Unity Bancorp (UNTY) 8-K Results of Operations and Financial Condition

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800-618-BANK

www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

October 24, 2013 

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports 48.1% Increase in Quarterly Earnings

and 52.0% Increase in Year to Date Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.2 million, or $0.15 per diluted share, for the three months ended September 30, 2013, a 48.1% increase compared to $799 thousand, or $0.10 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.62% and 8.25%, respectively, compared to 0.60% and 5.74% for the same period a year ago. 

During the third quarter, Unity:

× Redeemed the remaining $10.3 million of preferred stock issued in connection with participation in the Treasury’s Capital Purchase Program (“CPP”) on July 3, 2013.

× Repurchased the warrants issued in connection with the CPP for $2.7 million.

× Realized record growth in commercial loans with a 15.6% increase since year-end 2012.

× Closed $37.5 million in residential mortgage loans for the third quarter and $122.9 million year-to-date. 

× Expanded the Small Business Administration (“SBA”) lending division with the addition of two new loan officers.

× Continued to reduce noninterest expense compared to the prior year and prior quarter periods.

× Although nonperforming loans increased, we reduced the number of delinquent loan accounts compared to the prior quarter and year-end periods. 

× Rang the closing bell at NASDAQ on August 22, 2013 commemorating Unity Bancorp’s 15th anniversary of listing on the exchange.

“This was a pivotal quarter for Unity,” reported James A. Hughes, President and CEO.  “We repaid the TARP, realized record loan and deposit growth, expanded net revenue and our earnings have increased substantially over prior periods.  I anticipate that these positive trends will continue for the foreseeable future.”

For the nine months ended September 30, 2013, net income available to common shareholders totaled $2.9 million, or $0.36 per diluted share, a 52.0% increase compared to $1.9 million or $0.24 per diluted share for the comparable period of 2012.  Return on average assets and average common equity for the nine month periods were 0.63% and 6.67%, respectively, compared to 0.51% and 4.61% for the same period a year ago. 

Net Interest Income

Compared to a year ago, net interest income decreased $156 thousand and $327 thousand for the three and nine month periods, respectively.  The net interest margin was 3.53% and 3.57% for the quarter and year-to-date periods, respectively.  While net interest income is lower than the prior year, on a linked quarter basis it has increased as lower deposit rates and increased commercial and residential mortgage loan volume have helped to offset lower yields on our securities and loan portfolios.  We expect net interest income to continue to expand in future quarters due to strong loan growth.   

Provision for Loan Losses

The provision for loan losses for the quarter ended September 30, 2013 was $600 thousand compared to $1.0 million for the prior year’s quarter, and for the nine month period ended September 30, 2013, the provision declined to $1.6 million from $3.2 million in the first nine months of 2012.  The reduced provision reflects a lower level of net charge-offs for the quarter and year-to-date periods. 

Noninterest Income

Noninterest income decreased $124 thousand to $1.7 million for the three months and $198 thousand to $5.1 million for the nine months ended September 30, 2013, compared to the same periods last year. The decreases during both periods were driven by lower sales volume and subsequent gains on residential mortgage loan sales, as we held a larger number of these loans in our portfolio.  These decreases were partially offset by increased gains on the sale of SBA loans due to a higher volume of loans sold.

During the quarter, $14.1 million in residential mortgage loans were sold at a gain of $314 thousand, compared to $30.1 million sold at a gain of $662 thousand during the prior year’s quarter.  For the nine month period, $62.6 million in residential mortgage loans were sold at a gain of $1.3 million, compared to $71.6 million sold at a gain of $1.5 million during the prior year’s period.  We do not anticipate the rise in interest rates to have a material impact on our residential mortgage origination volume.

SBA loan sales totaled $3.1 million with gains on sale of $280 thousand for the quarter compared to sales of $442 thousand and $46 thousand in gains during the prior year’s quarter.  For the nine month period, SBA loan sales totaled $6.3 million with gains on sale of $607 thousand compared to sales of $4.7 million and $427 thousand in gains during the prior year’s quarter.  With the addition of SBA loan officers this quarter we expect to see an increase in the volume of local SBA loan originations.

Noninterest Expense

Noninterest expense decreased $64 thousand to $5.9 million for the three months ended September 30, 2013, while year-to-date expense decreased $25 thousand to $18.1 million.  The decreases in each of these periods were the result of lower mortgage commissions as we held a larger portion of originated mortgages in our portfolio, reduced salary compensation from position vacancies and lower occupancy expense as a result of cost savings realized from the purchase of three of our previously leased locations.   Other notable expense fluctuations included an increase in other real estate owned (“OREO”) expenses during the quarter due to a property valuation adjustment, net loss on sales and property management expenses.   On a year-to-date basis, advertising expenses declined based on the timing of retail branch related promotions, loan collection costs remain elevated due to higher appraisal, insurance and other collection costs, and recruiting and director expenses increased.

