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Unity Bancorp Reports 18% Increase in Quarterly Net Income

CLINTON, N.J., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Unity Bancorp, Inc. (NASDAQ:UNTY), parent company of Unity Bank, reported increased quarterly and year-to-date earnings. Major contributing factors included strong loan growth, expanded net interest margin, increased levels of noninterest income and expense control.

Net income was $3.0 million, or $0.32 per diluted share, for the three months ended September 30, 2016, an 18.4% increase compared to net income of $2.6 million, or $0.27 per diluted share, for the same period a year ago. Return on average assets and average common equity for the quarter were 1.05% and 13.90%, respectively, compared to 1.00% and 13.54% for the same period a year ago.

Year-to-date net income was $10.0 million, or $1.06 per diluted share, for the nine months ended September 30, 2016, a 45.3% increase compared to net income of $6.9 million, or $0.74 per diluted share, for the same period a year ago. Return on average assets and average common equity for the period were 1.20% and 16.09%, respectively, compared to 0.95% and 12.69% for the same period a year ago.

During the first quarter, the Company repurchased $5.0 million of its outstanding subordinated debentures at a price of $0.5475 per dollar, thus reducing its outstanding subordinated debt to $10.3 million. The repurchase resulted in a nonrecurring pre-tax gain of approximately $2.26 million. Net income, excluding the nonrecurring gain on the repurchased subordinated debentures, was $8.6 million, or $0.91 per diluted share, for the nine months ended September 30, 2016, compared to net income of $6.9 million, or $0.74 per diluted share, for the same period a year ago. Return on average assets and average common equity for the nine months ended September 30, 2016, excluding the gain, would have been 1.03% and 13.73%, respectively, compared to 0.95% and 12.69% for the same period a year ago.

Management believes excluding the nonrecurring gain from year-to-date net income and reporting it in a format which is not in compliance with generally accepted accounting principles (“non-GAAP”) is beneficial to the reader and provides better comparability of the Company’s performance over both periods.

Third quarter highlights included:

  • Opening our 16th branch location in Emerson, New Jersey. Our 17th branch in Somerville, New Jersey, is expected to open in November 2016.
  • Ringing NASDAQ’s closing bell to commemorate our 25th Anniversary.
  • Increasing the quarterly cash dividend 25% to $.05 per common share from $.04 as well as paying a 10% stock dividend to shareholders.
  • Total loans increased 11.0% compared to September 30, 2015.
  • Total deposits increased 7.7% and noninterest-bearing demand deposits grew 19.3% since September 30, 2015.
  • Net interest income increased 14.5% compared to the prior year’s quarter due to strong loan growth.
  • Net interest margin increased to 3.63% this quarter compared to 3.60% in the prior year’s quarter.
  • Credit quality has continued to improve.

“We had record earnings and strong financial results for the third quarter,” stated James A. Hughes, President and CEO. “We are now focusing on growing our market presence. We opened our Emerson branch on October 17th and we anticipate opening our Somerville office in November. In addition, we have hired two seasoned lenders in the Lehigh Valley market, so we will now be looking for opportunities in Pennsylvania. We are extremely excited about our future and look forward to the challenges ahead.”

Net Interest Income
Net interest income increased $1.3 million to $9.9 million for the quarter ended September 30, 2016 compared to the prior year’s period, while year-to-date, net interest income increased $3.2 million to $28.2 million. The net interest margin was 3.63% for the quarter-ended September 30, 2016, an increase of 3 basis points from the quarter-ended September 30, 2015 and 3.58% for the nine months ended September 30, 2016 compared to 3.65% in the prior year’s period. The increase in the net interest margin for the quarter was due to growth in our loan portfolio and the restructuring of our FHLB borrowings.

Each period saw continued strong commercial, residential mortgage and consumer loan growth over the prior year period. Quarterly average commercial loans increased $57.5 million, average residential mortgage loans have increased $21.6 million and consumer loans increased $13.0 million compared to the third quarter in 2015.

The cost of interest-bearing liabilities has remained relatively stable at 1.04% for the quarter and 1.05% for the year-to-date periods. The quarterly cost of deposits increased 13 basis points to 0.84% due to the intentional growth of five year time deposits and a promotional savings product. The quarterly cost of borrowed funds and subordinated debentures decreased 121 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) over the past year.

Provision for Loan Losses

The provision for loan losses was $420 thousand for the three months ended September 30, 2016 and $1.0 million for the nine months ended September 30, 2016. In the prior year’s periods, there was a $200 thousand loan loss provision during the quarter ended September 30, 2015 and a $400 thousand loan loss provision for the nine months ended September 30, 2015. The increase in the quarterly and year-to-date provision for 2016 versus 2015 was due to higher net charge-offs in each period. Net charge-offs were $493 thousand for the quarter and $1.1 million year-to-date at September 30, 2016, compared to net charge-offs of $183 thousand and $530 thousand for the quarter and year-to-date periods ended September 30, 2015.

