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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, 20212022

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)

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Registrant’s telephone number, including area code (908) 730-7630

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

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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.

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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, 2021,2022, the aggregate market value of the registrant’s Common Stock, no par value per share, held by non-affiliates of the registrant was $165,265,842$195,367,194 and 7,512,0847,377,915 shares of the Common Stock were outstanding to non-affiliates. As of February 28, 2022, 10,458,4182023, 10,586,256 shares of the registrant’s Common Stock were outstanding.

Documents incorporated by reference:

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Index to Form 10-K

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PART I

Item 1.    Business:

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 Company also serves as a holding company for its wholly-owned subsidiary, Unity Risk Management, Inc. Unity Risk Management, Inc. is a captive insurance company that insures risks to the Bank and the Company not covered by the traditional commercial insurance market.

The Bank received its charter from the New Jersey Department of Banking and Insurance on September 13, 1991 and opened for business on September 16, 1991. The Bank is a full-service commercial bank, providing a wide range of business and consumer financial services through its main office in Clinton, New Jersey and sixteen additional New Jersey branches located in Edison, Emerson, Flemington, Highland Park, Lakewood, Linden, Middlesex, North Plainfield, Phillipsburg, Scotch Plains, Somerset, Somerville, South Plainfield, Ramsey, Union, Washington and Whitehouse. In addition, the Bank has two Pennsylvania branches located in Bethlehem and Forks Township. The Bank’s primary service area encompasses the Route 22/Route 78 corridors between the Bethlehem, Pennsylvania office and its Linden, New Jersey branch, as well as Bergen County and Ocean County, New Jersey.

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, through the Bank, conducts a traditional and community-oriented commercial banking business and offers services, including personal and business checking accounts, time deposits, money market accounts and regular savings accounts.accounts, typical of a community banking business. The Company structures its specific services and charges in a manner designed to attract the business of the small and medium sized business and professional community, as well as that of individuals residing, working and shopping in its service area. The Company engages in a wide range of lending activities and offers commercial, Small Business Administration (“SBA”), consumer, mortgage, home equity and personal loans.

During 2020, the Company participated in the SBA’s Paycheck Protection Program (“PPP”) created under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP provided funds to guarantee forgivable loans originated by depository institutions to eligible small businesses through the SBA’s 7(a) loan guaranty program. These loans are 100% federally guaranteed (principal and interest). An eligible business could apply under the PPP during the applicable covered period and receive a loan up to 2.5 times its average monthly “payroll costs” limited to a loan amount of $10.0 million. The proceeds of the loan could be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term (or five-year loan term for loans made after June 5, 2020) to maturity; and (c) principal and interest payments deferred until the date on which the SBA remits the loan forgiveness amount to the borrower’s lender or, alternatively, notifies the lender no loan forgiveness is allowed.  If the borrower did not submit a loan forgiveness application to the lender within 10 months following the end of the 24-week loan forgiveness covered period (or the 8-week loan forgiveness covered period with respect to loans made prior to June 5, 2020 if such covered period is elected by the borrower), the borrower would begin paying principal and interest on the PPP loan immediately after the 10-month period. The Company originated $143.0 million in PPP

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Competition

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, 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

At December 31, 2021,2022, the Company employed 208224 full-time and 68 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. We believe ourgood and believes its ability to attract and retain employees is a key to ourthe Company’s success. Accordingly, we strivethe Company strives to offer competitive salaries and employee benefits to all employees and monitor salaries in ourits market areas. In addition, the principal purposes of ourthe Company’s equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards.

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

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and future prospects of the companies and the banks concerned, togetheralong with the convenience and needs of the community to be served, when reviewing acquisitions or mergers.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 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.

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The New Rules also require a “capital conservation buffer.” As of January 1, 2019, the Company and the Bank area bank holding company or 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:

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.

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

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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. On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, modified the CBLR framework so that: (i) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%. Under the interim rules, the minimum CBLR will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. Commencing with the first quarter of 2020, the Bank elected to comply with the CBLR, rather than the capital requirements specified in the New Rules. At December 31, 2021,2022, the Bank’s CBLR was 10.51%10.34%.

