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

February 4, 2009

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 February 2, 2009 announcing results for the fourth quarter and twelve months ended December 31, 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 February 4, 2009

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: February 2, 2009	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 February 4, 2009

EX-99.1

                                      

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800 618-BANK

 www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

February 4, 2009

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports Fourth Quarter and Twelve Month Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $584 thousand, or $0.07 per diluted share, for the quarter ended December 31, 2008, compared to net income of $680 thousand, or $0.09 per diluted share, for the quarter ended December 31, 2007.

For the year ended December 31, 2008, net income was $1.9 million, or $0.25 per diluted share, compared to $4.7 million, or $0.63 per diluted share for the same period a year ago.  Return on average assets and average common equity for the year ended December 31, 2008, were 0.23% and 3.71%, respectively, as compared to 0.66% and 10.11%, respectively, for the prior year’s comparable period.

James A. Hughes, Unity Bancorp’s President and CEO, said, “Everyday there seems to be more negative news reporting increased turmoil in the financial markets, corporate bankruptcies, layoffs, rising unemployment, etc.  Clearly, the economy is under considerable stress, and the financial institution sector has been hit the hardest.  Our results have been affected by the economic downturn through higher loan loss provisions, security write-downs on FHLMC preferred stock and the collapse of the secondary market for Small Business Administration (“SBA”) loan sales. However, throughout this period Unity has remained a profitable institution.”

Mr. Hughes added, “The times are indeed challenging, however they are also a time of great opportunity.  As the larger banks contract inward, it is time for community banks to increase market share by selling the message that when it comes to banking, smaller is better.  We approach these opportunities as a well capitalized institution, ready to lend in our communities.  The recent $20.6 million investment in the Company by the U.S. Treasury under the Capital Purchase Program will help us to continue to serve as a source of credit.”

Net Interest Income

Since December 31, 2007, the Federal Open Market Committee has lowered interest rates 400 basis points in an attempt to stimulate economic activity. These decreases have resulted in lower yields on earning assets.  During this period, our funding costs have also fallen.  Unity has a large portfolio of variable rate, prime based loans. As a result of the drop in rates in the fourth quarter, the yield on the Company’s interest-earning assets may continue to contract early in 2009.  However, lower deposit pricing and additional equity capital should mitigate any material decline in net interest income.

For the quarter ended December 31, 2008, net interest income was $6.7 million, an increase of 6.1% from December 31, 2007.  Factors affecting fourth quarter net interest income include:

·   The yield on interest-earning assets decreased 96 basis points to 6.18% from 7.14% for the same period last year.

·   The cost of interest-bearing liabilities decreased 75 basis points from 4.05% to 3.30% in the fourth quarter of 2008.

·   Average earning assets, consisting primarily of loans, rose 17.8%.

·   Net interest margin was 3.25%, a 37 basis point decline from 3.62% in the fourth quarter of 2007.

For the year ended December 31, 2008, net interest income was $27.3 million, an increase of 11.7% from the year ended December 31, 2007.  Factors affecting net interest income for the year ended December 31 include:

·   The yield on interest-earning assets decreased from 7.23% in 2007 to 6.52% for 2008.

·   The cost of interest-bearing liabilities decreased from 4.16% in 2007 to 3.39% in 2008.

·   Average earning assets, consisting primarily of loans, rose 15.1%.

·   Net interest margin for 2008 was 3.51%, compared to 3.62% in 2007.

Noninterest income

Historically, Unity has had a strong source of noninterest income in the form of gains on the sale of its SBA loans.  However, during the second half of 2008, pricing in the secondary market for SBA loans began to deteriorate in response to the credit crisis.  Consequently, Unity held all current production of SBA loans.  This decision resulted in reduced noninterest income for the quarter and will likely continue in the foreseeable future.   In addition, other than temporarily impaired charges and losses on the sales of Federal Home Loan Mortgage Corporation (“FHLMC”) perpetual preferred callable securities of $1.6 million have significantly reduced noninterest income during 2008.

For the quarter ended December 31, 2008, noninterest income was $555 thousand, a decrease of 47% from December 31, 2007:

·   Service charges on deposit accounts remained relatively flat compared to the prior year’s period.

·   Service and loan fee income decreased 22.6% to $335 thousand in 2008, due to lower levels of prepayment fees.

·   Net security losses amounted to $324 thousand, primarily due to other-than-temporary impairment charges on a pooled trust preferred security.