Noninterest Income
Noninterest income decreased $102 thousand to $2.2 million for the three months ended September 30, 2016, compared to the same period last year. While gains on the sale of SBA and mortgage loans were consistent with the prior quarter, noninterest income decreased due to lower branch and loan fee income. Year-to-date, noninterest income increased $613 thousand to $6.4 million due to higher gains on the sale of SBA loans and securities, partially offset by lower branch and loan fee income.

Notable items included:

  • Branch fee income declined in the quarterly and year-to-date periods due to lower levels of overdraft fees and service charges from commercial checking accounts.
  • Service and loan fee income declined in the quarterly and year-to-date periods due to the write-down of a mortgage servicing asset as a result of large principal pay-downs on a sold mortgage pool. On a year-to-date basis, service and loan fee income was also impacted by lower loan payoff charges and processing fees.
  • SBA loan sales during the third quarter of 2016 totaled $7.8 million with a net gain of $639 thousand. During the prior year’s quarter, SBA loan sales totaled $3.4 million with a net gain of $308 thousand. Year-to-date, SBA loan sales totaled $18.4 million in 2016 and $6.9 million in 2015 with net gains on sale of $1.6 million and $671 thousand, respectively.
  • During the quarter, $25.6 million in residential mortgage loans were sold at a gain of $609 thousand, compared to $35.7 million in loans sold at a gain of $926 thousand during the prior year’s quarter. Year-to-date, $76.7 million in residential mortgage loans were sold at a gain of $1.9 million compared to $77.9 million in loans sold at a gain of $2.0 million during the prior year’s period. Our mortgage pipeline remains strong.

Noninterest Expense

Noninterest expenses increased $141 thousand or 2.1% to $7.0 million for the quarter and $324 thousand or 1.6% for the nine months ended September 30, 2016. The increases in each period, evidence investment in Unity’s retail network, corporate infrastructure and its staff.

In 2016, our compensation and benefits expense has risen as we expand our branch network, lending and support staff. This additional headcount has resulted in higher salary and benefit expense. This year, we also committed to our future by purchasing the Clinton, New Jersey corporate headquarters building, which resulted in lower occupancy expenses. However, investment in our retail network through the addition of branches in Emerson and Somerville, New Jersey will increase future occupancy expenses. Furniture and equipment expense has increased due to investment in our technology infrastructure through network and software upgrades that will improve our efficiency and keep our data secure. Advertising expenses have risen in support of our retail and lending sales as well as the branch expansions. Other expenses that increased were officer and employee training and director compensation fees. OREO costs remain elevated as legal and property tax expenses are incurred on these properties.

Financial Condition
At September 30, 2016, total assets were $1.2 billion, an increase of $68.0 million from year-end 2015:

  • Total loans increased $60.9 million or 6.8%, from year-end 2015 to $949.8 million at September 30, 2016. Commercial, residential mortgage and consumer loan portfolios increased $30.5 million, $17.8 million and $11.0 million, respectively.
  • Other assets increased due to the purchase of the Company’s Clinton, New Jersey headquarters, as well as two new branch sites in Emerson, New Jersey and the Somerville, New Jersey, both of which were purchased facilities.
  • Total deposits increased $38.8 million or 4.3%, to $933.3 million at September 30, 2016. Savings deposits grew $43.3 million and noninterest-bearing demand deposits increased $23.9 million, while time deposits declined $25.6 million and noninterest-bearing demand deposits declined $2.8 million, respectively. The declines were due to reduced levels of municipal deposits from year-end and a roll-off of institutional certificates of deposit.
  • Borrowed funds increased $23.0 million to $115.0 million at September 30, 2016, due to the addition of $30.0 million Federal Home Loan Bank (FHLB) term borrowings partially offset by reduced overnight borrowings. Also, during the nine month period, $10.0 million in FHLB borrowings at an average cost of 4.27% were extended to 2020 at an average rate of 2.10%.
  • Subordinated debentures decreased from year-end due to the repurchase of $5.0 million at a discount of $0.5475 per dollar.
  • Shareholders’ equity was $88.2 million at September 30, 2016, an increase of $9.7 million from year-end 2015 due to year-to-date net income less the dividends paid to shareholders. During the quarter, a $.05 cash dividend and a 10 percent stock dividend were paid.
  • Book value per common share was $9.45 as of September 30, 2016.
  • At September 30, 2016, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 8.49%, 9.63%, 10.74% and 11.48% respectively, all in excess of the ratios required to be deemed “well-capitalized”.

Credit Quality

  • Nonperforming assets totaled $8.2 million at September 30, 2016, or 0.86% of total loans and OREO, compared to $8.9 million or 0.99% of total loans and OREO at year-end 2015.
  • Nonperforming loans decreased 10.1% to $6.5 million at September 30, 2016 from year-end.
  • OREO increased $112 thousand to $1.7 million at September 30, 2016 from year-end.
  • The allowance for loan losses totaled $12.7 million at September 30, 2016, or 1.34% of total loans compared to $12.4 million and 1.45% at September 30, 2015.
  • Net charge-offs were $493 thousand for the three months ended September 30, 2016, compared to $183 thousand for the same period a year ago. Net charge-offs were $1.1 million for nine months ended September 30, 2016, compared to $530 thousand for the same period a year ago.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.2 billion in assets and $933 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 16 retail service centers located in Bergen, 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 those items included in our Annual Report on Form 10-K under the heading “Item IA-Risk Factors” 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, and results of regulatory exams, among other factors.

