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

Exhibit 99.1

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800 618-BANK

www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

July 19, 2006

News Media & Financial Analyst Contact:

Alan Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports 7.2% increase in Second Quarter Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $1.6 million, or $0.24 per diluted share, for the quarter ended June 30, 2006, a 7.2% increase compared to net income of $1.5 million, or $0.23 per diluted share, for the quarter ended June 30, 2005. Return on average assets and average common equity for the second quarter of 2006 were 1.03% and 15.39%, respectively, as compared to 1.13% and 16.50%, respectively, for the second quarter of 2005.

For the six months ended June 30, 2006, net income was $3.3 million, or $0.48 per diluted share, a 16.1% increase from the $2.8 million, or $0.42 per diluted share for the same period a year ago. Return on average assets and average common equity for the six months ended June 30, 2006, were 1.05% and 15.82%, respectively, as compared to 1.08% and 15.62%, respectively, for the prior year’s comparable period.

“We are pleased with operating results for the second quarter of 2006 and continue to remain optimistic about full year earnings for 2006,” said Unity President and Chief Executive Officer, James A. Hughes. “The Company continues to execute its long-term plan by building a high quality community banking organization. In July of 2006 the Company ranked 20th out of 200 publicly traded community banks in the country based on a three year average of return on equity, as published in USBANKER.”

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Net interest income was $6.0 million for the second quarter of 2006, a 14.6% increase compared to a year ago. The increase in net interest income was due primarily to an increase in interest-earning assets, partially offset by a decrease in net interest margin. Net interest margin was 3.99% for the second quarter of 2006, compared to 4.12% for the second quarter of 2005. The Federal Reserve Bank has raised rates 17 times, or 425 basis points, since 2004. These increases have resulted in a flat yield curve and a challenging interest-rate environment. Despite this environment, the Company was able to grow net interest income. The effect of the flat yield curve may cause the net interest margin to further contract during the remainder of 2006.

The provision for loan losses for the second quarter of 2006 was $250 thousand, compared to $350 thousand for the quarter ended June 30, 2005. Net loan charge-offs for the quarter ended June 30, 2006 were $113 thousand, compared to net-charge offs of $53 thousand for the quarter ended June 30, 2005.

Total non-interest income for the second quarter of 2006 was $1.6 million, down 25.0% from the same period a year ago. Service charges on deposits for the second quarter decreased 6.8% compared to the second quarter of 2005. Service and loan fees for the second quarter of 2006 decreased 35.6% from a year ago, due to a decrease in prepayment fees on commercial loans and loan processing fees. Gains on sales of SBA loans amounted to $558 thousand for the second quarter of 2006, compared to $741 thousand for the quarter ended June 30, 2005. Other income for the second quarter of 2006 decreased $111 thousand as compared to the same period last year, due primarily to a decrease in loan referral fees.

Total non-interest expenses for the second quarter of 2006 were $5.0 million, an increase of 7.7% from the prior year’s comparable quarter. The increase from the prior year’s comparable quarter was primarily due to increases in compensation and benefits, processing and communications, furniture and equipment, and occupancy expense, partially offset by decreases in professional fees, loan servicing costs, advertising and other expenses. Compensation and benefits increased 15.1%, due to increased head count, merit increases and rising health insurance costs. Processing and communications increased 13.1%, due to increased transactional volume. Furniture and equipment and occupancy costs increased 16.5% and 28.9% respectively. Increases in head count, furniture and equipment and occupancy expenses were due, in part, to the addition of a new branch in the fourth quarter of 2005. In addition, the refurbishment of the existing branch network contributed to the increases in equipment and occupancy expenses. Loan servicing costs decreased 67.5%, due to the collection of expenses on delinquent loans.

