Unity Bancorp, Inc.
For Immediate Release:
April 23, 2009
News Media & Financial Analyst Contact:
Alan J. Bedner, EVP
Chief Financial Officer
(908) 713-4308
Unity Bancorp Reports First Quarter Earnings
Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income of $731 thousand or $0.05 per diluted share, for the quarter ended March 31, 2009, compared to net income of $584 thousand or $0.07 per diluted share, for the quarter ended December 31, 2008, and $1.2 million, or $0.17 per diluted share, for the quarter ended March 31, 2008. Earnings per share for the first quarter of 2009 have been adjusted to reflect the full impact of the dividend on the preferred stock issued to the United States Treasury on December 5, 2008. Return on average assets and average common equity for the quarter ended March 31, 2009, was 0.33% and 2.90%, respectively, as compared to 0.26% and 3.56%, respectively, for the quarter ended December 31, 2008 and 0.65% and 10.50%, respectively, for the quarter ended March 31, 2008.
James A. Hughes, Unity Bancorp’s President and CEO, said, “The times are indeed challenging; however they are also a time of great opportunity. As the larger banks contract inward, it is time for community banks to increase market share by selling the message that when it comes to banking, smaller is better. We approach these opportunities as a well capitalized institution, ready to lend in our communities.” Mr. Hughes added, “I am pleased that our operating results increased quarter over quarter and that Unity continues to remain a profitable institution. However, operating results continue to be affected by the downturn in the economy. We have taken proactive steps to decrease our expense base. In the fourth quarter of 2008, Unity decided to exit the SBA program as a line of business and closed all SBA loan production offices outside our primary trade area. We now offer SBA loans only as an additional credit product to customers in our markets. The decision to reduce our SBA activity was made due to deterioration in the loan portfolio and the reduced profitability on the sale of this product into the secondary markets. We continue to experience challenges with our existing small business customers, many of which continue to experience stress due to the economy. As a result, we will continue to have elevated provisions for loan losses. We continue to be aggressive in working with and managing delinquent borrowers and are making every attempt to bring credit quality to more normalized levels.”
Net Interest Income
Since March 31, 2008, the Federal Open Market Committee has lowered interest rates 200 basis points in an attempt to stimulate economic activity. These decreases have resulted in lower yields on earning assets in addition to lower funding costs. During the remainder of 2009, we expect net interest margin to expand as higher cost certificates of deposit re-price in the current lower rate environment. For the quarter ended March 31, 2009, net interest income was $6.8 million, an increase of 2.1% from March 31, 2008. Factors affecting first quarter net interest income include:
| · | The yield on interest-earning assets decreased 106 basis points to 5.87% from 6.93% for the same period last year. |
| · | The cost of interest-bearing liabilities decreased 63 basis points from 3.73% to 3.10% in the first quarter of 2009. |
| · | Average earning assets, consisting primarily of loans, rose 18.0%. |
| · | Net interest margin was 3.14%, a 50 basis point decline from 3.64% in the first quarter of 2008. |
Noninterest Income
Historically, Unity has generated noninterest income from gains on the sale of its SBA loans. In the fourth quarter of 2008, Unity decided to exit the SBA program as a line of business and closed all SBA loan production offices outside its primary trade area. Consequently, this decision will result in reduced noninterest income.
For the quarter ended March 31, 2009, noninterest income was $1.3 million, a decrease of 7.4% from March 31, 2008. Non-interest income was affected by the following factors:
| · | Service charges on deposit accounts remained relatively flat compared to the prior year’s period. |
| · | Service and loan fee income decreased 16% to $252 thousand in 2009, due to lower levels of prepayment fees. |
| · | Net security gains amounted to $515 thousand, compared to $70 thousand from the prior period. The gains were the result of the sale of approximately $20 million dollars of fixed income securities. |
| · | Gains on sales of SBA loans amounted to $29 thousand, compared to $576 thousand a year ago. |
| · | Gains on the sales of residential mortgage loans amounted to $64 thousand, compared to $21 thousand from the prior year’s period. |
Noninterest Expense
As a result of current market conditions, there were significant head-count reductions enacted in the fourth quarter of 2008, primarily related to the closing of SBA loan production offices outside of the Company’s primary trade area. In addition, the Company undertook other expense saving measures which will benefit 2009. However, these expense reductions will be partially offset by increases in FDIC insurance premiums. In addition, the banking industry and the Company will be assessed a substantial one-time FDIC insurance premium in either the second or third quarter of 2009, depending on final legislation.
For the quarter ended March 31, 2009, noninterest expenses were $5.6 million, a decrease of 3.7% from March 31, 2008. The following factors affected our noninterest expense:
| · | Compensation and benefits expense amounted to $2.6 million, a decrease of $596 thousand, or 18.5% due to reduced head count. |
| · | Processing and communications and occupancy expense declined by 5.1% and 2.0%, respectively, due to reduced communications costs from renegotiated contracts and a decline in capital expenditures. |
| · | FF&E expense increased $107 thousand, primarily due to depreciation expense on new equipment and software and increased software maintenance charges. |
| · | Professional fees increased $48 thousand, due to increased consulting, legal and audit costs. |
| · | Loan collection costs increased $96 thousand, due to increased collection costs on delinquent loans. |
| · | FDIC insurance premiums increased $238 thousand, due primarily to the increase in FDIC insurance rates. |
Financial Condition
At March 31, 2009, total assets were $886.7 million, a 9.8% increase from a year ago.
| · | Total loans increased $67.0 million, or 11.1%, from $602.9 million at March 31, 2008. The increase was across all product lines. SBA 7(a), SBA 504, commercial, residential and consumer loans increased 7.5%, 7.3%, 0.6%, 62.9% and 8.1%, respectively. Growth in the residential mortgage portfolio was due to a decision to originate and retain Jumbo mortgages. |
| · | Total securities increased $43.7 million as Unity took advantage of favorable credit spreads to invest excess liquidity. |
| · | Total deposits increased 9.5% or $61.0 million to $703.3 million at March 31, 2009. This increase was due to an $82.0 million increase in time deposits and a $9.1 million increase in interest-bearing checking accounts. These increases were partially offset by a $5.1 million decrease in demand deposits and a $25.0 million decline in savings deposits. During 2009, the Company expects run off in time deposits to migrate to its lower cost accounts. |
| · | Total borrowed funds increased $2.0 million to support the growth in the investment portfolio. |
| · | Shareholders’ equity was $67.5 million at March 31, 2009, an increase of $19.6 million, primarily due to the issuance of $20.6 million of preferred stock under the U.S. Department of Treasury’s Capital Purchase Program. |
| · | Book value per common share was $6.93. |
| · | At March 31, 2009 the leverage, Tier I and total risk based capital ratios were 9.28%, 12.32% and 13.57%, respectively. |
Credit Quality
| · | Nonperforming assets totaled $20.7 million at March 31, 2009, or 3.1% of total loans and “OREO” compared to $4.4 million, or 0.7% of total loans and “OREO” a year ago. The increase in nonperforming assets was primarily related to the credit deterioration in the SBA 7(a) and SBA 504 portfolios, most of which is secured by real estate. |
| · | The allowance for loan losses totaled $10.3 million at March 31, 2009, or 1.54% of total loans. The provision for loan losses for the first three months of 2009 amounted to $1.5 million, an increase of $1.1 million from the same period a year ago. |
| · | Net charge-offs were $1.5 million for the first three months of 2009, compared to $183 thousand for the same period a year ago. The increase in net charge-offs for the quarter was primarily related to credit deterioration in SBA 7(a) and 504 loans. |
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $900 million in assets and $700 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 16 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 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 general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.
