Unity Bancorp Reports Increased Earnings

CLINTON, N.J., Jan. 31, 2013 /PRNewswire/ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $759 thousand, or $0.10 per diluted share, for the three months ended December 31, 2012, compared to $203 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 0.57% and 5.34%, respectively, compared to 0.29% and 1.51% for the same period a year ago. 

For the year ended December 31, 2012, net income available to common shareholders totaled $2.6 million, or $0.34 per diluted share, compared to $988 thousand, or $0.13 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the year were 0.53% and 4.80%, respectively, compared to 0.31% and 1.90% for the same period a year ago. 

Quarterly highlights include:

• Improved credit quality since December 31, 2011 resulted in lower loan loss provisions as well as reduced loan collection expenses and costs to maintain other real estate owned ("OREO").
• Significant increases in residential mortgage originations resulted in increased gains on sale of mortgage loans.
• Continued deposit product mix improvement due to growth in core demand deposits and savings deposits, while higher costing time deposits declined. 
• Further improvement in our capital ratios as we remain "well-capitalized".
• Opened a branch in Somerset, New Jersey on November 16, 2012.
• Launched our mobile banking product.

James A. Hughes, President and CEO, stated, "This was a year of increased earnings as our core fundamentals continued to improve and asset quality strengthened.  We had a record year of mortgage production, opened two new branches and continued to grow our noninterest-bearing deposits thereby reducing our cost of funds.  The trends are very positive and I remain extremely optimistic about the long-term opportunities ahead."    

Net Interest Income

Net interest income increased $64 thousand to $6.7 million for the three months ended December 31, 2012, compared to the prior year's quarter and decreased $1.5 million to $27.4 million for the year ended December 31, 2012 compared to the prior year.  In addition, the net interest margin expanded 12 basis points to 3.51% for the quarter ended December 31, 2012, and contracted 14 basis points to 3.62% for the year ended December 31, 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") of the Federal Reserve Board forecasts will remain through mid-2015.  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 20 basis points to 4.44% and 49 basis points to 4.63% for the quarter and year ending December 31, 2012, respectively, when compared to the same periods in 2011.   Partially offsetting these declines are lower funding costs. The cost of interest-bearing liabilities decreased 35 basis points to 1.14% for the three month period and decreased 38 basis points to 1.24% for the twelve month period.

Noninterest Income

Noninterest income increased $703 thousand to $2.0 million and $1.7 million to $7.3 million for the three and twelve months ended December 31, 2012, respectively, compared to the same periods last year. These increases were driven by record levels of residential mortgage loan originations and sales.  Additional factors affecting noninterest income were:

• Branch fee income, which consists of deposit service charges and overdraft fees, increased $7 thousand and $83 thousand for the quarterly and annual periods, respectively.  For the year ended December 31, 2012, increased overdraft fees and commercial analysis fees offset other reduced deposit account service charges.
• Service and loan fee income increased $103 thousand and $218 thousand for the quarterly and annual periods, respectively, due to late charges, servicing income, mortgage application fees and other processing fees.   
• Gains on sales of SBA loans increased $148 thousand for the quarter due to higher premiums on the sale of $2.1 million in loans during the period.  For the twelve month period ended December 31, 2012, SBA gains on sale decreased $274 thousand, due primarily to a lower volume of loans sold in 2012.   For the year ended December 31, 2012, $6.8 million was sold compared to $13.3 million in the prior year.
• Gains on sales of residential mortgage loans increased on a significantly higher volume of loan sales.   For the three month period, $32.4 million in residential mortgage loans were sold compared to $26.8 million in the fourth quarter of 2011.  Year-to-date, $104.0 million in residential mortgage loans were sold compared to $55.8 million in the prior year. 
• Security gains of $59 thousand and $573 thousand were realized during the quarter and full year periods, respectively. 

Noninterest Expense

Noninterest expense totaled $6.1 million and $6.0 million for the three months ended December 31, 2012, and 2011, respectively. Noninterest expense decreased $221 thousand to $24.3 million for the year ended December 31, 2012, compared to $24.5 million in 2011. 