Total assets at June 30, 2006 were $670.9 million, a 16.2% increase from June 30, 2005.  The increase in assets from the prior year was primarily due to growth in the Company’s loan portfolio. Total loans at June 30, 2006 were $484.6 million, a 17.9% increase from June 30, 2005. The growth in the loan portfolio occurred primarily in Commercial and SBA lending. Commercial loans increased $68.0 million, or 29.6%; SBA loans increased $12.3 million, or 17.3%; residential mortgage loans decreased 12.2% from the prior year due to paydowns in the portfolio and the Company choosing to sell new originations; and consumer loans increased $1.2 million, or 2.7%.

At June 30, 2006, the allowance for loan losses was $7.3 million, or 1.50% of total loans, compared to 1.52% at June 30, 2005. Non-performing assets at June 30, 2006 were $2.6 million,

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or 0.53% of total loans and OREO, as compared to $4.8 million or 1.16% of total loans and OREO from a year ago. There were no loans past due greater than 90 days and still accruing as of June 30, 2006.

Total deposits at June 30, 2006, were $576.4 million; a 20.8% increase from June 30, 2005. This increase was primarily the result of growth in savings accounts, demand and time deposits, partially offset by the decline in interest bearing checking accounts. Demand deposit accounts increased $1.9 million, or 2.4% from June 30, 2005. Savings accounts increased $38.5 million, or 25.8% from June 30, 2005, due to a high-yield savings product. Time deposits increased $89.5 million, or 88.8%, from June 30, 2005.

“Our Forks Township Pennsylvania branch will open in the third quarter of 2006” said Mr. Hughes, “We now have three branches in process: Washington and Middlesex in New Jersey and the Forks Township branch, as we are successfully moving forward with our targeted branch expansion plans along the I-78 corridor into the Lehigh Valley in Pennsylvania,” said Mr. Hughes.

Total shareholders’ equity was $43.4 million at June 30, 2006, a 13.1% increase from June 30, 2005.  The increase in shareholders’ equity was primarily due to retained profits, partially offset by the payment of cash dividends and a decline in other comprehensive income.

As of June 30, 2006, the Company’s Tier I leverage ratio was 8.22%, Tier I risk-based capital ratio was 9.85%, and total risk-based capital ratio was 11.10%. All regulatory capital ratios exceeded the well-capitalized, federal capital adequacy requirements as of June 30, 2006.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $671 million in assets and $576 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 14 retail service centers located in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey. 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 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 general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.

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Unity Bancorp, Inc.
Consolidated Financial Highlights
(Dollars in thousands, except per share data)

										Jun. 06 vs.
	Jun. 30, 2006			Mar. 31, 2006			Jun. 30, 2005			Mar. 06		Jun. 05
BALANCE SHEET DATA:
Assets	$	670,870		$	628,055		$	577,507		6.8	%	16.2	%
Deposits	576,376			534,437			477,274			7.8		20.8
Loans	484,622			467,963			410,926			3.6		17.9
Securities	108,979			101,641			113,774			7.2		(4.2	)
Shareholders’ equity	43,446			42,477			38,411			2.3		13.1
Allowance for loan losses	7,257			7,120			6,239			1.9		16.3
FINANCIAL DATA - QUARTER TO DATE:
Net income before taxes	$	2,429		$	2,499		$	2,468		(2.8	)%	(1.6	)%
Federal and state income tax provision	792			842			941			(5.9	)	(15.8	)
Net income	1,637			1,657			1,527			(1.2	)	7.2
Per share-basic	0.25			0.25			0.24			—		4.2
Per share-diluted	0.24			0.24			0.23			—		4.3
Return on average assets	1.03		%	1.08		%	1.13		%	(4.6	)	(8.8	)
Return on average common equity	15.39			16.26			16.50			(5.4	)	(6.7	)
Efficiency ratio	65.12			65.25			62.43			(0.2	)	4.3
FINANCIAL DATA - YEAR TO DATE:
Net income before taxes	$	4,928		—			$	4,576		—		7.7
Federal and state income tax provision	1,634			—			1,739			—		(6.0	)
Net income	3,294			—			2,837			—		16.1	%
Per share-basic	0.50			—			0.44			—		13.6
Per share-diluted	0.48			—			0.42			—		14.3
Return on average assets	1.05		%	—			1.08		%	—		(2.8	)
Return on average common equity	15.82			—			15.62			—		1.3
Efficiency ratio	65.19			—			64.34			—		1.3
	-
SHARE INFORMATION:
Closing price per share	$	15.49		$	15.29		$	11.39		1.3	%	36.0	%
Cash dividends declared	0.05			0.05			0.05			—		—
Book value per share	6.60			6.47			5.99			2.0		10.2
Average diluted shares outstanding (QTD)	6,905			6,896			6,744			0.1		2.4
CAPITAL RATIOS:
Total equity to total assets	6.48		%	6.76		%	6.65		%	(4.1	)%	(2.6	)%
Tier I capital to average assets (leverage)	8.22			8.26			8.67			(0.5	)	(5.2	)
Tier I capital to risk-adjusted assets	9.85			9.93			10.65			(0.8	)	(7.5	)
Total risk-based capital	11.10			11.18			11.91			(0.7	)	(6.8	)
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	2,552		$	3,781		$	4,777		(32.5	)%	(46.6	)%
Net charge offs to average loans (QTD)	0.10		%	0.06		%	0.05		%	66.7		100.0
Allowance for loan losses to total loans	1.50			1.52			1.52			(1.3	)	(1.3	)
Nonperforming assets to total loans and OREO	0.53			0.81			1.16			(34.6	)	(54.3	)

