Clinton, NJ, April 17, 2020 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $5.4 million, or $0.49 per diluted share, for the quarter ended March 31, 2020, a 6.5% decrease compared to the $5.7 million, or $0.52 per diluted share reported for the prior year’s first quarter, primarily due to an increase of $1.0 million in our provision for loan losses, necessitated by impacts on the loan portfolio caused by COVID-19.
 

COVID-19 Impact
Due to the COVID-19 epidemic, results of operations for the first quarter of 2020 do not track with the Company’s historical performance.  The impact of COVID-19 is evolving rapidly and its future effects are uncertain at this moment in time.  The actual impact will depend on many factors beyond our Company’s control.  However, the Company has and is taking every step to protect the health and safety of its employees and customers and to work with its customers experiencing economic hardship resulting from the epidemic.  The Company has the majority of non-branch personnel working remotely.  Branch lobbies are now closed, and the Company is servicing clients through its drive through facilities, ATM’s or by appointment.  The Company has also opted to host our Annual Shareholders Meeting online, in light of government restrictions on group gatherings.
 
The Bank is working closely with its loan customers to educate and guide them on their options for financial assistance, including disaster loans, the Paycheck Protection Program (PPP) and payment relief through deferrals and waived fees.  The Company will continue to provide a fast and flexible response to the quickly changing circumstances and is confident it will navigate successfully through these trying times.
 
First Quarter Earnings Highlights

  • Net interest income, our primary driver of earnings, increased $1.0 million to $15.2 million for the quarter ended March 31, 2020, compared to the prior year’s quarter, due to strong loan growth.
  • Net interest margin (NIM) decreased to 3.92% for the quarter ended March 31, 2020, compared to 4.06% for the prior year’s quarter and increased 4 basis points from 3.88% in the prior sequential quarter ended December 31, 2019.  Due to the recent significant interest rate cuts by the Federal Reserve Board in response to COVID-19, modest NIM contractions are expected during the remainder of 2020.
  • The provision for loan losses was $1.5 million for the quarter ended March 31, 2020 an increase of $1.0 million from the prior year’s quarter due to the increased risk of loan defaults as a result of COVID-19.  Many of the Company’s customers have been required to close pursuant to governmental restrictions on non-essential businesses, and we expect they will suffer significant cash flow issues.  Due to the uncertainty of COVID-19, the Company anticipates an elevated provision until businesses have reopened and deferral periods have expired.
  • Noninterest income increased $523 thousand to $2.5 million compared to the prior year’s quarter and increased $149 thousand compared to the prior sequential quarter.  The increases were primarily due to increased gains on mortgage loan sales, partially offset by amortization on our equity securities.
  • Noninterest expense increased $845 thousand to $9.3 million compared to the prior year’s quarter and increased $604 thousand compared to the prior sequential quarter.  The increases were primarily due to increased compensation accruals, severance payouts and increased consulting expenses in connection with BSA/AML remediation.
  • The effective tax rate was 22.9% compared to 20.9% in the prior year’s quarter.
Balance Sheet Highlights
  • Total loans increased $14.1 million, or 1.0%, from year-end 2019 to $1.4 billion at March 31, 2020.  Commercial and consumer loan portfolios increased $21.0 million and $6.2 million, respectively, partially offset by a decline of $11.6 million in residential mortgage loans and $1.5 million in SBA loans.  Loan growth was impacted by payoffs and a $10.0 million sale of portfolio mortgage loans.  The Company anticipates slow loan growth through at least the second quarter due to COVID-19.
  • Total deposits increased $128.5 million, or 10.3%, from year-end 2019 to $1.4 billion at March 31, 2020 primarily due to increased noninterest-bearing demand deposits, resulting from a temporary nonrecurring deposit, and a strategic increase in brokered deposits.
  • Borrowed funds decreased $114.0 million to $169.0 million at March 31, 2020.
  • Shareholders’ equity was $164.3 million at March 31, 2020, an increase of $3.6 million from year-end 2019, due to retained net income.  On July 16, 2019, the Company authorized the repurchase of up to 5.0% of its outstanding common stock.  However, the Company has currently suspended its stock buybacks during the COVID-19 epidemic.
  • Book value per common share was $15.10 as of March 31, 2020.
  • At March 31, 2020, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 10.55%, 11.72%, 12.44% and 13.21% respectively, all in excess of the ratios required to be deemed “well-capitalized.” 
  • Nonperforming assets were $11.2 million, which consisted primarily of $8.4 million of well-secured residential assets.  The allowance to total loans ratio was 1.21% at March 31, 2020.  Net charge-offs were $519 thousand for the quarter.
Other Highlights
  • Unity Bank has been named one of the 2020 Best Places to Work in New Jersey by NJBiz – the only bank in New Jersey to make this prestigious list. It is the fourth year in a row that Unity has been honored by the survey and awards program, which identifies, recognizes and honors the top places of employment in New Jersey that benefit the state's economy, workforce and businesses.
  • Employees of Unity Bank have been completely focused on helping our customers cope with the impacts of COVID-19 by, among other things, participating in SBA sponsored relief programs to assist small businesses.
 
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.7 billion in assets and $1.4 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 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 the COVID-19 on the Bank, its employees and customers, among other factors.
 

April 17 2020