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:

January 29, 2015

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports 34% Increase in Quarterly Earnings and

55% Increase in Annual Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.7 million, or $0.20 per diluted share, for the three months ended December 31, 2014, a 34.4% increase compared to net income available to common shareholders of $1.3 million, or $0.17 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.70% and 9.78%, respectively, compared to 0.57% and 8.87% for the same period a year ago. 

Highlights include:

· Robust loan growth of 12.2% since December 31, 2013 – 28.1% growth in consumer loans, 21.3% growth in residential mortgage loans and 10.6% growth in commercial loans.

· Strong deposit growth of 7.5% since December 31, 2013 due to savings and noninterest-bearing demand deposit growth.

· Core earnings growth – 11.7% increase in net interest income compared to the prior year’s quarter due to strong loan growth. 

· Net interest margin of 3.49% this quarter compared to 3.42% in the prior year’s quarter.

· Improved credit quality metrics due to a 25.6% decrease in nonperforming loans compared to the prior year’s quarter.  

“This was a year of solid performance for Unity,” reported James A. Hughes, President and CEO.  “Our strong loan and deposit growth in 2014 was the result of our commitment to being the best financial service provider in the markets that we serve.  Our exceptional employees provideremarkable service on a daily basis to ensure a loyal and happy customer base.  It is this commitment to excellence which drives our success.  We are in great markets, and havea wide array of financial productsthat are delivered by our highly motivated team of professionals.  In 2015, I am convinced that we will build on what we have achieved and that our financial performance will continue to significantly strengthen.  We are eagerly awaiting the challenges of tomorrow.” 

For the year ended December 31, 2014, net income available to common shareholders totaled $6.4 million, or $0.81 per diluted share, compared to $4.1 million or $0.53 per diluted share in the prior period.  Return on average assets and average common equity for the twelve month periods were 0.70% and 10.28%, respectively, compared to 0.61% and 7.22% for the same period a year ago. 

Net Interest Income

Net interest income increased $825 thousand to $7.9 million for the quarter and increased $2.7 million to $30.1 million for the year ended December 31, 2014 compared to the prior year’s periods.  The increases in each period were the result of momentum from the strong growth in commercial, residential mortgage and consumer loan volume.  Quarterly average commercial loans increased $44.3 million, average residential mortgage loans increased $40.1 million and consumer loans increased $12.2 million compared to the comparable quarter in 2013. The increase in interest income for the quarter and year to date was due to a larger loan portfolio, offset by a smaller investment portfolio and the increase in interest paid on deposits.

The net interest margin increased 7 basis points to 3.49% for the quarter ended December 31, 2014 compared to 3.42% the prior year’s quarter.  For the year, the net interest margin remained stable at 3.53%.  We expect net interest income to continue to expand in future quarters due to strong loan growth as our net interest margin remains stable.

Provision for Loan Losses

The provision for loan losses was $850 thousand for the quarter and $2.6 million for the year ended December 31, 2014, compared to $800 thousand and $2.4 million for the comparable prior year periods.  The increase was due to elevated levels of charge-offs. 

Noninterest Income

Noninterest income increased $189 thousand to $1.7 million for the three months ended December 31, 2014, compared to the same period last year.  Quarterly noninterest income increased due to gains on the sale of SBA loans and gains on the sale of securities, partially offset by declines in branch fee income.  For the year ended December 31, 2014, noninterest income increased $75 thousand or 1.1% to $6.7 million. 

SBA loan sales totaled $4.0 million with net gains on sale of $342 thousand for the quarter.  There were no loan sales during the fourth quarter 2013.  For the year, SBA loan sales totaled $10.4 million with net gains of $975 thousand in 2014 and $6.3 million with net gains on sale of $628 thousand in 2013. 

Quarterly gains on the sale of mortgage loans were stable.  During the fourth quarter, $14.1 million in residential mortgage loans were sold at a gain of $323 thousand, compared to $15.8 million sold at a gain of $312 thousand during the prior year’s quarter.  Approximately $4.0 million of the sold loans were previously originated 30 year fixed rate loans in our portfolio that were sold to reduce interest rate risk.  For the twelve month period, $59.2 million in residential mortgage loans were sold at a gain of $1.1 million, compared to $78.4 million sold at a gain of $1.7 million during the prior year’s period. All residential mortgage loans originated in 2014 that are held in portfolio for investment are adjustable rate mortgages or 15 year fully amortizing mortgages. 

Security gains totaled $55 thousand for the quarter, compared to $22 thousand in the prior year’s quarter.  For the year, security gains totaled $433 thousand versus $390 thousand in the prior year. 

