Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800-618-BANK

www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

April 25, 2016

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports 41% Increase in Net Income,

Excluding Nonrecurring Gain

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported a 41% increase in earnings, excluding the effect of a nonrecurring gain during the quarter.   Major contributing factors included strong loan growth, increased levels of noninterest income, improved credit quality and expense control. 

Net income, excluding a nonrecurring gain on the repurchase of subordinated debentures, was $2.7 million, or $0.31 per diluted share, for the three months ended March 31, 2016, a 41% increase compared to net income of $1.9 million, or $0.23 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter, excluding the nonrecurring gain, were 1.00% and 13.67%, respectively, compared to 0.82% and 11.08% for the same period a year ago. 

During the quarter, the Company repurchased $5.0 million of its outstanding subordinated “capital qualifying” debentures at a price of $0.5475 per dollar, thus reducing its outstanding subordinated debt to $10.3 million.  The repurchase resulted in a nonrecurring pre-tax gain of approximately $2.26 million.   James A. Hughes, President and CEO stated, “Although the securities were an inexpensive form of Tier I capital, the discount opportunity was too large to pass up.”   Management believes excluding the nonrecurring gain from net income and reporting it in a format which is not in compliance with generally accepted accounting principles (“non-GAAP”) is beneficial to the reader and provides better comparability of the Company’s performance over both periods. 

Net income, including the nonrecurring gain on the repurchase of subordinated debentures, was $4.2 million, or $0.48 per diluted share, for the three months ended March 31, 2016, compared to net income of $1.9 million, or $0.23 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 1.54% and 21.05%, respectively, compared to 0.82% and 11.08% for the same period a year ago. 

First quarter highlights also included:

· Announced plans to open a 16th branch location in Somerville, New Jersey.

· Purchased our Clinton, Corporate headquarters for $4.1 million.

· Noninterest-bearing demand deposits rose 1.5% and total deposits increased 3.6% since year-end 2015.

· Net interest income increased 12.1% compared to the prior year’s quarter due to strong loan growth. 

· Net interest margin declined to 3.48% this quarter compared to 3.64% in the prior year’s quarter due to a larger Fed Funds balance.

· Credit quality continued to improve.  Loan charge-offs declined and nonperforming loans fell 24.7%.

Mr. Hughes commented on this quarter’s performance, stating “I am a firm believer that it is our culture of service that gives us the competitive edge.  Our strategy is simple; to reach out to every small business in our footprint and sell our personalized banking services.  It is our focus on our mission that drives us.  It is our culture of respect and service that brings our results.  We have a team of highly engaged bankers that make Unity a great place to work and bank.”

Net Interest Income

Net interest income, our core driver of earnings, increased $967 thousand to $9.0 million for the quarter ended March 31, 2016 compared to the prior year’s period.  This increase was the result of strong commercial, residential mortgage and consumer loan growth over the past year.  Quarterly average commercial loans increased $57.8 million, average residential mortgage loans have increased $38.1 million and consumer loans increased $16.0 million compared to the first quarter in 2015.

The cost of interest-bearing liabilities equaled 1.06% and 1.05% respectively.  While the cost of deposits rose 13 basis points to 0.81%, the cost of borrowed funds and subordinated debentures decreased 74 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) over the past year.   The increase in the cost of deposits was primarily driven by the intentional growth of five year time deposits.

The net interest margin decreased 16 basis points to 3.48% for the quarter ended March 31, 2016 compared to 3.64% for the prior year’s quarter.  This decrease may be attributed to a larger balance of Fed Funds and an increase in interest paid on deposits.

Provision for Loan Losses

The provision for loan losses was stable at $200 thousand for the quarters ended March 31, 2016 and 2015. Quarterly net charge-offs declined $245 thousand to $325 thousand compared to the first quarter 2015 and nonperforming loans have declined 25% to $6.9 million.

Noninterest Income

Noninterest income increased $375 thousand to $2.0 million for the three months ended March 31, 2016, compared to the same period last year.  Quarterly noninterest income increased due to higher gains on the sale of residential mortgage loans.  

