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

January 30, 2014

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

(Commission File Number)

22-3282551

(IRS Employer Identification No.)

64 Old Highway 22

Clinton, NJ 08809

(Address of Principal Executive Office)

(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:

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

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

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

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

Item 2.02Results of Operation and Financial Condition

The Registrant issued a press release on January 30, 2014 announcing results for the three and twelvemonths ended December 31, 2013, the full text of which is incorporated by reference to this Item.

Item 9.01Financial Statements and Exhibits.

(d) Exhibits   

EXHIBIT 99.1 Press release issued by the Registrant on January 30, 2014

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: January 30, 2014

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 January 30, 2014

EX-99.1

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800-618-BANK

www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

January 30, 2014

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports 66.8% Increase in Quarterly Earnings

And 56.2% Increase in Annual Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.3 million, or $0.17 per diluted share, for the three months ended December 31, 2013, a 66.8% increase compared to $759 thousand, or $0.10 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.57% and 8.87%, respectively, compared to 0.57% and 5.34% for the same period a year ago. 

Fourth quarter highlights include:

× 4.2% growth in commercial loans since September 30, 2013 and 20.5% since year-end 2012.

× 5.2% growth in residential mortgage loans since September 30, 2013 and 37.8% since year-end 2012.

× Closed $30.8 million in residential mortgage loans for the quarter and $153.7 million for the twelve month period. 

× 1.6% deposit growth during the fourth quarter included the planned outflow of a short-term $36 million noninterest-bearing demand deposit. Since year-end 2012, total deposits increased 13.9% with an 18.9% increase in noninterest-bearing demand deposits.

× Growth in net interest income compared to the third quarter 2013 and the prior year’s quarter due to strong commercial and residential loan portfolio growth.

× Continued reduction in noninterest expenses compared to the prior quarter periods.

× Decreased nonperforming loans and other real estate owned compared to the prior quarter and year-end periods. 

“We have continued to build on our positive momentum,” reported James A. Hughes, President and CEO.  “We have had a record year, with loans growing in excess of 15% and deposits growing by nearly 14%.   We are now seeing this growth contribute to an increase in top line revenues, and we expect this trend to continue.  We look forward to continued improvement in 2014.”

For the year ended December 31, 2013, net income available to common shareholders totaled $4.1 million, or $0.53 per diluted share, a 56.2% increase compared to $2.6 million or $0.34 per diluted share for 2012.  Return on average assets and average common equity for the annual periods were 0.61% and 7.22%, respectively, compared to 0.53% and 4.80% for the same period a year ago. 

Net Interest Income

Year over year, net interest income was flat at $27.4 million; however, net interest income increased $326 thousand to $7.1 million for the quarter ended December 31, 2013 compared to the prior year’s quarter.  Net interest income also showed an increase of $192 thousand over the quarter ending September 30, 2013.    The strong growth in commercial and residential mortgage loan volume over the past year has helped to offset lower yields on our securities and loan portfolios.  We expect net interest income to continue to expand in future quarters due to strong loan growth.   The net interest margin was 3.42% and 3.53% for the quarter and year-to-date periods, respectively.

Provision for Loan Losses

The provision for loan losses for the quarters ended December 31, 2013 and December 31, 2012 was $800 thousand.  For the twelve month period ended December 31, 2013, the provision declined to $2.4 million from $4.0 million in 2012.  The reduced provision, year over year, reflects an improvement in credit quality and a lower level of net charge-offs. 

Noninterest Income

Noninterest income decreased $537 thousand to $1.5 million for the three months and $734 thousand to $6.6 million for the year ended December 31, 2013, compared to the same periods last year. The decreases during both periods were driven by lower sales volume of residential mortgage loans.  In addition, there was a reduced volume of SBA loan sales and consequent gains realized.  These decreases were partially offset by increased service and fee income on loans and bank owned life insurance (“BOLI”) income. 

During the quarter, $15.8 million in residential mortgage loans were sold at a gain of $312 thousand, compared to $34.0 million sold at a gain of $748 thousand during the prior year’s quarter.  For the year, $78.4 million in residential mortgage loans were sold at a gain of $1.7 million, compared to $105.5 million sold at a gain of $2.3 million during the prior year’s period.  We do not anticipate the rise in interest rates to have a material impact on our residential mortgage origination volume.

SBA loan sales totaled $2.1 million with gains on sale of $262 thousand for the fourth quarter 2012.  There were no sales during the quarter ended December 31, 2013.  For the twelve month period, SBA loan sales totaled $6.3 million with gains on sale of $628 thousand compared to sales of $6.8 million and $688 thousand in gains during the prior year.  We anticipate an increase in the volume of sales in 2014, due to the addition of SBA business development officers.