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), each federal banking agency has promulgated regulations, specifying the levels at which an insured depository institution such as the Bank would be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” and providing for certain mandatory and discretionary supervisory actions based on the capital level of the institution. To qualify to engage in financial activities under the Gramm-Leach-Bliley Act, all depository institutions must be “well capitalized.”

The New Rules also revised the regulations implementing these provisions of FDICIA, to change the capital levels applicable to each designation. Under the New Rules, an institution will be classified as “well capitalized” if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 8.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent, (iv) has a common equity Tier 1 capital ratio of at least 6.5 percent and (v) meets certain other requirements. An institution will be classified as “adequately capitalized” if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 4.0 percent, (iv) has a common equity Tier 1 capital ratio of at least 4.5 percent and (v) does not meet the definition of “well capitalized.” An institution will be classified as “undercapitalized” if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 6.0 percent,

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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 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 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:

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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.

The requirements of the Dodd-Frank Act and other regulatory reforms continue to be implemented. It is difficult to predict at this time what specific impact certain provisions and yet-to-be-finalized rules and regulations will have on us,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 ourthe 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 ourthe Company’s costs of operations and adversely impact ourits earnings.

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:

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Item 1A.  Risk Factors:

OurThe Company’s business, financial condition, results of operations and the trading price of ourits securities can be materially and adversely affected by many events and conditions including the following:

Pandemic events may have a material adverse effect on our operations and our financial condition.

The outbreak of disease on a regional, national or global level, such as the spread of the COVID-19 coronavirus, has a material adverse effect on commerce, which may, in turn impact ourthe Company’s lines of business.

OurThe Company’s operations are significantly affected by the general economic conditions of New Jersey, Eastern Pennsylvania and the specific local markets in which we operate.it operates. The Central and Northern New Jersey and Eastern Pennsylvania markets served by the Registrant have been significantly impacted by the Coronavirus epidemicpandemic and governmental actions to mitigate the epidemic,pandemic, such as stay at home orders and business shutdowns. OurThe Company’s real estate portfolio consists primarily of loans secured by properties located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania. A decline in the economies of these counties, which we considerare considered to be ourthe Company’s primary market area, could have a material adverse effect on ourits business, financial condition, results of operations and prospects.

The coronavirus outbreak may also have an adverse effect on ourthe Company’s customers directly or indirectly. These effects could include disruptions or restrictions in our customers’ supply chains or employee productivity, closures of customers’ facilities, decreases in demand for customers’ products and services or in other economic activities. Their businesses may be adversely affected by quarantines and travel restrictions in areas most affected by COVID-19. If ourthe Company’s customers are adversely affected, ourits condition and results of operations could be adversely affected.

The COVID-19 epidemicpandemic may also affect the stability of ourthe Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans and/or result in loss of revenue. A decline in local

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Moreover, ourthe Company’s future success and profitability substantially depends on the management skills of ourits executive officers and directors, many of whom have held officer and director positions with usthe Company for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm ourthe Company’s ability to operate ourits business or execute ourits business strategy. WeThe Company may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact ourthe Company’s business, financial condition and results of operations and prospects.

The Company and its bank subsidiary are subject to regulatory enforcement orders requiring improvement in compliance functions and remedial actions.

In recent years, a combination of financial reform legislation and heightened scrutiny by banking regulators have significantly increased expectations regarding what constitutes an effective risk and compliance management infrastructure. On July 6, 2020, Unity Bank executed a Stipulation and Consent to the Issuance of a Consent Order (the “Order”) countersigned by the Federal Deposit Insurance Corporation (the "FDIC"). On July 6, 2020 the Bank also agreed to an Acknowledgement and Consent of FDIC Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey (the “Commissioner”), which makes the Consent Order binding as between the Bank and the Commissioner. On July 15, 2020, the Commissioner adopted the Acknowledgement. The Bank consented to the issuance of the Consent Order without admitting any unsafe or unsound banking practices or violations of law or regulation. The Consent Order arises from a routine safety and soundness examination of the Bank by the FDIC.

Under the terms of the Order, the Bank is required to, among other things, increase board supervision of its BSA/AML program, review and improve its written BSA/AML compliance program, review and improve its BSA risk assessment,

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There is a risk that wethe Company may not be repaid in a timely manner, or at all, for loans we make.it makes.

