CLINTON, N.J., Oct. 19, 2017 (GLOBE NEWSWIRE) -- Unity Bancorp, Inc. (NASDAQ:UNTY), parent company of Unity Bank, reported a 24.4% increase in quarterly earnings and a 21.2% increase in year-to-date earnings. The year-to-date results exclude the effect of a nonrecurring gain during the prior year’s period. Contributing factors included strong loan and deposit growth, increased net interest income and expanded net interest margins.
Net income for the three months ended September 30, 2017 was $3.8 million, or $0.35 per diluted share, a 24.4 percent increase compared to net income of $3.0 million, or $0.32 per diluted share, for the three months ended September 30, 2016. Return on average assets and average common equity for the quarter were 1.17% and 13.00%, respectively, compared to 1.05% and 13.90% for the same period a year ago.
Year-to-date net income was $10.4 million, or $0.97 per diluted share, for the nine months ended September 30, 2017. Year-to-date net income, excluding the nonrecurring gain on the repurchase of subordinated debentures, was $8.6 million, or $0.91 per diluted share, for the same period a year ago. Current year-to-date net income represents a 21.2% increase over the prior year’s year-to-date net income excluding the nonrecurring gain. Return on average assets and average common equity for the nine months ended September 30, 2017 were 1.12% and 12.51%, respectively, compared to 1.03% and 13.73% for the same period a year ago, excluding the nonrecurring gain described below.
In February 2016, the Company repurchased $5.0 million of its outstanding subordinated “capital qualifying” 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. Management believes excluding the nonrecurring gain from 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.
Net income for the nine months ended September 30, 2017 increased 3.4% compared to the prior year period net income, which included the nonrecurring gain on the repurchase of subordinated debentures, of $10.0 million or $1.06 per diluted share. Return on average assets and average common equity for the nine months ended September 30, 2017 was 1.12% and 12.51%, respectively compared to 1.20% and 16.09% for the prior year period, including the 2016 nonrecurring gain.
Third quarter highlights included:
- Announcing two new branches – Bethlehem, PA and Ramsey, NJ which will open later this year. Also, the Phillipsburg branch will be relocated.
- Loans grew 12.3% from year-end: 19.5% increase in consumer loans, 14.4% increase in residential mortgage loans and 11.7% increase in commercial loans.
- Deposits increased 10.4%: 19.7% increase in noninterest-bearing demand deposits, 14.3% increase in interest-bearing deposits and an 11.1% increase in savings deposits.
- Net interest income increased 19.7% to $11.8 million compared to the prior year’s quarter due to earning asset growth and improved margins.
- Net interest margin increased to 3.88% this quarter compared to 3.63% in the prior year’s quarter due to strong loan growth and the benefit of a rising rate environment.
- Credit quality continues to improve. Nonperforming loans fell 48.3% from year-end to $3.7 million.
“We had another quarter of record earnings,” stated James A. Hughes, President and CEO. “Loan and deposit growth remains extremely robust and I expect that to continue for the remainder of this year and into 2018. We recently announced the opening of 2 branches in Bethlehem, PA and Ramsey, NJ which will add to our geographic presence in the Lehigh Valley and Bergen County markets. We feel confident that we can continue to expand our franchise while we grow our profitability. Our balance sheet is well positioned and has benefited from the increase in interest rates. I look forward to reporting on our future successes.”
Net Interest Income
Net interest income, our core driver of earnings, increased $1.9 million to $11.8 million for the quarter ended September 30, 2017 compared to the prior year’s quarter. In addition, the net interest margin expanded 25 basis points to 3.88%, compared to 3.63% for the prior year’s quarter. For the nine months ended September 30, 2017, net interest income increased $5.2 million to $33.4 million, and the net interest margin expanded 19 basis points to 3.79%. Each period benefited from strong loan growth and the rising interest rate environment.
The yield on earning assets increased 21 basis points to 4.66% for the quarter ended September 30, 2017 compared to 4.45% for the prior year’s quarter. This increase was the result of strong commercial, residential mortgage and consumer loan growth over the prior year’s period and the benefit of a rising rate environment. Quarterly average commercial loans increased $62.7 million, average residential mortgage loans have increased $45.8 million and consumer loans increased $21.3 million compared to the third quarter in 2016.
The cost of interest-bearing liabilities remained consistent at 1.04% for the quarter ended September 30, 2017. While the cost of deposits increased 3 basis points to 0.87%, the cost of borrowed funds and subordinated debentures decreased 17 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) and the addition of new borrowings at lower rates over the past year. The increase in the cost of deposits was primarily driven by the growth in savings deposits.
Provision for Loan Losses
The provision for loan losses increased during the quarter and nine month periods ended September 30, 2017 despite reduced net charge-offs due to the growth in the loan portfolio. The provision for loan losses was $500 thousand and $420 thousand for each of the quarters ended September 30, 2017 and September 30, 2016, respectively. Year-to-date the provision for loan losses increased $130 thousand to $1.2 million for the nine months ended September 30, 2017 compared to the prior year period. Quarterly net charge-offs declined $306 thousand to $187 thousand from $493 thousand in the prior year’s quarter. Year-to-date charge-offs declined $478 thousand over the prior year period to $616 thousand for the nine months ended September 30, 2017.
