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

July 23, 2020

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:

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

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

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

¨ 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 July 23, 2020 announcing results for the three and six months ended June 30, 2020, the full text of which is incorporated by reference to this Item.

Item 9.01    Financial Statements and Exhibits

(d) Exhibits

Exhibit 99.1Press release issued by the Registrant on July 23, 2020.

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: July 23, 2020

By: /s/ Anthony Cossetti

Anthony Cossetti

EVP and Chief Financial Officer

EXHIBIT INDEX

EXHIBIT #DESCRIPTION

99.1        Press release issued by the Registrant on July 23, 2020

EX-99.1

For Immediate Release	News Media & Financial Analyst Contact:
Unity Bancorp, Inc. (NSDQ: UNTY)	Anthony Cossetti, EVP and CFO
July 23, 2020	(908) 713-4565

Unity Bancorp Reports

Quarterly Earnings of $5.2 Million

Clinton, NJ, July 23, 2020 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $5.2 million, or $0.47 per diluted share, for the quarter ended June 30, 2020, an 11.4 percent decrease compared to $5.8 million, or $0.53 per diluted share for the prior year’s second quarter.   For the six months ended June 30, 2020, Unity reported net income of $10.5 million, or $0.96 per diluted share, an 8.9 percent decrease compared to $11.6 million or $1.05 per diluted share for the prior year’s period. The decreases in earnings were primarily due to an increased provision for loan losses, necessitated by the COVID-19 pandemic and governmental responses.

Second Quarter Earnings Highlights

• Net interest income, our primary driver of earnings, increased $1.3 million to $15.5 million for the quarter ended June 30, 2020, compared to the prior year’s quarter, due to SBA PPP loans, commercial loan growth and a reduction in the cost of funds.

• Net interest margin (NIM) decreased to 3.73% for the quarter ended June 30, 2020, compared to 3.96% for the prior year’s quarter and decreased 19 basis points from 3.92% in the prior sequential quarter ended March 31, 2020. These decreases were a direct result of interest rate cuts by the Board of Governors of the Federal Reserve in response to COVID-19.

• The provision for loan losses was $2.5 million for the quarter ended June 30, 2020, an increase of $2.2 million from the prior year’s quarter due to the increased risk of loan defaults as a result of COVID-19. Some of our customer’s businesses have been required to close pursuant to governmental restrictions on non-essential businesses.Due to the uncertainty of COVID-19, the Company may incur elevated provisions until restrictions on businesses have been loosened and they can fully reopen.

• Noninterest income increased $400 thousand to $2.8 million compared to the prior year’s quarter and increased $266 thousand compared to the prior sequential quarter. The increases were primarily due to increased gains on mortgage loan sales. Mortgage banking has been strong and market conditions continue to be favorable. For the quarter ended June 30, 2020, quarterly residential mortgage loan sales totaled $67.3 million, compared to $23.6 million at June 30, 2019.

• Noninterest expense increased $386 thousand to $9.2 million compared to the prior year’s quarter, primarily due to increased consulting expenses incurred in connection with compliance with our Consent Order with the FDIC and NJDOBI and increased compensation due to increased mortgage commissions. Noninterest expense decreased $146 thousand compared to the prior sequential quarter.

• The effective tax rate was 22.3% compared to 22.0% in the prior year’s quarter.

Balance Sheet Highlights

• Total loans increased $166.9 million, or 11.7%, from year-end 2019 to $1.6 billion at June 30, 2020. The increase was primarily due to $136.0 million in SBA PPP loan originations.

• Total deposits increased $233.3 million, or 18.7%, from year-end 2019 to $1.5 billion at June 30, 2020 primarily due to increased noninterest-bearing demand deposits, resulting from the distribution of PPP funds and a strategic increase in brokered time deposits in the prior sequential quarter.

• Borrowed funds decreased $60.0 million to $223.0 million at June 30, 2020.

• Shareholders’ equity was $166.6 million at June 30, 2020, an increase of $5.9 million from year-end 2019, due primarily to retained net income. During the second quarter, the Company repurchased 200,809 shares of common stock for a total cost of $2.8 million. Under its existing buyback program, the Company can repurchase up to an additional 313,651 shares. The timing and amount of additional purchases, if any, will depend upon a number of factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for loan losses, whether related to the COVID-19 pandemic or otherwise, the market price of the Company’s stock and the general impact of the COVID-19 pandemic on the economy.

• Book value per common share was $15.53 as of June 30, 2020.

• At June 30, 2020, the Community Bank Leverage Ratio was 10.01%.

• Nonperforming assets were $10.2 million, which consisted of $6.2 million of residential mortgage loans. The allowance to total loans ratio was 1.27% at June 30, 2020. Net recoveries were $358 thousand for the quarter.

