Unity Bancorp Reports Continued Improvement in Earnings

Jul 24, 2012, 06:00 ET from Unity Bancorp, Inc.

CLINTON, N.J., July 24, 2012 /PRNewswire/ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $575 thousand, or $0.07 per diluted share, for the quarter ended June 30, 2012, compared to $249 thousand, or $0.03 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.49% and 4.25%, respectively, compared to 0.32% and 1.95% for the same period a year ago. 

Highlights for the quarter include:

  • Continued reductions in loan loss provisions due to improvement in asset quality.
  • Significant increases in residential mortgage originations resulting in increases in gains on sale of mortgage loans.
  • Significant increase in commercial loan growth.
  • Planned reduction in SBA loans outstanding from our National Program, now discontinued.
  • Continued growth in noninterest-bearing demand deposits to 17.4% of total deposits.
  • Continued reduction in higher costing time deposits.  Time deposits now represent only 22% of total deposits.
  • Improvement in our net interest margin from the first quarter of 2012, from 3.56% for the three months ending March 31, 2012 to 3.68% for the three months ending June 30, 2012.
  • Further improvement in our equity to asset ratio.

For the six months ended June 30, 2012, net income available to common shareholders totaled $1.1 million or $0.14 per diluted share, compared to $85 thousand or $0.01 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the six months were 0.47% and 4.03%, respectively, compared to 0.21% and 0.34% for the same period a year ago. 

James A. Hughes, President and CEO, stated, "This was another quarter of increased earnings as our core fundamentals continued to improve.   We have enhanced our net interest margin with a strong quarter of loan growth coupled with increasing levels of noninterest-bearing demand deposits.   The trends are positive and I am extremely optimistic about the long-term opportunities ahead."    

Mr. Hughes added, "We are excited to announce our plans to open a new branch subject to regulatory approval in Somerset, New Jersey in October.  This continues our strategy of adding branches in areas which complement our existing branch network.  In addition, we are closing our William Penn Highway branch in Pennsylvania in the fourth quarter.  After five years in the market, we determined that the long-term growth potential of the market was limited."

Net Interest Income

Net interest income decreased $614 thousand to $6.9 million for the three months ended June 30, 2012 compared to the prior year's quarter and decreased $1.3 million to $13.7 million for the six months ended June 30, 2012 compared to the prior year's period.  In addition, the net interest margin contracted 20 basis points to 3.68% for the quarter ended June 30, 2012 and contracted 28 basis points to 3.62% for the six months ended June 30, 2012 when compared to the prior year periods. 

Our net interest income continues to be influenced by the sustained low interest rate environment, which the Federal Open Market Committee ("FOMC") forecasts will remain through 2014.  This rate environment has resulted in a tighter net interest margin as our earning assets re-price at lower rates.  The yield on earning assets fell 58 basis points to 4.70% and 60 basis points to 4.71% for the quarter and year-to-date periods ending June 30, 2012, when compared to the same periods in 2011.   Partially offsetting these declines are lower funding costs. The cost of interest-bearing liabilities decreased 42 basis points to 1.25% for the three month period and decreased 36 basis points to 1.33% for the six month period.

Noninterest Income

For the three months ended June 30, 2012, noninterest income amounted to $1.8 million, an increase of $394 thousand from the prior year period.  For the six months ended June 30, 2012, noninterest income increased $854 thousand to $3.6 million. These increases are attributed to record levels of origination and sale of residential mortgage loans and gains on the sale of securities.  Noninterest income was affected by the following factors:

  • Branch fee income, which consists of deposit service charges and overdraft fees, increased due to higher levels of overdraft fees partially offset by reduced deposit account service charges.
  • Service and loan fee income decreased due to reduced late charges, payoff charges and other processing fees.   
  • Gains on sales of SBA loans decreased due to a lower volume of loans being sold in each period.  For the three month period, $2.3 million in SBA loans were sold compared to $4.9 million in sales in 2011.  Year-to-date, $4.2 million in SBA loans were sold compared to $6.0 million in the prior year's period.
  • Gains on sales of residential mortgage loans increased on a significantly higher volume of loan sales.   For the three month period, $20.3 million in residential mortgage loans were sold compared to $6.0 million in 2011.  Year-to-date, $41.5 million in residential mortgage loans were sold compared to $15.7 million in the prior year's period. 
  • Security gains of $283 thousand and $507 thousand were realized during the quarter and year to date periods, respectively. 

