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Unity Bancorp Reports Quarterly Net Income Increased 20% and Annual Earnings Increased 38%

CLINTON, N.J., Jan. 26, 2017 (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, increased levels of noninterest income, expense control and improved credit quality.

Net income was $3.2 million, or $0.32 per diluted share, for the three months ended December 31, 2016, a 19.7% increase compared to net income of $2.6 million, or $0.28 per diluted share, for the same period a year ago. Return on average assets (“ROA”) and average common equity for the quarter were 1.07% and 13.47%, respectively, compared to 1.00% and 13.59% for the same period a year ago. The decrease in return on average equity reflects the increase in equity due to the Company’s December capital raise.

Net income was $13.2 million, or $1.38 per diluted share, for the twelve months ended December 31, 2016, a 38.2% increase compared to net income of $9.6 million, or $1.02 per diluted share, for the same period a year ago. Return on average assets and average common equity for the period were 1.17% and 15.37%, respectively, compared to 0.96% and 12.92% 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 $11.7 million, or $1.23 per diluted share, for the twelve months ended December 31, 2016, compared to net income of $9.6 million, or $1.02 per diluted share, for the same period a year ago. Return on average assets and average common equity for the twelve months ended December 31, 2016, excluding the gain, would have been 1.04% and 13.65%, respectively, compared to 0.96% and 12.92% 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.

Highlights included:

  • Completion of $15.0 million common stock offering on December 8th, with 1,068,400 new shares issued.
  • Opened two new branches – Emerson, New Jersey on October 17th and Somerville, New Jersey on November 28th.
  • Continued to expand our Pennsylvania presence with the addition of three seasoned commercial lenders.
  • Adopted a business mobile capture product for our commercial customers.
  • Total loans increased 2.5% for the quarter and 9.5% for the year.
  • Total deposits increased 1.3% for the quarter and 5.7% compared to year-end 2015.
  • Noninterest-bearing demand deposits increased 3.3% for the quarter and 16.6% for the year.
  • Net interest income increased 12.0% compared to prior year-end due to strong loan growth.
  • Credit quality has continued to improve.

“2016 was a remarkable year,” stated James A. Hughes, President and CEO. “We had record earnings. We surpassed our expectations for core deposit growth, ROA and earnings per share. We also expanded our retail branch network and product lines. These accomplishments are due to our exceptional employees that work together each day to achieve these goals, provide excellent customer service and add value for our shareholders. I look forward to reporting both earnings growth and branch expansion plans in 2017.”

Net Interest Income

Net interest income increased $1.1 million to $10.1 million for the quarter ended December 31, 2016 compared to the prior year’s period, while year-over-year, net interest income increased $4.3 million to $38.3 million. The net interest margin was 3.60% for the quarter-ended December 31, 2016 and 2015, respectively. The net interest margin was 3.58% for the twelve months ended December 31, 2016 compared to 3.63% in the prior year’s period.

The yield on earning assets remained stable at 4.40% for the quarterly periods ended December 31, 2016 and 2015. For the twelve month period ended December 31, 2016, the yield on earning assets was 4.40% compared to 4.45% for the prior year. Each period saw continued strong commercial, residential mortgage and consumer loan growth over the prior year period. Quarterly average commercial loans increased $51.8 million, average residential mortgage loans increased $29.1 million and consumer loans increased $14.8 million compared to the fourth quarter of 2015.

The cost of interest-bearing liabilities also remained relatively stable at 1.03% for the quarter and 1.04% for the full year periods. The quarterly cost of deposits increased 8 basis points to 0.83% 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 90 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 $200 thousand for the three months ended December 31, 2016 and $1.2 million for the twelve months ended December 31, 2016. In the prior year’s periods, there was a $100 thousand loan loss provision during the quarter ended December 31, 2015 and a $500 thousand loan loss provision for the twelve months ended December 31, 2015. The increase in the quarterly and full year provision for 2016 versus 2015 was due to higher net charge-offs in each period. Net charge-offs were $306 thousand for the quarter and $1.4 million for the full year ended December 31, 2016, compared to a net recovery of $238 thousand for the quarter and a net charge-off of $292 thousand for the full year ended December 31, 2015.

Noninterest Income

Noninterest income increased $453 thousand to $2.4 million for the three months ended December 31, 2016, compared to the same period last year. While gains on the sale of SBA loans, BOLI income and other income were consistent with the prior year’s quarter, noninterest income increased due to higher gains on securities, gains on the sale of mortgage loans and service and loan fee income, partially offset by lower branch fee income. For the full year, noninterest income increased $1.1 million to $8.8 million due to higher gains on the sale of SBA loans and securities, partially offset by lower branch fee income.

