CLINTON, N.J., Oct. 23, 2014 /PRNewswire/ -- Unity Bancorp, Inc. (NASDAQ: UNTY), parent company of Unity Bank, reported net income available to common shareholders of $1.9 million, or $0.24 per diluted share, for the three months ended September 30, 2014, a 59.4% increase compared to net income available to common shareholders of $1.2 million, or $0.15 per diluted share, for the same period a year ago.  Return on average assets and average common equity for the quarter were 0.82% and 11.89%, respectively, compared to 0.62% and 8.25% for the same period a year ago. 

Third quarter highlights include:

• Completed common stock rights offering which was oversubscribed and resulted in $6.2 million in additional capital to provide for continued growth. 
• Robust loan growth of 12.7% since September 30, 2013 – 22.1% growth in residential mortgage loans, 21.1% growth consumer loans and  12.3% growth in commercial loans.
• Strong deposit growth of 7.5% since September 30, 2013.
• Core earnings growth – 11.1% increase in net interest income compared to the prior year's quarter due to strong commercial, residential and consumer loan portfolio growth. 
• Net interest margin of 3.56% this quarter compared to 3.53% in the prior year's quarter.
• Improved credit quality metrics due to a 32.7% decrease in nonperforming loans this quarter compared to the prior year's quarter.   
• Increased our quarterly dividend to common shareholders from $.02 per share to $.03 per share.

"This was a record quarter and I am very pleased with our results," reported James A. Hughes, President and CEO.  "In addition to a successful capital raise of $6.2 million, which was oversubscribed by $10.0 million, we continue to have strong loan and deposit growth, which produced top line revenue growth.  I continue to be very confident and optimistic about our future."

For the nine months ended September 30, 2014, net income available to common shareholders totaled $4.7 million, or $0.61 per diluted share, compared to $2.9 million or $0.36 per diluted share in the prior period.  Return on average assets and average common equity for the nine month periods were 0.70% and 10.47%, respectively, compared to 0.63% and 6.67% for the same period a year ago. 

Net Interest Income

Net interest income increased $761 thousand to $7.6 million for the quarter and increased $1.9 million to $22.2 million for the nine months ended September 30, 2014 compared to the prior year's periods.  The increases in each period were the result of momentum from the strong growth in commercial and residential mortgage loan volume.  Average commercial loans increased $45.6 million and average residential mortgage loans increased $38.0 million in the third quarter 2014 compared to the comparable quarter in 2013. The volume driven loan interest income increase offset the impact of a smaller investment portfolio and the increase in interest paid on deposits due to the $71.1 million increase in average time deposits. 

The net interest margin increased 3 basis points to 3.56% for the quarter ended September 30, 2014 compared to 3.53% the prior year.  For the nine month period, the net interest margin declined 3 basis points to 3.54%.  We expect net interest income to continue to expand in future quarters due to strong loan growth as our net interest margin remains stable.

Provision for Loan Losses

The provision for loan losses was $550 thousand in the current quarter and $1.7 million for the first nine months of 2014, compared to $600 thousand and $1.6 million for the comparable prior year periods.    

Noninterest Income

Noninterest income increased $203 thousand to $1.9 million for the three months ended September 30, 2014, compared to the same period last year.  The increase was primarily due to a $305 thousand or $0.04 per diluted share, death benefit received on BOLI.  Excluding the BOLI death benefit, noninterest income would have been $1.5 million for the quarter.  Quarterly noninterest income saw declines in service and loan fee income and gains on mortgage loan sales.  For the nine months ended September 30, 2014, noninterest income decreased $113 thousand to $5.0 million. 

During the quarter, $16.5 million in residential mortgage loans were sold at a gain of $263 thousand, compared to $14.1 million sold at a gain of $314 thousand during the prior year's quarter.  Approximately $3.7 million of the sold loans were previously originated loans from our portfolio that were sold at par to reduce interest rate risk.  For the nine month period, $45.1 million in residential mortgage loans were sold at a gain of $816 thousand, compared to $62.6 million sold at a gain of $1.3 million during the prior year's period. All residential mortgage loans that are held in portfolio for long term investment are adjustable rate mortgages or 15 year fully amortizing mortgages. 

SBA loan sales totaled $3.2 million with net gains on sale of $295 thousand for the quarter, compared to $3.1 million sold and a gain of $280 thousand in the prior year's quarter.  On a year-to-date basis, SBA loan sales totaled $6.4 million and $6.3 million with net gains on sale of $633 thousand and $607 thousand in 2014 and 2013, respectively. 