Noninterest Expense

Noninterest expense totaled $6.2 million for the three months ended June 30, 2012 and 2011, and $12.2 million and $12.4 million for the six months ended June 30, 2012 and 2011, respectively.  Current year figures include expenses related to opening our fifteenth branch in Washington Township, New Jersey in March 2012.  Prior period figures include the recognition of $215 thousand in residual lease obligation and fixed asset disposals related to closing two underperforming branches in 2011.  Other factors which affected noninterest expense include:

  • Compensation and benefits expense increased due to higher payroll costs, mortgage origination commissions, equity compensation and medical benefits expenses.
  • Occupancy expense decreased due primarily to the branch closure cost savings noted above, partially offset by expenses related to our new Washington branch.  Year-to-date, savings were realized in snow removal due to a milder winter.
  • Furniture and equipment expense decreased due primarily to the branch closure cost savings noted above, partially offset by expenses related to our new Washington branch. 
  • Loan collection costs decreased due to lower loan legal, appraisal and other collection related expenses. 
  • Deposit insurance expense decreased due to the new assets-based assessment method which the FDIC put into place April 1, 2011. 
  • Advertising expenses increased in response to promotional activities related to the new branch, increased participation in community events and direct mail costs.

Financial Condition

At June 30, 2012, total assets were $785.1 million, a decrease of $25.7 million from the prior year-end.

  • Total securities increased $7.3 million since December 31, 2011, due to $32.8 million in security purchases, partially offset by sales and an increased level of prepayments. 
  • Total loans increased $12.3 million or 2.1% to $604.9 million at June 30, 2012. The Company plans to continue shrinking its SBA portfolio.  Future loan growth is expected in both the commercial and residential portfolios as reflected in our year-to-date performance.  The net increase was the result of the following:
    • Commercial loans increased $27.2 million or 9.6%,
    • Residential mortgage loans increased $2.4 million or 1.8%,
    • SBA 504 loans decreased $9.9 million or 17.9%,
    • SBA 7(a) loans decreased $5.4 million or 7.5%, and
    • Consumer loans decreased $2.1 million or 4.3%.    
  • Core deposits, which exclude time deposits, decreased $2.2 million during the year to $482.3 million.  This decrease was due to a $15.4 million reduction in municipal deposits, partially offset by $13.2 million in retail core deposit growth.  The net changes by product type include: 
    • A $5.2 million decrease in savings deposits, and a
    • $3.3 million decrease in interest-bearing demand deposits, partially offset by a
    • $6.3 million increase in noninterest-bearing demand deposits.
  • Time deposits decreased $25.3 million from year-end due to the maturity and planned run off of brokered deposits, as well as a high rate retail promotion that was completed late in 2008 to bolster liquidity.   
  • Shareholders' equity was $74.9 million at June 30, 2012, an increase of $1.3 million from year-end 2011, primarily due to the increase in net income.
  • Book value per common share was $7.38 as of June 30, 2012.
  • At June 30, 2012 the leverage, Tier I and Total Risk Based Capital ratios were 11.08%, 14.22% and 15.49%, respectively, all in excess of the ratios required to be deemed "well-capitalized".

Credit Quality

"Nonperforming assets to total assets are at the lowest level since 2008, and I expect further reductions in the quarters to follow", said James A. Hughes.   "Many of our problem commercial and SBA relationships have been resolved.   In addition, a quarter of our remaining nonperforming assets are residential loans which often take years to resolve."