Notable items included:

  • Branch fee income declined in the quarterly and annual periods due to lower levels of overdraft fees and service charges from commercial checking accounts.
  • SBA loan sales during the fourth quarter of 2016 totaled $6.4 million with a net gain of $515 thousand. During the prior year’s quarter, SBA loan sales totaled $7.2 million with a net gain of $533 thousand. For the full year, SBA loan sales totaled $24.7 million in 2016 and $14.1 million in 2015 with net gains on sale of $2.1 million and $1.2 million, respectively.
  • During the quarter, $31.5 million in residential mortgage loans were sold at a gain of $480 thousand, compared to $16.3 million in loans sold at a gain of $328 thousand during the prior year’s quarter. For the full year, $108.1 million in residential mortgage loans were sold at a gain of $1.6 million compared to $94.3 million in loans sold at a gain of $1.7 million during the prior year’s period. The margin on these sales declined year-over-year due to product mix. Our mortgage pipeline remains strong.

Noninterest Expense

Noninterest expenses increased $457 thousand or 6.7% to $7.3 million for the quarter and $779 thousand or 2.9% for the twelve months ended December 31, 2016. The increases in each period evidence investment in Unity’s retail network, corporate infrastructure and its staff. During the quarter, the Company booked a $300 thousand write-down on an OREO property.

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, commission 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. Loan and OREO expenses increased $88 thousand for the quarter-ended December 31, 2016 compared to the prior year’s quarter on higher property valuation adjustments, tax and legal expense. However, year-over-year, loan and OREO costs declined due to lower property tax and appraisal expense. 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 director compensation fees and officer and employee training and meals and entertainment.

Financial Condition

At December 31, 2016, total assets were $1.2 billion, an increase of $105.0 million from year-end 2015:

  • Total loans increased $84.5 million or 9.5%, from year-end 2015 to $973.4 million at December 31, 2016. Commercial, residential mortgage and consumer loan portfolios increased $43.7 million, $24.6 million and $14.5 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 Somerville, New Jersey, both of which were purchased facilities.
  • Total deposits increased $51.2 million or 5.7%, to $945.7 million at December 31, 2016. Savings deposits grew $62.0 million, noninterest-bearing demand deposits increased $30.7 million and interest-bearing demand deposits increased $15.0 million, while time deposits declined $56.5 million, respectively. The decline was due to the roll-off of institutional and brokered certificates of deposit, as well as reduced levels of municipal deposits from year-end.
  • Borrowed funds increased $29.0 million to $121.0 million at December 31, 2016, due to the addition of $30.0 million of Federal Home Loan Bank (FHLB) term borrowings partially offset by reduced overnight borrowings.
  • Subordinated debentures decreased from year-end due to the repurchase of $5.0 million at a discounted price of $0.5475 per dollar.
  • Shareholders’ equity was $106.3 million at December 31, 2016, an increase of $27.8 million from year-end 2015 due to net income and the net proceeds of the common stock offering, less the dividends paid to shareholders. During the quarter, a total of 1,068,400 common shares were issued at a weighted average price of $14.04, representing gross proceeds of $15.0 million in the common stock offering.
  • Book value per common share was $10.14 as of December 31, 2016.
  • At December 31, 2016, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.73%, 11.49%, 12.58% and 13.84% respectively, all in excess of the ratios required to be deemed “well-capitalized”.