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Unity Bancorp, Inc.
Consolidated Balance Sheets
(In thousands)

										Jun. 06 vs.
	Jun. 30, 2006			Mar. 31, 2006			Jun. 30, 2005			Mar. 06		Jun. 05
ASSETS
Cash and due from banks	$	13,709		$	12,171		$	11,284		12.6	%	21.5	%
Federal funds sold and interest bearing deposits	42,631			25,726			23,336			65.7		82.7
Securities:
Available for sale	68,104			63,411			78,139			7.4		(12.8	)
Held to maturity	40,875			38,230			35,635			6.9		14.7
Total securities	108,979			101,641			113,774			7.2		(4.2	)
Loans:
SBA - Held for sale	24,384			16,826			13,880			44.9		75.7
SBA - Held to Maturity	59,111			65,305			57,315			(9.5	)	3.1
Commercial	297,826			279,369			229,860			6.6		29.6
Residential mortgage	55,966			60,194			63,775			(7.0	)	(12.2	)
Consumer	47,335			46,269			46,096			2.3		2.7
Total loans	484,622			467,963			410,926			3.6		17.9
Less: Allowance for loan losses	7,257			7,120			6,239			1.9		16.3
Net loans	477,365			460,843			404,687			3.6		18.0
Goodwill and other intangibles	1,611			1,614			—			(0.2	)	—
Premises and equipment, net	10,954			10,723			10,208			2.2		7.3
Accrued interest receivable	3,460			3,350			2,747			3.3		26.0
Loan servicing asset	2,424			2,476			2,177			(2.1	)	11.3
Bank Owned Life Insurance	5,279			5,232			5,093			0.9		3.7
Other assets	4,458			4,279			4,201			4.2		6.1
Total Assets	$	670,870		$	628,055		$	577,507		6.8	%	16.2	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand deposits	$	81,721		$	81,210		$	79,830		0.6	%	2.4	%
Interest-bearing deposits:
Interest bearing checking	116,497			113,441			147,315			2.7		(20.9	)
Savings	187,841			178,848			149,348			5.0		25.8
Time, under $100,000	124,652			108,211			72,655			15.2		71.6
Time, $100,000 and over	65,665			52,727			28,126			24.5		133.5
Total deposits	576,376			534,437			477,274			7.8		20.8
Borrowed funds and subordinated debentures	49,279			49,279			59,279			—		(16.9	)
Accrued interest payable	313			298			249			5.0		25.7
Accrued expenses and other liabilities	1,456			1,564			2,294			(6.9	)	(36.5	)
Total liabilities	627,424			585,578			539,096			7.1		16.4
Commitments and Contingencies	—			—			—
Shareholders’ equity:
Common stock, no par value, 12,500 shares authorized	43,866			38,697			37,988			13.4		15.5
Retained earnings	1,555			5,241			1,155			(70.3	)	34.6
Treasury stock at cost	(242		)	(242		)	(242		)	—		—
Accumulated other comprehensive loss, net of tax	(1,733		)	(1,219		)	(490		)	N/M		N/M
Total shareholders’ equity	43,446			42,477			38,411			2.3		13.1
Total Liabilities and Shareholders’ Equity	$	670,870		$	628,055		$	577,507		6.8	%	16.2	%
COMMON SHARES AT PERIOD END:
Issued	6,602			6,589			6,435
Outstanding	6,579			6,566			6,412
Treasury	23			23			23

