8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

October 24, 2008

Date of Report (Date of earliest event reported)

UNITY BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

New Jersey

(State or Other Jurisdiction of Incorporation)

1-12431	22-3282551
(Commission File Number)	(I.R.S. Employer Identification No.)

64 OLD HIGHWAY 22, CLINTON, NEW JERSEY, 08809

(Address of Principal Executive Office) (Zip Code)

(908) 730-7630

(Registrant's Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 r Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 r Soliciting material pursuant to Rule 14a12 under the Exchange Act (17 CFR 240.14a-12)

 r Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 r Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operation and Financial Condition

The Registrant issued a press release on October 24, 2008 announcing results for the third quarter and nine months ended September 30, 2008, the full text of which is incorporated by reference to this Item.

Item 9.01 Financial Statements and Exhibits.

(d)		Exhibits
EXHIBIT
99.1	Press release issued by the Registrant on October 24, 2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

	UNITY BANCORP, INC.
	(Registrant)                                                                                                                      ;
Date: October 24, 2008	By:	/s/     Alan J. Bedner
		Alan J. Bedner   EVP and Chief Financial Officer

EXHIBIT INDEX

EXHIBIT #	DESCRIPTION
99.1	Press release issued by the Registrant on October 24, 2008

EX-99.1

                                      

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800 618-BANK

 www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

October 24, 2008

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports Third Quarter and Nine Month Results

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported a net loss of $1.0 million, or $(0.14) per diluted share, for the quarter ended September 30, 2008, compared to net income of $1.1 million, or $0.14 per diluted share, for the quarter ended September 30, 2007.

For the nine months ended September 30, 2008, net income was $1.3 million, or $0.19 per diluted share, compared to $4.0 million, or $0.53 per diluted share for the same period a year ago.  Return on average assets and average common equity for the nine months ended September 30, 2008, were 0.22% and 3.77%, respectively, as compared to 0.77% and 11.57%, respectively, for the prior year’s comparable period.

Earnings for the quarter and nine months ended were impacted by an other-than-temporary impairment (“OTTI”) charge and sale of Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) perpetual callable preferred securities. Unity sold approximately $909 thousand in book value of these securities in August 2008 and recorded a pretax loss of approximately $518 thousand on this sale.  In addition, the market value of the remaining securities was written down as of September 30, 2008, due to actions by the Treasury of the United States and the OFHEO (now FHFA) placing Freddie Mac under conservatorship.  The aggregate amount of security losses and other-than-temporary impairment charges related to Freddie Mac perpetual preferred stock for the third quarter of 2008 was $1.4 million.

While the reported results for the three and nine month periods reflect the effects of the OTTI charge, they do not reflect the change in tax treatment enacted as part of the Emergency Economic Stabilization Act of 2008 (the “Act”), which was adopted on October 3, 2008. Under the Act, the Company is permitted to deduct the loss as an ordinary loss for tax purposes, thereby offsetting a portion of the Company’s ordinary income. However, since the Act was not enacted until the fourth quarter, the Company cannot recognize this tax benefit as part of its third quarter results. The tax benefit will be recognized in the fourth quarter, and it is expected to amount to approximately $239 thousand or $.03 per diluted share, based on the average shares outstanding for the quarter ended September 30, 2008.

James A. Hughes, Unity Bancorp’s President and CEO said, “The crisis in the financial markets has had a material impact on our operating results.  In addition to the charges we have taken on our investment in Freddie Mac preferred stock, we have significantly increased our provision for loan losses this quarter due to the inherent increase in credit risk resulting from the downturn in the economy.  Although Unity Bank was not a producer of subprime residential mortgage loans, the continued decline in real estate values has impacted the level of credit losses in our loan portfolios.  We are taking proactive steps to mitigate credit risk by aggressively dealing with problem loans and tightening our credit standards.  In addition, the shortage of credit in the marketplace has virtually eliminated the salability of SBA loans.  As a result, Unity has closed all SBA offices outside of our New Jersey, Pennsylvania and New York primary market.  We have taken aggressive steps to reduce expenses, and will continue to review all potential expense savings.”

Net Interest Income

Net interest income for the third quarter of 2008 was $7.1 million, compared to the $6.0 million earned in the third quarter of 2007, an increase of 19%. Net interest margin for the third quarter of 2008 was 3.55%, an 11 basis point improvement from the 3.44% reported in the third quarter of 2007. Average earning assets rose 15% from the third quarter of 2007. As a result of the lower rate environment, the yield on interest-earning assets decreased by 71 basis points to 6.45% in the third quarter of 2008, from 7.16% for the same period last year.  The cost of interest-bearing liabilities decreased 99 basis points from 4.27% in the third quarter of 2007 to 3.28% in the third quarter of 2008.  The decreased liability cost was primarily due to the lower interest rate environment.