  • Nonperforming assets totaled $22.2 million at June 30, 2012 or 3.65% of total loans and OREO, compared to $25.8 million or 4.33% of total loans and OREO at year-end 2011.
  • Nonperforming loans totaled $19.8 million at June 30, 2012, a decrease of $2.9 million over the prior year-end and a decrease of $5.3 million from June 30, 2011.
  • OREO assets totaled $2.4 million at June 30, 2012, a decrease of $677 thousand, compared to $3.0 million at year-end 2011 due to sales of $2.2 million and $490 thousand in valuation writedowns, partially offset by $2.0 million in additions. 
  • The allowance for loan losses totaled $16.3 million at June 30, 2012, or 2.69% of total loans. The provision for loan losses for the quarter ended June 30, 2012 was $1.0 million compared to $1.8 million for the prior year's quarter.  The provision for loan losses for the six months ended June 30, 2012 was $2.2 million compared to $4.3 million for the prior year's period.
  • Net charge-offs were $1.1 million for the three months ended June 30, 2012, compared to $1.0 million for the same period a year ago.  For the six months ended June 30, 2012, net charge-offs were $2.3 million, compared to $2.6 million for the prior year's period.
  • Troubled debt restructurings ("TDRs") increased $331 thousand from year-end to $21.4 million; however the level of nonperforming TDRs decreased significantly.  At June 30, 2012, 96% of our TDRs were performing.  

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $785 million in assets and $616 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.

UNITY BANCORP, INC.

SUMMARY FINANCIAL HIGHLIGHTS 

June 30, 2012

 June 30, 2012 vs. 

March 31, 2012

June 30, 2011

Amounts in thousands, except percentages and per share amounts

June 30, 2012

March 31, 2012

June 30, 2011

%

%

BALANCE SHEET DATA:

Total assets

$

785,111

$

810,198

$

806,163

(3.1)%

(2.6)%

Total deposits

616,443

643,101

641,167

(4.1)

(3.9)

Total loans

604,901

582,752

615,105

3.8

(1.7)

Total securities

114,846

128,061

115,188

(10.3)

(0.3)

Total shareholders' equity

74,901

74,002

72,207

1.2

3.7

Allowance for loan losses

(16,284)

(16,339)

(16,018)

0.3

(1.7)

FINANCIAL DATA - QUARTER TO DATE:

Income before provision for income taxes

$

1,494

$

1,364

$

921

9.5

62.2

Provision for income taxes

518

459

277

12.9

87.0

Net income 

976

905

644

7.8

51.6

Preferred stock dividends & discount accretion

401

396

395

1.3

1.5

Income available to common shareholders

$

575

$

509

$

249

13.0

130.9

Net income per common share - Basic (1)

$

0.08

$

0.07

$

0.03

14.3

166.7

Net income per common share - Diluted (1)

$

0.07

$

0.07

$

0.03

-

133.3

Return on average assets

0.49%

0.45%

0.32%

8.9

53.1

Return on average equity (2)

4.25%

3.81%

1.95%

11.5

117.9

Efficiency ratio

73.72%

71.80%

69.74%

2.7

5.7

FINANCIAL DATA - YEAR TO DATE:

Income before provision for income taxes

2,858

992

188.1

Provision for income taxes

977

129

657.4

Net income 

1,881

863

118.0

Preferred stock dividends & discount accretion

797

778

2.4

Income available to common shareholders

1,084

85

1,175.3

Net income per common share - Basic (1)

$

0.15

0.01

1,400.0

Net income per common share - Diluted (1)

$

0.14

0.01

1,300.0

Return on average assets

0.47%

0.21%

123.8

Return on average equity (2)

4.03%

0.34%

1,085.3

Efficiency ratio

72.76%

70.64%

3.0

SHARE INFORMATION:

Market price per share

$

6.00

$

6.24

$

6.79

(3.8)