The risk of nonpayment (or deferred or delayed payment) of loans is inherent in commercial banking. Such nonpayment, or delayed or deferred payment of loans to the Company, if they occur, may have a material adverse effect on ourits earnings and overall financial condition. Additionally, in compliance with applicable banking laws and regulations, the Company maintains an allowance for loan losses created through charges against earnings. As of December 31, 2021,2022, the Company’s allowance for loan losses was $22.3$25.2 million, or 1.351.20 percent of ourits total loan portfolio and 230.25277.95 percent of ourits nonperforming 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. We seekThe Company seeks to minimize ourits 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 loan losses.

OurThe Company’s allowance for loan losses may not be adequate to cover actual losses.

Like all financial institutions, we maintainthe Company maintains an allowance for loan losses to provide for loan defaults and nonperformance. OurIts allowance for loan losses may not be adequate to cover actual losses and future provisions for loan losses could materially and adversely affect the results of our 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 loan loss experience and other factors management feels deserve recognition in establishing an adequate reserve. This risk assessment process is performed at least quarterly and, as adjustments become necessary, they 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 ourthe Company’s control, and these losses may exceed current estimates. State and federal regulatory agencies, as an integral part of their examination process, review ourthe Company’s loans and allowance for loan losses and may require an increase in ourits allowance for loan losses. Although we believethe Company believes that ourits allowance for loan losses is adequate to cover probable and reasonably estimated losses, weit cannot assure yoube assured that wethe Company will not further increase the allowance for loan losses or that ourits regulators will not require usan increase to increase this allowance. Either of these occurrences could adversely affect ourthe Company’s earnings.

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the incurred loss model under existing guidance with a current expected credit loss (“CECL”) model for instruments measured at amortized cost, and require entities to record allowances for available-for-saleavailable for sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. ASU 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. While ASU 2016-13 does not require any particular method for determining the CECL allowance, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions and reasonable and supportable forecasts for the

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The Company is subject to interest rate risk and variations in interest rates may negatively affect ourits financial performance.

Net interest income, the difference between interest earned on our interest-earning assets and interest paid on interest-bearing liabilities, represents a significant portion of ourthe Company’s earnings. Both increases and decreases in the interest rate environment may reduce ourthe Company’s profits. Interest rates are subject to factors which are beyond ourthe 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 we receivethe Company receives on loans and investment securities and the amount of interest we payit pays on deposits and borrowings, but such changes could also affect (i) ourthe ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, including the held to maturity and available for sale securities portfolios and (iii) the average duration of our 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 banking business is subject to significant government regulations.

We areThe Company is subject to extensive governmental supervision, regulation and control. These laws and regulations are subject to change and may require substantial modifications to ourthe Company’s operations or may cause usit to incur substantial additional compliance costs. These laws and regulations are designed to protect depositors and the public, but not ourthe Company’s shareholders. In addition, future legislation and government policy could adversely affect the commercial banking industry and ourthe Company’s operations. Such governing laws can be anticipated to continue to be the subject of future modification. OurThe Company’s management cannot predict what effect any such future modifications will have on ourthe Company’s operations. In addition, the primary focus of Federalfederal 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 new compliance costs and may restrict certain sources of revenue. The Dodd-Frank Act was signed into law on July 21, 2011. Generally, thean Act is effective the day after it wasis signed into law, but different effective dates apply to specific sections of thethis law, many of which will not become effective until various Federal regulatory agencies have promulgated rules implementing the statutory provisions. Uncertainty remains as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry as a whole, or on ourthe Company’s business, results of operations and financial condition. TheFor a more detailed discussion of the Dodd-Frank Act, among other things:see “Item 1-Business – Supervision and Regulation.”

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From time to time, the FASB and the SEC change their guidance governing the form and content of ourthe Company’s external financial statements. In addition, accounting standard setters and those who interpret U.S. generally accepted accounting principles (“U.S. GAAP”), such as the FASB, SEC, banking regulators and ourthe 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 ourthe Company’s control, can be hard to predict and could materially impact how we report ourit reports financial results and condition. In certain cases, wethe Company could be required to apply a new or revised guidance retroactively or apply existing guidance differently, (also retroactively) which may result in our 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 willwould negatively impact our results of operations.

Declines in value may adversely impact the investment portfolio.