Branch fee income, which consists of service charges and overdraft fees, declined $50 thousand and $36 thousand in the quarterly and annual periods, respectively.  The decreases were due to a lower volume of overdraft fees.

For the twelve months ended December 31, 2014, BOLI income increased $212 thousand due to a death benefit.

Service and loan fee income decreased for the quarter and year to date periods due to lower SBA loan servicing income as the volume of serviced loans declined.  During the twelve month period, reduced late charges, payoff and prepayment penalties were partially offset by increased processing fees. 

Noninterest Expense

Noninterest expense increased $183 thousand to $6.0 million for the quarter and $691 thousand to $24.7 million for the year ended December 31, 2014.  The primary drivers of the increases during both periods were compensation, processing and communications, furniture and equipment and advertising expenses.  Details of significant fluctuations are below.

· Compensation and benefits expenses increased in both periods primarily due to higher salary expense as we expanded our commercial lending staff, increased our year-end bonus accruals and realized increased benefits costs such as medical insurance. 

· Occupancy expenses declined in both periods. For the quarterly period, depreciation on leasehold improvements, snow removal and property repairs and maintenance fell compared to the prior year.  For the annual period, occupancy

expenses fell due to lower rental expense and leasehold improvement depreciation as a result of purchasing three of our previously leased locations.

· Processing and communications expenses continued to expand as we added products and services to remain competitive.   This category includes the rising costs of providing our customers with products and services such as electronic banking, online bill payment, and ATM/debit cards.  In addition, it includes the associated rise in data processing costs of our core banking system and electronic access expenses such as communication line costs. 

· Furniture and equipment expense increased during each period due to rising costs of technology such as computer network and software maintenance costs.

· Advertising expenses increased in both periods due to the use of television and radio media, core deposit promotional expenses as well as seasonal involvement in various community events. 

· OREO expenses decreased this quarter but remained slightly elevated for the twelve month period as we worked through the collection process and incurred expenses such as property maintenance and legal costs, as well as delinquent taxes and losses on sale.

Financial Condition

At December 31, 2014, total assets were $1.0 billion, an increase of $87.7 million from the prior year-end:

· Total securities decreased $27.4 million or 25.5%, from year-end to $80.1 million at December 31, 2014.  During the year, we strategically sold longer dated investments in order to reduce the portfolio’s average life and duration. 

· Total loans increased $83.1 million or 12.2%, from year-end 2013 to $761.8 million at December 31, 2014. The majority of the growth came in our residential mortgage, commercial and consumer loan portfolios which increased $38.8 million, $38.6 million and $13.0 million, respectively. 

· Total deposits increased $55.6 million or 7.5%, to $794.3 million at December 31, 2014, due primarily to an increase in savings, noninterest-bearing demand deposits and time deposits partially offset by a decline in interest-bearing demand deposits. Savings deposits increased due to our promotion during the third and fourth quarters while time deposits have increased in response to our 15 month and 5 year term promotions.  The noninterest-bearing demand deposits increase consists of commercial deposit customer relationships.

· Shareholders’ equity was $70.1 million at December 31, 2014, an increase of $13.0 million from year-end 2013, due primarily to the $6.2 million net proceeds from the rights offering plus year-to-date net income less the dividends paid.

· Book value per common share was $8.36 as of December 31, 2014.

· At December 31, 2014, the leverage, Tier I and Total Risk Based Capital ratios were 8.71%, 11.57% and 12.83% respectively, all in excess of the ratios required to be deemed “well-capitalized”. 

Credit Quality

· Nonperforming assets totaled $12.5 million at December 31, 2014, or 1.64% of total loans and OREO, compared to $15.9 million or 2.34% of total loans and OREO at year-end 2013.  During the quarter the Company transferred four loans into nonaccrual totaling approximately $3.1 million. 

· Accruing troubled debt restructurings (“TDRs”) decreased $3.9 million from year-end to $3.5 million.  This decrease was due to the transfer of three loans totaling approximately $3.0 million into nonaccrual status during the year and principal pay downs.  There have been no new TDRs recognized in 2014.     

· OREO increased $529 thousand to $1.2 million at December 31, 2014.

· The allowance for loan losses totaled $12.6 million at December 31, 2014, or 1.65% of total loans compared to $13.1 million and 1.94% at December 31, 2013.

· Net charge-offs were $1.2 million for the three months ended December 31, 2014, consistent with the same period a year ago.  For the twelve months ended December 31, 2014, net charge-offs were $3.1 million compared to $4.0 million at December 31, 2013.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.0 billion in assets and $794 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.

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

UNITY BANCORP, INC.