Noninterest income decreased $165 thousand to $2.0 million for the three months ended September 30, 2017 and declined $189 thousand to $6.2 million for the nine month period ended September 30, 2017, compared to the same period last year due to a lower volume of sales of both mortgage and SBA loans.
Quarterly gains on the sale of mortgage loans declined $217 thousand and year-to-date gains declined $729 thousand compared to the prior year periods due to lower sales volumes in each period. During 2017, management elected to hold more of the residential loans it originates in portfolio for long term investment rather than sell the loans. In the nine months ended September 30, 2017, $151.5 million in mortgage loans were originated with $66.2 million being sold for a net gain of $1.2 million. By comparison, $135.1 million in mortgage loans were originated in the nine months ended September 30, 2016, of which $76.7 million were sold for a gain of $1.9 million. Mortgage loan sale volume totaled $23.8 million for the three months ended September 30, 2017 compared to $25.6 million in sales in the prior year’s period.
Gains on the sale of SBA loans decreased due to a lower volume of loan sales this quarter compared with the prior year’s quarter. SBA loan sales totaled $4.3 million with net gains on sale of $385 thousand for the quarter ended September 30, 2017, compared to $7.8 million in sales and a net gain of $639 thousand in the prior year’s quarter. Year-to-date, gains on the sale of $15.7 million in SBA loans were $1.3 million compared to $1.6 million on $18.4 million in sales in the prior year-to-date period.
Other notable items included service and loan fee income which increased $174 thousand and $676 thousand in the quarterly and year-to-date periods, respectively due to loan application, servicing and payoff fees.
Noninterest expense increased $561 thousand, or 8.0%, to $7.6 million for the quarter and increased $2.1 million, or 10.3%, to $22.4 million for the nine months ended September 30, 2017 over the prior year periods. These increases are attributed to costs of expanding our retail branch and lending networks which resulted in higher compensation and occupancy expenses. Notable items for the periods include:
- Compensation and benefits expense increased $396 thousand to $4.3 million for the three months ended September 30, 2017 and increased $1.5 million to $12.7 million for the nine months ended September 30, 2017. Compensation and benefit expenses have risen in each of these periods due to the addition of two new retail branches, additional lending and operational staff.
- Furniture and equipment expense increased $81 thousand and $290 thousand for the quarter and year-to-date periods, respectively due to continued investment in technology in the form of equipment, network maintenance and software.
- Year-to-date, loan collection and OREO expenses increased as the result of a $253 thousand loss on the sale of an OREO property in the first quarter of 2017 and $151 thousand in valuation adjustments on two OREO properties.
- Deposit insurance expense declined for the quarter and year-to-date period as our assessment rate dropped as a result of the capital raise in December 2016.
At September 30, 2017, total assets were $1.3 billion, an increase of $139.9 million from year-end 2016:
- Total securities increased $10.6 million due to purchases of $26.0 million during the period.
- Total loans increased $119.5 million or 12.3%, from year-end 2016 to $1.0 billion at September 30, 2017. Commercial, residential mortgage, consumer and SBA loan portfolios increased $59.6 million, $41.7 million, $17.8 million and $4.5 million, respectively. Our pipeline in all categories remains strong and loan growth is expected to continue in future quarters.
- Total deposits increased $97.9 million or 10.4%, to $1.0 billion at September 30, 2017. Noninterest-bearing demand deposits, savings deposits and interest-bearing demand deposits have increased $42.6 million, $40.4 million and $20.9 million, respectively.
- Borrowed funds increased $31.0 million to $152.0 million at September 30, 2017 due to increased overnight borrowings.
- Shareholders’ equity was $115.8 million at September 30, 2017, an increase of $9.5 million from year-end 2016, due to retained net income.
- Book value per common share was $10.94 as of September 30, 2017 compared to $10.14 at December 31, 2016.
- At September 30, 2017, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.70%, 11.27%, 12.26% and 13.30% respectively, all in excess of the ratios required to be deemed “well-capitalized”.
- Nonperforming assets totaled $4.4 million at September 30, 2017, or 0.41% of total loans and OREO, compared to $8.3 million or 0.85% of total loans and OREO at year-end 2016.
- Nonperforming loans totaled $3.7 million at September 30, 2017. Included in this balance is a $2.0 million consumer loan that is under contract at par value and is expected to settle in the fourth quarter.
- The allowance for loan losses totaled $13.1 million at September 30, 2017, or 1.20% of total loans compared to $12.7 million and 1.34% at September 30, 2016.
- Net charge-offs were $187 thousand for the three months ended September 30, 2017, compared to $493 thousand for the same period a year ago. Year-to-date net charge-offs were $616 thousand compared to $1.1 million for the prior year’s period.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.3 billion in assets and $1.0 billion in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 17 retail service centers located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County in 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.