Unity Bancorp Reports Quarterly Net Income of $2.5 million or $0.23 per share and Core Net Income for the Quarter, Excluding the Impact of Nonrecurring Items, of $4.2 million or $0.39 per share

CLINTON, N.J., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Unity Bancorp, Inc. (NASDAQ:UNTY), parent company of Unity Bank, reported net income of $2.5 million or $0.23 per diluted share for the three months ended December 31, 2017, compared to net income of $3.2 million, or $0.32 per diluted share, for the three months ended December 31, 2016. Return on average assets and average common equity for the quarter were 0.74% and 8.54%, respectively, compared to 1.07% and 13.47% for the same period a year ago.

For the year ended December 31, 2017, net income was $12.9 million or $1.20 per diluted share, compared to net income of $13.2 million or $1.38 per diluted share for the prior year. Return on average assets and average common equity for the year ended December 31, 2017 was 1.02% and 11.47%, respectively compared to 1.17% and 15.37% for the prior year.

Net income presented above includes the impact of the “Tax Cuts and Jobs Act” which was signed into law on December 22, 2017, as well as a gain on the repurchase of subordinated debentures in 2016. The “Tax Cuts and Jobs Act,” which lowered the corporate tax rate from 35% to 21%, will provide a significant tax benefit in 2018 and beyond. However, net income for 2017 was adversely impacted. Under ASC 740, Income Taxes, Unity was required to adjust its deferred income tax balances as of the enactment date to reflect a rate of 21%. This adjustment resulted in a $1.7 million increase in income tax expense. In February 2016, the Company repurchased $5.0 million of its outstanding subordinated “capital qualifying” 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.

Core net income, which excludes the impact of the nonrecurring items discussed above, was $4.2 million or $0.39 per diluted share for the quarter ended December 31, 2017, an increase of 34.0% over $3.2 million or $0.32 per diluted share a year ago. Core return on average assets and average common equity for the quarter ended December 31, 2017 were 1.25% and 14.46%, respectively, compared to 1.07% and 13.47% for the same period a year ago.

Core net income was $14.6 million or $1.36 per diluted share for 2017, an increase of 24.7% over $11.7 million or $1.23 per diluted share a year ago. Core return on average assets and average common equity for the year ended December 31, 2017 were 1.15% and 13.02%, respectively, compared to 1.04% and 13.65% for the same period a year ago.

The core earnings presented above exclude the impact of nonrecurring items such as the 2017 adjustment to deferred tax assets due to the changes in corporate tax rates and the 2016 gain on the sale of subordinated debt. Management believes excluding these items from 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.

Fourth quarter highlights included:

  • Opened our new Ramsey, NJ branch and relocated the Phillipsburg, NJ branch. The new Bethlehem, PA branch is expected to open near the end of March.
  • Loans grew 20.3% from year-end, reflecting a 26.3% increase in residential mortgage loans, 20.0% increase in consumer loans and 19.2% increase in commercial loans.
  • Deposits increased 10.3%, reflecting an 18.6% increase in noninterest-bearing demand deposits, 13.3% increase in interest-bearing deposits and a 9.1% increase in savings deposits.
  • Net interest income increased 24.3% to $12.5 million compared to the prior year’s quarter due to earning asset growth and improved margins.
  • Net interest margin increased to 3.91% this quarter compared to 3.60% in the prior year’s quarter due to strong loan growth and the benefit of a rising rate environment.
  • Credit quality continues to improve. Nonperforming loans fell to $3.0 million.
  • The Company provided all non-executive employees with a bonus of $750 each in response to the federal tax reform legislation at a cost of approximately $150 thousand.
  • Unity Bank received the prestigious “5-Star Rating” from Bauer Financial indicating excellence among financial institutions in capital adequacy, profitability and asset quality.

“We are all extremely proud of our performance in 2017,” stated James A. Hughes, President and CEO. “Due to our record loan growth and our expanding margin, our performance in 2017 significantly exceeded our forecasts. We expanded our geographic footprint with the opening of the Ramsey, NJ branch this quarter and will be opening our Bethlehem, PA branch this spring. I am confident that we can continue to expand our franchise while we grow our profitability. Our performance is a testament to the competency of our team of exceptional employees. As such, the Board felt it was appropriate to share some of the future tax benefit with the employees for a job well done.”

Net Interest Income

Net interest income, our primary driver of earnings, increased $2.4 million to $12.5 million for the quarter ended December 31, 2017 compared to the prior year’s quarter. In addition, the net interest margin expanded 31 basis points to 3.91%, compared to 3.60% for the prior year’s quarter. For the year ended December 31, 2017, net interest income increased $7.6 million to $45.9 million, and the net interest margin expanded 25 basis points to 3.83%. Each period benefited from strong loan growth, the rising interest rate environment and a stable cost of funds.
The yield on earning assets increased 31 basis points to 4.71% for the quarter ended December 31, 2017 compared to 4.40% for the prior year’s quarter. This increase was the result of strong commercial, residential mortgage and consumer loan growth over the prior year’s period and the benefit of a rising rate environment. Quarterly average commercial loans increased $85.5 million, average residential mortgage loans increased $55.6 million and consumer loans increased $18.8 million compared to the fourth quarter of 2016.

The cost of interest-bearing liabilities increased 2 basis points to 1.05% for the quarter ended December 31, 2017. While the cost of deposits increased 5 basis points to 0.88%, the cost of borrowed funds and subordinated debentures decreased 35 basis points compared to the prior year due to the modification of borrowings with the Federal Home Loan Bank (“FHLB”) and the addition of new borrowings at lower rates over the past year. The increase in the cost of deposits was primarily driven by the growth in savings deposits. The cost of interest-bearing liabilities may rise in the future due to competition for deposits and the rising rate environment.