·   There were no gains on sales of SBA loans, compared to $580 thousand a year ago.

For the year ended December 31, 2008, noninterest income was $2.7 million, a decrease of 55% from December 31, 2007:

·   Service charges on deposit accounts were flat at $1.4 million.

·   Service and loan fee income amounted to $1.3 million for the twelve months ended 2008, a decrease of $336 thousand, or 20.9%, as compared to the same period last year, primarily due to lower levels of prepayment penalties and SBA servicing income.

·   Gains on sales of SBA loans amounted to $1.2 million for 2008, compared to $2.4 million for the same period a year ago, reflecting a lower volume of loans sold and lower premiums on loans sold.

·   Net security losses amounted to $1.9 million primarily related to other-than-temporarily impaired charges and losses on the sales of FHLMC perpetual preferred callable securities.

·   Other income amounted to $481 thousand for the twelve months ended 2008, a decrease of $391 thousand, or 44.8%, as compared to the same period last year, primarily due to lower levels of loan referral fees.

Noninterest Expense

As a result of current market conditions, there were significant head-count reductions enacted in the fourth quarter of 2008 and the Company undertook other expense saving measures which will benefit 2009.  Unfortunately, some of these benefits which will be realized in 2009, will be offset by the anticipated increase in FDIC insurance premiums.

For the quarter ended December 31, 2008, noninterest expenses were $5.8 million, a decrease of 2.6% from December 31, 2007:

·   Compensation and benefits expense decreased $115 thousand, due to reduced head count.

·   Processing and communications and occupancy expense declined by 13.6% and 11.8%, respectively, due to reduced communications costs from renegotiated contracts and a decline in capital expenditures.

·   Professional fees increased $88 thousand, due to increased consulting, legal and audit costs.

·   Loan collection costs increased $55 thousand, due to increased collection costs on delinquent loans.

·   FDIC insurance premiums increased $281 thousand, due primarily to the increase in FDIC insurance rates.

·   Tax expense was reduced by the benefit from the other-than-temporary impairment charge for FHLMC preferred stock recognized in the third quarter.

For the year ended December 31, 2008, noninterest expenses were $22.9 million, an increase of 3.7% from December 31, 2007:

·   Compensation and benefits expense increased $539 thousand, primarily due to annual cost of living increases.

·   Processing and communications expense declined 7.5%, due to renegotiated contracts and lower items processing costs.

·   Professional services expense increased $300 thousand, due to increased consulting costs related to tax planning, compliance with the Sarbanes Oxley and outsourced credit review fees.

·   FDIC insurance premiums increased $522 thousand, due to the increase in FDIC insurance rates.

·   Other expense decreased $401 thousand or 20%, primarily related to the collection of prior period retail losses, and reduced recruiting and stationary and supplies expense.

Financial Condition

At December 31, 2008, total assets were $898.3 million, a 19.4% increase from a year ago.

·   Total loans increased $95.8 million, or 16.2%, from $590.1 million at December 31, 2007. The increase was across all product lines. SBA, commercial, residential and consumer loans increased 12.6%, 5.2%, 80.6% and 9.5%, respectively.

·   Total securities increased $50.9 million as Unity took advantage of favorable credit spreads to invest excess liquidity.

·   Total deposits increased 17.6% or $105.8 million to $707 million at December 31, 2008.  This increase was due to a $154.8 million increase in time deposits, a $9.0 million increase in interest-bearing checking accounts and a $3.5 million increase in demand deposits, partially offset by a $61.5 million decline in savings deposits.

·   Total borrowed funds increased $20.0 million to support the growth in the investment portfolio.

·   The allowance for loan losses totaled $10.3 million at December 31, 2008, or 1.51% of total loans. The provision for loan losses for the first twelve months of 2008 amounted to $4.5 million, an increase of $3.0 million from the same period a year ago.  Net charge-offs were $2.6 million for the year ended 2008, compared to $791 thousand for the same period a year ago.

·   Nonperforming assets totaled $16.8 million at December 31, 2008, or 2.45% of total loans and “OREO” compared to $5.6 million, or 0.94% of total loans and “OREO” a year ago. The increase in nonperforming assets was primarily related to the credit deterioration in the SBA 7(a) and SBA 504 portfolios most of which is secured by real estate.

·   Shareholders’ equity was $67.8 million at December 31, 2008 an increase of $20.5 million, primarily due to the issuance of preferred stock, and book value per common share was $6.99.

