CLINTON, N.J., July 25, 2017 (GLOBE NEWSWIRE) -- Unity Bancorp, Inc. (NASDAQ:UNTY), parent company of Unity Bank, reported a 22.0% increase in quarterly earnings and a 19.4% increase in year-to-date earnings. The year-to-date results exclude the effect of a nonrecurring gain during the prior year’s period. Contributing factors included strong loan and deposit growth, increased net interest income and expanded net interest margins.
Net income for the three months ended June 30, 2017 was $3.4 million, or $0.32 per diluted share, a 22.0 percent increase compared to net income of $2.8 million, or $0.30 per diluted share, for the three months ended June 30, 2016. Return on average assets and average common equity for the quarter were 1.11% and 12.47%, respectively, compared to 1.03% and 13.59% for the same period a year ago.
Year-to-date net income was $6.6 million, or $0.62 per diluted share, for the six months ended June 30, 2017. Year-to-date net income, excluding the nonrecurring gain on the repurchase of subordinated debentures, was $5.6 million, or $0.59 per diluted share, for the same period a year ago. Current year-to-date net income represents a 19.4% increase over the prior year’s year-to-date net income excluding the nonrecurring gain. Return on average assets and average common equity for the period were 1.09% and 12.25%, respectively, compared to 1.01% and 13.63% for the same period a year ago.
In February 2016, the Company repurchased $5.0 million of its outstanding subordinated “capital qualifying” 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. Management believes excluding the nonrecurring gain from 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.
Net income for the six months ended June 30, 2017 declined 5.6% compared to the prior year period net income, which included the nonrecurring gain on the repurchase of subordinated debentures, of $7.0 million or $0.74 per diluted share. Return on average assets and average common equity for the six months ended June 30, 2017 was 1.09% and 12.25%, respectively compared to 1.28% and 17.25% for the prior year period, including the nonrecurring gain.
Second quarter highlights included:
- 7.5% loan growth from year-end: 15.4% increase in consumer loans, 9.1% increase in residential mortgage loans and 7.1% increase in commercial loans.
- 6.2% deposit growth: 11.1% increase in savings deposits and 7.7% increase in noninterest-bearing demand deposits.
- Net interest income increased 19.4% to $11.2 million compared to the prior year’s quarter due to earning asset growth and improved margins.
- Net interest margin increased to 3.79% this quarter compared to 3.61% in the prior year’s quarter due to strong loan growth and the benefit of a rising rate environment.
- Credit quality continues to improve. Nonperforming loans fell 21.5% to $5.7 million.
“We had another quarter of record earnings,” stated James A. Hughes, President and CEO. “Loan and deposit growth remains extremely robust and I expect that to continue for the remainder of this year. Our newest branches add geographic presence and situational opportunity to our growth plans and are ahead of our projections. We are actively looking for new branch opportunities, and we feel confident that we can continue to expand our franchise while we grow our profitability. Our balance sheet is well positioned and has benefited from the increase in interest rates.”
Net Interest Income
Net interest income, our core driver of earnings, increased $1.8 million to $11.2 million for the quarter ended June 30, 2017 compared to the prior year’s quarter. In addition, the net interest margin expanded 18 basis points to 3.79%, compared to 3.61% for the prior year’s quarter. For the six months ended June 30, 2017, net interest income increased $3.2 million to $21.5 million, and the net interest margin expanded 20 basis points to 3.75%. Each period benefited from strong loan growth and the rising interest rate environment. We expect continued improvement in our net interest margin due to rising rates.
The yield on earning assets increased 14 basis points to 4.58% for the quarter ended June 30, 2017 compared to 4.44% for the prior year’s quarter. This increase was the result of strong commercial, residential mortgage and consumer loan growth over the prior year’s period and the benefit of a rising rate environment. Quarterly average commercial loans increased $58.1 million, average residential mortgage loans have increased $47.1 million and consumer loans increased $18.6 million compared to the second quarter in 2016. Our loan growth was somewhat mitigated by unusually high levels of payoffs.
The cost of interest-bearing liabilities fell 2 basis points to 1.03% for the quarter ended June 30, 2017. While the cost of deposits increased 3 basis points to 0.85%, the cost of borrowed funds and subordinated debentures decreased 46 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) and the addition of new borrowing at lower rates over the past year. The increase in the cost of deposits was primarily driven by the growth in savings deposits.
Provision for Loan Losses
The provision for loan losses was $400 thousand for each of the quarters ended June 30, 2017 and June 30, 2016. Year-to-date the provision for loan losses increased $50 thousand to $650 thousand for the six months ended June 30, 2017. Quarterly net charge-offs were flat at $281 thousand and $276 thousand for each quarter, respectively. Year-to-date charge-offs declined $172 thousand to $429 thousand for the six months ended June 30, 2017.