SUMMARY FINANCIAL HIGHLIGHTS

December 31, 2014

										December 31, 2014 vs.
										September 30, 2014		December 31, 2013
(In thousands, except percentages and per share amounts)	December 31, 2014		September 30, 2014				December 31, 2013			%		%
BALANCE SHEET DATA:
Total assets	$	1,008,788		$	969,593		$	921,118		4.0	%	9.5	%
Total deposits		794,341			781,920			738,698		1.6		7.5
Total loans		761,825			744,366			678,701		2.3		12.2
Total securities		80,082			86,879			107,514		(7.8)		(25.5)
Total shareholders' equity		70,123			68,384			57,173		2.5		22.7
Allowance for loan losses		(12,551)			(12,918)			(13,141)		(2.8)		(4.5)
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes	$	2,653		$	2,694		$	1,872		(1.5)		41.7
Provision for income taxes		952			808			606		17.8		57.1
Net income		1,701			1,886			1,266		(9.8)		34.4
Preferred stock dividends and discount accretion		-			-			-		-		-
Income available to common shareholders	$	1,701		$	1,886		$	1,266		(9.8)		34.4
Net income per common share - Basic (1)	$	0.20		$	0.24		$	0.17		(16.7)		17.6
Net income per common share - Diluted (1)	$	0.20		$	0.24		$	0.17		(16.7)		17.6
Return on average assets		0.70	%		0.82	%		0.57	%	(14.6)		22.8
Return on average equity (2)		9.78	%		11.89	%		8.87	%	(17.7)		10.3
Efficiency ratio		63.68	%		65.80	%		68.87	%	(3.2)		(7.5)
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes	$	9,553					$	7,682				24.4
Provision for income taxes		3,145						2,567				22.5
Net income		6,408						5,115				25.3
Preferred stock dividends and discount accretion		-						988				(100.0)
Income available to common shareholders	$	6,408					$	4,127				55.3
Net income per common share - Basic (1)	$	0.82					$	0.55				49.1
Net income per common share - Diluted (1)	$	0.81					$	0.53				52.8
Return on average assets		0.70	%					0.61	%			14.8
Return on average equity (2)		10.28	%					7.22	%			42.4
Efficiency ratio		67.90	%					71.34	%			(4.8)
SHARE INFORMATION:
Market price per share	$	9.43		$	9.63		$	7.66		(2.1)		23.1
Dividends paid	$	0.03		$	0.03		$	0.01		-		2.0
Book value per common share	$	8.36		$	8.17		$	7.55		2.3		10.7
Average diluted shares outstanding (QTD)		8,478			7,946			7,618		6.7		11.3
CAPITAL RATIOS:
Total equity to total assets		6.95	%		7.05	%		6.21	%	(1.4)		11.9
Leverage ratio		8.71	%		8.96	%		8.08	%	(2.8)		7.8
Tier 1 risk-based capital ratio		11.57	%		11.58	%		10.74	%	(0.1)		7.7
Total risk-based capital ratio		12.83	%		12.84	%		11.99	%	(0.1)		7.0
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	12,530		$	12,870		$	15,916		(2.6)		(21.3)

QTD net chargeoffs (annualized) to QTD average loans	0.63	%	0.27	%	0.72	%	133.3		(12.5)
Allowance for loan losses to total loans	1.65	%	1.74	%	1.94	%	(5.2)		(14.9)
Nonperforming assets to total loans and OREO	1.64	%	1.73	%	2.34	%	(5.2)		(29.9)
Nonperforming assets to total assets	1.24	%	1.33	%	1.73	%	(6.8)	%	(28.3)	%

