UNITY BANCORP INC /NJ/ - FORM 8-K - EX-99.1

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8-K - 8-K - UNITY BANCORP INC /NJ/	unty-20121025x8k.htm

Unity Bancorp, Inc.

64 Old Highway 22

Clinton, NJ 08809

800-618-BANK

www.unitybank.com

NewsNewsNewsNewsNews

For Immediate Release:

October 25, 2012

News Media & Financial Analyst Contact:

Alan J. Bedner, EVP

Chief Financial Officer

(908) 713-4308

Unity Bancorp Reports Continued Improvement in Earnings

Clinton, NJ - Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $799 thousand, or $0.10 per diluted share, for the three months ended September 30, 2012, compared to $700 thousand, or $0.09 per diluted share, for the same period a year ago. Return on average assets and average common equity for the quarter were 0.60% and 5.74%, respectively, compared to 0.54% and 5.27% for the same period a year ago.

For the nine months ended September 30, 2012, net income available to common shareholders totaled $1.9 million, or $0.24 per diluted share, compared to $786 thousand, or $0.10 per diluted share, for the same period a year ago. Return on average assets and average common equity for the nine months were 0.51% and 4.61%, respectively, compared to 0.32% and 2.04% for the same period a year ago.

Highlights for the quarter include:

×	Nonperforming assets improved for the third consecutive quarter with a decline of $3.4 million to $18.8 million from $22.2 million at June 30, 2012.

×	Improved credit quality resulted in lower loan loss provisions as well as reduced loan collection expenses and costs to maintain other real estate owned (“OREO”).

×	Significant increases in residential mortgage originations resulted in increased gains on sale of mortgage loans.

×	Net interest margin expanded to 3.72% this quarter from 3.68% for the quarter ended June 30, 2012.

×	Continued deposit product mix improvement. Growth in core demand deposits and savings deposits, while higher costing time deposits declined.

×	Further improvement in our capital ratios as we remain “well-capitalized”.

×	Closed our William Penn Highway, Pennsylvania branch and received regulatory approval for the new Somerset, New Jersey branch which is expected to open in November 2012.

James A. Hughes, President and CEO, stated, “This was another quarter of increased earnings as our core fundamentals continued to improve and asset quality strengthened. We enhanced our net interest margin over the second quarter of 2012 through strategic deposit pricing, coupled with increasing levels of noninterest-bearing deposits. The trends are very positive and I remain extremely optimistic about the long-term opportunities ahead.”

Net Interest Income

Net interest income decreased $326 thousand to $7.0 million for the three months ended September 30, 2012 compared to the prior year’s quarter and decreased $1.6 million to $20.7 million for the nine months ended September 30, 2012 compared to the prior year’s period. In addition, the net interest margin contracted 13 basis points to 3.72% for the quarter ended September 30, 2012 and contracted 23 basis points to 3.65% for the nine months ended September 30, 2012 when compared to the prior year periods.

Our net interest income continues to be influenced by the sustained low interest rate environment, which the Federal Open Market Committee (“FOMC”) forecasts will remain through mid-2015. This rate environment has resulted in a tighter net interest margin as our earning assets re-price at lower rates. The yield on earning assets fell 51 basis points to 4.70% and 58 basis points to 4.70% for the quarter and year-to-date periods ending September 30, 2012, respectively, when compared to the same periods in 2011. Partially offsetting these declines are lower funding costs. The cost of interest-bearing liabilities decreased 43 basis points to 1.19% for the three month period and decreased 37 basis points to 1.29% for the nine month period.

Noninterest Income

Noninterest income increased $120 thousand to $1.8 million and $974 thousand to $5.3 million for the three and nine months ended September 30, 2012, respectively, compared to the prior year’s period. These increases were driven by record levels of residential mortgage loan originations and sales. Additional factors affecting noninterest income were:

×	Branch fee income, which consists of deposit service charges and overdraft fees, increased due to higher levels of overdraft fees year-to-date partially offset by reduced deposit account service charges.

×	Service and loan fee income increased due to late charges, servicing income and other processing fees.

Gains on sales of SBA loans decreased due to a lower volume of loans being sold in each period. For the three month period, $442 thousand in SBA loans were sold compared to $5.1 million in sales in the third quarter of 2011. Year-to-date, $4.7 million in SBA loans were sold compared to $11.1 million in the prior year period.

Gains on sales of residential mortgage loans increased on a significantly higher volume of loan sales. For the three month period, $30.1 million in residential mortgage loans were sold compared to $13.3 million in the third quarter of 2011. Year-to-date, $71.6 million in residential mortgage loans were sold compared to $29.0 million in the prior year’s period.

×	Security gains of $7 thousand and $514 thousand were realized during the quarter and year to date periods, respectively.

Noninterest Expense

Noninterest expense totaled $6.0 million and $6.1 million for the three months ended September 30, 2012 and 2011, respectively, and $18.2 million and $18.5 million for the nine months ended September 30, 2012 and 2011, respectively.