(11.6)

Dividends paid

$

-

$

-

$

-

-

-

Book value per common share

$

7.38

$

7.28

$

7.14

1.4

3.4

Average diluted shares outstanding (QTD)

7,784

7,792

7,710

(0.1)

1.0

CAPITAL RATIOS:

Total equity to total assets

9.54%

9.13%

8.96%

4.5

6.5

Leverage ratio

11.08%

10.67%

10.40%

3.8

6.5

Tier 1 risk-based capital ratio

14.22%

14.44%

13.41%

(1.5)

6.0

Total risk-based capital ratio

15.49%

15.71%

14.67%

(1.4)

5.6

CREDIT QUALITY AND RATIOS:

Nonperforming assets

$

22,186

$

23,831

$

27,821

(6.9)

(20.3)

QTD net chargeoffs (annualized) to QTD average loans

0.71%

0.83%

0.66%

(14.5)

7.6

Allowance for loan losses to total loans

2.69%

2.80%

2.60%

(3.9)

3.5

Nonperforming assets to total loans and OREO

3.65%

4.08%

4.50%

(10.5)

(18.9)

Nonperforming assets to total assets

2.83%

2.94%

3.45%

(3.7)%

(18.0)%

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

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

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS 

June 30, 2012

 June 30, 2012 vs. 

December 31, 2011

June 30, 2011

(Amounts in thousands, except percentages)

June 30, 2012

December 31, 2011

June 30, 2011

%

%

ASSETS

Cash and due from banks

$

18,600

$

17,688

$

12,915

5.2

%

44.0

%

Federal funds sold and interest-bearing deposits

19,235

64,886

33,367

(70.4)

(42.4)

Cash and cash equivalents

37,835

82,574

46,282

(54.2)

(18.3)

Securities:

Securities available for sale

97,965

88,765

101,872

10.4

(3.8)

Securities held to maturity

16,881

18,771

13,316

(10.1)

26.8

Total securities

114,846

107,536

115,188

6.8

(0.3)

Loans:

SBA loans held for sale

6,087

7,668

13,753

(20.6)

(55.7)

SBA loans held to maturity

60,382

64,175

71,429

(5.9)

(15.5)

SBA 504 loans

45,247

55,108

55,810

(17.9)

(18.9)

Commercial loans

310,331

283,104

287,785

9.6

7.8

Residential mortgage loans

136,514

134,090

134,782

1.8

1.3

Consumer loans

46,340

48,447

51,546

(4.3)

(10.1)

Total loans

604,901

592,592

615,105

2.1

(1.7)

Allowance for loan losses

(16,284)

(16,348)

(16,018)

0.4

(1.7)

Net loans

588,617

576,244

599,087

2.1

(1.7)

Premises and equipment, net

12,146

11,350

10,650

7.0

14.0

Bank owned life insurance ("BOLI")

9,253

9,107

8,959

1.6

3.3

Deferred tax assets

6,977

6,878

6,756

1.4

3.3

Federal Home Loan Bank stock

3,989

4,088

4,088

(2.4)

(2.4)

Accrued interest receivable

3,415

3,703

3,692

(7.8)

(7.5)

Other real estate owned ("OREO")

2,355

3,032

2,722

(22.3)

(13.5)

Prepaid FDIC Insurance

2,230

2,545

2,720

(12.4)

(18.0)

Goodwill and other intangibles

1,522

1,530

1,537

(0.5)

(1.0)

Other assets

1,926

2,259

4,482

(14.7)

(57.0)

Total assets

$

785,111

$

810,846

$

806,163

(3.2)

%

(2.6)

%

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Deposits:

Noninterest-bearing demand deposits

$

107,497

$

101,193

$

94,547

6.2

%

13.7

%

Interest-bearing demand deposits

101,420

104,749

93,730

(3.2)

8.2

Savings deposits

273,395

278,603

285,651

(1.9)

(4.3)