Paycheck Protection Program Loans

As of June 30, 2020, the Company funded 1,217 Small Business Administration (“SBA”) Paycheck Protection Program loans. Executed by the SBA, under the Paycheck Protection Program, established by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Company was able to assist numerous small businesses in continuing to pay expenses, including payroll to retain their staff. PPP loans booked have an annual interest rate of 1% and are 100% guaranteed by the SBA. Most of these loans have a two-year term.

Loan Deferrals

During the first and second quarters of 2020, the Bank prudently worked with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The loan deferrals have terms of 3 or 6 months. The table below summarizes loan deferrals as of June 30, 2020.

	Total deferrals to total loan portfolio
(In thousands, except percentages)	Total loan portfolio balance		Loan deferrals - unpaid principal balance		% of deferrals to total loans
SBA loans held for sale	$	10,602	$	—	—%
SBA loans held for investment	36,966		—		—
SBA PPP loans	136,039		—		—
Commercial loans	792,752		277,323		35
Net residential mortgage loans*	469,987		68,142		14
Consumer loans	146,161		9,144		6
Total loans	$	1,592,507	$	354,609	22	%

* A total of $88.5 million in mortgage loan forbearances were requested. $21.8 million of these mortgage loan forbearances were in current payment status as of June 30, 2020, thus a net $66.7 million is reported above.

Commercial loan customer deferrals included a concentration in those industries more impacted by the pandemic including commercial strip malls, restaurants, transport services, hotels, gyms and beauty shops.

Consent Order

• In July 2020, Unity Bank agreed to the issuance of a Consent Order by the Federal Deposit Insurance Corporation (“FDIC”) and agreed to an Acknowledgement and Consent of the FDIC Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey. The Consent Order requires the Bank to strengthen its Bank Secrecy Act (“BSA”)/anti-money laundering (“AML”) program, and to address related matters. The Bank hired a consulting firm who it has been working with to effectively address all matters pertaining to the order.

Other Highlights

• American Banker magazine released its list of the top publicly traded community banks. There were 511 banks with total assets of less than $2 billion as of December 31, 2019, of which Unity Bank was ranked 15^th nationally. Unity Bank has been on the list for five consecutive years.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.9 billion in assets and $1.5 billion in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 19 retail service centers located in Bergen, 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 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.

UNITY BANCORP, INC.

SUMMARY FINANCIAL HIGHLIGHTS

June 30, 2020

													Jun 30, 2020 vs.
													Mar 31, 2020		Jun 30, 2019
(In thousands, except percentages and per share amounts)	Jun 30, 2020				Mar 31, 2020				Jun 30, 2019				%		%
BALANCE SHEET DATA:
Total assets	$	1,900,774			$	1,740,076			$	1,626,737			9.2	%	16.8	%
Total deposits	1,483,457				1,378,618				1,264,353				7.6		17.3
Total loans	1,592,507				1,439,645				1,344,757				10.6		18.4
Total securities	54,888				58,002				62,122				(5.4	)	(11.6	)
Total shareholders' equity	166,607				164,305				149,383				1.4		11.5
Allowance for loan losses	(20,234		)		(17,376		)		(15,965		)		16.4		26.7
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes	$	6,659			$	6,966			$	7,480			(4.4	)	(11.0	)
Provision for income taxes	1,488				1,598				1,646				(6.9	)	(9.6	)
Net income	$	5,171			$	5,368			$	5,834			(3.7	)	(11.4	)
Net income per common share - Basic	$	0.48			$	0.49			$	0.54			(2.0	)	(11.1	)
Net income per common share - Diluted	$	0.47			$	0.49			$	0.53			(4.1	)	(11.3	)
Performance ratios:
Return on average assets	1.19			%	1.32			%	1.54			%
Return on average equity	12.59			%	13.23			%	16.01			%
Efficiency ratio (1)	50.27			%	51.92			%	53.20			%
Net interest margin	3.73			%	3.92			%	3.96			%
Noninterest expense to average assets	2.10			%	2.29			%	2.32			%
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes	$	13,625							$	14,740					(7.6	)
Provision for income taxes	3,086								3,166						(2.5	)
Net income	$	10,539							$	11,574					(8.9	)
Net income per common share - Basic	$	0.97							$	1.07					(9.3	)
Net income per common share - Diluted	$	0.96							$	1.05					(8.6	)
Performance ratios:
Return on average assets	1.25			%					1.55			%			(19.4	)
Return on average equity	12.91			%					16.26			%			(20.6	)
Efficiency ratio	51.08			%					52.87			%			(3.4	)
Net interest margin	3.82			%					4.01			%			(4.7	)
Noninterest expense to average assets	2.19			%					2.31			%			(5.2	)
SHARE INFORMATION:
Market price per share	$	14.30			$	11.70			$	22.70			22.2		(37.0	)
Dividends paid	$	0.08			$	0.08			$	0.08			—		—
Book value per common share	$	15.53			$	15.10			$	13.76			2.8		12.9
Average diluted shares outstanding (QTD)	10,888				11,037				11,026				(1.4	)	(1.3	)
CAPITAL RATIOS:
Total equity to total assets	8.77			%	9.44			%	9.18			%
Leverage ratio (2)	10.01			%	10.56			%	10.36			%
CREDIT QUALITY AND RATIOS:
Nonperforming assets	$	10,184			$	11,178			$	5,336			(8.9	)	90.9