Credit Quality

  • Nonperforming assets totaled $8.3 million at December 31, 2016, or 0.85% of total loans and OREO, compared to $8.9 million or 0.99% of total loans and OREO at year-end 2015.
  • Nonperforming loans remained relatively flat at $7.2 million at December 31, 2016 and $7.3 million at December 31, 2015.
  • OREO decreased $541 thousand to $1.1 million at December 31, 2016 from year-end 2015.
  • The allowance for loan losses totaled $12.6 million at December 31, 2016, or 1.29% of total loans compared to $12.8 million and 1.44% at year-end 2015.
  • Net charge-offs were $306 thousand for the three months ended December 31, 2016, compared to net recoveries of $238 thousand for the same period a year ago. Net charge-offs were $1.4 million for twelve months ended December 31, 2016, compared to $292 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 $946 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 17 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
December 31, 2016
December 31, 2016 vs.
September 30, 2016 December 31, 2015
(In thousands, except percentages and per share amounts) December 31, 2016 September 30, 2016 December 31, 2015 % %
BALANCE SHEET DATA:
Total assets $ 1,189,906 $1,152,896 $1,084,866 3.2 %9.7 %
Total deposits 945,723 933,320 894,493 1.3 5.7
Total loans 973,414 949,832 888,958 2.5 9.5
Total securities 61,547 72,360 71,336 (14.9) (13.7)
Total shareholders' equity 106,291 88,152 78,470 20.6 35.5
Allowance for loan losses (12,579) (12,685) (12,759) 0.8 (1.4)
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes $ 4,925 $4,633 $3,954 6.3 24.6
Provision for income taxes 1,765 1,613 1,315 9.4 34.2
Net income $ 3,160 $3,020 $2,639 4.6 19.7
Net income per:
Common share - basic$ 0.33 $0.32 $0.28 3.1 17.9
Common share - diluted$ 0.32 $0.32 $0.28 - 14.3
Performance ratios:
Return on average assets 1.07 % 1.05 % 1.00 % 1.9 7.0
Return on average equity 13.47 % 13.90 % 13.59 % (3.1) (0.9)
Efficiency ratio 59.90 % 58.11 % 62.81 % 3.1 (4.6)
Net interest margin 3.60 % 3.63 % 3.60 % (0.8) -
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes and gain on subordinated debenture $ 18,202 $14,368 26.7
Provision for income taxes 6,476 4,811 34.6
Net income before gain on subordinated debenture $ 11,726 $9,557 22.7
Gain on subordinated debenture, net of tax 1,483 - NM
Net income $ 13,209 $9,557 38.2
Net income before gain on subordinated debenture per:
Common share - basic$ 1.25 $1.03 21.4
Common share - diluted$ 1.23 $1.02 20.6
Net income per:
Common share - basic$ 1.40 $1.03 35.9
Common share - diluted$ 1.38 $1.02 35.3
Net income before gain on subordinated debenture performance ratios:
Return on average assets 1.04 % 0.96 % 8.3
Return on average equity 13.65 % 12.92 % 5.7
Efficiency ratio 59.26 % 64.41 % (8.0)
Performance ratios:
Return on average assets 1.17 % 0.96 % 21.9
Return on average equity 15.37 % 12.92 % 19.0
Efficiency ratio 56.51 % 64.41 % (12.3)
Net interest margin 3.58 % 3.63 % (1.4)
SHARE INFORMATION:
Market price per share $ 15.70 $12.82 $11.34 22.5 38.4
Dividends paid quarterly $ 0.05 $0.05 $0.04 - 0.3
Book value per common share $ 10.14 $9.45 $8.45 7.3 20.0
Average diluted shares outstanding (QTD) 9,878 9,496 9,402 4.0 5.1
CAPITAL RATIOS:
Total equity to total assets 8.93 % 7.65 % 7.23 % 16.7 23.5
Leverage ratio 9.73 % 8.49 % 8.82 % 14.6 10.3
Common equity tier 1 risk-based capital ratio 11.49 % 9.63 % 9.37 % 19.3 22.6
Tier 1 risk-based capital ratio 12.58 % 10.74 % 11.18 % 17.1 12.5
Total risk-based capital ratio 13.84 % 11.48 % 12.43 % 20.6 11.3
CREDIT QUALITY AND RATIOS:
Nonperforming assets $ 8,287 $8,230 $8,851 0.7 (6.4)
QTD net chargeoffs (annualized) to QTD average loans 0.13 % 0.21 % (0.11)% (38.1) 218.2
Allowance for loan losses to total loans 1.29 % 1.34 % 1.44 % (3.7) (10.4)
Nonperforming assets to total loans
and OREO
0.85 % 0.86 % 0.99 % (1.2) (14.1)
Nonperforming assets to total assets 0.70 % 0.71 % 0.82 % (1.4)%(14.6)%
All share information has been adjusted for the 10% stock dividend paid September 30, 2016


UNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2016
December 31, 2016 vs.
September 30, 2016 December 31, 2015
(In thousands, except percentages) December 31, 2016 September 30, 2016 December 31, 2015 % %
ASSETS
Cash and due from banks$ 22,105 $23,811 $22,681 (7.2)%(2.5)%
Federal funds sold and interest-bearing deposits 83,790 60,859 65,476 37.7 28.0
Cash and cash equivalents 105,895 84,670 88,157 25.1 20.1
Securities:
Securities available for sale 40,568 44,186 52,865 (8.2) (23.3)
Securities held to maturity 20,979 28,174 18,471 (25.5) 13.6
Total securities 61,547 72,360 71,336 (14.9) (13.7)
Loans:
SBA loans held for sale 14,773 15,611 13,114 (5.4) 12.7
SBA loans held for investment 42,492 41,795 39,393 1.7 7.9
SBA 504 loans 26,344 26,067 29,353 1.1 (10.3)
Commercial loans 509,171 496,008 465,518 2.7 9.4
Residential mortgage loans 289,093 282,317 264,523 2.4 9.3
Consumer loans 91,541 88,034 77,057 4.0 18.8
Total loans 973,414 949,832 888,958 2.5 9.5
Allowance for loan losses (12,579) (12,685) (12,759) 0.8 (1.4)
Net loans 960,835 937,147 876,199 2.5 9.7
Premises and equipment, net 23,398 22,302 15,171 4.9 54.2
Bank owned life insurance ("BOLI") 13,758 13,664 13,381 0.7 2.8
Deferred tax assets 5,512 6,008 5,968 (8.3) (7.6)
Federal Home Loan Bank ("FHLB") stock 6,037 5,767 4,600 4.7 31.2
Accrued interest receivable 4,462 4,165 3,884 7.1 14.9
Other real estate owned ("OREO") 1,050 1,703 1,591 (38.3) (34.0)
Goodwill and other intangibles 1,516 1,516 1,516 - -
Other assets 5,896 3,594 3,063 64.1 92.5
Total assets $ 1,189,906 $1,152,896 $1,084,866 3.2 %9.7 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand$ 215,963 $209,122 $185,267 3.3 %16.6 %
Interest-bearing demand 145,654 127,845 130,605 13.9 11.5
Savings 363,462 344,772 301,447 5.4 20.6
Time, under $100,000 123,724 134,448 134,468 (8.0) (8.0)
Time, $100,000 and over, under $250,000 75,567 86,366 104,106 (12.5) (27.4)
Time, $250,000 and over 21,353 30,767 38,600 (30.6) (44.7)
Total deposits 945,723 933,320 894,493 1.3 5.7
Borrowed funds 121,000 115,000 92,000 5.2 31.5
Subordinated debentures 10,310 10,310 15,465 - (33.3)
Accrued interest payable 430 446 461 (3.6) (6.7)
Accrued expenses and other liabilities 6,152 5,668 3,977 8.5 54.7
Total liabilities 1,083,615 1,064,744 1,006,396 1.8 7.7
Shareholders' equity:
Common stock 85,383 70,450 59,371 21.2 43.8
Retained earnings 20,748 18,117 19,566 14.5 6.0
Accumulated other comprehensive income (loss) 160 (415) (467) NM NM
Total shareholders' equity 106,291 88,152 78,470 20.6 35.5
Total liabilities and shareholders' equity $1,189,906 $1,152,896 $1,084,866 3.2 %9.7 %
Issued and outstanding common shares 10,477 9,331 9,279
NM=Not meaningful

UNITY BANCORP, INC.
QTD CONSOLIDATED STATEMENTS OF INCOME
NON-GAAP
December 31, 2016
December 31, 2016 vs.
For the three months ended September 30, 2016 December 31, 2015
(In thousands, except percentages and per share amounts) December 31, 2016 September 30, 2016 December 31, 2015 $ % $ %
INTEREST INCOME
Federal funds sold and interest-bearing deposits $ 79 $50 $13 $29 58.0 %$66 507.7 %
FHLB stock 71 67 37 4 6.0 34 91.9
Securities:
Taxable 452 456 360 (4) (0.9) 92 25.6
Tax-exempt 44 43 70 1 2.3 (26) (37.1)
Total securities 496 499 430 (3) (0.6) 66 15.3
Loans:
SBA loans 850 822 713 28 3.4 137 19.2
SBA 504 loans 306 321 346 (15) (4.7) (40) (11.6)
Commercial loans 6,226 6,138 5,637 88 1.4 589 10.4
Residential mortgage loans 3,188 3,138 2,939 50 1.6 249 8.5
Consumer loans 1,064 1,046 880 18 1.7 184 20.9
Total loans 11,634 11,465 10,515 169 1.5 1,119 10.6
Total interest income 12,280 12,081 10,995 199 1.6 1,285 11.7
INTEREST EXPENSE
Interest-bearing demand deposits 147 129 121 18 14.0 26 21.5
Savings deposits 537 458 298 79 17.2 239 80.2
Time deposits 845 920 910 (75) (8.2) (65) (7.1)
Borrowed funds and subordinated debentures 696 701 686 (5) (0.7) 10 1.5
Total interest expense 2,225 2,208 2,015 17 0.8 210 10.4
Net interest income 10,055 9,873 8,980 182 1.8 1,075 12.0
Provision for loan losses 200 420 100 (220) (52.4) 100 100.0
Net interest income after provision for loan losses 9,855 9,453 8,880 402 4.3 975 11.0
NONINTEREST INCOME
Branch fee income 329 321 402 8 2.5 (73) (18.2)
Service and loan fee income 446 438 317 8 1.8 129 40.7
Gain on sale of SBA loans held for sale, net 515 639 533 (124) (19.4) (18) (3.4)
Gain on sale of mortgage loans, net 480 446 328 34 7.6 152 46.3
BOLI income 94 97 96 (3) (3.1) (2) (2.1)
Net security gains 238 11 - 227 2,063.6 238 100.0
Other income 271 221 244 50 22.6 27 11.1
Total noninterest income 2,373 2,173 1,920 200 9.2 453 23.6
NONINTEREST EXPENSE
Compensation and benefits 3,822 3,872 3,528 (50) (1.3) 294 8.3
Occupancy 618 611 644 7 1.1 (26) (4.0)
Processing and communications 600 647 620 (47) (7.3) (20) (3.2)
Furniture and equipment 453 432 455 21 4.9 (2) (0.4)
Professional services 266 216 213 50 23.1 53 24.9
Loan and OREO costs 466 160 378 306 191.3 88 23.3
Deposit insurance 220 168 173 52 31.0 47 27.2
Advertising 247 304 302 (57) (18.8) (55) (18.2)
Director fees 144 141 110 3 2.1 34 30.9
Other expenses 467 442 423 25 5.7 44 10.4
Total noninterest expense 7,303 6,993 6,846 310 4.4 457 6.7
Income before provision for income taxes 4,925 4,633 3,954 292 6.3 971 24.6
Provision for income taxes 1,765 1,613 1,315 152 9.4 450 34.2
Net income $ 3,160 $3,020 $2,639 $140 4.6 %$521 19.7 %
Effective tax rate 35.8 % 34.8% 33.3%
Net income per:
Common share - basic $ 0.33 $0.32 $0.28
Common share - diluted$ 0.32 $0.32 $0.28
Weighted average common shares outstanding - Basic 9,700 9,339 9,273
Weighted average common shares outstanding - Diluted 9,878 9,496 9,402


