Unity Bancorp (UNTY) 8-K Unity Bancorp Reports

For Immediate Release	News Media & Financial Analyst Contact:
Unity Bancorp, Inc. (NSDQ: UNTY)	Alan J. Bedner, EVP and CFO
January 23, 2019	(908) 713-4308

Unity Bancorp Reports

Quarterly Earnings of $5.8 Million

Clinton, NJ, January 23, 2019 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported record net income of $5.8 million, or $0.53 per diluted share, for the quarter ended December 31, 2018, compared to $2.5 million, or $0.23 per diluted share, for the prior year’s quarter.  Approximately $912 thousand, or $0.08 per diluted share, of this increase is attributed to the lower effective tax rate due to the Tax Cuts and Jobs Act (the “Tax Act.”)

For the year ended December 31, 2018, Unity reported net income of $21.9 million, or $2.01 per diluted share, compared to $12.9 million, or $1.20 per diluted share for the prior year’s period. Approximately $3.2 million, or $0.29 per diluted share, of this increase is attributed to the lower effective tax rate due to the Tax Act.

Net income for the fourth quarter and year-ended December 31, 2017, includes an additional $1.7 million in income tax expense as a result of the Company adjusting its deferred income tax balances in response to the Tax Act which was signed into law on December 22, 2017.

Fourth Quarter Earnings Highlights

• Net interest income, our primary driver of earnings, increased $1.7 million to $14.2 million for the quarter ended December 31, 2018, compared to the prior year’s quarter, due to strong loan growth and an increased net interest margin.

• Net interest margin expanded 10 basis points to 4.01%, compared to 3.91% for the prior year’s quarter and increased 9 basis points from 3.92% in the prior sequential quarter ended September 30, 2018. The net interest margin is expected to remain stable.

• The provision for loan losses was $500 thousand for the quarters ended December 31, 2018 and 2017. Asset quality remains favorable.

• Noninterest income decreased $83 thousand to $2.0 million compared to the prior year’s quarter and $525 thousand compared to the prior sequential quarter. The quarter included $193 thousand in write-downs on equity securities.

• Noninterest expense increased $639 thousand to $8.3 million compared to the prior year’s quarter and decreased $533 thousand compared to the prior sequential quarter. The year-over-year increase was the result of expansion costs from two additional branches and increased headcount which resulted in higher compensation, benefits, occupancy and equipment expenses. The decline over the quarter ended September 30, 2018 was due to the two nonrecurring transactions last quarter: an $850 thousand supplemental executive retirement (“SERP”) benefit expense, partially offset by a $317 thousand recovery related to an OREO property.

• The effective tax rate declined to 21.0% for the quarter compared to 61.0% in the prior year’s quarter, as a result of the Tax Act, which was enacted December 22, 2017, and lowered the federal corporate tax rate. In addition, the prior year’s quarter included a $1.7 million adjustment to our deferred tax asset as a result of the Tax Act.

Balance Sheet Highlights

• Total loans increased $133.9 million, or 11.4%, from year-end 2017 to $1.3 billion at December 31, 2018. Residential mortgage, commercial and consumer loan portfolios increased $70.9 million, $65.2 million, and $14.0 million, respectively, partially offset by a decline of $16.3 million in SBA loans. Our pipeline remains strong. Mortgage originations for the year totaled $225.0 million and reached a record level.

• Total deposits increased $164.6 million, or 15.8%, from year-end 2017 to $1.2 billion at December 31, 2018. Growth in noninterest-bearing demand deposits was 5.5% from year-end 2017.

• Borrowed funds decreased $65.0 million to $210.0 million at December 31, 2018, due to decreased overnight borrowings, the maturity of a repo and FHLB advances being called.

• Shareholders’ equity was $138.5 million at December 31, 2018, an increase of $20.4 million from year-end 2017, due to retained net income offset in part by declines in other comprehensive income resulting from unrealized losses on securities and the payment of dividends.

• Book value per common share was $12.85 as of December 31, 2018.

• At December 31, 2018, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.90%, 11.40%, 12.24% and 13.49% respectively, all in excess of the ratios required to be deemed “well-capitalized.”

