may not trade in Company securities without prior communication of
the trade(s) to the President.
5.
No Insider may "tip" or disclose material nonpublic information concerning the Company to any
outside person (including family members, analysts, individual investors, and members of the
investment community and news media), unless required as part of that Insider's regular duties
for the Company and authorized by the Compliance Officer. In any instance in which such
information is approved to be disclosed to outsiders, the Company will take such steps as are
necessary to preserve the confidentiality of the information, including requiring the outsider to
agree in writing to comply with the terms of this policy and/or to sign a confidentiality
agreement. All inquiries from outsiders regarding material information about the Company must
be forwarded to the Compliance Officer.
6.
No Insider should give trading advice of any kind about the Company to anyone.
7.
No Insider may trade in any interest or position relating to the future price of Company
securities, such as a put, call or short sale.
8.
No Insider may (a) trade in the securities of any other public company while possessing material
nonpublic information concerning that company that the Insider obtained through their service
with the Company, (b) "tip" or disclose material nonpublic information concerning any other
public company to anyone that the Insider obtained through their service with the Company, or
(c) give trading advice of any kind to anyone concerning any other public company while
possessing material nonpublic information about that company that the Insider obtained through
their service with the Company.
C. TRADING WINDOWS AND BLACKOUT PERIODS
1.
Trading Window for Section 16 Individuals and Key Employees. After obtaining trading
approval in accordance with the procedures set forth in Section VI.C below, Section 16
individuals and Key Employees listed on Exhibits A and B attached hereto may trade in
Company securities only during the period beginning at the close of trading on the second full
trading day following the Company's widespread public release of quarterly or year-end
earnings (assuming a special Blackout Period is not in effect). As a general course of
business, the Blackout Period will last from the 15th day at the end of the month preceding
each calendar quarter (i.e. March 15th, June 15th, Sept. 15th, Dec. 15th) until two days after the
announcement of earnings..
2.
No Trading During Trading Windows While in the Possession of Material Nonpublic
Information. No Insiders possessing material nonpublic information concerning the Company
may trade in Company securities even during applicable trading windows. Persons possessing
such information may trade during a trading window only after the close of trading on the
second full trading day following the Company's widespread public release of the information.
3.
No Trading During Blackout Periods. No Insiders may trade in Company securities outside of
the applicable trading windows or during any special Blackout Periods that the Compliance
Officer may designate. These periods when trading is not permitted are referred to as “Blackout
Periods.” Excluding the normal quarterly earnings blackout period, which lasts from the 15th
day of the each quarter end (March 15th, June 15th, Sept. 15th, Dec. 15th) until after the close of
trading on the second full trading day after the earnings release, the Compliance Officer will
notify all insiders of all Blackout Periods. No Insiders may disclose to any outside third party
that a special Blackout period has been designated.
3.
No Obligation to Approve Trades. The existence of the foregoing approval procedures does
not in any way obligate the Compliance Officer to approve any trades requested by Section 16
Individuals or Key Employees. The Compliance Officer may reject any trading requests.
E.
EMPLOYEE BENEFIT PLANS
1.
Employee Stock Purchase Plans. The trading prohibitions and restrictions set forth in this policy
do not apply to periodic contributions by the Company or employees to employee benefit plans
(e.g., pension or 401K plans) which are used to purchase Company securities pursuant to the
employees' advance instructions. However, no officers or employees may alter their instructions
regarding the purchase or sale of Company securities or participation in an investment in
Company securities in such plans while in the possession of material nonpublic information or
during Blackout Periods.
2. Section 16 Employees cannot transfer into or out of an investment in Company securities within
an employee benefit pal without prior approval of the Compliance Officer.
3.
Stock Option Plans. The trading prohibitions and restrictions of this policy apply to all
transactions in securities acquired through the exercise of stock options granted by the
Company, but not to the acquisition of securities through such exercises.
F.
PRIORITY OF STATUTORY OR REGULATORY TRADING RESTRICTIONS
The trading prohibitions and restrictions set forth in this policy will be superseded by any greater
prohibitions or restrictions prescribed by federal or state securities laws and regulations, e.g.,
short-swing trading by Section 16 Individuals or restrictions on the sale of securities subject to Rule
144 under the Securities Act of 1933. Any Insider who is uncertain whether other prohibitions or
restrictions apply should ask the Compliance Officer.
VII.