As of December 31, 2021, we2022, the Company had approximately $56.5$95.4 million, $14.3$35.8 million, and $8.6$9.8 million in debt securities available for sale, debt securities held to maturity securities and equity investment securities, respectively. WeThe Company may be required to record impairment charges in earnings related to credit losses on ourits investment securities if they suffer a decline in value that is considered other-than-temporary. Additionally, (a)(i) if we intendthe Company intends to sell a security or (b)(ii) it is more likely than not that weit will be required to sell the security prior to recovery of its amortized cost basis, wethe Company will be required to recognize an other-than-temporary impairment charge in the statement of income equal to the full amount of the decline in fair value below amortized cost. Factors, including lack of liquidity, absence of reliable pricing information, adverse

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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 Apple, Alphabet and Amazon, are further increasing competition to compete for loans, deposits and payments. A number of ourthe Company’s competitors have substantially greater resources than we doit does to expend upon advertising and marketing, and their substantially greater capitalization enables them to make much larger loans. OurThe Company’s success depends a great deal upon ourits judgment that large and mid-size financial institutions do not adequately serve small businesses in ourits principal market area and upon ourthe Company’s ability to compete favorably for such customers. In addition to competition from larger institutions, wethe Company also facefaces 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 we serve.the Company serves.

The Company has also been active in competing for New Jersey governmental and municipal deposits. At December 31, 2021,2022, the Company held approximately $247.7$296.5 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. Although this proposal is in the very early stages and no legislation has been introduced in the state legislature, 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.

Future offerings of common stock may adversely affect the market price of ourthe Company’s stock.

In the future, if ourthe Company’s or the Bank’s capital ratios fall below the prevailing regulatory required minimums, wethe 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 our existing shareholders or reduce the market price of our common stock, or both.

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Company’s (or ourits vendors’) business continuity and data security systems prove to be inadequate. We maintainThe 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, we maintainthe Company maintains cyber liability insurance to mitigate against certain losses weit 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.

OurThe Company’s business strategy could be adversely affected if we areit is not able to attract and retain skilled employees and manage our expenses.

We expectThe Company expects to continue to experience growth in the scope of ourits operations and, correspondingly, in the number of ourits employees and customers. WeThe Company may not be able to successfully manage ourits business as a result of the strain on our management and operations that may result from this growth. OurThe Company’s ability to manage this growth will depend upon ourits ability to continue to attract, hire and retain skilled employees.  OurThe Company’s success will also depend on the ability of ourits officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees.

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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.

Net gains on sales of mortgage and/or SBA loans are a significant component of the Company’s non-interest income and could fluctuate in future periods.

Net gains on sales of mortgage and SBA loans represented a notable portion of the Company’s non-interest income for the years ended December 31, 2022 and 2021, respectively. The Company’s ability to sell a portion of its mortgage or SBA loan productions in the secondary market is dependent upon, amongst other factors, the levels of market interest rates, consumer demand for marketable loans, the Company’s sales and pricing strategies, and the economy. A change in one or more of these, or other factors could significantly impact the Company’s ability to sell mortgage loans in the future and adversely impact the level of our tax expense.non-interest income.

In 2019,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 New Jersey legislature adopted legislation that will increase our state income taxcompany to additional liability and could increase our overall tax expense. have a material adverse effect.

The legislation imposedCompany 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 and 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 with the applicable laws and regulations, banking agencies may have the authority to impose fines and other penalties and sanctions on the Company.

The Company’s controls and procedures may fail or be circumvented, which may result in a temporary surtaxmaterial adverse effect on corporations earning New Jersey allocated incomeits business, results of operations and financial condition.

The Company’s management periodically reviews and updates its internal control, policies, and procedures. Any system of controls is in excesspart based on certain assumptions and can only provide reasonable, not absolute, assurances that the objectives of $1 million atthe 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 ratematerial adverse effect on the Company and its results of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019,operations and at 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021. However, in 2020, this surtax was extended through December 31, 2023, at the 2.5% level. The legislation also requires combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state, and limits the deductibility of dividends received. These changes are not temporary.financial condition.

Reforms to and uncertainty regarding LIBOR may adversely affect ourthe Company’s business.