• Credit quality remains strong with nonperforming assets to total assets of 0.44% at December 31, 2018.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.6 billion in assets and $1.2 billion in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 19 retail service centers located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County in 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, 2018

													Dec 31, 2018 vs.
													Sep 30, 2018		Dec 31, 2017
(In thousands, except percentages and per share amounts)	Dec 31, 2018				Sep 30, 2018				Dec 31, 2017				%		%
BALANCE SHEET DATA:
Total assets	$	1,579,157			$	1,553,152			$	1,455,496			1.7	%	8.5	%
Total deposits	1,207,687				1,219,473				1,043,137				(1.0	)	15.8
Total loans	1,304,566				1,283,304				1,170,674				1.7		11.4
Total securities	63,732				63,399				69,800				0.5		(8.7	)
Total shareholders' equity	138,488				133,067				118,105				4.1		17.3
Allowance for loan losses	(15,488		)		(14,988		)		(13,556		)		3.3		14.3
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes	$	7,350			$	6,745			$	6,408			9.0		14.7
Provision for income taxes	1,547				1,255				2,175				23.3		(28.9	)
Impact of Tax Reform Bill	—				—				1,733				—		(100.0	)
Net income	$	5,803			$	5,490			$	2,500			5.7		132.1
Net income per common share - Basic	$	0.54			$	0.51			$	0.24			5.9		125.0
Net income per common share - Diluted	$	0.53			$	0.50			$	0.23			6.0		130.4
Performance ratios:
Return on average assets	1.56			%	1.50			%	0.74			%	4.0		110.8
Return on average equity	17.00			%	16.64			%	8.54			%	2.2		99.1
Efficiency ratio	50.69			%	54.86			%	52.45			%	(7.6	)	(3.4	)
Net interest margin	4.01			%	3.92			%	3.91			%	2.3		2.6
Noninterest expense to average assets	2.22			%	2.41			%	2.25			%	(7.9	)	(1.3	)
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes	$	27,307							$	22,433					21.7
Provision for income taxes	5,388								7,807						(31.0	)
Impact of Tax Reform Bill	—								1,733						(100.0	)
Net income	$	21,919							$	12,893					70.0
Net income per common share - Basic	$	2.04							$	1.22					67.2
Net income per common share - Diluted	$	2.01							$	1.20					67.5
Performance ratios:
Return on average assets	1.53			%					1.02			%			50.0
Return on average equity	17.10			%					11.47			%			49.1
Efficiency ratio	53.07			%					55.57			%			(4.5	)
Net interest margin	3.97			%					3.83			%			3.7
Noninterest expense to average assets	2.34			%					2.37			%			(1.3	)
SHARE INFORMATION:
Market price per share	$	20.76			$	22.90			$	19.75			(9.3	)	5.1
Dividends paid	$	0.07			$	0.07			$	0.06			—		16.7
Book value per common share	$	12.85			$	12.37			$	11.13			3.9		15.5
Average diluted shares outstanding (QTD)	10,935				10,936				10,794				—		1.3
CAPITAL RATIOS:
Total equity to total assets	8.77			%	8.57			%	8.11			%	2.3		8.1
Leverage ratio	9.90			%	9.74			%	9.37			%	1.6		5.7
Common equity tier 1 risk-based capital ratio	11.40			%	11.15			%	10.81			%	2.2		5.5
Tier 1 risk-based capital ratio	12.24			%	12.00			%	11.75			%	2.0		4.2
Total risk-based capital ratio	13.49			%	13.25			%	12.87			%	1.8		4.8

CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	6,929		$	6,251		$	3,420		10.8		102.6
QTD net chargeoffs (annualized) to QTD average loans	—		%	0.05		%	0.02		%	(100.0	)	(100.0	)
Allowance for loan losses to total loans	1.19		%	1.17		%	1.16		%	1.7		2.6
Nonperforming assets to total loans and OREO	0.53		%	0.49		%	0.29		%	8.2		82.8
Nonperforming assets to total assets	0.44		%	0.40		%	0.23		%	10.0	%	91.3	%