N/M= Not meaningful

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Unity Bancorp, Inc.

Consolidated Statements of Income
(In thousands, except per share data)

							Jun. 06 vs.
	Jun. 30, 2006		Mar. 31, 2006		Jun. 30, 2005		Mar. 06		Jun. 05
FOR THE THREE MONTHS ENDED:
INTEREST INCOME
Fed funds sold and interest on deposits	$	354	$	207	$	117	71.0	%	202.6	%
Securities:
Available for sale	709		708		809		0.1		(12.4	)
Held to maturity	467		476		348		(1.9	)	34.2
Total securities	1,176		1,184		1,157		(0.7	)	1.6
Loans:
SBA	2,179		2,153		1,448		1.2		50.5
Commercial	5,368		4,892		3,764		9.7		42.6
Residential mortgage	788		820		805		(3.9	)	(2.1	)
Consumer	779		744		652		4.7		19.5
Total loan interest income	9,114		8,609		6,669		5.9		36.7
Total interest income	10,644		10,000		7,943		6.4		34.0
INTEREST EXPENSE
Interest bearing demand deposits	653		694		635		(5.9	)	2.8
Savings deposits	1,704		1,192		781		43.0		118.2
Time deposits	1,671		1,499		764		11.5		118.7
Borrowed funds and subordinated debentures	583		562		498		3.7		17.1
Total interest expense	4,611		3,947		2,678		16.8		72.2
Net interest income	6,033		6,053		5,265		(0.3	)	14.6
Provision for loan losses	250		300		350		(16.7	)	(28.6	)
Net interest income after provision for loan losses	5,783		5,753		4,915		0.5		17.7
NONINTEREST INCOME
Service charges on deposit accounts	409		433		439		(5.5	)	(6.8	)
Service and loan fee income	406		395		630		2.8		(35.6	)
Gain on SBA loan sales	558		700		741		(20.3	)	(24.7	)
Gain on Mortgage loan sales	110		62		54		77.4		103.7
Gain on sales of other loans	—		82		—		—		—
Bank owned life insurance	46		47		46		(2.1	)	—
Net securities gains	—		—		24		—		—
Other income	118		283		261		(58.3	)	(54.8	)
Total noninterest income	1,647		2,002		2,195		(17.7	)	(25.0	)
NONINTEREST EXPENSES
Compensation and benefits	2,664		2,725		2,314		(2.2	)	15.1
Processing and communications	553		527		489		4.9		13.1
Occupancy, net	646		648		501		(0.3	)	28.9
Furniture and equipment	381		393		327		(3.1	)	16.5
Professional fees	151		132		194		14.4		(22.2	)
Loan servicing costs	55		101		169		(45.5	)	(67.5	)
Advertising	148		170		187		(12.9	)	(20.9	)
Deposit insurance	16		17		15		(5.9	)	6.7
Other	387		543		446		(28.7	)	(13.2	)
Total noninterest expenses	5,001		5,256		4,642		(4.9	)	7.7
Income before taxes	2,429		2,499		2,468		(2.8	)	(1.6	)
Federal and state income tax provision	792		842		941		(5.9	)	(15.8	)
Net Income	$	1,637	$	1,657	$	1,527	(1.2	)%	7.2	%
Net Income Per Common Share-Basic	$	0.25	$	0.25	$	0.24	—	%	4.2	%
Net Income Per Common Share-Diluted	$	0.24	$	0.24	$	0.23	—	%	4.3	%
AVERAGE COMMON SHARES OUTSTANDING:
Basic	6,574		6,556		6,414
Diluted	6,905		6,896		6,744