QTD net (recoveried) chargeoffs (annualized) to QTD average loans	(0.09	)	%	0.15	%	0.02	%
Allowance for loan losses to total loans	1.27		%	1.21	%	1.19	%
Nonperforming assets to total loans	0.59		%	0.67	%	0.33	%
Nonperforming assets to total assets	0.54		%	0.64	%	0.33	%

(1) The efficiency ratio is a non-GAAP measure that represents the ratio of non-interest expenses divided by the net-interest income and non-interest income.

(2) The Bank adopted the CBLR in the first quarter of 2020, and will therefore not be required to comply with the Basel III capital requirements.

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2020

										Jun 30, 2020 vs.
										Mar 31, 2020		Jun 30, 2019
(In thousands, except percentages)	Jun 30, 2020			Mar 31, 2020			Jun 30, 2019			%		%
ASSETS
Cash and due from banks	$	24,066		$	21,106		$	21,606		14.0	%	11.4	%
Federal funds sold, interest-bearing deposits and repos	162,617			136,910			133,234			18.8		22.1
Cash and cash equivalents	186,683			158,016			154,840			18.1		20.6
Securities:
Securities available for sale	53,102			64,275			45,326			(17.4	)	17.2
Securities held to maturity	—			—			14,450			—		(100.0	)
Equity securities	1,786			2,289			2,346			(22	)	(23.9	)
Total securities	54,888			66,564			62,122			(17.5	)	(11.6	)
Loans:
SBA loans held for sale	10,602			13,529			9,118			(21.6	)	16.3
SBA loans held for investment	36,966			35,767			37,608			3.4		(1.7	)
SBA PPP loans	136,039			—			—			100.0		100.0
Commercial loans	792,752			765,032			713,878			3.6		11.0
Residential mortgage loans	469,987			467,706			449,604			0.5		4.5
Consumer loans	146,161			143,524			134,549			1.8		8.6
Total loans	1,592,507			1,425,558			1,344,757			11.7		18.4
Allowance for loan losses	(20,234		)	(16,395		)	(15,965		)	23.4		26.7
Net loans	1,572,273			1,409,163			1,328,792			11.6		18.3
Premises and equipment, net	20,751			21,315			22,813			(2.6	)	(9.0	)
Bank owned life insurance ("BOLI")	26,435			26,323			25,008			0.4		5.7
Deferred tax assets	7,274			5,559			5,605			30.9		29.8
Federal Home Loan Bank ("FHLB") stock	11,629			14,184			9,999			(18.0	)	16.3
Accrued interest receivable	11,039			6,984			7,109			58.1		55.3
Other real estate owned ("OREO")	711			1,723			921			(58.7	)	(22.8	)
Goodwill	1,516			1,516			1,516			—		—
Other assets	7,575			7,595			8,012			(0.3	)	(5.5	)
Total assets	$	1,900,774		$	1,718,942		$	1,626,737		10.6	%	16.8	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand	$	429,899		$	279,793		$	275,356		53.6	%	56.1	%
Interest-bearing demand	172,950			176,335			157,850			(1.9	)	9.6
Savings	408,416			389,795			389,999			4.8		4.7
Time Deposits	472,192			404,191			441,148			16.8		7.0
Total deposits	1,483,457			1,250,114			1,264,353			18.7		17.3
Borrowed funds	223,000			283,000			190,000			(21.2	)	17.4
Subordinated debentures	10,310			10,310			10,310			—		—
Accrued interest payable	228			455			414			(49.9	)	(44.9	)
Accrued expenses and other liabilities	17,172			14,354			12,277			19.6		39.9
Total liabilities	1,734,167			1,558,233			1,477,354			11.3		17.4
Shareholders' equity:
Common stock	91,103			90,113			89,327			1.1		2.0
Retained earnings	79,253			70,442			60,109			12.5		31.8
Treasury stock, at cost	(2,991		)	—			—			(100.0)		(100.0)
Accumulated other comprehensive (loss) income	(758		)	154			(53		)	NM		NM
Total shareholders' equity	166,607			160,709			149,383			3.7		11.5
Total liabilities and shareholders' equity	$	1,900,774		$	1,718,942		$	1,626,737		10.6	%	16.8	%
COMMON SHARES AT PERIOD END:
Shares issued	10,939			10,881			10,856
Shares oustanding	10,728			10,881			10,856
Treasury shares	211			—			—