Year-to-date, net interest income was $20.6 million, or 14% higher than the $18.1 million reported for the first nine months of 2007. Net interest margin for the nine months ended 2008 was 3.61%, relatively flat from the same period last year.  The Company's yield on earning assets decreased from 7.26% for the first nine months of 2007, to 6.64% for the first nine months of 2008. The Company's cost of interest-bearing liabilities decreased from 4.20% for the first nine months of 2007, to 3.43% for the first nine months of 2008.

Noninterest Income

Noninterest income, excluding losses on investment securities, totaled $1.1 million for the third quarter of 2008, as compared to $1.4 million for the same period last year, a decrease of 23%. Gains on sales of SBA loans amounted to $215 thousand in the third quarter of 2008, compared to $316 thousand for the quarter ended September 30, 2007, reflecting both a lower volume of loans sold and lower premiums on loans sold, due to current market conditions.  As a result of the significantly reduced premiums resulting from the recent credit crisis, Unity has decided to significantly reduce future SBA production.  Consequently, gains on SBA loans will decline substantially for the foreseeable future.  Service charges on deposit accounts amounted to $381 thousand for the third quarter of 2008, an increase of $43 thousand, or 13%, as compared to the same period last year, primarily due to higher levels of commercial analysis charges.

Page 1 of 11

Noninterest income, excluding losses on investment securities, totaled $3.7 million for the first nine months of 2008, as compared to $4.9 million for the same period last year, a decrease of 23%. Gains on sales of SBA loans amounted to $1.2 million for the first nine months of 2008, compared to $1.8 million for the same period a year ago, reflecting a lower volume of loans sold and lower premiums on loans sold, due to current market conditions.  Service charges on deposit accounts totaled $1.0 million and were flat from the same period a year ago.  Service and loan fee income amounted to $936 thousand for the nine months ended 2008, a decrease of $238 thousand, or 20%, as compared to the same period last year, primarily due to lower levels of prepayment penalties and SBA servicing income.  Other income amounted to $390 thousand for the nine months ended 2008, a decrease of $298 thousand, or 43%, as compared to the same period last year, primarily due to lower levels of loan referral fees.

Noninterest Expense

Noninterest expense for the third quarter of 2008 was $5.8 million, as compared to $5.5 million for the same period last year, an increase of 5%.  Compensation and benefits expense amounted to $2.9 million for the third quarter of 2008, an increase of $132 thousand, or 5% compared to the same period a year ago, primarily due to annual merit increases.  Processing and communications and occupancy expense for the third quarter of 2008, declined by 14% and 2%, respectively, from the same period a year ago due to reduced communications costs from renegotiated contracts and a decline in capital expenditures.  Professional fees amounted to $285 thousand for the third quarter of 2008, an increase of $169 thousand from the same period a year ago, due to increased consulting costs.  Loan servicing costs amounted to $206 thousand for the third quarter of 2008, an increase of $22 thousand from the same period a year ago, due to increased collection costs on delinquent loans.

For the first nine months of 2008, noninterest expense was $17.2 million, compared to $16.2 million in 2007, an increase of 6%. Compensation and benefits expense for the nine months ended 2008 amounted to $9.1 million, an increase of $654 thousand, or 8%, primarily related to an increase in average head count and annual merit increases. During September and October of 2008, Unity significantly reduced its head count.  The full benefit of this reduction will not be realized until the first quarter of 2009.  Processing and communications expense for the first nine months of 2008 declined 5% from the same period a year ago, due to renegotiated contracts and lower items processing costs.  Professional services expense for the first nine months amounted to $626 thousand an increase of $212 thousand, due to increased consulting costs related to tax planning and compliance with the Sarbanes Oxley Act of 2002.  Other expense for the nine months ended 2008 amounted to $1.7 million, an increase of $118 thousand or 8%, primarily related to the increase in FDIC deposit insurance premiums.

Financial Condition

At September 30, 2008, total assets were $864.1 million. Total loans were $685.0 million, up $117.4 million, or 21%, from $567.6 million at September 30, 2007. The increase was across all product lines. SBA, commercial, residential and consumer loans increased 23%, 10%, 78%, and 9% respectively.  Total deposits were $684.7 million, an increase of $72.5 million from September 30, 2007. This increase was partially due to a $103.4 million increase in time deposits, an $8.8 million increase in demand deposits and $5.6 million in interest bearing checking accounts, offset by a $45.4 million decline in savings deposits.

