CLINTON, N.J., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Unity Bancorp, Inc. (NASDAQ:UNTY), parent company of Unity Bank, reported increased quarterly and year-to-date earnings. Major contributing factors included strong loan growth, expanded net interest margin, increased levels of noninterest income and expense control.
Net income was $3.0 million, or $0.32 per diluted share, for the three months ended September 30, 2016, an 18.4% increase compared to net income of $2.6 million, or $0.27 per diluted share, for the same period a year ago. Return on average assets and average common equity for the quarter were 1.05% and 13.90%, respectively, compared to 1.00% and 13.54% for the same period a year ago.
Year-to-date net income was $10.0 million, or $1.06 per diluted share, for the nine months ended September 30, 2016, a 45.3% increase compared to net income of $6.9 million, or $0.74 per diluted share, for the same period a year ago. Return on average assets and average common equity for the period were 1.20% and 16.09%, respectively, compared to 0.95% and 12.69% for the same period a year ago.
During the first quarter, the Company repurchased $5.0 million of its outstanding subordinated debentures at a price of $0.5475 per dollar, thus reducing its outstanding subordinated debt to $10.3 million. The repurchase resulted in a nonrecurring pre-tax gain of approximately $2.26 million. Net income, excluding the nonrecurring gain on the repurchased subordinated debentures, was $8.6 million, or $0.91 per diluted share, for the nine months ended September 30, 2016, compared to net income of $6.9 million, or $0.74 per diluted share, for the same period a year ago. Return on average assets and average common equity for the nine months ended September 30, 2016, excluding the gain, would have been 1.03% and 13.73%, respectively, compared to 0.95% and 12.69% for the same period a year ago.
Management believes excluding the nonrecurring gain from year-to-date net income and reporting it in a format which is not in compliance with generally accepted accounting principles (“non-GAAP”) is beneficial to the reader and provides better comparability of the Company’s performance over both periods.
Third quarter highlights included:
- Opening our 16th branch location in Emerson, New Jersey. Our 17th branch in Somerville, New Jersey, is expected to open in November 2016.
- Ringing NASDAQ’s closing bell to commemorate our 25th Anniversary.
- Increasing the quarterly cash dividend 25% to $.05 per common share from $.04 as well as paying a 10% stock dividend to shareholders.
- Total loans increased 11.0% compared to September 30, 2015.
- Total deposits increased 7.7% and noninterest-bearing demand deposits grew 19.3% since September 30, 2015.
- Net interest income increased 14.5% compared to the prior year’s quarter due to strong loan growth.
- Net interest margin increased to 3.63% this quarter compared to 3.60% in the prior year’s quarter.
- Credit quality has continued to improve.
“We had record earnings and strong financial results for the third quarter,” stated James A. Hughes, President and CEO. “We are now focusing on growing our market presence. We opened our Emerson branch on October 17th and we anticipate opening our Somerville office in November. In addition, we have hired two seasoned lenders in the Lehigh Valley market, so we will now be looking for opportunities in Pennsylvania. We are extremely excited about our future and look forward to the challenges ahead.”
Net Interest Income
Net interest income increased $1.3 million to $9.9 million for the quarter ended September 30, 2016 compared to the prior year’s period, while year-to-date, net interest income increased $3.2 million to $28.2 million. The net interest margin was 3.63% for the quarter-ended September 30, 2016, an increase of 3 basis points from the quarter-ended September 30, 2015 and 3.58% for the nine months ended September 30, 2016 compared to 3.65% in the prior year’s period. The increase in the net interest margin for the quarter was due to growth in our loan portfolio and the restructuring of our FHLB borrowings.
Each period saw continued strong commercial, residential mortgage and consumer loan growth over the prior year period. Quarterly average commercial loans increased $57.5 million, average residential mortgage loans have increased $21.6 million and consumer loans increased $13.0 million compared to the third quarter in 2015.
The cost of interest-bearing liabilities has remained relatively stable at 1.04% for the quarter and 1.05% for the year-to-date periods. The quarterly cost of deposits increased 13 basis points to 0.84% due to the intentional growth of five year time deposits and a promotional savings product. The quarterly cost of borrowed funds and subordinated debentures decreased 121 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) over the past year.
Provision for Loan Losses
The provision for loan losses was $420 thousand for the three months ended September 30, 2016 and $1.0 million for the nine months ended September 30, 2016. In the prior year’s periods, there was a $200 thousand loan loss provision during the quarter ended September 30, 2015 and a $400 thousand loan loss provision for the nine months ended September 30, 2015. The increase in the quarterly and year-to-date provision for 2016 versus 2015 was due to higher net charge-offs in each period. Net charge-offs were $493 thousand for the quarter and $1.1 million year-to-date at September 30, 2016, compared to net charge-offs of $183 thousand and $530 thousand for the quarter and year-to-date periods ended September 30, 2015.