NM=Not meaningful

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

June 30, 2020

									Jun 30, 2020 vs.
	For the three months ended								Mar 31, 2020					Jun 30, 2019
(In thousands, except percentages and per share amounts)	Jun 30, 2020		Mar 31, 2020			Jun 30, 2019			$			%		$			%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	23	$	188		$	232		$	(165	)	(87.8	)%	$	(209	)	(90.1	)%
FHLB stock	79		109			77			(30		)	(27.5	)	2			2.6
Securities:
Taxable	437		511			461			(74		)	(14.5	)	(24		)	(5.2	)
Tax-exempt	17		22			27			(5		)	(22.7	)	(10		)	(37.0	)
Total securities	454		533			488			(79		)	(14.8	)	(34		)	(7.0	)
Loans:
SBA loans	709		985			942			(276		)	(28.0	)	(233		)	(24.7	)
SBA PPP loans	723		—			—			723			100.0		723			100.0
Commercial loans	9,815		9,933			9,357			(118		)	(1.2	)	458			4.9
Residential mortgage loans	5,554		5,770			5,535			(216		)	(3.7	)	19			0.3
Consumer loans	1,921		2,067			2,150			(146		)	(7.1	)	(229		)	(10.7	)
Total loans	18,722		18,755			17,984			(33		)	(0.2	)	738			4.1
Total interest income	19,278		19,585			18,781			(307		)	(1.6	)	497			2.6
INTEREST EXPENSE
Interest-bearing demand deposits	364		478			442			(114		)	(23.8	)	(78		)	(17.6	)
Savings deposits	512		851			1,188			(339		)	(39.8	)	(676		)	(56.9	)
Time deposits	2,454		2,447			2,437			7			0.3		17			0.7
Borrowed funds and subordinated debentures	423		565			504			(142		)	(25.1	)	(81		)	(16.1	)
Total interest expense	3,753		4,341			4,571			(588		)	(13.5	)	(818		)	(17.9	)
Net interest income	15,525		15,244			14,210			281			1.8		1,315			9.3
Provision for loan losses	2,500		1,500			350			1,000			66.7		2,150			614.3
Net interest income after provision for loan losses	13,025		13,744			13,860			(719		)	(5.2	)	(835		)	(6.0	)
NONINTEREST INCOME
Branch fee income	207		317			378			(110		)	(34.7	)	(171		)	(45.2	)
Service and loan fee income	390		376			569			14			3.7		(179		)	(31.5	)
Gain on sale of SBA loans held for sale, net	92		473			238			(381		)	(80.5	)	(146		)	(61.3	)
Gain on sale of mortgage loans, net	1,553		1,051			630			502			47.8		923			146.5
BOLI income	154		173			147			(19		)	(11.0	)	7			4.8
Net security (losses) gains	79		(170		)	98			249			146.5		(19		)	(19.4	)
Other income	336		325			351			11			3.4		(15		)	(4.3	)
Total noninterest income	2,811		2,545			2,411			266			10.5		400			16.6
NONINTEREST EXPENSE
Compensation and benefits	5,553		5,439			5,186			114			2.1		367			7.1
Processing and communications	769		708			748			61			8.6		21			2.8
Furniture and equipment	641		655			718			(14		)	(2.1	)	(77		)	(10.7	)
Occupancy	630		624			653			6			1.0		(23		)	(3.5	)
BSA expenses	488		63			—			425			674.6		488			100.0
Professional services	261		269			277			(8		)	(3.0	)	(16		)	(5.8	)
Advertising	207		290			374			(83		)	(28.6	)	(167		)	(44.7	)
Other loan expenses	168		89			67			79			88.8		101			150.7
Deposit insurance	159		88			134			71			80.7		25			18.7
Director fees	181		200			164			(19		)	(9.5	)	17			10.4
Loan collection & OREO expenses	1		186			(10		)	(185		)	(99.5	)	11			110.0
Other expenses	119		712			480			(593		)	(83.3	)	(361		)	(75.2	)
Total noninterest expense	9,177		9,323			8,791			(146		)	(1.6	)	386			4.4
Income before provision for income taxes	6,659		6,966			7,480			(307		)	(4.4	)	(821		)	(11.0	)
Provision for income taxes	1,488		1,598			1,646			(110		)	(6.9	)	(158		)	(9.6	)