Noninterest Expense

Noninterest expense decreased $273 thousand to $5.9 million for the three months ended December 31, 2013, while year-to-date expense decreased $300 thousand to $24.0 million.  The decreases in each of these periods were the result of lower mortgage commissions, reduced salary compensation from position vacancies and lower occupancy expense as a result of cost savings realized from the purchase of three of our previously leased locations.  Partially offsetting these decreases were increased processing and communications expenses related to merchant services, electronic banking and check cashing services. Other notable expense fluctuations included a decrease in other expenses during the quarter compared to the prior year period due to a retail loss in 2012 reflected in noninterest expense during the year ago period.   On a year-to-date basis, advertising expenses declined based on the timing of retail related promotions and the utilization of cost effective avenues such as social media, loan collection costs remain elevated due to higher appraisal, insurance and other collection costs, and recruiting and director expenses increased.

Financial Condition

At December 31, 2013, total assets were $921.1 million, an increase of $101.4 million from the prior year-end:

× Total loans increased $91.7 million or 15.6%, to $678.7 million at December 31, 2013. This growth came in our commercial and residential mortgage loan portfolios which increased $61.8 million and $50.0 million, respectively.  Future loan growth is expected to be primarily in commercial loans, while the Company plans to continue shrinking it’s out of market SBA portfolio.

× Total deposits increased $89.9 million or 13.9%, to $738.7 million at December 31, 2013, due to growth in time deposits, noninterest-bearing demand deposits, and interest-bearing demand deposits.  Time deposits have increased $80.4 million from year-end, with the majority of this coming in the third and fourth quarters in response to a certificate of deposit (“CD”) promotion and the addition of brokered CDs.

× Shareholders’ equity was $57.2 million at December 31, 2013, a decrease of $20.3 million from year-end 2012, due primarily to the redemption of $20.6 million in preferred stock issued in connection with the CPP and repurchase of the related warrants for $2.7 million. 

× Book value per common share was $7.55 as of December 31, 2013.

× At December 31, 2013, the leverage, Tier I and Total Risk Based Capital ratios were 8.08%, 10.74% and 11.99% respectively, all in excess of the ratios required to be deemed “well-capitalized”. 

Credit Quality

× Nonperforming assets totaled $15.9 million at December 31, 2013, or 2.34% of total loans and OREO, compared to $19.3 million or 3.28% of total loans and OREO at year-end 2012.

× OREO decreased $1.2 million to $633 thousand at December 31, 2013, due to the sale of 12 properties.

× The allowance for loan losses totaled $13.1 million at December 31, 2013, or 1.94% of total loans.

× Net charge-offs were $1.2 million for the three months ended December 31, 2013, compared to $1.3 million for the same period a year ago.  For the year ended December 31, 2013, net charge-offs were $4.0 million compared to $5.6 million for the prior year period, representing a 29.0% decline.

× Troubled debt restructurings (“TDRs”) decreased $6.7 million from year-end to $7.9 million due to payoffs, note sales, a refinanced transaction and principal pay downs, partially offset by the addition of two loans.  At December 31, 2013, 94.1% of our TDRs were performing. 

“In 2014, we plan to raise a limited amount of capital through a common stock rights offering.  This capital will allow for continued loan and asset growth and will allow our existing shareholders to increase their investment in Unity," said James A. Hughes, President and CEO.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $921 million in assets and $739 million in deposits.  Unity Bank provides financial services to retail, corporate and small business customers through its 15 retail service centers located in Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County, Pennsylvania.  For additional information about Unity, visit our website at www.unitybank.com , or call 800- 618-BANK.

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

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

UNITY BANCORP, INC.