Financial Condition

At September 30, 2013, total assets were $876.1 million, an increase of $56.4 million from the prior year end:

× Total loans increased $73.6 million or 12.5%, to $660.6 million at September 30, 2013. This growth came from our commercial and residential mortgage loan portfolios which increased $47.1 million and $41.0 million, respectively.  Future loan growth is expected in both of these portfolios, while the Company plans to continue shrinking it’s out of market SBA portfolio.

× Total deposits increased $78.4 million or 12.1%, to $727.1 million at September 30, 2013 due to growth in noninterest-bearing deposits, time deposits and interest-bearing demand deposits.  This increase included a $36 million short-term noninterest-bearing demand deposit account which is expected to decline by year-end.  Excluding this account, total deposits increased $42.4 million or 6.5 %.  Time deposits have increased $38.1 million from year-end, with the majority of this coming in the third quarter in response to a certificate of deposit (“CD”) promotion and the addition of brokered CDs.

× Shareholders’ equity was $55.9 million at September 30, 2013, a decrease of $21.6 million from year-end 2012, due primarily to the redemption of $20.6 million in preferred stock issued in connection with the CPP and repurchase of the related warrants for $2.7 million. 

× Book value per common share was $7.41 as of September 30, 2013.

× At September 30, 2013 the leverage, Tier I and Total Risk Based Capital ratios were 8.33%, 10.81% and 12.07% respectively, all in excess of the ratios required to be deemed “well-capitalized”. 

Credit Quality

× Nonperforming assets totaled $17.9 million at September 30, 2013 or 2.70% of total loans and OREO, compared to $19.3 million or 3.28% of total loans and OREO at year-end 2012. Nonperforming assets increased $3.8 million compared to the quarter-ended June 30, 2013, primarily due to the addition of a $3.0 million commercial real estate loan. Although nonperforming assets have increased, credit quality has improved as the number of delinquent loans has fallen. We are optimistic that we will continue to have further improvement in credit quality.

× OREO decreased $577 thousand to $1.2 million at September 30, 2013 due to the sale of 10 properties.

× The allowance for loan losses totaled $13.6 million at September 30, 2013 or 2.05% of total loans.

× Net charge-offs were $1.4 million for the three months ended September 30, 2013, compared to $2.0 million for the same period a year ago.  For the nine months ended September 30, 2013, net charge-offs were $2.8 million compared to $4.3 million for the prior year period.

× Troubled debt restructurings (“TDRs”) decreased $5.2 million from year-end to $9.5 million due to principal pay downs, a refinanced transaction and the addition of one loan.  At September 30, 2013, 81.0% of our TDRs were performing. 

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $876 million in assets and $727 million in deposits.  Unity Bank provides financial services to retail, corporate and small business customers through its 15 retail service centers located in Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County, Pennsylvania.  For additional information about Unity, visit our website at www.unitybank.com , or call 800- 618-BANK.

This news release contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated future financial performance.  These statements may be identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions.  These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to factors beyond the company’s control and could impede its ability to achieve these goals.  These factors include those items included in our Annual Report on Form 10-K under the heading “Item IA-Risk Factors” as well as general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, our ability to manage and reduce the level of our nonperforming assets, and results of regulatory exams, among other factors.

UNITY BANCORP, INC.