During the quarter, $25.0 million in residential mortgage loans were sold at a gain of $715 thousand, compared to $15.0 million in loans sold at a gain of $344 thousand during the prior year’s quarter.  Our mortgage pipeline remains strong and we expect a good year in mortgage originations.   Since 2014, all residential mortgage loans that are held for investment are adjustable rate mortgages or fixed rate mortgages with a term of 15 years or less. 

In addition to the increase in noninterest income related to gains on mortgage sales  noted above, other notable items included: 

· Branch fee income declined in the quarterly period due to lower levels of overdraft fees, partially offset by increased fees from our commercial analysis checking accounts.

· Service and loan fee income declined in the quarterly period due to reduced loan late charges and payoff fees, combined with lower SBA servicing fees as our serviced loan portfolio declined compared to the same quarter a year ago. 

· SBA loan sales totaled $3.5 million during each quarter with net gains on sale of $308 thousand and $363 thousand, respectively.  Lower net gains on sale were realized during the first quarter 2016 due to the sale of shorter-term loans with lower premiums on sale compared to the prior year’s quarter.  

· Security gains totaled $94 thousand for the quarter. There were no gains on the sale of securities in the quarter-ended March 31, 2015.

Noninterest Expense

Noninterest expense increased $105 thousand or 1.6% to $6.6 million for the quarter.  The increases were due to higher employee benefit expenses such as medical insurance, retirement and 401(k) plan benefits, higher network and software related maintenance costs to upgrade our technology, and advertising expenses.    Occupancy expenses fell due to lower seasonal snow removal expense and property rental expense due to the purchase of our headquarters.  In addition, loan and OREO expenses have declined as credit quality improves.    

Financial Condition

At March 31, 2016, total assets were $1.1 billion, an increase of $36.1 million from year-end 2015:

· Total loans decreased $2.0 million or 0.2%, from year-end 2015 to $887.0 million at March 31, 2016. Consumer and commercial loan portfolios increased $2.1 million and $1.7 million, respectively.  Residential mortgage loans decreased $3.6 million while SBA loans remained flat after $3.5 million in sales.   The decline in total loans was due to slightly lower production levels, large prepayments and the sale of residential portfolio loans.  Our pipeline in all categories remains strong and loan growth is expected in future quarters.

· Other assets increased due to the purchase of the Company’s Clinton, New Jersey headquarters for $4.12 million.

· Total deposits increased $32.3 million or 3.6%, to $926.8 million at March 31, 2016 due to our eSavings promotion and $10.0 million in brokered time deposits. 

· Borrowed funds increased $3.0 million to $95.0 million at March 31, 2016, due to reduced overnight borrowings of $7.0 million compared to year-end 2015 and the addition of a $10.0 million adjustable rate borrowing.  Also, during the quarter, $10.0 million in Federal Home Loan Bank borrowings at an average cost of 4.27% were extended to 2020 at an average rate of 2.10%. 

· Subordinated debentures decreased from year-end due to the repurchase of $5.0 million at a discount of $0.5475 per dollar.

· Shareholders’ equity was $82.3 million at March 31, 2016, an increase of $3.8 million from year-end 2015, due to year-to-date net income less the dividends paid to shareholders.

· Book value per common share was $9.72 as of March 31, 2016.

· At March 31, 2016, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 8.31%, 9.77%, 10.97% and 12.22% respectively, all in excess of the ratios required to be deemed “well-capitalized”. 

Credit Quality

· Nonperforming assets totaled $8.3 million at March 31, 2016, or 0.93% of total loans and OREO, compared to $8.9 million or 0.99% of total loans and OREO at year-end 2015. 

· Nonperforming loans decreased 5.14% to $6.9 million at March 31, 2016 from year-end.

· OREO decreased $174 thousand to $1.4 million at March 31, 2016 from year-end.

· The allowance for loan losses totaled $12.6 million at March 31, 2016, or 1.42% of total loans compared to $12.2 million and 1.55% at March 31, 2015.

· Net charge-offs were $325 thousand for the three months ended March 31, 2016, compared to $570 thousand for the same period a year ago. 

