Clinton, NJ, July 23, 2020 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $5.2 million, or $0.47 per diluted share, for the quarter ended June 30, 2020, an 11.4 percent decrease compared to $5.8 million, or $0.53 per diluted share for the prior year’s second quarter. For the six months ended June 30, 2020, Unity reported net income of $10.5 million, or $0.96 per diluted share, an 8.9 percent decrease compared to $11.6 million or $1.05 per diluted share for the prior year’s period. The decreases in earnings were primarily due to an increased provision for loan losses, necessitated by the COVID-19 pandemic and governmental responses.
Second Quarter Earnings Highlights
- Net interest income, our primary driver of earnings, increased $1.3 million to $15.5 million for the quarter ended June 30, 2020, compared to the prior year’s quarter, due to SBA PPP loans, commercial loan growth and a reduction in the cost of funds.
- Net interest margin (NIM) decreased to 3.73% for the quarter ended June 30, 2020, compared to 3.96% for the prior year’s quarter and decreased 19 basis points from 3.92% in the prior sequential quarter ended March 31, 2020. These decreases were a direct result of interest rate cuts by the Board of Governors of the Federal Reserve in response to COVID-19.
- The provision for loan losses was $2.5 million for the quarter ended June 30, 2020, an increase of $2.2 million from the prior year’s quarter due to the increased risk of loan defaults as a result of COVID-19. Some of our customer’s businesses have been required to close pursuant to governmental restrictions on non-essential businesses. Due to the uncertainty of COVID-19, the Company may incur elevated provisions until restrictions on businesses have been loosened and they can fully reopen.
- Noninterest income increased $400 thousand to $2.8 million compared to the prior year’s quarter and increased $266 thousand compared to the prior sequential quarter. The increases were primarily due to increased gains on mortgage loan sales. Mortgage banking has been strong and market conditions continue to be favorable. For the quarter ended June 30, 2020, quarterly residential mortgage loan sales totaled $67.3 million, compared to $23.6 million at June 30, 2019.
- Noninterest expense increased $386 thousand to $9.2 million compared to the prior year’s quarter, primarily due to increased consulting expenses incurred in connection with compliance with our Consent Order with the FDIC and NJDOBI and increased compensation due to increased mortgage commissions. Noninterest expense decreased $146 thousand compared to the prior sequential quarter.
- The effective tax rate was 22.3% compared to 22.0% in the prior year’s quarter.
Balance Sheet Highlights
Total loans increased $166.9 million, or 11.7%, from year-end 2019 to $1.6 billion at June 30, 2020. The increase was primarily due to $136.0 million in SBA PPP loan originations.
- Total deposits increased $233.3 million, or 18.7%, from year-end 2019 to $1.5 billion at June 30, 2020 primarily due to increased noninterest-bearing demand deposits, resulting from the distribution of PPP funds and a strategic increase in brokered time deposits in the prior sequential quarter.
- Borrowed funds decreased $60.0 million to $223.0 million at June 30, 2020.
- Shareholders’ equity was $166.6 million at June 30, 2020, an increase of $5.9 million from year-end 2019, due primarily to retained net income. During the second quarter, the Company repurchased 200,809 shares of common stock for a total cost of $2.8 million. Under its existing buyback program, the Company can repurchase up to an additional 313,651 shares. The timing and amount of additional purchases, if any, will depend upon a number of factors including the Company’s capital needs, the performance of its loan portfolio, the need for additional provisions for loan losses, whether related to the COVID-19 pandemic or otherwise, the market price of the Company’s stock and the general impact of the COVID-19 pandemic on the economy.
- Book value per common share was $15.53 as of June 30, 2020.
- At June 30, 2020, the Community Bank Leverage Ratio was 10.01%.
- Nonperforming assets were $10.2 million, which consisted of $6.2 million of residential mortgage loans. The allowance to total loans ratio was 1.27% at June 30, 2020. Net recoveries were $358 thousand for the quarter.
Paycheck Protection Program Loans
As of June 30, 2020, the Company funded 1,217 Small Business Administration (“SBA”) Paycheck Protection Program loans. Executed by the SBA, under the Paycheck Protection Program, established by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Company was able to assist numerous small businesses in continuing to pay expenses, including payroll to retain their staff. PPP loans booked have an annual interest rate of 1% and are 100% guaranteed by the SBA. Most of these loans have a two-year term.
During the first and second quarters of 2020, the Bank prudently worked with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The loan deferrals have terms of 3 or 6 months.
Commercial loan customer deferrals included a concentration in those industries more impacted by the pandemic including commercial strip malls, restaurants, transport services, hotels, gyms and beauty shops.
- In July 2020, Unity Bank agreed to the issuance of a Consent Order by the Federal Deposit Insurance Corporation (“FDIC”) and agreed to an Acknowledgement and Consent of the FDIC Consent Order with the Commissioner of Banking and Insurance for the State of New Jersey. The Consent Order requires the Bank to strengthen its Bank Secrecy Act (“BSA”)/anti-money laundering (“AML”) program, and to address related matters. The Bank hired a consulting firm who it has been working with to effectively address all matters pertaining to the order.
- American Banker magazine released its list of the top publicly traded community banks. There were 511 banks with total assets of less than $2 billion as of December 31, 2019, of which Unity Bank was ranked 15th nationally. Unity Bank has been on the list for five consecutive years.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.9 billion in assets and $1.5 billion in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 19 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 amended or supplemented by our subsequent filings with the SEC, 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, results of regulatory exams, and the impact of COVID-19 on the Bank, its employees and customers, among other factors.
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