SUMMARY FINANCIAL HIGHLIGHTS

September 30, 2013

										September 30, 2013 vs.
										June 30, 2013		September 30, 2012
(In thousands, except percentages and per share amounts)	September 30, 2013			June 30, 2013			September 30, 2012			%		%
BALANCE SHEET DATA:
Total assets	$	876,101		$	824,575		$	802,675		6.2	%	9.1	%
Total deposits		727,112			628,369			633,126		15.7		14.8
Total loans		660,617			622,316			596,910		6.2		10.7
Total securities		106,906			111,269			106,437		(3.9)		0.4
Total shareholders' equity		55,939			68,287			76,387		(18.1)		(26.8)
Allowance for loan losses		(13,550)			(14,309)			(15,294)		5.3		11.4
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes	$	1,986		$	2,086		$	1,802		(4.8)		10.2
Provision for income taxes		684			739			606		(7.4)		12.9
Net income		1,302			1,347			1,196		(3.3)		8.9
Preferred stock dividends and discount accretion		119			465			397		(74.4)		(70.0)
Income available to common shareholders	$	1,183		$	882		$	799		34.1		48.1
Net income per common share - Basic (1)	$	0.16		$	0.12		$	0.11		33.3		45.5
Net income per common share - Diluted (1)	$	0.15		$	0.11		$	0.10		36.4		50.0
Return on average assets		0.62	%		0.67	%		0.60	%	(7.5)		3.3
Return on average equity (2)		8.25	%		6.11	%		5.74	%	35.0		43.7
Efficiency ratio		69.93	%		72.72	%		68.22	%	(3.8)		2.5
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes	$	5,810					$	4,660				24.7
Provision for income taxes		1,962						1,583				23.9
Net income		3,848						3,077				25.1
Preferred stock dividends and discount accretion		988						1,195				(17.3)
Income available to common shareholders	$	2,860					$	1,882				52.0
Net income per common share - Basic (1)	$	0.38					$	0.25				52.0
Net income per common share - Diluted (1)	$	0.36					$	0.24				50.0
Return on average assets		0.63	%					0.51	%			23.5
Return on average equity (2)		6.67	%					4.61	%			44.7
Efficiency ratio		72.17	%					71.20	%			1.4
SHARE INFORMATION:
Market price per share	$	7.46		$	7.10		$	6.13		5.1		21.7
Dividends paid	$	0.01		$	0.01		$	-		-		100.0
Book value per common share	$	7.41		$	7.70		$	7.52		(3.8)		(1.5)
Average diluted shares outstanding (QTD)		7,822			7,911			7,782		(1.1)		0.5
CAPITAL RATIOS:
Total equity to total assets		6.38	%		8.28	%		9.52	%	(22.9)		(33.0)
Leverage ratio		8.33	%		10.23	%		11.20	%	(18.6)		(25.6)
Tier 1 risk-based capital ratio		10.81	%		13.36	%		14.52	%	(19.1)		(25.6)
Total risk-based capital ratio		12.07	%		14.63	%		15.78	%	(17.5)		(23.5)
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	17,903		$	14,109		$	18,790		26.9		(4.7)
QTD net chargeoffs (annualized) to QTD average loans		0.84	%		0.22	%		1.32	%	281.8		(36.4)
Allowance for loan losses to total loans		2.05	%		2.30	%		2.56	%	(10.9)		(19.9)
Nonperforming assets to total loans and OREO		2.70	%		2.26	%		3.14	%	19.5		(14.0)
Nonperforming assets to total assets		2.04	%		1.71	%		2.34	%	19.3	%	(12.8)	%

(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

(2) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders' equity (excluding preferred stock).

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2013

							September 30, 2013 vs.
							December 31, 2012		September 30, 2012
(In thousands, except percentages)	September 30, 2013		December 31, 2012		September 30, 2012		%		%
ASSETS
Cash and due from banks	$	27,602	$	23,705	$	17,027	16.4	%	62.1	%
Federal funds sold and interest-bearing deposits		47,124		70,487		55,536	(33.1)		(15.1)
Cash and cash equivalents		74,726		94,192		72,563	(20.7)		3.0
Securities:
Securities available for sale		80,926		89,538		90,852	(9.6)		(10.9)
Securities held to maturity		25,980		21,515		15,585	20.8		66.7
Total securities		106,906		111,053		106,437	(3.7)		0.4
Loans:
SBA loans held for sale		5,893		6,937		7,708	(15.0)		(23.5)
SBA loans held to maturity		50,445		58,593		59,299	(13.9)		(14.9)
SBA 504 loans		37,041		41,438		41,771	(10.6)		(11.3)
Commercial loans		348,625		301,564		306,569	15.6		13.7
Residential mortgage loans		173,129		132,094		137,192	31.1		26.2
Consumer loans		45,484		46,410		44,371	(2.0)		2.5
Total loans		660,617		587,036		596,910	12.5		10.7
Allowance for loan losses		(13,550)		(14,758)		(15,294)	8.2		11.4
Net loans		647,067		572,278		581,616	13.1		11.3
Premises and equipment, net		15,671		12,062		12,016	29.9		30.4
Bank owned life insurance ("BOLI")		12,648		9,402		9,327	34.5		35.6
Deferred tax assets		6,880		5,954		6,221	15.6		10.6
Federal Home Loan Bank stock		3,952		3,989		3,989	(0.9)		(0.9)
Accrued interest receivable		3,131		3,298		3,478	(5.1)		(10.0)
Other real estate owned ("OREO")		1,249		1,826		1,456	(31.6)		(14.2)
Prepaid FDIC insurance		-		1,929		2,079	(100.0)		(100.0)
Goodwill and other intangibles		1,516		1,516		1,518	-		(0.1)
Other assets		2,355		2,231		1,975	5.6		19.2
Total assets	$	876,101	$	819,730	$	802,675	6.9	%	9.1	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits	$	163,617	$	114,424	$	105,529	43.0	%	55.0	%
Interest-bearing demand deposits		119,579		114,838		104,469	4.1		14.5
Savings deposits		280,892		294,533		295,567	(4.6)		(5.0)
Time deposits, under $100,000		95,990		76,994		78,104	24.7		22.9
Time deposits, $100,000 and over		67,034		47,971		49,457	39.7		35.5
Total deposits		727,112		648,760		633,126	12.1		14.8
Borrowed funds		75,000		75,000		75,000	-		-
Subordinated debentures		15,465		15,465		15,465	-		-
Accrued interest payable		430		434		464	(0.9)		(7.3)
Accrued expenses and other liabilities		2,155		2,561		2,233	(15.9)		(3.5)
Total liabilities		820,162		742,220		726,288	10.5		12.9
Shareholders' equity:
Cumulative perpetual preferred stock		-		20,115		19,968	(100.0)		(100.0)
Common stock		51,944		54,274		54,176	(4.3)		(4.1)
Retained earnings		4,408		1,788		1,028	146.5		328.8
Accumulated other comprehensive income (loss)		(413)		1,333		1,215	(131.0)		(134.0)
Total shareholders' equity		55,939		77,510		76,387	(27.8)		(26.8)
Total liabilities and shareholders' equity	$	876,101	$	819,730	$	802,675	6.9	%	9.1	%
Preferred shares		-		21		21
Issued and outstanding common shares		7,546		7,534		7,503