Provision for Loan Losses

The provision for loan losses increased during the quarter and annual periods ended December 31, 2017 despite reduced net charge-offs, due to the growth in the loan portfolio. The provision for loan losses was $500 thousand and $200 thousand for each of the quarters ended December 31, 2017 and December 31, 2016, respectively. The provision for loan losses increased $430 thousand to $1.7 million for the year ended December 31, 2017 compared to the prior year period. Quarterly net charge-offs declined $249 thousand to $57 thousand from $306 thousand in the prior year’s quarter. Annual net charge-offs declined $727 thousand over the prior year period to $673 thousand for the twelve months ended December 31, 2017.

Noninterest Income

Noninterest income decreased $336 thousand to $2.0 million for the three months ended December 31, 2017 and declined $526 thousand to $8.3 million for the year ended December 31, 2017, compared to the same period last year due to a lower volume of sales of both mortgage and SBA loans, and lower gains on the sale of securities, partially offset by increased service and loan fee income.

Quarterly gains on the sale of mortgage loans declined $359 thousand and yearly gains declined $1.1 million compared to the prior year periods due to lower sales volumes in each period. During 2017, management elected to hold more of the residential loans it originates in portfolio for long term investment rather than sell the loans. In the twelve months ended December 31, 2017, $221.6 million in mortgage loans were originated with $82.1 million being sold for a net gain of $1.5 million. By comparison, $192.2 million in mortgage loans were originated in 2016, of which $108.1 million were sold for a gain of $2.6 million. Mortgage loan sale volume totaled $15.9 million for the three months ended December 31, 2017 compared to $31.5 million in sales in the prior year’s period.

Gains on the sale of SBA loans decreased due to a lower volume of loan sales this quarter compared with the prior year’s quarter. SBA loan sales totaled $3.7 million with net gains on sale of $268 thousand for the quarter ended December 31, 2017, compared to $6.4 million in sales and a net gain of $515 thousand in the prior year’s quarter. Gains on the sale of $19.4 million in SBA loans were $1.6 million for the full year 2017 compared to $2.1 million on $24.7 million in sales in the prior year.

Service and loan fee income increased $404 thousand and $1.1 million in the quarterly and annual periods, respectively due to increased loan application, interest rate swap, servicing and payoff fees.

Net security gains decreased $245 thousand and $362 thousand in the quarterly and annual periods, respectively.

Noninterest Expense

Noninterest expense increased $326 thousand, or 4.5%, to $7.6 million for the quarter and increased $2.4 million, or 8.7%, to $30.0 million for the year ended December 31, 2017 compared to the prior year periods. These increases are attributed to costs of expanding our retail branch and lending networks which resulted in higher compensation and furniture and equipment expenses.

Notable items for the periods include:

  • Compensation and benefits expense increased $633 thousand to $4.5 million for the three months ended December 31, 2017 and increased $2.2 million to $17.1 million for the year ended December 31, 2017. Compensation and benefit expenses have risen in each of these periods due to the addition of two new retail branches, and additional lending and operational staff. Our full-time-equivalent employees increased significantly to 199 in the 4th quarter from 166 in the 3rd quarter 2017 as we filled vacant positions. In addition, a bonus of approximately $150 thousand or $750 per non-executive employee will be paid in 2018 in response to the federal tax reform legislation.
  • Furniture and equipment expense increased $89 thousand and $379 thousand for the quarter and annual periods, respectively due to continued investment in technology in the form of equipment, network maintenance and software.
  • Loan collection and OREO expenses decreased $417 thousand and $191 thousand in the quarterly and annual periods as we continue to work through these credits, reduce our OREO inventory and the related expenses to maintain these properties
  • Deposit insurance expense declined for the quarter and annual periods.
  • Advertising expense increased $74 thousand for the quarter and $84 thousand for the annual periods due to supporting new markets and a larger branch network.

Income Tax Expense

On December 22, 2017, the “Tax Cuts and Jobs Act” was signed which lowered the corporate tax rate from 35% to 21%. Under ASC 740, Income Taxes, Unity was required to adjust its deferred income tax balances as of the enactment date, December 22nd, to reflect the lower tax rate of 21%. This adjustment resulted in a $1.7 million increase in income tax expense and an effective tax rate of 61.0% for the quarter and 42.5% for the year. Excluding this, our income tax expense was $2.2 million with an effective tax rate of 33.9% and $7.8 million with an effective tax rate of 34.8% for the quarter and year ended December 31, 2017. We expect that our net income will benefit from the lower tax rate in the future.

Financial Condition

At December 31, 2017, total assets were $1.5 billion, an increase of $265.6 million from year-end 2016:

  • Total loans increased $197.3 million or 20.3%, from year-end 2016 to $1.2 billion at December 31, 2017. Commercial, residential mortgage, consumer and SBA loan portfolios increased $97.8 million, $76.1 million, $18.3 million and $9.5 million, respectively. Our pipeline in all categories remains strong and loan growth is expected to continue in future quarters.
  • Total deposits increased $97.4 million or 10.3%, to $1.0 billion at December 31, 2017. Noninterest-bearing demand deposits, savings deposits and interest-bearing demand deposits have increased $40.2 million, $33.1 million and $19.3 million, respectively.
  • Borrowed funds increased $154.0 million to $285.3 million at December 31, 2017 due to increased overnight borrowings. These short-term, low cost borrowings were used to fund loan growth.
  • Shareholders’ equity was $118.1 million at December 31, 2017, an increase of $11.8 million from year-end 2016, due to retained net income.
  • Book value per common share was $11.13 as of December 31, 2017 compared to $10.14 at December 31, 2016.
  • At December 31, 2017, the leverage, common equity Tier I, Tier I and Total Risk Based Capital ratios were 9.37%, 10.81%, 11.75% and 12.87% respectively, all in excess of the ratios required to be deemed “well-capitalized”.

