Unity Bancorp Reports 73.2% Increase in Quarterly Earnings and 68.2% Increase in Six Month Earnings

CLINTON, N.J., July 24, 2014 /PRNewswire/ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.5 million, or $0.20 per diluted share, for the three months ended June 30, 2014, a 73.2% increase compared to net income available to common shareholders of $882 thousand, or $0.11 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.68% and 10.31%, respectively, compared to 0.67% and 6.11% for the same period a year ago. 

Second quarter highlights include:

• Loan growth of 13.9% since June 30, 2013 – 16.2% growth in commercial loans and 26.8% growth in residential mortgage loans.
• Deposit growth of 15.9% since June 30, 2013 – 13.1% growth in noninterest bearing deposits.
• Core earnings growth - 7.4% increase in net interest income compared to the prior year's quarter due to strong commercial and residential loan portfolio growth. 
• Improved efficiency as operating expenses remain flat at $6.1 million for each quarter.
• Improved credit quality metrics due to decreased nonperforming loans this quarter compared to the prior year's quarter.   
• Announced common stock rights offering to provide capital for continued growth. 

"I am very pleased with our second quarter results," reported James A. Hughes, President and CEO.  "We continue to have strong loan and deposit growth, our expenses are stable, and asset quality continues to improve.  I look forward to reporting our continued progress as 2014 unfolds."

For the six months ended June 30, 2014, net income available to common shareholders totaled $2.8 million, or $0.37 per diluted share, compared to $1.7 million or $0.21 per diluted share in the prior period.  Return on average assets and average common equity for the six month periods were 0.64% and 9.70%, respectively, compared to 0.63% and 5.88% for the same period a year ago. 

Net Interest Income

Net interest income increased $503 thousand to $7.3 million for the quarter and increased $1.1 million to $14.6 million for the six months ended June 30, 2014 compared to the prior year's periods.  The increases in each period were the result of momentum from the strong growth in commercial and residential mortgage loan volume.  For example, average commercial loans increased $55.2 million and average residential mortgage loans increased $41.2 million in the second quarter 2014 compared to 2013. The volume driven interest income increase offset the impact of lower rates on earning assets and the increase in interest paid on deposits due to the $88.8 million increase in average time deposits. 

The net interest margin decreased 17 basis points to 3.49% for the quarter ended June 30, 2014 compared to 3.66% the prior year.  For the six month period, the net interest margin declined 6 basis points to 3.53%.  We expect net interest income to continue to expand in future quarters due to strong loan growth and our net interest margin to remain stable.

Provision for Loan Losses

The provision for loan losses was $550 thousand in the current quarter and $1.2 million for the first six months of 2014, compared to $300 thousand and $1.0 million for the comparable prior year periods.    

Noninterest Income

Noninterest income remained flat at $1.6 million for the three months ended June 30, 2014, compared to the same period last year. There was a reduced volume of residential mortgage loan sales, partially offset by increased SBA loan sales and security gains compared to the prior period.  For the six months ended June 30, 2014, noninterest income decreased $316 thousand to $3.2 million due primarily to the lower volume of residential mortgage loan sales. 

During the quarter, $11.1 million in residential mortgage loans were sold at a gain of $188 thousand, compared to $25.9 million sold at a gain of $547 thousand during the prior year's quarter.  Approximately, $2.6 million of the sold loans were previously originated loans from our portfolio, with the remainder consisting of new production.  For the six month period, $28.6 million in residential mortgage loans were sold at a gain of $553 thousand, compared to $48.5 million sold at a gain of $1.0 million during the prior year's period. Approximately, $10.1 million of the sold loans were previously originated loans from our portfolio, with the remainder consisting of new production.  We do not anticipate the recent rise in mortgage interest rates to have a material impact on our residential mortgage origination volume.

SBA loan sales totaled $2.3 million with net gains on sale of $255 thousand for the quarter, compared to $900 thousand sold and a gain of $86 thousand in the prior year's quarter.  On a year-to-date basis, SBA loan sales totaled $3.2 million in both periods, with net gains on sale of $337 thousand and $327 thousand in 2014 and 2013, respectively.  We anticipate an increase in the volume of originations and sales in 2014, due to the addition of SBA business development officers.