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

September 30, 2013

										September 30, 2013 vs.
	For the three months ended									June 30, 2013					September 30, 2012
(In thousands, except percentages and per share amounts)	September 30, 2013			June 30, 2013			September 30, 2012			$		%			$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	9		$	7		$	13		$	2		28.6	%	$	(4)		(30.8)	%
Federal Home Loan Bank stock		40			35			50			5		14.3			(10)		(20.0)
Securities:
Taxable		591			620			694			(29)		(4.7)			(103)		(14.8)
Tax-exempt		109			125			108			(16)		(12.8)			1		0.9
Total securities		700			745			802			(45)		(6.0)			(102)		(12.7)
Loans:
SBA loans		586			778			881			(192)		(24.7)			(295)		(33.5)
SBA 504 loans		411			441			647			(30)		(6.8)			(236)		(36.5)
Commercial loans		4,387			4,250			4,313			137		3.2			74		1.7
Residential mortgage loans		1,861			1,649			1,631			212		12.9			230		14.1
Consumer loans		480			496			534			(16)		(3.2)			(54)		(10.1)
Total loans		7,725			7,614			8,006			111		1.5			(281)		(3.5)
Total interest income		8,474			8,401			8,871			73		0.9			(397)		(4.5)
INTEREST EXPENSE
Interest-bearing demand deposits		90			90			108			-		-			(18)		(16.7)
Savings deposits		183			164			293			19		11.6			(110)		(37.5)
Time deposits		510			537			619			(27)		(5.0)			(109)		(17.6)
Borrowed funds and subordinated debentures		820			808			824			12		1.5			(4)		(0.5)
Total interest expense		1,603			1,599			1,844			4		0.3			(241)		(13.1)
Net interest income		6,871			6,802			7,027			69		1.0			(156)		(2.2)
Provision for loan losses		600			300			1,000			300		100.0			(400)		(40.0)
Net interest income after provision for loan losses		6,271			6,502			6,027			(231)		(3.6)			244		4.0
NONINTEREST INCOME
Branch fee income		398			348			383			50		14.4			15		3.9
Service and loan fee income		351			319			366			32		10.0			(15)		(4.1)
Gain on sale of SBA loans held for sale, net		280			86			46			194		225.6			234		508.7
Gain on sale of mortgage loans, net		314			547			662			(233)		(42.6)			(348)		(52.6)
BOLI income		100			75			74			25		33.3			26		35.1
Net security gains		34			108			7			(74)		(68.5)			27		385.7
Other income		173			175			236			(2)		(1.1)			(63)		(26.7)
Total noninterest income		1,650			1,658			1,774			(8)		(0.5)			(124)		(7.0)
NONINTEREST EXPENSE
Compensation and benefits		2,984			3,166			3,191			(182)		(5.7)			(207)		(6.5)
Occupancy		598			627			690			(29)		(4.6)			(92)		(13.3)
Processing and communications		598			562			544			36		6.4			54		9.9
Furniture and equipment		374			371			368			3		0.8			6		1.6
Professional services		210			234			196			(24)		(10.3)			14		7.1
Loan collection costs		188			228			182			(40)		(17.5)			6		3.3
OREO expenses		174			63			36			111		176.2			138		383.3
Deposit insurance		165			179			162			(14)		(7.8)			3		1.9
Advertising		218			181			181			37		20.4			37		20.4
Other expenses		426			463			449			(37)		(8.0)			(23)		(5.1)
Total noninterest expense		5,935			6,074			5,999			(139)		(2.3)			(64)		(1.1)
Income before provision for income taxes		1,986			2,086			1,802			(100)		(4.8)			184		10.2
Provision for income taxes		684			739			606			(55)		(7.4)			78		12.9
Net income		1,302			1,347			1,196			(45)		(3.3)			106		8.9
Preferred stock dividends and discount accretion		119			465			397			(346)		(74.4)			(278)		(70.0)
Income available to common shareholders	$	1,183		$	882		$	799		$	301		34.1	%	$	384		48.1	%
Effective tax rate		34.4	%		35.4	%		33.6	%
Net income per common share - Basic (1)	$	0.16		$	0.12		$	0.11
Net income per common share - Diluted (1)	$	0.15		$	0.11		$	0.10
Weighted average common shares outstanding - Basic		7,545			7,544			7,473
Weighted average common shares outstanding - Diluted		7,822			7,911			7,782