·   At December 31, 2008 the leverage, Tier I and total risk based capital ratios were 9.55%, 12.03% and 13.28%, respectively.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $900 million in assets and $700 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.

Unity Bancorp, Inc.
Consolidated Financial Highlights
(Dollars in thousands, except per share data)
										Dec. 08		vs.
BALANCE SHEET DATA:		Dec. 31, 2008			Sep. 30, 2008			Dec. 31, 2007		Sep. 08		Dec. 07
Assets	$	898,310		$	864,083		$	752,196		4.0	%	19.4	%
Deposits		707,117			684,680			601,268		3.3		17.6
Loans		685,946			685,023			590,132		0.1		16.2
Securities		149,509			99,410			98,591		50.4		51.6
Shareholders' equity		67,803			46,539			47,260		45.7		43.5
Allowance for loan losses		10,326			9,913			8,383		4.2		23.2
FINANCIAL DATA - QUARTER TO DATE:
Net income (loss) before taxes	$	218		$	(1,141)		$	922		(119.1)	%	(76.4)	%
Federal and state income tax provision (benefit)		(366)			(139)			242		163.3		(251.2)
Net income (loss)		584			(1,002)			680		(158.3)		(14.1)
Per share-basic		0.07			(0.14)			0.10		(150.0)		(26.8)
Per share-diluted		0.07			(0.14)			0.09		(150.0)		(24.6)
Return on average assets		0.26	%		(0.50)	%		0.36	%	(152.0)		(27.8)
Return on average common equity		3.56			(8.39)			5.78		(142.5)		(38.4)
Efficiency ratio		75.81			70.51			74.07		7.5		2.4
FINANCIAL DATA - YEAR TO DATE:
Net income before taxes	$	2,546			-		$	6,703		-		(62.0)	%
Federal and state income tax provision		616			-			1,978		-		(68.9)
Net income		1,930			-			4,725		-		(59.2)
Per share-basic		0.26			-			0.65		-		(60.0)
Per share-diluted		0.25			-			0.63		-		(60.3)
Return on average assets		0.23	%		-			0.66	%	-		(65.2)
Return on average common equity		3.71			-			10.11		-		(63.3)
Efficiency ratio		71.90			-			71.48		-		0.6
SHARE INFORMATION:
Closing price per share	$	3.90		$	4.00		$	8.10		(2.5)	%	(51.8)	%
Cash dividends declared		0.00			0.00			0.05		-		-
Book value per common share		6.99			6.76			6.70		3.4		4.4
Average diluted shares outstanding (QTD)		7,190			7,259			7,328		(1.0)		(1.9)
CAPITAL RATIOS:
Total equity to total assets		7.55	%		5.76	%		6.33	%	31.1	%	19.3	%
Tier I capital to average assets (leverage)		9.54			7.42			8.25		28.6		15.6
Tier I capital to risk-adjusted assets		12.02			9.07			9.81		32.5		22.5
Total risk-based capital		13.27			10.33			11.06		28.5		20.0
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	16,830		$	10,954		$	5,567		53.6	%	202.3	%
Net charge offs to average loans (QTD)		0.52	%		0.67	%		0.24	%	(22.4)		116.7
Allowance for loan losses to total loans		1.51			1.45			1.42		4.1		6.3
Nonperforming assets to total loans and OREO		2.45			1.60			0.94		53.1		160.6

