Clinton, NJ, October 21, 2020 - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $5.8 million, or $0.54 per diluted share, for the quarter ended September 30, 2020, a 3.3 percent decrease compared to net income of $6.0 million, or $0.54 per diluted share for the prior year’s third quarter. For the nine months ended September 30, 2020, Unity reported net income of $16.3 million, or $1.50 per diluted share, a 7.0 percent decrease compared to net income of $17.5 million or $1.59 per diluted share for the prior year’s period. The decreases in earnings were primarily due to an increased provision for loan losses, necessitated by the COVID-19 pandemic.
Third Quarter Earnings Highlights
- Net interest income, our primary driver of earnings, increased $1.9 million to $16.3 million for the quarter ended September 30, 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) decreased to 3.78% for the quarter ended September 30, 2020, compared to 3.90% for the prior year’s quarter and increased 5 basis points from 3.73% in the prior sequential quarter ended June 30, 2020. The year-over-year decrease was a direct result of interest rate cuts by the Board of Governors of the Federal Reserve.
- The provision for loan losses was $2.0 million for the quarter ended September 30, 2020, an increase of $1.3 million from the prior year’s quarter due to the increased risk of loan defaults as a result of COVID-19.
- Noninterest income increased $626 thousand to $3.3 million compared to the prior year’s quarter and increased $525 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 September 30, 2020, quarterly residential mortgage loan sales were $85.8 million, compared to $35.2 million for the quarter ended September 30, 2019.
- Noninterest expense increased $1.3 million to $10.0 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.
- The effective tax rate was 24.5% compared to 22.0% in the prior year’s quarter.
Balance Sheet Highlights
- Total loans increased $187.7 million, or 13.2%, from year-end 2019 to $1.6 billion at September 30, 2020. The increase was primarily due to $138.9 million in SBA PPP loan originations.
- Total deposits increased $243.3 million, or 19.5%, from year-end 2019 to $1.5 billion at September 30, 2020, primarily due to increased noninterest-bearing demand deposits, resulting from the distribution of PPP funds and a strategic increase in brokered time deposits in the first quarter.
- Borrowed funds decreased $43.0 million to $240.0 million at September 30, 2020, due to decreased FHLB overnight advances.
- Shareholders’ equity was $169.2 million at September 30, 2020, an increase of $8.5 million from year-end 2019, due primarily to retained net income. During the third quarter, the Company repurchased 161,554 shares of common stock for a total cost of $2.1 million.
- Book value per common share was $16.01 as of September 30, 2020.
- At September 30, 2020, the Community Bank Leverage Ratio was 9.95%.
- Nonperforming assets were $9.7 million at September 30, 2020, compared to $7.4 million at December 31, 2019. The allowance to total loans ratio was 1.4% at September 30, 2020.
Paycheck Protection Program Loans
As of September 30, 2020, the Company funded 1,224 Small Business Administration (“SBA”) Paycheck Protection Program (“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 principle 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.
The Bank has prudently worked with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. All deferrals mature no later than December 31, 2020. As shown in the tables below, loans granted deferrals have significantly declined during the third quarter. The Company anticipates there will be some future deferrals granted on SBA loans, since all SBA loans were being paid by the CARES Act through September 30, 2020.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.9 billion in assets and $1.5 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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