(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

September 30, 2013

	For the nine months ended September 30,				Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	2013		2012		$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	31	$	56	$	(25)		(44.6)	%
Federal Home Loan Bank stock		118		144		(26)		(18.1)
Securities:
Taxable		1,858		2,177		(319)		(14.7)
Tax-exempt		354		371		(17)		(4.6)
Total securities		2,212		2,548		(336)		(13.2)
Loans:
SBA loans		2,141		2,652		(511)		(19.3)
SBA 504 loans		1,503		2,098		(595)		(28.4)
Commercial loans		12,638		12,707		(69)		(0.5)
Residential mortgage loans		5,060		4,869		191		3.9
Consumer loans		1,485		1,624		(139)		(8.6)
Total loans		22,827		23,950		(1,123)		(4.7)
Total interest income		25,188		26,698		(1,510)		(5.7)
INTEREST EXPENSE
Interest-bearing demand deposits		281		368		(87)		(23.6)
Savings deposits		524		933		(409)		(43.8)
Time deposits		1,593		2,222		(629)		(28.3)
Borrowed funds and subordinated debentures		2,428		2,486		(58)		(2.3)
Total interest expense		4,826		6,009		(1,183)		(19.7)
Net interest income		20,362		20,689		(327)		(1.6)
Provision for loan losses		1,550		3,200		(1,650)		(51.6)
Net interest income after provision for loan losses		18,812		17,489		1,323		7.6
NONINTEREST INCOME
Branch fee income		1,093		1,131		(38)		(3.4)
Service and loan fee income		975		954		21		2.2
Gain on sale of SBA loans held for sale, net		607		427		180		42.2
Gain on sale of mortgage loans, net		1,339		1,526		(187)		(12.3)
BOLI income		246		220		26		11.8
Net security gains		367		514		(147)		(28.6)
Other income		505		558		(53)		(9.5)
Total noninterest income		5,132		5,330		(198)		(3.7)
NONINTEREST EXPENSE
Compensation and benefits		9,325		9,505		(180)		(1.9)
Occupancy		1,918		2,038		(120)		(5.9)
Processing and communications		1,720		1,631		89		5.5
Furniture and equipment		1,110		1,085		25		2.3
Professional services		634		598		36		6.0
Loan collection costs		594		453		141		31.1
OREO expenses		364		398		(34)		(8.5)
Deposit insurance		493		502		(9)		(1.8)
Advertising		519		630		(111)		(17.6)
Other expenses		1,457		1,319		138		10.5
Total noninterest expense		18,134		18,159		(25)		(0.1)
Income before provision for income taxes		5,810		4,660		1,150		24.7
Provision for income taxes		1,962		1,583		379		23.9
Net income		3,848		3,077		771		25.1
Preferred stock dividends and discount accretion		988		1,195		(207)		(17.3)
Income available to common shareholders	$	2,860	$	1,882	$	978		52.0	%
Effective tax rate		33.8		34.0
Net income per common share - Basic (1)	$	0.38		0.25
Net income per common share - Diluted (1)	$	0.36		0.24
Weighted average common shares outstanding - Basic		7,542		7,465
Weighted average common shares outstanding - Diluted		7,867		7,786