Unity Bancorp, Inc.
Consolidated Balance Sheets
(In thousands)							Dec. 08		vs.
		Dec. 31, 2008		Sep. 30, 2008		Dec. 31, 2007	Sep. 08		Dec. 07
ASSETS
Cash and due from banks	$	18,902	$	21,987	$	14,336	(14.0)	%	31.8	%
Federal funds sold and interest bearing deposits		15,529		29,356		21,976	(47.1)		(29.3)
Securities:
Available for sale		117,348		70,144		64,855	67.3		80.9
Held to maturity		32,161		29,266		33,736	9.9		(4.7)
Total securities		149,509		99,410		98,591	50.4		51.6
Loans:
SBA - Held for sale		22,181		19,863		24,640	11.7		(10.0)
SBA - Held to Maturity		83,127		82,551		68,875	0.7		20.7
Commercial		384,967		394,215		365,786	(2.3)		5.2
Residential mortgage		133,110		128,216		73,697	3.8		80.6
Consumer		62,561		60,178		57,134	4.0		9.5
Total loans		685,946		685,023		590,132	0.1		16.2
Less: Allowance for loan losses		10,326		9,913		8,383	4.2		23.2
Net loans		675,620		675,110		581,749	0.1		16.1
Goodwill and other intangibles		1,574		1,577		1,588	(0.2)		(0.9)
Premises and equipment, net		12,580		12,475		12,102	0.8		3.9
Accrued interest receivable		4,712		4,364		3,994	8.0		18.0
Loan servicing asset		1,503		1,721		2,056	(12.7)		(26.9)
Bank Owned Life Insurance		5,780		5,727		5,570	0.9		3.8
FHLB/ACBB Stock		4,857		5,307		4,395	(8.5)		10.5
Other assets		7,744		7,049		5,839	9.9		32.6
Total Assets	$	898,310	$	864,083	$	752,196	4.0	%	19.4	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	74,090	$	82,167	$	70,600	(9.8)	%	4.9	%
Interest-bearing deposits:
Interest bearing checking		87,046		87,587		78,019	(0.6)		11.6
Savings		134,875		148,026		196,390	(8.9)		(31.3)
Time, under $100,000		270,275		274,845		168,244	(1.7)		60.6
Time, $100,000 and over		140,831		92,055		88,015	53.0		60.0
Total deposits		707,117		684,680		601,268	3.3		17.6
Borrowed funds and subordinated debentures		120,465		130,465		100,465	(7.7)		19.9
Accrued interest payable		805		869		635	(7.4)		26.8
Accrued expenses and other liabilities		2,120		1,530		2,568	38.6		(17.4)
Total liabilities		830,507		817,544		704,936	1.6		17.8
Commitments and Contingencies		-		-		-
Shareholders' equity:
Common stock, no par value, 12,500 shares authorized		55,179		52,453		49,447	5.2		11.6
Preferred stock, no par value, 500 shares authorized		18,064		-		-	-		-
Retained earnings		1,085		591		2,472	83.6		(56.1)
Treasury stock at cost		(4,169)		(4,169)		(4,169)	-		-
Accumulated other comprehensive loss, net of tax		(2,356)		(2,336)		(490)	0.9		380.8
Total shareholders' equity		67,803		46,539		47,260	45.7		43.5
Total Liabilities and Shareholders' Equity	$	898,310	$	864,083	$	752,196	4.0	%	19.4	%
COMMON SHARES AT PERIOD END:
Issued		7,544		7,535		7,488
Outstanding		7,119		7,110		7,063
Treasury		425		425		425
N/M= Not meaningful