UNITY BANCORP, INC.
YTD CONSOLIDATED STATEMENTS OF INCOME
NON-GAAP
December 31, 2016
For the twelve months ended December 31, Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts) 2016 2015 $ %
INTEREST INCOME
Federal funds sold and interest-bearing deposits $ 214 $39 $175 448.7 %
FHLB stock 245 155 90 58.1
Securities:
Taxable 1,698 1,459 239 16.4
Tax-exempt 204 284 (80) (28.2)
Total securities 1,902 1,743 159 9.1
Loans:
SBA loans 3,181 2,693 488 18.1
SBA 504 loans 1,356 1,414 (58) (4.1)
Commercial loans 23,900 21,357 2,543 11.9
Residential mortgage loans 12,205 11,048 1,157 10.5
Consumer loans 4,021 3,202 819 25.6
Total loans 44,663 39,714 4,949 12.5
Total interest income 47,024 41,651 5,373 12.9
INTEREST EXPENSE
Interest-bearing demand deposits 537 438 99 22.6
Savings deposits 1,742 1,088 654 60.1
Time deposits 3,670 3,160 510 16.1
Borrowed funds and subordinated debentures 2,818 2,974 (156) (5.2)
Total interest expense 8,767 7,660 1,107 14.5
Net interest income 38,257 33,991 4,266 12.6
Provision for loan losses 1,220 500 720 144.0
Net interest income after provision for loan losses 37,037 33,491 3,546 10.6
NONINTEREST INCOME
Branch fee income 1,269 1,520 (251) (16.5)
Service and loan fee income 2,030 1,996 34 1.7
Gain on sale of SBA loans held for sale, net 2,099 1,204 895 74.3
Gain on sale of mortgage loans, net 1,610 1,674 (64) (3.8)
BOLI income 378 380 (2) (0.5)
Net security gains 424 28 396 1,414.3
Other income 986 927 59 6.4
Total noninterest income 8,796 7,729 1,067 13.8
NONINTEREST EXPENSE
Compensation and benefits 14,952 14,295 657 4.6
Occupancy 2,360 2,515 (155) (6.2)
Processing and communications 2,445 2,461 (16) (0.7)
Furniture and equipment 1,700 1,643 57 3.5
Professional services 976 942 34 3.6
Loan and OREO costs 989 1,141 (152) (13.3)
Deposit insurance 713 669 44 6.6
Advertising 1,095 1,030 65 6.3
Director fees 559 437 122 27.9
Other expenses 1,842 1,719 123 7.2
Total noninterest expense 27,631 26,852 779 2.9
Income before provision for income taxes and gain on subordinated debenture 18,202 14,368 3,834 26.7
Provision for income taxes 6,476 4,811 1,665 34.6
Net income before gain on subordinated debenture $ 11,726 $9,557 $2,169 22.7 %
Gain on subordinated debenture, net of tax 1,483 - 1,483 100.0
Net income $ 13,209 $9,557 $3,652 38.2 %
Effective tax rate 35.5 % 33.5%
Net income before gain on subordinated debenture per:
Common share - basic 1.25 1.03
Common share - diluted1.23 1.02
Net income per:
Common share - basic 1.40 1.03
Common share - diluted1.38 1.02
Weighted average common shares outstanding - Basic 9,416 9,267
Weighted average common shares outstanding - Diluted 9,572 9,382