(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

December 31, 2014

							December 31, 2014 vs.
							September 30, 2014		December 31, 2013
(In thousands, except percentages)	December 31, 2014		September 30, 2014		December 31, 2013		%		%
ASSETS
Cash and due from banks	$	29,351	$	29,384	$	24,272	(0.1)	%	20.9	%
Federal funds sold and interest-bearing deposits		100,470		72,205		75,132	39.1		33.7
Cash and cash equivalents		129,821		101,589		99,404	27.8		30.6
Securities:
Securities available for sale		60,073		66,054		81,133	(9.1)		(26.0)
Securities held to maturity		20,009		20,825		26,381	(3.9)		(24.2)
Total securities		80,082		86,879		107,514	(7.8)		(25.5)
Loans:
SBA loans held for sale		5,179		7,835		6,673	(33.9)		(22.4)
SBA loans held for investment		40,401		44,502		48,918	(9.2)		(17.4)
SBA 504 loans		34,322		34,152		31,564	0.5		8.7
Commercial loans		401,949		391,338		363,340	2.7		10.6
Residential mortgage loans		220,878		211,450		182,067	4.5		21.3
Consumer loans		59,096		55,089		46,139	7.3		28.1
Total loans		761,825		744,366		678,701	2.3		12.2
Allowance for loan losses		(12,551)		(12,918)		(13,141)	2.8		4.5
Net loans		749,274		731,448		665,560	2.4		12.6
Premises and equipment, net		15,231		15,420		15,672	(1.2)		(2.8)
Bank owned life insurance ("BOLI")		13,001		12,907		12,749	0.7		2.0
Deferred tax assets		5,860		6,066		6,752	(3.4)		(13.2)
Federal Home Loan Bank stock		6,032		4,907		5,392	22.9		11.9
Accrued interest receivable		3,518		3,422		3,272	2.8		7.5
Other real estate owned ("OREO")		1,162		1,658		633	(29.9)		83.6
Goodwill and other intangibles		1,516		1,516		1,516	-		-
Other assets		3,291		3,781		2,654	(13.0)		24.0
Total assets	$	1,008,788	$	969,593	$	921,118	4.0	%	9.5	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits	$	152,785	$	149,272	$	136,035	2.4	%	12.3	%
Interest-bearing demand deposits		128,875		117,260		130,806	9.9		(1.5)
Savings deposits		300,348		292,108		266,503	2.8		12.7
Time deposits, under $100,000		113,119		115,143		108,258	(1.8)		4.5
Time deposits, $100,000 and over		99,214		108,137		97,096	(8.3)		2.2
Total deposits		794,341		781,920		738,698	1.6		7.5
Borrowed funds		125,000		100,000		107,000	25.0		16.8
Subordinated debentures		15,465		15,465		15,465	-		-
Accrued interest payable		474		476		454	(0.4)		4.4
Accrued expenses and other liabilities		3,385		3,348		2,328	1.1		45.4
Total liabilities		938,665		901,209		863,945	4.2		8.6
Shareholders' equity:
Common stock		58,785		58,638		52,051	0.3		12.9
Retained earnings		11,195		9,751		5,598	14.8		100.0
Accumulated other comprehensive income (loss)		143		(5)		(476)	2,960.0		130.0
Total shareholders' equity		70,123		68,384		57,173	2.5		22.7
Total liabilities and shareholders' equity	$	1,008,788	$	969,593	$	921,118	4.0	%	9.5	%
Issued and outstanding common shares		8,388		8,370		7,577

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

December 31, 2014

							December 31, 2014 vs.
	For the three months ended						September 30, 2014					December 31, 2013
(In thousands, except percentages and per share amounts)	December 31, 2014		September 30, 2014		December 31, 2013		$		%			$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	13	$	12	$	9	$	1		8.3	%	$	4		44.4	%
Federal Home Loan Bank stock		38		40		40		(2)		(5.0)			(2)		(5.0)
Securities:
Taxable		444		461		585		(17)		(3.7)			(141)		(24.1)
Tax-exempt		79		81		106		(2)		(2.5)			(27)		(25.5)
Total securities		523		542		691		(19)		(3.5)			(168)		(24.3)
Loans:
SBA loans		605		636		519		(31)		(4.9)			86		16.6
SBA 504 loans		425		419		408		6		1.4			17		4.2
Commercial loans		5,064		4,926		4,684		138		2.8			380		8.1
Residential mortgage loans		2,461		2,327		1,953		134		5.8			508		26.0
Consumer loans		673		589		462		84		14.3			211		45.7
Total loans		9,228		8,897		8,026		331		3.7			1,202		15.0
Total interest income		9,802		9,491		8,766		311		3.3			1,036		11.8
INTEREST EXPENSE
Interest-bearing demand deposits		112		98		102		14		14.3			10		9.8
Savings deposits		270		216		186		54		25.0			84		45.2
Time deposits		715		725		598		(10)		(1.4)			117		19.6
Borrowed funds and subordinated debentures		817		820		817		(3)		(0.4)			-		-
Total interest expense		1,914		1,859		1,703		55		3.0			211		12.4
Net interest income		7,888		7,632		7,063		256		3.4			825		11.7
Provision for loan losses		850		550		800		300		54.5			50		6.3
Net interest income after provision for loan losses		7,038		7,082		6,263		(44)		(0.6)			775		12.4
NONINTEREST INCOME
Branch fee income		362		388		412		(26)		(6.7)			(50)		(12.1)
Service and loan fee income		388		292		396		96		32.9			(8)		(2.0)
Gain on sale of SBA loans held for sale, net		342		295		21		47		15.9			321		1,528.6
Gain on sale of mortgage loans, net		323		263		312		60		22.8			11		3.5
Net security gains (2)		55		-		22		55		NM			33		150.0
Other income		190		615		308		(425)		(69.1)			(118)		(38.3)
Total noninterest income		1,660		1,853		1,471		(193)		(10.4)			189		12.8
NONINTEREST EXPENSE
Compensation and benefits		3,197		3,214		2,925		(17)		(0.5)			272		9.3
Occupancy		596		604		652		(8)		(1.3)			(56)		(8.6)
Processing and communications		615		667		588		(52)		(7.8)			27		4.6
Furniture and equipment		397		377		368		20		5.3			29		7.9
Professional services		131		159		194		(28)		(17.6)			(63)		(32.5)
Loan costs		211		225		229		(14)		(6.2)			(18)		(7.9)
OREO expenses		72		71		94		1		1.4			(22)		(23.4)
Deposit insurance		162		166		173		(4)		(2.4)			(11)		(6.4)
Advertising		269		291		228		(22)		(7.6)			41		18.0
Other expenses		395		467		411		(72)		(15.4)			(16)		(3.9)
Total noninterest expense		6,045		6,241		5,862		(196)		(3.1)			183		3.1
Income before provision for income taxes		2,653		2,694		1,872		(41)		(1.5)			781		41.7
Provision for income taxes		952		808		606		144		17.8			346		57.1
Net income		1,701		1,886		1,266		(185)		(9.8)			435		34.4
Preferred stock dividends and discount accretion		-		-		-		-		-			-		-
Income available to common shareholders	$	1,701	$	1,886	$	1,266	$	(185)		(9.8)	%	$	435		34.4	%

