UNITY BANCORP INC /NJ/ Income Taxes Disclosure

11.  Income Taxes

Income taxes paid for the past two years are as follows:

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The components of the provision for income taxes for the past two years are as follows:

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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:

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*State taxes in New Jersey made up the majority (greater than 50%) of the tax effect in this category.

** The nontaxable or nondeductible items category includes items such as other non-deductible expenses. None of those items individually or in the aggregate exceeded the 5% quantitative threshold for separate disaggregation in the current year.

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, 2025 and 2024 are as follows:

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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 $1.2 million in 2025, compared to unrealized loss of $2.7 million in 2024. The after tax component related to the interest rate swaps was an unrealized gain of $0.1 million for 2025, compared to an unrealized gain of $0.5 million for 2024.

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, 2025, 2024 or 2023. The Company does not have an accrual for uncertain tax positions as of December 31, 2025, 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 2022 and thereafter are subject to future examination by tax authorities.