UNITY BANCORP, INC.
QUARTER TO DATE NET INTEREST MARGIN
December 31, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
December 31, 2016 September 30, 2016
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits$73,087 $79 0.43 %$70,628 $50 0.28%
FHLB stock 5,773 71 4.89 5,728 67 4.65
Securities:
Taxable 58,622 452 3.07 63,871 456 2.84
Tax-exempt 6,420 67 4.15 6,478 66 4.05
Total securities (A) 65,042 519 3.17 70,349 522 2.95
Loans:
SBA loans 59,519 850 5.68 57,122 822 5.72
SBA 504 loans 25,498 306 4.77 26,562 321 4.81
Commercial loans 504,331 6,226 4.91 490,776 6,138 4.98
Residential mortgage loans 289,028 3,188 4.39 276,413 3,138 4.52
Consumer loans 90,549 1,064 4.67 85,632 1,046 4.86
Total loans (B) 968,925 11,634 4.78 936,505 11,465 4.87
Total interest-earning assets $1,112,827 $12,303 4.40 %$1,083,210 $12,104 4.45%
Noninterest-earning assets:
Cash and due from banks 24,851 19,831
Allowance for loan losses (12,819) (12,769)
Other assets 53,614 52,000
Total noninterest-earning assets 65,646 59,062
Total assets $1,178,473 $1,142,272
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits$142,872 $147 0.41 %$129,310 $129 0.40%
Total savings deposits 361,379 537 0.59 331,588 458 0.55
Total time deposits 230,594 845 1.46 256,884 920 1.42
Total interest-bearing deposits 734,845 1,529 0.83 717,782 1,507 0.84
Borrowed funds and subordinated debentures 125,440 696 2.21 123,136 701 2.26
Total interest-bearing liabilities $860,285 $2,225 1.03 %$840,918 $2,208 1.04%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits218,216 197,937
Other liabilities 6,631 16,990
Total noninterest-bearing liabilities 224,847 214,927
Total shareholders' equity 93,341 86,427
Total liabilities and shareholders' equity $1,178,473 $1,142,272
Net interest spread $10,078 3.37 % $9,896 3.41%
Tax-equivalent basis adjustment (23) (23)
Net interest income $10,055 $9,873
Net interest margin 3.60 % 3.63%
(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
December 31, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
December 31, 2016 December 31, 2015
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits $73,087 $79 0.43 %$47,421 $13 0.11%
FHLB stock 5,773 71 4.89 3,700 37 3.97
Securities:
Taxable 58,622 452 3.07 59,425 360 2.40
Tax-exempt 6,420 67 4.15 11,564 104 3.57
Total securities (A) 65,042 519 3.17 70,989 464 2.59
Loans:
SBA loans 59,519 850 5.68 54,912 713 5.15
SBA 504 loans 25,498 306 4.77 29,319 346 4.68
Commercial loans 504,331 6,226 4.91 452,494 5,637 4.94
Residential mortgage loans 289,028 3,188 4.39 259,938 2,939 4.49
Consumer loans 90,549 1,064 4.67 75,789 880 4.61
Total loans (B) 968,925 11,634 4.78 872,452 10,515 4.78
Total interest-earning assets $1,112,827 $12,303 4.40 %$994,562 $11,029 4.40%
Noninterest-earning assets:
Cash and due from banks 24,851 24,214
Allowance for loan losses (12,819) (12,801)
Other assets 53,614 44,055
Total noninterest-earning assets 65,646 55,468
Total assets $1,178,473 $1,050,030
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits$142,872 $147 0.41 %$131,800 $121 0.36%
Total savings deposits 361,379 537 0.59 295,013 298 0.40
Total time deposits 230,594 845 1.46 271,647 910 1.33
Total interest-bearing deposits 734,845 1,529 0.83 698,460 1,329 0.75
Borrowed funds and subordinated debentures 125,440 696 2.21 87,465 686 3.11
Total interest-bearing liabilities $860,285 $2,225 1.03 %$785,925 $2,015 1.02%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits218,216 182,024
Other liabilities 6,631 5,056
Total noninterest-bearing liabilities 224,847 187,080
Total shareholders' equity 93,341 77,025
Total liabilities and shareholders' equity $1,178,473 $1,050,030
Net interest spread $10,078 3.37 % $9,014 3.38%
Tax-equivalent basis adjustment (23) (34)
Net interest income $10,055 $8,980
Net interest margin 3.60 % 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
December 31, 2016
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the twelve months ended
December 31, 2016 December 31, 2015