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.1 billion in assets and $927 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

NON-GAAP

March 31, 2016

										Mar. 31, 2016 vs.
										Dec. 31, 2015		Mar. 31, 2015
(In thousands, except percentages and per share amounts)	Mar. 31, 2016			Dec. 31, 2015			Mar. 31, 2015			%		%
BALANCE SHEET DATA:
Total assets	$	1,120,955		$	1,084,866		$	1,035,404		3.3	%	8.3	%
Total deposits		926,819			894,493			789,441		3.6		17.4
Total loans		886,990			888,958			784,642		(0.2)		13.0
Total securities		66,729			71,336			77,308		(6.5)		(13.7)
Total shareholders' equity		82,276			78,470			71,987		4.9		14.3
Allowance for loan losses		(12,634)			(12,759)			(12,181)		1.0		3.7
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes and gain on subordinated debenture	$	4,196		$	3,954		$	2,959		6.1		41.8
Provision for income taxes		1,464			1,315			1,020		11.3		43.5
Net income before gain on subordinated debenture	$	2,732		$	2,639		$	1,939		3.5		40.9
Gain on subordinated debenture, net of tax		1,473			-			-		NM		NM
Net income	$	4,205		$	2,639		$	1,939		59.3		116.9
Net income before gain on subordinated debenture per:
Common share - basic	$	0.32		$	0.31		$	0.23		3.2		39.1
Common share - diluted	$	0.31		$	0.31		$	0.23		-		34.8
Net income per:
Common share - basic	$	0.50		$	0.31		$	0.23		61.3		117.4
Common share - diluted	$	0.48		$	0.31		$	0.23		54.8		108.7
Net income before gain on subordinated debenture ratios:
Return on average assets		1.00	%		1.00	%		0.82	%	-		22.0
Return on average equity		13.67	%		13.59	%		11.08	%	0.6		23.4
Efficiency ratio		60.05	%		62.81	%		67.30	%	(4.4)		(10.8)
Net income ratios:
Return on average assets		1.54	%		1.00	%		0.82	%	54.0		87.8
Return on average equity		21.05	%		13.59	%		11.08	%	54.9		90.0
Efficiency ratio		50.16	%		62.81	%		67.30	%	(20.1)		(25.5)
Net interest margin		3.48	%		3.60	%		3.64	%	(3.3)		(4.4)
SHARE INFORMATION:
Market price per share	$	11.37		$	12.47		$	9.08		(8.8)		25.2
Dividends paid	$	0.04		$	0.04		$	0.03		-		0.3
Book value per common share	$	9.72		$	9.30		$	8.55		4.5		13.7
Average diluted shares outstanding (QTD)		8,682			8,547			8,514		1.6		2.0
CAPITAL RATIOS:
Total equity to total assets		7.34	%		7.23	%		6.95	%	1.5		5.6
Leverage ratio		8.31	%		8.82	%		8.94	%	(5.8)		(7.0)
Common equity tier 1 risk-based capital ratio		9.77	%		9.37	%		9.25	%	n/a		n/a
Tier 1 risk-based capital ratio		10.97	%		11.18	%		11.22	%	(1.9)		(2.2)
Total risk-based capital ratio		12.22	%		12.43	%		12.48	%	(1.7)		(2.1)

CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	8,304		$	8,851		$	11,116		(6.2)		(25.3)
QTD net chargeoffs (annualized) to QTD average loans		0.15	%		(0.11)	%		0.30	%	236.4		(50.0)
Allowance for loan losses to total loans		1.42	%		1.44	%		1.55	%	(1.4)		(8.4)
Nonperforming assets to total loans and OREO		0.93	%		0.99	%		1.41	%	(6.1)		(34.0)
Nonperforming assets to total assets		0.74	%		0.82	%		1.07	%	(9.8)	%	(30.8)	%