Credit Quality

  • Nonperforming assets totaled $3.4 million at December 31, 2017, or 0.29% of total loans and OREO, compared to $8.3 million or 0.85% of total loans and OREO at year-end 2016.
  • The allowance for loan losses totaled $13.6 million at December 31, 2017, or 1.16% of total loans compared to $12.6 million and 1.29% at December 31, 2016.
  • Net charge-offs were $57 thousand for the three months ended December 31, 2017, compared to $306 thousand for the same period a year ago. Annual net charge-offs were $673 thousand compared to $1.4 million for the prior year’s period.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $1.5 billion in assets and $1.0 billion in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 18 retail service centers located in Bergen, Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County in 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.


UNITY BANCORP, INC.
SUMMARY FINANCIAL HIGHLIGHTS
December 31, 2017
December 31, 2017 vs.
September 30, 2017 December 31, 2016
(In thousands, except percentages and per share amounts) December 31, 2017 September 30, 2017 December 31, 2016 % %
BALANCE SHEET DATA:
Total assets $ 1,455,496 $ 1,329,834 $ 1,189,906 9.4 % 22.3 %
Total deposits 1,043,137 1,043,632 945,723 - 10.3
Total loans 1,170,674 1,092,873 973,414 7.1 20.3
Total securities 69,800 72,105 61,547 (3.2) 13.4
Total shareholders' equity 118,105 115,814 106,291 2.0 11.1
Allowance for loan losses (13,556) (13,113) (12,579) 3.4 7.8
FINANCIAL DATA - QUARTER TO DATE:
Income before provision for income taxes $ 6,408 $ 5,771 $ 4,925 11.0 30.1
Provision for income taxes 2,175 2,014 1,765 8.0 23.2
DTA Tax Rate Adjustment 1,733 - - 100.0 100.0
Net income $ 2,500 $ 3,757 $ 3,160 (33.5) (20.9)
Net income per common share - Basic $ 0.24 $ 0.36 $ 0.33 (33.3) (27.3)
Net income per common share - Diluted $ 0.23 $ 0.35 $ 0.32 (34.3) (28.1)
Performance ratios:
Return on average assets 0.74 % 1.17 % 1.07 % (36.8) (30.8)
Return on average equity 8.54 % 13.00 % 13.47 % (34.3) (36.6)
Efficiency ratio 52.45 % 54.86 % 59.90 % (4.4) (12.4)
Net interest margin 3.91 % 3.88 % 3.60 % 0.8 8.6
Noninterest expense to average assets 2.25 % 2.35 % 2.47 % (4.3) (8.9)
FINANCIAL DATA - YEAR TO DATE:
Income before provision for income taxes $ 22,433 $ 20,466 9.6
Provision for income taxes 7,807 7,257 7.6
DTA Tax Rate Adjustment 1,733 - 100.0
Net income $ 12,893 $ 13,209 (2.4)
Net income per common share - Basic $ 1.22 $ 1.40 (12.9)
Net income per common share - Diluted $ 1.20 $ 1.38 (13.0)
Performance ratios:
Return on average assets 1.02 % 1.17 % (12.8)
Return on average equity 11.47 % 15.37 % (25.4)
Efficiency ratio 55.57 % 56.51 % (1.7)
Net interest margin 3.83 % 3.58 % 7.0
Noninterest expense to average assets 2.23 % 2.34 % (4.7)
SHARE INFORMATION:
Market price per share $ 19.75 $ 19.80 $ 15.70 (0.3) 25.8
Dividends paid $ 0.06 $ 0.06 $ 0.05 - 0.2
Book value per common share $ 11.13 $ 10.94 $ 10.14 1.7 9.8
Average diluted shares outstanding (QTD) 10,794 10,761 9,878 0.3 9.3
CAPITAL RATIOS:
Total equity to total assets 8.11 % 8.71 % 8.93 % (6.9) (9.2)
Leverage ratio 9.37 % 9.70 % 9.73 % (3.4) (3.7)
Common equity tier 1 risk-based capital ratio 10.81 % 11.27 % 11.49 % (4.1) (5.9)
Tier 1 risk-based capital ratio 11.75 % 12.26 % 12.58 % (4.2) (6.6)
Total risk-based capital ratio 12.87 % 13.30 % 13.84 % (3.2) (7.0)
CREDIT QUALITY AND RATIOS:
Nonperforming assets $ 3,420 $ 4,449 $ 8,287 (23.1) (58.7)
QTD net chargeoffs (annualized) to QTD average loans 0.02 % 0.07 % 0.13 % (71.4) (84.6)
Allowance for loan losses to total loans 1.16 % 1.20 % 1.29 % (3.3) (10.1)
Nonperforming assets to total loans and OREO 0.29 % 0.41 % 0.85 % (29.3) (65.9)
Nonperforming assets to total assets 0.23 % 0.33 % 0.70 % (30.3)% (67.1)%