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2018

										Dec 31, 2018 vs.
										Sep 30, 2018		Dec 31, 2017
(In thousands, except percentages)	Dec 31, 2018			Sep 30, 2018			Dec 31, 2017			%		%
ASSETS
Cash and due from banks	$	20,028		$	23,217		$	23,701		(13.7	) %	(15.5	) %
Federal funds sold, interest-bearing deposits and repos	125,487			121,339			126,553			3.4		(0.8	)
Cash and cash equivalents	145,515			144,556			150,254			0.7		(3.2	)
Securities:
Securities available for sale	46,713			46,874			52,287			(0.3	)	(10.7	)
Securities held to maturity	14,875			15,325			16,307			(2.9	)	(8.8	)
Equity securities	2,144			1,200			1,206			78.7		77.8
Total securities	63,732			63,399			69,800			0.5		(8.7	)
Loans:
SBA loans held for sale	11,171			13,029			22,810			(14.3	)	(51.0	)
SBA loans held for investment	39,333			41,051			43,999			(4.2	)	(10.6	)
Commercial loans	694,102			697,075			628,865			(0.4	)	10.4
Residential mortgage loans	436,056			413,652			365,145			5.4		19.4
Consumer loans	123,904			118,497			109,855			4.6		12.8
Total loans	1,304,566			1,283,304			1,170,674			1.7		11.4
Allowance for loan losses	(15,488		)	(14,988		)	(13,556		)	3.3		14.3
Net loans	1,289,078			1,268,316			1,157,118			1.6		11.4
Premises and equipment, net	23,371			23,416			23,470			(0.2	)	(0.4	)
Bank owned life insurance ("BOLI")	24,710			24,544			24,227			0.7		2.0
Deferred tax assets	5,350			5,310			4,017			0.8		33.2
Federal Home Loan Bank ("FHLB") stock	10,795			9,445			12,863			14.3		(16.1	)
Accrued interest receivable	6,399			6,412			5,447			(0.2	)	17.5
Other real estate owned ("OREO")	56			56			426			—		(86.9	)
Goodwill	1,516			1,516			1,516			—		—
Other assets	8,635			6,182			6,358			39.7		35.8
Total assets	$	1,579,157		$	1,553,152		$	1,455,496		1.7	%	8.5	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	270,152		$	271,321		$	256,119		(0.4	) %	5.5	%
Interest-bearing demand	185,792			180,189			164,997			3.1		12.6
Savings	394,727			408,927			396,557			(3.5	)	(0.5	)
Time Deposits	357,016			359,036			225,464			(0.6	)	58.3
Total deposits	1,207,687			1,219,473			1,043,137			(1.0	)	15.8
Borrowed funds	210,000			180,000			275,000			16.7		(23.6	)
Subordinated debentures	10,310			10,310			10,310			—		—
Accrued interest payable	406			506			436			(19.8	)	(6.9	)
Accrued expenses and other liabilities	12,266			9,796			8,508			25.2		44.2
Total liabilities	1,440,669			1,420,085			1,337,391			1.4		7.7
Shareholders' equity:
Common stock	88,484			88,149			86,782			0.4		2.0
Retained earnings	50,161			45,121			31,117			11.2		61.2
Accumulated other comprehensive (loss)	(157		)	(203		)	206			NM		NM
Total shareholders' equity	138,488			133,067			118,105			4.1		17.3
Total liabilities and shareholders' equity	$	1,579,157		$	1,553,152		$	1,455,496		1.7	%	8.5	%
Issued and outstanding common shares	10,780			10,756			10,615