(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

September 30, 2013

	For the three months ended
	September 30, 2013							June 30, 2013
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	25,841	$	9		0.14	%	$	25,312	$	7		0.11	%
Federal Home Loan Bank stock		4,022		40		3.95			4,007		35		3.50
Securities:
Taxable		87,694		591		2.70			95,675		620		2.59
Tax-exempt		18,474		162		3.51			20,440		186		3.64
Total securities (A)		106,168		753		2.84			116,115		806		2.77
Loans:
SBA loans		59,755		586		3.92			63,007		778		4.94
SBA 504 loans		37,971		411		4.29			39,408		441		4.49
Commercial loans		335,404		4,387		5.19			315,128		4,250		5.41
Residential mortgage loans		163,805		1,861		4.54			143,835		1,649		4.59
Consumer loans		45,709		480		4.17			45,295		496		4.39
Total loans (B)		642,644		7,725		4.78			606,673		7,614		5.03
Total interest-earning assets	$	778,675	$	8,527		4.36	%	$	752,107	$	8,462		4.51	%
Noninterest-earning assets:
Cash and due from banks		24,367							22,866
Allowance for loan losses		(14,310)							(14,747)
Other assets		44,184							41,435
Total noninterest-earning assets		54,241							49,554
Total assets	$	832,916						$	801,661
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	115,085	$	90		0.31	%	$	116,414	$	90		0.31	%
Savings deposits		277,501		183		0.26			270,097		164		0.24
Time deposits		150,533		510		1.34			124,285		537		1.73
Total interest-bearing deposits		543,119		783		0.57			510,796		791		0.62
Borrowed funds and subordinated debentures		92,025		820		3.49			91,653		808		3.49
Total interest-bearing liabilities	$	635,144	$	1,603		0.99	%	$	602,449	$	1,599		1.06	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		137,711							122,635
Other liabilities		2,918							3,554
Total noninterest-bearing liabilities		140,629							126,189
Total shareholders' equity		57,143							73,023
Total liabilities and shareholders' equity	$	832,916						$	801,661
Net interest spread			$	6,924		3.37	%			$	6,863		3.45	%
Tax-equivalent basis adjustment				(53)							(61)
Net interest income			$	6,871						$	6,802
Net interest margin						3.53	%						3.66	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis.  They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 34 percent and applicable state rates.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued. 

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

September 30, 2013

	For the three months ended
	September 30, 2013							September 30, 2012
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	25,841	$	9		0.14	%	$	40,183	$	13		0.13	%
Federal Home Loan Bank stock		4,022		40		3.95			3,989		50		4.99
Securities:
Taxable		87,694		591		2.70			97,389		694		2.85
Tax-exempt		18,474		162		3.51			14,271		161		4.51
Total securities (A)		106,168		753		2.84			111,660		855		3.06
Loans:
SBA loans		59,755		586		3.92			66,484		881		5.30
SBA 504 loans		37,971		411		4.29			44,583		647		5.77
Commercial loans		335,404		4,387		5.19			307,090		4,313		5.59
Residential mortgage loans		163,805		1,861		4.54			136,568		1,631		4.78
Consumer loans		45,709		480		4.17			46,116		534		4.61
Total loans (B)		642,644		7,725		4.78			600,841		8,006		5.31
Total interest-earning assets	$	778,675	$	8,527		4.36	%	$	756,673	$	8,924		4.70	%
Noninterest-earning assets:
Cash and due from banks		24,367							16,211
Allowance for loan losses		(14,310)							(16,508)
Other assets		44,184							40,138
Total noninterest-earning assets		54,241							39,841
Total assets	$	832,916						$	796,514
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	115,085	$	90		0.31	%	$	103,029	$	108		0.42	%
Savings deposits		277,501		183		0.26			287,054		293		0.41
Time deposits		150,533		510		1.34			131,356		619		1.87
Total interest-bearing deposits		543,119		783		0.57			521,439		1,020		0.78
Borrowed funds and subordinated debentures		92,025		820		3.49			90,465		824		3.56
Total interest-bearing liabilities	$	635,144	$	1,603		0.99	%	$	611,904	$	1,844		1.19	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		137,711							105,876
Other liabilities		2,918							3,469
Total noninterest-bearing liabilities		140,629							109,345
Total shareholders' equity		57,143							75,265
Total liabilities and shareholders' equity	$	832,916						$	796,514
Net interest spread			$	6,924		3.37	%			$	7,080		3.51	%
Tax-equivalent basis adjustment				(53)							(53)
Net interest income			$	6,871						$	7,027
Net interest margin						3.53	%						3.72	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis.  They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 34 percent and applicable state rates.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

UNITY BANCORP, INC.