SUMMARY FINANCIAL HIGHLIGHTS

December 31, 2013

										December 31, 2013 vs.
										September 30, 2013		December 31, 2012
(In thousands, except percentages and per share amounts)	December 31, 2013			September 30, 2013			December 31, 2012			%		%
BALANCE SHEET DATA:
Total assets	$	921,118		$	876,101		$	819,730		5.1	%	12.4	%
Total deposits		738,698			727,112			648,760		1.6		13.9
Total loans		678,701			660,617			587,036		2.7		15.6
Total securities		107,514			106,906			111,053		0.6		(3.2)
Total shareholders' equity		57,173			55,939			77,510		2.2		(26.2)
Allowance for loan losses		(13,141)			(13,550)			(14,758)		(3.0)		(11.0)
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes	$	1,872		$	1,986		$	1,810		(5.7)		3.4
Provision for income taxes		606			684			643		(11.4)		(5.8)
Net income		1,266			1,302			1,167		(2.8)		8.5
Preferred stock dividends and discount accretion		-			119			408		(100.0)		(100.0)
Income available to common shareholders	$	1,266		$	1,183		$	759		7.0		66.8
Net income per common share - Basic (1)	$	0.17		$	0.16		$	0.10		6.3		70.0
Net income per common share - Diluted (1)	$	0.17		$	0.15		$	0.10		13.3		70.0
Return on average assets		0.57	%		0.62	%		0.57	%	(8.1)		-
Return on average equity (2)		8.87	%		8.25	%		5.34	%	7.5		66.1
Efficiency ratio		68.87	%		69.93	%		70.66	%	(1.5)		(2.5)
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes	$	7,682					$	6,470				18.7
Provision for income taxes		2,567						2,226				15.3
Net income		5,115						4,244				20.5
Preferred stock dividends and discount accretion		988						1,602				(38.3)
Income available to common shareholders	$	4,127					$	2,642				56.2
Net income per common share - Basic (1)	$	0.55					$	0.35				57.1
Net income per common share - Diluted (1)	$	0.53					$	0.34				55.9
Return on average assets		0.61	%					0.53	%			15.1
Return on average equity (2)		7.22	%					4.80	%			50.4
Efficiency ratio		71.34	%					71.06	%			0.4
SHARE INFORMATION:
Market price per share	$	7.66		$	7.46		$	6.24		2.7		22.8
Dividends paid	$	0.01		$	0.01		$	-		-		100.0
Book value per common share	$	7.55		$	7.41		$	7.62		1.9		(0.9)
Average diluted shares outstanding (QTD)		7,618			7,822			7,818		(2.6)		(2.6)
CAPITAL RATIOS:
Total equity to total assets		6.21	%		6.38	%		9.46	%	(2.7)		(34.4)
Leverage ratio		8.08	%		8.33	%		11.14	%	(3.0)		(27.5)
Tier 1 risk-based capital ratio		10.74	%		10.81	%		14.85	%	(0.6)		(27.7)
Total risk-based capital ratio		11.99	%		12.07	%		16.12	%	(0.7)		(25.6)
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	15,916		$	17,903		$	19,294		(11.1)		(17.5)
QTD net chargeoffs (annualized) to QTD average loans		0.72	%		0.84	%		0.90	%	(14.3)		(20.0)
Allowance for loan losses to total loans		1.94	%		2.05	%		2.51	%	(5.4)		(22.7)
Nonperforming assets to total loans and OREO		2.34	%		2.70	%		3.28	%	(13.3)		(28.7)
Nonperforming assets to total assets		1.73	%		2.04	%		2.35	%	(15.2)	%	(26.4)	%

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

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

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2013

							December 31, 2013 vs.
							September 30, 2013		December 31, 2012
(In thousands, except percentages)	December 31, 2013		September 30, 2013		December 31, 2012		%		%
ASSETS
Cash and due from banks	$	24,272	$	27,602	$	23,705	(12.1)	%	2.4	%
Federal funds sold and interest-bearing deposits		75,132		47,124		70,487	59.4		6.6
Cash and cash equivalents		99,404		74,726		94,192	33.0		5.5
Securities:
Securities available for sale		81,133		80,926		89,538	0.3		(9.4)
Securities held to maturity		26,381		25,980		21,515	1.5		22.6
Total securities		107,514		106,906		111,053	0.6		(3.2)
Loans:
SBA loans held for sale		6,673		5,893		6,937	13.2		(3.8)
SBA loans held to maturity		48,918		50,445		58,593	(3.0)		(16.5)
SBA 504 loans		31,564		37,041		41,438	(14.8)		(23.8)
Commercial loans		363,340		348,625		301,564	4.2		20.5
Residential mortgage loans		182,067		173,129		132,094	5.2		37.8
Consumer loans		46,139		45,484		46,410	1.4		(0.6)
Total loans		678,701		660,617		587,036	2.7		15.6
Allowance for loan losses		(13,141)		(13,550)		(14,758)	3.0		11.0
Net loans		665,560		647,067		572,278	2.9		16.3
Premises and equipment, net		15,672		15,671		12,062	-		29.9
Bank owned life insurance ("BOLI")		12,749		12,648		9,402	0.8		35.6
Deferred tax assets		6,752		6,880		5,954	(1.9)		13.4
Federal Home Loan Bank stock		5,392		3,952		3,989	36.4		35.2
Accrued interest receivable		3,272		3,131		3,298	4.5		(0.8)
Other real estate owned ("OREO")		633		1,249		1,826	(49.3)		(65.3)
Prepaid FDIC insurance		-		-		1,929	-		(100.0)
Goodwill and other intangibles		1,516		1,516		1,516	-		-
Other assets		2,654		2,355		2,231	12.7		19.0
Total assets	$	921,118	$	876,101	$	819,730	5.1	%	12.4	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits	$	136,035	$	163,617	$	114,424	(16.9)	%	18.9	%
Interest-bearing demand deposits		130,806		119,579		114,838	9.4		13.9
Savings deposits		266,503		280,892		294,533	(5.1)		(9.5)
Time deposits, under $100,000		108,258		95,990		76,994	12.8		40.6
Time deposits, $100,000 and over		97,096		67,034		47,971	44.8		102.4
Total deposits		738,698		727,112		648,760	1.6		13.9
Borrowed funds		107,000		75,000		75,000	42.7		42.7
Subordinated debentures		15,465		15,465		15,465	-		-
Accrued interest payable		454		430		434	5.6		4.6
Accrued expenses and other liabilities		2,328		2,155		2,561	8.0		(9.1)
Total liabilities		863,945		820,162		742,220	5.3		16.4
Shareholders' equity:
Cumulative perpetual preferred stock		-		-		20,115	-		(100.0)
Common stock		52,051		51,944		54,274	0.2		(4.1)
Retained earnings		5,598		4,408		1,788	27.0		213.1
Accumulated other comprehensive income (loss)		(476)		(413)		1,333	(15.3)		(135.7)
Total shareholders' equity		57,173		55,939		77,510	2.2		(26.2)
Total liabilities and shareholders' equity	$	921,118	$	876,101	$	819,730	5.1	%	12.4	%
Preferred shares		-		-		21
Issued and outstanding common shares		7,577		7,546		7,534