Noninterest expense in the current and prior year periods included the impact of our branch network restructuring. In March 2012, we opened our Washington Township, New Jersey branch. In the third quarter of 2012, we announced we would be closing our William Penn Highway, Pennsylvania branch and recognized approximately $32 thousand in residual lease and fixed asset disposal expenses. Also, during the third quarter we announced we would be opening a new branch in Somerset, New Jersey and have subsequently begun to incur lease and other operating expenses. For the nine months ended September 30, 2011, we incurred $215 thousand in residual lease obligation and fixed asset disposals related to closing two underperforming branches. Other factors which affected noninterest expense include:

×	Compensation and benefits expense increased due to higher payroll costs, mortgage origination commissions, equity compensation and medical benefits expenses.

Occupancy expense increased over the third quarter of 2011 due to rental expense from our new Somerset branch, residual lease expenses from closing our William Penn branch and increased depreciation expenses due to the new Washington branch. For the year-to-date period, occupancy expense declined as the above noted increases were offset by higher snow removal expenses in 2011 and the branch closure related expenses in 2011 noted above.

×	Furniture and equipment expense decreased due primarily to the branch closure cost savings noted above, partially offset by expenses related to our new Washington branch.

×	Loan collection costs decreased due to lower loan legal, appraisal, insurance and other collection related expenses.

×	OREO costs, such as property valuation adjustments, property taxes and maintenance expenses, decreased significantly as credit quality improved.

×	Deposit insurance expense decreased year-to-date due to the new assets-based assessment method put into place by the FDIC on April 1, 2011.

×	Advertising expenses, such as promotional activities related to our new branches and in response to increased competition within our market place, combined with participation in community events and higher direct mail costs, increased year-to-date.

Financial Condition

At September 30, 2012, total assets were $802.7 million, a decrease of $8.2 million from the prior year-end.

×	Total securities decreased $1.1 million since December 31, 2011, due to $32.8 million in security purchases, offset by sales and an increased level of prepayments.

Total loans increased $4.3 million or 0.7% to $596.9 million at September 30, 2012. The Company plans to continue shrinking its SBA portfolio. Future loan growth is expected in both the commercial and residential portfolios as reflected in our year-to-date performance. The net increase was the result of the following:

-	Commercial loans increased $23.5 million or 8.3%,

-	Residential mortgage loans increased $3.1 million or 2.3%,

-	SBA 504 loans decreased $13.3 million or 24.2%,

-	SBA 7(a) loans decreased $4.8 million or 6.7%, and

-	Consumer loans decreased $4.1 million or 8.4%.

×	Core deposits, which exclude time deposits, increased $21.0 million during the year to $505.6 million, due primarily to a $10.3 million increase in municipal deposits. The net changes by product type include:

-	A $17.0 million increase in savings deposits, and a

-	$4.3 million increase in noninterest-bearing demand deposits, partially offset by a

-	$280 thousand decrease in interest-bearing demand deposits.

-	Time deposits decreased $31.9 million from year-end due to the maturity and planned run off of brokered deposits, as well as a high rate retail promotion that was completed late in 2008 to bolster liquidity.

×	Shareholders’ equity was $76.4 million at September 30, 2012, an increase of $2.9 million from year-end 2011, primarily due to the increase in net income.

×	Book value per common share was $7.52 as of September 30, 2012.

×	At September 30, 2012 the leverage, Tier I and Total Risk Based Capital ratios were 11.20%, 14.52% and 15.78%, respectively, all in excess of the ratios required to be deemed “well-capitalized”.

Credit Quality

“Nonperforming assets have declined $7.0 million or 27.2% to $18.8 million since year-end 2011. This is the lowest level since 2008 and I expect this trend to continue”, said James A. Hughes. “Many of our problem commercial and SBA relationships have been resolved and the majority of our problem relationships are behind us.”

×	Nonperforming assets totaled $18.8 million at September 30, 2012 or 3.14% of total loans and OREO, compared to $25.8 million or 4.33% of total loans and OREO at year-end 2011.

The allowance for loan losses totaled $15.3 million at September 30, 2012 or 2.56% of total loans. The provision for loan losses for the quarter ended September 30, 2012 was $1.0 million compared to $1.4 million for the prior year’s quarter. The provision for loan losses for the nine months ended September 30, 2012 was $3.2 million compared to $5.7 million for the prior year’s period.

×	Net charge-offs were $2.0 million for the three months ended September 30, 2012, compared to $971 thousand for the same period a year ago. For the nine months ended September 30, 2012, net charge-offs were $4.3 million, compared to $3.6 million for the prior year’s period.

×	Troubled debt restructurings (“TDRs”) decreased $2.2 million from year-end to $18.9 million due to loan payoffs. At September 30, 2012, 91.4% of our TDRs were performing.