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2016

								Mar. 31, 2016 vs.
								Dec. 31, 2015		Mar. 31, 2015
(In thousands, except percentages)	Mar. 31, 2016			Dec. 31, 2015		Mar. 31, 2015		%		%
ASSETS
Cash and due from banks	$	26,919		$	22,681	$	25,282	18.7	%	6.5	%
Federal funds sold and interest-bearing deposits		99,554			65,476		108,563	52.0		(8.3)
Cash and cash equivalents		126,473			88,157		133,845	43.5		(5.5)
Securities:
Securities available for sale		48,566			52,865		57,875	(8.1)		(16.1)
Securities held to maturity		18,163			18,471		19,433	(1.7)		(6.5)
Total securities		66,729			71,336		77,308	(6.5)		(13.7)
Loans:
SBA loans held for sale		13,224			13,114		6,929	0.8		90.9
SBA loans held for investment		38,863			39,393		39,155	(1.3)		(0.7)
SBA 504 loans		27,482			29,353		29,893	(6.4)		(8.1)
Commercial loans		467,266			465,518		410,742	0.4		13.8
Residential mortgage loans		260,957			264,523		235,371	(1.3)		10.9
Consumer loans		79,198			77,057		62,552	2.8		26.6
Total loans		886,990			888,958		784,642	(0.2)		13.0
Allowance for loan losses		(12,634)			(12,759)		(12,181)	1.0		3.7
Net loans		874,356			876,199		772,461	(0.2)		13.2
Premises and equipment, net		19,211			15,171		15,465	26.6		24.2
Bank owned life insurance ("BOLI")		13,475			13,381		13,095	0.7		2.9
Deferred tax assets		6,029			5,968		5,743	1.0		5.0
Federal Home Loan Bank ("FHLB") stock		4,735			4,600		7,382	2.9		(35.9)
Accrued interest receivable		3,839			3,884		3,637	(1.2)		5.6
Other real estate owned ("OREO")		1,417			1,591		1,975	(10.9)		(28.3)
Goodwill and other intangibles		1,516			1,516		1,516	-		-
Other assets		3,175			3,063		2,977	3.7		6.7
Total assets	$	1,120,955		$	1,084,866	$	1,035,404	3.3	%	8.3	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	188,026		$	185,267	$	163,535	1.5	%	15.0	%
Interest-bearing demand		128,774			130,605		124,110	(1.4)		3.8
Savings		320,982			301,447		290,843	6.5		10.4
Time, under $100,000		145,784	-		134,468		112,671	8.4		29.4
Time, $100,000 and over, under $250,000		106,419			104,106		78,411	2.2		35.7
Time, $250,000 and over		36,834			38,600		19,871	(4.6)		85.4
Total deposits		926,819			894,493		789,441	3.6		17.4
Borrowed funds		95,000			92,000		155,000	3.3		(38.7)
Subordinated debentures		10,310			15,465		15,465	(33.3)		(33.3)
Accrued interest payable		390			461		478	(15.4)		(18.4)
Accrued expenses and other liabilities		6,160			3,977		3,033	54.9		103.1
Total liabilities		1,038,679			1,006,396		963,417	3.2		7.8
Shareholders' equity:
Common stock		59,546			59,371		58,927	0.3		1.1
Retained earnings		23,431			19,566		12,880	19.8		81.9
Accumulated other comprehensive (loss) income		(701)			(467)		180	NM		NM
Total shareholders' equity		82,276			78,470		71,987	4.9		14.3
Total liabilities and shareholders' equity	$	1,120,955		$	1,084,866	$	1,035,404	3.3	%	8.3	%
Issued and outstanding common shares		8,468			8,436		8,423

