Unity Bancorp Reports Quarterly Earnings of $9.7 Million
James A. Hughes, President and CEO, commented on the financial results: “We are pleased to report another solid quarter of financial results. For the quarter, we realized $9.7 million of net income, or $0.95 per diluted share. This represents 1.60% ROA and 16.19% ROE.
The inverted yield curve, slower loan growth, and increased deposit competition has created a challenging environment for all banks. Although Unity is not immune to this trend, we are in a strong position to face these headwinds and remain the bank of choice for the communities we serve. We are a conservatively managed organization that has constantly been recognized as a top-tier community bank.
As the second half of the year progresses, we will continue to build on our performance by working with our clients and employees to solve problems and deliver extraordinary services. As a community bank with a strong franchise, each product that we offer goes a long way to support the communities that we are proud to serve.”
Clinton, NJ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $9.7 million, or $0.95 per diluted share, for the quarter ended June 30, 2023, compared to net income of $10.3 million, or $0.96 per diluted share for the quarter ended March 31, 2023. This represents a 5.7% decrease in net income and a 1.0% decrease in net income per diluted share. For the six months ended June 30, 2023, Unity reported net income of $20.0 million or $1.91 per diluted share, compared to net income of $18.6 million or $1.74 per diluted share for the six months ended June 30, 2022. This represents a 7.7% increase in net income and a 9.8% increase in net income per diluted share.
Second Quarter Earnings Highlights
- Net interest income, our primary driver of earnings, decreased $0.4 million to $23.5 million for the quarter ended June 30, 2023, compared to $23.9 million for the quarter ended March 31, 2023. Net interest margin (“NIM”) decreased 15 basis points to 4.04% for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023. The decrease was primarily due to the cost of interest-bearing liabilities increasing faster than the yield of interest-earning assets.
- The provision for credit losses was $0.8 million for the quarter ended June 30, 2023, compared to $0.1 million for the quarter ended March 31, 2023. The increase was primarily driven by loan growth and increased losses related to certain Consumer and Small Business Administration (“SBA”) credits.
- Non-interest income was $2.1 million for the quarter ended June 30, 2023, compared to $1.4 million for the quarter ended March 31, 2023. The $0.7 million increase was primarily driven by increased realized gains related to the sale of mortgage loans and SBA loans. This was complemented by reduced mark-to-market decreases in the Company’s equity portfolio, which is primarily comprised of bank common and preferred shares.
- Non-interest expense was $11.8 million for the quarter ended June 30, 2023, compared to $11.4 million for the quarter ended March 31, 2023. The increase was primarily driven by increased FDIC deposit insurance expense. The effective tax rate was 26.0% for the quarter ended June 30, 2023, compared to 25.4% for the quarter ending March 31, 2023.
Balance Sheet Highlights
- Total gross loans modestly increased $60.8 million, or 2.9%, from December 31, 2022, primarily due to increases in commercial loans and residential mortgage loans. These increases were partially offset by decreases in the residential construction loan category. In the second quarter of 2023, the Company sold $6.3 million of portfolio residential mortgage loans and $6.0 million of SBA held for sale loans, realizing gains of $0.1 million and $0.6 million, respectively.
- As of June 30, 2023, the allowance for credit losses as a percentage of gross loans was 1.20%.
- Total deposits increased $62.0 million, or 3.5%, from December 31, 2022, to $1.85 billion as of June 30, 2023. As of June 30, 2023, 18.2% of total deposits were uninsured and the average deposit account size was approximately $37 thousand. Further, the Bank’s deposit base was 45.7% retail, 26.3% business, 17.6% municipal, and 10.4% Brokered CDs.
- As of June 30, 2023, the loan to deposit ratio was approximately 117.2%, 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, Unity is intentionally reducing commercial investment property CRE lending volumes and continues to execute upon its retail banking deposit gathering strategies.
- As of June 30, 2023, investments comprised 5.4% of total assets. Available for sale debt securities (“AFS”) were $93.0 million or 3.7% of total assets. Held to maturity (“HTM”) debt securities were $35.9 million or 1.4% of total assets. As of June 30, 2023, pre-tax net unrealized losses on AFS and HTM were $6.1 million and $6.6 million, respectively. These pre-tax unrealized losses represent approximately 5.0% of the Bank’s capital. Equity securities were $8.2 million or 0.3% of total assets as of June 30, 2023.
- Borrowed funds increased $40.0 million from December 31, 2022. Borrowed funds were entirely comprised of borrowings from the FHLB. Shareholders’ equity was $244.1 million as of June 30, 2023, compared to $239.2 million as of December 31, 2022. The $4.9 million increase was primarily driven by 2023 earnings, partially offset by share repurchase and dividend payments. In the second quarter of 2023, Unity Bancorp repurchased 225,000 shares for approximately $5.1 million, or a weighted average price of $22.82 per share.
- Book value per common share was $24.12 as of June 30, 2023, compared to $22.60 as of December 31, 2022.
- Below is a summary of the Bancorp’s regulatory capital: o Community Bank Leverage Ratio: 10.49% at June 30, 2023, compared to 10.38% at March 31, 2023 and 10.88% at December 31, 2022.
o Common Equity Tier 1 Capital Ratio: 11.74% at June 30, 2023.
o Tier 1 Capital Ratio: 12.21% at June 30, 2023.
o Total Capital Ratio: 13.45% at June 30, 2023.
- At June 30, 2023, the Company held $151.2 million of cash and cash equivalents. Further, the Company maintained approximately $450.2 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 179.0% of uninsured deposits.
- As of June 30, 2023, nonperforming assets were $16.5 million. As of December 31, 2022, nonperforming assets were $9.1 million. As of June 30, 2023, criticized, classified and nonaccrual assets were $36.8 million. Over 70% of nonperforming loans consisted of residential mortgage loans and residential construction loans, which have historically resulted in lower net charge off levels. The Company diligently reviews nonperforming assets and potential problem credits, taking proactive measures to promptly address and resolve any issues.
Other Highlights
- In June 2023, Unity Bank hired industry veteran Daniel Sharabba as its new Senior Retail Officer. Mr. Sharabba previously served as Regional Manager/Vice President with Citizens Bank, overseeing 17 retail locations in northern and central New Jersey.
- Unity Bank is opening a new full-service branch in Parsippany, the first location in Morris County, New Jersey and third new retail banking site since December 2022. The branch opening is anticipated to occur over the upcoming months. In May 2023, Unity Bank was selected for the ICBA’s 2023 Best Performing Banks List, which annually ranks the top community banks in the country. Additionally, in July 2023, Unity Bank was awarded the Raymond James Community Bankers Cup for 2022. This award recognizes the top 10% of community banks based on various profitability, efficiency, and balance sheet metrics. Unity was the only New Jersey headquartered bank to be recognized for these awards.
- In April 2023, Unity Bancorp Inc. announced a new Share Repurchase Program. Under the new program, Unity Bancorp Inc. may repurchase up to 500,000 shares or approximately 5% of its outstanding common stock. The program is a testament to the Company’s commitment to returning value to its shareholders. Further, the Company will continue to conservatively manage its overall capital and liquidity positions when determining the timing of share repurchases.
Unity Bancorp, Inc. is a financial services organization headquartered in Clinton, New Jersey, with approximately $2.6 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.