Effective tax rate		35.9	%		30.0	%		32.4	%
Net income per common share - Basic (1)	$	0.20		$	0.24		$	0.17
Net income per common share - Diluted (1)	$	0.20		$	0.24		$	0.17
Weighted average common shares outstanding - Basic		8,378			7,847			7,560
Weighted average common shares outstanding - Diluted		8,478			7,946			7,618

(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

December 31, 2014

	For the twelve months ended December 31,				Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	2014		2013		$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	44	$	39	$	5		12.8	%
Federal Home Loan Bank stock		165		159		6		3.8
Securities:
Taxable		2,183		2,443		(260)		(10.6)
Tax-exempt		355		460		(105)		(22.8)
Total securities		2,538		2,903		(365)		(12.6)
Loans:
SBA loans		2,467		2,660		(193)		(7.3)
SBA 504 loans		1,676		1,911		(235)		(12.3)
Commercial loans		19,329		17,322		2,007		11.6
Residential mortgage loans		8,898		7,013		1,885		26.9
Consumer loans		2,301		1,947		354		18.2
Total loans		34,671		30,853		3,818		12.4
Total interest income		37,418		33,954		3,464		10.2
INTEREST EXPENSE
Interest-bearing demand deposits		430		383		47		12.3
Savings deposits		856		710		146		20.6
Time deposits		2,777		2,191		586		26.7
Borrowed funds and subordinated debentures		3,243		3,245		(2)		(0.1)
Total interest expense		7,306		6,529		777		11.9
Net interest income		30,112		27,425		2,687		9.8
Provision for loan losses		2,550		2,350		200		8.5
Net interest income after provision for loan losses		27,562		25,075		2,487		9.9
NONINTEREST INCOME
Branch fee income		1,469		1,505		(36)		(2.4)
Service and loan fee income		1,260		1,370		(110)		(8.0)
Gain on sale of SBA loans held for sale, net		975		628		347		55.3
Gain on sale of mortgage loans, net		1,139		1,650		(511)		(31.0)
BOLI income		559		347		212		61.1
Net security gains		433		390		43		11.0
Other income		844		714		130		18.2
Total noninterest income		6,679		6,604		75		1.1
NONINTEREST EXPENSE
Compensation and benefits		12,750		12,251		499		4.1
Occupancy		2,478		2,571		(93)		(3.6)
Processing and communications		2,461		2,309		152		6.6
Furniture and equipment		1,510		1,478		32		2.2
Professional services		748		828		(80)		(9.7)
Loan costs		780		822		(42)		(5.1)
OREO expenses		485		458		27		5.9
Deposit insurance		677		666		11		1.7
Advertising		998		747		251		33.6
Other expenses		1,801		1,867		(66)		(3.5)
Total noninterest expense		24,688		23,997		691		2.9
Income before provision for income taxes		9,553		7,682		1,871		24.4
Provision for income taxes		3,145		2,567		578		22.5
Net income		6,408		5,115		1,293		25.3
Preferred stock dividends and discount accretion		-		988		(988)		(100.0)
Income available to common shareholders	$	6,408	$	4,127	$	2,281		55.3	%

Effective tax rate		32.9	%		33.4	%
Net income per common share - Basic (1)	$	0.82		$	0.55
Net income per common share - Diluted (1)	$	0.81		$	0.53
Weighted average common shares outstanding - Basic		7,856			7,547
Weighted average common shares outstanding - Diluted		7,945			7,810