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $803 million in assets and $633 million in deposits. Unity Bank provides financial services to retail, corporate and small business customers through its 15 retail service centers located in Hunterdon, Middlesex, Somerset, Union and Warren Counties in New Jersey and Northampton County, Pennsylvania. For additional information about Unity, visit our website at www.unitybank.com, or call 800- 618-BANK.

This news release contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated future financial performance. These statements may be identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions. These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to factors beyond the company’s control and could impede its ability to achieve these goals. These factors include 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

September 30, 2012

September 30, 2012 vs.

June 30, 2012

September 30, 2011

(In thousands, except percentages and per share amounts)

September 30, 2012

June 30, 2012

September 30, 2011

BALANCE SHEET DATA:

Total assets

802,675

785,111

820,652

2.2

(2.2)

Total deposits

633,126

616,443

654,171

2.7

(3.2)

Total loans

596,910

604,901

603,633

(1.3)

(1.1)

Total securities

106,437

114,846

100,752

(7.3)

5.6

Total shareholders' equity

76,387

74,901

73,136

2.0

4.4

Allowance for loan losses

(15,294)

(16,284)

(16,447)

6.1

7.0

FINANCIAL DATA - QUARTER TO DATE:

Income before provision for income taxes

1,802

1,494

1,506

20.6

19.7

Provision for income taxes

606

518

420

17.0

44.3

Net income

1,196

976

1,086

22.5

10.1

Preferred stock dividends and discount accretion

397

401

386

(1.0)

2.8

Income available to common shareholders

799

575

700

39.0

14.1

Net income per common share - Basic (1)

0.11

0.08

0.09

37.5

22.2

Net income per common share - Diluted (1)

0.10

0.07

0.09

42.9

11.1

Return on average assets

0.60

0.49

0.54

22.4

11.1

Return on average equity (2)

5.74

4.25

5.27

35.1

8.9

Efficiency ratio

68.22

73.72

69.80

(7.5)

(2.3)

FINANCIAL DATA - YEAR TO DATE:

Income before provision for income taxes

4,660

2,498

86.5

Provision for income taxes

1,583

548

188.9

Net income

3,077

1,950

57.8

Preferred stock dividends and discount accretion

1,195

1,164

2.7

Income available to common shareholders

1,882

786

139.4

Net income per common share - Basic (1)

0.25

0.11

127.3

Net income per common share - Diluted (1)

0.24

0.10

140.0

Return on average assets

0.51

0.32

59.4

Return on average equity (2)

4.61

2.04

126.0

Efficiency ratio

71.20

70.36

1.2

SHARE INFORMATION:

Market price per share

6.13

6.00

6.65

2.2

(7.8)

Dividends paid

Book value per common share

7.52

7.38

7.25

1.9

3.7

Average diluted shares outstanding (QTD)

7,782

7,784

7,781

CAPITAL RATIOS:

Total equity to total assets

9.52

9.54

8.91

(0.2)

6.8

Leverage ratio

11.20

11.08

10.69

1.1

4.8

Tier 1 risk-based capital ratio

14.52

14.22

13.88

2.1

4.6

Total risk-based capital ratio

15.78

15.49

15.14

1.9

4.2

CREDIT QUALITY AND RATIOS:

Nonperforming assets

18,790

22,186

24,153

(15.3)

(22.2)

QTD net chargeoffs (annualized) to QTD average loans

1.32

0.71

0.63

85.9

109.5

Allowance for loan losses to total loans

2.56

2.69

2.72

(4.8)

(5.9)

Nonperforming assets to total loans and OREO

3.14

3.65

3.98

(14.0)

(21.1)

Nonperforming assets to total assets

2.34

2.83

2.94

(17.3)

(20.4)

(1)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

(2)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders' equity (excluding preferred stock).

UNITY BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2012



							September 30, 2012 vs.
							December 31, 2011		September 30, 2011
(In thousands, except percentages)	September 30, 2012		December 31, 2011		September 30, 2011		%		%
ASSETS
Cash and due from banks	$	17,027	$	17,688	$	15,965	(3.7)	%	6.7	%
Federal funds sold and interest-bearing deposits		55,536		64,886		74,125	(14.4)		(25.1)
Cash and cash equivalents		72,563		82,574		90,090	(12.1)		(19.5)
Securities:
Securities available for sale		90,852		88,765		88,083	2.4		3.1
Securities held to maturity		15,585		18,771		12,669	(17.0)		23.0
Total securities		106,437		107,536		100,752	(1.0)		5.6
Loans:
SBA loans held for sale		7,708		7,668		9,284	0.5		(17.0)
SBA loans held to maturity		59,299		64,175		66,363	(7.6)		(10.6)
SBA 504 loans		41,771		55,108		55,520	(24.2)		(24.8)
Commercial loans		306,569		283,104		284,046	8.3		7.9
Residential mortgage loans		137,192		134,090		136,942	2.3		0.2
Consumer loans		44,371		48,447		51,478	(8.4)		(13.8)
Total loans		596,910		592,592		603,633	0.7		(1.1)
Allowance for loan losses		(15,294)		(16,348)		(16,447)	6.4		7.0
Net loans		581,616		576,244		587,186	0.9		(0.9)