Noninterest income decreased $102 thousand to $2.2 million for the three months ended September 30, 2016, compared to the same period last year. While gains on the sale of SBA and mortgage loans were consistent with the prior quarter, noninterest income decreased due to lower branch and loan fee income. Year-to-date, noninterest income increased $613 thousand to $6.4 million due to higher gains on the sale of SBA loans and securities, partially offset by lower branch and loan fee income.
Notable items included:
- Branch fee income declined in the quarterly and year-to-date periods due to lower levels of overdraft fees and service charges from commercial checking accounts.
- Service and loan fee income declined in the quarterly and year-to-date periods due to the write-down of a mortgage servicing asset as a result of large principal pay-downs on a sold mortgage pool. On a year-to-date basis, service and loan fee income was also impacted by lower loan payoff charges and processing fees.
- SBA loan sales during the third quarter of 2016 totaled $7.8 million with a net gain of $639 thousand. During the prior year’s quarter, SBA loan sales totaled $3.4 million with a net gain of $308 thousand. Year-to-date, SBA loan sales totaled $18.4 million in 2016 and $6.9 million in 2015 with net gains on sale of $1.6 million and $671 thousand, respectively.
- During the quarter, $25.6 million in residential mortgage loans were sold at a gain of $609 thousand, compared to $35.7 million in loans sold at a gain of $926 thousand during the prior year’s quarter. Year-to-date, $76.7 million in residential mortgage loans were sold at a gain of $1.9 million compared to $77.9 million in loans sold at a gain of $2.0 million during the prior year’s period. Our mortgage pipeline remains strong.
Noninterest expenses increased $141 thousand or 2.1% to $7.0 million for the quarter and $324 thousand or 1.6% for the nine months ended September 30, 2016. The increases in each period, evidence investment in Unity’s retail network, corporate infrastructure and its staff.
In 2016, our compensation and benefits expense has risen as we expand our branch network, lending and support staff. This additional headcount has resulted in higher salary and benefit expense. This year, we also committed to our future by purchasing the Clinton, New Jersey corporate headquarters building, which resulted in lower occupancy expenses. However, investment in our retail network through the addition of branches in Emerson and Somerville, New Jersey will increase future occupancy expenses. Furniture and equipment expense has increased due to investment in our technology infrastructure through network and software upgrades that will improve our efficiency and keep our data secure. Advertising expenses have risen in support of our retail and lending sales as well as the branch expansions. Other expenses that increased were officer and employee training and director compensation fees. OREO costs remain elevated as legal and property tax expenses are incurred on these properties.
At September 30, 2016, total assets were $1.2 billion, an increase of $68.0 million from year-end 2015:
- Total loans increased $60.9 million or 6.8%, from year-end 2015 to $949.8 million at September 30, 2016. Commercial, residential mortgage and consumer loan portfolios increased $30.5 million, $17.8 million and $11.0 million, respectively.
- Other assets increased due to the purchase of the Company’s Clinton, New Jersey headquarters, as well as two new branch sites in Emerson, New Jersey and the Somerville, New Jersey, both of which were purchased facilities.
- Total deposits increased $38.8 million or 4.3%, to $933.3 million at September 30, 2016. Savings deposits grew $43.3 million and noninterest-bearing demand deposits increased $23.9 million, while time deposits declined $25.6 million and noninterest-bearing demand deposits declined $2.8 million, respectively. The declines were due to reduced levels of municipal deposits from year-end and a roll-off of institutional certificates of deposit.
- Borrowed funds increased $23.0 million to $115.0 million at September 30, 2016, due to the addition of $30.0 million Federal Home Loan Bank (FHLB) term borrowings partially offset by reduced overnight borrowings. Also, during the nine month period, $10.0 million in FHLB borrowings at an average cost of 4.27% were extended to 2020 at an average rate of 2.10%.
- Subordinated debentures decreased from year-end due to the repurchase of $5.0 million at a discount of $0.5475 per dollar.
- Shareholders’ equity was $88.2 million at September 30, 2016, an increase of $9.7 million from year-end 2015 due to year-to-date net income less the dividends paid to shareholders. During the quarter, a $.05 cash dividend and a 10 percent stock dividend were paid.
- Book value per common share was $9.45 as of September 30, 2016.
- At September 30, 2016, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 8.49%, 9.63%, 10.74% and 11.48% respectively, all in excess of the ratios required to be deemed “well-capitalized”.
- Nonperforming assets totaled $8.2 million at September 30, 2016, or 0.86% of total loans and OREO, compared to $8.9 million or 0.99% of total loans and OREO at year-end 2015.
- Nonperforming loans decreased 10.1% to $6.5 million at September 30, 2016 from year-end.
- OREO increased $112 thousand to $1.7 million at September 30, 2016 from year-end.
- The allowance for loan losses totaled $12.7 million at September 30, 2016, or 1.34% of total loans compared to $12.4 million and 1.45% at September 30, 2015.
- Net charge-offs were $493 thousand for the three months ended September 30, 2016, compared to $183 thousand for the same period a year ago. Net charge-offs were $1.1 million for nine months ended September 30, 2016, compared to $530 thousand for the same period a year ago.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.2 billion in assets and $933 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 16 retail service centers located in Bergen, 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.
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.