(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

December 31, 2014

	For the three months ended
	December 31, 2014								September 30, 2014
	Average Balance		Interest			Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	50,929	$	13			0.10	%	$	38,754	$	12		0.12	%
Federal Home Loan Bank stock		3,807		38			3.96			3,948		40		4.02
Securities:
Taxable		71,542		444			2.48			75,685		461		2.44
Tax-exempt		13,226		117			3.54			13,348		119		3.57
Total securities (A)		84,768		561			2.65			89,033		580		2.61
Loans:
SBA loans		50,816		605			4.76			53,400		636		4.76
SBA 504 loans		34,533		425			4.88			34,310		419		4.85
Commercial loans		401,215		5,064			5.01			380,983		4,926		5.13
Residential mortgage loans		217,008		2,461			4.54			201,793		2,327		4.61
Consumer loans		57,923		673			4.61			53,000		589		4.41
Total loans (B)		761,495		9,228	��		4.82			723,486		8,897		4.89
Total interest-earning assets	$	900,999	$	9,840			4.35	%	$	855,221	$	9,529		4.43	%
Noninterest-earning assets:
Cash and due from banks		30,346								29,873
Allowance for loan losses		(13,074)								(12,980)
Other assets		43,577								44,656
Total noninterest-earning assets		60,849								61,549
Total assets	$	961,848							$	916,770
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	126,788	$	112			0.35	%	$	116,646	$	98		0.33	%
Savings deposits		298,166		270			0.36			271,356		216		0.32
Time deposits		219,866		715			1.29			221,584		725		1.30
Total interest-bearing deposits		644,820		1,097			0.68			609,586		1,039		0.68
Borrowed funds and subordinated debentures		91,009		817			3.51			91,574		820		3.50
Total interest-bearing liabilities	$	735,829	$	1,914			1.03	%	$	701,160	$	1,859		1.05	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		152,359								148,724
Other liabilities		4,616								3,921
Total noninterest-bearing liabilities		156,975								152,645
Total shareholders' equity		69,044								62,965
Total liabilities and shareholders' equity	$	961,848							$	916,770
Net interest spread			$	7,926			3.32	%			$	7,670		3.38	%
Tax-equivalent basis adjustment				(38)								(38)
Net interest income			$	7,888							$	7,632
Net interest margin							3.49	%						3.56	%

(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

December 31, 2014

	For the three months ended
	December 31, 2014							December 31, 2013
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	50,929	$	13		0.10	%	$	46,533	$	9		0.08	%
Federal Home Loan Bank stock		3,807		38		3.96			4,009		40		3.96
Securities:
Taxable		71,542		444		2.48			89,275		585		2.62
Tax-exempt		13,226		117		3.54			16,975		157		3.70
Total securities (A)		84,768		561		2.65			106,250		742		2.79
Loans:
SBA loans		50,816		605		4.76			55,536		519		3.74
SBA 504 loans		34,533		425		4.88			33,253		408		4.87
Commercial loans		401,215		5,064		5.01			356,939		4,684		5.21
Residential mortgage loans		217,008		2,461		4.54			176,880		1,953		4.42
Consumer loans		57,923		673		4.61			45,708		462		4.01
Total loans (B)		761,495		9,228		4.82			668,316		8,026		4.78
Total interest-earning assets	$	900,999	$	9,840		4.35	%	$	825,108	$	8,817		4.25	%
Noninterest-earning assets:
Cash and due from banks		30,346							23,877
Allowance for loan losses		(13,074)							(13,653)
Other assets		43,577							43,147
Total noninterest-earning assets		60,849							53,371
Total assets	$	961,848						$	878,479
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	126,788	$	112		0.35	%	$	122,977	$	102		0.33	%
Savings deposits		298,166		270		0.36			268,745		186		0.27
Time deposits		219,866		715		1.29			186,200		598		1.27
Total interest-bearing deposits		644,820		1,097		0.68			577,922		886		0.60
Borrowed funds and subordinated debentures		91,009		817		3.51			91,738		817		3.48
Total interest-bearing liabilities	$	735,829	$	1,914		1.03	%	$	669,660	$	1,703		0.99	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		152,359							149,252
Other liabilities		4,616							2,946
Total noninterest-bearing liabilities		156,975							152,198
Total shareholders' equity		69,044							56,621
Total liabilities and shareholders' equity	$	961,848						$	878,479
Net interest spread			$	7,926		3.32	%			$	7,114		3.26	%
Tax-equivalent basis adjustment				(38)							(51)
Net interest income			$	7,888						$	7,063
Net interest margin						3.49	%						3.42	%