UNITY BANCORP, INC.
Reconciliation of GAAP vs. Non-GAAP Financials
December 31, 2017
QTD YTD QTD YTD Current QTD vs. Prior Yr. QTD Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts) Dec. 31, 2017 Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2016 $ % $ %
GAAP
Income before provision for income taxes $ 6,408 $ 22,433 $ 4,925 $ 20,466 1,483 30.1 1,967 9.6
Provision for income taxes 3,908 9,540 1,765 7,257 2,143 121.4 2,283 31.5
Net income $ 2,500 $ 12,893 $ 3,160 $ 13,209 (660) (20.9) (316) (2.4)
Effective tax rate 61.0 % 42.5 % 35.8 % 35.5 %
Net income per:
Common share - basic $ 0.24 $ 1.22 $ 0.33 $ 1.40 (0.09) (27.3) (0.18) (12.9)
Common share - diluted $ 0.23 $ 1.20 $ 0.32 $ 1.38 (0.09) (28.1) (0.18) (13.0)
Performance ratios:
Return on average assets 0.74 % 1.02 % 1.07 % 1.17 % (30.8) (12.8)
Return on average equity 8.54 % 11.47 % 13.47 % 15.37 % (36.6) (25.4)
NON-GAAP
Income before provision for income taxes $ 6,408 $ 22,433 $ 4,925 $ 20,466 1,483 30.1 1,967 9.6
Provision for income taxes 3,908 9,540 1,765 7,257 2,143 121.4 2,283 31.5
Net income before nonrecurring adjustments 2,500 12,893 3,160 13,209 (660) (20.9) (316) (2.4)
Nonrecurring adjustments: -
DTA Tax Rate Adjustment 1,733 1,733 - - 1,733 100.0 1,733 100.0
Gain on subordinated debenture - - - 1,483 - - (1,483) (100.0)
Adjusted net income $ 4,233 $ 14,626 $ 3,160 $ 11,726 1,073 34.0 2,900 24.7
Effective tax rate 33.9 % 34.8 % 35.8 % 28.2 %
Performance ratios before nonrecurring adjustments:
Common share - basic $ 0.40 $ 1.38 $ 0.33 $ 1.25 0.07 21.2 0.13 10.4
Common share - diluted $ 0.39 $ 1.36 $ 0.32 $ 1.23 0.07 21.9 0.13 10.6
Performance ratios before nonrecurring adjustments:
Return on average assets 1.25 % 1.15 % 1.07 % 1.04 % 16.8 10.6
Return on average equity 14.46 % 13.02 % 13.47 % 13.65 % 7.3 (4.6)

UNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2017
December 31, 2017 vs.
September 30, 2017 December 31, 2016
(In thousands, except percentages) December 31, 2017 September 30, 2017 December 31, 2016 % %
ASSETS
Cash and due from banks $ 23,701 $ 20,318 $ 22,105 16.7 % 7.2 %
Fed funds, interest-bearing deposits and repos 126,553 84,512 83,790 49.7 51.0
Cash and cash equivalents 150,254 104,830 105,895 43.3 41.9
Securities:
Securities available for sale 53,493 52,750 40,568 1.4 31.9
Securities held to maturity 16,307 19,355 20,979 (15.7) (22.3)
Total securities 69,800 72,105 61,547 (3.2) 13.4
Loans:
SBA loans held for sale 22,810 17,724 14,773 28.7 54.4
SBA loans held for investment 43,999 44,001 42,492 - 3.5
SBA 504 loans 21,871 22,239 26,344 (1.7) (17.0)
Commercial loans 606,994 568,766 509,171 6.7 19.2
Residential mortgage loans 365,145 330,787 289,093 10.4 26.3
Consumer loans 109,855 109,356 91,541 0.5 20.0
Total loans 1,170,674 1,092,873 973,414 7.1 20.3
Allowance for loan losses (13,556) (13,113) (12,579) 3.4 7.8
Net loans 1,157,118 1,079,760 960,835 7.2 20.4
Premises and equipment, net 23,470 23,080 23,398 1.7 0.3
Bank owned life insurance ("BOLI") 24,227 24,047 13,758 0.7 76.1
Deferred tax assets 4,017 5,842 5,512 (31.2) (27.1)
Federal Home Loan Bank ("FHLB") stock 12,863 7,328 6,037 75.5 113.1
Accrued interest receivable 5,447 5,222 4,462 4.3 22.1
Other real estate owned ("OREO") 426 707 1,050 (39.7) (59.4)
Goodwill 1,516 1,516 1,516 - -
Other assets 6,358 5,397 5,896 17.8 7.8
Total assets $ 1,455,496 $ 1,329,834 $ 1,189,906 9.4 % 22.3 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 256,119 $ 258,519 $ 215,963 (0.9)% 18.6 %
Interest-bearing demand 164,997 166,529 145,654 (0.9) 13.3
Savings 396,557 403,871 363,462 (1.8) 9.1
Time, under $100,000 133,881 122,410 123,724 9.4 8.2
Time, $100,000 and over, under $250,000 70,481 71,155 75,567 (0.9) (6.7)
Time, $250,000 and over 21,102 21,148 21,353 (0.2) (1.2)
Total deposits 1,043,137 1,043,632 945,723 - 10.3
Borrowed funds 275,000 152,000 121,000 80.9 127.3
Subordinated debentures 10,310 10,310 10,310 - -
Accrued interest payable 436 400 430 9.0 1.4
Accrued expenses and other liabilities 8,508 7,678 6,152 10.8 38.3
Total liabilities 1,337,391 1,214,020 1,083,615 10.2 23.4
Shareholders' equity:
Common stock 86,782 86,423 85,383 0.4 1.6
Retained earnings 31,117 29,260 20,748 6.3 50.0
Accumulated other comprehensive income 206 131 160 NM NM
Total shareholders' equity 118,105 115,814 106,291 2.0 11.1
Total liabilities and shareholders' equity $ 1,455,496 $ 1,329,834 $ 1,189,906 9.4 % 22.3 %
Issued and outstanding common shares 10,615 10,586 10,477
NM=Not meaningful