Service and loan fee income decreased for the quarter and year to date periods due to lower SBA loan servicing income as the volume of serviced loans declined and reduced late charges, payoff and prepayment penalties were partially offset by increased processing fees. 

Noninterest Expense

Noninterest expense increased $306 thousand to $6.2 million for the quarter and $510 thousand to $18.6 million for the nine months ended September 30, 2014.  The primary drivers of the increases during both periods were compensation, processing and communications and advertising expenses.  Details of significant fluctuations are below.

• Compensation and benefits expenses increased in both periods primarily due to higher salary expense as we expand our commercial lending staff and increased benefits costs such as medical insurance.  For the nine month period, bonus and equity related compensation expense increased while the mortgage commissions decreased as the volume of sold loans decreased.  
• Processing and communications expenses continue to expand as we add products and services to remain competitive.   This category includes the rising costs of providing our customers with products and services such as electronic banking, online bill payment, ATM/debit cards, international wires and foreign currency.  In addition, it includes the associated rise in data processing costs of our core banking system and electronic access expenses such as communication line costs. 
• Advertising expenses increased in both periods due to the use of television and radio media, core deposit promotional expenses as well as seasonal involvement in various community events. 
• OREO expenses decreased this quarter but remain elevated for the nine month period as we work through the collection process and incur expenses such as property maintenance, insurance and legal costs, as well as delinquent taxes and losses on sale.

Financial Condition

At September 30, 2014, total assets were $969.6 million, an increase of $48.5 million from the prior year-end:

• Total securities decreased $20.6 million or 19.2%, from year-end to $86.9 million at September 30, 2014.  During the second quarter, we strategically sold longer dated investments in order to reduce the portfolio's average life and duration. 
• Total loans increased $65.7 million or 9.7%, from year-end 2013 to $744.4 million at September 30, 2014. The majority of the growth came in our residential mortgage, commercial and consumer loan portfolios which increased $29.4 million, $28.0 million and $9.0 million, respectively.  Future loan growth is expected to be primarily in commercial, residential mortgage and consumer loans, while the Company plans to continue shrinking its out of market SBA portfolio.
• Total deposits increased $43.2 million or 5.9%, to $781.9 million at September 30, 2014, due primarily to an increase in savings, time deposits and noninterest-bearing demand deposits partially offset by a decline in interest-bearing demand deposits. Savings deposits increased due to our promotion during the quarter while time deposits have increased in response to our 15 month and 5 year term promotions.  The noninterest-bearing demand deposits increase consists of commercial deposit customer relationships.  Partially offsetting these increases was a decline in municipal interest-bearing demand deposits.  
• Shareholders' equity was $68.4 million at September 30, 2014, an increase of $11.2 million from year-end 2013, due primarily to the $6.2 million net proceeds from the rights offering which was oversubscribed and completed during the third quarter, plus year-to-date net income less the dividends paid.
• Book value per common share was $8.17 as of September 30, 2014.
• At September 30, 2014, the leverage, Tier I and Total Risk Based Capital ratios were 8.96%, 11.58% and 12.84% respectively, all in excess of the ratios required to be deemed "well-capitalized". 

Credit Quality

• Nonperforming assets totaled $12.9 million at September 30, 2014, or 1.73% of total loans and OREO, compared to $15.9 million or 2.34% of total loans and OREO at year-end 2013.  During the quarter the Company transferred two loans into nonaccrual totaling $4.3 million.  Both of these loans are well secured.
• OREO increased $1.0 million to $1.7 million at September 30, 2014, due to the addition of $4.3 million (12 properties) less sale proceeds of $2.8 million (9 properties).
• The allowance for loan losses totaled $12.9 million at September 30, 2014, or 1.74% of total loans compared to $13.1 million and 1.94% at year end.
• Net charge-offs were $490 thousand for the three months ended September 30, 2014, compared to $1.4 million for the same period a year ago.  For the nine months ended September 30, 2014, net charge-offs were $1.9 million and $2.8 million, respectively.
• Troubled debt restructurings ("TDRs") decreased $252 thousand from year-end to $7.7 million due to principal pay downs.  There have been no new TDRs recognized in 2014.  There was one TDR transferred to nonaccrual status during the quarter.    

Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $970 million in assets and $782 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.

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.