Asset Quality

At September 30, 2008, nonperforming assets totaled $11.0 million, an increase of $6.6 million compared to $4.3 million at September 30, 2007.  The increase in nonperforming assets was primarily related to three commercial mortgage loans totaling $5.2 million.  The composition of nonperforming loans was as follows: commercial $6.1 million, SBA $3.3 million, residential $1.3 million and consumer $262 thousand.  The allowance for loan losses totaled $9.9 million at September 30, 2008, and represented 1.45% of total loans, as compared to $8.2 million and 1.44% of total loans at September 30, 2007.  The provision for loan losses for the three months ended September 30, 2008, amounted to $2.1 million, an increase of $1.7 million from the same period a year ago.  Net charge-offs for the three months ended September 30, 2008, amounted to $1.1 million, compared to $264 thousand for the same period a year ago. The provision for loan losses for the first nine months of 2008 amounted to $3.2 million, an increase of $2.2 million from the same period a year ago.  During the first nine months of 2008, the Company had net charge-offs of $1.7 million, compared to $441 thousand for the same period a year ago.

Capital

As of September 30, 2008, shareholders’ equity was $46.5 million, and book value per common share was $6.55. As of September 30, 2008, the Company's leverage ratio was 7.42%. Tier I and total risk based capital ratios were 9.07% and 10.33%, respectively. All regulatory capital ratios exceeded the well-capitalized, federal capital adequacy requirements as of September 30, 2008.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $864 million in assets and $685 million in deposits.  Unity Bank provides financial services to retail, corporate and small business customers through its 16 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 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
 

Page 2 of 11

Unity Bancorp, Inc.
Consolidated Financial Highlights
(Dollars in thousands, except per share data)
										Sep. 08		vs.
BALANCE SHEET DATA:		Sep. 30, 2008			Jun. 30, 2008			Sep. 30, 2007		Jun. 08		Sep. 07
Assets	$	864,083		$	832,315		$	746,821		3.8	%	15.7	%
Deposits		684,680			671,881			612,215		1.9		11.8
Loans		685,023			643,039			567,597		6.5		20.7
Securities		99,410			106,972			108,476		(7.1)		(8.4)
Shareholders' equity		46,539			47,951			47,261		(2.9)		(1.5)
Allowance for loan losses		9,913			8,945			8,183		10.8		21.1
FINANCIAL DATA - QUARTER TO DATE:
Net income before taxes	$	(1,141)		$	1,599		$	1,482		(171.4)	%	(177.0)	%
Federal and state income tax provision		(139)			495			430		(128.1)		(132.3)
Net income		(1,002)			1,104			1,052		(190.8)		(195.2)
Per share-basic		(0.14)			0.16			0.15		(187.5)		(196.0)
Per share-diluted		(0.14)			0.15			0.14		(193.3)		(199.3)
Return on average assets		(0.47)	%		0.56	%		0.57	%	(183.9)		(182.5)
Return on average common equity		(8.45)			9.29			8.89		(190.9)		(195.0)
Efficiency ratio		70.51			69.59			74.23		1.3		(5.0)
FINANCIAL DATA - YEAR TO DATE:
Net income before taxes	$	2,328			-		$	5,781		-		(59.7)	%
Federal and state income tax provision		982			-			1,736		-		(43.4)
Net income		1,346			-			4,045		-		(66.7)
Per share-basic		0.19			-			0.55		-		(65.5)
Per share-diluted		0.19			-			0.53		-		(64.2)
Return on average assets		0.22	%		-			0.77	%	-		(71.4)
Return on average common equity		3.77			-			11.57		-		(67.4)
Efficiency ratio		70.68			-			70.57		-		0.2
SHARE INFORMATION:
Closing price per share	$	4.00		$	6.95		$	10.55		(42.4)	%	(62.1)	%
Cash dividends declared		0.00			0.05			0.05		-		-
Book value per share		6.55			6.76			6.61		(3.1)		(0.9)
Average diluted shares outstanding (QTD)		7,259			7,275			7,462		(0.2)		(2.7)
CAPITAL RATIOS:
Total equity to total assets		5.39	%		5.76	%		6.33	%	(6.4)	%	(14.8)	%
Tier I capital to average assets (leverage)		7.42			8.01			8.37		(7.4)		(11.4)
Tier I capital to risk-adjusted assets		9.07			9.42			10.51		(3.7)		(13.7)
Total risk-based capital		10.33			10.67			11.76		(3.2)		(12.2)
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	10,955		$	6,887		$	4,319		59.1	%	153.6	%
Net charge offs to average loans (QTD)		0.67	%		0.23	%		0.19	%	191.3		252.6
Allowance for loan losses to total loans		1.45			1.39			1.44		4.3		0.7
Nonperforming assets to total loans and OREO		1.60			1.07			0.76		49.5		110.5