NM=Not meaningful

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

December 31, 2018

										Dec 31, 2018 vs.
	For the three months ended									Sep 30, 2018					Dec 31, 2017
(In thousands, except percentages and per share amounts)	Dec 31, 2018			Sep 30, 2018			Dec 31, 2017			$			%		$			%
INTEREST INCOME
Federal funds sold, interest-bearing deposits and repos	$	210		$	187		$	257		$	23		12.3	%	$	(47	)	(18.3	)%
FHLB stock	104			101			119			3			3.0		(15		)	(12.6	)
Securities:
Taxable	466			465			488			1			0.2		(22		)	(4.5	)
Tax-exempt	28			28			31			—			—		(3		)	(9.7	)
Total securities	494			493			519			1			0.2		(25		)	(4.8	)
Loans:
SBA loans	974			1,050			1,023			(76		)	(7.2	)	(49		)	(4.8	)
Commercial loans	9,167			8,784			7,590			383			4.4		1,577			20.8
Residential mortgage loans	5,172			4,803			4,046			369			7.7		1,126			27.8
Consumer loans	1,939			1,776			1,490			163			9.2		449			30.1
Total loans	17,252			16,413			14,149			839			5.1		3,103			21.9
Total interest income	18,060			17,194			15,044			866			5.0		3,016			20.0
INTEREST EXPENSE
Interest-bearing demand deposits	389			330			183			59			17.9		206			112.6
Savings deposits	1,103			1,049			744			54			5.1		359			48.3
Time deposits	1,861			1,739			837			122			7.0		1,024			122.3
Borrowed funds and subordinated debentures	543			509			780			34			6.7		(237		)	(30.4	)
Total interest expense	3,896			3,627			2,544			269			7.4		1,352			53.1
Net interest income	14,164			13,567			12,500			597			4.4		1,664			13.3
Provision for loan losses	500			500			500			—			—		—			—
Net interest income after provision for loan losses	13,664			13,067			12,000			597			4.6		1,664			13.9
NONINTEREST INCOME
Branch fee income	413			357			354			56			15.7		59			16.7
Service and loan fee income	690			465			628			225			48.4		62			9.9
Gain on sale of SBA loans held for sale, net	298			253			268			45			17.8		30			11.2
Gain on sale of mortgage loans, net	277			597			343			(320		)	(53.6	)	(66		)	(19.2	)
BOLI income	165			464			181			(299		)	(64.4	)	(16		)	(8.8	)
Net security (losses) gains	(193		)	2			(7		)	(195		)	(9,750.0	)	(186		)	(2,657.1	)
Other income	304			341			270			(37		)	(10.9	)	34			12.6
Total noninterest income	1,954			2,479			2,037			(525		)	(21.2	)	(83		)	(4.1	)
NONINTEREST EXPENSE
Compensation and benefits	4,845			5,704			4,455			(859		)	(15.1	)	390			8.8
Occupancy	681			675			591			6			0.9		90			15.2
Processing and communications	716			709			659			7			1.0		57			8.6
Furniture and equipment	616			586			542			30			5.1		74			13.7
Professional services	252			270			298			(18		)	(6.7	)	(46		)	(15.4	)
Loan collection & OREO expenses (recoveries)	31			(331		)	(30		)	362			109.4		61			203.3
Other loan (recoveries) expenses	(2		)	51			38			(53		)	(103.9	)	(40		)	(105.3	)
Deposit insurance	189			191			170			(2		)	(1.0	)	19			11.2
Advertising	360			370			321			(10		)	(2.7	)	39			12.1
Director fees	169			175			141			(6		)	(3.4	)	28			19.9
Other expenses	411			401			444			10			2.5		(33		)	(7.4	)
Total noninterest expense	8,268			8,801			7,629			(533		)	(6.1	)	639			8.4
Income before provision for income taxes	7,350			6,745			6,408			605			9.0		942			14.7
Provision for income taxes	1,547			1,255			2,175			292			23.3		(628		)	(28.9	)
Impact of Tax Reform Bill	—			—			1,733			—			—		(1,733		)	(100.0	)

Net income	$	5,803		$	5,490		$	2,500		$	313	5.7	%	$	3,303	132.1	%
Effective tax rate	21.0		%	18.6		%	61.0		%
Net income per common share - Basic	$	0.54		$	0.51		$	0.24
Net income per common share - Diluted	$	0.53		$	0.50		$	0.23
Weighted average common shares outstanding - Basic	10,765			10,743			10,604
Weighted average common shares outstanding - Diluted	10,935			10,936			10,794

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

December 31, 2018

	For the twelve months ended December 31,						Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	2018			2017			$			%
INTEREST INCOME
Federal funds sold, interest-bearing deposits and repos	$	773		$	851		$	(78	)	(9.2	)%
FHLB stock	462			370			92			24.9
Securities:
Taxable	1,907			2,029			(122		)	(6.0	)
Tax-exempt	117			159			(42		)	(26.4	)
Total securities	2,024			2,188			(164		)	(7.5	)
Loans:
SBA loans	4,338			3,805			533			14.0
Commercial loans	33,886			28,150			5,736			20.4
Residential mortgage loans	18,837			14,650			4,187			28.6
Consumer loans	6,943			5,296			1,647			31.1
Total loans	64,004			51,901			12,103			23.3
Total interest income	67,263			55,310			11,953			21.6
INTEREST EXPENSE
Interest-bearing demand deposits	1,202			665			537			80.8
Savings deposits	3,871			2,738			1,133			41.4
Time deposits	5,903			3,278			2,625			80.1
Borrowed funds and subordinated debentures	2,540			2,772			(232		)	(8.4	)
Total interest expense	13,516			9,453			4,063			43.0
Net interest income	53,747			45,857			7,890			17.2
Provision for loan losses	2,050			1,650			400			24.2
Net interest income after provision for loan losses	51,697			44,207			7,490			16.9
NONINTEREST INCOME
Branch fee income	1,519			1,384		��	135			9.8
Service and loan fee income	2,130			2,100			30			1.4
Gain on sale of SBA loans held for sale, net	1,680			1,617			63			3.9
Gain on sale of mortgage loans, net	1,719			1,530			189			12.4
BOLI income	975			469			506			107.9
Net security (losses) gains	(199		)	62			(261		)	(421.0	)
Other income	1,207			1,108			99			8.9
Total noninterest income	9,031			8,270			761			9.2
NONINTEREST EXPENSE
Compensation and benefits	20,119			17,117			3,002			17.5
Occupancy	2,739			2,381			358			15.0
Processing and communications	2,788			2,551			237			9.3
Furniture and equipment	2,348			2,079			269			12.9
Professional services	934			1,022			(88		)	(8.6	)
Loan collection & OREO (recoveries) expenses	(288		)	463			(751		)	(162.2	)
Other loan expenses	135			186			(51		)	(27.4	)
Deposit insurance	782			546			236			43.2
Advertising	1,411			1,179			232			19.7
Director fees	671			637			34			5.3
Other expenses	1,782			1,883			(101		)	(5.4	)
Total noninterest expense	33,421			30,044			3,377			11.2
Income before provision for income taxes	27,307			22,433			4,874			21.7
Provision for income taxes	5,388			7,807			(2,419		)	(31.0	)
Impact of Tax Reform Bill	—			1,733			(1,733		)	(100.0	)
Net income	$	21,919		$	12,893		$	9,026		70.0	%