Noninterest income decreased $213 thousand to $2.0 million for the three months ended June 30, 2017, compared to the same period last year due to a lower volume of sales of both mortgage and SBA loans. Year-to-date noninterest income remained relatively flat at $4.2 million for the six month period.
Quarterly gains on the sale of mortgage loans declined $329 thousand and year-to-date gains dropped $512 thousand due to lower sales volumes in each period. The decline in sales was a result of management electing to hold more residential loans in portfolio for long term investment. Mortgage loan sale volume totaled $16.7 million for the three months ended June 30, 2017 compared to $26.0 million in sales in the prior year’s period. Year-to-date, mortgage loan sales volume totaled $42.3 million and $51.1 million for the periods ended June 30, 2017 and 2016, respectively.
Gains on the sale of SBA loans decreased due to a lower volume of loan sales this quarter compared with the prior year’s quarter. SBA loan sales totaled $5.3 million with net gains on sale of $479 thousand for the quarter ended June 30, 2017, compared to $7.2 million in sales and a net gain of $637 thousand in the prior year’s quarter. Year-to-date, gains on the sale of $11.3 million in SBA loans were $963 thousand compared to $945 thousand on $10.6 million sold in the prior year-to-date period.
Other notable items included branch fee income and service and loan income. Branch fee income increased in the quarterly and year-to-date periods due to increased fees from commercial checking accounts and overdraft fees. Service and loan fee income increased $245 thousand and $502 thousand in the quarterly and year-to-date periods, respectively due to loan payoff fees and processing fees.
Noninterest expense increased $693 thousand, or 10.3%, to $7.4 million for the quarter and increased $1.5 million, or 11.4%, to $14.9 million for the six month period ended June 30, 2017. These increases are attributed to costs of expanding our retail and lending network, such as compensation and occupancy expenses. Notable items for the periods include:
- Compensation and benefits expense increased $590 thousand to $4.3 million for the three months ended June 30, 2017 and increased $1.1 million to $8.4 million for the six months ended June 30, 2017. Compensation and benefit expenses have risen in each of these periods due to the addition of two new retail branches, additional lending and operational staff.
- Occupancy expenses increased $77 thousand for the quarter and $59 thousand year-to-date due to the addition of two new retail branches.
- Furniture and equipment expense increased $118 thousand and $209 thousand for the quarter and year-to-date periods, respectively due to continued investment in technology in the form of equipment, network maintenance and software.
- Year-to-date, loan collection and OREO expenses increased as the result of a $253 thousand loss on the sale of an OREO property in the first quarter of 2017.
- Deposit insurance expense declined for the quarter and year-to-date period as our assessment rate dropped as a result of the capital raise in December 2016.
At June 30, 2017, total assets were $1.3 billion, an increase of $85.6 million from year-end 2016:
- Total securities increased $13.5 million due to purchases of $25.7 million during the period.
- Total loans increased $73.4 million or 7.5%, from year-end 2016 to $1.0 billion at June 30, 2017. Commercial, residential mortgage and consumer loan portfolios increased $36.1 million, $26.3 million and $14.1 million, respectively. SBA loans declined on sales of $11.3 million. Our pipeline in all categories remains strong and loan growth is expected in future quarters.
- Total deposits increased $58.2 million or 6.2%, to $1.0 billion at June 30, 2017. Savings deposits and noninterest-bearing demand deposits have increased $40.3 million and $16.6 million, respectively.
- Borrowed funds increased $21.0 million to $142.0 million at June 30, 2017 due to increased overnight borrowings.
- Shareholders’ equity was $112.4 million at June 30, 2017, an increase of $6.2 million from year-end 2016, due to retained net income.
- Book value per common share was $10.64 as of June 30, 2017.
- At June 30, 2017, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.66%, 11.32%, 12.34% and 13.59% respectively, all in excess of the ratios required to be deemed “well-capitalized”.
- Nonperforming assets totaled $6.3 million at June 30, 2017, or 0.60% of total loans and OREO, compared to $8.3 million or 0.85% of total loans and OREO at year-end 2016.
- The allowance for loan losses totaled $12.8 million at June 30, 2017, or 1.22% of total loans compared to $12.8 million and 1.39% at June 30, 2016.
- Net charge-offs were $281 thousand for the three months ended June 30, 2017, compared to $276 thousand for the same period a year ago. Year-to-date net charge-offs were $429 thousand compared to $601 thousand for the prior year’s period.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.3 billion in assets and $1.0 billion 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 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, 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.