Page 3 of 11

Unity Bancorp, Inc.
Consolidated Balance Sheets
(In thousands)							Sep. 08		vs.
		Sep. 30, 2008		Jun. 30, 2008		Sep. 30, 2007	Jun. 08		Sep. 07
ASSETS
Cash and due from banks	$	21,987	$	20,368	$	12,826	7.9	%	71.4	%
Federal funds sold and interest bearing deposits		29,356		33,678		32,495	(12.8)		(9.7)
Securities:
Available for sale		70,144		77,110		72,980	(9.0)		(3.9)
Held to maturity		29,266		29,862		35,496	(2.0)		(17.6)
Total securities		99,410		106,972		108,476	(7.1)		(8.4)
Loans:
SBA - Held for sale		19,863		25,605		17,014	(22.4)		16.7
SBA - Held to Maturity		82,551		75,988		66,255	8.6		24.6
Commercial		394,215		387,302		356,964	1.8		10.4
Residential mortgage		128,216		95,100		72,177	34.8		77.6
Consumer		60,178		59,044		55,187	1.9		9.0
Total loans		685,023		643,039		567,597	6.5		20.7
Less: Allowance for loan losses		9,913		8,945		8,183	10.8		21.1
Net loans		675,110		634,094		559,414	6.5		20.7
Goodwill and other intangibles		1,577		1,581		1,592	(0.3)		(0.9)
Premises and equipment, net		12,475		12,372		11,729	0.8		6.4
Accrued interest receivable		4,364		4,095		4,073	6.6		7.1
Loan servicing asset		1,721		1,877		2,139	(8.3)		(19.5)
Bank Owned Life Insurance		5,727		5,674		5,520	0.9		3.8
FHLB/ACBB Stock		5,307		4,407		3,720	20.4		42.7
Other assets		7,049		7,197		4,837	(2.1)		45.7
Total Assets	$	864,083	$	832,315	$	746,821	3.8	%	15.7	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	82,167	$	81,273	$	73,355	1.1	%	12.0	%
Interest-bearing deposits:
Interest bearing checking		87,587		88,551		81,985	(1.1)		6.8
Savings		148,026		180,665		193,387	(18.1)		(23.5)
Time, under $100,000		274,845		236,241		181,776	16.3		51.2
Time, $100,000 and over		92,055		85,151		81,712	8.1		12.7
Total deposits		684,680		671,881		612,215	1.9		11.8
Borrowed funds and subordinated debentures		130,465		110,465		85,465	18.1		52.7
Accrued interest payable		869		779		757	11.6		14.8
Accrued expenses and other liabilities		1,530		1,239		1,123	23.5		36.2
Total liabilities		817,544		784,364		699,560	4.2		16.9
Commitments and Contingencies		-		-		-
Shareholders' equity:
Common stock, no par value, 12,500 shares authorized		52,453		52,281		49,282	0.3		6.4
Retained earnings		591		1,593		2,128	(62.9)		(72.2)
Treasury stock at cost		(4,169)		(4,169)		(3,218)	-		29.6
Accumulated other comprehensive loss, net of tax		(2,336)		(1,754)		(931)	33.2		150.9
Total shareholders' equity		46,539		47,951		47,261	(2.9)		(1.5)
Total Liabilities and Shareholders' Equity	$	864,083	$	832,315	$	746,821	3.8	%	15.7	%
COMMON SHARES AT PERIOD END:
Issued		7,535		7,520		7,478
Outstanding		7,110		7,095		7,154
Treasury		425		425		324
N/M= Not meaningful

