CLINTON, N.J., Jan. 26, 2017 (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, increased levels of noninterest income, expense control and improved credit quality.
Net income was $3.2 million, or $0.32 per diluted share, for the three months ended December 31, 2016, a 19.7% increase compared to net income of $2.6 million, or $0.28 per diluted share, for the same period a year ago. Return on average assets (“ROA”) and average common equity for the quarter were 1.07% and 13.47%, respectively, compared to 1.00% and 13.59% for the same period a year ago. The decrease in return on average equity reflects the increase in equity due to the Company’s December capital raise.
Net income was $13.2 million, or $1.38 per diluted share, for the twelve months ended December 31, 2016, a 38.2% increase compared to net income of $9.6 million, or $1.02 per diluted share, for the same period a year ago. Return on average assets and average common equity for the period were 1.17% and 15.37%, respectively, compared to 0.96% and 12.92% 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 $11.7 million, or $1.23 per diluted share, for the twelve months ended December 31, 2016, compared to net income of $9.6 million, or $1.02 per diluted share, for the same period a year ago. Return on average assets and average common equity for the twelve months ended December 31, 2016, excluding the gain, would have been 1.04% and 13.65%, respectively, compared to 0.96% and 12.92% 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.
- Completion of $15.0 million common stock offering on December 8th, with 1,068,400 new shares issued.
- Opened two new branches – Emerson, New Jersey on October 17th and Somerville, New Jersey on November 28th.
- Continued to expand our Pennsylvania presence with the addition of three seasoned commercial lenders.
- Adopted a business mobile capture product for our commercial customers.
- Total loans increased 2.5% for the quarter and 9.5% for the year.
- Total deposits increased 1.3% for the quarter and 5.7% compared to year-end 2015.
- Noninterest-bearing demand deposits increased 3.3% for the quarter and 16.6% for the year.
- Net interest income increased 12.0% compared to prior year-end due to strong loan growth.
- Credit quality has continued to improve.
“2016 was a remarkable year,” stated James A. Hughes, President and CEO. “We had record earnings. We surpassed our expectations for core deposit growth, ROA and earnings per share. We also expanded our retail branch network and product lines. These accomplishments are due to our exceptional employees that work together each day to achieve these goals, provide excellent customer service and add value for our shareholders. I look forward to reporting both earnings growth and branch expansion plans in 2017.”
Net Interest Income
Net interest income increased $1.1 million to $10.1 million for the quarter ended December 31, 2016 compared to the prior year’s period, while year-over-year, net interest income increased $4.3 million to $38.3 million. The net interest margin was 3.60% for the quarter-ended December 31, 2016 and 2015, respectively. The net interest margin was 3.58% for the twelve months ended December 31, 2016 compared to 3.63% in the prior year’s period.
The yield on earning assets remained stable at 4.40% for the quarterly periods ended December 31, 2016 and 2015. For the twelve month period ended December 31, 2016, the yield on earning assets was 4.40% compared to 4.45% for the prior year. Each period saw continued strong commercial, residential mortgage and consumer loan growth over the prior year period. Quarterly average commercial loans increased $51.8 million, average residential mortgage loans increased $29.1 million and consumer loans increased $14.8 million compared to the fourth quarter of 2015.
The cost of interest-bearing liabilities also remained relatively stable at 1.03% for the quarter and 1.04% for the full year periods. The quarterly cost of deposits increased 8 basis points to 0.83% 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 90 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 $200 thousand for the three months ended December 31, 2016 and $1.2 million for the twelve months ended December 31, 2016. In the prior year’s periods, there was a $100 thousand loan loss provision during the quarter ended December 31, 2015 and a $500 thousand loan loss provision for the twelve months ended December 31, 2015. The increase in the quarterly and full year provision for 2016 versus 2015 was due to higher net charge-offs in each period. Net charge-offs were $306 thousand for the quarter and $1.4 million for the full year ended December 31, 2016, compared to a net recovery of $238 thousand for the quarter and a net charge-off of $292 thousand for the full year ended December 31, 2015.
Noninterest income increased $453 thousand to $2.4 million for the three months ended December 31, 2016, compared to the same period last year. While gains on the sale of SBA loans, BOLI income and other income were consistent with the prior year’s quarter, noninterest income increased due to higher gains on securities, gains on the sale of mortgage loans and service and loan fee income, partially offset by lower branch fee income. For the full year, noninterest income increased $1.1 million to $8.8 million due to higher gains on the sale of SBA loans and securities, partially offset by lower branch fee income.