Unity Bancorp, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
							Dec. 08		vs.
FOR THE THREE MONTHS ENDED:		Dec. 31, 2008		Sep. 30, 2008		Dec. 31, 2007	Sep. 08		Dec. 07
INTEREST INCOME
Fed funds sold and interest on deposits	$	67	$	113	$	195	(40.7)	%	(65.6)	%
FHLB/ACBB Stock		6		58		78	(89.7)		(92.3)
Securities:
Available for sale		959		907		835	5.7		14.9
Held to maturity		366		381		443	(3.9)		(17.4)
Total securities		1,325		1,288		1,278	2.9		3.7
Loans:
SBA		1,971		2,043		2,307	(3.5)		(14.6)
Commercial		6,717		6,877		6,772	(2.3)		(0.8)
Residential mortgage		1,963		1,720		1,093	14.1		79.6
Consumer		849		866		934	(2.0)		(9.1)
Total loan interest income		11,500		11,506		11,106	(0.1)		3.5
Total interest income		12,898		12,965		12,657	(0.5)		1.9
INTEREST EXPENSE
Interest-bearing demand deposits		348		404		448	(13.9)		(22.3)
Savings deposits		603		774		1,776	(22.1)		(66.0)
Time deposits		4,057		3,553		3,089	14.2		31.3
Borrowed funds and subordinated debentures		1,154		1,152		997	0.2		15.7
Total interest expense		6,162		5,883		6,310	4.7		(2.3)
Net interest income		6,736		7,082		6,347	(4.9)		6.1
Provision for loan losses		1,300		2,100		550	(38.1)		136.4
Net interest income after provision for loan losses		5,436		4,982		5,797	9.1		(6.2)
NONINTEREST INCOME
Service charges on deposit accounts		351		381		357	(7.9)		(1.7)
Service and loan fee income		335		334		433	0.3		(22.6)
Gain on Mortgage loan sales		19		-		(9)	-		(311.1)
Gain on SBA loan sales		9		215		580	(95.8)		(98.4)
Bank owned life insurance		53		53		50	-		6.0
Net securities (loss) gains		(324)		(1,458)		(603)	100.0		100.0
Other income		112		131		245	(14.5)		(54.3)
Total noninterest income		555		(344)		1,053	(261.3)		(47.3)
NONINTEREST EXPENSES
Compensation and benefits		2,837		2,948		2,952	(3.8)		(3.9)
Processing and communications		583		554		675	5.2		(13.6)
Occupancy, net		671		688		761	(2.5)		(11.8)
Furniture and equipment		451		423		462	6.6		(2.4)
Professional fees		272		285		184	(4.6)		47.8
Loan collection costs		216		206		161	4.9		34.2
Advertising		152		158		145	(3.8)		4.8
FDIC Insurance		298		117		17	154.7		1,652.9
Other		293		400		571	(26.8)		(48.7)
Total noninterest expenses		5,773		5,779		5,928	(0.1)		(2.6)
Income (loss) before taxes		218		(1,141)		922	(119.1)		(76.4)
Federal and state income tax provision (benefit)		(366)		(139)		242	163.3		(251.2)
Net Income (loss)	$	584	$	(1,002)	$	680	(158.3)	%	(14.1)	%
Net Income Per Common Share-Basic	$	0.07	$	(0.14)	$	0.10	(150.0)	%	(26.8)	%
Net Income Per Common Share-Diluted	$	0.07	$	(0.14)	$	0.09	(150.0)	%	(24.6)	%
AVERAGE COMMON SHARES OUTSTANDING:
Basic		7,113		7,107		7,107
Diluted		7,190		7,259		7,328

Unity Bancorp, Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
					Dec. 08 vs.
YEAR TO DATE:		Dec. 31, 2008		Dec. 31, 2007	Dec. 07
INTEREST INCOME
Fed funds sold and interest on deposits	$	471	$	1,068	(55.9)	%
FHLB/ACBB Stock		240		258	(7.0)
Securities:
Available for sale		3,673		3,167	16.0
Held to maturity		1,582		1,913	(17.3)
Total securities		5,255		5,080	3.4
Loans:
SBA		8,370		9,039	(7.4)
Commercial		26,996		25,738	4.9
Residential mortgage		5,971		3,995	49.5
Consumer		3,462		3,722	(7.0)
Total loan interest income		44,799		42,494	5.4
Total interest income		50,765		48,900	3.8
INTEREST EXPENSE
Interest-bearing demand deposits		1,468		1,928	(23.9)
Savings deposits		3,644		8,064	(54.8)
Time deposits		13,836		10,206	35.6
Borrowed funds and subordinated debentures		4,526		4,276	5.8
Total interest expense		23,474		24,474	(4.1)
Net interest income		27,291		24,426	11.7
Provision for loan losses		4,500		1,550	190.3
Net interest income after provision for loan losses		22,791		22,876	(0.4)
NONINTEREST INCOME
Service charges on deposit accounts		1,393		1,383	0.7
Service and loan fee income		1,271		1,607	(20.9)
Gain on of Mortgage Loans		40		52	(23.1)
Gain on SBA loan sales		1,217		2,399	(49.3)
Bank owned life insurance		210		198	6.1
Net securities (loss) gains		(1,918)		(571)	100.0
Other income		481		872	(44.8)
Total noninterest income		2,694		5,940	(54.6)
NONINTEREST EXPENSES
Compensation and benefits		11,985		11,446	4.7
Processing and communications		2,251		2,433	(7.5)
Occupancy, net		2,773		2,777	(0.1)
Furniture and equipment		1,675		1,675	0.0
Professional fees		898		598	50.2
Loan collection costs		662		604	9.6
Advertising		451		457	(1.3)
FDIC Insurance		589		67	779.1
Other		1,655		2,056	(19.5)
Total noninterest expenses		22,939		22,113	3.7
Income before taxes		2,546		6,703	(62.0)
Federal and state income tax provision		616		1,978	(68.9)
Net Income	$	1,930	$	4,725	(59.2)	%
Net Income Per Common Share-Basic	$	0.26	$	0.65	(60.0)	%
Net Income Per Common Share-Diluted	$	0.25	$	0.63	(60.3)	%
Average common shares outstanding:
Basic		7,097		7,245
Diluted		7,249		7,527