Page 4 of 11

Unity Bancorp, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
							Sep. 08		vs.
FOR THE THREE MONTHS ENDED:		Sep. 30, 2008		Jun. 30, 2008		Sep. 30, 2007	Jun. 08		Sep. 07
INTEREST INCOME
Fed funds sold and interest on deposits	$	113	$	111	$	390	1.8	%	(71.0)	%
FHLB/ACBB Stock		58		76		66	(23.7)		(12.1)
Securities:
Available for sale		907		932		888	(2.7)		2.1
Held to maturity		381		398		452	(4.3)		(15.7)
Total securities		1,288		1,330		1,340	(3.2)		(3.9)
Loans:
SBA		2,043		2,028		2,190	0.7		(6.7)
Commercial		6,877		6,667		6,600	3.1		4.2
Residential mortgage		1,720		1,209		1,047	42.3		64.3
Consumer		866		846		933	2.4		(7.2)
Total loan interest income		11,506		10,750		10,770	7.0		6.8
Total interest income		12,965		12,267		12,566	5.7		3.2
INTEREST EXPENSE
Interest bearing demand deposits		404		350		451	15.4		(10.4)
Savings deposits		774		918		1,995	(15.7)		(61.2)
Time deposits		3,553		3,006		2,994	18.2		18.7
Borrowed funds and subordinated debentures		1,152		1,155		1,153	(0.3)		(0.1)
Total interest expense		5,883		5,429		6,593	8.4		(10.8)
Net interest income		7,082		6,838		5,973	3.6		18.6
Provision for loan losses		2,100		650		450	223.1		366.7
Net interest income after provision for loan losses		4,982		6,188		5,523	(19.5)		(9.8)
NONINTEREST INCOME
Service charges on deposit accounts		381		341		338	11.7		12.7
Service and loan fee income		334		302		428	10.6		(22.0)
Gain on SBA loan sales		215		417		316	(48.4)		(32.0)
Bank owned life insurance		53		53		53	-		-
Net securities (loss) gains		(1,458)		(206)		22	100.0		100.0
Other income		131		121		303	8.3		(56.8)
Total noninterest income		(344)		1,028		1,460	(133.5)		(123.6)
NONINTEREST EXPENSES
Compensation and benefits		2,948		2,980		2,816	(1.1)		4.7
Processing and communications		554		544		645	1.8		(14.1)
Occupancy, net		688		713		699	(3.5)		(1.6)
Furniture and equipment		423		413		419	2.4		1.0
Professional fees		285		143		116	99.3		145.7
Loan servicing costs		206		138		184	49.3		12.0
Advertising		158		79		113	100.0		39.8
Other		517		607		509	(14.8)		1.6
Total noninterest expenses		5,779		5,617		5,501	2.9		5.1
Income before taxes		(1,141)		1,599		1,482	(171.4)		(177.0)
Federal and state income tax provision		(139)		495		430	(128.1)		(132.3)
Net Income	$	(1,002)	$	1,104	$	1,052	(190.8)	%	(195.2)	%
Net Income Per Common Share-Basic	$	(0.14)	$	0.16	$	0.15	(187.5)	%	(196.0)	%
Net Income Per Common Share-Diluted	$	(0.14)	$	0.15	$	0.14	(193.3)	%	(199.3)	%
AVERAGE COMMON SHARES OUTSTANDING:
Basic		7,107		7,092		7,215
Diluted		7,259		7,275		7,462

Page 5 of 11

Unity Bancorp, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
					Sep. 08 vs.
YEAR TO DATE		Sep. 30, 2008		Sep. 30, 2007	Sep. 07
INTEREST INCOME
Fed funds sold and interest on deposits	$	404	$	873	(53.7)	%
FHLB/ACBB Stock		234		180	30.0
Securities:
Available for sale		2,714		2,332	16.4
Held to maturity		1,216		1,470	(17.3)
Total securities		3,930		3,802	3.4
Loans:
SBA		6,399		6,732	(4.9)
Commercial		20,279		18,966	6.9
Residential mortgage		4,008		2,902	38.1
Consumer		2,613		2,788	(6.3)
Total loan interest income		33,299		31,388	6.1
Total interest income		37,867		36,243	4.5
INTEREST EXPENSE
Interest bearing demand deposits		1,120		1,480	(24.3)
Savings deposits		3,041		6,288	(51.6)
Time deposits		9,779		7,117	37.4
Borrowed funds and subordinated debentures		3,372		3,279	2.8
Total interest expense		17,312		18,164	(4.7)
Net interest income		20,555		18,079	13.7
Provision for loan losses		3,200		1,000	220.0
Net interest income after provision for loan losses		17,355		17,079	1.6
NONINTEREST INCOME
Service charges on deposit accounts		1,042		1,026	1.6
Service and loan fee income		936		1,174	(20.3)
Gain on SBA loan sales		1,208		1,819	(33.6)
Bank owned life insurance		157		148	6.1
Net securities (loss) gains		(1,594)		32	100.0
Other income		390		688	(43.3)
Total noninterest income		2,139		4,887	(56.2)
NONINTEREST EXPENSES
Compensation and benefits		9,148		8,494	7.7
Processing and communications		1,668		1,758	(5.1)
Occupancy, net		2,102		2,016	4.3
Furniture and equipment		1,224		1,213	0.9
Professional fees		626		414	51.2
Loan servicing costs		446		443	0.7
Advertising		299		312	(4.2)
Other		1,653		1,535	7.7
Total noninterest expenses		17,166		16,185	6.1
Income before taxes		2,328		5,781	(59.7)
Federal and state income tax provision		982		1,736	(43.4)
Net Income	$	1,346	$	4,045	(66.7)	%
Net Income Per Common Share-Basic	$	0.19	$	0.55	(65.5)	%
Net Income Per Common Share-Diluted	$	0.19	$	0.53	(64.2)	%
Average common shares outstanding:
Basic		7,091		7,291
Diluted		7,268		7,596