(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

December 31, 2014

	For the twelve months ended
	December 31, 2014							December 31, 2013
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	44,900	$	44		0.10	%	$	39,971	$	39		0.10	%
Federal Home Loan Bank stock		3,972		165		4.15			4,007		159		3.97
Securities:
Taxable		81,334		2,183		2.68			93,132		2,443		2.62
Tax-exempt		14,493		526		3.63			18,587		681		3.66
Total securities (A)		95,827		2,709		2.82			111,719		3,124		2.79
Loans:
SBA loans		53,232		2,467		4.63			60,891		2,660		4.37
SBA 504 loans		33,754		1,676		4.97			37,920		1,911		5.04
Commercial loans		379,327		19,329		5.10			328,229		17,322		5.28
Residential mortgage loans		196,333		8,898		4.53			155,237		7,013		4.52
Consumer loans		51,188		2,301		4.50			45,705		1,947		4.26
Total loans (B)		713,834		34,671		4.86			627,982		30,853		4.92
Total interest-earning assets	$	858,533	$	37,589		4.38	%	$	783,679	$	34,175		4.37	%
Noninterest-earning assets:
Cash and due from banks		27,021							22,728
Allowance for loan losses		(13,124)							(14,423)
Other assets		44,312							41,688
Total noninterest-earning assets		58,209							49,993
Total assets	$	916,742						$	833,672
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	125,706	$	430		0.34	%	$	118,289	$	383		0.32	%
Savings deposits		274,395		856		0.31			277,891		710		0.26
Time deposits		214,984		2,777		1.29			146,115		2,191		1.50
Total interest-bearing deposits		615,085		4,063		0.66			542,295		3,284		0.61
Borrowed funds and subordinated debentures		91,230		3,243		3.55			91,475		3,245		3.55
Total interest-bearing liabilities	$	706,315	$	7,306		1.03	%	$	633,770	$	6,529		1.03	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		144,310							130,768
Other liabilities		3,764							3,164
Total noninterest-bearing liabilities		148,074							133,932
Total shareholders' equity		62,353							65,970
Total liabilities and shareholders' equity	$	916,742						$	833,672
Net interest spread			$	30,283		3.35	%			$	27,646		3.34	%
Tax-equivalent basis adjustment				(171)							(221)
Net interest income			$	30,112						$	27,425

Net interest margin 3.53  % 3.53  %

(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

December 31, 2014

Amounts in thousands, except percentages	December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014			December 31, 2013
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	12,918		$	12,858		$	12,807		$	13,141		$	13,550
Provision for loan losses charged to expense		850			550			550			600			800
		13,768			13,408			13,357			13,741			14,350
Less: Chargeoffs
SBA loans		569			232			199			53			128
SBA 504 loans		-			-			-			92			203
Commercial loans		377			72			134			454			564
Residential mortgage loans		362			201			5			172			125
Consumer loans		-			211			203			179			300
Total chargeoffs		1,308			716			541			950			1,320
Add: Recoveries
SBA loans		12			111			10			7			93
SBA 504 loans		-			-			-			-			3
Commercial loans		31			95			31			9			14
Residential mortgage loans		40			20			-			-			-
Consumer loans		8			-			1			-			1
Total recoveries		91			226			42			16			111
Net chargeoffs		1,217			490			499			934			1,209
Balance, end of period	$	12,551		$	12,918		$	12,858		$	12,807		$	13,141
LOAN QUALITY INFORMATION:
Nonperforming loans (1)	$	11,368		$	11,212		$	11,929		$	12,046		$	15,283
Other real estate owned ("OREO")		1,162			1,658			1,115			2,467			633
Nonperforming assets		12,530			12,870			13,044			14,513			15,916
Less:  Amount guaranteed by SBA		1,569			200			2,305			1,320			540
Net nonperforming assets	$	10,961		$	12,670		$	10,739		$	13,193		$	15,376
Loans 90 days past due & still accruing	$	890		$	-		$	-		$	5		$	19
Performing Troubled Debt Restructurings (TDRs)	$	3,548		$	4,194		$	6,965		$	7,363		$	7,452
(1) Nonperforming TDRs included in nonperforming loans		2,960			3,473			741			448			467
Total TDRs	$	6,508		$	7,667		$	7,706		$	7,811		$	7,919
Allowance for loan losses to:
Total loans at quarter end		1.65	%		1.74	%		1.81	%		1.87	%		1.94	%
Nonperforming loans (1)		110.41			115.22			107.79			106.32			85.98
Nonperforming assets		100.17			100.37			98.57			88.25			82.56
Net nonperforming assets		114.51			101.96			119.73			97.07			85.46
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans		4.35	%		0.90	%		1.40	%		0.34	%		0.25	%
SBA 504 loans		-			-			-			1.18			2.39
Commercial loans		0.34			(0.02)			0.11			0.50			0.61
Residential mortgage loans		0.59			0.36			0.01			0.39			0.28
Consumer loans		(0.05)			1.58			1.70			1.58			2.60
Total loans		0.63	%		0.27	%		0.29	%		0.56	%		0.72	%
Nonperforming loans to total loans		1.49	%		1.51	%		1.68	%		1.76	%		2.25	%
Nonperforming loans and TDRs to total loans		1.96			2.07			2.67			2.84			3.35
Nonperforming assets to total loans and OREO		1.64			1.73			1.84			2.11			2.34
Nonperforming assets to total assets		1.24			1.33			1.40			1.51			1.73