UNITY BANCORP, INC.
QTD CONSOLIDATED STATEMENTS OF INCOME
December 31, 2017
December 31, 2017 vs.
For the three months ended September 30, 2017 December 31, 2016
(In thousands, except percentages and per share amounts) December 31, 2017 September 30, 2017 December 31, 2016 $ % $ %
INTEREST INCOME
Fed funds, interest-bearing deposits and repos $ 257 $ 262 $ 79 $ (5) (1.9)%$ 178 225.3 %
FHLB stock 119 85 71 34 40.0 48 67.6
Securities:
Taxable 488 512 452 (24) (4.7) 36 8.0
Tax-exempt 31 40 44 (9) (22.5) (13) (29.5)
Total securities 519 552 496 (33) (6.0) 23 4.6
Loans:
SBA loans 1,023 1,042 850 (19) (1.8) 173 20.4
SBA 504 loans 280 287 306 (7) (2.4) (26) (8.5)
Commercial loans 7,310 6,924 6,226 386 5.6 1,084 17.4
Residential mortgage loans 4,046 3,636 3,188 410 11.3 858 26.9
Consumer loans 1,490 1,407 1,064 83 5.9 426 40.0
Total loans 14,149 13,296 11,634 853 6.4 2,515 21.6
Total interest income 15,044 14,195 12,280 849 6.0 2,764 22.5
INTEREST EXPENSE
Interest-bearing demand deposits 183 168 147 15 8.9 36 24.5
Savings deposits 744 733 537 11 1.5 207 38.5
Time deposits 837 823 845 14 1.7 (8) (0.9)
Borrowed funds and subordinated debentures 780 654 696 126 19.3 84 12.1
Total interest expense 2,544 2,378 2,225 166 7.0 319 14.3
Net interest income 12,500 11,817 10,055 683 5.8 2,445 24.3
Provision for loan losses 500 500 200 - - 300 150.0
Net interest income after provision for loan losses 12,000 11,317 9,855 683 6.0 2,145 21.8
NONINTEREST INCOME
Branch fee income 354 355 329 (1) (0.3) 25 7.6
Service and loan fee income 628 448 224 180 40.2 404 180.4
Gain on sale of SBA loans held for sale, net 268 385 515 (117) (30.4) (247) (48.0)
Gain on sale of mortgage loans, net 343 392 702 (49) (12.5) (359) (51.1)
BOLI income 181 111 94 70 63.1 87 92.6
Net security gains (losses) (7) 53 238 (60) (113.2) (245) (102.9)
Other income 270 264 271 6 2.3 (1) (0.4)
Total noninterest income 2,037 2,008 2,373 29 1.4 (336) (14.2)
NONINTEREST EXPENSE
Compensation and benefits 4,455 4,268 3,822 187 4.4 633 16.6
Occupancy 591 600 618 (9) (1.5) (27) (4.4)
Processing and communications 659 656 647 3 0.5 12 1.9
Furniture and equipment 542 513 453 29 5.7 89 19.6
Professional services 298 247 266 51 20.6 32 12.0
Loan collection & OREO expenses (30) 114 387 (144) (126.3) (417) (107.8)
Other loan expenses 38 47 32 (9) (19.1) 6 18.8
Deposit insurance 170 156 220 14 9.0 (50) (22.7)
Advertising 321 299 247 22 7.4 74 30.0
Director fees 141 150 144 (9) (6.0) (3) (2.1)
Other expenses 444 504 467 (60) (11.9) (23) (4.9)
Total noninterest expense 7,629 7,554 7,303 75 1.0 326 4.5
Income before provision for income taxes 6,408 5,771 4,925 637 11.0 1,483 30.1
Provision for income taxes 2,175 2,014 1,765 161 8.0 410 23.2
DTA Tax Rate Adjustment 1,733 - - 1,733 100.0 1,733 100.0
Net income $ 2,500 $ 3,757 $ 3,160 $ (1,257) (33.5)%$ (660) (20.9)%
Effective tax rate 61.0 % 34.9 % 35.8 %
Net income per common share - Basic $ 0.24 $ 0.36 $ 0.33
Net income per common share - Diluted $ 0.23 $ 0.35 $ 0.32
Weighted average common shares outstanding - Basic 10,604 10,572 9,700
Weighted average common shares outstanding - Diluted 10,794 10,761 9,878