Page 6 of 11

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Three Months Ended
		September 30, 2008						June 30, 2008
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	24,118	$	113	1.86	%	$	22,351	$	111	2.00	%
FHLB/ACBB Stock		4,415		58	5.23			4,400		76	6.95
Securities:
Available for sale		72,658		920	5.06			76,613		961	5.02
Held to maturity		31,209		399	5.11			31,547		416	5.27
Total securities		103,867		1,319	5.08			108,160		1,377	5.09
Loans, net of unearned discount:
SBA		102,383		2,043	7.98			101,006		2,028	8.03
Commercial		393,626		6,877	6.95			378,389		6,667	7.09
Residential mortgage		114,058		1,720	6.03			79,985		1,209	6.05
Consumer		59,933		866	5.75			58,608		846	5.81
Total loans		670,000		11,506	6.84			617,988		10,750	6.99
Total interest-earning assets		802,400		12,996	6.45			752,899		12,314	6.57
Noninterest-earning assets:
Cash and due from banks		19,166						14,377
Allowance for loan losses		(9,092)						(8,814)
Other assets		32,229						31,262
Total noninterest-earning assets		42,303						36,825
Total Assets	$	844,703					$	789,724
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	87,903		404	1.83		$	82,195		350	1.71
Savings deposits		161,707		774	1.90			185,674		918	1.99
Time deposits		353,743		3,553	4.00			282,182		3,006	4.28
Total interest-bearing deposits		603,353		4,731	3.12			550,051		4,274	3.13
Borrowed funds and subordinated debentures		110,684		1,152	4.14			110,464		1,155	4.21
Total interest-bearing liabilities		714,037		5,883	3.28			660,515		5,429	3.31
Noninterest-bearing liabilities:
Demand deposits		81,157						78,879
Other liabilities		2,321						2,553
Total noninterest-bearing liabilities		83,478						81,432
Shareholders' equity		47,188						47,777
Total Liabilities and Shareholders' Equity	$	844,703					$	789,724
Net interest spread				7,113	3.17	%				6,885	3.26	%
Tax-equivalent basis adjustment				(31)						(47)
Net interest income			$	7,082					$	6,838
Net interest margin					3.55	%					3.66	%

Page 7 of 11

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Three Months Ended
		September 30, 2008						September 30, 2007
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	24,118	$	113	1.86	%	$	31,449	$	390	4.92	%
FHLB/ACBB Stock		4,415		58	5.23			3,509		66	7.46
Securities:
Available for sale		72,658		920	5.06			71,522		910	5.09
Held to maturity		31,209		399	5.11			36,047		471	5.23
Total securities		103,867		1,319	5.08			107,569		1,381	5.14
Loans, net of unearned discount:
SBA		102,383		2,043	7.98			81,693		2,190	10.72
Commercial		393,626		6,877	6.95			350,555		6,600	7.47
Residential mortgage		114,058		1,720	6.03			71,401		1,047	5.87
Consumer		59,933		866	5.75			54,064		933	6.85
Total loans		670,000		11,506	6.84			557,713		10,770	7.68
Total interest-earning assets		802,400		12,996	6.45			700,240		12,607	7.16
Noninterest-earning assets:
Cash and due from banks		19,166						14,911
Allowance for loan losses		(9,092)						(8,330)
Other assets		32,229						29,503
Total noninterest-earning assets		42,303						36,084
Total Assets	$	844,703					$	736,324
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	87,903		404	1.83		$	79,188		451	2.26
Savings deposits		161,707		774	1.90			199,483		1,995	3.97
Time deposits		353,743		3,553	4.00			243,358		2,994	4.88
Total interest-bearing deposits		603,353		4,731	3.12			522,029		5,440	4.13
Borrowed funds and subordinated debentures		110,684		1,152	4.14			89,892		1,153	5.09
Total interest-bearing liabilities		714,037		5,883	3.28			611,921		6,593	4.27
Noninterest-bearing liabilities:
Demand deposits		81,157						75,218
Other liabilities		2,321						2,216
Total noninterest-bearing liabilities		83,478						77,434
Shareholders' equity		47,188						46,969
Total Liabilities and Shareholders' Equity	$	844,703					$	736,324
Net interest spread				7,113	3.17	%				6,014	2.89	%
Tax-equivalent basis adjustment				(31)						(41)
Net interest income			$	7,082					$	5,973
Net interest margin					3.55	%					3.44	%

