CLINTON, N.J., April 24 /PRNewswire-FirstCall/ -- Unity Bancorp, Inc. , parent company of Unity Bank, reported net income of $1.5 million, or $0.21 per diluted share, for the quarter ended March 31, 2007, compared to net income of $1.7 million, or $0.24 per diluted share, for the quarter ended March 31, 2006. Return on average assets and average common equity for the first quarter of 2007 were 0.87% and 12.74%, respectively, as compared to 1.08% and 16.26%, respectively, for the first quarter of 2006.
the growth in our balance sheet and our customer base, the continued flat yield curve has significantly impacted our net interest margin," said Unity President and Chief Executive Officer, James A. Hughes. "Although the rate environment is a challenge, we are confident we can continue to grow our asset base, which will have a favorable effect on future earnings."
Net interest income was $6.0 million for the first quarter of 2007, flat from the same period a year ago. Net interest income was impacted by a decrease in net interest margin offset by an increase in interest-earning assets. Net interest margin was 3.75% for the first quarter of 2007, compared to 4.12% for the first quarter of 2006. The Federal Reserve Board has raised rates 17 times, or 425 basis points, since 2004. These increases have resulted in an inverted yield curve; substantially increasing the Company's cost of funds. The sustained effect of the yield curve may cause the net interest margin to further contract during 2007.
The provision for loan losses for the first quarter of 2007 was $200 thousand, compared to $300 thousand for the quarter ended March 31, 2006. Net loan charge-offs for the quarter ended March 31, 2007 were $67 thousand, compared to net-charge offs of $72 thousand for the quarter ended March 31, 2006.
Total non-interest income for the first quarter of 2007 was $1.7 million, down 16.1% from the same period a year ago. Service charges on deposits for the first quarter were $349 thousand, a decrease of $84 thousand compared to the first quarter of 2006, primarily due to the abatement of fees due to competitive pricing and the acceleration of Check 21. Service and loan fees were $366 thousand for the first quarter of 2007, a decrease of $29 thousand from a year ago, due to a decline in SBA servicing income from increased prepayment on loans in a higher rate environment. Gains on sales of SBA loans amounted to $679 thousand for the first quarter of 2007, compared to $700 thousand for the quarter ended March 31, 2006, primarily due to reduced premiums.
Total non-interest expenses for the first quarter of 2007 were $5.4 million, an increase of 3.1% from the prior year's comparable quarter. Compensation and benefits increased 8.4% due to merit increases and rising health insurance costs, partially offset by a planned reduction in the employee base. Processing and communications increased 4.4%, due to increased transactional volume. Furniture and equipment, and occupancy costs increased 1.8% and 3.9% respectively from the prior year, primarily due to the increased branch count and refurbishment of our existing branch network. Loan servicing costs decreased 10.9% due to the collection of expenses on past due loans.
Total assets at March 31, 2007 were $681.3 million, an 8.5% increase from March 31, 2006. The increase in assets from the prior year was primarily due to growth in the Company's loan portfolio. Total loans at March 31, 2007 were $515.6 million, a 10.2% increase from March 31, 2006. The growth in the loan portfolio occurred in commercial, consumer and residential lending.
"In the first quarter of 2007, the Company expanded its SBA program," said Mr. Hughes. "We have opened two loan production offices in Florida and one in North Carolina, and are actively looking for growth areas east of the Mississippi River where we can increase our position as a National SBA lender."
At March 31, 2007 the allowance for loan losses was $7.8 million, or 1.50% of total loans, compared to 1.52% at March 31, 2006. Non-performing assets at March 31, 2007 were $6.8 million, or 1.31% of total loans and other real estate owned "OREO", as compared to $9.1 million or 1.80% of total loans and OREO at December 31, 2006, and $3.8 million or 0.81% of total loans and OREO from a year ago. Included in non-performing assets at March 31, 2007 are approximately $1.4 million of loans guaranteed by the SBA. Credit quality improved during the quarter due to increased collection efforts and the payoff of problem credits.
Due to the current rate environment, the cost of gathering deposits has increased considerably. As a result, the Company has chosen not to compete for high rate deposits in order to enhance net interest margin. Loan growth was funded with cash flow from investment securities, federal funds sold and borrowings.
The reduction in deposits from the fourth quarter of 2006 was due to the planned run off of municipal deposits, while core deposits remained relatively flat. Total deposits at March 31, 2007 were $541.4 million, a 1.3% increase from March 31, 2006. This increase was primarily the result of growth in savings accounts, partially offset by the decline in interest bearing checking accounts and demand deposit accounts. Savings accounts increased $35.8 million, or 20.0% from March 31, 2006, due to a high-yield savings product.
"During the second quarter of 2007, the Company will implement remote deposit capture," said Mr. Hughes. "This unique product will allow customers to deposit checks from their business locations. We believe this will increase the number of transactional relationships inside and outside of our local market areas."
Total shareholders' equity was $47.8 million at March 31, 2007, a 13.9% increase from March 31, 2006. The increase in shareholders' equity was primarily due to retained profits and an increase in other comprehensive income, partially offset by the payment of cash dividends.
As of March 31, 2007, the Company's Tier I leverage capital ratio was 9.24%, Tier I risk-based capital ratio was 11.06%, and total risk-based capital ratio was 13.80%. All regulatory capital ratios exceeded the well- capitalized, federal capital adequacy requirements as of March 31, 2007.
Unity Bancorp, Inc. is a financial service organization headquartered in Clinton, New Jersey, with approximately $681 million in assets and $541 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 http://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 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 general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.
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