Unity Bancorp Reports Quarterly Earnings of $10.3 Million

James A. Hughes, President and CEO, commented on the financial results:

“Today, we are announcing another great quarter for Unity Bancorp, Inc. For the quarter, we realized $10.3 million of net income, or $0.96 per diluted share, reflecting our continued financial strength and resilience in a challenging banking industry landscape. With the largest bank failures since the Great Financial Crisis, this is a time of difficulty for the banking industry. These failures, largely resulting from the challenging interest rate environment, have highlighted the importance of managing risk for banks of all sizes. Fortunately, we have proactively positioned our balance sheet to mitigate the risks associated with this unprecedented rate velocity. Our longstanding commitment to sound risk management and prudent liquidity management has enabled us to provide the financial services our customers and communities rely on. The Company will continue to deliver value for our shareholders by maintaining the strength of our balance sheet and investing in our people and technology to ensure we are well-positioned for the future.”

Clinton, NJ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $10.3 million, or $0.96 per diluted share, for the quarter ended March 31, 2023, compared to net income of $10.0 million, or $0.93 per diluted share for the quarter ended December 31, 2022. This represents a 3.0% increase in net income and a 3.2% increase in net income per diluted share.

First Quarter Earnings Highlights

  • Net interest income, our primary driver of earnings, decreased $0.8 million to $23.9 million for the quarter ended March 31, 2023, compared to $24.7 million for the prior quarter. Net interest margin (“NIM”) decreased 28 basis points to 4.19% for the quarter ended March 31, 2023, compared to the quarter ended December 31, 2022. The decrease was primarily due to the cost of interest-bearing liabilities increasing faster than the yield of interestearning assets.
  • The provision for loan losses for loans was $0.1 million for the quarter ended March 31, 2023, compared to $1.6 million for the quarter ended December 31, 2022. The decrease was largely due to lower loan growth. Refer to the Balance Sheet Highlights section for further considerations regarding the adoption of the Current Expected Credit Loss (“CECL”) accounting standard.
  • Non-interest income was $1.4 million for the quarter ended March 31, 2023 compared to $1.9 million for the quarter ended December 31, 2022. The $0.5 million decrease was primarily driven by mark-to-market decreases on the Company’s equity portfolio, which is primarily comprised of bank stocks. The decrease was complemented by lower servicing and loan fee income resulting from less prepayment penalties. The decrease was partially offset by increased realized gains on the sale of Small Business Administration (“SBA”) loans.
  • Non-interest expense was $11.4 million for the quarters ended March 31, 2023 and December 31, 2022. The quarter ended March 31, 2023 included $0.5 million of one-time expenses due to the resignation of the Company’s Chief Administrative Officer.
  • The effective tax rate was 25.4% for the quarter ended March 31, 2023 compared to 27.0% for the quarter ending December 31, 2022.
Balance Sheet Highlights
  • Total gross loans modestly increased $24.4 million, or 1.2%, from December 31, 2022 primarily due to increases in commercial loans and residential mortgage loans. In Q1 2023, the Company sold $7.1 million of portfolio residential mortgage loans and $3.5 million of SBA held for sale loans, realizing gains of $0.1 million and $0.3 million, respectively.
  • The Company adopted the CECL accounting standard effective January 1, 2023. As a result, the adoption increased the Allowance for Credit Losses (“ACL”) by $0.8 million, as well as increased the reserve for unfunded credit commitments by $0.1 million. Further associated with CECL adoption, there was a decrease to retained earnings of $0.6 million, net of tax. As of March 31, 2023, the ACL as a percentage of gross loans was 1.23%.
  • Total deposits increased $36.4 million, or 2.0%, from December 31, 2022 to $1.8 billion as of March 31, 2023. As of March 31, 2023, 18% of total deposits were uninsured and the average deposit account size was approximately $38,000. Further, the Bank’s deposit base was 44.8% retail, 27.1 % business, 17.3% municipal, and 10.8% Brokered CDs.