YEAR TO DATE NET INTEREST MARGIN

September 30, 2013

	For the nine months ended
	September 30, 2013							September 30, 2012
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	37,760	$	31		0.11	%	$	45,206	$	56		0.17	%
Federal Home Loan Bank stock		4,006		118		3.94			4,023		144		4.78
Securities:
Taxable		94,431		1,858		2.62			101,955		2,177		2.85
Tax-exempt		19,130		525		3.66			15,886		550		4.62
Total securities (A)		113,561		2,383		2.80			117,841		2,727		3.08
Loans:
SBA loans		62,695		2,141		4.55			69,162		2,652		5.11
SBA 504 loans		39,493		1,503		5.09			47,687		2,098		5.88
Commercial loans		318,554		12,638		5.30			298,279		12,707		5.69
Residential mortgage loans		147,944		5,060		4.56			134,353		4,869		4.83
Consumer loans		45,703		1,485		4.34			46,459		1,624		4.67
Total loans (B)		614,389		22,827		4.96			595,940		23,950		5.36
Total interest-earning assets	$	769,716	$	25,359		4.40	%	$	763,010	$	26,877		4.70	%
Noninterest-earning assets:
Cash and due from banks		22,340							16,088
Allowance for loan losses		(14,682)							(16,758)
Other assets		41,198							40,068
Total noninterest-earning assets		48,856							39,398
Total assets	$	818,572						$	802,408
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	116,709	$	281		0.32	%	$	107,437	$	368		0.46	%
Savings deposits		280,973		524		0.25			280,459		933		0.44
Time deposits		132,607		1,593		1.61			142,263		2,222		2.09
Total interest-bearing deposits		530,289		2,398		0.61			530,159		3,523		0.89
Borrowed funds and subordinated debentures		91,387		2,428		3.50			90,465		2,486		3.61
Total interest-bearing liabilities	$	621,676	$	4,826		1.03	%	$	620,624	$	6,009		1.29	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		124,539							104,145
Other liabilities		3,237							3,386
Total noninterest-bearing liabilities		127,776							107,531
Total shareholders' equity		69,120							74,253
Total liabilities and shareholders' equity	$	818,572						$	802,408
Net interest spread			$	20,533		3.37	%			$	20,868		3.41	%
Tax-equivalent basis adjustment				(171)							(179)
Net interest income			$	20,362						$	20,689
Net interest margin						3.57	%						3.65	%

(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis.  They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 34 percent and applicable state rates.

(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.

UNITY BANCORP, INC.

QUARTERLY ALLOWANCE FOR LOAN LOSSES AND LOAN QUALITY SCHEDULES

September 30, 2013

Amounts in thousands, except percentages	September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	14,309		$	14,345		$	14,758		$	15,294		$	16,284
Provision for loan losses charged to expense		600			300			650			800			1,000
		14,909			14,645			15,408			16,094			17,284
Less: Chargeoffs
SBA loans		211			167			570			251			254
SBA 504 loans		590			200			200			-			481
Commercial loans		253			200			375			1,190			1,428
Residential mortgage loans		125			-			125			152			65
Consumer loans		229			-			59			-			31
Total chargeoffs		1,408			567			1,329			1,593			2,259
Add: Recoveries
SBA loans		12			8			137			22			195
SBA 504 loans		-			154			25			50			15
Commercial loans		24			65			101			184			58
Residential mortgage loans		13			2			2			-			-
Consumer loans		-			2			1			1			1
Total recoveries		49			231			266			257			269
Net chargeoffs		1,359			336			1,063			1,336			1,990
Balance, end of period	$	13,550		$	14,309		$	14,345		$	14,758		$	15,294
LOAN QUALITY INFORMATION:
Nonperforming loans (1)	$	16,654		$	13,357		$	14,904		$	17,468		$	17,334
Other real estate owned ("OREO")		1,249			752			1,052			1,826			1,456
Nonperforming assets		17,903			14,109			15,956			19,294			18,790
Less:  Amount guaranteed by SBA		592			736			1,863			1,849			566
Net nonperforming assets	$	17,311		$	13,373		$	14,093		$	17,445		$	18,224
Loans 90 days past due & still accruing	$	861		$	429		$	632		$	109		$	1,630
Performing Troubled Debt Restructurings (TDRs)	$	7,705		$	10,649		$	15,068		$	13,576		$	17,250
(1) Nonperforming TDRs included above		1,765			1,658			1,084			1,087			1,628
Total TDRs	$	9,470		$	12,307		$	16,152		$	14,663		$	18,878
Allowance for loan losses to:
Total loans at quarter end		2.05	%		2.30	%		2.40	%		2.51	%		2.56	%
Nonperforming loans (1)		81.36			107.13			96.25			84.49			88.23
Nonperforming assets		75.69			101.42			89.90			76.49			81.39
Net nonperforming assets		78.27			107.00			101.79			84.60			83.92
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans		1.32	%		1.01	%		2.69	%		1.37	%		0.35	%
SBA 504 loans		6.16			0.47			1.73			(0.48)			4.16
Commercial loans		0.27			0.17			0.36			1.31			1.77
Residential mortgage loans		0.27			(0.01)			0.37			0.45			0.19
Consumer loans		1.99			(0.02)			0.51			(0.01)			0.26
Total loans		0.84	%		0.22	%		0.73	%		0.90	%		1.32	%
Nonperforming loans to total loans		2.52	%		2.15	%		2.50	%		2.98	%		2.90	%
Nonperforming loans and TDRs to total loans		3.69			3.86			5.02			5.29			5.79
Nonperforming assets to total loans and OREO		2.70			2.26			2.67			3.28			3.14
Nonperforming assets to total assets		2.04			1.71			1.93			2.35			2.34