Premises and equipment, net		12,016		11,350		10,648	5.9		12.8
Bank owned life insurance ("BOLI")		9,327		9,107		9,033	2.4		3.3
Deferred tax assets		6,221		6,878		6,889	(9.6)		(9.7)
Federal Home Loan Bank stock		3,989		4,088		4,088	(2.4)		(2.4)
Accrued interest receivable		3,478		3,703		3,519	(6.1)		(1.2)
Other real estate owned ("OREO")		1,456		3,032		3,555	(52.0)		(59.0)
Prepaid FDIC insurance		2,079		2,545		2,653	(18.3)		(21.6)
Goodwill and other intangibles		1,518		1,530		1,533	(0.8)		(1.0)
Other assets		1,975		2,259		706	(12.6)		179.7

Total assets	$	802,675	$	810,846	$	820,652	(1.0)	%	(2.2)	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits	$	105,529	$	101,193	$	93,706	4.3	%	12.6	%
Interest-bearing demand deposits		104,469		104,749		100,807	(0.3)		3.6
Savings deposits		295,567		278,603		296,571	6.1		(0.3)
Time deposits, under $100,000		78,104		102,809		105,840	(24.0)		(26.2)
Time deposits, $100,000 and over		49,457		56,617		57,247	(12.6)		(13.6)
Total deposits		633,126		643,971		654,171	(1.7)		(3.2)

Borrowed funds		75,000		75,000		75,000	-		-
Subordinated debentures		15,465		15,465		15,465	-		-
Accrued interest payable		464		523		533	(11.3)		(12.9)
Accrued expenses and other liabilities		2,233		2,329		2,347	(4.1)		(4.9)
Total liabilities		726,288		737,288		747,516	(1.5)		(2.8)

Shareholders' equity:
Cumulative perpetual preferred stock		19,968		19,545		19,409	2.2		2.9
Common stock		54,176		53,746		53,663	0.8		1.0
Retained earnings (deficit)		1,028		(854)		(1,056)	220.4		197.3
Accumulated other comprehensive income		1,215		1,121		1,120	8.4		8.5
Total shareholders' equity		76,387		73,558		73,136	3.8		4.4

Total liabilities and shareholders' equity	$	802,675	$	810,846	$	820,652	(1.0)	%	(2.2)	%

Preferred shares		21		21		21
Issued and outstanding common shares		7,503		7,459		7,413

UNITY BANCORP, INC.

QTD CONSOLIDATED STATEMENTS OF INCOME

September 30, 2012

September 30, 2012 vs.

For the three months ended

June 30, 2012

September 30, 2011

(In thousands, except percentages and per share amounts)

September 30, 2012

June 30, 2012

September 30, 2011

INTEREST INCOME

Federal funds sold and interest-bearing deposits

18.2

116.7

Federal Home Loan Bank stock

13.6

8.7

Securities:

Securities available for sale

656

690

804

(34)

(4.9)

(148)

(18.4)

Securities held to maturity

146

163

157

(17)

(10.4)

(11)

(7.0)

Total securities

802

853

961

(51)

(6.0)

(159)

(16.5)

Loans:

SBA loans

881

846

1,243

4.1

(362)

(29.1)

SBA 504 loans

647

691

838

(44)

(6.4)

(191)

(22.8)

Commercial loans

4,313

4,216

4,417

2.3

(104)

(2.4)

Residential mortgage loans

1,631

1,582

1,825

3.1

(194)

(10.6)

Consumer loans

534

529

616

0.9

(82)

(13.3)

Total loans

8,006

7,864

8,939

142

1.8

(933)

(10.4)

Total interest income

8,871

8,772

9,952

1.1

(1,081)

(10.9)

INTEREST EXPENSE

Interest-bearing demand deposits

108

123

137

(15)

(12.2)

(29)

(21.2)

Savings deposits

293

287

536

2.1

(243)

(45.3)

Time deposits

619

689

979

(70)

(10.2)

(360)

(36.8)

Borrowed funds and subordinated debentures

824

816

947

1.0

(123)

(13.0)

Total interest expense

1,844

1,915

2,599

(71)

(3.7)

(755)

(29.0)

Net interest income

7,027

6,857

7,353

170

2.5

(326)

(4.4)

Provision for loan losses

1,000

1,400

(400)

(28.6)

Net interest income after provision for loan losses

6,027

5,857

5,953

170

2.9

1.2

NONINTEREST INCOME

Branch fee income

383

362

374

5.8

2.4

Service and loan fee income

366

287

213

27.5

153

71.8

Gain on sale of SBA loans held for sale, net

223

338

(177)

(79.4)

(292)

(86.4)

Gain on sale of mortgage loans, net

662

453

250

209

46.1

412

164.8

BOLI income

1.4

Net security gains

283

266

(276)