POTENTIAL CIVIL, CRIMINAL AND DISCIPLINARY SANCTIONS
A. CIVIL AND CRIMINAL PENALTIES
The consequences of prohibited insider trading or tipping can be severe. Persons violating insider
trading or tipping rules may be required to disgorge the profit made or the loss avoided by the
trading, pay the loss suffered by the person who purchased securities from or sold securities to the
insider or tippee, pay civil penalties up to three times the profit made or loss avoided, pay a criminal
penalty of up to $1 million, and serve a jail term of up to ten years. The Company and/or the
supervisors of the person violating the rules may also be required to pay major civil or criminal
penalties.
B. COMPANY DISCIPLINE
Violation of this policy or federal or state insider trading or tipping laws by any director, officer or
employee, or their immediate family members, may subject the director to dismissal proceedings
and the officer or employee to disciplinary action by the Company up to and including termination
for cause.
C.
REPORTING OF VIOLATIONS
Any Insider who violates this policy or any federal or state laws governing insider trading or tipping
or knows of any such violation by any other Insiders, must report the violation immediately to the
Compliance Officer. Upon learning of any such violation, the Compliance Officer, in consultation
with the Company's legal counsel, will determine whether the Company should release any material
nonpublic information, or whether the Company should report the violation to the SEC or other
appropriate governmental authority.
VIII.
INQUIRIES
Please direct all inquiries regarding any of the provisions or procedures of this policy to the Compliance
Officer.
Receipt and Acknowledgment
For all Section 16 Individuals and Key Employees
I, __________________________________, hereby acknowledge that I have received and read a copy of the
“Procedures and Guidelines Covering Insider Trading” and I have complied with and will continue to comply
with its terms. I have not sold nor purchased Unity Bancorp stock without first notifying the Chief Financial
Officer or the Chief Executive Officer during the year ending December 31, 20___. I understand that violation
of insider trading laws or regulations may subject me to severe civil and/or criminal penalties, and that
violation of the terms of the above-titled policy may subject me to discipline by the Company up to and
including termination for cause.
________________________________________
______________________________
Signature
Date
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
As of December 31, 2024, the Registrant had two subsidiaries, Unity Bank and Unity (NJ) Statutory Trust II.
Unity Bank has two subsidiaries, Unity Investment Services, Inc. and Unity OREO, LLC, which currently has no real estate
activity. Unity Investment Services, Inc. has one subsidiary, Unity Delaware Investment 2, Inc.. Unity Delaware Investment 2,
Inc. has three subsidiaries, Unity Strategic Investments I, Inc., Unity Strategic Investments II, Inc. and Unity NJ REIT, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-189913, 333- 204391, 333-
218153, 333-231939 and 333-271618) on Form S-8 and Registration Statement (No. 333-151276) on Form S-3 of
Unity Bancorp, Inc. (the “Company”) of our reports dated March 7, 2025, relating to the consolidated financial
statements and effectiveness of internal control over financial reporting of the Company, appearing in this Annual
Report on Form 10-K of the Company for the year ended December 31, 2024.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 7, 2025
EXHIBIT 31.1
I, James A. Hughes, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Unity Bancorp, Inc;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Dated: March 7, 2025
/s/ James A. Hughes
James A. Hughes
President and Chief Executive Officer
EXHIBIT 31.2
I, George Boyan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Unity Bancorp, Inc;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Dated: March 7, 2025
/s/ George Boyan
George Boyan
Executive Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION1350, AS ADOPTED
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers
of Unity Bancorp, Inc. (the "Company"), certifies that, to the best of their knowledge:
1.
The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2024 (the "Report") fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 7, 2025
/s/ James A. Hughes
James A. Hughes
President and Chief Executive Officer
Dated: March 7, 2025
/s/ George Boyan
George Boyan
Executive Vice President and Chief Financial Officer
This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein,
and not for any other purpose.
EXHIBIT 4(vi)
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
As of December 31, 2024, Unity Bancorp, Inc. (“Unity”), the registrant and the registered banking holding Company or Unity Bank
(“Unity Bank”) had one class of security registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), our common stock, no par value per share (“Common Stock”).
Description of Capital Stock
We are authorized by our certificate of incorporation to issue 12,000,000 shares of common stock, no par value per share, and
500,000 shares of preferred stock, the terms, rights and features of which are determined by our Board of Directors upon issuance. As of the
date hereof, we have 10,026,029 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.
Common Stock
The following description contains certain general terms of Unity’s common stock.
Dividend Rights
The holders of Unity’s common stock are entitled to dividends when, as, and if declared by the Unity board of directors out of
funds legally available for the payment of dividends. Generally, New Jersey law prohibits corporations from paying dividends or any other
distributions to shareholders, if after giving effect to the distribution, either the corporation would be unable to pay its debts as they become
due in the usual course of its business or the corporation’s total assets would be less than its total liabilities.