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

December 31, 2013

										December 31, 2013 vs.
	For the three months ended									September 30, 2013					December 31, 2012
(In thousands, except percentages and per share amounts)	December 31, 2013			September 30, 2013			December 31, 2012			$		%			$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	9		$	9		$	16		$	-		-	%	$	(7)		(43.8)	%
Federal Home Loan Bank stock		40			40			44			-		-			(4)		(9.1)
Securities:
Taxable		585			591			644			(6)		(1.0)			(59)		(9.2)
Tax-exempt		106			109			103			(3)		(2.8)			3		2.9
Total securities		691			700			747			(9)		(1.3)			(56)		(7.5)
Loans:
SBA loans		519			586			779			(67)		(11.4)			(260)		(33.4)
SBA 504 loans		408			411			548			(3)		(0.7)			(140)		(25.5)
Commercial loans		4,684			4,387			4,270			297		6.8			414		9.7
Residential mortgage loans		1,953			1,861			1,577			92		4.9			376		23.8
Consumer loans		462			480			521			(18)		(3.8)			(59)		(11.3)
Total loans		8,026			7,725			7,695			301		3.9			331		4.3
Total interest income		8,766			8,474			8,502			292		3.4			264		3.1
INTEREST EXPENSE
Interest-bearing demand deposits		102			90			119			12		13.3			(17)		(14.3)
Savings deposits		186			183			251			3		1.6			(65)		(25.9)
Time deposits		598			510			575			88		17.3			23		4.0
Borrowed funds and subordinated debentures		817			820			820			(3)		(0.4)			(3)		(0.4)
Total interest expense		1,703			1,603			1,765			100		6.2			(62)		(3.5)
Net interest income		7,063			6,871			6,737			192		2.8			326		4.8
Provision for loan losses		800			600			800			200		33.3			-		-
Net interest income after provision for loan losses		6,263			6,271			5,937			(8)		(0.1)			326		5.5
NONINTEREST INCOME
Branch fee income		412			398			397			14		3.5			15		3.8
Service and loan fee income		396			351			297			45		12.8			99		33.3
Gain on sale of SBA loans held for sale, net		21			280			262			(259)		(92.5)			(241)		(92.0)
Gain on sale of mortgage loans, net		312			314			748			(2)		(0.6)			(436)		(58.3)
BOLI income		102			100			76			2		2.0			26		34.2
Net security gains		22			34			59			(12)		(35.3)			(37)		(62.7)
Other income		206			173			169			33		19.1			37		21.9
Total noninterest income		1,471			1,650			2,008			(179)		(10.8)			(537)		(26.7)
NONINTEREST EXPENSE
Compensation and benefits		2,925			2,984			3,054			(59)		(2.0)			(129)		(4.2)
Occupancy		652			598			683			54		9.0			(31)		(4.5)
Processing and communications		588			598			549			(10)		(1.7)			39		7.1
Furniture and equipment		368			374			395			(6)		(1.6)			(27)		(6.8)
Professional services		194			210			192			(16)		(7.6)			2		1.0
Loan collection costs		229			188			229			41		21.8			-		-
OREO expenses		94			174			86			(80)		(46.0)			8		9.3
Deposit insurance		173			165			163			8		4.8			10		6.1
Advertising		228			218			210			10		4.6			18		8.6
Other expenses		411			426			574			(15)		(3.5)			(163)		(28.4)
Total noninterest expense		5,862			5,935			6,135			(73)		(1.2)			(273)		(4.4)
Income before provision for income taxes		1,872			1,986			1,810			(114)		(5.7)			62		3.4
Provision for income taxes		606			684			643			(78)		(11.4)			(37)		(5.8)
Net income		1,266			1,302			1,167			(36)		(2.8)			99		8.5
Preferred stock dividends and discount accretion		-			119			408			(119)		(100.0)			(408)		(100.0)
Income available to common shareholders	$	1,266		$	1,183		$	759		$	83		7.0	%	$	507		66.8	%
Effective tax rate		32.4	%		34.4	%		35.5	%
Net income per common share - Basic (1)	$	0.17		$	0.16		$	0.10
Net income per common share - Diluted (1)	$	0.17		$	0.15		$	0.10
Weighted average common shares outstanding - Basic		7,560			7,545			7,514
Weighted average common shares outstanding - Diluted		7,618			7,822			7,818