(97.5)

(259)

(97.4)

Other income

236

160

139

47.5

69.8

Total noninterest income

1,774

1,841

1,654

(67)

(3.6)

120

7.3

NONINTEREST EXPENSE

Compensation and benefits

3,191

3,133

2,944

1.9

247

8.4

Occupancy

690

740

615

(50)

(6.8)

12.2

Processing and communications

544

553

549

(9)

(1.6)

(5)

(0.9)

Furniture and equipment

368

355

384

3.7

(16)

(4.2)

Professional services

196

211

206

(15)

(7.1)

(10)

(4.9)

Loan collection costs

182

235

100.0

(53)

(22.6)

OREO expenses

237

491

(201)

(84.8)

(455)

(92.7)

Deposit insurance

162

168

(6)

(3.6)

102

170.0

Advertising

181

302

187

(121)

(40.1)

(6)

(3.2)

Other expenses

449

414

430

8.5

4.4

Total noninterest expense

5,999

6,204

6,101

(205)

(3.3)

(102)

(1.7)

Income before provision for income taxes

1,802

1,494

1,506

308

20.6

296

19.7

Provision for income taxes

606

518

420

17.0

186

44.3

Net income

1,196

976

1,086

220

22.5

110

10.1

Preferred stock dividends and discount accretion

397

401

386

(4)

(1.0)

2.8

Income available to common shareholders

799

575

700

224

39.0

14.1

Effective tax rate		33.6	%		34.7	%		27.9	%

Net income per common share - Basic (1)	$	0.11		$	0.08		$	0.09
Net income per common share - Diluted (1)	$	0.10		$	0.07		$	0.09

Weighted average common shares outstanding - Basic		7,473			7,462			7,413
Weighted average common shares outstanding - Diluted		7,782			7,784			7,781

(1)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

UNITY BANCORP, INC.

YTD CONSOLIDATED STATEMENTS OF INCOME

September 30, 2012

For the nine months ended September 30,

Current YTD vs. Prior YTD

(In thousands, except percentages and per share amounts)

2012

2011

INTEREST INCOME

Federal funds sold and interest-bearing deposits

115.4

Federal Home Loan Bank stock

144

147

(3)

(2.0)

Securities:

Securities available for sale

2,066

2,558

(492)

(19.2)

Securities held to maturity

482

625

(143)

(22.9)

Total securities

2,548

3,183

(635)

(19.9)

Loans:

SBA loans

2,652

3,671

(1,019)

(27.8)

SBA 504 loans

2,098

2,626

(528)

(20.1)

Commercial loans

12,707

13,304

(597)

(4.5)

Residential mortgage loans

4,869

5,502

(633)

(11.5)

Consumer loans

1,624

1,931

(307)

(15.9)

Total loans

23,950

27,034

(3,084)

(11.4)

Total interest income

26,698

30,390

(3,692)

(12.1)

INTEREST EXPENSE

Interest-bearing demand deposits

368

420

(52)

(12.4)

Savings deposits

933

1,701

(768)

(45.1)

Time deposits

2,222

3,119

(897)

(28.8)

Borrowed funds and subordinated debentures

2,486

2,851

(365)

(12.8)

Total interest expense

6,009

8,091

(2,082)

(25.7)

Net interest income

20,689

22,299

(1,610)

(7.2)

Provision for loan losses

3,200

5,650

(2,450)

(43.4)

Net interest income after provision for loan losses

17,489

16,649

840

5.0

NONINTEREST INCOME

Branch fee income

1,131

1,054

7.3

Service and loan fee income

954

840

114

13.6

Gain on sale of SBA loans held for sale, net

427

848

(421)

(49.6)

Gain on sale of mortgage loans, net

1,526

506

1,020

201.6

BOLI income

220

221

(1)

(0.5)

Net security gains

514

353

161

45.6

Other income

558

534

4.5

Total noninterest income

5,330

4,356

974

22.4

NONINTEREST EXPENSE

Compensation and benefits

9,505

8,881

624

7.0

Occupancy

2,038

2,161

(123)

(5.7)

Processing and communications

1,631

1,593

2.4

Furniture and equipment

1,085

1,178

(93)

(7.9)

Professional services

598

599

(1)

(0.2)

Loan collection costs

453

660

(207)

(31.4)

OREO expenses

398

936

(538)

(57.5)

Deposit insurance

502

661

(159)

(24.1)

Advertising

630

510

120

23.5

Other expenses

1,319

1,328

(9)

(0.7)

Total noninterest expense

18,159

18,507

(348)

(1.9)

Income before provision for income taxes

4,660

2,498

2,162

86.5

Provision for income taxes

1,583

548

1,035

188.9

Net income

3,077

1,950

1,127

57.8

Preferred stock dividends and discount accretion

1,195

1,164

2.7

Income available to common shareholders

1,882

786

1,096

139.4

Effective tax rate

34.0

21.9


Net income per common share - Basic (1)	$	0.25	0.11
Net income per common share - Diluted (1)	$	0.24	0.10

Weighted average common shares outstanding - Basic		7,465	7,301
Weighted average common shares outstanding - Diluted		7,786	7,719

(1)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

UNITY BANCORP, INC.