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits $71,265 $214 0.30 %$34,883 $39 0.11%
FHLB stock 5,241 245 4.67 3,695 155 4.19
Securities:
Taxable 61,053 1,698 2.78 62,937 1,459 2.32
Tax-exempt 7,649 307 4.01 11,739 421 3.59
Total securities (A) 68,702 2,005 2.92 74,676 1,880 2.52
Loans:
SBA loans 56,834 3,181 5.60 50,997 2,693 5.28
SBA 504 loans 27,135 1,356 5.00 30,366 1,414 4.66
Commercial loans 483,479 23,900 4.94 428,702 21,357 4.98
Residential mortgage loans 273,612 12,205 4.46 246,278 11,048 4.49
Consumer loans 84,222 4,021 4.77 69,580 3,202 4.60
Total loans (B) 925,282 44,663 4.83 825,923 39,714 4.81
Total interest-earning assets $1,070,490 $47,127 4.40 %$939,177 $41,788 4.45%
Noninterest-earning assets:
Cash and due from banks 24,409 25,952
Allowance for loan losses (12,841) (12,638)
Other assets 50,103 43,742
Total noninterest-earning assets 61,671 57,056
Total assets $1,132,161 $996,233
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits$133,212 $537 0.40 %$126,876 $438 0.35%
Total savings deposits 328,486 1,742 0.53 290,848 1,088 0.37
Total time deposits 261,225 3,670 1.40 240,132 3,160 1.32
Total interest-bearing deposits 722,923 5,949 0.82 657,856 4,686 0.71
Borrowed funds and subordinated debentures 114,853 2,818 2.45 87,652 2,974 3.39
Total interest-bearing liabilities $837,776 $8,767 1.04 %$745,508 $7,660 1.03%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits199,554 172,172
Other liabilities 8,895 4,611
Total noninterest-bearing liabilities 208,449 176,783
Total shareholders' equity 85,936 73,942
Total liabilities and shareholders' equity $1,132,161 $996,233
Net interest spread $38,360 3.36 % $34,128 3.42%
Tax-equivalent basis adjustment (103) (137)
Net interest income $38,257 $33,991
Net interest margin 3.58 % 3.63%
(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
December 31, 2016
Amounts in thousands, except percentages Dec. 31, 2016 Sept. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period$12,685 $12,758 $12,634 $12,759 $12,421
Provision for loan losses charged to expense 200 420 400 200 100
12,885 13,178 13,034 12,959 12,521
Less: Chargeoffs
SBA loans 189 140 142 86 151
SBA 504 loans - - - - -
Commercial loans 19 376 152 228 52
Residential mortgage loans101 - - - -
Consumer loans 2 - - 28 41
Total chargeoffs 311 516 294 342 244
Add: Recoveries
SBA loans 1 17 4 11 6
SBA 504 loans - - - - -
Commercial loans 4 6 13 6 476
Residential mortgage loans - - - - -
Consumer loans - - 1 - -
Total recoveries 5 23 18 17 482
Net chargeoffs (recoveries) 306 493 276 325 (238)
Balance, end of period $12,579 $12,685 $12,758 $12,634 $12,759
LOAN QUALITY INFORMATION:
Nonperforming loans (1)$7,237 $6,527 $6,541 $6,887 $7,260
Other real estate owned ("OREO") 1,050 1,703 1,702 1,417 1,591
Nonperforming assets 8,287 8,230 8,243 8,304 8,851
Less: Amount guaranteed by SBA 60 624 134 243 288
Net nonperforming assets $8,227 $7,606 $8,109 $8,061 $8,563
Loans 90 days past due & still accruing $ - $ - $485 $ - $ -
Performing Troubled Debt Restructurings (TDRs)$ - $665 $772 $844 $3,015
(1) Nonperforming TDRs included in nonperforming loans 153 154 161 293 293
Total TDRs $153 $819 $933 $1,137 $3,308
Allowance for loan losses to:
Total loans at quarter end 1.29 % 1.34% 1.39% 1.42% 1.44 %
Nonperforming loans (1) 173.82 194.35 195.05 183.45 175.74
Nonperforming assets 151.79 154.13 154.77 152.14 144.15
Net nonperforming assets 152.90 166.78 157.33 156.73 149.00
QTD net chargeoffs (annualized) to QTD average loans:
SBA loans 1.26 % 0.86% 0.98% 0.56% 1.05 %
SBA 504 loans - - - - -
Commercial loans 0.01 0.30 0.12 0.19 (0.37)
Residential mortgage loans 0.14 - - - -
Consumer loans 0.01 - - 0.14 0.21
Total loans 0.13 % 0.21% 0.12% 0.15% (0.11)%
Nonperforming loans to total loans 0.74 % 0.69% 0.71% 0.78% 0.82 %
Nonperforming loans and TDRs to total loans 0.74 0.76 0.80 0.87 1.16
Nonperforming assets to total loans and OREO 0.85 0.86 0.90 0.93 0.99
Nonperforming assets to total assets 0.70 0.71 0.73 0.74 0.82

