Unity Bancorp Reports Quarterly Earnings of $9.8 Million and Full Year Earnings of $39.7 Million
James A. Hughes, President & CEO, commented on the financial results:
“I am proud to share with you the outstanding financial results of Unity Bancorp Inc. for the 2023 fiscal year, a period thatwas marked by unprecedented challenges in the banking sector. We achieved a record year of earnings with $39.7 million in net income, or $3.84 per diluted share. For the fourth quarter, we generated $9.8 million in net income, or $0.96 per diluted share.
In the fourth quarter, we saw NIM expansion, partially attributable to core deposit growth allowing us to pay down more expensive wholesale funding sources. We also benefited from higher interest rates on our loan portfolio. Moreover, we improved our loan to deposit ratio to approximately 113% at the end of 2023, compared to approximately 118% at the end of 2022.
We faced a turbulent operating environment in 2023, with persistent inflation and an inverted yield curve. We successfully navigated these headwinds by staying focused on delivering top-notch financial products and best-in-class customer service.
We remain confident that we have a solid foundation for continued growth and profitability in 2024. We will remain true to our values of customer satisfaction, community engagement and employee empowerment. We will seek to continue to manage our risks prudently, while pursuing our strategic objectives, including generating industry leading returns for our shareholders.”
Clinton, NJ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $9.8 million, or $0.96 per diluted share, for the quarter ended December 31, 2023, compared to net income of $9.9 million, or $0.97 per diluted share for the quarter ended September 30, 2023. This represents a 1.8% decrease in net income and a 1.0% decrease in net income per diluted share. For the twelve months ended December 31, 2023, the Company reported net income of $39.7 million or $3.84 per diluted share, compared to net income of $38.5 million or $3.59 per diluted share for the twelve months ended December 31, 2022. This represents a 3.3% increase in net income and a 7.0% increase in net income per diluted share.
Fourth Quarter Earnings Highlights:
Net interest income, the primary driver of earnings, was $24.0 million for the quarter ended December 31, 2023, an increase of $0.5 million, as compared to $23.5 million for the quarter ended September 30, 2023. Net interest margin (“NIM”) increased 10 basis points to 4.06% for the quarter ended December 31, 2023, compared to the quarter ended September 30, 2023. The increase was primarily due to assets repricing and the mix shift of interestbearing liabilities.
The provision for credit losses on loans was $0.4 million for the quarter ended December 31, 2023, compared to $0.5 million for the quarter ended September 30, 2023. The decrease was primarily driven by slower loan growth in the fourth quarter of 2023. The provision for off-balance sheet credit losses was $0.1 million for the quarter ended December 31, 2023, compared to $22 thousand for the quarter ended September 30, 2023.
Provision for Available For Sale (“AFS”) debt security impairment was $1.3 million for the quarter ended December 31, 2023, as compared to no provision for the prior quarter. The impairment was entirely attributable to one corporate senior debt security in the AFS portfolio. The Company owns $5 million in par of this position and the issuing company recently restated earnings and was unprofitable during the first three quarters of 2023.
Noninterest income was $2.6 million for the quarter ended December 31, 2023, compared to $2.0 million for the quarter ended September 30, 2023. The $0.6 million increase was primarily due to increased SBA gains on sale and mark-to-market increases in the Company’s equity portfolio, which is primarily compromised of bank common and preferred shares. These increases were partially offset by decreased BOLI income, which contained one-time claim events in the prior quarter.
Noninterest expense was $11.7 million for the quarter ended December 31, 2023, compared to $12.0 million for the quarter ended September 30, 2023. The decrease was primarily driven by lower compensation expenses and other expenses. These decreases were partially offset by higher professional services, loan collection, processing and communications, and furniture and equipment related expenses.
The effective tax rate was 25.1% for the quarter ended December 31, 2023, compared to 23.7% for the quarter ending September 30, 2023. The increase in the current quarter, is primarily due to the aforementioned BOLI payouts in the prior quarter. As it pertains to other tax matters, Unity Bancorp decided to exit its captive insurance subsidiary in Q4 2023 as a result of recently issued proposed regulations from the US Treasury Department. The captive insurance subsidiary saved an estimated $0.3 million to $0.4 million of federal tax expenses per year.