QTD NET INTEREST MARGIN

September 30, 2012

For the three months ended

September 30, 2012

June 30, 2012

Average Balance

Interest

Rate/Yield

Average Balance

Interest

Rate/Yield

ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	40,183	$	13	0.13	%	$	30,832	$	11	0.14	%
Federal Home Loan Bank stock		3,989		50	4.99			3,993		44	4.43
Securities:
Securities available for sale		95,193		703	2.95			103,958		741	2.85

Securities held to maturity

16,467

152

3.69

17,499

170

3.89

Total securities (A)

111,660

855

3.06

121,457

911

3.00

Loans:

SBA loans	66,484	881	5.30	69,273	846	4.89
SBA 504 loans	44,583	647	5.77	46,804	691	5.94
Commercial loans	307,090	4,313	5.59	303,409	4,216	5.59
Residential mortgage loans	136,568	1,631	4.78	133,643	1,582	4.74

Consumer loans

46,116

534

4.61

45,658

529

4.66

Total loans (B)

600,841

8,006

5.31

598,787

7,864

5.28

Total interest-earning assets

756,673

8,924

4.70

755,069

8,830

4.70


Noninterest-earning assets:
Cash and due from banks	16,211	16,101
Allowance for loan losses	(16,508)	(16,980)

Other assets

40,138

39,774

Total noninterest-earning assets

39,841

38,895

Total assets

796,514

793,964


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	103,029	$	108	0.42	%	$	110,343	$	123	0.45	%
Savings deposits		287,054		293	0.41			270,990		287	0.43

Time deposits

131,356

619

1.87

138,554

689

2.00

Total interest-bearing deposits

521,439

1,020

0.78

519,887

1,099

0.85

Borrowed funds and subordinated debentures

90,465

824

3.56

90,465

816

3.57

Total interest-bearing liabilities

611,904

1,844

1.19

610,352

1,915

1.25

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			105,876									106,043

Other liabilities

3,469

3,438

Total noninterest-bearing liabilities

109,345

109,481

Total shareholders' equity

75,265

74,131

Total liabilities and shareholders' equity

796,514

793,964

Net interest spread

7,080

3.51

6,915

3.45

Tax-equivalent basis adjustment

(53)

(58)

Net interest income

7,027

6,857

Net interest margin

3.72

3.68

(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 34 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.

QTD NET INTEREST MARGIN

September 30, 2012

For the three months ended September 30,

2012

2011

Average Balance

Interest

Rate/Yield

Average Balance

Interest

Rate/Yield

ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	40,183	$	13	0.13	%	$	41,735	$	6	0.06	%
Federal Home Loan Bank stock		3,989		50	4.99			4,088		46	4.46
Securities:
Securities available for sale		95,193		703	2.95			93,603		852	3.64

Securities held to maturity

16,467

152

3.69

13,043

162

4.97

Total securities (A)

111,660

855

3.06

106,646

1,014

3.80

Loans:

SBA loans	66,484	881	5.30	82,764	1,243	6.01
SBA 504 loans	44,583	647	5.77	55,814	838	5.96
Commercial loans	307,090	4,313	5.59	286,634	4,417	6.11
Residential mortgage loans	136,568	1,631	4.78	135,519	1,825	5.39

Consumer loans

46,116

534

4.61

50,838

616

4.81

Total loans (B)

600,841

8,006

5.31

611,569

8,939

5.82

Total interest-earning assets

756,673

8,924

4.70

764,038

10,005

5.21


Noninterest-earning assets:
Cash and due from banks	16,211	15,453
Allowance for loan losses	(16,508)	(16,812)

Other assets

40,138

41,739

Total noninterest-earning assets

39,841

40,380

Total assets

796,514

804,418


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	103,029	$	108	0.42	%	$	98,942	$	137	0.55	%
Savings deposits		287,054		293	0.41			281,591		536	0.76

Time deposits

131,356

619

1.87

163,676

979

2.37

Total interest-bearing deposits

521,439

1,020

0.78

544,209

1,652

1.20

Borrowed funds and subordinated debentures

90,465

824

3.56

90,465

947

4.10

Total interest-bearing liabilities

611,904

1,844

1.19

634,674

2,599

1.62

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			105,876									94,811

Other liabilities

3,469

2,922

Total noninterest-bearing liabilities

109,345

97,733

Total shareholders' equity

75,265

72,011

Total liabilities and shareholders' equity

796,514

804,418

Net interest spread

7,080

3.51

7,406

3.59

Tax-equivalent basis adjustment

(53)

Net interest income

7,027

7,353

Net interest margin

3.72

3.85

(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 34 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.