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.


UNITY BANCORP, INC.
SUMMARY FINANCIAL HIGHLIGHTS
NON-GAAP
September 30, 2016
Sept. 30, 2016 vs.
Jun. 30, 2016 Sept. 30, 2015
(In thousands, except percentages and per share amounts) Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 % %
BALANCE SHEET DATA:
Total assets $ 1,152,896 $ 1,128,370 $ 1,052,711 2.2 % 9.5 %
Total deposits 933,320 912,198 866,247 2.3 7.7
Total loans 949,832 915,043 855,560 3.8 11.0
Total securities 72,360 73,994 71,492 (2.2) 1.2
Total shareholders' equity 88,152 84,967 76,065 3.7 15.9
Allowance for loan losses (12,685) (12,758) (12,421) 0.6 2.1
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes and gain on subordinated debenture $ 4,633 $ 4,448 $ 3,845 4.2 20.5
Provision for income taxes 1,613 1,624 1,294 (0.7) 24.7
Net income $ 3,020 $ 2,824 $ 2,551 6.9 18.4
Net income per:
Common share - basic $ 0.32 $ 0.30 $ 0.28 6.7 14.3
Common share - diluted $ 0.32 $ 0.30 $ 0.27 6.7 18.5
Performance ratios:
Return on average assets 1.05 % 1.03 % 1.00 % 1.9 5.0
Return on average equity 13.90 % 13.59 % 13.54 % 2.3 2.7
Efficiency ratio 58.11 % 58.53 % 62.88 % (0.7) (7.6)
Net interest margin 3.63 % 3.61 % 3.60 % 0.6 0.8
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes and gain on subordinated debenture $ 13,276 $ 10,414 27.5
Provision for income taxes 4,700 3,496 34.4
Net income before gain on subordinated debenture $ 8,576 $ 6,918 24.0
Gain on subordinated debenture, net of tax 1,473 - NM
Net income $ 10,049 $ 6,918 45.3
Net income before gain on subordinated debenture per:
Common share - basic $ 0.92 $ 0.75 22.7
Common share - diluted $ 0.91 $ 0.74 23.0
Net income per:
Common share - basic $ 1.08 $ 0.75 44.0
Common share - diluted $ 1.06 $ 0.74 43.2
Net income before gain on subordinated debenture ratios:
Return on average assets 1.03 % 0.95 % 8.4
Return on average equity 13.73 % 12.69 % 8.2
Efficiency ratio 59.03 % 64.97 % (9.1)
Performance ratios:
Return on average assets 1.20 % 0.95 % 26.3
Return on average equity 16.09 % 12.69 % 26.8
Efficiency ratio 55.39 % 64.97 % (14.7)
Net interest margin 3.58 % 3.65 % (1.9)
SHARE INFORMATION:
Market price per share $ 12.82 $ 11.56 $ 8.89 10.9 44.2
Dividends paid $ 0.05 $ 0.04 $ 0.04 0.3 0.3
Book value per common share $ 9.45 $ 9.10 $ 8.20 3.8 15.2
Average diluted shares outstanding (QTD) 9,496 9,468 9,389 0.3 1.1
CAPITAL RATIOS:
Total equity to total assets 7.65 % 7.53 % 7.23 % 1.6 5.8
Leverage ratio 8.49 % 8.52 % 8.92 % (0.4) (4.8)
Common equity tier 1 risk-based capital ratio 9.63 % 9.70 % 9.37 % n/a n/a
Tier 1 risk-based capital ratio 10.74 % 10.85 % 11.25 % (1.0) (4.5)
Total risk-based capital ratio 11.48 % 12.11 % 12.50 % (5.2) (8.2)
CREDIT QUALITY AND RATIOS:
Nonperforming assets $ 8,230 $ 8,243 $ 12,501 (0.2) (34.2)
QTD net chargeoffs (annualized) to QTD average loans 0.21 % 0.12 % 0.09 % 75.0 133.3
Allowance for loan losses to total loans 1.34 % 1.39 % 1.45 % (3.6) (7.6)
Nonperforming assets to total loans
and OREO
0.86 % 0.90 % 1.46 % (4.4) (41.1)
Nonperforming assets to total assets 0.71 % 0.73 % 1.19 % (2.7)% (40.3)%
All share information has been adjusted for the 10% stock dividend paid September 30, 2016


UNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2016
Sept. 30, 2016 vs.
December 31, 2015 Sept. 30, 2015
(In thousands, except percentages) Sept. 30, 2016 December 31, 2015 Sept. 30, 2015 % %
ASSETS
Cash and due from banks $ 23,811 $ 22,681 $ 21,863 5.0 % 8.9 %
Federal funds sold and interest-bearing deposits 60,859 65,476 66,994 (7.1) (9.2)
Cash and cash equivalents 84,670 88,157 88,857 (4.0) (4.7)
Securities:
Securities available for sale 44,186 52,865 53,470 (16.4) (17.4)
Securities held to maturity 28,174 18,471 18,022 52.5 56.3
Total securities 72,360 71,336 71,492 1.4 1.2
Loans:
SBA loans held for sale 15,611 13,114 13,937 19.0 12.0
SBA loans held for investment 41,795 39,393 39,728 6.1 5.2
SBA 504 loans 26,067 29,353 29,221 (11.2) (10.8)
Commercial loans 496,008 465,518 442,970 6.5 12.0
Residential mortgage loans 282,317 264,523 255,447 6.7 10.5
Consumer loans 88,034 77,057 74,257 14.2 18.6
Total loans 949,832 888,958 855,560 6.8 11.0
Allowance for loan losses (12,685) (12,759) (12,421) 0.6 2.1
Net loans 937,147 876,199 843,139 7.0 11.1
Premises and equipment, net 22,302 15,171 15,297 47.0 45.8
Bank owned life insurance ("BOLI") 13,664 13,381 13,285 2.1 2.9
Deferred tax assets 6,008 5,968 6,107 0.7 (1.6)
Federal Home Loan Bank ("FHLB") stock 5,767 4,600 4,510 25.4 27.9
Accrued interest receivable 4,165 3,884 3,704 7.2 12.4
Other real estate owned ("OREO") 1,703 1,591 1,759 7.0 (3.2)
Goodwill and other intangibles 1,516 1,516 1,516 - -
Other assets 3,594 3,063 3,045 17.3 18.0
Total assets $ 1,152,896 $ 1,084,866 $ 1,052,711 6.3 % 9.5 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 209,122 $ 185,267 $ 175,298 12.9 % 19.3 %
Interest-bearing demand 127,845 130,605 123,984 (2.1) 3.1
Savings 344,772 301,447 299,017 14.4 15.3
Time, under $100,000 134,448 134,468 124,348 - 8.1
Time, $100,000 and over, under $250,000 86,366 104,106 115,912 (17.0) (25.5)
Time, $250,000 and over 30,767 38,600 27,688 (20.3) 11.1
Total deposits 933,320 894,493 866,247 4.3 7.7
Borrowed funds 115,000 92,000 90,000 25.0 27.8
Subordinated debentures 10,310 15,465 15,465 (33.3) (33.3)
Accrued interest payable 446 461 460 (3.3) (3.0)
Accrued expenses and other liabilities 5,668 3,977 4,474 42.5 26.7
Total liabilities 1,064,744 1,006,396 976,646 5.8 9.0
Shareholders' equity:
Common stock 70,450 59,371 59,205 18.7 19.0
Retained earnings 18,117 19,566 17,270 (7.4) 4.9
Accumulated other comprehensive loss (415) (467) (410) NM NM
Total shareholders' equity 88,152 78,470 76,065 12.3 15.9
Total liabilities and shareholders' equity $ 1,152,896 $ 1,084,866 $ 1,052,711 6.3 % 9.5 %
Issued and outstanding common shares 9,331 9,279 9,272
NM=Not meaningful



