$66.11
$147.33
bear $66.11
base $116.74
bull $147.33
margin of safety $60.00
market price* $56.40
Unity Bancorp is the holding company for Unity Bank, a community bank based in Clinton, New Jersey that gathers business, retail and municipal deposits and lends mainly to small and mid-sized businesses in central and northern New Jersey and Pennsylvania's Lehigh Valley: commercial real estate, construction, SBA 7(a) loans (part of which it sells for fee income), residential mortgages and consumer loans. At June 30, 2026 it had $3.19 billion of assets, $2.65 billion of loans net of reserves, $2.46 billion of deposits and $371.8 million of shareholders' equity, about $36.38 per diluted share. Capital is well above regulatory minimums: at year-end 2025 the company's leverage ratio was 12.72% and its common equity tier 1 ratio 14.45%. How we measure earnings. A bank's cash-flow statement is dominated by loans being made and sold, so we measure owner earnings as net income, plus the loan-loss provision, minus loans actually charged off, plus depreciation, minus stock compensation and branch and equipment spending. Deposits and borrowings are the raw material of a bank and the interest paid on them is an operating cost, so we value these after-interest earnings directly. Its $316 million of Federal Home Loan Bank advances are part of that funding and are already paid for in the earnings we value; nothing is subtracted a second time. The earnings level. On this measure the bank earned $2.10, $2.20, $2.77, $3.23, $3.70, $3.82, $4.06 and $6.09 per share in 2018 through 2025. The 2025 figure includes $5.2 million of gains on a stake in Patriot National Bancorp and a $2.8 million release of a reserve against that same holding, which will not repeat; without them 2025 was roughly $5.50. Net income in the four quarters from July 2025 through June 2026 was $58.6 million, about $5.74 per share, so the higher level has now held for four straight quarters. Because the bank has roughly doubled its equity since 2019, the per-share history understates what today's bank earns; measured against the equity that produced them, owner earnings have run between about 15% and 18% of equity every year since 2018. We set normal earning power at $5.70 per share, a 15.7% return on today's equity, below both the recent run rate and the 2025 reported return on equity of 18.1%. Owner earnings grew about 50% in 2025 (roughly a third excluding the Patriot items); the base case assumes no improvement in the return on equity from here. The cost of growth. A bank cannot grow loans without holding more capital, so every case deducts the earnings retained to keep capital level as the balance sheet grows. After year ten, earnings are held flat in dollars, supported by a deposit and lending franchise that has operated profitably for more than three decades; no further growth is assumed. Base case, $116.74 per share. Earnings start at $5.70 and the balance sheet grows 5% a year for five years, tapering to 2% by year ten, with a 15.7% return on equity throughout. This growth is credited because it is well under the pace the bank has actually sustained for a decade (equity has compounded from $78 million in 2015 to $372 million), through the 2020 pandemic and the 2023 deposit scare, funded from its own earnings. After retaining capital, owners receive about $3.88 per share in year one rising to $7.28 in year ten, and earnings level off at about $8.51. About $37.50 of the value comes from the first ten years and $79.24 from the years after. The bank owes nothing beyond the deposits and borrowings already paid for in those earnings, so the shares are worth $116.74. Bear case, $66.11 per share. This case is built from risks named in the filings plus one full credit cycle of the kind community banks went through in 2008-2010. Commercial real estate loans were $868.9 million, 232% of the bank's risk-based capital, at year-end 2025. Nonaccrual loans more than doubled in 2025 to $29.8 million (1.17% of loans), mostly from one $15.5 million commercial real estate relationship. Governmental and municipal deposits of $444.9 million, about a fifth of the total, can move, and New Jersey's governor has proposed a state-owned bank that could compete for them. In this case loan losses equal 4% of today's loan book, about $106 million before tax and $7.46 per share after tax, spread over three years, a loss rate in line with what commercial-real-estate-heavy community banks took in the 2008-2010 cycle and more than three times the bank's entire allowance today. Loan growth stops, and losing municipal funding to costlier borrowing permanently lowers the return on equity to 12%, about the bank's weakest level since 2018. Owner earnings fall to about $1.88 per share for three years and then settle at $4.37 with no growth. Annual pre-tax earnings near $80 million exceed the annual losses in this case, so the bank stays profitable and well capitalized and needs no new shares. The bear value is well above the bank's book value of about $36 per share because even through the downturn the franchise keeps earning a positive return on its capital from a low-cost deposit base; if losses were large enough to force a capital raise at depressed prices, value would be lower than this case shows. Bull case, $147.33 per share. Growth continues closer to the bank's demonstrated pace, 9% a year at first tapering to 4% by year ten, with the return on equity at 16.7%, between today's normal level and the 18.1% actually earned in 2025, and no margin expansion. Faster growth consumes more capital, so owners receive less early, about $2.80 per share in year one, but earnings reach about $11.88 per share after year ten. The shares are worth $147.33. This is higher than our previous bull estimate of about $137 because 2025's 18% return on equity and four quarters of earnings near $5.74 per share support a modestly higher return on new capital in the good outcome; our base and bear estimates are essentially unchanged. What could make this wrong. Credit is the main risk: commercial real estate concentration is high, and one relationship doubled nonaccrual loans last year. The earnings level also depends on keeping low-cost deposits, including the municipal balances that are secured by $273 million of Federal Home Loan Bank letters of credit. On the upside, the bank holds more capital than it needs, which could fund growth or buybacks. Margin-of-safety price. We are reasonably confident in the earnings level: the bank has earned 15-18% on its equity every year since 2018, and the last four quarters confirm the higher level without the Patriot gains. The worst plausible outcome is a regional commercial property bust with losses beyond our bear case that forces the bank to raise capital at a low price; with a 12.7% leverage ratio and $80 million a year of pre-tax earnings, the structure can absorb a loss of about 4% of loans without new shares, but not an unlimited one. If we are wrong about growth and the return on equity at the same time, the shares look worth roughly the $66 bear value. The price assumes about a four-year holding period, with a dividend of $0.58 a share (2025) paid along the way. From $60, if the base case plays out the shares would be worth about $129 in four years, which with dividends implies roughly a 21% annual return; even the bear outcome is worth slightly more than $60. The margin-of-safety price is $60 a share.