YTD NET INTEREST MARGIN

September 30, 2012

For the nine months ended September 30,

2012

2011

Average Balance

Interest

Rate/Yield

Average Balance

Interest

Rate/Yield

ASSETS
Interest-earning assets:
Federal funds sold and interest-bearing deposits	$	45,206	$	56	0.17	%	$	38,526	$	26	0.09	%
Federal Home Loan Bank stock		4,023		144	4.78			4,130		147	4.76
Securities:
Securities available for sale		100,398		2,225	2.95			100,752		2,701	3.57

Securities held to maturity

17,443

502

3.84

15,776

640

5.41

Total securities (A)

117,841

2,727

3.08

116,528

3,341

3.82

Loans:

SBA loans	69,162	2,652	5.11	84,757	3,671	5.77
SBA 504 loans	47,687	2,098	5.88	58,914	2,626	5.96
Commercial loans	298,279	12,707	5.69	284,595	13,304	6.25
Residential mortgage loans	134,353	4,869	4.83	132,901	5,502	5.52

Consumer loans

46,459

1,624

4.67

52,653

1,931

4.90

Total loans (B)

595,940

23,950

5.36

613,820

27,034

5.88

Total interest-earning assets

763,010

26,877

4.70

773,004

30,548

5.28


Noninterest-earning assets:
Cash and due from banks	16,088	16,478
Allowance for loan losses	(16,758)	(15,978)

Other assets

40,068

40,477

Total noninterest-earning assets

39,398

40,977

Total assets

802,408

813,981


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits	$	107,437	$	368	0.46	%	$	102,197	$	420	0.55	%
Savings deposits		280,459		933	0.44			286,014		1,701	0.80

Time deposits

142,263

2,222

2.09

168,874

3,119

2.47

Total interest-bearing deposits

530,159

3,523

0.89

557,085

5,240

1.26

Borrowed funds and subordinated debentures

90,465

2,486

3.61

90,465

2,851

4.16

Total interest-bearing liabilities

620,624

6,009

1.29

647,550

8,091

1.66

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits			104,145									91,922

Other liabilities

3,386

3,736

Total noninterest-bearing liabilities

107,531

95,658

Total shareholders' equity

74,253

70,773

Total liabilities and shareholders' equity

802,408

813,981

Net interest spread

20,868

3.41

22,457

3.62

Tax-equivalent basis adjustment

(179)

(158)

Net interest income

20,689

22,299

Net interest margin

3.65

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 34 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, 2012

Amounts in thousands, except percentages

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

ALLOWANCE FOR LOAN LOSSES:

Balance, beginning of period

16,284

16,339

16,348

16,447

16,018

Provision for loan losses charged to expense

1,000

1,200

1,150

1,400

	17,284	17,339	17,548	17,597	17,418
Less: Chargeoffs
SBA loans	254	213	615	735	310
SBA 504 loans	481	100	227	200	325
Commercial loans	1,428	540	346	290	450
Residential mortgage loans	65	494	113	73	-

Consumer loans

Total chargeoffs

2,259

1,372

1,301

1,344

1,085

Add: Recoveries

SBA loans	195	249	53	26	111
SBA 504 loans	15	15	28	-	-
Commercial loans	58	53	11	15	3
Residential mortgage loans	-	-	-	50	-

Consumer loans

Total recoveries

269

317

114

Net chargeoffs

1,990

1,055

1,209

1,249

971

Balance, end of period

15,294

16,284

16,339

16,348

16,447

LOAN QUALITY INFORMATION:
Nonperforming loans (1)		$	17,334		$	19,831		$	22,206		$	22,769		$	20,598

Other real estate owned ("OREO")

1,456

2,355

1,625

3,032

3,555

Nonperforming assets

18,790

22,186

23,831

25,801

24,153

Less: Amount guaranteed by SBA

566

526

555

939

1,339

Net nonperforming assets

18,224

21,660

23,276

24,862

22,814

Loans 90 days past due & still accruing	$	1,630	$	2,443	$	3,165	$	2,411	$	2,191

Performing Troubled Debt Restructurings (TDRs)	$	17,250	$	20,541	$	20,985	$	17,436	$	17,488

(1) Nonperforming TDRs included above

1,628

871

2,287

3,645

3,817

Total TDRs	$	18,878		$	21,412		$	23,272		$	21,081		$	21,305

Allowance for loan losses to:
Total loans at quarter end		2.56	%		2.69	%		2.80	%		2.76	%		2.72	%
Nonperforming loans (1)		88.23			82.11			73.58			71.80			79.85
Nonperforming assets		81.39			73.40			68.56			63.36			68.10
Net nonperforming assets		83.92			75.18			70.20			65.75			72.09

QTD net chargeoffs (annualized) to QTD average loans:
SBA loans		0.35	%		(0.21)	%		3.15	%		3.77	%		0.95	%
SBA 504 loans		4.16			0.73			1.55			1.43			2.31
Commercial loans		1.77			0.65			0.47			0.39			0.62
Residential mortgage loans		0.19			1.49			0.34			0.07			-

Consumer loans

0.26

0.22

0.34

Total loans	1.32	%	0.71	%	0.83	%	0.83	%	0.63	%

Nonperforming loans to total loans	2.90	%	3.28	%	3.81	%	3.84	%	3.41	%
Nonperforming loans and TDRs to total loans	5.79		6.67		7.41		6.78		6.31
Nonperforming assets to total loans and OREO	3.14		3.65		4.08		4.33		3.98
Nonperforming assets to total assets	2.34		2.83		2.94		3.18		2.94

UNITY BANCORP, INC.