UNITY BANCORP, INC.
QUARTERLY FINANCIAL DATA
NON-GAAP
December 31, 2016
(In thousands, except percentages and per share amounts) Dec. 31, 2016 Sept. 30, 2016 Jun. 30, 2016 Mar. 31, 2016 Dec. 31, 2015
SUMMARY OF INCOME:
Total interest income $12,280 $12,081 $11,487 $11,176 $10,995
Total interest expense 2,225 2,208 2,145 2,189 2,015
Net interest income 10,055 9,873 9,342 8,987 8,980
Provision for loan losses 200 420 400 200 100
Net interest income after provision for loan losses 9,855 9,453 8,942 8,787 8,880
Total noninterest income 2,373 2,173 2,234 2,016 1,920
Total noninterest expense 7,303 6,993 6,728 6,607 6,846
Income before provision for income taxes and gain on subordinated debenture 4,925 4,633 4,448 4,196 3,954
Provision for income taxes 1,765 1,613 1,624 1,464 1,315
Net income before gain on subordinated debenture $3,160 $3,020 $2,824 $2,732 $2,639
Gain on subordinated debenture, net of tax - - - 1,473 -
Net income $3,160 $3,020 $2,824 $4,205 $2,639
Net income per common share - Basic $ 0.33 $ 0.32 $ 0.30 $ 0.45 $ 0.28
Net income per common share - Diluted $ 0.32 $ 0.32 $ 0.30 $ 0.44 $ 0.28
COMMON SHARE DATA:
Market price per share$ 15.70 $ 12.82 $ 11.56 $ 10.34 $ 11.34
Dividends paid$ 0.05 $ 0.05 $ 0.04 $ 0.04 $ 0.04
Book value per common share$ 10.14 $ 9.45 $ 9.10 $ 8.83 $ 8.45
Weighted average common shares outstanding - Basic 9,700 9,339 9,318 9,304 9,273
Weighted average common shares outstanding - Diluted 9,878 9,496 9,468 9,550 9,402
Issued and outstanding common shares 10,477 9,331 9,336 9,315 9,279
PERFORMANCE RATIOS (Annualized):
Return on average assets 1.07 % 1.05 % 1.03 % 1.54 % 1.00 %
Return on average equity 13.47 13.90 13.59 21.05 13.59
Efficiency ratio 59.90 58.11 58.53 50.16 62.81
BALANCE SHEET DATA:
Total assets $1,189,906 $1,152,896 $1,128,370 $1,120,955 $1,084,866
Total deposits 945,723 933,320 912,198 926,819 894,493
Total loans 973,414 949,832 915,043 886,990 888,958
Total securities 61,547 72,360 73,994 66,729 71,336
Total shareholders' equity106,291 88,152 84,967 82,276 78,470
Allowance for loan losses (12,579) (12,685) (12,758) (12,634) (12,759)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets 4.40 % 4.45 % 4.44 % 4.33 % 4.40 %
Interest-bearing liabilities 1.03 1.04 1.05 1.06 1.02
Net interest spread 3.37 3.41 3.39 3.27 3.38
Net interest margin 3.60 3.63 3.61 3.48 3.60
CREDIT QUALITY:
Nonperforming assets 8,287 8,230 8,243 8,304 8,851
QTD net chargeoffs (annualized) to QTD average loans 0.13 % 0.21 % 0.12 % 0.15 % (0.11)%
Allowance for loan losses to total loans 1.29 1.34 1.39 1.42 1.44
Nonperforming assets to total loans and OREO 0.85 0.86 0.90 0.93 0.99
Nonperforming assets to total assets 0.70 0.71 0.73 0.74 0.82
CAPITAL RATIOS AND OTHER:
Total equity to total assets 8.93 % 7.65 % 7.53 % 7.34 % 7.23 %
Leverage ratio 9.73 8.49 8.52 8.31 8.82
Common equity tier 1 risk-based capital ratio 11.49 9.63 9.70 9.77 9.37
Tier 1 risk-based capital ratio 12.58 10.74 10.85 10.97 11.18
Total risk-based capital ratio 13.84 11.48 12.11 12.22 12.43
Number of banking offices 17 15 15 15 15
Number of ATMs 18 16 16 16 16
Number of employees 184 180 172 172 162

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

Source:Unity Bancorp, Inc.