What's driving UNTY's earnings volatility this year?

Unity Bancorp Inc. (UNTY) has demonstrated volatile earnings trends, with a notable increase in net income for the fourth quarter of 2024, but more modest growth for the full year compared to the previous year. Several factors contribute to this volatility:

1. **Quarterly Net Income Trends**: Unity Bancorp's net income has shown a seasonal fluctuation, with a significant spike in Q4 2024, reporting $11.51 million. This is a 17.76% increase from the previous year's same quarter, indicating a strong performance in the final months of 2024. However, when comparing the full year 2024 to the previous year, the net income growth rate is more modest at 4.4%.

|code|Ticker|Name|Date|Total Revenue|Net Income|Diluted EPS|market_code|
|---|---|---|---|---|---|---|---|
|UNTY|UNTY.O|Unity Bancorp|2024 Q1|2.5559E7|9586000|0.93|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q2|2.5457E7|9454000|0.93|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q3|2.7659E7|1.0905E7|1.07|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q4|2.8406E7|1.1505E7||185|

|code|Ticker|Name|Date|Net Income YoY|Total Revenue YoY|Diluted EPS YoY|market_code|
|---|---|---|---|---|---|---|---|
|UNTY|UNTY.O|Unity Bancorp|2024 Q1|-6.814425974530962|0.9160184783037866|-3.124999999999991|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q2|-2.5360824742268044|-0.7021102313063151|-2.105263157894727|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q3|9.597989949748744|8.14435408195183|10.309278350515473|185|
|UNTY|UNTY.O|Unity Bancorp|2024 Q4|17.75844421699079|6.789473684210526||185|

2. **Interest Income and Expenses**: The company's net interest income saw a notable increase, rising by $3.6 million to $98.6 million. This was attributed to higher yields on interest-earning assets. This shift in yields could be a result of market conditions or the bank's strategic adjustments in interest rates.
3. **Loan Growth and Deposits**: Unity Bancorp experienced substantial loan growth, with $43.3 million added in Q4 2024, representing a 1.95% increase quarter-over-quarter. Concurrently, deposits grew by $54.2 million, or 2.65% quarter-over-quarter, with noninterest-bearing demand deposits increasing by $16.8 million, or 3.97% quarter-over-quarter. This growth in loans and deposits is a positive indicator for the bank's asset base and liquidity, contributing to its earnings.
4. **Federal Reserve Interest Rate Cuts**: The Federal Reserve's decision to cut overnight interest rates by 50 basis points had a direct impact on the bank's interest income. While this could have initially led to lower interest income, the bank managed to increase its yield on loans, which contributed to the overall rise in net interest income.
5. **Economic Conditions and Uncertainties**: Despite the positive trends, the bank's earnings are subject to economic conditions and uncertainties. The Federal Reserve's outlook for a more hawkish stance in 2025 could potentially impact the bank's financial performance. Additionally, broader economic factors such as market volatility and regulatory changes can also influence the bank's earnings volatility.

In conclusion, Unity Bancorp's earnings volatility this year is primarily driven by seasonal fluctuations in net income, strategic adjustments in interest rates, loan and deposit growth, and external economic factors influenced by Federal Reserve policies.