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

September 30, 2013

(In thousands, except percentages and per share amounts)	September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012
SUMMARY OF INCOME:
Total interest income	$	8,474		$	8,401		$	8,313		$	8,502		$	8,871
Total interest expense		1,603			1,599			1,624			1,765			1,844
Net interest income		6,871			6,802			6,689			6,737			7,027
Provision for loan losses		600			300			650			800			1,000
Net interest income after provision for loan losses		6,271			6,502			6,039			5,937			6,027
Total noninterest income		1,650			1,658			1,825			2,008			1,774
Total noninterest expense		5,935			6,074			6,126			6,135			5,999
Income before provision for income taxes		1,986			2,086			1,738			1,810			1,802
Provision for income taxes		684			739			538			643			606
Net income		1,302			1,347			1,200			1,167			1,196
Preferred stock dividends and discount accretion		119			465			404			408			397
Income available to common shareholders	$	1,183		$	882		$	796		$	759		$	799
Net income per common share - Basic (1)	$	0.16		$	0.12		$	0.11		$	0.10		$	0.11
Net income per common share - Diluted (1)	$	0.15		$	0.11		$	0.10		$	0.10		$	0.10
COMMON SHARE DATA:
Market price per share	$	7.46		$	7.10		$	6.51		$	6.24		$	6.13
Dividends paid	$	0.01		$	0.01		$	-		$	-		$	-
Book value per common share	$	7.41		$	7.70		$	7.67		$	7.62		$	7.52
Weighted average common shares outstanding - Basic		7,545			7,544			7,538			7,514			7,473
Weighted average common shares outstanding - Diluted		7,822			7,911			7,845			7,818			7,782
Issued and outstanding common shares		7,546			7,544			7,548			7,534			7,503
OPERATING RATIOS (Annualized):
Return on average assets		0.62	%		0.67	%		0.59	%		0.57	%		0.60	%
Return on average equity (2)		8.25			6.11			5.65			5.34			5.74
Efficiency ratio		69.93			72.72			73.91			70.66			68.22
BALANCE SHEET DATA:
Total assets	$	876,101		$	824,575		$	827,182		$	819,730		$	802,675
Total deposits		727,112			628,369			652,117			648,760			633,126
Total loans		660,617			622,316			596,571			587,036			596,910
Total securities		106,906			111,269			119,334			111,053			106,437
Total shareholders' equity		55,939			68,287			78,157			77,510			76,387
Allowance for loan losses		(13,550)			(14,309)			(14,345)			(14,758)			(15,294)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets		4.36	%		4.51	%		4.33	%		4.44	%		4.70	%
Interest-bearing liabilities		0.99			1.06			1.04			1.14			1.19
Net interest spread		3.37			3.45			3.29			3.30			3.51
Net interest margin		3.53			3.66			3.52			3.51			3.72
CREDIT QUALITY:
Nonperforming assets		17,903			14,109			15,956			19,294			18,790
QTD net chargeoffs (annualized) to QTD average loans		0.84	%		0.22	%		0.73	%		0.90	%		1.32	%
Allowance for loan losses to total loans		2.05			2.30			2.40			2.51			2.56
Nonperforming assets to total loans and OREO		2.70			2.26			2.67			3.28			3.14
Nonperforming assets to total assets		2.04			1.71			1.93			2.35			2.34
CAPITAL RATIOS AND OTHER:
Total equity to total assets		6.38	%		8.28	%		9.45	%		9.46	%		9.52	%
Leverage ratio		8.33			10.23			11.12			11.14			11.20
Tier 1 risk-based capital ratio		10.81			13.36			14.54			14.85			14.52
Total risk-based capital ratio		12.07			14.63			15.80			16.12			15.78
Number of banking offices		15			15			15			15			15
Number of ATMs		16			16			16			16			16
Number of employees		160			153			166			165			161

1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

2) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders' equity (excluding preferred stock).