  • As of March 31, 2023, the loan to deposit ratio was approximately 116.8%, which is above the Company’s target threshold of 110%. During the quarter ended March 31, 2023, the Bank opened a new branch in Fort Lee, New Jersey to expand its footprint in Bergen County, New Jersey. Additionally, Unity plans to open its first Morris County, New Jersey location in the summer of 2023. Further, the Company is reducing transactional-based lending and focusing on lending to owner-occupied businesses that will result in full banking relationships including primary deposit accounts.
  • As of March 31, 2023, investments comprised 5.6% of total assets. Available for sale debt securities (“AFS”) were $94.1 million or 3.8% of total assets. Held to maturity (“HTM”) debt securities were $35.8 million or 1.4% of total assets. As of March 31, 2023, pre-tax adjusted net unrealized losses on AFS and HTM were $4.6 million and $6.0 million, respectively. These pre-tax unrealized losses represent approximately 4.4% of the Bank’s capital. Equity securities were $8.3 million or 0.3% of total assets as of March 31, 2023
  • Borrowed funds decreased $9.0 million from year-end 2022 due to net deposit inflows during the quarter. Borrowed funds were entirely comprised of borrowings from the FHLB.
  • Shareholders’ equity was $240.5 million at March 31, 2023, compared to $239.2 million at year-end 2022. The $1.3 million increase was primarily driven by first quarter 2023 earnings and equity-based compensation share issuance, partially offset by share repurchase activities in the first quarter of 2023. Throughout the first quarter of 2023, Unity Bancorp repurchased 337,945 shares for approximately $8.2 million, or a weighted average price of $24.29 per share.
  • Book value per common share was $23.34 as of March 31, 2023, compared to $22.60 as of December 31, 2022.
  • At March 31, 2023, the Community Bank Leverage Ratio was 10.38%, compared to 10.88% at December 31, 2022. The decrease was primarily driven by share repurchases, as well as, a higher average asset base for the quarter ended March 31, 2023.
  • At March 31, 2023, the Company held $127.1 million of cash on hand. Further, the Company maintained approximately $316.9 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 132.6% of uninsured deposits.
  • As of March 31, 2023, nonperforming assets were $14.7 million gross, and $11.1 million net, of the guarantee by the SBA, respectively. As of December 31, 2022, nonperforming assets were $9.1 million gross and net of the SBA guarantee. As of March 31, 2023, criticized, classified and nonaccrual assets were $35.4 million gross, and $31.7 million net, of the SBA guarantee, respectively. The Company diligently oversees nonperforming assets and potential problem credits, taking proactive measures to promptly address and resolve any issues
Other Highlights

 Unity Bank offers savings, checking, and CD products that offer 100% insurance for deposits above the standard FDIC insurance limits.

 In February 2023, Unity Bancorp announced a 9% increase in its Q1 2023 dividend to $0.12 per common share. The Company does not anticipate that this increase will adversely impact its liquidity or capital positioning.

 In February 2023, Unity Bank opened a branch in Fort Lee, NJ, enhancing its Bergen County presence. Unity Bank has also received regulatory approval to open a branch in Lake Hiawatha, NJ. Lake Hiawatha will be the Bank’s first Morris County, New Jersey location and is expected to open over the coming months.

 After over 25 years with the organization, John Kauchak, Executive Vice President Chief Operating Officer, announced his retirement, effective June 30, 2023. During his tenure, he has made countless contributions to the organization. Further, after over 20 years with the organization, Janice Bolomey, Executive Vice President Director of Sales and Chief Administrative Officer, announced her resignation effective June 30, 2023. Management is currently evaluating the open executive management positions.

Unity Bancorp, Inc. is a financial services organization headquartered in Clinton, New Jersey, with approximately $2.5 billion in assets and $1.8 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, 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.


April 17 2023

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