In 2017, a committee of private-market derivative participants and their regulators convened by the Federal Reserve, the Alternative Reference Rates Committee, or “ARRC”, was created to identify an alternative reference interest rate to replace LIBOR. The ARRC announced the Secured Overnight Financing Rate, or “SOFR”, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR. The Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021, although certain LIBOR rates will continue to be published until 2023. Subsequently, the Federal Reserve Bank announced final plans for the production of SOFR, which resulted in the commencement of its published rates by the

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Federal Reserve Bank of New York on April 2, 2018. The UnityUnited States bank regulatory agencies have required financial institutions in the United States to cease issuing new LIBOR contracts effective December 31, 2021. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain. The uncertainty as to the nature and effect of such reforms and actions and the political discontinuancephase out of LIBOR may adversely affect the value of and return on the Company’s financial assets and liabilities that are based on or are linked to LIBOR, the Company’s results of operations or financial condition. In addition, these reforms may also require extensive changes to the contracts that govern these LIBOR based products, as well as the Company’s systems and processes.

LIBOR iswas historically used as a reference rate for many of our transactions, which means it is the base on which relevant interest rates are determined. Transactions include those in which we lend and borrow money, and enter into derivatives to manage our or our customers’ risk.Company’s transactions. Risks related to transitioning instruments to a new reference rate or to how LIBOR is calculated and its availability include impacts on the yield on loans or securities held by us,the Company, amounts paid on securities we havethe Company has issued or amounts received and paid on derivative instruments we haveit has entered into. The value of loans, securities or derivative instruments tied to LIBOR and the trading market for LIBOR-based securities could also be impacted upon its discontinuance or if it is limited.discontinuance.

While we expectthe Company expects LIBOR will continue to be available in substantially its current form until 2023, it is possible that LIBOR quotes will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. These risks may also be increased due to the shorter time for preparing for the transition.

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The following table sets forth certain information regarding the Company’s properties from which it conducts business as of December 31, 2021.2022.

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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.

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Item 4.    Mine Safety Disclosures:  N/A

Item 4A. Executive Officers of the Registrant:

The following table sets forth certain information as of December 31, 2021,2022, regarding each executive officer of the Company who is not also a director.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:

The Company’s Common Stock is quoted on the NASDAQ Global Market under the symbol “UNTY.”

On February 4, 2021, the Company authorized the repurchase of up to 750 thousand shares, or approximately 7.5 percent of its outstanding common stock. The new plan took effect after the Company’s prior share repurchase program was completed and all authorizedA total of 1,572 shares were repurchased on February 16, 2021.at an average price of $26.49 during 2022, leaving 570 thousand shares available for repurchase. A total of 199 thousand shares were repurchased at an average price of $21.04 during 2021, of which 20 thousand shares were repurchased under the prior repurchase plan, leaving 571 thousand shares available for repurchase. The amount and timing of additional purchases, if any, will be dependent upon a number of factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for loan losses, whether related to the COVID-19 pandemic or otherwise, the market price of the Company’s stock and the general impact of the COVID-19 pandemic on the economy. There were 504 thousand shares repurchased during 2020 and no shares repurchased during 2019. The table below sets forth information regarding our repurchases during the year:

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Item 6.    Selected Financial Data: 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 for each of the past three years 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 bank holding company incorporated in New Jersey and is 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 the Internet and its nineteen branch offices located in Bergen, Hunterdon, Middlesex, Ocean, Somerset, Union and Warren counties in New Jersey and Northampton County in Pennsylvania. These services include the acceptance of demand, savings and time deposits and the extension of consumer, real estate, Small Business Administration ("SBA") and other commercial credits. The Bank has multiple subsidiaries used to hold part of its investment and loan portfolios.

Results of Operations

Net income totaled $38.5 million, or $3.59 per diluted share for the year ended December 31, 2022, compared to $36.1 million, or $3.43 per diluted share for the year ended December 31, 2021, compared to $23.6 million, or $2.19 per diluted share for the year ended December 31, 2020.2021.

Highlights for the year include:

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The Company’s performance ratios for the past three years are listed in the following table:

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COVID-19

On March 13, 2020,The full impact of the Coronavirus Disease (“COVID-19”) pandemic was declared a national emergency by the President of the United States. The spread of COVID-19 has negatively impacted the national and local economy, disrupted supply chains and increased unemployment levels. In response to the COVID-19 pandemic, many businesses have been faced with restrictions in an effort to prioritize public health. The initial temporary closure and gradual reopening of many businesses and the implementation of social distancing and stay-at-home policies as new variants have spread, has impacted many of the Company’s customers.

