CLINTON, N.J. - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $797 thousand, or $0.10 per diluted share, for the three months ended March 31, 2013, a 56.6% increase compared to $509 thousand, or $0.07 per diluted share, for the same period a year ago. Return on average assets and average common equity for the quarter were 0.59% and 5.65%, respectively, compared to 0.45% and 3.81% for the same period a year ago.
First quarter highlights include:
- A 9.1% increase in commercial loans from a year ago.
- A 33.1% decrease in nonperforming assets from a year ago.
- A 45.8 % decrease in the loan loss provision compared to prior period's quarter.Noninterest-bearing deposits reached record high of $118.2 million.
- Negotiated the purchase contract for three of our currently leased branch locations, which closed April 17, 2013, that will result in estimated future cost savings in excess of $200 thousand.
- Entered into a marketing agreement with Venture VR LLC, a real estate agency in Elmwood Park, New Jersey to increase loan referrals.
"This was our strongest quarter in over five years and we are headed in the right direction," reported James A. Hughes, President and CEO. "Loan demand is gaining momentum, core deposits are growing and there was significant improvement in asset quality. We are no longer looking in the rear view mirror; we are looking forward to further earnings increases and balance sheet growth."
Net Interest Income
Net interest income decreased $119 thousand to $6.7 million for the three months ended March 31, 2013, compared to the prior year's quarter and the net interest margin narrowed 4 basis points to 3.52%. This decrease was the result of lower yields on our securities and loan portfolios. 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 believes is appropriate based on its unemployment and inflationary targets. 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 38 basis points to 4.33% for the quarter ending March 31, 2013 when compared to the same period in 2012. Partially offsetting these declines are lower funding costs from reduced deposit rates, a significantly lower volume of time deposits and the expiration of a higher rate interest rate swap agreement. The cost of interest-bearing liabilities decreased 37 basis points to 1.04% for the three month period.
Noninterest income increased $110 thousand to $1.8 million for the three months ended March 31, 2013, compared to the same period last year. The increase was driven by higher gains on the sale of residential mortgage and SBA loans, partially offset by lower levels of branch fee income. Factors affecting noninterest income were:
- Branch fee income, which consists of deposit service charges and overdraft fees, decreased $39 thousand for the quarterly period due to lower overdraft fees.
- Gains on sales of SBA loans increased $84 thousand for the quarter due to higher premiums on the sale of $2.3 million in loans during the period.
- Gains on sales of residential mortgage loans increased $66 thousand on a higher volume of loan sales. For the three month period, $22.6 million in residential mortgage loans were sold compared to $21.2 million in the first quarter of 2012.
Noninterest expense increased $167 thousand to $6.1 million for the three months ended March 31, 2013, compared to the first quarter of 2012. Other noteworthy expenses include:
- Occupancy expense increased $85 thousand due to higher seasonal snow removal expenses, increased building depreciation expenses related to the Washington branch opened in late March 2012, and additional rental expense due to the termination of a sublease during 2012.
- Processing and communication expenses increased $27 thousand due to expenses related to our check cashing, merchant services and mortgage businesses.
- Deposit insurance expense decreased $22 thousand for the quarter ended March 31, 2013 due to a lower assessment basis.
- Advertising expenses decreased $26 thousand for the quarter ended March 31, 2013 due to a reduction in promotional gift expenses, the expiration of a third party marketing agreement and reduced promotional marketing.
- Other expenses increased $106 thousand for the quarter due to higher employee recruiting, increased director fees and an increase to the reserve for unfunded loan commitments.
At March 31, 2013, total assets were $827.2 million, an increase of $7.5 million from the prior year end.
- Total securities increased $8.3 million since December 31, 2012, due to $21.3 million in security purchases, partially offset by sales and prepayments.
- Total loans increased $9.5 million or 1.6%, to $596.6 million at March 31, 2013. The Company plans to continue shrinking its out of market SBA portfolio. Future loan growth is expected in both the commercial and residential portfolios.
The net increase was the result of the following:
- Commercial loans increased $9.1 million or 3.0%,
- Residential mortgage loans increased $4.3 million or 3.2%,
- SBA 504 loans decreased $1.7 million or 4.0%,
- SBA 7(a) loans decreased $2.1 million or 3.2%, and
- Consumer loans remained stable at $46.4 million.
Core deposits, which exclude time deposits, increased $5.1 million during the quarter to $528.9 million, due to growth in retail deposits. The net changes by product type include:
- A $3.7 million increase in noninterest-bearing demand deposits,
- An $802 thousand increase in savings deposits, and
- A $536 thousand increase in interest-bearing demand deposits.
- Time deposits decreased $1.7 million from year-end.
- Shareholders' equity was $78.2 million at March 31, 2013, an increase of $647 thousand from year-end 2012, primarily due to the increase in net income.
- Book value per common share was $7.67 as of March 31, 2013.
- At March 31, 2013 the leverage, Tier I and Total Risk Based Capital ratios were 11.12%, 14.54% and 15.80% respectively, all in excess of the ratios required to be deemed "well-capitalized".
"Nonperforming assets have declined $3.3 million or 17.3% to $16.0 million since year-end 2012 and they have declined $7.9 million or 33.1% since March 31, 2012. 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. We anticipate declines in charge-offs and provisions for loan losses in future periods."
- Nonperforming assets totaled $16.0 million at March 31, 2013 or 2.67% of total loans and OREO, compared to $19.3 million or 3.28% of total loans and OREO at year-end 2012.
- The allowance for loan losses totaled $14.3 million at March 31, 2013 or 2.40% of total loans. The provision for loan losses for the quarter ended March 31, 2013 was $650 thousand compared to $1.2 million for the prior year's quarter.
- Net charge-offs were $1.1 million for the three months ended March 31, 2013, compared to $1.2 million for the same period a year ago.
- Troubled debt restructurings ("TDRs") increased $1.5 million from year-end to $16.2 million. At March 31, 2013, 93.3% of our TDRs were performing.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $827 million in assets and $652 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.