The primary source of dividends paid to the Unity’s shareholders is dividends paid to Unity by Unity Bank. Thus, as a practical
matter, any restrictions on the ability of Unity Bank to pay dividends will act as restrictions on the amount of funds available for payment of
dividends by Unity. Under the New Jersey Banking Act of 1948, as amended, dividends may be paid by Unity Bank only if, after the
payment of each such dividend, the capital stock of Unity Bank will be unimpaired and either Unity Bank will have a surplus of not less than
50% of its capital stock or the payment of such dividend will not reduce Unity Bank’s surplus. The payment of dividends is also dependent
upon the Bank’s ability to maintain adequate capital ratios pursuant to applicable regulatory requirements. In addition to these explicit
limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an
unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would
constitute an unsafe or unsound banking practice.
The dividend rights of holders of Unity’s common stock are qualified and subject to the dividend rights of holders of Unity’s
preferred stock that may be issued in the future as described below in the section titled “Preferred Stock”.
Voting Rights
Each holder of Unity’s common stock is entitled to one vote for each share held on all matters voted upon by the shareholders,
including the election of directors. There is no cumulative voting in the election of directors.
Preemptive Rights
Holders of shares of Unity’s common stock are not entitled to preemptive rights with respect to any shares of the common stock
that may be issued.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of the affairs of Unity, subject to the rights and preferences, if any, of the
holders of preferred stock, holders of Unity’s common stock are entitled to share, ratably in proportion to the number of shares of common
stock held by them, in the remaining assets of Unity available for distribution to its shareholders.
Assessment and Redemption
All outstanding shares of Unity’s common stock are fully paid and non-assessable. Unity’s common stock is not redeemable at the
option of the issuer or the holders thereof.
Transfer Agent
Computershare is presently the transfer agent for Unity’s common stock.
Listing
Unity’s common stock is listed on the NASDAQ Global Select Market under the symbol “UNTY”.
Preferred Stock
Unity has 500,000 authorized shares of preferred stock typically referred to as “blank check” preferred stock. This term refers to
stock for which the rights and restrictions are determined by the board of directors of a corporation. Unity’s certificate of incorporation
authorizes Unity’s Board of Directors to issue new shares of Unity’s preferred stock without further shareholder action.
Unity’s certificate of incorporation gives the board of directors of Unity authority to issue preferred stock from time to time in one
or more classes or series thereof, each such class or series to have voting powers (if any), conversion rights (if any), designations,
preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be
determined by the board of directors of Unity and stated and expressed in a resolution or resolutions thereof providing for the issuance of
such preferred stock.
With respect to any class or series of preferred stock, Unity’s certificate of incorporation allows the board of directors of Unity at
any time to determine:
●
the dividend rate on shares of such class or series and any restrictions, limitations or conditions upon the payment of such
dividends, and whether dividends are cumulative, and the dates on which dividends, if declared, would be payable;
●
whether the shares of such class or series would be redeemable and, if so, the terms of redemption;
●
the rights of holders of shares of such class or series in the event of the liquidation, dissolution or winding up of Unity, whether
voluntary or involuntary, or any other distribution of its assets;
●
whether the shares of such class or series would be subject to the operation of a purchase, retirement or sinking fund and, if so,
the terms and conditions thereof;
●
whether the shares of such class or series would be convertible into shares of any other class or series of the same or any other
class, and if so, the terms of such conversion; and
●
the extent of voting powers, if any, of the shares of such class or series.
The issuance of additional common or preferred stock may be viewed as having adverse effects upon the holders of common stock.
Holders of Unity’s common stock do not have preemptive rights with respect to any newly issued stock. Unity’s board could adversely affect
the voting power of holders of Unity’s common stock by issuing shares of preferred stock with certain voting, conversion and/or redemption
rights. In the event of a proposed merger, tender offer or other attempt to gain control of Unity that the board does not believe to be in the
best interests of its shareholders, the board could issue additional preferred stock which could make any such takeover attempt more difficult
to complete. Blank check preferred stock may also be used in connection with the issuance of a shareholder rights plan, sometimes called a
poison pill.
Anti-Takeover Provisions
The provisions of our certificate of incorporation, bylaws and the New Jersey corporation law summarized in the following
paragraphs may be deemed to have anti-takeover effects and may delay, defer, or prevent a tender offer or takeover attempt that a
shareholder might consider to be in such shareholder's best interest, including those attempts that might result in a premium over the market
price for the shares held by shareholders, and may make removal of management more difficult.
