Noninterest Income
For the quarter ended September 30, 2010, noninterest income totaled $1.5 million, an increase of $298 thousand from the quarter ended September 30, 2009. The following factors impacted the quarter’s noninterest income:
| · | Branch fee income remained relatively flat compared to the prior year period. |
| · | Service and loan fee income declined $147 thousand due to a lower level of loan prepayment fees. |
| · | There were $269 thousand in gains on the sales of SBA loans, compared to no gains in the prior year’s quarter. |
| · | Gains on the sales of residential mortgage loans totaled $247 thousand, compared to $71 thousand the prior year. |
| · | The quarterly increase in the cash surrender value of bank owned life insurance (“BOLI”) increased $23 thousand to $79 thousand. This was the result of the Company purchasing $2.5 million in BOLI to help offset the rising cost of employee benefits during the first quarter of 2010. |
| · | Gains on the sales of investment securities amounted to $35 thousand, compared to $158 thousand in the prior year period. |
For the nine months ended September 30, 2010, noninterest income amounted to $3.5 million, an increase of $1.9 million from the nine months ended September 30, 2009. Excluding the effect of the OTTI charge noted above, noninterest income increased $186 thousand. Noninterest income was affected by the following factors:
| · | Branch fee income remained relatively flat compared to the prior year period. |
| · | Service and loan fee income decreased $241 thousand compared to the prior year period due to lower levels of prepayment fees. |
| · | Gains on sales on SBA loans amounted to $416 thousand, compared to $29 thousand a year ago. |
| · | Gains on the sales of residential mortgage loans amounted to $504 thousand, compared to $184 thousand from the prior year period. |
| · | The nine month increase in the cash surrender value of bank owned life insurance (“BOLI”) increased $64 thousand to $230 thousand. This was the result of the Company purchasing $2.5 million in BOLI to help offset the rising cost of employee benefits during the first quarter of 2010. |
| · | Gains on the sales of investment securities amounted to $42 thousand, compared to $675 thousand in the prior year period. |
Noninterest Expense
For the quarter ended September 30, 2010, noninterest expenses were $6.4 million, an increase of $294 thousand or 4.8% from the quarter ended September 30, 2009. The following factors affected our noninterest expense:
| · | Compensation and benefits expense amounted to $3.0 million, an increase of $51 thousand or 1.8%. This was the result of an increase in compensation, employee medical benefits costs and mortgage loan commissions, partially offset by lower incentive bonus payments. |
| · | Occupancy expense increased by $29 thousand or 4.9%, due to an increase in rental expense. |
| · | Furniture and equipment expense increased $26 thousand or 6.3%, primarily due to increased software and equipment lease expense, partially offset by a decrease in equipment depreciation expense. |
| · | Professional fees decreased $45 thousand, due to decreased consulting, loan review and audit costs. |
| · | Loan collection costs decreased $43 thousand, due to decreased collection costs on delinquent loans. |
| · | Other real estate owned (“OREO”) expense increased $306 thousand, due to increased maintenance and valuation related expenses on OREO properties. |
For the nine months ended September 30, 2010, noninterest expenses were $18.4 million, an increase of $515 thousand or 2.9% from the same period a year ago. The following factors affected our noninterest expense:
| · | Compensation and benefits expense amounted to $8.8 million, an increase of $395 thousand or 4.7%, due to increased compensation, higher employee medical benefits costs and increased residential mortgage commissions due to a larger sales volume, partially offset by lower incentive bonus payments. |
| · | Occupancy expense declined by $19 thousand or 1.0%, due primarily to a reduction in rental expense from a renegotiated lease. |
| · | Processing and communications increased $55 thousand or 3.5%, due primarily to increased data processing line costs. |
| · | Furniture and equipment expense decreased $70 thousand or 5.1%, primarily due to decreased depreciation expense as capital expenditures declined and decreased equipment maintenance charges. |
| · | Professional fees decreased $123 thousand, due to decreased consulting, loan review and audit costs. |
| · | OREO expense increased $476 thousand, due to increased maintenance and valuation related expenses on OREO properties. |
| · | FDIC insurance premiums decreased $378 thousand, due primarily to the $408 thousand second quarter 2009 special assessment. |
| · | Advertising expenses increased $105 thousand or 28.2%, due to increased marketing efforts. |
Financial Condition
At September 30, 2010, total assets were $846.4 million, a 9.0% decrease from year-end.
| · | Total loans decreased $27.5 million or 4.2%, from $657.0 million at December 31, 2009. SBA 7(a), SBA 504, commercial, residential and consumer loans decreased 8.1%, 7.9%, 3.0%, 1.2% and 5.7%, respectively. Loan balances for the remainder of 2010 are expected to remain flat to down as the Company is no longer generating loans outside of its trade area and has decided to portfolio a limited number of fixed rate residential mortgages due to interest rate risk. The Company continues to focus on stabilizing credit quality and preserving capital until economic conditions improve. |
| · | Total securities decreased $34.2 million since year-end as Unity received $37.2 million in principal payments, sold $13.4 million and had $14.8 million in bonds called during the nine month period, partially offset by $30.0 million in purchases. |
| · | Core deposits, excluding time deposits, increased $14.1 million during the nine month period to $480.6 million. The increase was due primarily to a $7.7 million increase in demand deposits and a $6.0 million increase in savings deposits. Time deposits decreased $102.2 million for the nine months ended September 30, 2010 due to planned run off of a maturing high rate promotion that was done late in 2008 to bolster liquidity. |
| · | Shareholders’ equity was $70.7 million at September 30, 2010, an increase of $2.9 million from year-end. |
| · | Book value per common share was $7.19, compared to $6.91 at year-end. |
| · | At September 30, 2010 the leverage, Tier I and Total Risk Based Capital ratios were 9.83%, 12.67% and 13.93%, respectively, all in excess of the ratios required to be deemed “well-capitalized”. |
Credit Quality
| · | Nonperforming assets totaled $33.1 million at September 30, 2010, or 5.21% of total loans and OREO, compared to $27.5 million or 4.17% of total loans and OREO a year ago. |
| · | The commercial, residential, SBA, SBA 504 and consumer nonaccrual loans were $9.5 million, $6.1 million, $6.3 million, $5.2 million and $235 thousand, respectively. The majority of nonaccrual loans are secured by real estate. |
| · | OREO assets totaled $5.8 million at September 30, 2010, an increase of $3.0 million, compared to $2.8 million a year ago. The increase is related to the acquisition of titles through foreclosure proceedings. |
| · | The allowance for loan losses totaled $14.2 million at September 30, 2010, or 2.25% of total loans. The provision for loan losses for the quarter and nine months ended September 30, 2010 was $1.5 million and $4.5 million, respectively, compared to $3.0 million and $6.0 million for the quarter and nine month periods of 2009. |
| · | Net charge-offs were $1.3 million for the three months ended September 30, 2010, compared to $1.2 million for the same period a year ago. Net charge-offs were $4.2 million for the nine months ended September 30, 2010, compared to $3.9 million for the same period a year ago. |
Mr. Hughes added, “Unity continues to work diligently to assertively address problem loans, however, the backlog in the courts has significantly slowed the collection process. The increase in nonperforming assets was due to the delay in the sale of many problem assets and further deterioration of substantial credits. For the near term, the size of our loan loss provision will remain the most important single factor in our earnings. However, we believe that with stabilization of our credit quality and a rebound in overall economic activity, we are well positioned for future growth.”
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $846 million in assets and $670 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 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 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.