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Three Months Ended
		December 31, 2008						September 30, 2008
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	37,262	$	67	0.72	%	$	24,118	$	113	1.86	%
FHLB/ACBB Stock		4,422		6	0.54			4,415		58	5.23
Securities:
Available for sale		76,941		972	5.05			72,658		920	5.06
Held to maturity		29,962		384	5.13			31,209		399	5.11
Total securities		106,903		1,356	5.07			103,867		1,319	5.08
Loans, net of unearned discount:
SBA		103,682		1,971	7.60			102,383		2,043	7.98
Commercial		388,940		6,717	6.87			393,626		6,877	6.95
Residential mortgage		131,557		1,963	5.97			114,058		1,720	6.03
Consumer		61,114		849	5.53			59,933		866	5.75
Total loans		685,293		11,500	6.69			670,000		11,506	6.84
Total interest-earning assets		833,880		12,929	6.18			802,400		12,996	6.45
Noninterest-earning assets:
Cash and due from banks		21,520						19,166
Allowance for loan losses		(10,111)						(9,092)
Other assets		32,855						32,229
Total noninterest-earning assets		44,264						42,303
Total Assets	$	878,144					$	844,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	88,166		348	1.57		$	87,903		404	1.83
Savings deposits		137,602		603	1.74			161,707		774	1.90
Time deposits		407,239		4,057	3.96			353,743		3,553	4.00
Total interest-bearing deposits		633,007		5,008	3.15			603,353		4,731	3.12
Borrowed funds and subordinated debentures		110,802		1,154	4.14			110,684		1,152	4.14
Total interest-bearing liabilities		743,809		6,162	3.30			714,037		5,883	3.28
Noninterest-bearing liabilities:
Demand deposits		78,351						81,157
Other liabilities		3,058						2,321
Total noninterest-bearing liabilities		81,409						83,478
Shareholders' equity		52,926						47,188
Total Liabilities and Shareholders' Equity	$	878,144					$	844,703
Net interest spread				6,767	2.88	%				7,113	3.17	%
Tax-equivalent basis adjustment				(31)						(31)
Net interest income			$	6,736					$	7,082
Net interest margin					3.25	%					3.55	%

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Three Months Ended
		December 31, 2008						December 31, 2007
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	37,262	$	67	0.72	%	$	17,961	$	195	4.31	%
FHLB/ACBB Stock		4,422		6	0.54			3,786		78	8.17
Securities:
Available for sale		76,941		972	5.05			67,765		875	5.16
Held to maturity		29,962		384	5.13			35,157		461	5.25
Total securities		106,903		1,356	5.07			102,922		1,336	5.19
Loans, net of unearned discount:
SBA		103,682		1,971	7.60			90,120		2,307	10.24
Commercial		388,940		6,717	6.87			362,512		6,772	7.41
Residential mortgage		131,557		1,963	5.97			74,057		1,093	5.90
Consumer		61,114		849	5.53			56,421		934	6.57
Total loans		685,293		11,500	6.69			583,110		11,106	7.57
Total interest-earning assets		833,880		12,929	6.18			707,779		12,715	7.14
Noninterest-earning assets:
Cash and due from banks		21,520						14,518
Allowance for loan losses		(10,111)						(8,499)
Other assets		32,855						29,130
Total noninterest-earning assets		44,264						35,149
Total Assets	$	878,144					$	742,928
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	88,166		348	1.57		$	81,759		448	2.17
Savings deposits		137,602		603	1.74			195,241		1,776	3.61
Time deposits		407,239		4,057	3.96			253,790		3,089	4.83
Total interest-bearing deposits		633,007		5,008	3.15			530,790		5,313	3.97
Borrowed funds and subordinated debentures		110,802		1,154	4.14			86,826		997	4.56
Total interest-bearing liabilities		743,809		6,162	3.30			617,616		6,310	4.05
Noninterest-bearing liabilities:
Demand deposits		78,351						76,406
Other liabilities		3,058						2,267
Total noninterest-bearing liabilities		81,409						78,673
Shareholders' equity		52,926						46,639
Total Liabilities and Shareholders' Equity	$	878,144					$	742,928
Net interest spread				6,767	2.88	%				6,405	3.09	%
Tax-equivalent basis adjustment				(31)						(58)
Net interest income			$	6,736					$	6,347
Net interest margin					3.25	%					3.62	%