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

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

December 31, 2013

	For the twelve months ended December 31,						Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	2013			2012			$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	39		$	72		$	(33)		(45.8)	%
Federal Home Loan Bank stock		159			189			(30)		(15.9)
Securities:
Taxable		2,443			2,823			(380)		(13.5)
Tax-exempt		460			473			(13)		(2.7)
Total securities		2,903			3,296			(393)		(11.9)
Loans:
SBA loans		2,660			3,430			(770)		(22.4)
SBA 504 loans		1,911			2,645			(734)		(27.8)
Commercial loans		17,322			16,982			340		2.0
Residential mortgage loans		7,013			6,445			568		8.8
Consumer loans		1,947			2,144			(197)		(9.2)
Total loans		30,853			31,646			(793)		(2.5)
Total interest income		33,954			35,203			(1,249)		(3.5)
INTEREST EXPENSE
Interest-bearing demand deposits		383			486			(103)		(21.2)
Savings deposits		710			1,185			(475)		(40.1)
Time deposits		2,191			2,796			(605)		(21.6)
Borrowed funds and subordinated debentures		3,245			3,307			(62)		(1.9)
Total interest expense		6,529			7,774			(1,245)		(16.0)
Net interest income		27,425			27,429			(4)		-
Provision for loan losses		2,350			4,000			(1,650)		(41.3)
Net interest income after provision for loan losses		25,075			23,429			1,646		7.0
NONINTEREST INCOME
Branch fee income		1,505			1,528			(23)		(1.5)
Service and loan fee income		1,370			1,252			118		9.4
Gain on sale of SBA loans held for sale, net		628			688			(60)		(8.7)
Gain on sale of mortgage loans, net		1,650			2,274			(624)		(27.4)
BOLI income		347			296			51		17.2
Net security gains		390			573			(183)		(31.9)
Other income		714			727			(13)		(1.8)
Total noninterest income		6,604			7,338			(734)		(10.0)
NONINTEREST EXPENSE
Compensation and benefits		12,251			12,560			(309)		(2.5)
Occupancy		2,571			2,722			(151)		(5.5)
Processing and communications		2,309			2,180			129		5.9
Furniture and equipment		1,478			1,480			(2)		(0.1)
Professional services		828			789			39		4.9
Loan collection costs		822			682			140		20.5
OREO expenses		458			483			(25)		(5.2)
Deposit insurance		666			664			2		0.3
Advertising		747			839			(92)		(11.0)
Other expenses		1,867			1,898			(31)		(1.6)
Total noninterest expense		23,997			24,297			(300)		(1.2)
Income before provision for income taxes		7,682			6,470			1,212		18.7
Provision for income taxes		2,567			2,226			341		15.3
Net income		5,115			4,244			871		20.5
Preferred stock dividends and discount accretion		988			1,602			(614)		(38.3)
Income available to common shareholders	$	4,127		$	2,642		$	1,485		56.2	%
Effective tax rate		33.4	%		34.4	%
Net income per common share - Basic (1)	$	0.55		$	0.35
Net income per common share - Diluted (1)	$	0.53		$	0.34
Weighted average common shares outstanding - Basic		7,547			7,477
Weighted average common shares outstanding - Diluted		7,810			7,794