Net income	$	5,171		$	5,368		$	5,834		$	(197	)	(3.7	)%	$	(663	)	(11.4	)%
Effective tax rate	22.3		%	22.9		%	22.0		%
Net income per common share - Basic	$	0.48		$	0.49		$	0.54
Net income per common share - Diluted	$	0.47		$	0.49		$	0.53
Weighted average common shares outstanding - Basic	10,792			10,883			10,843
Weighted average common shares outstanding - Diluted	10,888			11,037			11,026

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

June 30, 2020

	For the six months ended June 30,					Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts)	2020			2019		$			%
INTEREST INCOME
Federal funds sold and interest-bearing deposits	$	212		$	453	$	(241	)	(53.2	)%
FHLB stock	188			193		(5		)	(2.6	)
Securities:
Taxable	948			937		11			1.2
Tax-exempt	39			55		(16		)	(29.1	)
Total securities	987			992		(5		)	(0.5	)
Loans:
SBA loans	1,694			1,937		(243		)	(12.5	)
SBA PPP loans	723			—		723			100.0
Commercial loans	19,748			18,426		1,322			7.2
Residential mortgage loans	11,324			11,095		229			2.1
Consumer loans	3,988			4,185		(197		)	(4.7	)
Total loans	37,477			35,643		1,834			5.1
Total interest income	38,864			37,281		1,583			4.2
INTEREST EXPENSE
Interest-bearing demand deposits	842			851		(9		)	(1.1	)
Savings deposits	1,363			2,306		(943		)	(40.9	)
Time deposits	4,900			4,445		455			10.2
Borrowed funds and subordinated debentures	989			1,253		(264		)	(21.1	)
Total interest expense	8,094			8,855		(761		)	(8.6	)
Net interest income	30,770			28,426		2,344			8.2
Provision for loan losses	4,000			850		3,150			370.6
Net interest income after provision for loan losses	26,770			27,576		(806		)	(2.9	)
NONINTEREST INCOME
Branch fee income	523			746		(223		)	(29.9	)
Service and loan fee income	766			1,011		(245		)	(24.2	)
Gain on sale of SBA loans held for sale, net	565			554		11			2.0
Gain on sale of mortgage loans, net	2,604			980		1,624			165.7
BOLI income	327			297		30			10.1
Net security (losses) gains	(91		)	198		(289		)	(146.0	)
Other income	662			647		15			2.3
Total noninterest income	5,356			4,433		923			20.8
NONINTEREST EXPENSE
Compensation and benefits	10,992			10,030		962			9.6
Processing and communications	1,477			1,464		13			0.9
Furniture and equipment	1,296			1,377		(81		)	(5.9	)
Occupancy	1,253			1,346		(93		)	(6.9	)
BSA expenses	550			—		550			100.0
Professional services	531			565		(34		)	(6.0	)
Advertising	497			722		(225		)	(31.2	)
Director fees	381			328		53			16.2
Other loan expenses	257			113		144			127.4
Deposit insurance	247			301		(54		)	(17.9	)
Loan collection & OREO expenses	187			57		130			228.1
Other expenses	833			966		(133		)	(13.8	)
Total noninterest expense	18,501			17,269		1,232			7.1
Income before provision for income taxes	13,625			14,740		(1,115		)	(7.6	)
Provision for income taxes	3,086			3,166		(80		)	(2.5	)
Net income	$	10,539		$	11,574	$	(1,035	)	(8.9	)%

Effective tax rate	22.6		%	21.5		%
Net income per common share - Basic	$	0.97		$	1.07
Net income per common share - Diluted	$	0.96		$	1.05
Weighted average common shares outstanding - Basic	10,838			10,822
Weighted average common shares outstanding - Diluted	10,962			11,011

UNITY BANCORP, INC.