Unity Bancorp, Inc.
Consolidated Average Balance Sheets
with Resultant Interest and Rates
(Tax-equivalent basis, dollars in thousands)
		Year to Date
		December 31, 2008						December 31, 2007
		Balance		Interest	Rate			Balance		Interest	Rate
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits with banks	$	26,686	$	471	1.76	%	$	22,290	$	1,068	4.79	%
FHLB/ACBB Stock		4,353		240	5.51			3,336		258	7.73
Securities:
Available for sale		74,243		3,761	5.07			65,853		3,253	4.94
Held to maturity		31,710		1,654	5.22			37,724		1,986	5.26
Total securities		105,953		5,415	5.11			103,577		5,239	5.06
Loans, net of unearned discount:
SBA		101,430		8,370	8.25			84,185		9,039	10.74
Commercial		383,368		26,996	7.04			341,841		25,738	7.53
Residential mortgage		100,110		5,971	5.96			68,443		3,995	5.84
Consumer		59,291		3,462	5.84			54,789		3,722	6.79
Total loans		644,199		44,799	6.95			549,258		42,494	7.74
Total interest-earning assets		781,191		50,925	6.52			678,461		49,059	7.23
Noninterest-earning assets:
Cash and due from banks		17,529						13,467
Allowance for loan losses		(9,179)						(8,184)
Other assets		31,667						29,304
Total noninterest-earning assets		40,017						34,587
Total Assets	$	821,208					$	713,048
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	84,336		1,468	1.74		$	85,750		1,928	2.25
Savings deposits		168,784		3,644	2.16			204,214		8,064	3.95
Time deposits		330,174		13,836	4.19			213,407		10,206	4.78
Total interest-bearing deposits		583,294		18,948	3.25			503,371		20,198	4.01
Borrowed funds and subordinated debentures		108,214		4,526	4.18			84,962		4,276	5.03
Total interest-bearing liabilities		691,508		23,474	3.39			588,333		24,474	4.16
Noninterest-bearing liabilities:
Demand deposits		78,282						75,581
Other liabilities		2,531						2,416
Total noninterest-bearing liabilities		80,813						77,997
Shareholders' equity		48,887						46,718
Total Liabilities and Shareholders' Equity	$	821,208					$	713,048
Net interest spread				27,451	3.13	%				24,585	3.07	%
Tax-equivalent basis adjustment				(160)						(159)
Net interest income			$	27,291					$	24,426
Net interest margin					3.51	%					3.62	%

Unity Bancorp, Inc.
Allowance for Loan Losses and Loan Quality Schedules
(Dollars in thousands)
		12/31/2008		9/30/2008		6/30/2008		3/31/2008		12/31/2007
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of quarter	$	9,913	$	8,945	$	8,650	$	8,383	$	8,183
Provision charged to expense		1,300		2,100		650		450		550
		11,213		11,045		9,300		8,833		8,733
Less:  Charge offs
SBA		310		423		249		264		260
Commercial		648		700		60		0		126
Residential mortgage		-		-		-		25		-
Consumer		5		78		56		6		20
Total Charge Offs		963		1,201		365		295		406
Add:   Recoveries
SBA		72		40		5		60		53
Commercial		4		29		4		2		3
Residential mortgage		-		-		-		0		-
Consumer		0		-		1		50		-
Total Recoveries		76		69		10		112		56
Net Charge Offs		887		1,132		355		183		350
Balance, end of quarter	$	10,326	$	9,913	$	8,945	$	8,650	$	8,383
LOAN QUALITY INFORMATION:
Nonperforming loans	$	16,120	$	10,636	$	6,621	$	4,142	$	5,461
Other real estate owned, net		710		318		266		266		106
Nonperforming assets	$	16,830	$	10,954	$	6,887	$	4,408	$	5,567
Loans 90 days past due and still accruing	$	2,536	$	3,532	$	76	$	546	$	155
Allowance for loan losses to:
Total loans at period end		1.51	%	1.45	%	1.39	%	1.43	%	1.42	%
Nonperforming loans		64.06		93.20		135.10		208.85		153.49
Nonperforming assets		61.36		90.50		129.88		196.23		150.58
Net charge offs to average loans (QTD)		0.52		0.67		0.23		0.12		0.24
Net charge offs to average loans (YTD)		0.40		0.35		0.18		0.12		0.14
Nonperforming loans to total loans		2.35		1.55		1.03		0.69		0.93
Nonperforming assets to total loans and OREO		2.45		1.60		1.07		0.73		0.94