Time deposits, under $100,000

83,138

102,809

106,880

(19.1)

(22.2)

Time deposits, $100,000 and over

50,993

56,617

60,359

(9.9)

(15.5)

Total deposits

616,443

643,971

641,167

(4.3)

(3.9)

Borrowed funds

75,000

75,000

75,000

-

-

Subordinated debentures

15,465

15,465

15,465

-

-

Accrued interest payable

470

523

570

(10.1)

(17.5)

Accrued expenses and other liabilities

2,832

2,329

1,754

21.6

61.5

Total liabilities

710,210

737,288

733,956

(3.7)

(3.2)

Shareholders' equity:

Cumulative perpetual preferred stock

19,824

19,545

19,278

1.4

2.8

Common stock

53,917

53,746

53,590

0.3

0.6

Retained earnings (deficit)

231

(854)

(1,757)

127.0

113.1

Accumulated other comprehensive income 

929

1,121

1,096

(17.1)

(15.2)

Total shareholders' equity

74,901

73,558

72,207

1.8

3.7

Total liabilities and shareholders' equity

$

785,111

$

810,846

$

806,163

(3.2)

%

(2.6)

%

Preferred shares

21

21

21

Issued common shares

7,461

7,459

7,412

Outstanding common shares

7,461

7,459

7,412

 

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME 

June 30, 2012

 For the three months ended 

 June 30, 2012 vs. 

March 31, 2012

June 30, 2011

Amounts in thousands, except percentages and per share amounts

June 30, 2012

March 31, 2012

June 30, 2011

$

%

$

%

INTEREST INCOME

Federal funds sold and interest-bearing deposits

$

11

$

32

$

9

$

(21)

(65.6)%

$

2

22.2%

Federal Home Loan Bank stock

44

51

35

(7)

(13.7)

9

25.7

Securities available for sale

690

721

891

(31)

(4.3)

(201)

(22.6)

Securities held to maturity

163

173

180

(10)

(5.8)

(17)

(9.4)

Total securities

853

894

1,071

(41)

(4.6)

(218)

(20.4)

SBA loans

846

924

1,191

(78)

(8.4)

(345)

(29.0)

SBA 504 loans

691

759

834

(68)

(9.0)

(143)

(17.1)

Commercial loans

4,216

4,183

4,581

33

0.8

(365)

(8.0)

Residential mortgage loans

1,582

1,655

1,846

(73)

(4.4)

(264)

(14.3)

Consumer loans

529

560

629

(31)

(5.5)

(100)

(15.9)

Total loans

7,864

8,081

9,081

(217)

(2.7)

(1,217)

(13.4)

Total interest income

8,772

9,058

10,196

(286)

(3.2)

(1,424)

(14.0)

INTEREST EXPENSE

Interest-bearing demand deposits

123

136

143

(13)

(9.6)

(20)

(14.0)

Savings deposits

287

354

584

(67)

(18.9)

(297)

(50.9)

Time deposits

689

913

1,045

(224)

(24.5)

(356)

(34.1)

Borrowed funds and subordinated debentures

816

847

953

(31)

(3.7)

(137)

(14.4)

Total interest expense

1,915

2,250

2,725

(335)

(14.9)

(810)

(29.7)

Net interest income

6,857

6,808

7,471

49

0.7

(614)

(8.2)

Provision for loan losses

1,000

1,200

1,750

(200)

(16.7)

(750)

(42.9)

Net interest income after provision for loan losses

5,857

5,608

5,721

249

4.4

136

2.4

NONINTEREST INCOME

Branch fee income

362

386

337

(24)

(6.2)

25

7.4

Service and loan fee income

287

302

384

(15)

(5.0)

(97)

(25.3)

Gain on sale of SBA loans held for sale, net

223

157

399

66

42.0

(176)

(44.1)

Gain on sale of mortgage loans

453

411

87

42

10.2

366

420.7

BOLI income

73

73

74

-

-

(1)

