Unity Bancorp Reports 48.1% Increase in Quarterly Earnings and 52.0% Increase in Year to Date Earnings

CLINTON, N.J., Oct. 24, 2013 /PRNewswire/ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.2 million, or $0.15 per diluted share, for the three months ended September 30, 2013, a 48.1% increase compared to $799 thousand, or $0.10 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.62% and 8.25%, respectively, compared to 0.60% and 5.74% for the same period a year ago. 

During the third quarter, Unity:

• Redeemed the remaining $10.3 million of preferred stock issued in connection with participation in the Treasury's Capital Purchase Program ("CPP") on July 3, 2013.
• Repurchased the warrants issued in connection with the CPP for $2.7 million.
• Realized record growth in commercial loans with a 15.6% increase since year-end 2012.
• Closed $37.5 million in residential mortgage loans for the third quarter and $122.9 million year-to-date. 
• Expanded the Small Business Administration ("SBA") lending division with the addition of two new loan officers.
• Continued to reduce noninterest expense compared to the prior year and prior quarter periods.
• Although nonperforming loans increased, we reduced the number of delinquent loan accounts compared to the prior quarter and year-end periods. 
• Rang the closing bell at NASDAQ on August 22, 2013, commemorating Unity Bancorp's 15^th anniversary of listing on the exchange.

"This was a pivotal quarter for Unity," reported James A. Hughes, President and CEO.  "We repaid the TARP, realized record loan and deposit growth, expanded net revenue and our earnings have increased substantially over prior periods.  I anticipate that these positive trends will continue for the foreseeable future."

For the nine months ended September 30, 2013, net income available to common shareholders totaled $2.9 million, or $0.36 per diluted share, a 52.0% increase compared to $1.9 million or $0.24 per diluted share for the comparable period of 2012.  Return on average assets and average common equity for the nine month periods were 0.63% and 6.67%, respectively, compared to 0.51% and 4.61% for the same period a year ago. 

Net Interest Income

Compared to a year ago, net interest income decreased $156 thousand and $327 thousand for the three and nine month periods, respectively.  The net interest margin was 3.53% and 3.57% for the quarter and year-to-date periods, respectively.  While net interest income is lower than the prior year, on a linked quarter basis it has increased as lower deposit rates and increased commercial and residential mortgage loan volume have helped to offset lower yields on our securities and loan portfolios.  We expect net interest income to continue to expand in future quarters due to strong loan growth.    

Provision for Loan Losses

The provision for loan losses for the quarter ended September 30, 2013, was $600 thousand compared to $1.0 million for the prior year's quarter, and for the nine month period ended September 30, 2013, the provision declined to $1.6 million from $3.2 million in the first nine months of 2012.  The reduced provision reflects a lower level of net charge-offs for the quarter and year-to-date periods. 

Noninterest Income

Noninterest income decreased $124 thousand to $1.7 million for the three months and $198 thousand to $5.1 million for the nine months ended September 30, 2013, compared to the same periods last year. The decreases during both periods were driven by lower sales volume and subsequent gains on residential mortgage loan sales, as we held a larger number of these loans in our portfolio.  These decreases were partially offset by increased gains on the sale of SBA loans due to a higher volume of loans sold.

During the quarter, $14.1 million in residential mortgage loans were sold at a gain of $314 thousand, compared to $30.1 million sold at a gain of $662 thousand during the prior year's quarter.  For the nine month period, $62.6 million in residential mortgage loans were sold at a gain of $1.3 million, compared to $71.6 million sold at a gain of $1.5 million during the prior year's period.  We do not anticipate the rise in interest rates to have a material impact on our residential mortgage origination volume.

SBA loan sales totaled $3.1 million with gains on sale of $280 thousand for the quarter compared to sales of $442 thousand and $46 thousand in gains during the prior year's quarter.  For the nine month period, SBA loan sales totaled $6.3 million with gains on sale of $607 thousand compared to sales of $4.7 million and $427 thousand in gains during the prior year's quarter.  With the addition of SBA loan officers this quarter we expect to see an increase in the volume of local SBA loan originations.

Noninterest Expense

Noninterest expense decreased $64 thousand to $5.9 million for the three months ended September 30, 2013, while year-to-date expense decreased $25 thousand to $18.1 million.  The decreases in each of these periods were the result of lower mortgage commissions as we held a larger portion of originated mortgages in our portfolio, reduced salary compensation from position vacancies and lower occupancy expense as a result of cost savings realized from the purchase of three of our previously leased locations.   Other notable expense fluctuations included an increase in other real estate owned ("OREO") expenses during the quarter due to a property valuation adjustment, net loss on sales and property management expenses.   On a year-to-date basis, advertising expenses declined based on the timing of retail branch related promotions, loan collection costs remain elevated due to higher appraisal, insurance and other collection costs, and recruiting and director expenses increased.

Financial Condition

At September 30, 2013, total assets were $876.1 million, an increase of $56.4 million from the prior year end:

• Total loans increased $73.6 million or 12.5%, to $660.6 million at September 30, 2013. This growth came from our commercial and residential mortgage loan portfolios which increased $47.1 million and $41.0 million, respectively.  Future loan growth is expected in both of these portfolios, while the Company plans to continue shrinking it's out of market SBA portfolio.
• Total deposits increased $78.4 million or 12.1%, to $727.1 million at September 30, 2013, due to growth in noninterest-bearing deposits, time deposits and interest-bearing demand deposits.  This increase included a $36 million short-term noninterest-bearing demand deposit account which is expected to decline by year-end.  Excluding this account, total deposits increased $42.4 million or 6.5 %.  Time deposits have increased $38.1 million from year-end, with the majority of this coming in the third quarter in response to a certificate of deposit ("CD") promotion and the addition of brokered CDs.
• Shareholders' equity was $55.9 million at September 30, 2013, a decrease of $21.6 million from year-end 2012, due primarily to the redemption of $20.6 million in preferred stock issued in connection with the CPP and repurchase of the related warrants for $2.7 million. 
• Book value per common share was $7.41 as of September 30, 2013.
• At September 30, 2013, the leverage, Tier I and Total Risk Based Capital ratios were 8.33%, 10.81% and 12.07% respectively, all in excess of the ratios required to be deemed "well-capitalized". 

Credit Quality

• Nonperforming assets totaled $17.9 million at September 30, 2013, or 2.70% of total loans and OREO, compared to $19.3 million or 3.28% of total loans and OREO at year-end 2012. Nonperforming assets increased $3.8 million compared to the quarter-ended June 30, 2013, primarily due to the addition of a $3.0 million commercial real estate loan. Although nonperforming assets have increased, credit quality has improved as the number of delinquent loans has fallen. We are optimistic that we will continue to have further improvement in credit quality.
• OREO decreased $577 thousand to $1.2 million at September 30, 2013, due to the sale of 10 properties.
• The allowance for loan losses totaled $13.6 million at September 30, 2013, or 2.05% of total loans.
• Net charge-offs were $1.4 million for the three months ended September 30, 2013, compared to $2.0 million for the same period a year ago.  For the nine months ended September 30, 2013, net charge-offs were $2.8 million compared to $4.3 million for the prior year period.
• Troubled debt restructurings ("TDRs") decreased $5.2 million from year-end to $9.5 million due to principal pay downs, a refinanced transaction and the addition of one loan.  At September 30, 2013, 81.0% of our TDRs were performing.  

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $876 million in assets and $727 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.

SOURCE Unity Bancorp, Inc.