Unity Bancorp, Inc.
Quarterly Financial Data
		12/31/08		09/30/08		06/30/08		03/31/08		12/31/07
SUMMARY OF INCOME (in thousands) :
Interest income	$	12,898	$	12,965	$	12,267	$	12,635	$	12,657
Interest expense		6,162		5,883		5,429		6,000		6,310
Net interest income		6,736		7,082		6,838		6,635		6,347
Provision for loan losses		1,300		2,100		650		450		550
Net interest income after provision		5,436		4,982		6,188		6,185		5,797
Noninterest income		555		(344)		1,028		1,455		1,053
Noninterest expense		5,773		5,779		5,617		5,770		5,928
Income before income taxes		218		(1,141)		1,599		1,870		922
Federal and state income tax provision (benefit)		(366)		(139)		495		626		242
Net Income (loss)		584		(1,002)		1,104		1,244		680
Per share - Basic	$	0.07	$	(0.14)	$	0.16	$	0.18	$	0.10
Per share - Diluted		0.07		(0.14)		0.15		0.17		0.09
COMMON SHARE DATA:
Cash dividends declared	$	-	$	-	$	0.05	$	0.05	$	0.05
Book value per common share at quarter end		6.99		6.55		6.76		6.76		6.70
Market value at quarter end		3.90		4.00		6.95		7.48		8.10
Average common shares outstanding: (000's)
Basic		7,113		7,107		7,092		7,075		7,107
Diluted		7,190		7,259		7,275		7,271		7,328
Common shares outstanding at period end (000's)		7,119		7,110		7,095		7,063		7,063
OPERATING RATIOS:
Return on average assets		0.26	%	(0.50)	%	0.56	%	0.65	%	0.36	%
Return on average common equity		3.56		(8.39)		9.29		10.50		5.78
Efficiency ratio		75.81		70.51		69.59		71.95		74.07
BALANCE SHEET DATA (in thousands):
Assets	$	898,310	$	864,083	$	832,315	$	807,874	$	752,196
Deposits		707,117		684,680		671,881		642,282		601,267
Loans		685,946		685,023		643,039		602,943		590,132
Shareholders' equity		67,803		46,539		47,951		47,896		47,260
Allowance for loan losses		10,326		9,913		8,945		8,650		8,383
TAX-EQUIVALENT YIELDS AND RATES:
Interest-earning assets		6.18	%	6.45	%	6.57	%	6.93	%	7.14	%
Interest-bearing liabilities		3.30		3.28		3.31		3.73		4.05
Net interest spread		2.88		3.17		3.26		3.20		3.09
Net interest margin		3.25		3.55		3.66		3.64		3.62
CREDIT QUALITY:
Nonperforming assets (in thousands)	$	16,830	$	10,954	$	6,887	$	4,408	$	5,567
Allowance for loan losses to period-end loans		1.51	%	1.45	%	1.39	%	1.43	%	1.42	%
Net charge offs to average loans		0.52		0.67		0.23		0.12		0.24
Nonperforming assets to loans and OREO		2.45		1.60		1.07		0.73		0.94
CAPITAL AND OTHER:
Total equity to assets		7.55	%	5.39	%	5.76	%	5.93	%	6.28	%
Tier I capital to average assets (leverage)		9.54		7.42		8.01		8.06		8.25
Tier I capital to risk-adjusted assets		12.02		9.07		9.42		9.66		9.81
Total capital to risk-adjusted assets		13.27		10.33		10.67		10.91		11.06
Number of banking offices		16		16		16		17		17
Number of ATMs		19		19		19		20		20
Number of employees		167		176		191		188		201
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with $898 million in assets and $707 million in deposits.  Unity
Bank provides financial services to retail, corporate & small business customers through its 16 retail service centers located in Hunterdon, Middlesex, Somerset,
Union and Warren counties in New Jersey and Northampton county in Pennsylvania. For additional information about Unity visit our website at www.unitybank.com
or call (800) 618-BANK.
This letter contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated
future financial performance. These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to
factors beyond the Company’s control and could impede its ability to achieve these goals. These factors include general economic conditions, trends in
interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.