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

NON-GAAP

March 31, 2016

										Mar. 31, 2016 vs.
	For the three months ended									Dec. 31, 2015					Mar. 31, 2015
(In thousands, except percentages and per share amounts)	Mar. 31, 2016			Dec. 31, 2015			Mar. 31, 2015			$		%			$		%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	44		$	13		$	9		$	31		238.5	%	$	35		388.9	%
FHLB stock		52			37			44			15		40.5			8		18.2
Securities:
Taxable		363			360			387			3		0.8			(24)		(6.2)
Tax-exempt		62			70			72			(8)		(11.4)			(10)		(13.9)
Total securities		425			430			459			(5)		(1.2)			(34)		(7.4)
Loans:		-			-			-
SBA loans		721			713			679			8		1.1			42		6.2
SBA 504 loans		385			346			346			39		11.3			39		11.3
Commercial loans		5,676			5,637			5,066			39		0.7			610		12.0
Residential mortgage loans		2,942			2,939			2,582			3		0.1			360		13.9
Consumer loans		931			880			699			51		5.8			232		33.2
Total loans		10,655			10,515			9,372			140		1.3			1,283		13.7
Total interest income		11,176			10,995			9,884			181		1.6			1,292		13.1
INTEREST EXPENSE
Interest-bearing demand deposits		137			121			106			16		13.2			31		29.2
Savings deposits		366			298			264			68		22.8			102		38.6
Time deposits		951			910			686			41		4.5			265		38.6
Borrowed funds and subordinated debentures		735			686			808			49		7.1			(73)		(9.0)
Total interest expense		2,189			2,015			1,864			174		8.6			325		17.4
Net interest income		8,987			8,980			8,020			7		0.1			967		12.1
Provision for loan losses		200			100			200			100		100.0			-		-
Net interest income after provision for loan losses		8,787			8,880			7,820			(93)		(1.0)			967		12.4
NONINTEREST INCOME
Branch fee income		333			402			346			(69)		(17.2)			(13)		(3.8)
Service and loan fee income		255			266			296			(11)		(4.1)			(41)		(13.9)
Gain on sale of SBA loans held for sale, net		308			533			363			(225)		(42.2)			(55)		(15.2)
Gain on sale of mortgage loans, net		715			379			344			336		88.7			371		107.8
BOLI income		94			96			94			(2)		(2.1)			-		-
Net security gains		94			-			-			94		100.0			94		100.0
Other income		217			244			198			(27)		(11.1)			19		9.6
Total noninterest income		2,016			1,920			1,641			96		5.0			375		22.9
NONINTEREST EXPENSE
Compensation and benefits		3,549			3,528			3,472			21		0.6			77		2.2
Occupancy		618			644			672			(26)		(4.0)			(54)		(8.0)
Processing and communications		598			620			596			(22)		(3.5)			2		0.3
Furniture and equipment		420			455			373			(35)		(7.7)			47		12.6
Professional services		255			213			236			42		19.7			19		8.1
Loan costs		198			113			221			85		75.2			(23)		(10.4)
OREO expenses		24			265			35			(241)		(90.9)			(11)		(31.4)
Deposit insurance		160			173			183			(13)		(7.5)			(23)		(12.6)
Advertising		241			302			182			(61)		(20.2)			59		32.4
Other expenses		544			533			532			11		2.1			12		2.3
Total noninterest expense		6,607			6,846			6,502			(239)		(3.5)			105		1.6
Income before provision for income taxes and gain on subordinated debenture		4,196			3,954			2,959			242		6.1			1,237		41.8
Provision for income taxes		1,464			1,315			1,020			149		11.3			444		43.5
Net income before gain on subordinated debenture	$	2,732		$	2,639		$	1,939		$	93		3.5	%	$	793		40.9	%
Gain on subordinated debenture, net of tax		1,473			-			-			1,473		NM			1,473		NM
Net income	$	4,205		$	2,639		$	1,939		$	1,566		59.3	%	$	2,266		116.9	%
Effective tax rate		34.9	%		33.3	%		34.5	%

Net income before gain on subordinated debenture per:
Common share - basic	$	0.32	$	0.31	$	0.23
Common share - diluted	$	0.31	$	0.31	$	0.23
Net income per:
Common share - basic	$	0.50	$	0.31	$	0.23
Common share - diluted	$	0.48	$	0.31	$	0.23
Weighted average common shares outstanding - Basic		8,459		8,430		8,417
Weighted average common shares outstanding - Diluted		8,682		8,547		8,514