Noninterest expense in the current and prior year periods included the impact of our branch network restructuring, as well as the benefit of lower loan and OREO related expenses as credit quality improved. In 2012, we opened two new branches and closed an underperforming branch.  In 2011, we closed two underperforming branches.  Other noteworthy expenses include:

• Compensation and benefits expense increased $154 thousand and $779 thousand for the quarter and annual periods, respectively, due primarily to annual merit-based and replacement cost increases in compensation, increased mortgage commissions, bonuses and equity compensation.
• Loan collection costs decreased $90 thousand and $297 thousand for the quarter and annual periods, respectively, due to lower loan legal, credit reports, and insurance and other collection related expenses. 
• OREO costs, such as losses on sales, property taxes, maintenance and legal expenses, decreased $207 thousand and $746 thousand during the quarter and annual periods, respectively as our foreclosed inventory levels declined and properties were sold at favorable prices.
• Deposit insurance expense for the year ended December 31, 2012, decreased due to the assets-based assessment method put into place by the FDIC on April 1, 2011. 
• Advertising expenses, such as promotional activities related to our new branches and in response to increased competition within our market place, combined with participation in community events and higher direct mail costs, increased $112 thousand for the year ended December 31, 2012.
• Other expenses increased $101 thousand and $100 thousand for the quarter and annual periods, respectively, due to higher retail losses and office supply expenses. 

Financial Condition

At December 31, 2012, total assets were $819.7 million, an increase of $8.9 million from the prior year end.

• Total securities increased $3.5 million since December 31, 2011, due to $47.0 million in security purchases, partially offset by sales and prepayments. 
• Total loans decreased $5.6 million or 0.9%, to $587.0 million at December 31, 2012. The Company plans to continue shrinking it's out of market SBA portfolio.  Future loan growth is expected in both the commercial and residential portfolios.  The net decrease was the result of the following:
  • Commercial loans increased $18.5 million or 6.5%,
  • SBA 504 loans decreased $13.7 million or 24.8%,
  • SBA 7(a) loans decreased $6.3 million or 8.8%,
  • Residential mortgage loans decreased $2.0 million or 1.5%, and
  • Consumer loans decreased $2.0 million or 4.2%.    
• Core deposits, which exclude time deposits, increased $39.3 million during the year to $523.8 million, due primarily to a $19.3 million increase in municipal deposits.  The net changes by product type include: 
  • A $15.9 million increase in savings deposits,
  • A $13.2 million increase in noninterest-bearing demand deposits, and a
  • $10.1 million increase in interest-bearing demand deposits.
• Time deposits decreased $34.5 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 $77.5 million at December 31, 2012, an increase of $4.0 million from year-end 2011, primarily due to the increase in net income.
• Book value per common share was $7.62 as of December 31, 2012.
• At December 31, 2012 the leverage, Tier I and Total Risk Based Capital ratios were 11.14%, 14.85% and 16.12%, respectively, all in excess of the ratios required to be deemed "well-capitalized".

Credit Quality

"Nonperforming assets have declined $6.5 million or 25.2% to $19.3 million since year-end 2011.  Although the economy is still under stress, we expect to have continued success in resolving problem credits in 2013," said James A. Hughes.   "Many of our problem commercial and SBA relationships have been resolved and the majority of our larger problem relationships are behind us."

• Nonperforming assets totaled $19.3 million at December 31, 2012 or 3.28% of total loans and OREO, compared to $25.8 million or 4.33% of total loans and OREO at year-end 2011.
• The allowance for loan losses totaled $14.8 million at December 31, 2012 or 2.51% of total loans. The provision for loan losses for the quarter ended December 31, 2012 was $800 thousand compared to $1.2 million for the prior year's quarter.  The provision for loan losses for the twelve months ended December 31, 2012 was $4.0 million compared to $6.8 million for the prior year.
• Net charge-offs were $1.3 million for the three months ended December 31, 2012, compared to $1.2 million for the same period a year ago.  For the twelve months ended December 31, 2012, net charge-offs were $5.6 million, compared to $4.8 million for the prior year.
• Troubled debt restructurings ("TDRs") decreased $6.4 million from year-end to $14.7 million due to loan payoffs.  At December 31, 2012, 92.6% of our TDRs were performing.  

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $820 million in assets and $649 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