UNITY BANCORP, INC.
QTD CONSOLIDATED STATEMENTS OF INCOME
NON-GAAP
September 30, 2016
Sept. 30, 2016 vs.
For the three months ended Jun. 30, 2016 Sept. 30, 2015
(In thousands, except percentages and per share amounts) Sept. 30, 2016 Jun. 30, 2016 Sept. 30, 2015 $ % $ %
INTEREST INCOME
Federal funds sold and interest-bearing deposits $ 50 $41 $11 $ 9 22.0 %$ 39 354.5 %
FHLB stock 67 55 36 12 21.8 31 86.1
Securities:
Taxable 456 427 349 29 6.8 107 30.7
Tax-exempt 43 55 71 (12) (21.8) (28) (39.4)
Total securities 499 482 420 17 3.5 79 18.8
Loans:
SBA loans 822 788 696 34 4.3 126 18.1
SBA 504 loans 321 344 353 (23) (6.7) (32) (9.1)
Commercial loans 6,138 5,860 5,378 278 4.7 760 14.1
Residential mortgage loans 3,138 2,937 2,811 201 6.8 327 11.6
Consumer loans 1,046 980 849 66 6.7 197 23.2
Total loans 11,465 10,909 10,087 556 5.1 1,378 13.7
Total interest income 12,081 11,487 10,554 594 5.2 1,527 14.5
INTEREST EXPENSE
Interest-bearing demand deposits 129 124 108 5 4.0 21 19.4
Savings deposits 458 381 255 77 20.2 203 79.6
Time deposits 920 954 839 (34) (3.6) 81 9.7
Borrowed funds and subordinated debentures 701 686 730 15 2.2 (29) (4.0)
Total interest expense 2,208 2,145 1,932 63 2.9 276 14.3
Net interest income 9,873 9,342 8,622 531 5.7 1,251 14.5
Provision for loan losses 420 400 200 20 5.0 220 110.0
Net interest income after provision for loan losses 9,453 8,942 8,422 511 5.7 1,031 12.2
NONINTEREST INCOME
Branch fee income 321 286 399 35 12.2 (78) (19.5)
Service and loan fee income 274 267 306 7 2.6 (32) (10.5)
Gain on sale of SBA loans held for sale, net 639 637 308 2 0.3 331 107.5
Gain on sale of mortgage loans, net 609 593 926 16 2.7 (317) (34.2)
BOLI income 97 93 95 4 4.3 2 2.1
Net security gains 11 81 - (70) (86.4) 11 100.0
Other income 222 277 241 (55) (19.9) (19) (7.9)
Total noninterest income 2,173 2,234 2,275 (61) (2.7) (102) (4.5)
NONINTEREST EXPENSE
Compensation and benefits 3,872 3,709 3,814 163 4.4 58 1.5
Occupancy 611 513 598 98 19.1 13 2.2
Processing and communications 647 600 631 47 7.8 16 2.5
Furniture and equipment 432 395 393 37 9.4 39 9.9
Professional services 216 239 251 (23) (9.6) (35) (13.9)
Loan costs 86 59 265 27 45.8 (179) (67.5)
OREO expenses 74 82 15 (8) (9.8) 59 393.3
Deposit insurance 168 165 163 3 1.8 5 3.1
Advertising 304 303 203 1 0.3 101 49.8
Other expenses 583 663 519 (80) (12.1) 64 12.3
Total noninterest expense 6,993 6,728 6,852 265 3.9 141 2.1
Income before provision for income taxes and gain on subordinated debenture 4,633 4,448 3,845 185 4.2 788 20.5
Provision for income taxes 1,613 1,624 1,294 (11) (0.7) 319 24.7
Net income $ 3,020 $2,824 $2,551 $ 196 6.9 %$ 469 18.4 %
Effective tax rate 34.8 % 36.5% 33.7%
Net income per:
Common share - basic $ 0.32 $0.30 $0.28
Common share - diluted $ 0.32 $0.30 $0.27
Weighted average common shares outstanding - Basic 9,339 9,318 9,270
Weighted average common shares outstanding - Diluted 9,496 9,468 9,389


UNITY BANCORP, INC.
YTD CONSOLIDATED STATEMENTS OF INCOME
September 30, 2016
For the nine months ended September 30, Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts) 2016 2015 $ %
INTEREST INCOME
Federal funds sold and interest-bearing deposits $ 135 $26 $ 109 419.2 %
FHLB stock 173 117 56 47.9
Securities:
Taxable 1,246 1,100 146 13.3
Tax-exempt 160 213 (53) (24.9)
Total securities 1,406 1,313 93 7.1
Loans:
SBA loans 2,331 1,980 351 17.7
SBA 504 loans 1,050 1,068 (18) (1.7)
Commercial loans 17,676 15,720 1,956 12.4
Residential mortgage loans 9,017 8,108 909 11.2
Consumer loans 2,956 2,322 634 27.3
Total loans 33,030 29,198 3,832 13.1
Total interest income 34,744 30,654 4,090 13.3
INTEREST EXPENSE
Interest-bearing demand deposits 390 317 73 23.0
Savings deposits 1,206 789 417 52.9
Time deposits 2,824 2,250 574 25.5
Borrowed funds and subordinated debentures 2,122 2,289 (167) (7.3)
Total interest expense 6,542 5,645 897 15.9
Net interest income 28,202 25,009 3,193 12.8
Provision for loan losses 1,020 400 620 155.0
Net interest income after provision for loan losses 27,182 24,609 2,573 10.5
NONINTEREST INCOME
Branch fee income 940 1,118 (178) (15.9)
Service and loan fee income 796 1,068 (272) (25.5)
Gain on sale of SBA loans held for sale, net 1,584 671 913 136.1
Gain on sale of mortgage loans, net 1,917 1,957 (40) (2.0)
BOLI income 283 284 (1) (0.4)
Net security gains 186 28 158 564.3
Other income 716 683 33 4.8
Total noninterest income 6,422 5,809 613 10.6
NONINTEREST EXPENSE
Compensation and benefits 11,130 10,767 363 3.4
Occupancy 1,742 1,871 (129) (6.9)
Processing and communications 1,845 1,841 4 0.2
Furniture and equipment 1,247 1,189 58 4.9
Professional services 710 729 (19) (2.6)
Loan costs 343 647 (304) (47.0)
OREO expenses 179 117 62 53.0
Deposit insurance 494 496 (2) (0.4)
Advertising 848 728 120 16.5
Other expenses 1,790 1,619 171 10.6
Total noninterest expense 20,328 20,004 324 1.6
Income before provision for income taxes and gain on subordinated debenture 13,276 10,414 2,862 27.5
Provision for income taxes 4,700 3,496 1,204 34.4
Net income before gain on subordinated debenture $ 8,576 $6,918 $ 1,658 24.0 %
Gain on subordinated debenture, net of tax 1,473 - 1,473 100.0
Net income $ 10,049 $6,918 $ 3,131 45.3 %
Effective tax rate 35.3 % 33.6%
Net income before gain on subordinated debenture per:
Common share - basic $0.92 $ 0.75
Common share - diluted $0.91 $ 0.74
Net income per:
Common share - basic $ 1.08 $ 0.75
Common share - diluted $1.06 $ 0.74
Weighted average common shares outstanding - Basic 9,320 9,265
Weighted average common shares outstanding - Diluted 9,468 9,377