(1.4)

Net security gains (losses)

283

224

(39)

59

26.3

322

825.6

Other income

160

162

205

(2)

(1.2)

(45)

(22.0)

Total noninterest income

1,841

1,715

1,447

126

7.3

394

27.2

NONINTEREST EXPENSE

Compensation and benefits

3,133

3,182

2,880

(49)

(1.5)

253

8.8

Occupancy

740

609

827

131

21.5

(87)

(10.5)

Processing and communications

553

534

537

19

3.6

16

3.0

Furniture and equipment

355

362

410

(7)

(1.9)

(55)

(13.4)

Professional services

211

190

192

21

11.1

19

9.9

Loan collection costs

91

180

201

(89)

(49.4)

(110)

(54.7)

OREO expenses

237

124

223

113

91.1

14

6.3

Deposit insurance

168

171

282

(3)

(1.8)

(114)

(40.4)

Advertising

302

146

205

156

106.8

97

47.3

Other expenses

414

461

490

(47)

(10.2)

(76)

(15.5)

Total noninterest expense

6,204

5,959

6,247

245

4.1

(43)

(0.7)

Income before provision for income taxes

1,494

1,364

921

130

9.5

573

62.2

Provision for income taxes

518

459

277

59

12.9

241

87.0

Net income 

976

905

644

71

7.8

332

51.6

Preferred stock dividends & discount accretion

401

396

395

5

1.3

6

1.5

Income available to common shareholders

$

575

$

509

$

249

$

66

13.0%

$

326

130.9%

Effective tax rate

34.7%

33.7%

30.1%

Net income per common share - Basic (1)

$

0.08

$

0.07

$

0.03

Net income per common share - Diluted (1)

$

0.07

$

0.07

$

0.03

Weighted average common shares outstanding - Basic

7,462

7,460

7,271

Weighted average common shares outstanding - Diluted

7,784

7,792

7,710

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

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

June 30, 2012

 Current YTD 

 Prior YTD 

Current YTD VS. Prior YTD

Amounts in thousands, except percentages and per share amounts

June 30, 2012

June 30, 2011

$

%

INTEREST INCOME

Federal funds sold and interest-bearing deposits

$

43

$

20

$

23

115.0%

Federal Home Loan Bank stock

95

101

(6)

(5.9)

Securities available for sale

1,410

1,754

(344)

(19.6)

Securities held to maturity

336

468

(132)

(28.2)

Total securities

1,746

2,222

(476)

(21.4)

SBA loans

1,770

2,427

(657)

(27.1)

SBA 504 loans

1,451

1,789

(338)

(18.9)

Commercial loans

8,397

8,887

(490)

(5.5)

Residential mortgage loans

3,237

3,677

(440)

(12.0)

Consumer loans

1,089

1,315

(226)

(17.2)

Total loans

15,944

18,095

(2,151)

(11.9)

Total interest income

17,828

20,438

(2,610)

(12.8)

INTEREST EXPENSE

Interest-bearing demand deposits

259

283

(24)

(8.5)

Savings deposits

641

1,165

(524)

(45.0)

Time deposits

1,603

2,140

(537)

(25.1)

Borrowed funds and subordinated debentures

1,662

1,904

(242)

(12.7)

Total interest expense

4,165

5,492

(1,327)

(24.2)

Net interest income

13,663

14,946

(1,283)

(8.6)

Provision for loan losses

2,200

4,250

(2,050)

(48.2)

Net interest income after provision for loan losses

11,463

10,696

767

7.2

NONINTEREST INCOME

Branch fee income

748

680

68

10.0

Service and loan fee income

588

627

(39)

(6.2)

Gain on sale of SBA loans held for sale, net

381

510

(129)

(25.3)

Gain on sale of mortgage loans

864

256

608

237.5

BOLI income

146

147

(1)

(0.7)

Net security gains

507

87

420

482.8

Other income