QUARTER TO DATE NET INTEREST MARGIN

June 30, 2020

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	June 30, 2020								June 30, 2019
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold, interest-bearing deposits and repos	$	73,899		$	23		0.13	%	$	39,103		$	232		2.38	%
FHLB stock	5,976			79			5.32		5,236			77			5.90
Securities:
Taxable	53,592			437			3.28		57,939			461			3.19
Tax-exempt	3,534			21			2.39		4,470			33			2.96
Total securities (A)	57,126			458			3.22		62,409			494			3.17
Loans:
SBA loans	47,964			709			5.95		47,542			942			7.95
SBA PPP loans	100,586			723			2.89		—			—			—
Commercial loans	783,962			9,815			5.04		707,022			9,357			5.31
Residential mortgage loans	461,156			5,554			4.84		445,315			5,535			4.99
Consumer loans	145,970			1,921			5.29		132,804			2,150			6.49
Total loans (B)	1,539,638			18,722			4.89		1,332,683			17,984			5.41
Total interest-earning assets	$	1,676,639		$	19,282		4.63	%	$	1,439,431		$	18,787		5.24	%
Noninterest-earning assets:
Cash and due from banks	20,698								24,625
Allowance for loan losses	(17,909		)						(15,955		)
Other assets	74,076								69,663
Total noninterest-earning assets	76,865								78,333
Total assets	$	1,753,504							$	1,517,764
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	181,943		$	364		0.80	%	$	174,391		$	442		1.02	%
Total savings deposits	403,389			512			0.51		395,185			1,188			1.21
Total time deposits	482,734			2,454			2.04		422,458			2,437			2.31
Total interest-bearing deposits	1,068,066			3,330			1.25		992,034			4,067			1.64
Borrowed funds and subordinated debentures	107,761			423			1.58		94,568			504			2.14
Total interest-bearing liabilities	$	1,175,827		$	3,753		1.28	%	$	1,086,602		$	4,571		1.69	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	394,723								271,359
Other liabilities	17,682								13,697
Total noninterest-bearing liabilities	412,405								285,056
Total shareholders' equity	165,272								146,106
Total liabilities and shareholders' equity	$	1,753,504							$	1,517,764
Net interest spread				$	15,529		3.35	%				$	14,216		3.55	%
Tax-equivalent basis adjustment				(4		)						(6		)
Net interest income				$	15,525							$	14,210
Net interest margin							3.73	%							3.96	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 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.

QUARTER TO DATE NET INTEREST MARGIN

June 30, 2020

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the three months ended
	June 30, 2020								March 31, 2020
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	73,899		$	23		0.13	%	$	69,076		$	188		1.09	%
FHLB stock	5,976			79			5.32		6,883			109			6.37
Securities:
Taxable	53,592			437			3.28		60,363			511			3.40
Tax-exempt	3,534			21			2.39		3,783			27			2.87
Total securities (A)	57,126			458			3.22		64,146			538			3.38
Loans:
SBA loans	47,964			709			5.95		50,528			985			7.84
SBA PPP loans	100,586			723			2.89		—			—			—
Commercial loans	783,962			9,815			5.04		769,497			9,933			5.19
Residential mortgage loans	461,156			5,554			4.84		462,748			5,770			5.02
Consumer loans	145,970			1,921			5.29		142,284			2,067			5.84
Total loans (B)	1,539,638			18,722			4.89		1,425,057			18,755			5.29
Total interest-earning assets	$	1,676,639		$	19,282		4.63	%	$	1,565,162		$	19,590		5.03	%
Noninterest-earning assets:
Cash and due from banks	20,698								21,942
Allowance for loan losses	(17,909		)						(16,698		)
Other assets	74,076								70,381
Total noninterest-earning assets	76,865								75,625
Total assets	$	1,753,504							$	1,640,787
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	181,943		$	364		0.80	%	$	193,016		$	478		1.00	%
Total savings deposits	403,389			512			0.51		394,082			851			0.87
Total time deposits	482,734			2,454			2.04		435,705			2,447			2.26
Total interest-bearing deposits	1,068,066			3,330			1.25		1,022,803			3,776			1.48
Borrowed funds and subordinated debentures	107,761			423			1.58		131,057			565			1.73
Total interest-bearing liabilities	$	1,175,827		$	3,753		1.28	%	$	1,153,860		$	4,341		1.51	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	394,723								307,683
Other liabilities	17,682								16,101
Total noninterest-bearing liabilities	412,405								323,784
Total shareholders' equity	165,272								163,143
Total liabilities and shareholders' equity	$	1,753,504							$	1,640,787
Net interest spread				$	15,529		3.35	%				$	15,249		3.52	%
Tax-equivalent basis adjustment				(4		)						(5		)
Net interest income				$	15,525							$	15,244
Net interest margin							3.73	%							3.92	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 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