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

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

December 31, 2013

	For the three months ended
	December 31, 2013							September 30, 2013
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	46,533	$	9		0.08	%	$	25,841	$	9		0.14	%
Federal Home Loan Bank stock		4,009		40		3.96			4,022		40		3.95
Securities:
Taxable		89,275		585		2.62			87,694		591		2.70
Tax-exempt		16,975		157		3.70			18,474		162		3.51
Total securities (A)		106,250		742		2.79			106,168		753		2.84
Loans:
SBA loans		55,536		519		3.74			59,755		586		3.92
SBA 504 loans		33,253		408		4.87			37,971		411		4.29
Commercial loans		356,939		4,684		5.21			335,404		4,387		5.19
Residential mortgage loans		176,880		1,953		4.42			163,805		1,861		4.54
Consumer loans		45,708		462		4.01			45,709		480		4.17
Total loans (B)		668,316		8,026		4.78			642,644		7,725		4.78
Total interest-earning assets	$	825,108	$	8,817		4.25	%	$	778,675	$	8,527		4.36	%
Noninterest-earning assets:
Cash and due from banks		23,877							24,367
Allowance for loan losses		(13,653)							(14,310)
Other assets		43,147							44,184
Total noninterest-earning assets		53,371							54,241
Total assets	$	878,479						$	832,916
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	122,977	$	102		0.33	%	$	115,085	$	90		0.31	%
Savings deposits		268,745		186		0.27			277,501		183		0.26
Time deposits		186,200		598		1.27			150,533		510		1.34
Total interest-bearing deposits		577,922		886		0.60			543,119		783		0.57
Borrowed funds and subordinated debentures		91,738		817		3.48			92,025		820		3.49
Total interest-bearing liabilities	$	669,660	$	1,703		0.99	%	$	635,144	$	1,603		0.99	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		149,252							137,711
Other liabilities		2,946							2,918
Total noninterest-bearing liabilities		152,198							140,629
Total shareholders' equity		56,621							57,143
Total liabilities and shareholders' equity	$	878,479						$	832,916
Net interest spread			$	7,114		3.26	%			$	6,924		3.37	%
Tax-equivalent basis adjustment				(51)							(53)
Net interest income			$	7,063						$	6,871
Net interest margin						3.42	%						3.53	%

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

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

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

December 31, 2013

	For the three months ended
	December 31, 2013							December 31, 2012
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	46,533	$	9		0.08	%	$	61,710	$	16		0.10	%
Federal Home Loan Bank stock		4,009		40		3.96			3,990		44		4.39
Securities:
Taxable		89,275		585		2.62			95,626		644		2.69
Tax-exempt		16,975		157		3.70			14,172		153		4.32
Total securities (A)		106,250		742		2.79			109,798		797		2.91
Loans:
SBA loans		55,536		519		3.74			66,669		779		4.67
SBA 504 loans		33,253		408		4.87			41,584		548		5.24
Commercial loans		356,939		4,684		5.21			304,413		4,270		5.58
Residential mortgage loans		176,880		1,953		4.42			133,799		1,577		4.71
Consumer loans		45,708		462		4.01			46,571		521		4.45
Total loans (B)		668,316		8,026		4.78			593,036		7,695		5.17
Total interest-earning assets	$	825,108	$	8,817		4.25	%	$	768,534	$	8,552		4.44	%
Noninterest-earning assets:
Cash and due from banks		23,877							18,386
Allowance for loan losses		(13,653)							(15,566)
Other assets		43,147							38,312
Total noninterest-earning assets		53,371							41,132
Total assets	$	878,479						$	809,666
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	122,977	$	102		0.33	%	$	112,958	$	119		0.42	%
Savings deposits		268,745		186		0.27			287,047		251		0.35
Time deposits		186,200		598		1.27			126,233		575		1.81
Total interest-bearing deposits		577,922		886		0.60			526,238		945		0.72
Borrowed funds and subordinated debentures		91,738		817		3.48			90,498		820		3.55
Total interest-bearing liabilities	$	669,660	$	1,703		0.99	%	$	616,736	$	1,765		1.14	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		149,252							113,164
Other liabilities		2,946							3,181
Total noninterest-bearing liabilities		152,198							116,345
Total shareholders' equity		56,621							76,585
Total liabilities and shareholders' equity	$	878,479						$	809,666
Net interest spread			$	7,114		3.26	%			$	6,787		3.30	%
Tax-equivalent basis adjustment				(51)							(50)
Net interest income			$	7,063						$	6,737
Net interest margin						3.42	%						3.51	%

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

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

UNITY BANCORP, INC.