UNITY BANCORP, INC.
QUARTER TO DATE NET INTEREST MARGIN
September 30, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
September 30, 2016 June 30, 2016
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits $ 70,628 $ 50 0.28 %$ 62,652 $ 41 0.26%
FHLB stock 5,728 67 4.65 4,904 55 4.51
Securities:
Taxable 63,871 456 2.84 62,561 427 2.75
Tax-exempt 6,478 66 4.05 8,177 83 4.08
Total securities (A) 70,349 522 2.95 70,738 510 2.90
Loans:
SBA loans 57,122 822 5.72 56,719 788 5.59
SBA 504 loans 26,562 321 4.81 27,273 344 5.07
Commercial loans 490,776 6,138 4.98 474,573 5,860 4.97
Residential mortgage loans 276,413 3,138 4.52 264,599 2,937 4.46
Consumer loans 85,632 1,046 4.86 82,295 980 4.79
Total loans (B) 936,505 11,465 4.87 905,459 10,909 4.85
Total interest-earning assets $ 1,083,210 $ 12,104 4.45 %$ 1,043,753 $ 11,515 4.44%
Noninterest-earning assets:
Cash and due from banks 19,831 25,993
Allowance for loan losses (12,769) (12,850)
Other assets 52,000 49,250
Total noninterest-earning assets 59,062 62,393
Total assets $ 1,142,272 $ 1,106,146
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $ 129,310 $ 129 0.40 %$ 129,263 $ 124 0.39%
Total savings deposits 331,588 458 0.55 310,329 381 0.49
Total time deposits 256,884 920 1.42 275,700 954 1.39
Total interest-bearing deposits 717,782 1,507 0.84 715,292 1,459 0.82
Borrowed funds and subordinated debentures 123,136 701 2.26 106,277 686 2.60
Total interest-bearing liabilities $ 840,918 $ 2,208 1.04 %$ 821,569 $ 2,145 1.05%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 197,937 194,649
Other liabilities 16,990 6,370
Total noninterest-bearing liabilities 214,927 201,019
Total shareholders' equity 86,427 83,558
Total liabilities and shareholders' equity $ 1,142,272 $ 1,106,146
Net interest spread $ 9,896 3.41 % $ 9,370 3.39%
Tax-equivalent basis adjustment (23) (28)
Net interest income $ 9,873 $ 9,342
Net interest margin 3.63 % 3.61%
(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state rates.
(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.


UNITY BANCORP, INC.
QUARTER TO DATE NET INTEREST MARGIN
September 30, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
September 30, 2016 September 30, 2015
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits $ 70,628 $ 50 0.28 %$ 34,465 $ 11 0.13%
FHLB stock 5,728 67 4.65 3,517 36 4.06
Securities:
Taxable 63,871 456 2.84 61,542 349 2.25
Tax-exempt 6,478 66 4.05 11,612 105 3.59
Total securities (A) 70,349 522 2.95 73,154 454 2.46
Loans:
SBA loans 57,122 822 5.72 53,325 696 5.18
SBA 504 loans 26,562 321 4.81 29,268 353 4.79
Commercial loans 490,776 6,138 4.98 433,285 5,378 4.92
Residential mortgage loans 276,413 3,138 4.52 254,765 2,811 4.38
Consumer loans 85,632 1,046 4.86 72,641 849 4.64
Total loans (B) 936,505 11,465 4.87 843,284 10,087 4.75
Total interest-earning assets $ 1,083,210 $ 12,104 4.45 %$ 954,420 $ 10,588 4.40%
Noninterest-earning assets:
Cash and due from banks 19,831 24,990
Allowance for loan losses (12,769) (12,619)
Other assets 52,000 44,098
Total noninterest-earning assets 59,062 56,469
Total assets $ 1,142,272 $ 1,010,889
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $ 129,310 $ 129 0.40 %$ 125,405 $ 108 0.34%
Total savings deposits 331,588 458 0.55 290,413 255 0.35
Total time deposits 256,884 920 1.42 256,216 839 1.30
Total interest-bearing deposits 717,782 1,507 0.84 672,034 1,202 0.71
Borrowed funds and subordinated debentures 123,136 701 2.26 83,383 730 3.47
Total interest-bearing liabilities $ 840,918 $ 2,208 1.04 %$ 755,417 $ 1,932 1.01%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 197,937 176,085
Other liabilities 16,990 4,663
Total noninterest-bearing liabilities 214,927 180,748
Total shareholders' equity 86,427 74,724
Total liabilities and shareholders' equity $ 1,142,272 $ 1,010,889
Net interest spread $ 9,896 3.41 % $ 8,656 3.39%
Tax-equivalent basis adjustment (23) (34)
Net interest income $ 9,873 $ 8,622
Net interest margin 3.63 % 3.60%
(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state rates.
(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.