June 30, 2020

(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
	For the six months ended
	June 30, 2020								June 30, 2019
	Average Balance			Interest			Rate/Yield		Average Balance			Interest			Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold, interest-bearing deposits and repos	$	71,548		$	212		0.60	%	$	38,588		$	453		2.37	%
FHLB stock	6,429			188			5.88		6,089			193			6.39
Securities:
Taxable	56,917			948			3.35		58,334			937			3.24
Tax-exempt	3,659			49			2.69		4,529			68			3.03
Total securities (A)	60,576			997			3.31		62,863			1,005			3.22
Loans:
SBA loans	49,127			1,694			6.93		48,772			1,937			8.01
SBA PPP loans	50,412			723			2.88		—			—			—
Commercial loans	776,729			19,748			5.11		702,465			18,426			5.29
Residential mortgage loans	461,952			11,324			4.93		442,628			11,095			5.05
Consumer loans	144,127			3,988			5.56		129,414			4,185			6.52
Total loans (B)	1,482,347			37,477			5.08		1,323,279			35,643			5.43
Total interest-earning assets	$	1,620,900		$	38,874		4.82	%	$	1,430,819		$	37,294		5.26	%
Noninterest-earning assets:
Cash and due from banks	21,320								25,361
Allowance for loan losses	(17,303		)						(15,855		)
Other assets	72,228								70,118
Total noninterest-earning assets	76,245								79,624
Total assets	$	1,697,145							$	1,510,443
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits	$	187,480		$	842		0.90	%	$	178,214		$	851		0.96	%
Total savings deposits	398,736			1,363			0.69		396,191			2,306			1.17
Total time deposits	459,218			4,900			2.15		396,868			4,445			2.26
Total interest-bearing deposits	1,045,434			7,105			1.37		971,273			7,602			1.58
Borrowed funds and subordinated debentures	119,409			989			1.67		114,611			1,253			2.20
Total interest-bearing liabilities	$	1,164,843		$	8,094		1.40	%	$	1,085,884		$	8,855		1.65	%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits	351,203								267,035
Other liabilities	16,891								14,010
Total noninterest-bearing liabilities	368,094								281,045
Total shareholders' equity	164,208								143,514
Total liabilities and shareholders' equity	$	1,697,145							$	1,510,443
Net interest spread				$	30,780		3.42	%				$	28,439		3.61	%
Tax-equivalent basis adjustment				(10		)						(13		)
Net interest income				$	30,770							$	28,426
Net interest margin							3.82	%							4.01	%

(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 nondeductable portion of interest expense, assuming a federal tax rate of 21 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

June 30, 2020

Amounts in thousands, except percentages	Jun 30, 2020			Mar 31, 2020			Dec 31, 2019			Sep 30, 2019			Jun 30, 2019
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	17,376		$	16,395		$	16,002		$	15,965		$	15,684
Provision for loan losses charged to expense	2,500			1,500			500			750			350
	19,876			17,895			16,502			16,715			16,034
Less: Chargeoffs
SBA loans	—			25			43			99			84
Commercial loans	219			300			—			500			—
Residential mortgage loans	—			200			75			130			—
Consumer loans	—			—			—			—			—
Total chargeoffs	219			525			118			729			84
Add: Recoveries
SBA loans	75			5			7			13			1
Commercial loans	502			1			4			3			4
Residential mortgage loans	—			—			—			—			—
Consumer loans	—			—			—			—			10
Total recoveries	577			6			11			16			15
Net (recoveries) chargeoffs	(358		)	519			107			713			69
Balance, end of period	$	20,234		$	17,376		$	16,395		$	16,002		$	15,965
LOAN QUALITY INFORMATION:
Nonperforming loans:
SBA loans	$	2,363		$	1,627		$	1,164		$	503		$	437
Commercial loans	413			613			529			629			54
Residential mortgage loans	6,192			6,910			3,936			4,427			3,924
Consumer loans	505			505			20			23			—
Total nonperforming loans (1)	9,473			9,655			5,649			5,582			4,415
Other real estate owned ("OREO")	711			1,523			1,723			1,723			921
Nonperforming assets	10,184			11,178			7,372			7,305			5,336
Less: Amount guaranteed by SBA	307			427			59			63			68
Net nonperforming assets	$	9,877		$	10,751		$	7,313		$	7,242		$	5,268
Loans 90 days past due & still accruing	$	—		$	—		$	930		$	140		$	—
Performing Troubled Debt Restructurings (TDRs)	$	684		$	694		$	705		$	718		$	728
Allowance for loan losses to:
Total loans at quarter end	1.27		%	1.21		%	1.15		%	1.17		%	1.19		%
Nonperforming loans (1)	213.60			179.97			290.23			286.67			361.61
Nonperforming assets	198.68			155.45			222.40			219.06			299.19
Net nonperforming assets	204.86			161.62			224.19			220.96			303.06
QTD net chargeoffs (recoveries) (annualized) to QTD average loans:
SBA loans	(0.20		)%	0.16		%	0.29		%	0.72		%	0.70		%
Commercial loans	(0.15		)	0.16			—			0.28			—
Residential mortgage loans	—			0.17			0.06			0.11			—
Consumer loans	—			—			—			—			(0.03		)
Total loans	(0.09		)%	0.15		%	0.03		%	0.21		%	0.02		%
Nonperforming loans to total loans	0.59		%	0.67		%	0.40		%	0.41		%	0.33		%
Nonperforming assets to total assets	0.54			0.64			0.43			0.44			0.33