Balance Sheet Highlights:
Total gross loans increased $65.5 million, or 3.1%, from December 31, 2022, primarily due to increases in
commercial and residential mortgage loans. These increases were partially offset by decreases in the residential
construction, consumer and SBA loans.
As of December 31, 2023, the allowance for credit losses as a percentage of gross loans was 1.19%.
Total deposits increased $136.6 million, or 7.6%, from December 31, 2022. As of December 31, 2023, 17.2% of total deposits were uninsured or uncollateralized. Further, the Company’s deposit base was 46.1% retail, 25.5% business, 18.0% municipal, and 10.4% Brokered CDs. The Company’s deposit composition as of December 31, 2023, consisted of 29.4% in savings deposits, 21.8% in noninterest bearing demand deposits, 32.5% time deposits and 16.3% in interest-bearing demand deposits.
As of December 31, 2023, the loan to deposit ratio was approximately 112.9%, which is above the Company’s
target threshold of 110%. Consistent with the prior quarter and to bring the ratio in line with the Company’s
target, the Company is intentionally reducing non-owner occupied CRE lending volumes and continues to execute upon its retail banking deposit gathering strategies.
As of December 31, 2023, investments comprised 5.3% of total assets. Available for sale debt securities (“AFS”) were $91.8 million or 3.6% of total assets. Held to maturity (“HTM”) debt securities were $36.1 million or 1.4% of total assets. As of December 31, 2023, pre-tax net unrealized losses on AFS and HTM were $4.5 million and $6.5 million, respectively. These pre-tax unrealized losses represent approximately 4.0% of the Bancorp’s Tier 1 capital. Equity securities were $7.8 million or 0.3% of total assets as of December 31, 2023.
Borrowed funds decreased $26.6 million from December 31, 2022. Borrowed funds were entirely comprised of borrowings from the FHLB.
Shareholders’ equity was $261.4 million as of December 31, 2023, compared to $239.2 million as of December 31, 2022. The $22.2 million increase was primarily driven by 2023 earnings, partially offset by share repurchase and dividend payments. In the fourth quarter of 2023, Unity Bancorp repurchased 64,860 shares for approximately $1.5 million, or a weighted average price of $23.46 per share. For the full year 2023, Unity Bancorp repurchased 656,397 shares for approximately $15.5 million, or a weighted average price of $23.69 per share.
Book value per common share was $25.98 as of December 31, 2023, compared to $22.60 as of December 31, 2022 primarily as a result of earnings.
Below is a summary of the Company’s regulatory capital ratios:
o Leverage Ratio: 11.14% at December 31, 2023, compared to 10.88% at December 31, 2022.
o Common Equity Tier 1 Capital Ratio: 12.70% at December 31, 2023, compared to 11.76% at December 31,
2022.
o Tier 1 Capital Ratio: 13.18% at December 31, 2023, compared to 12.25% at December 31, 2022.
o Total Capital Ratio: 14.43% at December 31, 2023, compared to 13.48% at December 31, 2022.
The Company and the Bank are electing to opt out of the Community Bank Leverage ratio, effective December 31, 2023.
At December 31, 2023, the Company held $194.8 million of cash and cash equivalents. Further, the Company
maintained approximately $537.4 million of funding available from various funding sources, including the FHLB,
FRB Discount Window and other lines of credit. Total available funding plus cash on hand represented 221.5% of uninsured or uncollateralized deposits.
As of December 31, 2023, nonperforming assets were $19.2 million, compared to $9.1 million of nonperforming assets as of December 31, 2022. As of December 31, 2023, over 50% of nonperforming loans consisted of residential mortgage loans, which are well-secured. The Company diligently reviews nonperforming assets and potential problem credits, taking proactive measures to promptly address and resolve any issues. Nonperforming loans to total loans was 0.88% as of December 31, 2023. Nonperforming assets to total assets was 0.74% as of December 31, 2023.
Unity Bancorp, Inc. is a financial services organization headquartered in Clinton, New Jersey, with approximately $2.6 billion in assets and $1.9 billion in deposits. Unity Bank, the Company’s wholly owned subsidiary, provides financial services to retail, corporate and small business customers through its robust branch network located in Bergen, Hunterdon, Middlesex, Morris, Ocean, 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.