UNITY BANCORP, INC.
YEAR TO DATE NET INTEREST MARGIN
September 30, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the nine months ended
September 30, 2016 September 30, 2015
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits $ 70,654 $ 135 0.26 %$ 30,657 $ 26 0.11%
FHLB stock 5,063 173 4.56 3,694 117 4.23
Securities:
Taxable 61,869 1,246 2.69 64,121 1,100 2.29
Tax-exempt 8,062 241 3.99 11,798 315 3.57
Total securities (A) 69,931 1,487 2.84 75,919 1,415 2.49
Loans:
SBA loans 55,932 2,331 5.57 49,678 1,980 5.33
SBA 504 loans 27,685 1,050 5.07 30,720 1,068 4.65
Commercial loans 476,477 17,676 4.96 420,682 15,720 5.00
Residential mortgage loans 268,436 9,017 4.49 241,675 8,108 4.49
Consumer loans 82,098 2,956 4.81 67,488 2,322 4.60
Total loans (B) 910,628 33,030 4.85 810,243 29,198 4.82
Total interest-earning assets $ 1,056,276 $ 34,825 4.40 %$ 920,513 $ 30,756 4.47%
Noninterest-earning assets:
Cash and due from banks 24,261 26,537
Allowance for loan losses (12,848) (12,583)
Other assets 48,922 43,637
Total noninterest-earning assets 60,335 57,591
Total assets $ 1,116,611 $ 978,104
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $ 129,968 $ 390 0.40 %$ 125,216 $ 317 0.34%
Total savings deposits 317,441 1,206 0.51 289,445 789 0.36
Total time deposits 271,511 2,824 1.39 229,512 2,250 1.31
Total interest-bearing deposits 718,920 4,420 0.82 644,173 3,356 0.69
Borrowed funds and subordinated debentures 111,298 2,122 2.55 87,714 2,289 3.49
Total interest-bearing liabilities $ 830,218 $ 6,542 1.05 %$ 731,887 $ 5,645 1.03%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 193,288 168,852
Other liabilities 9,656 4,463
Total noninterest-bearing liabilities 202,944 173,315
Total shareholders' equity 83,449 72,902
Total liabilities and shareholders' equity $ 1,116,611 $ 978,104
Net interest spread $ 28,283 3.35 % $ 25,111 3.44%
Tax-equivalent basis adjustment (81) (102)
Net interest income $ 28,202 $ 25,009
Net interest margin 3.58 % 3.65%
(A) Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state rates.
(B) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued.


UNITY BANCORP, INC.
QUARTERLY ALLOWANCE FOR LOAN LOSSES AND LOAN QUALITY SCHEDULES
September 30, 2016
Amounts in thousands, except percentages Sept. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015 Sept. 30, 2015
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period $12,758 $12,634 $12,759 $ 12,421 $12,404
Provision for loan losses charged to expense 420 400 200 100 200
13,178 13,034 12,959 12,521 12,604
Less: Chargeoffs
SBA loans 140 142 86 151 86
Commercial loans 376 152 228 52 10
Residential mortgage loans - - - - 50
Consumer loans - - 28 41 52
Total chargeoffs 516 294 342 244 198
Add: Recoveries
SBA loans 17 4 11 6 10
Commercial loans 6 13 6 476 5
Consumer loans - 1 - - -
Total recoveries 23 18 17 482 15
Net chargeoffs (recoveries) 493 276 325 (238) 183
Balance, end of period $12,685 $12,758 $12,634 $ 12,759 $12,421
LOAN QUALITY INFORMATION:
Nonperforming loans (1) $6,527 $6,541 $6,887 $ 7,260 $10,742
Other real estate owned ("OREO") 1,703 1,702 1,417 1,591 1,759
Nonperforming assets 8,230 8,243 8,304 8,851 12,501
Less: Amount guaranteed by SBA 624 134 243 288 225
Net nonperforming assets $7,606 $8,109 $8,061 $ 8,563 $12,276
Loans 90 days past due & still accruing $ - $485 $ - $ - $272
Performing Troubled Debt Restructurings (TDRs) $665 $772 $844 $ 3,015 $3,268
(1) Nonperforming TDRs included in nonperforming loans 154 161 293 293 2,808
Total TDRs $819 $933 $1,137 $ 3,308 $6,076
Allowance for loan losses to:
Total loans at quarter end 1.34 % 1.39% 1.42% 1.44 % 1.45%
Nonperforming loans (1) 194.35 195.05 183.45 175.74 115.63
Nonperforming assets 154.13 154.77 152.14 144.15 99.36
Net nonperforming assets 166.78 157.33 156.73 149.00 101.18
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans 0.86 % 0.98% 0.56% 1.05 % 0.57%
Commercial loans 0.30 0.12 0.19 (0.37) -
Residential mortgage loans - - - - 0.08
Consumer loans - - 0.14 0.21 0.28
Total loans 0.21 % 0.12% 0.15% (0.11)% 0.09%
Nonperforming loans to total loans 0.69 % 0.71% 0.78% 0.82 % 1.26%
Nonperforming loans and TDRs to total loans 0.76 0.80 0.87 1.16 1.64
Nonperforming assets to total loans and OREO 0.86 0.90 0.93 0.99 1.46
Nonperforming assets to total assets 0.71 0.73 0.74 0.82 1.19