Page 8 of 11

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Year to Date
		September 30, 2008						September 30, 2007
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	23,135	$	404	2.33	%	$	23,749	$	873	4.91	%
FHLB/ACBB Stock		4,330		234	7.22			3,185		180	7.56
Securities:
Available for sale		73,337		2,789	5.07			65,208		2,378	4.86
Held to maturity		32,297		1,270	5.24			38,589		1,525	5.27
Total securities		105,634		4,059	5.12			103,797		3,903	5.01
Loans, net of unearned discount:
SBA		100,674		6,399	8.47			82,185		6,732	10.92
Commercial		381,497		20,279	7.10			334,875		18,966	7.57
Residential mortgage		89,551		4,008	5.97			66,551		2,902	5.81
Consumer		58,679		2,613	5.95			54,239		2,788	6.87
Total loans		630,401		33,299	7.05			537,850		31,388	7.79
Total interest-earning assets		763,500		37,996	6.64			668,581		36,344	7.26
Noninterest-earning assets:
Cash and due from banks		16,189						13,113
Allowance for loan losses		(8,866)						(8,078)
Other assets		31,268						29,363
Total noninterest-earning assets		38,591						34,398
Total Assets	$	802,091					$	702,979
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	83,050		1,120	1.80		$	87,095		1,480	2.27
Savings deposits		179,254		3,041	2.27			207,238		6,288	4.06
Time deposits		304,298		9,779	4.29			199,798		7,117	4.76
Total interest-bearing deposits		566,602		13,940	3.29			494,131		14,885	4.03
Borrowed funds and subordinated debentures		107,345		3,372	4.20			84,334		3,279	5.20
Total interest-bearing liabilities		673,947		17,312	3.43			578,465		18,164	4.20
Noninterest-bearing liabilities:
Demand deposits		78,259						75,303
Other liabilities		2,354						2,466
Total noninterest-bearing liabilities		80,613						77,769
Shareholders' equity		47,531						46,745
Total Liabilities and Shareholders' Equity	$	802,091					$	702,979
Net interest spread				20,684	3.21	%				18,180	3.06	%
Tax-equivalent basis adjustment				(129)						(101)
Net interest income			$	20,555					$	18,079
Net interest margin					3.61	%					3.63	%

Page 9 of 11

Unity Bancorp, Inc.
Allowance for Loan Losses and Loan Quality Schedules
(Dollars in thousands)
		9/30/2008		6/30/2008		3/31/2008		12/31/2007		9/30/2007
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of quarter	$	8,945	$	8,650	$	8,383	$	8,183	$	7,997
Provision charged to expense		2,100		650		450		550		450
		11,045		9,300		8,833		8,733		8,447
Less:  Charge offs
SBA		423		249		264		260		270
Commercial		700		60		-		126		24
Residential mortgage		-		-		25		0		-
Consumer		78		56		6		20		28
Total Charge Offs		1,201		365		295		406		322
Add:   Recoveries
SBA		40		5		60		53		41
Commercial		29		4		2		3		7
Residential mortgage		-		-		-		0		-
Consumer		-		1		50		0		10
Total Recoveries		69		10		112		56		58
Net Charge Offs		1,132		355		183		350		264
Balance, end of quarter	$	9,913	$	8,945	$	8,650	$	8,383	$	8,183
				-
LOAN QUALITY INFORMATION:
Nonperforming loans	$	10,637	$	6,621	$	4,142	$	5,461	$	4,185
Other real estate owned, net		318		266		266		106		134
Nonperforming assets	$	10,955	$	6,887	$	4,408	$	5,567	$	4,319
Loans 90 days past due and still accruing	$	3,532	$	76	$	546	$	155	$	340
Allowance for loan losses to:
Total loans at period end		1.45	%	1.39	%	1.43	%	1.42	%	1.44	%
Nonperforming loans		93.19		135.10		208.84		153.51		195.53
Nonperforming assets		90.49		129.88		196.23		150.58		189.47
Net charge offs to average loans (QTD)		0.67		0.23		0.12		0.24		0.19
Net charge offs to average loans (YTD)		0.35		0.18		0.12		0.14		0.11
Nonperforming loans to total loans		1.55		1.03		0.69		0.93		0.74
Nonperforming assets to total loans and OREO		1.60		1.07		0.73		0.94		0.76