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

December 31, 2014

(In thousands, except percentages and per share amounts)	December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014			December 31, 2013
SUMMARY OF INCOME:
Total interest income	$	9,802		$	9,491		$	9,102		$	9,023		$	8,766
Total interest expense		1,914			1,859			1,797			1,736			1,703
Net interest income		7,888			7,632			7,305			7,287			7,063
Provision for loan losses		850			550			550			600			800
Net interest income after provision for loan losses		7,038			7,082			6,755			6,687			6,263
Total noninterest income		1,660			1,853			1,640			1,526			1,471
Total noninterest expense		6,045			6,241			6,144			6,258			5,862
Income before provision for income taxes		2,653			2,694			2,251			1,955			1,872
Provision for income taxes		952			808			723			662			606
Net income		1,701			1,886			1,528			1,293			1,266
Preferred stock dividends and discount accretion		-			-			-			-			-
Income available to common shareholders	$	1,701		$	1,886		$	1,528		$	1,293		$	1,266
Net income per common share - Basic (1)	$	0.20		$	0.24		$	0.20		$	0.17		$	0.17
Net income per common share - Diluted (1)	$	0.20		$	0.24		$	0.20		$	0.17		$	0.17
COMMON SHARE DATA:
Market price per share	$	9.43		$	9.63		$	9.28		$	7.95		$	7.66
Dividends paid	$	0.03		$	0.03		$	0.02		$	0.02		$	0.01
Book value per common share	$	8.36		$	8.17		$	7.95		$	7.74		$	7.55
Weighted average common shares outstanding - Basic		8,378			7,847			7,605			7,586			7,560
Weighted average common shares outstanding - Diluted		8,478			7,946			7,690			7,654			7,618
Issued and outstanding common shares		8,388			8,370			7,607			7,602			7,577
OPERATING RATIOS (Annualized):
Return on average assets		0.70	%		0.82	%		0.68	%		0.59	%		0.57	%
Return on average equity (2)		9.78			11.89			10.31			9.06			8.87
Efficiency ratio		63.68			65.80			70.81			71.91			68.87
BALANCE SHEET DATA:
Total assets	$	1,008,788		$	969,593		$	932,414		$	961,168		$	921,118
Total deposits		794,341			781,920			728,083			767,624			738,698
Total loans		761,825			744,366			708,889			683,951			678,701
Total securities		80,082			86,879			90,470			109,459			107,514
Total shareholders' equity		70,123			68,384			60,477			58,810			57,173
Allowance for loan losses		(12,551)			(12,918)			(12,858)			(12,807)			(13,141)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets		4.35	%		4.43	%		4.34	%		4.39	%		4.25	%
Interest-bearing liabilities		1.03			1.05			1.03			1.01			0.99
Net interest spread		3.32			3.38			3.31			3.38			3.26
Net interest margin		3.49			3.56			3.49			3.57			3.42
CREDIT QUALITY:
Nonperforming assets		12,530			12,870			13,044			14,513			15,916
QTD net chargeoffs (annualized) to QTD average loans		0.63	%		0.27	%		0.29	%		0.56	%		0.72	%
Allowance for loan losses to total loans		1.65			1.74			1.81			1.87			1.94
Nonperforming assets to total loans and OREO		1.64			1.73			1.84			2.11			2.34
Nonperforming assets to total assets		1.24			1.33			1.40			1.51			1.73
CAPITAL RATIOS AND OTHER:
Total equity to total assets		6.95	%		7.05	%		6.49	%		6.12	%		6.21	%

Leverage ratio	8.71	8.96	8.24	8.19	8.08
Tier 1 risk-based capital ratio	11.57	11.58	10.86	10.77	10.74
Total risk-based capital ratio	12.83	12.84	12.12	12.03	11.99
Number of banking offices	15	15	15	15	15
Number of ATMs	16	16	16	16	16
Number of employees	169	163	171	162	163

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).