YEAR TO DATE NET INTEREST MARGIN

December 31, 2013

	For the twelve months ended
	December 31, 2013							December 31, 2012
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	39,971	$	39		0.10	%	$	49,355	$	72		0.15	%
Federal Home Loan Bank stock		4,007		159		3.97			4,015		189		4.71
Securities:
Taxable		93,132		2,443		2.62			100,365		2,823		2.81
Tax-exempt		18,587		681		3.66			15,455		701		4.54
Total securities (A)		111,719		3,124		2.79			115,820		3,524		3.04
Loans:
SBA loans		60,891		2,660		4.37			68,536		3,430		5.00
SBA 504 loans		37,920		1,911		5.04			46,153		2,645		5.73
Commercial loans		328,229		17,322		5.28			299,820		16,982		5.66
Residential mortgage loans		155,237		7,013		4.52			134,214		6,445		4.80
Consumer loans		45,705		1,947		4.26			46,487		2,144		4.61
Total loans (B)		627,982		30,853		4.92			595,210		31,646		5.31
Total interest-earning assets	$	783,679	$	34,175		4.37	%	$	764,400	$	35,431		4.63	%
Noninterest-earning assets:
Cash and due from banks		22,728							16,665
Allowance for loan losses		(14,423)							(16,458)
Other assets		41,688							39,625
Total noninterest-earning assets		49,993							39,832
Total assets	$	833,672						$	804,232
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	118,289	$	383		0.32	%	$	108,825	$	486		0.45	%
Savings deposits		277,891		710		0.26			282,115		1,185		0.42
Time deposits		146,115		2,191		1.50			138,233		2,796		2.02
Total interest-bearing deposits		542,295		3,284		0.61			529,173		4,467		0.84
Borrowed funds and subordinated debentures		91,475		3,245		3.50			90,473		3,307		3.60
Total interest-bearing liabilities	$	633,770	$	6,529		1.03	%	$	619,646	$	7,774		1.24	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		130,768							106,412
Other liabilities		3,164							3,335
Total noninterest-bearing liabilities		133,932							109,747
Total shareholders' equity		65,970							74,839
Total liabilities and shareholders' equity	$	833,672						$	804,232
Net interest spread			$	27,646		3.34	%			$	27,657		3.39	%
Tax-equivalent basis adjustment				(221)							(228)
Net interest income			$	27,425						$	27,429
Net interest margin						3.53	%						3.62	%

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

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

UNITY BANCORP, INC.

QUARTERLY ALLOWANCE FOR LOAN LOSSES AND LOAN QUALITY SCHEDULES

December 31, 2013

Amounts in thousands, except percentages	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	13,550		$	14,309		$	14,345		$	14,758		$	15,294
Provision for loan losses charged to expense		800			600			300			650			800
		14,350			14,909			14,645			15,408			16,094
Less: Chargeoffs
SBA loans		128			211			167			570			251
SBA 504 loans		203			590			200			200			-
Commercial loans		564			253			200			375			1,190
Residential mortgage loans		125			125			-			125			152
Consumer loans		300			229			-			59			-
Total chargeoffs		1,320			1,408			567			1,329			1,593
Add: Recoveries
SBA loans		93			12			8			137			22
SBA 504 loans		3			-			154			25			50
Commercial loans		14			24			65			101			184
Residential mortgage loans		-			13			2			2			-
Consumer loans		1			-			2			1			1
Total recoveries		111			49			231			266			257
Net chargeoffs		1,209			1,359			336			1,063			1,336
Balance, end of period	$	13,141		$	13,550		$	14,309		$	14,345		$	14,758
LOAN QUALITY INFORMATION:
Nonperforming loans (1)	$	15,283		$	16,654		$	13,357		$	14,904		$	17,468
Other real estate owned ("OREO")		633			1,249			752			1,052			1,826
Nonperforming assets		15,916			17,903			14,109			15,956			19,294
Less:  Amount guaranteed by SBA		540			592			736			1,863			1,849
Net nonperforming assets	$	15,376		$	17,311		$	13,373		$	14,093		$	17,445
Loans 90 days past due & still accruing	$	19		$	861		$	429		$	632		$	109
Performing Troubled Debt Restructurings (TDRs)	$	7,452		$	7,705		$	10,649		$	15,068		$	13,576
(1) Nonperforming TDRs included in nonperforming loans		467			1,765			1,658			1,084			1,087
Total TDRs	$	7,919		$	9,470		$	12,307		$	16,152		$	14,663
Allowance for loan losses to:
Total loans at quarter end		1.94	%		2.05	%		2.30	%		2.40	%		2.51	%
Nonperforming loans (1)		85.98			81.36			107.13			96.25			84.49
Nonperforming assets		82.56			75.69			101.42			89.90			76.49
Net nonperforming assets		85.46			78.27			107.00			101.79			84.60
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans		0.25	%		1.32	%		1.01	%		2.69	%		1.37	%
SBA 504 loans		2.39			6.16			0.47			1.73			(0.48)
Commercial loans		0.61			0.27			0.17			0.36			1.31
Residential mortgage loans		0.28			0.27			(0.01)			0.37			0.45
Consumer loans		2.60			1.99			(0.02)			0.51			(0.01)
Total loans		0.72	%		0.84	%		0.22	%		0.73	%		0.90	%
Nonperforming loans to total loans		2.25	%		2.52	%		2.15	%		2.50	%		2.98	%
Nonperforming loans and TDRs to total loans		3.35			3.69			3.86			5.02			5.29
Nonperforming assets to total loans and OREO		2.34			2.70			2.26			2.67			3.28
Nonperforming assets to total assets		1.73			2.04			1.71			1.93			2.35