Page 10 of 11

Unity Bancorp, Inc.
Quarterly Financial Data
		09/30/08		06/30/08		03/31/08		12/31/07		09/30/07
SUMMARY OF INCOME (in thousands) :
Interest income	$	12,965	$	12,267	$	12,635	$	12,657	$	12,566
Interest expense		5,883		5,429		6,000		6,310		6,593
Net interest income		7,082		6,838		6,635		6,347		5,973
Provision for loan losses		2,100		650		450		550		450
Net interest income after provision		4,982		6,188		6,185		5,797		5,523
Noninterest income		(344)		1,028		1,455		1,053		1,460
Noninterest expense		5,779		5,617		5,770		5,928		5,501
Income before income taxes		(1,141)		1,599		1,870		922		1,482
Federal and state income tax provision		(139)		495		626		242		430
Net Income		(1,002)		1,104		1,244		680		1,052
Net Income per Common Share:
Basic	$	(0.14)	$	0.16	$	0.18	$	0.10	$	0.15
Diluted		(0.14)		0.15		0.17		0.09		0.14
COMMON SHARE DATA:
Cash dividends declared	$	-	$	0.05	$	0.05	$	0.05	$	0.05
Book value at quarter end		6.55		6.76		6.76		6.70		6.61
Market value at quarter end		4.00		6.95		7.48		8.10		10.55
Average common shares outstanding: (000's)
Basic		7,107		7,092		7,075		7,107		7,215
Diluted		7,259		7,275		7,271		7,328		7,462
Common shares outstanding at period end (000's)		7,110		7,095		7,084		7,063		7,154
OPERATING RATIOS:
Return on average assets		(0.47)	%	0.56	%	0.65	%	0.36	%	0.57	%
Return on average common equity		(8.45)		9.29		10.50		5.78		8.89
Efficiency ratio		70.51		69.59		71.95		74.07		74.23
BALANCE SHEET DATA (in thousands):
Assets	$	864,083	$	832,315	$	807,874	$	752,196	$	746,821
Deposits		684,680		671,881		642,282		601,268		612,215
Loans		685,023		643,039		602,943		590,132		567,597
Shareholders' equity		46,539		47,951		47,896		47,260		47,261
Allowance for loan losses		9,913		8,945		8,650		8,383		8,183
TAX-EQUIVALENT YIELDS AND RATES:
Interest-earning assets		6.45	%	6.57	%	6.93	%	7.15	%	7.16	%
Interest-bearing liabilities		3.28		3.31		3.73		4.05		4.27
Net interest spread		3.17		3.26		3.20		3.10		2.89
Net interest margin		3.55		3.66		3.64		3.62		3.44
CREDIT QUALITY:
Nonperforming assets (in thousands)	$	10,955	$	6,887	$	4,408	$	5,567	$	4,319
Allowance for loan losses to period-end loans		1.45	%	1.39	%	1.43	%	1.42	%	1.44	%
Net charge offs to average loans		0.67		0.23		0.12		0.24		0.19
Nonperforming assets to loans and OREO		1.60		1.07		0.73		0.94		0.76
CAPITAL AND OTHER:
Total equity to assets		5.39	%	5.76	%	5.93	%	6.28	%	6.33	%
Tier I capital to average assets (leverage)		7.42		8.01		8.06		8.25		8.37
Tier I capital to risk-adjusted assets		9.07		9.42		9.66		9.81		10.51
Total capital to risk-adjusted assets		10.33		10.67		10.91		11.06		11.76
Number of banking offices		16		16		17		17		16
Number of ATMs		19		19		20		20		19
Number of employees		176		191		188		201		197

Page 11 of 11