6

Unity Bancorp, Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

					Jun. 06 vs.
	Jun. 30, 2006		Jun. 30, 2005		Jun. 05
YEAR TO DATE
INTEREST INCOME
Fed funds sold and interest on deposits	$	561	$	179	213.4	%
Securities:
Available for sale	1,417		1,605		(11.7	)
Held to maturity	943		622		51.6
Total securities	2,360		2,227		6.0
Loans:
SBA	4,332		2,807		54.3
Commercial	10,260		7,402		38.6
Residential mortgage	1,608		1,607		0.1
Consumer	1,523		1,244		22.4
Total loan interest income	17,723		13,060		35.7
Total interest income	20,644		15,466		33.5
INTEREST EXPENSE
Interest bearing demand deposits	1,347		1,246		8.1
Savings deposits	2,896		1,241		133.4
Time deposits	3,170		1,527		107.6
Borrowed funds and subordinated debentures	1,145		922		24.2
Total interest expense	8,558		4,936		73.4
Net interest income	12,086		10,530		14.8
Provision for loan losses	550		650		(15.4	)
Net interest income after provision for loan losses	11,536		9,880		16.8
NONINTEREST INCOME
Service charges on deposit accounts	842		869		(3.1	)
Service and loan fee income	801		1,166		(31.3	)
Gain on SBA loan sales	1,258		1,201		4.7
Gain on Mortgage loan sales	172		146		17.8
Gains on sales of other loans	82		—		—
Bank owned life insurance	93		93		0.0
Net securities gains	0		77		—
Other income	401		434		(7.6	)
Total noninterest income	3,649		3,986		(8.5	)
NONINTEREST EXPENSES
Compensation and benefits	5,389		4,711		14.4
Processing and communications	1,080		955		13.1
Occupancy, net	1,294		1,094		18.3
Furniture and equipment	774		656		18.0
Professional fees	283		303		(6.6	)
Loan servicing costs	156		346		(54.9	)
Advertising	318		372		(14.5	)
Deposit insurance	33		30		10.0
Other	930		823		13.0
Total noninterest expenses	10,257		9,290		10.4
Income before taxes	4,928		4,576		7.7
Federal and state income tax provision	1,634		1,739		(6.0	)
Net Income	$	3,294	$	2,837	16.1	%
Net Income Per Common Share-Basic	$	0.50	$	0.44	13.6	%
Net Income Per Common Share-Diluted	$	0.48	$	0.42	14.3	%
Average common shares outstanding:
Basic	6,565		6,399
Diluted	6,901		6,744

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Unity Bancorp, Inc.

Consolidated Average Balance Sheets

with Resultant Interest and Rates

(Tax-equivalent basis, dollars in thousands)