	For the twelve months ended December 31,
(In thousands, except percentages and per share amounts)	2018		2017
Effective tax rate	19.7	%	42.5	%
Net income per common share - Basic	2.04		1.22
Net income per common share - Diluted	2.01		1.20
Weighted average common shares outstanding - Basic	10,726		10,558
Weighted average common shares outstanding - Diluted	10,916		10,749

UNITY BANCORP, INC.

QUARTER TO DATE NET INTEREST MARGIN

December 31, 2018

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	December 31, 2018								September 30, 2018
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold, interest-bearing deposits and repos	$	34,551		$	210		2.41	%	$	40,060		$	187		1.85	%
FHLB stock	5,762			104			7.16		5,805			101			6.90
Securities:
Taxable	58,350			466			3.17		59,916			465			3.08
Tax-exempt	4,776			35			2.91		5,095			35			2.73
Total securities (A)	63,126			501			3.15		65,011			500			3.05
Loans:
SBA loans	53,803			974			7.18		56,837			1,050			7.33
Commercial loans	698,609			9,167			5.21		683,632			8,784			5.10
Residential mortgage loans	423,674			5,172			4.84		404,439			4,803			4.71
Consumer loans	121,214			1,939			6.35		116,421			1,776			6.05
Total loans (B)	1,297,300			17,252			5.28		1,261,329			16,413			5.16
Total interest-earning assets	$	1,400,739		$	18,067		5.12	%	$	1,372,205		$	17,201		4.97	%
Noninterest-earning assets:
Cash and due from banks	25,410								25,560
Allowance for loan losses	(15,266		)						(14,909		)
Other assets	66,925								65,645
Total noninterest-earning assets	77,069								76,296
Total assets	$	1,477,808							$	1,448,501
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	187,827		$	389		0.82	%	$	173,515		$	330		0.75	%
Total savings deposits	406,681			1,103			1.08		407,287			1,049			1.02
Total time deposits	356,520			1,861			2.07		350,747			1,739			1.97
Total interest-bearing deposits	951,028			3,353			1.40		931,549			3,118			1.33
Borrowed funds and subordinated debentures	108,465			543			1.99		109,408			509			1.85
Total interest-bearing liabilities	$	1,059,493		$	3,896		1.46	%	$	1,040,957		$	3,627		1.38	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	271,440								266,833
Other liabilities	11,454								9,805
Total noninterest-bearing liabilities	282,894								276,638
Total shareholders' equity	135,421								130,906
Total liabilities and shareholders' equity	$	1,477,808							$	1,448,501
Net interest spread				$	14,171		3.66	%				$	13,574		3.59	%
Tax-equivalent basis adjustment				(7		)						(7		)
Net interest income				$	14,164							$	13,567
Net interest margin							4.01	%							3.92	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 percent in 2018 and 35 percent in 2017 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.