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

March 31, 2016

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	March 31, 2016							December 31, 2015
	Average Balance		Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	78,681	$	44		0.22	%	$	47,421	$	13		0.11	%
FHLB stock		4,549		52		4.60			3,700		37		3.97
Securities:
Taxable		59,152		363		2.47			59,425		360		2.40
Tax-exempt		9,548		94		3.96			11,564		104		3.57
Total securities (A)		68,700		457		2.68			70,989		464		2.59
Loans:
SBA loans		53,942		721		5.38			54,912		713		5.15
SBA 504 loans		29,232		385		5.30			29,319		346		4.68
Commercial loans		463,927		5,676		4.92			452,494		5,637		4.94
Residential mortgage loans		264,208		2,942		4.48			259,938		2,939		4.49
Consumer loans		78,328		931		4.78			75,789		880		4.61
Total loans (B)		889,637		10,655		4.82			872,452		10,515		4.78
Total interest-earning assets	$	1,041,567	$	11,208		4.33	%	$	994,562	$	11,029		4.40	%
Noninterest-earning assets:
Cash and due from banks		27,006							24,214
Allowance for loan losses		(12,926)							(12,801)
Other assets		45,486							44,055
Total noninterest-earning assets		59,566							55,468
Total assets	$	1,101,133						$	1,050,030
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	131,339	$	137		0.42	%	$	131,800	$	121		0.36	%
Total savings deposits		310,251		366		0.47			295,013		298		0.40
Total time deposits		282,110		951		1.36			271,647		910		1.33
Total interest-bearing deposits		723,700		1,454		0.81			698,460		1,329		0.75
Borrowed funds and subordinated debentures		104,350		735		2.83			87,465		686		3.11
Total interest-bearing liabilities	$	828,050	$	2,189		1.06	%	$	785,925	$	2,015		1.02	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		187,226							182,024
Other liabilities		5,528							5,056
Total noninterest-bearing liabilities		192,754							187,080
Total shareholders' equity		80,329							77,025
Total liabilities and shareholders' equity	$	1,101,133						$	1,050,030
Net interest spread			$	9,019		3.27	%			$	9,014		3.38	%
Tax-equivalent basis adjustment				(32)							(34)
Net interest income			$	8,987						$	8,980
Net interest margin						3.48	%						3.60	%

(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 35 percent for 2016 and 34 percent for 2015 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

March 31, 2016

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	March 31, 2016								March 31, 2015
	Average Balance			Interest		Rate/Yield			Average Balance		Interest		Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	78,681		$	44		0.22	%	$	37,280	$	9		0.10	%
FHLB stock		4,549			52		4.60			3,847		44		4.64
Securities:
Taxable		59,152			363		2.47			67,046		387		2.34
Tax-exempt		9,548			94		3.96			11,984		106		3.59
Total securities (A)		68,700			457		2.68			79,030		493		2.53
Loans:
SBA loans		53,942			721		5.38			48,405		679		5.69
SBA 504 loans		29,232			385		5.30			33,397		346		4.20
Commercial loans		463,927			5,676		4.92			406,095		5,066		5.06
Residential mortgage loans		264,208			2,942		4.48			226,125		2,582		4.63
Consumer loans		78,328			931		4.78			62,355		699		4.55
Total loans (B)		889,637			10,655		4.82			776,377		9,372		4.90
Total interest-earning assets	$	1,041,567		$	11,208		4.33	%	$	896,534	$	9,918		4.49	%
Noninterest-earning assets:
Cash and due from banks		27,006								29,908
Allowance for loan losses		(12,926)	`							(12,701)
Other assets		45,486								43,206
Total noninterest-earning assets		59,566								60,413
Total assets	$	1,101,133							$	956,947
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	131,339		$	137		0.42	%	$	126,593	$	106		0.34	%
Total savings deposits		310,251			366		0.47			290,006		264		0.37
Total time deposits		282,110			951		1.36			211,425		686		1.32
Total interest-bearing deposits		723,700			1,454		0.81			628,024		1,056		0.68
Borrowed funds and subordinated debentures		104,350			735		2.83			91,909		808		3.57
Total interest-bearing liabilities	$	828,050		$	2,189		1.06	%	$	719,933	$	1,864		1.05	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits		187,226								161,729
Other liabilities		5,528								4,307
Total noninterest-bearing liabilities		192,754								166,036
Total shareholders' equity		80,329								70,978
Total liabilities and shareholders' equity	$	1,101,133							$	956,947
Net interest spread				$	9,019		3.27	%			$	8,054		3.44	%
Tax-equivalent basis adjustment					(32)							(34)
Net interest income				$	8,987						$	8,020
Net interest margin							3.48	%						3.64	%

UNITY BANCORP, INC.