	Three Months Ended
	June 30, 2006								March 31, 2006
	Balance			Interest			Rate		Balance			Interest			Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	30,005		$	354		4.73	%	$	19,493		$	207		4.31	%
Securities:
Available for sale	62,831			722			4.60		64,812			721			4.45
Held to maturity	38,283			467			4.88		39,291			476			4.85
Total securities	101,114			1,189			4.70		104,103			1,197			4.60
Loans, net of unearned discount:
SBA	83,708			2,179			10.41		85,931			2,153			10.02
Commercial	286,943			5,368			7.50		271,323			4,892			7.31
Residential mortgage	58,135			788			5.42		61,126			820			5.37
Consumer	46,690			779			6.69		46,501			744			6.49
Total loans	475,476			9,114			7.68		464,881			8,609			7.47
Total interest-earning assets	606,595			10,657			7.04		588,477			10,013			6.86
Noninterest-earning assets:
Cash and due from banks	12,535								11,698
Allowance for loan losses	(7,478		)						(7,154		)
Other assets	28,355								26,847
Total noninterest-earning assets	33,412								31,391
Total Assets	$	640,007							$	619,868
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	116,303		653			2.25		$	128,150		694			2.20
Savings deposits	184,168			1,704			3.71		158,058			1,192			3.06
Time deposits	167,245			1,671			4.01		162,533			1,499			3.74
Total interest-bearing deposits	467,716			4,028			3.45		448,741			3,385			3.06
Borrowed funds and subordinated debentures	49,279			583			4.75		49,279			562			4.63
Total interest-bearing liabilities	516,995			4,611			3.58		498,020			3,947			3.21
Noninterest-bearing liabilities:
Demand deposits	78,764								78,179
Other liabilities	1,589								2,339
Total noninterest-bearing liabilities	80,353								80,518
Shareholders’ equity	42,659								41,330
Total Liabilities and Shareholders’ Equity	$	640,007							$	619,868
Net interest spread				6,046			3.46	%				6,066			3.65	%
Tax-equivalent basis adjustment				(13		)						(13		)
Net interest income				$	6,033							$	6,053
Net interest margin							3.99	%							4.12	%

8

Unity Bancorp, Inc.

Consolidated Average Balance Sheets

with Resultant Interest and Rates

(Tax-equivalent basis, dollars in thousands)

	Three Months Ended
	June 30, 2006								June 30, 2005
	Balance			Interest			Rate		Balance			Interest			Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	30,005		$	354		4.73	%	$	16,716		$	117		2.81	%
Securities:
Available for sale	62,831			722			4.60		77,646			822			4.23
Held to maturity	38,283			467			4.88		29,124			348			4.78
Total securities	101,114			1,189			4.70		106,770			1,170			4.38
Loans, net of unearned discount:
SBA	83,708			2,179			10.41		68,511			1,448			8.45
Commercial	286,943			5,368			7.50		215,985			3,764			6.99
Residential mortgage	58,135			788			5.42		60,136			805			5.35
Consumer	46,690			779			6.69		44,493			652			5.88
Total loans	475,476			9,114			7.68		389,125			6,669			6.87
Total interest-earning assets	606,595			10,657			7.04		512,611			7,956			6.22
Noninterest-earning assets:
Cash and due from banks	12,535								13,590
Allowance for loan losses	(7,478		)						(6,085		)
Other assets	28,355								20,263
Total noninterest-earning assets	33,412								27,768
Total Assets	$	640,007							$	540,379
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	116,303		653			2.25		$	156,186		635			1.63
Savings deposits	184,168			1,704			3.71		119,325			781			2.63
Time deposits	167,245			1,671			4.01		103,674			764			2.96
Total interest-bearing deposits	467,716			4,028			3.45		379,185			2,180			2.31
Borrowed funds and subordinated debentures	49,279			583			4.75		44,033			498			4.54
Total interest-bearing liabilities	516,995			4,611			3.58		423,218			2,678			2.54
Noninterest-bearing liabilities:
Demand deposits	78,764								77,744
Other liabilities	1,589								2,292
Total noninterest-bearing liabilities	80,353								80,036
Shareholders’ equity	42,659								37,125
Total Liabilities and Shareholders’ Equity	$	640,007							$	540,379
Net interest spread				6,046			3.46	%				5,278			3.68	%
Tax-equivalent basis adjustment				(13		)						(13		)
Net interest income				$	6,033							$	5,265
Net interest margin							3.99	%							4.12	%

9

Unity Bancorp, Inc.