QUARTER TO DATE NET INTEREST MARGIN

December 31, 2018

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	December 31, 2018								December 31, 2017
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold, interest-bearing deposits and repos	$	34,551		$	210		2.41	%	$	61,621		$	257		1.65	%
FHLB stock	5,762			104			7.16		7,523			119			6.28
Securities:
Taxable	58,350			466			3.17		65,967			488			2.93
Tax-exempt	4,776			35			2.91		5,469			47			3.41
Total securities (A)	63,126			501			3.15		71,436			535			2.97
Loans:
SBA loans	53,803			974			7.18		63,275			1,023			6.41
Commercial loans	698,609			9,167			5.21		611,863			7,590			4.92
Residential mortgage loans	423,674			5,172			4.84		344,636			4,046			4.66
Consumer loans	121,214			1,939			6.35		109,300			1,490			5.41
Total loans (B)	1,297,300			17,252			5.28		1,129,074			14,149			4.97
Total interest-earning assets	$	1,400,739		$	18,067		5.12	%	$	1,269,654		$	15,060		4.71	%
Noninterest-earning assets:
Cash and due from banks	25,410								23,248
Allowance for loan losses	(15,266		)						(13,373		)
Other assets	66,925								65,785
Total noninterest-earning assets	77,069								75,660
Total assets	$	1,477,808							$	1,345,314
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	187,827		$	389		0.82	%	$	167,918		$	183		0.43	%
Total savings deposits	406,681			1,103			1.08		406,281			744			0.73
Total time deposits	356,520			1,861			2.07		220,062			837			1.51
Total interest-bearing deposits	951,028			3,353			1.40		794,261			1,764			0.88
Borrowed funds and subordinated debentures	108,465			543			1.99		166,669			780			1.86
Total interest-bearing liabilities	$	1,059,493		$	3,896		1.46	%	$	960,930		$	2,544		1.05	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	271,440								258,616
Other liabilities	11,454								9,615
Total noninterest-bearing liabilities	282,894								268,231
Total shareholders' equity	135,421								116,153
Total liabilities and shareholders' equity	$	1,477,808							$	1,345,314
Net interest spread				$	14,171		3.66	%				$	12,516		3.66	%
Tax-equivalent basis adjustment				(7		)						(16		)
Net interest income				$	14,164							$	12,500
Net interest margin							4.01	%							3.91	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 percent in 2018 and 35 percent in 2017 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, 2018

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the twelve months ended
	December 31, 2018								December 31, 2017
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold, interest-bearing deposits and repos	$	40,700		$	773		1.90	%	$	70,139		$	851		1.21	%
FHLB stock	6,786			462			6.81		6,230			370			5.94
Securities:
Taxable	60,734			1,907			3.14		66,107			2,029			3.07
Tax-exempt	5,104			145			2.84		6,225			240			3.86
Total securities (A)	65,838			2,052			3.12		72,332			2,269			3.14
Loans:
SBA loans	60,321			4,338			7.19		59,293			3,805			6.42
Commercial loans	668,144			33,886			5.07		571,001			28,150			4.93
Residential mortgage loans	396,731			18,837			4.75		319,074			14,650			4.59
Consumer loans	116,311			6,943			5.97		102,898			5,296			5.15
Total loans (B)	1,241,507			64,004			5.16		1,052,266			51,901			4.93
Total interest-earning assets	$	1,354,831		$	67,291		4.97	%	$	1,200,967		$	55,391		4.61	%
Noninterest-earning assets:
Cash and due from banks	24,598								23,321
Allowance for loan losses	(14,640		)						(13,033		)
Other assets	65,770								58,481
Total noninterest-earning assets	75,728								68,769
Total assets	$	1,430,559							$	1,269,736
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	177,022		$	1,202		0.68	%	$	159,642		$	665		0.42	%
Total savings deposits	404,613			3,871			0.96		397,250			2,738			0.69
Total time deposits	314,224			5,903			1.88		219,847			3,278			1.49
Total interest-bearing deposits	895,859			10,976			1.23		776,739			6,681			0.86
Borrowed funds and subordinated debentures	134,664			2,540			1.89		135,730			2,772			2.04
Total interest-bearing liabilities	$	1,030,523		$	13,516		1.32	%	$	912,469		$	9,453		1.04	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	261,976								237,207
Other liabilities	9,903								7,090
Total noninterest-bearing liabilities	271,879								244,297
Total shareholders' equity	128,157								112,970
Total liabilities and shareholders' equity	$	1,430,559							$	1,269,736
Net interest spread				$	53,775		3.65	%				$	45,938		3.57	%
Tax-equivalent basis adjustment				(28		)						(81		)
Net interest income				$	53,747							$	45,857
Net interest margin							3.97	%							3.83	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 percent in 2018 and 35 percent in 2017 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, 2018