QUARTERLY ALLOWANCE FOR LOAN LOSSES AND LOAN QUALITY SCHEDULES

March 31, 2016

Amounts in thousands, except percentages	Mar. 31, 2016			Dec. 31, 2015			Sept. 30, 2015			Jun. 30, 2015			Mar. 31, 2015
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	12,759		$	12,421		$	12,404		$	12,181		$	12,551
Provision for loan losses charged to expense		200			100			200						200
		12,959			12,521			12,604			12,181			12,751
Less: Chargeoffs
SBA loans		86			151			86			6			128
SBA 504 loans		-			-			-			-			589
Commercial loans		228			52			10			147			100
Residential mortgage loans		-			-			50			-			-
Consumer loans		28			41			52			7			30
Total chargeoffs		342			244			198			160			847
Add: Recoveries
SBA loans		11			6			10			2			37
SBA 504 loans		-			-			-			-			-
Commercial loans		6			476			5			370			201
Residential mortgage loans		-			-			-			10			39
Consumer loans		-			-			-			1			-
Total recoveries		17			482			15			383			277
Net chargeoffs (recoveries)		325			(238)			183			(223)			570
Balance, end of period	$	12,634		$	12,759		$	12,421		$	12,404		$	12,181
LOAN QUALITY INFORMATION:
Nonperforming loans (1)	$	6,887		$	7,260		$	10,742		$	8,837		$	9,141
Other real estate owned ("OREO")		1,417			1,591			1,759			2,265			1,975
Nonperforming assets		8,304			8,851			12,501			11,102			11,116
Less:  Amount guaranteed by SBA		243			288			225			267			270
Net nonperforming assets	$	8,061		$	8,563		$	12,276		$	10,835		$	10,846
Loans 90 days past due & still accruing	$			$	-		$	272		$	273			5
Performing Troubled Debt Restructurings (TDRs)	$	844		$	3,015		$	3,268		$	3,360		$	3,458
(1) Nonperforming TDRs included in nonperforming loans		293			293			2,808			2,843			2,911
Total TDRs	$	1,137		$	3,308		$	6,076		$	6,203		$	6,369
Allowance for loan losses to:
Total loans at quarter end		1.42	%		1.44	%		1.45	%		1.51	%		1.55	%
Nonperforming loans (1)		183.45			175.74			115.63			140.36			133.26
Nonperforming assets		152.14			144.15			99.36			111.73			109.58
Net nonperforming assets		156.73			149.00			101.18			114.48			112.31
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans		0.56	%		1.05	%		0.57	%		0.03	%		0.76	%
SBA 504 loans		-			-			-			-			7.15
Commercial loans		0.19			(0.37)			-			(0.21)			(0.10)
Residential mortgage loans		-			-			0.08			(0.02)			(0.07)
Consumer loans		0.14			0.21			0.28			0.04			0.20
Total loans		0.15	%		(0.11)	%		0.09	%		(0.11)	%		0.30	%
Nonperforming loans to total loans		0.78	%		0.82	%		1.26	%		1.08	%		1.16	%
Nonperforming loans and TDRs to total loans		0.87			1.16			1.64			1.48			1.61
Nonperforming assets to total loans and OREO		0.93			0.99			1.46			1.35			1.41
Nonperforming assets to total assets		0.74			0.82			1.19			1.08			1.07