Noninterest Expense

Noninterest expense remained stable and totaled $6.1 million for each of the quarterly periods.  For the six months ended June 30, 2014, noninterest expense increased $204 thousand to $12.4 million compared to the prior year period.   During both periods, advertising, OREO and processing and communications expenses increased while loan costs decreases.  Details of fluctuations are below.

• Advertising expenses increased in both periods due to the expanded use of print, direct mail and bill board media, plus seasonal involvement in various community events.
• Processing and communications expenses, which include volume driven expenses such as items processing, merchant services and postage increased as well as electronic access expenses such as data processing lines and internet access. 
• OREO expenses remain elevated as we work through the collection process and incur expenses such as property maintenance, insurance and legal costs, as well as delinquent taxes and losses on sale.
• Loan legal and appraisal costs have decreased while mortgage servicing related costs have increased due to a larger portfolio.
• Compensation and benefits expense decreased during the second quarter as lower compensation and mortgage commission expense offset an increase in bonus accruals and benefits expenses.  Year to date compensation and benefits expense remained flat.
• Occupancy expense decreased for the six month period due to the reduction in lease and leasehold depreciation expense related to the three branch sites that were purchased a year ago.  These savings were partially offset by the increase in seasonal weather related expenses.  Quarter over quarter, occupancy expense remained flat. 
• Other expenses decreased year to date due to lower director fees, printing and office supplies and provision for loan commitments.

Financial Condition

At June 30, 2014, total assets were $932.4 million, an increase of $11.3 million from the prior year-end:

• Total securities decreased $17.0 million or 15.9%, from year-end to $90.5 million at June 30, 2014.  During the quarter, we strategically sold longer dated investments in order to reduce the portfolio's average life and duration. 
• Total loans increased $30.2 million or 4.4%, from year-end 2013 to $708.9 million at June 30, 2014. The majority of the growth came in our residential mortgage and commercial loan portfolios which increased $14.1 million and $12.6 million, respectively.  Future loan growth is expected to be primarily in commercial and residential mortgage loans, while the Company plans to continue shrinking its out of market SBA portfolio.
• Total deposits decreased $10.6 million or 1.4%, to $728.1 million at June 30, 2014, due primarily to a seasonal reduction in municipal interest-bearing demand and savings deposits.  These decreases were partially offset by an $8.8 million increase in noninterest-bearing demand deposits and a $10.3 million increase in time deposits.  The noninterest-bearing demand deposit increase consisted of commercial deposit customers.  The time deposit increase was the result of our 5 year and 15 month promotion.  
• Shareholders' equity was $60.5 million at June 30, 2014, an increase of $3.3 million from year-end 2013, due primarily to year-to-date net income less the dividends paid.
• Book value per common share was $7.95 as of June 30, 2014.
• At June 30, 2014, the leverage, Tier I and Total Risk Based Capital ratios were 8.24%, 10.86% and 12.12% respectively, all in excess of the ratios required to be deemed "well-capitalized". 

"On July 7, 2014, we commenced our rights offering and will be raising a limited amount of capital.  This capital will allow for continued loan and asset growth and will allow our existing shareholders to increase their investment in Unity," said James A. Hughes, President and CEO.

Credit Quality

• Nonperforming assets totaled $13.0 million at June 30, 2014, or 1.84% of total loans and OREO, compared to $15.9 million or 2.34% of total loans and OREO at year-end 2013.
• OREO increased $482 thousand to $1.1 million at June 30, 2014, due to the addition of $2.9 million (7 properties) less sale proceeds of $2.4 million (5 properties).
• The allowance for loan losses totaled $12.9 million at June 30, 2014, or 1.81% of total loans compared to $13.1 million and 1.94% at year end.
• Net charge-offs were $499 thousand for the three months ended June 30, 2014, compared to $336 thousand for the same period a year ago.  For the six months ended June 30, 2014, net charge-offs were $1.4 million in both periods.
• Troubled debt restructurings ("TDRs") decreased $213 thousand from year-end to $7.7 million due to principal pay downs.  There have been no new TDRs recognized in 2014.  At June 30, 2014, 90.4% of our TDRs were performing.  

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $932 million in assets and $728 million in deposits.  Unity Bank provides financial services to retail, corporate and small business customers through its 15 retail service centers located in 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.

SOURCE Unity Bancorp, Inc.