Amounts in thousands, except percentages	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	14,988		$	14,634		$	14,196		$	13,556		$	13,113
Provision for loan losses charged to expense	500			500			550			500			500
	15,488			15,134			14,746			14,056			13,613
Less: Chargeoffs
SBA loans	—			169			104			81			—
Commercial loans	10			—			—			—			—
Residential mortgage loans	—			—			—			—			50
Consumer loans	—			—			16			6			83
Total chargeoffs	10			169			120			87			133
Add: Recoveries
SBA loans	3			1			3			64			45
Commercial loans	5			5			4			16			31
Residential mortgage loans	—			—			—			13			—
Consumer loans	2			17			1			134			—
Total recoveries	10			23			8			227			76
Net chargeoffs (recoveries)	—			146			112			(140		)	57
Balance, end of period	$	15,488		$	14,988		$	14,634		$	14,196		$	13,556
LOAN QUALITY INFORMATION:
Nonperforming loans (1)	$	6,873		$	6,195		$	5,209		$	4,277		$	2,994
Other real estate owned ("OREO")	56			56			56			56			426
Nonperforming assets	6,929			6,251			5,265			4,333			3,420
Less: Amount guaranteed by SBA	89			104			129			27			27
Net nonperforming assets	$	6,840		$	6,147		$	5,136		$	4,306		$	3,393
Loans 90 days past due & still accruing	$	98		$	546		$	286		$	—		$	60
Performing Troubled Debt Restructurings (TDRs)	$	745		$	755		$	767		$	774		$	786
(1) Nonperforming TDRs included in nonperforming loans	—			—			—			—			—
Total TDRs	$	745		$	755		$	767		$	774		$	786
Allowance for loan losses to:
Total loans at quarter end	1.19		%	1.17		%	1.17		%	1.19		%	1.16		%
Nonperforming loans (1)	225.35			241.94			280.94			331.91			452.77
Nonperforming assets	223.52			239.77			277.95			327.63			396.37
Net nonperforming assets	226.43			243.83			284.93			329.68			399.53
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans	(0.02		)%	1.17		%	0.65		%	0.10		%	(0.28		)%
Commercial loans	—			—			—			(0.01		)	(0.02		)
Residential mortgage loans	—			—			—			(0.01		)	0.06
Consumer loans	(0.01		)	(0.06		)	0.05			(0.47		)	0.30
Total loans	—		%	0.05		%	0.04		%	(0.05		)%	0.02		%
Nonperforming loans to total loans	0.53		%	0.48		%	0.42		%	0.36		%	0.26		%
Nonperforming loans and TDRs to total loans	0.58			0.54			0.48			0.42			0.32
Nonperforming assets to total loans and OREO	0.53			0.49			0.42			0.36			0.29
Nonperforming assets to total assets	0.44			0.40			0.35			0.30			0.23

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

December 31, 2018

(In thousands, except percentages and per share amounts)	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017
SUMMARY OF INCOME:
Total interest income	$	18,060		$	17,194		$	16,369		$	15,640		$	15,044
Total interest expense	3,896			3,627			3,225			2,768			2,544
Net interest income	14,164			13,567			13,144			12,872			12,500
Provision for loan losses	500			500			550			500			500
Net interest income after provision for loan losses	13,664			13,067			12,594			12,372			12,000
Total noninterest income	1,954			2,479			2,312			2,286			2,037
Total noninterest expense	8,268			8,801			8,158			8,194			7,629
Income before provision for income taxes	7,350			6,745			6,748			6,464			6,408
Provision for income taxes	1,547			1,255			1,351			1,235			2,175
Impact of Tax Reform Bill	—			—			—			—			1,733
Net income	$	5,803		$	5,490		$	5,397		$	5,229		$	2,500
Net income per common share - Basic	$	0.54		$	0.51		$	0.50		$	0.49		$	0.24
Net income per common share - Diluted	$	0.53		$	0.50		$	0.49		$	0.48		$	0.23
COMMON SHARE DATA:
Market price per share	$	20.76		$	22.90		$	22.75		$	22.00		$	19.75
Dividends paid	$	0.07		$	0.07		$	0.07		$	0.06		$	0.06
Book value per common share	$	12.85		$	12.37		$	11.94		$	11.50		$	11.13
Weighted average common shares outstanding - Basic	10,765			10,743			10,717			10,678			10,604
Weighted average common shares outstanding - Diluted	10,935			10,936			10,915			10,853			10,794
Issued and outstanding common shares	10,780			10,756			10,731			10,709			10,615
PERFORMANCE RATIOS (Annualized):
Return on average assets	1.56		%	1.50		%	1.53		%	1.53		%	0.74		%
Return on average equity	17.00			16.64			17.32			17.69			8.54
Efficiency ratio	50.69			54.86			52.80			54.00			52.45
Noninterest expense to average assets	2.22			2.41			2.32			2.40			2.25
BALANCE SHEET DATA:
Total assets	1,579,157			1,553,152			1,514,120			1,439,902			1,455,496
Total deposits	1,207,687			1,219,473			1,146,399			1,117,514			1,043,137
Total loans	1,304,566			1,283,304			1,246,511			1,195,110			1,170,674
Total securities	63,732			63,399			65,682			67,521			69,800
Total shareholders' equity	138,488			133,067			128,141			123,104			118,105
Allowance for loan losses	(15,488		)	(14,988		)	(14,634		)	(14,196		)	(13,556		)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets	5.12		%	4.97		%	4.91		%	4.85		%	4.71		%
Interest-bearing liabilities	1.46			1.38			1.27			1.12			1.05
Net interest spread	3.66			3.59			3.64			3.73			3.66
Net interest margin	4.01			3.92			3.95			3.99			3.91
CREDIT QUALITY:
Nonperforming assets	6,929			6,251			5,265			4,333			3,420
QTD net chargeoffs (annualized) to QTD average loans	—		%	0.05		%	0.04		%	(0.05		)%	0.02		%
Allowance for loan losses to total loans	1.19			1.17			1.17			1.19			1.16
Nonperforming assets to total loans and OREO	0.53			0.49			0.42			0.36			0.29
Nonperforming assets to total assets	0.44			0.40			0.35			0.30			0.23