Notable items included:
- Branch fee income declined in the quarterly and annual periods due to lower levels of overdraft fees and service charges from commercial checking accounts.
- SBA loan sales during the fourth quarter of 2016 totaled $6.4 million with a net gain of $515 thousand. During the prior year’s quarter, SBA loan sales totaled $7.2 million with a net gain of $533 thousand. For the full year, SBA loan sales totaled $24.7 million in 2016 and $14.1 million in 2015 with net gains on sale of $2.1 million and $1.2 million, respectively.
- During the quarter, $31.5 million in residential mortgage loans were sold at a gain of $480 thousand, compared to $16.3 million in loans sold at a gain of $328 thousand during the prior year’s quarter. For the full year, $108.1 million in residential mortgage loans were sold at a gain of $1.6 million compared to $94.3 million in loans sold at a gain of $1.7 million during the prior year’s period. The margin on these sales declined year-over-year due to product mix. Our mortgage pipeline remains strong.
Noninterest expenses increased $457 thousand or 6.7% to $7.3 million for the quarter and $779 thousand or 2.9% for the twelve months ended December 31, 2016. The increases in each period evidence investment in Unity’s retail network, corporate infrastructure and its staff. During the quarter, the Company booked a $300 thousand write-down on an OREO property.
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, commission 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. Loan and OREO expenses increased $88 thousand for the quarter-ended December 31, 2016 compared to the prior year’s quarter on higher property valuation adjustments, tax and legal expense. However, year-over-year, loan and OREO costs declined due to lower property tax and appraisal expense. 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 director compensation fees and officer and employee training and meals and entertainment.
At December 31, 2016, total assets were $1.2 billion, an increase of $105.0 million from year-end 2015:
- Total loans increased $84.5 million or 9.5%, from year-end 2015 to $973.4 million at December 31, 2016. Commercial, residential mortgage and consumer loan portfolios increased $43.7 million, $24.6 million and $14.5 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 Somerville, New Jersey, both of which were purchased facilities.
- Total deposits increased $51.2 million or 5.7%, to $945.7 million at December 31, 2016. Savings deposits grew $62.0 million, noninterest-bearing demand deposits increased $30.7 million and interest-bearing demand deposits increased $15.0 million, while time deposits declined $56.5 million, respectively. The decline was due to the roll-off of institutional and brokered certificates of deposit, as well as reduced levels of municipal deposits from year-end.
- Borrowed funds increased $29.0 million to $121.0 million at December 31, 2016, due to the addition of $30.0 million of Federal Home Loan Bank (FHLB) term borrowings partially offset by reduced overnight borrowings.
- Subordinated debentures decreased from year-end due to the repurchase of $5.0 million at a discounted price of $0.5475 per dollar.
- Shareholders’ equity was $106.3 million at December 31, 2016, an increase of $27.8 million from year-end 2015 due to net income and the net proceeds of the common stock offering, less the dividends paid to shareholders. During the quarter, a total of 1,068,400 common shares were issued at a weighted average price of $14.04, representing gross proceeds of $15.0 million in the common stock offering.
- Book value per common share was $10.14 as of December 31, 2016.
- At December 31, 2016, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.73%, 11.49%, 12.58% and 13.84% respectively, all in excess of the ratios required to be deemed “well-capitalized”.
- Nonperforming assets totaled $8.3 million at December 31, 2016, or 0.85% of total loans and OREO, compared to $8.9 million or 0.99% of total loans and OREO at year-end 2015.
- Nonperforming loans remained relatively flat at $7.2 million at December 31, 2016 and $7.3 million at December 31, 2015.
- OREO decreased $541 thousand to $1.1 million at December 31, 2016 from year-end 2015.
- The allowance for loan losses totaled $12.6 million at December 31, 2016, or 1.29% of total loans compared to $12.8 million and 1.44% at year-end 2015.
- Net charge-offs were $306 thousand for the three months ended December 31, 2016, compared to net recoveries of $238 thousand for the same period a year ago. Net charge-offs were $1.4 million for twelve months ended December 31, 2016, compared to $292 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 $946 million 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, 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.