Clinton, NJ, January 22, 2021 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $7.3 million, or $0.69 per diluted share, for the quarter ended December 31, 2020, a 20.0 percent increase compared to net income of $6.1 million, or $0.55 per diluted share for the prior year’s fourth quarter. For the year ended December 31, 2020, Unity reported net income of $23.6 million, or $2.19 per diluted share, compared to net income of $23.7 million, or $2.14 per diluted share for the year ended December 31, 2019. Overall earnings were impacted primarily due to an increased provision for loan losses, necessitated by the COVID-19 pandemic, partially offset by revenue generated by the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”).
Fourth Quarter Earnings Highlights
- Net interest income, our primary driver of earnings, increased $2.6 million to $17.3 million for the quarter ended December 31, 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) increased to 3.97% for the quarter ended December 31, 2020, compared to 3.88% for the prior year’s quarter and increased 19 basis points from 3.78% in the prior sequential quarter ended September 30, 2020.
- The provision for loan losses was $1.0 million for the quarter ended December 31, 2020, an increase of $500 thousand from the prior year’s quarter due to the increased risk of loan defaults as a result of COVID-19.
- Noninterest income increased $1.9 million to $4.3 million compared to the prior year’s quarter and increased $918 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 December 31, 2020, quarterly residential mortgage loan sales were $99.1 million, compared to $42.0 million for the quarter ended December 31, 2019.
- Noninterest expense increased $2.0 million to $10.7 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. Expenses related to compliance with the Consent Order are expected to decline in 2021.
- The effective tax rate was 25.6% compared to 22.9% in the prior year’s quarter.
Balance Sheet Highlights
- Total loans increased $202.3 million, or 14.2%, from year-end 2019 to $1.6 billion at December 31, 2020. The increase was primarily due to SBA PPP and commercial loan originations.
- Total deposits increased $307.8 million, or 24.6%, from year-end 2019 to $1.6 billion at December 31, 2020, primarily due to increased noninterest-bearing demand deposits, related to PPP loan originations, and an increase in brokered time deposits in the first quarter.
- Borrowed funds decreased $83.0 million to $200.0 million at December 31, 2020, due to decreased FHLB advances.
- Shareholders’ equity was $173.9 million at December 31, 2020, an increase of $13.2 million from year-end 2019, due primarily to retained net income. During the fourth quarter, the Company repurchased 131,622 shares of common stock for a total cost of $2.3 million.
- Book value per common share was $16.63 as of December 31, 2020.
- At December 31, 2020, the Community Bank Leverage Ratio was 10.09%.
- Nonperforming assets were $12.1 million at December 31, 2020, compared to $7.4 million at December 31, 2019. Most of the nonperforming assets are residential loans, the resolution of which has been impacted by foreclosure restrictions due to COVID-19. The allowance to total loans ratio was 1.42% at December 31, 2020.
Paycheck Protection Program Loans
As of December 31, 2020, the Company funded 1,224 SBA PPP loans, totaling $143.0 million. Under the PPP, 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, to the extent the principal amount is not forgiven under the terms of the program. Gross origination fees of $5.5 million were earned on PPP loans and will be recognized over the life of the loans or when the loan is forgiven.
Unity has recently began accepting applications for the new Paycheck Protection Program, provided for under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which was signed into law December 27, 2020.
Loan Deferrals
The Bank has prudently worked with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. As shown in the table below, loans which have been granted deferrals have significantly declined during the fourth quarter to $32.5 million, from $60.0 million at September 30, 2020.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $2.0 billion in assets and $1.6 billion in deposits. Unity Bank, the Company’s wholly owned subsidiary, 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.
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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