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

June 30, 2020

(In thousands, except percentages and per share amounts)	Jun 30, 2020			Mar 31, 2020			Dec 31, 2019			Sep 30, 2019			Jun 30, 2019
SUMMARY OF INCOME:
Total interest income	$	19,278		$	19,585		$	19,312		$	19,055		$	18,781
Total interest expense	3,753			4,341			4,549			4,651			4,571
Net interest income	15,525			15,244			14,763			14,404			14,210
Provision for loan losses	2,500			1,500			500			750			350
Net interest income after provision for loan losses	13,025			13,744			14,263			13,654			13,860
Total noninterest income	2,811			2,545			2,396			2,710			2,411
Total noninterest expense	9,177			9,323			8,719			8,729			8,791
Income before provision for income taxes	6,659			6,966			7,940			7,635			7,480
Provision for income taxes	1,488			1,598			1,820			1,676			1,646
Net income	$	5,171		$	5,368		$	6,120		$	5,959		$	5,834
Net income per common share - Basic	$	0.48		$	0.49		$	0.56		$	0.55		$	0.54
Net income per common share - Diluted	$	0.47		$	0.49		$	0.55		$	0.54		$	0.53
COMMON SHARE DATA:
Market price per share	$	14.30		$	11.70		$	22.57		$	22.15		$	22.70
Dividends paid	$	0.08		$	0.08		$	0.08		$	0.08		$	0.08
Book value per common share	$	15.53		$	15.10		$	14.77		$	14.25		$	13.76
Weighted average common shares outstanding - Basic	10,792			10,883			10,872			10,863			10,843
Weighted average common shares outstanding - Diluted	10,888			11,037			11,057			11,036			11,026
Issued common shares	10,939			10,894			10,881			10,869			10,856
Outstanding common shares	10,728			10,883			10,881			10,869			10,856
Treasury shares	211			11			—			—			—
PERFORMANCE RATIOS (Annualized):
Return on average assets	1.19		%	1.32		%	1.53		%	1.53		%	1.54		%
Return on average equity	12.59			13.23			15.41			15.57			16.01
Efficiency ratio (1)	50.27			51.92			51.29			51.06			53.20
Noninterest expense to average assets	2.10			2.29			2.17			2.24			2.32
BALANCE SHEET DATA:
Total assets	1,900,774			1,740,076			1,718,942			1,664,308			1,626,737
Total deposits	1,483,457			1,378,618			1,250,114			1,273,362			1,264,353
Total loans	1,592,507			1,439,645			1,425,558			1,368,474			1,344,757
Total securities	54,888			58,002			66,564			63,991			62,122
Total shareholders' equity	166,607			164,305			160,709			154,884			149,383
Allowance for loan losses	(20,234		)	(17,376		)	(16,395		)	(16,002		)	(15,965		)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets	4.63		%	5.03		%	5.07		%	5.16		%	5.24		%
Interest-bearing liabilities	1.28			1.51			1.59			1.68			1.69
Net interest spread	3.35			3.53			3.48			3.48			3.55
Net interest margin	3.73			3.92			3.88			3.90			3.96
CREDIT QUALITY:
Nonperforming assets	10,184			11,178			7,372			7,305			5,336
QTD net chargeoffs (annualized) to QTD average loans	(0.09		)%	0.15		%	0.03		%	0.21		%	0.02		%
Allowance for loan losses to total loans	1.27			1.21			1.15			1.17			1.19
Nonperforming assets to total loans	0.59			0.67			0.40			0.41			0.33
Nonperforming assets to total assets	0.54			0.64			0.43			0.44			0.33

(In thousands, except percentages and per share amounts)	Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Sep 30, 2019		Jun 30, 2019
CAPITAL RATIOS AND OTHER:
Total equity to total assets	8.77	%	9.44	%	9.35	%	9.31	%	9.18	%
Leverage ratio (2)	10.01		10.56		10.59		10.54		10.36
Number of banking offices	19		19		19		19		19
Number of ATMs	20		20		20		20		20
Number of employees	191		205		203		194		185

(1) The efficiency ratio is a non-GAAP measure that represents the ratio of non-interest expenses divided by the net-interest income and non-interest income.

(2) The Bank adopted the CBLR in the first quarter of 2020, and will therefore not be required to comply with the Basel III capital requirements.