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

December 31, 2013

(In thousands, except percentages and per share amounts)	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012
SUMMARY OF INCOME:
Total interest income	$	8,766		$	8,474		$	8,401		$	8,313		$	8,502
Total interest expense		1,703			1,603			1,599			1,624			1,765
Net interest income		7,063			6,871			6,802			6,689			6,737
Provision for loan losses		800			600			300			650			800
Net interest income after provision for loan losses		6,263			6,271			6,502			6,039			5,937
Total noninterest income		1,471			1,650			1,658			1,825			2,008
Total noninterest expense		5,862			5,935			6,074			6,126			6,135
Income before provision for income taxes		1,872			1,986			2,086			1,738			1,810
Provision for income taxes		606			684			739			538			643
Net income		1,266			1,302			1,347			1,200			1,167
Preferred stock dividends and discount accretion		-			119			465			404			408
Income available to common shareholders	$	1,266		$	1,183		$	882		$	796		$	759
Net income per common share - Basic (1)	$	0.17		$	0.16		$	0.12		$	0.11		$	0.10
Net income per common share - Diluted (1)	$	0.17		$	0.15		$	0.11		$	0.10		$	0.10
COMMON SHARE DATA:
Market price per share	$	7.66		$	7.46		$	7.10		$	6.51		$	6.24
Dividends paid	$	0.01		$	0.01		$	0.01		$	-		$	-
Book value per common share	$	7.55		$	7.41		$	7.70		$	7.67		$	7.62
Weighted average common shares outstanding - Basic		7,560			7,545			7,544			7,538			7,514
Weighted average common shares outstanding - Diluted		7,618			7,822			7,911			7,845			7,818
Issued and outstanding common shares		7,577			7,546			7,544			7,548			7,534
OPERATING RATIOS (Annualized):
Return on average assets		0.57	%		0.62	%		0.67	%		0.59	%		0.57	%
Return on average equity (2)		8.87			8.25			6.11			5.65			5.34
Efficiency ratio		68.87			69.93			72.72			73.91			70.66
BALANCE SHEET DATA:
Total assets	$	921,118		$	876,101		$	824,575		$	827,182		$	819,730
Total deposits		738,698			727,112			628,369			652,117			648,760
Total loans		678,701			660,617			622,316			596,571			587,036
Total securities		107,514			106,906			111,269			119,334			111,053
Total shareholders' equity		57,173			55,939			68,287			78,157			77,510
Allowance for loan losses		(13,141)			(13,550)			(14,309)			(14,345)			(14,758)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets		4.25	%		4.36	%		4.51	%		4.33	%		4.44	%
Interest-bearing liabilities		0.99			0.99			1.06			1.04			1.14
Net interest spread		3.26			3.37			3.45			3.29			3.30
Net interest margin		3.42			3.53			3.66			3.52			3.51
CREDIT QUALITY:
Nonperforming assets		15,916			17,903			14,109			15,956			19,294
QTD net chargeoffs (annualized) to QTD average loans		0.72	%		0.84	%		0.22	%		0.73	%		0.90	%
Allowance for loan losses to total loans		1.94			2.05			2.30			2.40			2.51
Nonperforming assets to total loans and OREO		2.34			2.70			2.26			2.67			3.28
Nonperforming assets to total assets		1.73			2.04			1.71			1.93			2.35
CAPITAL RATIOS AND OTHER:
Total equity to total assets		6.21	%		6.38	%		8.28	%		9.45	%		9.46	%
Leverage ratio		8.08			8.33			10.23			11.12			11.14
Tier 1 risk-based capital ratio		10.74			10.81			13.36			14.54			14.85
Total risk-based capital ratio		11.99			12.07			14.63			15.80			16.12
Number of banking offices		15			15			15			15			15
Number of ATMs		16			16			16			16			16
Number of employees		163			160			153			166			165

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

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