UNITY BANCORP INC /NJ/ Fair Value Disclosure
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 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).
Most of the Company’s AFS debt securities were classified as Level 2 assets at December 31, 2025. The valuation of AFS debt securities using Level 2 inputs was primarily determined using the market approach, which uses quoted prices for similar assets or liabilities in active markets and all other relevant information. It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities.
Included in the Company’s AFS debt securities are select corporate bonds which are classified as Level 3 assets at December 31, 2025. The valuation of these corporate bonds is determined using broker quotes, third-party vendor prices, or other valuation techniques, such as discounted cash flow techniques. Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads and trade execution data.
Equity Securities 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 developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).
Included in the Company’s equity securities is restricted stock which is classified as a Level 3 asset at December 31, 2025. The valuation of this restricted stock is determined using observable prices for the restricted and unrestricted stock and models, including Discount for Lack of Marketability.
As of December 31, 2025, the fair value of the Company’s equity securities portfolio was $16.6 million.
Most of the Company’s equity securities were classified as Level 1 assets at December 31, 2025 and 2024. The valuation of securities using Level 1 inputs was primarily determined by active markets with readily determinable fair value using quoted market prices.
Included in the Company’s equity securities is restricted stock which are classified as Level 3 assets at December 31, 2025. The valuation of this restricted stock was determined using broker quotes, third-party vendor prices, or other valuation techniques, such as discounted cash flow techniques. Market inputs used in the other valuation techniques or underlying third-party vendor prices or broker quotes include benchmark and government bond yield curves, credit spreads and trade execution data.
The following table presents a reconciliation of the Level 3 securities measured at fair value on a recurring basis for the years ended December 31, 2025 and 2024:
Debt and Equity Securities | ||||||||||||
2025 | 2024 | |||||||||||
(In thousands) | | Corporate Debt | Restricted Stock | | Corporate Debt | Restricted Stock | ||||||
Balance of Recurring Level 3 assets at January 1 |
| $ | 6,488 | $ | — |
| $ | 7,979 | $ | — | ||
Activity | ||||||||||||
Transfers from Corporate debt to Restricted stock, net | (3,163) | 3,163 | — | — | ||||||||
Reversal of valuation allowance | 1,199 | 1,625 | — | — | ||||||||
Transfers from Restricted Stock to Unrestricted Stock | — | (3,000) | — | — | ||||||||
Unrealized holding gains included in other comprehensive income | 399 | — | 263 | — | ||||||||
Transfers into Level 3 | 1,785 | — | — | — | ||||||||
Principal Payments | — | — | (213) | — | ||||||||
Unrealized holding gains (losses) included in net income |
| — | 1,692 |
| (1,541) | — | ||||||
Balance of recurring Level 3 assets at December 31 | $ | 6,708 | $ | 3,480 | $ | 6,488 | $ | — | ||||
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.
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, 2025 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: |
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Assets: |
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Debt securities available for sale: |
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U.S. Government sponsored entities | $ | 4,969 | $ | — | $ | 4,969 | $ | — | ||||
State and political subdivisions |
| 159 |
| — |
| 159 |
| — | ||||
Residential mortgage-backed securities |
| 11,752 |
| — |
| 11,752 |
| — | ||||
Asset backed securities | 22,000 | — | 22,000 | — | ||||||||
Corporate and other securities |
| 31,990 |
| — |
| 25,282 |
| 6,708 | ||||
Total debt securities available for sale | $ | 70,870 | $ | — | $ | 64,162 | $ | 6,708 | ||||
Equity securities, at fair value | $ | 16,569 | $ | 13,089 | $ | — | $ | 3,480 | ||||
Total equity securities | $ | 16,569 | $ | 13,089 | $ | — | $ | 3,480 | ||||
Interest rate swap agreements | $ | 157 | $ | — | $ | 157 | $ | — | ||||
Total swap agreements | $ | 157 | $ | — | $ | 157 | $ | — | ||||
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: |
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Assets: |
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Debt securities available for sale: |
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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, at fair value | $ | 9,850 | $ | 9,850 | $ | — | $ | — | ||||
Total equity securities | $ | 9,850 | $ | 9,850 | $ | — | $ | — | ||||
Interest rate swap agreements | $ | 742 | $ | — | $ | 742 | $ | — | ||||
Total swap agreements | $ | 742 | $ | — | $ | 742 | $ | — | ||||
There were no liabilities measured on a recurring basis as of December 31, 2025 and 2024.
Fair Value on a Nonrecurring Basis
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 and 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 $0.1 million and $1.0 million at December 31, 2025 and December 31, 2024, respectively.
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, 2025 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: |
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Financial assets: |
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Collateral-dependent loans | $ | 3,376 | $ | — | $ | — | $ | 3,376 | ||||
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: |
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Financial assets: |
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Collateral-dependent loans | $ | 6,520 | $ | — | $ | — | $ | 6,520 | ||||
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, 2025 and December 31, 2024 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could 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.
The following methods and assumptions were used to estimate the fair value of other financial instruments for which it is practicable to estimate that value:
Securities
The fair value of securities is based upon quoted market prices for similar or identical assets or other observable inputs (Level 2) or externally developed models that use unobservable inputs due to limited or no market activity of the instrument (Level 3).
Loans Held for Sale
The fair value of loans held for sale is estimated by using a market approach that includes significant other observable inputs.
Loans
The fair value of loans is estimated by discounting the future cash flows using current market rates that reflect the interest rate risk inherent in the loan, except for previously discussed 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.
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, 2025 | |||||||||||
Carrying | |||||||||||
(In thousands) | amount | | Level 1 | | Level 2 | | Level 3 | ||||
Financial assets: | |
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Debt securities held to maturity | $ | 36,576 | $ | — | $ | 30,405 | $ | — | |||
Loans held for sale |
| 9,490 |
| — |
| 10,041 |
| — | |||
Loans, net of allowance for credit losses |
| 2,502,881 |
| — |
| 2,466,691 |
| 3,376 | |||
Financial liabilities: |
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Deposits |
| 2,324,061 |
| — |
| 2,322,637 |
| — | |||
Borrowed funds and subordinated debentures |
| 266,084 |
| — |
| 266,769 |
| — | |||
December 31, 2024 | |||||||||||
Carrying | |||||||||||
(In thousands) | amount | | Level 1 | | Level 2 | | Level 3 | ||||
Financial assets: | |
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Debt securities held to maturity | $ | 41,294 | $ | — | $ | 33,814 | $ | — | |||
Loans held for sale |
| 12,163 |
| — |
| 12,896 |
| — | |||
Loans, net of allowance for credit losses |
| 2,221,707 |
| — |
| 2,152,080 |
| 6,520 | |||
Financial liabilities: |
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Deposits |
| 2,100,313 |
| — |
| 2,095,365 |
| — | |||
Borrowed funds and subordinated debentures |
| 230,814 |
| — |
| 230,576 |
| — | |||
Limitations
Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 7, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 11, 2022 | |
| 2020 | Mar 25, 2021 | |
| 2019 | Mar 4, 2020 | |
| 2018 | Mar 5, 2019 | |
| 2017 | Mar 2, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 4, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.