Authorized but Unissued Stock
The authorized but unissued shares of common stock and preferred stock will be available for future issuance without shareholder
approval. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence of authorized but unissued and unreserved shares of common and
preferred stock may enable our Board of Directors to issue shares to persons friendly to current management, which could render more
difficult or discourage any attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise, and thereby protect
the continuity of our management.
Number of Directors
Our current board is comprised of 10 directors. Our certificate of incorporation currently provides that the Board of Directors shall
consist of not less than 1 or more than 16 directors. The number of directors may be amended only by the affirmative vote of a majority of
directors then in office or the affirmative vote of shareholders owning at least two-thirds of the outstanding shares entitled to vote.
Classified Board of Directors
Our certificate of incorporation divides the Board of Directors into three classes of directors serving staggered three- year terms. As
a result, approximately one-third of the Board of Directors will be elected at each annual meeting of shareholders. The classification of
directors will have the effect of making it more difficult for shareholders to change the composition of the Board of Directors. As a result, at
least two annual meetings of shareholders may be required for the shareholders to change a majority of the directors, whether or not a
change in the Board of Directors would be beneficial to the Company and its shareholders and whether or not a majority of the Company’s
shareholders believes that such a change would be desirable.
Bank Regulatory Requirements
Under the Federal Change in Bank Control Act (the “Control Act”), a 60 day prior written notice must be submitted to the Board of
Governors of the Federal Reserve System (“FRB”) if any person, or any group acting in concert, seeks to acquire 10% or more of any class
of outstanding voting securities of a bank holding company, unless the FRB determines that the acquisition will not result in a change of
control. Under the Control Act, the FRB has 60 days within which to act on such notice taking into consideration certain factors, including
the financial and managerial resources of the acquirer, the convenience and needs of the community served by the bank holding company
and its subsidiary banks and the antitrust effects of the acquisition. Under the Bank Holding Company Act of 1956, as amended (‘BHCA”), a
company is generally required to obtain prior approval of the FRB before it may obtain control of a bank holding company. Under the
BHCA, control is generally described to mean the beneficial ownership of 25% or more of the outstanding voting securities of a company,
although a presumption of control may exist if a party beneficially owns 10% or more of the outstanding voting securities of a company and
certain other circumstances are present.
New Jersey Shareholders Protection Act
A provision of New Jersey law, the New Jersey Shareholders’ Protection Act (the “Shareholders’ Protection Act”), prohibits certain
transactions involving an “interested stockholder” and a resident domestic corporation. When used in reference to any such corporation, an
“interested stockholder” is generally defined as one who is the beneficial owner, directly or indirectly, of 10% or more of the voting power
of the outstanding voting stock of that corporation or who is an affiliate or associate of that corporation and at any time within the five-year
period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the
then outstanding stock of that corporation.
The Shareholders’ Protection Act generally prohibits any business combination between an interested stockholder and a resident
domestic corporation for a period of five years following that interested stockholder’s stock acquisition date unless: (a) that business
combination is approved by the corporation’s board of directors prior to that interested stockholder’s stock acquisition date or (b) the
transaction(s) which caused the person to become an interested stockholder was approved by the corporation’s board of directors prior to
that interested stockholder’s stock acquisition date and any subsequent business combinations with that interested stockholder are approved
by the corporation’s board of directors, provided that any such subsequent business combination is approved by (1) the board of directors, or
a committee thereof, consisting solely of persons who are not employees, officers, directors, stockholders, affiliates or associates of that
interested stockholder, and (2) the affirmative vote of the holders of a majority of the voting stock not beneficially owned by such interested
stockholder at a meeting called for such purpose. After the five-year period expires, the prohibition on business combinations with an
interested stockholder continues unless certain conditions are met. Subject to further limitations, these conditions include: (a) a business
combination approved by the corporation’s board of directors prior to that interested stockholder’s stock acquisition date; (b) a business
combination approved by a vote of two-thirds of the voting stock not owned by the interested stockholder; (c) a business combination
whereby its shareholders receive consideration in accordance with the Shareholders’ Protection Act; and (d) a business combination
approved by the corporation’s board of directors, or a committee thereof, consisting solely of persons who are not employees, officers,
directors, stockholders, affiliates or associates of that interested stockholder prior to the consummation of the business combination and by
the affirmative vote of the holders of a majority of the voting stock not beneficially owned by such interested stockholder at a meeting called
for such purpose if the transaction(s) with the interested stockholder which caused the person to become an interested stockholder was
approved by the corporation’s board of directors prior to the consummation of such transaction(s).