The Company is committed to supporting its customers, employees and communities during this difficult time and has adapted to the changing environment. We have taken and continue taking steps to protect the health and safety of our employees and to work with our customers experiencing economic consequences from the epidemic. The Company has and is working with its loan customers to provide short term payment deferrals and to waive certain fees. These accommodations are likely to have a negative impact on the Company’s results of operations during the duration of the epidemic, and depending on how quickly the businesses of our customers rebound after the emergency, could lead to an increase in nonperforming assets.

The full impact of the pandemic remains unknown and continues to evolve. The outbreak has had a significant adverse impact on certain industries the Company serves, including retail, accommodations, and restaurants and food services. AlthoughIt is unknown how long the adverse conditions associated with the COVID-19 pandemic continues,will last and what the restrictions that have been in place for over a year are beginningcomplete financial effect will be to loosen in many areas as vaccines are administered and people start to feel safer. However, some of this progress has been interrupted by the spread of new variants of the virus.Bank. It is still unknown what changesreasonably possible that estimates made in the behavior of customers, businesses and their employees will result fromfinancial statements could be materially impacted in the COVID-19 pandemic. While states have re-opened, several restrictions remain in place, which have resulted in lower commercial activity and consumer spending. This decrease in commercial activity may result in our customers' inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on ourcustomers and prospects, and on the local and national economy, there can be no assurances as to how the crisis may ultimately affect the Company's loan portfolio, and businessnear term as a whole.result of these conditions. The extent of suchCompany continues to monitor the impact will dependclosely, including its impact on future developments,

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competitive factors that influence interest rates, loan demand, deposit flowsdemand and general levels of nonperforming assets.

2022 compared to 2021

During 2022, tax-equivalent net interest income amounted to $90.1 million, an increase of $13.1 million, or 17.0 percent, when compared to the same period in 2021. The net interest margin increased 24 basis points to 4.40 percent for the year ended December 31, 2022, compared to 4.16 percent for the same period in 2021. The net interest spread was 4.15 percent for 2022, a 20 basis point increase compared to 3.95 for the same period in 2021.

During 2022, tax-equivalent interest income was $100.7 million, an increase of $16.0 million, or 18.8 percent, when compared to the same period in the prior year. This increase was mainly driven by increases in the balance of average loans, the yield on loans, the balance of average securities and the yield on securities.

Total interest expense was $10.6 million in 2022, an increase of $2.9 million or 37.3 percent compared to 2021. This increase was primarily driven by the increased rates and volume of savings deposits and increased volume of borrowed funds and subordinated debentures:

2021 compared to 2020

During 2021, tax-equivalent net interest income amounted to $77.0 million, an increase of $12.6 million or 19.6 percent when compared to the same period in 2020. The net interest margin increased 31 basis points to 4.16 percent for the year ended December 31, 2021 compared to 3.85 percent for the same period in 2020. The net interest spread was 3.95 percent for 2021, a 47 basis point increase compared to the same period in 2020.

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Total interest expense was $7.7 million in 2021, a decrease of $6.7 million or 46.5 percent compared to 2020. This decrease was driven primarily by the decreased rates on interest-bearing deposits:

2020 compared to 2019​

Tax-equivalent net interest income amounted to $64.4 million in 2020, an increase of $6.8 million from $57.6 million in 2019. The Company’s net interest margin decreased 10 basis points to 3.85 percent in 2020, compared to 3.95 percent in 2019. The net interest spread was 3.48 percent, a decrease of 6 basis points from 3.54 percent in 2019.

During 2020, tax-equivalent interest income was $78.9 million, an increase of $3.2 million or 4.3 percent when compared to 2019. This increase was driven primarily by the increase in the average volume of loans:

Total interest expense was $14.5 million in 2020, a decrease of $3.6 million or 19.8 percent compared to 2019. This decrease was driven by the decreased rates on interest-bearing deposits, partially offset by an increase in the average volume of interest-bearing deposits:

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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 oninterest-bearing liabilities, (4) net interest spread and (5) net interest income/margin on average earning assets. Rates/yields are computed on a fully tax-equivalent basis, assuming a federal income tax rate of 21 percent.