Consolidated Average Balance Sheets

with Resultant Interest and Rates

(Tax-equivalent basis, dollars in thousands)

	Year to Date
	June 30, 2006								June 30, 2005
	Balance			Interest			Rate		Balance			Interest			Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	24,778		$	561		4.57	%	$	13,541		$	179		2.67	%
Securities:
Available for sale	63,816			1,443			4.52		77,288			1,631			4.22
Held to maturity	38,784			943			4.86		24,538			622			5.07
Total securities	102,600			2,386			4.65		101,826			2,253			4.43
Loans, net of unearned discount:
SBA	84,813			4,332			10.22		66,748			2,807			8.41
Commercial	279,176			10,260			7.41		214,174			7,402			6.97
Residential mortgage	59,622			1,608			5.39		60,248			1,607			5.33
Consumer	46,596			1,523			6.59		43,493			1,244			5.77
Total loans	470,207			17,723			7.58		384,663			13,060			6.83
Total interest-earning assets	597,585			20,670			6.95		500,030			15,492			6.23
Noninterest-earning assets:
Cash and due from banks	12,119								12,177
Allowance for loan losses	(7,317		)						(6,066		)
Other assets	27,605								23,081
Total noninterest-earning assets	32,407								29,192
Total Assets	$	629,992							$	529,222
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	122,194		1,347			2.22		$	158,575		1,246			1.58
Savings deposits	171,185			2,896			3.41		105,387			1,241			2.37
Time deposits	164,902			3,170			3.88		106,011			1,527			2.90
Total interest-bearing deposits	458,281			7,413			3.26		369,973			4,014			2.19
Borrowed funds and subordinated debentures	49,279			1,145			4.69		42,097			922			4.42
Total interest-bearing liabilities	507,560			8,558			3.40		412,070			4,936			2.42
Noninterest-bearing liabilities:
Demand deposits	78,473								78,295
Other liabilities	1,961								2,135
Total noninterest-bearing liabilities	80,434								80,430
Shareholders’ equity	41,998								36,722
Total Liabilities and Shareholders’ Equity	$	629,992							$	529,222
Net interest spread				12,112			3.55	%				10,556			3.81	%
Tax-equivalent basis adjustment				(26		)						(26		)
Net interest income				$	12,086							$	10,530
Net interest margin							4.05	%							4.22	%

10

Unity Bancorp, Inc.

Allowance for Loan Losses and Loan Quality Schedules

(Dollars in thousands)

	6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning	$	7,120		$	6,892		$	6,558		$	6,239		$	5,942
Provision charged to expense	250			300			525			675			350
	7,370			7,192			7,083			6,914			6,292
Less: Charge offs
SBA	66			46			91			(9		)	112
Commercial	48			4			18			87			30
Residential mortgage	—			—			—			25			—
Consumer	14			35			249			262			4
Total Charge Offs	128			85			358			365			146
Add:Recoveries
SBA	—			—			130			—			30
Commercial	2			11			24			8			7
Residential mortgage	—			—			—			—			—
Consumer	13			2			13			1			56
Total Recoveries	15			13			167			9			93
Net Charge Offs	113			72			191			356			53
Balance, ending	$	7,257		$	7,120		$	6,892		$	6,558		$	6,239
LOAN QUALITY INFORMATION:
Nonperforming loans	$	2,552		$	3,605		$	4,361		$	5,555		$	4,777
Other real estate owned, net	—			176			178			178			—
Nonperforming assets	$	2,552		$	3,781		$	4,539		$	5,733		$	4,777
Loans 90 days past due and still accruing	$	—		$	326		$	—		$	—		$	—
Allowance for loan losses to:
Total loans at period end	1.50		%	1.52		%	1.54		%	1.51		%	1.52		%
Nonperforming loans	284.37			197.50			158.04			118.06			130.60
Nonperforming assets	284.37			188.31			151.84			114.39			130.60
Net charge offs to average loans (QTD)	0.10			0.06			0.17			0.33			0.05
Net charge offs to average loans (YTD)	0.08			0.06			0.20			0.21			0.14
Nonperforming loans to total loans	0.53			0.77			0.97			1.28			1.16
Nonperforming assets to total loans and OREO	0.53			0.81			1.01			1.32			1.16

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Unity Bancorp, Inc.