(In thousands, except percentages and per share amounts)	Dec 31, 2018		Sep 30, 2018		Jun 30, 2018		Mar 31, 2018		Dec 31, 2017
CAPITAL RATIOS AND OTHER:
Total equity to total assets	8.77	%	8.57	%	8.46	%	8.55	%	8.11	%
Leverage ratio	9.90		9.74		9.63		9.46		9.37
Common equity tier 1 risk-based capital ratio	11.40		11.15		11.05		11.14		10.81
Tier 1 risk-based capital ratio	12.24		12.00		11.92		12.07		11.75
Total risk-based capital ratio	13.49		13.25		13.14		13.24		12.87
Number of banking offices	19		19		19		18		18
Number of ATMs	20		20		20		19		19
Number of employees	200		195		197		199		199

UNITY BANCORP, INC.

RECONCILIATION OF GAAP vs. NON-GAAP FINANCIALS

December 31, 2018

	QTD			YTD			QTD			YTD			Current QTD vs Prior QTD				Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	Dec 31, 2018			Dec 31, 2018			Dec 31, 2017			Dec 31, 2017			$		%		$		%
GAAP
Income before provision for income taxes	$	7,350		$	27,307		$	6,408		$	22,433		942		14.7		4,874		21.7
Provision for income taxes	1,547			5,388			3,908			9,540			(2,361	)	(60.4	)	(4,152	)	(43.5	)
Net Income	$	5,803		$	21,919		$	2,500		$	12,893		3,303		132.1		9,026		70.0
Effective Tax Rate	21.0		%	19.7		%	61.0		%	42.5		%
Net income per:
Common share - basic	$	0.54		$	2.04		$	0.24		$	1.22		0.30		125.0		0.82		67.2
Common share - diluted	$	0.53		$	2.01		$	0.23		$	1.20		0.30		130.4		0.81		67.5
Performance ratios:
Return on average assets	1.56		%	1.53		%	0.74		%	1.02		%			110.8				50.0
Return on average equity	17.00		%	17.10		%	8.54		%	11.47		%			99.1				49.1
NON-GAAP
Income before provision for income taxes	7,350			27,307			6,408			22,433			942		14.7		4,874		21.7
Provision for income taxes	1,547			5,388			3,908			9,540			(2,361	)	(60.4	)	(4,152	)	(43.5	)
Net income before nonrecurring adjustments	5,803			21,919			2,500			12,893			3,303		132.1		9,026		70.0
Nonrecurring adjustments:
Impact of tax reform bill	—			—			1,733			1,733			(1,733	)	(100.0	)	(1,733	)	(100.0	)
Adjusted net income	5,803			21,919			4,233			14,626			1,570		37.1		7,293		49.9
Effective tax rate	21.0		%	19.7		%	33.9		%	34.8		%
Net income before nonrecurring adjustments per:
Common share - basic	$	0.54		$	2.04		$	0.40		$	1.38		0.14		35.0		0.66		47.8
Common share - diluted	$	0.53		$	2.01		$	0.39		$	1.36		0.14		35.9		0.65		47.8
Performance ratios before nonrecurring adjustments
Return on average assets	1.56		%	1.53		%	1.25		%	1.15		%			24.8				33.0
Return on average equity	17.00		%	17.10		%	14.46		%	13.02		%			17.6				31.3