UNITY BANCORP, INC.
QUARTERLY FINANCIAL DATA
NON-GAAP
September 30, 2016
(In thousands, except percentages and per share amounts) Sept. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015 Sept. 30, 2015
SUMMARY OF INCOME:
Total interest income $ 12,081 $ 11,487 $ 11,176 $ 10,995 $ 10,554
Total interest expense 2,208 2,145 2,189 2,015 1,932
Net interest income 9,873 9,342 8,987 8,980 8,622
Provision for loan losses 420 400 200 100 200
Net interest income after provision for loan losses 9,453 8,942 8,787 8,880 8,422
Total noninterest income 2,173 2,234 2,016 1,920 2,275
Total noninterest expense 6,993 6,728 6,607 6,846 6,852
Income before provision for income taxes and gain on subordinated debenture 4,633 4,448 4,196 3,954 3,845
Provision for income taxes 1,613 1,624 1,464 1,315 1,294
Net income before gain on subordinated debenture $ 3,020 $ 2,824 $ 2,732 $ 2,639 $ 2,551
Gain on subordinated debenture, net of tax - - 1,473 - -
Net income $ 3,020 $ 2,824 $ 4,205 $ 2,639 $ 2,551
Net income per common share - Basic $ 0.32 $ 0.30 $ 0.45 $ 0.28 $ 0.28
Net income per common share - Diluted $ 0.32 $ 0.30 $ 0.44 $ 0.28 $ 0.27
COMMON SHARE DATA:
Market price per share $ 12.82 $ 11.56 $ 10.34 $ 11.34 $ 8.89
Dividends paid $ 0.05 $ 0.04 $ 0.04 $ 0.04 $ 0.04
Book value per common share $ 9.45 $ 9.10 $ 8.83 $ 8.46 $ 8.20
Weighted average common shares outstanding - Basic 9,339 9,318 9,304 9,273 9,270
Weighted average common shares outstanding - Diluted 9,496 9,468 9,550 9,402 9,389
Issued and outstanding common shares 9,331 9,336 9,315 9,279 9,272
OPERATING RATIOS (Annualized):
Return on average assets 1.05 % 1.03 % 1.54 % 1.00 % 1.00 %
Return on average equity 13.90 13.59 21.05 13.59 13.54
Efficiency ratio 58.11 58.53 50.16 62.81 62.88
BALANCE SHEET DATA:
Total assets $ 1,152,896 $ 1,128,370 $ 1,120,955 $ 1,084,866 $ 1,052,711
Total deposits 933,320 912,198 926,819 894,493 866,247
Total loans 949,832 915,043 886,990 888,958 855,560
Total securities 72,360 73,994 66,729 71,336 71,492
Total shareholders' equity 88,152 84,967 82,276 78,470 76,065
Allowance for loan losses (12,685) (12,758) (12,634) (12,759) (12,421)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets 4.45 % 4.44 % 4.33 % 4.40 % 4.40 %
Interest-bearing liabilities 1.04 1.05 1.06 1.02 1.01
Net interest spread 3.41 3.39 3.27 3.38 3.39
Net interest margin 3.63 3.61 3.48 3.60 3.60
CREDIT QUALITY:
Nonperforming assets 8,230 8,243 8,304 8,851 12,501
QTD net chargeoffs (annualized) to QTD average loans 0.21 % 0.12 % 0.15 % (0.11)% 0.09 %
Allowance for loan losses to total loans 1.34 1.39 1.42 1.44 1.45
Nonperforming assets to total loans and OREO 0.86 0.90 0.93 0.99 1.46
Nonperforming assets to total assets 0.71 0.73 0.74 0.82 1.19
CAPITAL RATIOS AND OTHER:
Total equity to total assets 7.65 % 7.53 % 7.34 % 7.23 % 7.23 %
Leverage ratio 8.49 8.52 8.31 8.82 8.92
Common equity tier 1 risk-based capital ratio 9.63 9.70 9.77 9.37 9.37
Tier 1 risk-based capital ratio 10.74 10.85 10.97 11.18 11.25
Total risk-based capital ratio 11.48 12.11 12.22 12.43 12.50
Number of banking offices 15 15 15 15 15
Number of ATMs 16 16 16 16 16
Number of employees 180 172 172 162 163


News Media & Financial Analyst Contact: Alan J. Bedner, EVP Chief Financial Officer (908) 713-4308

Source:Unity Bancorp, Inc.