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

NON-GAAP

March 31, 2016

(In thousands, except percentages and per share amounts)	Mar. 31, 2016			Dec. 31, 2015			Sept. 30, 2015			Jun. 30, 2015			Mar. 31, 2015
SUMMARY OF INCOME:
Total interest income	$	11,176		$	10,995		$	10,554		$	10,218		$	9,884
Total interest expense		2,189			2,015			1,932			1,849			1,864
Net interest income		8,987			8,980			8,622			8,369			8,020
Provision for loan losses		200			100			200			-			200
Net interest income after provision for loan losses		8,787			8,880			8,422			8,369			7,820
Total noninterest income		2,016			1,920			2,275			1,893			1,641
Total noninterest expense		6,607			6,846			6,852			6,652			6,502
Income before provision for income taxes and gain on  subordinated debenture		4,196			3,954			3,845			3,610			2,959
Provision for income taxes		1,464			1,315			1,294			1,182			1,020
Net income before gain on subordinated debenture	$	2,732		$	2,639		$	2,551		$	2,428		$	1,939
Gain on subordinated debenture, net of tax		1,473			-			-			-			-
Net income	$	4,205		$	2,639		$	2,551		$	2,428		$	1,939
Net income per common share - Basic	$	0.50		$	0.31		$	0.30		$	0.29		$	0.23
Net income per common share - Diluted	$	0.48		$	0.31		$	0.30		$	0.28		$	0.23
COMMON SHARE DATA:
Market price per share	$	11.37		$	12.47		$	9.77		$	9.79		$	9.08
Dividends paid	$	0.04		$	0.04		$	0.04		$	0.03		$	0.03
Book value per common share	$	9.72		$	9.30		$	9.02		$	8.75		$	8.55
Weighted average common shares outstanding - Basic		8,459			8,430			8,427			8,425			8,417
Weighted average common shares outstanding - Diluted		8,682	`		8,547			8,536			8,524			8,514
Issued and outstanding common shares		8,468			8,436			8,429			8,425			8,423
OPERATING RATIOS (Annualized):
Return on average assets		1.54	%		1.00	%		1.00	%		1.01	%		0.82	%
Return on average equity		21.05			13.59			13.54			13.35			11.08
Efficiency ratio		50.16			62.81			62.88			64.99			67.30
BALANCE SHEET DATA:
Total assets	$	1,120,955		$	1,084,866		$	1,052,711		$	1,024,303		$	1,035,404
Total deposits		926,819			894,493			866,247			815,427			789,441
Total loans		886,990			888,958			855,560			821,696			784,642
Total securities		66,729			71,336			71,492			74,375			77,308
Total shareholders' equity		82,276			78,470			76,065			73,690			71,987
Allowance for loan losses		(12,634)			(12,759)			(12,421)			(12,404)			(12,181)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets		4.33	%		4.40	%		4.41	%		4.52	%		4.49	%
Interest-bearing liabilities		1.06			1.02			1.01			1.03			1.05
Net interest spread		3.27			3.38			3.40			3.49			3.44
Net interest margin		3.48			3.60			3.60			3.70			3.64
CREDIT QUALITY:
Nonperforming assets		8,304			8,851			12,501			11,102			11,116
QTD net chargeoffs (annualized) to QTD average loans		0.15	%		(0.11)	%		0.09	%		(0.11)	%		0.30	%
Allowance for loan losses to total loans		1.42			1.44			1.45			1.51			1.55
Nonperforming assets to total loans and OREO		0.93			0.99			1.46			1.35			1.41
Nonperforming assets to total assets		0.74			0.82			1.19			1.08			1.07

CAPITAL RATIOS AND OTHER:
Total equity to total assets	7.34	%	7.23	%	7.23	%	7.19	%	6.95	%
Leverage ratio	8.31		8.82		8.92		9.09		8.94
Common equity tier 1 risk-based capital ratio	9.77		9.37		9.37		9.39		9.25
Tier 1 risk-based capital ratio	10.97		11.18		11.25		11.33		11.22
Total risk-based capital ratio	12.22		12.43		12.50		12.59		12.48
Number of banking offices	15		15		15		15		15
Number of ATMs	16		16		16		16		16
Number of employees	164		162		163		177		166