Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported a net loss attributable to common shareholders of $164 thousand, or $0.02 per diluted share, for the quarter ended March 31, 2011, compared to net income available to common shareholders of $375 thousand, or $0.05 per diluted share for the same period a year ago. Return on average assets and average common equity for the quarter were 0.11% and (1.31)%, respectively. Quarterly results were substantially impacted by the additional $1 million loan loss provision as well as increased other real estate owned (“OREO”) and loan collection costs.
James A. Hughes, President and CEO, stated, “Our borrowers continue to face the challenges of a difficult economic environment resulting in elevated loan loss provisions.” Mr. Hughes continued, “On a positive note, during the quarter, we reported an improving margin and growth in core deposits.”
Net Interest Income
Net interest income was stable at $7.5 million for the three months ended March 31, 2011 and 2010, as average interest earning assets decreased $72.8 million. Factors affecting net interest income include:
| · | The yield on earning assets decreased from 5.47% in 2010 to 5.34% in 2011. |
| · | The cost of interest-bearing liabilities decreased 50 basis points from 2.20% for 2010 to 1.70% for 2011. |
| · | Net interest margin expanded 35 basis points to 3.92%. |
Noninterest Income
For the three months ended March 31, 2011, noninterest income amounted to $1.3 million, an increase of $345 thousand from the prior year’s period. Noninterest income was affected by the following factors:
| · | Branch fee income of $344 thousand, which consists of deposit service charge and overdraft fees, decreased 5 percent compared to the prior year’s quarter, due to lower overdraft activity. |
| · | Service and loan fee income increased $34 thousand compared to the prior year’s period due to higher levels of late charge fees. |
| · | Gains on sales on SBA loans amounted to $111 thousand on $1.1 million in sales. There were no gains recognized during the first quarter of 2010. |
| · | Gains on the sales of residential mortgage loans amounted to $169 thousand, compared to $145 thousand from the prior year period due to an increased volume of mortgage loans originated. |
| · | Gains on the sales of investment securities amounted to $125 thousand, compared to $4 thousand in the prior year period. |
Noninterest Expense
For the three months ended March 31, 2011, noninterest expenses were $6.2 million, an increase of $217 thousand or 3.7% from the same period a year ago. The following factors affected our noninterest expense:
| · | Compensation and benefits expense amounted to $3.1 million, an increase of $58 thousand or 1.9%, due to 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 increased $43 thousand or 6.4% due primarily to seasonal snow removal expenses. |
| · | Loan collection costs increased $40 thousand due to increased legal and appraisal costs. |
| · | OREO expense increased $192 thousand, due to increased real estate carrying costs and valuation adjustments on OREO properties. |
| · | The provision for income taxes includes the reversal of $150 thousand of a valuation reserve for deferred taxes related to the net operating loss carry-forward deferred tax asset. |
Financial Condition
At March 31, 2011, total assets were $820.8 million, a 0.3% increase from the prior year-end.
| · | Total loans decreased $1.4 million or 0.2%, from $615.9 million at December 31, 2010 to $614.5 million at March 31, 2011. The decrease occurred across the following loan categories with SBA 7(a), SBA 504 and consumer loans decreasing 1.8%, 6.5%, and 3.1%, respectively. Commercial loans increased 0.7% while residential mortgage loans increased 3.2%. Loan demand has been weak due to the economy. |
| · | Total securities decreased $7.4 million since December 31, 2010, due to sales and prepayments. |
| · | Core deposits, excluding time deposits, increased $12.7 million during the three month period to $486.9 million. The increase was due primarily to a $16.4 million increase in savings deposits, partially offset by a $3.7 million decrease in interest-bearing demand deposits. Time deposits decreased $10.7 million for the three months ended March 31, 2011 due to planned run off of a maturing high rate promotion that was done late in 2008 to bolster liquidity. |
| · | Shareholders’ equity was $70.4 million at March 31, 2011, an increase of $296 thousand from year-end 2010. |
| · | Book value per common share was $7.09 as of March 31, 2011. |
| · | At March 31, 2011 the leverage, Tier I and Total Risk Based Capital ratios were 10.21%, 13.12% and 14.39%, respectively, all in excess of the ratios required to be deemed “well-capitalized”. |
Credit Quality
| · | Nonperforming assets totaled $26.5 million at March 31, 2011, or 4.30% of total loans and OREO, compared to $30.0 million or 4.58% of total loans and OREO a year ago. |
| · | The SBA, commercial, residential mortgages, SBA 504 and consumer nonaccrual loans were $9.1 million, $5.8 million, $4.4 million, $4.3 million and $406 thousand, respectively. The majority of nonaccrual loans are secured by real estate. |
| · | OREO assets totaled $2.6 million at March 31, 2011, a decrease of $716 thousand, compared to $3.3 million a year ago. |
| · | The allowance for loan losses totaled $15.3 million at March 31, 2011, or 2.49% of total loans. The provision for loan losses for the quarter ended March 31, 2011 was $2.5 million compared to $1.5 million for the prior year’s quarter. |
| · | Net charge-offs were $1.6 million for the three months ended March 31, 2011, compared to $1.3 million for the same period a year ago. |
Mr. Hughes added, “Unity continues to work diligently to address problem loans. For the near term, the size of our loan loss provision will remain the most important single factor in our earnings. However, we are hopeful we will see further improvement in credit quality in 2011.”
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $821 million in assets and $657 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.
(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.
(2) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders equity (excluding preferred stock).
(1) Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.