UNITY BANCORP, INC.
YTD CONSOLIDATED STATEMENTS OF INCOME
December 31, 2017
For the twelve months ended December 31, Current YTD vs. Prior YTD
(In thousands, except percentages and per share amounts) 2017 2016 $ %
INTEREST INCOME
Fed funds, interest-bearing deposits and repos $ 851 $ 214 $ 637 297.7 %
FHLB stock 370 245 125 51.0
Securities:
Taxable 2,029 1,698 331 19.5
Tax-exempt 159 204 (45) (22.1)
Total securities 2,188 1,902 286 15.0
Loans:
SBA loans 3,805 3,181 624 19.6
SBA 504 loans 1,177 1,356 (179) (13.2)
Commercial loans 26,973 23,900 3,073 12.9
Residential mortgage loans 14,650 12,205 2,445 20.0
Consumer loans 5,296 4,021 1,275 31.7
Total loans 51,901 44,663 7,238 16.2
Total interest income 55,310 47,024 8,286 17.6
INTEREST EXPENSE
Interest-bearing demand deposits 665 537 128 23.8
Savings deposits 2,738 1,742 996 57.2
Time deposits 3,278 3,670 (392) (10.7)
Borrowed funds and subordinated debentures 2,772 2,818 (46) (1.6)
Total interest expense 9,453 8,767 686 7.8
Net interest income 45,857 38,257 7,600 19.9
Provision for loan losses 1,650 1,220 430 35.2
Net interest income after provision for loan losses 44,207 37,037 7,170 19.4
NONINTEREST INCOME
Branch fee income 1,384 1,269 115 9.1
Service and loan fee income 2,100 1,020 1,080 105.9
Gain on sale of SBA loans held for sale, net 1,617 2,099 (482) (23.0)
Gain on sale of mortgage loans, net 1,530 2,621 (1,091) (41.6)
BOLI income 469 378 91 24.1
Net security gains 62 424 (362) (85.4)
Gain on repurchase of subordinated debt - 2,264 (2,264) (100.0)
Other income 1,108 985 123 12.5
Total noninterest income 8,270 11,060 (2,790) (25.2)
NONINTEREST EXPENSE
Compensation and benefits 17,117 14,952 2,165 14.5
Occupancy 2,381 2,360 21 0.9
Processing and communications 2,551 2,628 (77) (2.9)
Furniture and equipment 2,079 1,700 379 22.3
Professional services 1,022 976 46 4.7
Loan collection & OREO expenses 463 654 (191) (29.2)
Other loan expenses 186 152 34 22.4
Deposit insurance 546 713 (167) (23.4)
Advertising 1,179 1,095 84 7.7
Director fees 637 559 78 14.0
Other expenses 1,883 1,842 41 2.2
Total noninterest expense 30,044 27,631 2,413 8.7
Income before provision for income taxes 22,433 20,466 1,967 9.6
Provision for income taxes 7,807 7,257 550 7.6
DTA Tax Rate Adjustment 1,733 - 1,733 100.0
Net income $ 12,893 $ 13,209 $ (316) (2.4)%
Effective tax rate 42.5 % 35.5 %
Net income per common share - Basic $ 1.22 $ 1.40
Net income per common share - Diluted $ 1.20 $ 1.38
Weighted average common shares outstanding - Basic 10,558 9,416
Weighted average common shares outstanding - Diluted 10,749 9,572