Quarterly Financial Data

	06/30/06			03/31/06			12/31/05			09/30/05			06/30/05
SUMMARY OF INCOME (in thousands) :
Interest income	$	10,644		$	10,000		$	9,486		$	8,885		$	7,943
Interest expense	4,611			3,947			3,519			3,148			2,678
Net interest income	6,033			6,053			5,967			5,737			5,265
Provision for loan losses	250			300			525			675			350
Net interest income after provision	5,783			5,753			5,442			5,062			4,915
Noninterest income	1,647			2,002			2,072			2,132			2,195
Noninterest expense	5,001			5,256			4,804			4,582			4,642
Income before income taxes	2,429			2,499			2,710			2,612			2,468
Federal and state income tax provision	792			842			956			993			941
Net Income	1,637			1,657			1,754			1,619			1,527
Net Income per Common Share:
Basic	$	0.25		$	0.25		$	0.27		$	0.25		$	0.24
Diluted	0.24			0.24			0.26			0.24			0.23
COMMON SHARE DATA:
Cash dividends declared	$	0.05		$	0.05		$	0.05		$	0.05		$	0.05
Book value at quarter end	6.60			6.47			6.26			6.16			5.99
Market value at quarter end	15.49			15.29			13.33			12.47			11.39
Average common shares outstanding: (000’s)
Basic	6,574			6,556			6,491			6,418			6,414
Diluted	6,905			6,896			6,807			6,747			6,744
Common shares outstanding at period end (000’s)	6,579			6,566			6,536			6,420			6,412
OPERATING RATIOS:
Return on average assets	1.03		%	1.08		%	1.16		%	1.09		%	1.13		%
Return on average common equity	15.39			16.26			17.62			16.36			16.50
Efficiency ratio	65.12			65.25			59.76			58.17			62.43
BALANCE SHEET DATA (in thousands):
Assets	$	670,870		$	628,055		$	614,172		$	609,916		$	577,507
Deposits	576,376			534,437			521,860			518,696			477,274
Loans	484,622			467,963			448,567			434,749			410,926
Shareholders’ equity	43,446			42,477			40,929			39,526			38,411
Allowance for loan losses	7,257			7,120			6,892			6,558			6,239
TAX-EQUIVALENT YIELDS AND RATES:
Interest-earning assets	7.04		%	6.86		%	6.63		%	6.35		%	6.22		%
Interest-bearing liabilities	3.58			3.21			2.91			2.66			2.54
Net interest spread	3.46			3.65			3.72			3.69			3.68
Net interest margin	3.99			4.12			4.20			4.12			4.12
CREDIT QUALITY:
Nonperforming assets (in thousands)	$	2,552		$	3,781		$	4,539		$	5,733		$	4,777
Allowance for loan losses to period-end loans	1.50		%	1.52		%	1.54		%	1.51		%	1.52		%
Net charge offs to average loans	0.10			0.06			0.17			0.33			0.05
Nonperforming assets to loans and OREO	0.53			0.81			1.01			1.32			1.16
CAPITAL AND OTHER:
Total equity to assets	6.48		%	6.76		%	6.66		%	6.48		%	6.65		%
Tier I capital to average assets (leverage)	8.22			8.26			8.48			8.55			8.67
Tier I capital to risk-adjusted assets	9.85			9.93			10.26			10.40			10.65
Total capital to risk-adjusted assets	11.10			11.18			11.51			11.65			11.91
Number of banking offices	14			14			14			13			13
Number of ATMs	16			16			16			15			15
Number of employees	191			190			190			185			178

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with $671 million in assets and $576 million in deposits.  Unity Bank provides financial services to retail, corporate & small business customers through its 14 retail service centers located in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey. For additional information about Unity visit our website at www.unitybank.com or call (800) 618-BANK

This letter contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated future financial performance. 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 general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.

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