QUARTERLY FINANCIAL DATA

September 30, 2012

(In thousands, except percentages and per share amounts)

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

SUMMARY OF INCOME:

Total interest income

8,871

8,772

9,058

9,133

9,952

Total interest expense

1,844

1,915

2,250

2,460

2,599

Net interest income

7,027

6,857

6,808

6,673

7,353

Provision for loan losses

1,000

1,200

1,150

1,400

Net interest income after provision for loan lossees			6,027			5,857			5,608			5,523			5,953
Total noninterest income			1,774			1,841			1,715			1,305			1,654

Total noninterest expense

5,999

6,204

5,959

6,012

6,101

Income before provision for income taxes

1,802

1,494

1,364

816

1,506

Provision for income taxes

606

518

459

220

420

Net income

1,196

976

905

596

1,086

Preferred stock dividends and discount accretion

397

401

396

393

386

Income available to common shareholders

799

575

509

203

700

Net income per common share - Basic (1)	$	0.11		$	0.08		$	0.07		$	0.03		$	0.09
Net income per common share - Diluted (1)	$	0.10		$	0.07		$	0.07		$	0.03		$	0.09

COMMON SHARE DATA:
Market price per share	$	6.13		$	6.00		$	6.24		$	6.40		$	6.65
Dividends paid	$	-		$	-		$	-		$	-		$	-
Book value per common share	$	7.52		$	7.38		$	7.28		$	7.24		$	7.25
Weighted average common shares outstanding - Basic		7,473			7,462			7,460			7,427			7,413
Weighted average common shares outstanding - Diluted		7,782			7,784			7,792			7,782			7,781
Issued and outstanding common shares		7,503			7,461			7,463			7,459			7,413

OPERATING RATIOS (Annualized):
Return on average assets		0.60	%		0.49	%		0.45	%		0.29	%		0.54	%
Return on average equity (2)		5.74			4.25			3.81			1.51			5.27
Efficiency ratio		68.22			73.72			71.80			74.90			69.80

BALANCE SHEET DATA:
Total assets	$	802,675		$	785,111		$	810,198		$	810,846		$	820,652
Total deposits		633,126			616,443			643,101			643,971			654,171
Total loans		596,910			604,901			582,752			592,592			603,633
Total securities		106,437			114,846			128,061			107,536			100,752
Total shareholders' equity		76,387			74,901			74,002			73,558			73,136
Allowance for loan losses		(15,294)			(16,284)			(16,339)			(16,348)			(16,447)

TAX EQUIVALENT YIELDS AND RATES:
Interest-earning assets		4.70	%		4.70	%		4.71	%		4.64	%		5.21	%
Interest-bearing liabilities		1.19			1.25			1.41			1.49			1.62
Net interest spread		3.51			3.45			3.30			3.15			3.59
Net interest margin		3.72			3.68			3.56			3.39			3.85

CREDIT QUALITY:
Nonperforming assets		18,790			22,186			23,831			25,801			24,153
QTD net chargeoffs (annualized) to QTD average loans		1.32	%		0.71	%		0.83	%		0.83	%		0.63	%
Allowance for loan losses to total loans		2.56			2.69			2.80			2.76			2.72
Nonperforming assets to total loans and OREO		3.14			3.65			4.08			4.33			3.98
Nonperforming assets to total assets		2.34			2.83			2.94			3.18			2.94

CAPITAL RATIOS AND OTHER:
Total equity to total assets		9.52	%		9.54	%		9.13	%		9.07	%		8.91	%
Leverage ratio		11.20			11.08			10.67			10.44			10.69
Tier 1 risk-based capital ratio		14.52			14.22			14.44			14.33			13.88
Total risk-based capital ratio		15.78			15.49			15.71			15.60			15.14
Number of banking offices		15			15			15			14			14
Number of ATMs		16			16			16			15			15
Number of employees		161			169			171			171			168

(1)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by weighted average shares outstanding.

(2)	Defined as net income adjusted for dividends accrued and accretion of discount on perpetual preferred stock divided by average shareholders' equity (excluding preferred stock).

UNITY BANCORP INC /NJ/ - FORM 8-K - EX-99.1 - October 25, 2012

Attached files

UNITY BANCORP INC /NJ/ Reports