UNITY BANCORP, INC.
QUARTER TO DATE NET INTEREST MARGIN
December 31, 2017
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
December 31, 2017 September 30, 2017
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Fed funds, interest-bearing deposits and repos $61,621 $257 1.65 % $64,579 $262 1.61 %
FHLB stock 7,523 119 6.28 5,697 85 5.92
Securities:
Taxable 65,967 488 2.93 67,178 512 3.02
Tax-exempt 5,469 47 3.41 6,234 60 3.82
Total securities (A) 71,436 535 2.97 73,412 572 3.09
Loans:
SBA loans 63,275 1,023 6.41 60,221 1,042 6.86
SBA 504 loans 22,038 280 5.04 22,596 287 5.04
Commercial loans 589,825 7,310 4.92 553,443 6,924 4.96
Residential mortgage loans 344,636 4,046 4.66 322,172 3,636 4.48
Consumer loans 109,300 1,490 5.41 106,976 1,407 5.22
Total loans (B) 1,129,074 14,149 4.97 1,065,408 13,296 4.95
Total interest-earning assets $1,269,654 $15,060 4.71 % $1,209,096 $14,215 4.66 %
Noninterest-earning assets:
Cash and due from banks 23,248 23,407
Allowance for loan losses (13,373) (13,053)
Other assets 65,785 57,179
Total noninterest-earning assets 75,660 67,533
Total assets $1,345,314 $1,276,629
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $167,918 $183 0.43 % $160,184 $168 0.42 %
Total savings deposits 406,281 744 0.73 406,064 733 0.72
Total time deposits 220,062 837 1.51 215,501 823 1.52
Total interest-bearing deposits 794,261 1,764 0.88 781,749 1,724 0.87
Borrowed funds and subordinated debentures 166,669 780 1.86 124,369 654 2.09
Total interest-bearing liabilities $960,930 $2,544 1.05 % $906,118 $2,378 1.04 %
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 258,616 248,259
Other liabilities 9,615 7,598
Total noninterest-bearing liabilities 268,231 255,857
Total shareholders' equity 116,153 114,654
Total liabilities and shareholders' equity $1,345,314 $1,276,629
Net interest spread $12,516 3.66 % $11,837 3.62 %
Tax-equivalent basis adjustment (16) (20)
Net interest income $12,500 $11,817
Net interest margin 3.91 % 3.88 %
(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, 2017
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the three months ended
December 31, 2017 December 31, 2016
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Fed funds, interest-bearing deposits and repos $61,621 $257 1.65 % $73,087 $79 0.43 %
FHLB stock 7,523 119 6.28 5,773 71 4.89
Securities:
Taxable 65,967 488 2.93 58,622 452 3.07
Tax-exempt 5,469 47 3.41 6,420 67 4.15
Total securities (A) 71,436 535 2.97 65,042 519 3.17
Loans:
SBA loans 63,275 1,023 6.41 59,519 850 5.68
SBA 504 loans 22,038 280 5.04 25,498 306 4.77
Commercial loans 589,825 7,310 4.92 504,331 6,226 4.91
Residential mortgage loans 344,636 4,046 4.66 289,028 3,188 4.39
Consumer loans 109,300 1,490 5.41 90,549 1,064 4.67
Total loans (B) 1,129,074 14,149 4.97 968,925 11,634 4.78
Total interest-earning assets $1,269,654 $15,060 4.71 % $1,112,827 $12,303 4.40 %
Noninterest-earning assets:
Cash and due from banks 23,248 24,851
Allowance for loan losses (13,373) (12,819)
Other assets 65,785 53,614
Total noninterest-earning assets 75,660 65,646
Total assets $1,345,314 $1,178,473
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $167,918 $183 0.43 % $142,872 $147 0.41 %
Total savings deposits 406,281 744 0.73 361,379 537 0.59
Total time deposits 220,062 837 1.51 230,594 845 1.46
Total interest-bearing deposits 794,261 1,764 0.88 734,845 1,529 0.83
Borrowed funds and subordinated debentures 166,669 780 1.86 125,440 696 2.21
Total interest-bearing liabilities $960,930 $2,544 1.05 % $860,285 $2,225 1.03 %
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 258,616 218,216
Other liabilities 9,615 6,631
Total noninterest-bearing liabilities 268,231 224,847
Total shareholders' equity 116,153 93,341
Total liabilities and shareholders' equity $1,345,314 $1,178,473
Net interest spread $12,516 3.66 % $10,078 3.37 %
Tax-equivalent basis adjustment (16) (23)
Net interest income $12,500 $10,055
Net interest margin 3.91 % 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, 2017
(Dollar amounts in thousands, interest amounts and interest rates/yields on a fully tax-equivalent basis)
For the twelve months ended
December 31, 2017 December 31, 2016
Average Balance Interest Rate/Yield Average Balance Interest Rate/Yield
ASSETS
Interest-earning assets:
Fed funds, interest-bearing deposits and repos $70,139 $851 1.21 % $71,265 $214 0.30 %
FHLB stock 6,230 370 5.94 5,241 245 4.67
Securities:
Taxable 66,107 2,029 3.07 61,053 1,698 2.78
Tax-exempt 6,225 240 3.86 7,649 307 4.01
Total securities (A) 72,332 2,269 3.14 68,702 2,005 2.92
Loans:
SBA loans 59,293 3,805 6.42 56,834 3,181 5.60
SBA 504 loans 23,654 1,177 4.98 27,135 1,356 5.00
Commercial loans 547,347 26,973 4.93 483,479 23,900 4.94
Residential mortgage loans 319,074 14,650 4.59 273,612 12,205 4.46
Consumer loans 102,898 5,296 5.15 84,222 4,021 4.77
Total loans (B) 1,052,266 51,901 4.93 925,282 44,663 4.83
Total interest-earning assets $1,200,967 $55,391 4.61 % $1,070,490 $47,127 4.40 %
Noninterest-earning assets:
Cash and due from banks 23,321 24,409
Allowance for loan losses (13,033) (12,841)
Other assets 58,481 50,103
Total noninterest-earning assets 68,769 61,671
Total assets $1,269,736 $1,132,161
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Total interest-bearing demand deposits $159,642 $665 0.42 % $133,212 $537 0.40 %
Total savings deposits 397,250 2,738 0.69 328,486 1,742 0.53
Total time deposits 219,847 3,278 1.49 261,225 3,670 1.40
Total interest-bearing deposits 776,739 6,681 0.86 722,923 5,949 0.82
Borrowed funds and subordinated debentures 135,730 2,772 2.04 114,853 2,818 2.45
Total interest-bearing liabilities $912,469 $9,453 1.04 % $837,776 $8,767 1.04 %
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 237,207 199,554
Other liabilities 7,609 8,895
Total noninterest-bearing liabilities 244,297 208,449
Total shareholders' equity 112,970 85,936
Total liabilities and shareholders' equity $1,269,736 $1,132,161
Net interest spread $45,938 3.57 % $38,360 3.36 %
Tax-equivalent basis adjustment (81) (103)
Net interest income $45,857 $38,257
Net interest margin 3.83 % 3.58 %
(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, 2017
Amounts in thousands, except percentages Dec. 31, 2017 Sept. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period $13,113 $12,800 $12,681 $12,579 $12,685
Provision for loan losses charged to expense 500 500 400 250 200
13,613 13,300 13,081 12,829 12,885
Less: Chargeoffs
SBA loans - 34 150 109 189
Commercial loans - 31 120 76 19
Residential mortgage loans 50 5 - - 101
Consumer loans 83 170 17 66 2
Total chargeoffs 133 240 287 251 311
Add: Recoveries
SBA loans 45 36 3 37 1
SBA 504 loans - 2 - - -
Commercial loans 31 13 3 53 4
Residential mortgage loans - - - 12 -
Consumer loans - 2 - 1 -
Total recoveries 76 53 6 103 5
Net chargeoffs 57 187 281 148 306
Balance, end of period $13,556 $13,113 $12,800 $12,681 $12,579
LOAN QUALITY INFORMATION:
Nonperforming loans (1) $2,994 $3,742 $5,681 $7,758 $7,237
Other real estate owned ("OREO") 426 707 581 1,172 1,050
Nonperforming assets 3,420 4,449 6,262 8,930 8,287
Less: Amount guaranteed by SBA 27 27 41 60 60
Net nonperforming assets $3,393 $4,422 $6,221 $8,870 $8,227
Loans 90 days past due & still accruing $60 $2,216 $230 $ - $ -
(1) Nonperforming TDRs included in nonperforming loans $ - $ - $ - $ - $153
Total TDRs $ - $ - $ - $ - $153
Allowance for loan losses to:
Total loans at quarter end 1.16 % 1.20 % 1.22 % 1.27 % 1.29 %
Nonperforming loans (1) 452.77 350.43 225.31 163.46 173.82
Nonperforming assets 396.37 294.74 204.41 142.00 151.79
Net nonperforming assets 399.53 296.54 205.75 142.97 152.90
QTD net (recoveries) chargeoffs (annualized) to QTD average loans:
SBA loans (0.28)% (0.01)% 1.06 % 0.50 % 1.26 %
SBA 504 loans - (0.04) - - -
Commercial loans (0.02) 0.01 0.09 0.02 0.01
Residential mortgage loans 0.06 0.01 - (0.02) 0.14
Consumer loans 0.30 0.62 0.07 0.28 0.01
Total loans 0.02 % 0.07 % 0.11 % 0.06 % 0.13 %
Nonperforming loans to total loans 0.26 % 0.34 % 0.54 % 0.78 % 0.74 %
Nonperforming loans and TDRs to total loans 0.26 0.34 0.54 0.78 0.74
Nonperforming assets to total loans and OREO 0.29 0.41 0.60 0.89 0.85
Nonperforming assets to total assets 0.23 0.33 0.49 0.73 0.70

UNITY BANCORP, INC.
QUARTERLY FINANCIAL DATA
December 31, 2017
(In thousands, except percentages and per share amounts) Dec. 31, 2017 Sept. 30, 2017 Jun. 30, 2017 Mar. 31, 2017 Dec. 31, 2016
SUMMARY OF INCOME:
Total interest income $15,044 $14,195 $13,477 $12,594 $12,280
Total interest expense 2,544 2,378 2,327 2,204 2,225
Net interest income 12,500 11,817 11,150 10,390 10,055
Provision for loan losses 500 500 400 250 200
Net interest income after provision for loan losses 12,000 11,317 10,750 10,140 9,855
Total noninterest income 2,037 2,008 2,021 2,204 2,373
Total noninterest expense 7,629 7,554 7,421 7,440 7,303
Income before provision for income taxes 6,408 5,771 5,350 4,904 4,925
Provision for income taxes 2,175 2,014 1,906 1,712 1,765
DTA Tax Rate Adjustment 1,733 - - - -
Net income $2,500 $3,757 $3,444 $3,192 $3,160
Net income per common share - Basic $ 0.24 $ 0.36 $ 0.33 $ 0.30 $ 0.33
Net income per common share - Diluted $ 0.23 $ 0.35 $ 0.32 $ 0.30 $ 0.32
COMMON SHARE DATA:
Market price per share $ 19.75 $ 19.80 $ 17.20 $ 16.95 $ 15.70
Dividends paid $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.05
Book value per common share $ 11.13 $ 10.94 $ 10.64 $ 10.38 $ 10.14
Weighted average common shares outstanding - Basic 10,604 10,572 10,546 10,509 9,700
Weighted average common shares outstanding - Diluted 10,794 10,761 10,735 10,705 9,878
Issued and outstanding common shares 10,615 10,586 10,567 10,535 10,477
PERFORMANCE RATIOS (Annualized):
Return on average assets 0.74 % 1.17 % 1.11 % 1.07 % 1.07 %
Return on average equity 8.54 13.00 12.47 12.02 13.47
Efficiency ratio 52.45 54.86 56.41 59.08 59.90
Noninterest expense to average assets 2.25 2.35 2.39 2.50 2.47
BALANCE SHEET DATA:
Total assets $1,455,496 $1,329,834 $1,275,517 $1,226,168 $1,189,906
Total deposits 1,043,137 1,043,632 1,003,967 980,703 945,723
Total loans 1,170,674 1,092,873 1,046,804 1,000,677 973,414
Total securities 69,800 72,105 75,066 73,022 61,547
Total shareholders' equity 118,105 115,814 112,447 109,305 106,291
Allowance for loan losses (13,556) (13,113) (12,800) (12,681) (12,579)
TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets 4.71 % 4.66 % 4.58 % 4.48 % 4.40 %
Interest-bearing liabilities 1.05 1.04 1.03 1.02 1.03
Net interest spread 3.66 3.62 3.55 3.46 3.37
Net interest margin 3.91 3.88 3.79 3.70 3.60
CREDIT QUALITY:
Nonperforming assets 3,420 4,449 6,262 8,930 8,287
QTD net chargeoffs (annualized) to QTD average loans 0.02 % 0.07 % 0.11 % 0.06 % 0.13 %
Allowance for loan losses to total loans 1.16 1.20 1.22 1.27 1.29
Nonperforming assets to total loans and OREO 0.29 0.41 0.60 0.89 0.85
Nonperforming assets to total assets 0.23 0.33 0.49 0.73 0.70
CAPITAL RATIOS AND OTHER:
Total equity to total assets 8.11 % 8.71 % 8.82 % 8.91 % 8.93 %
Leverage ratio 9.37 9.70 9.66 9.72 9.73
Common equity tier 1 risk-based capital ratio 10.81 11.27 11.32 11.46 11.49
Tier 1 risk-based capital ratio 11.75 12.26 12.34 12.53 12.58
Total risk-based capital ratio 12.87 13.30 13.59 13.78 13.84
Number of banking offices 18 17 17 17 17
Number of ATMs 19 18 18 18 18
Number of employees 199 166 186 181 184


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

Source:Unity Bancorp, Inc.