UNITY BANCORP INC /NJ/ (UNTY)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered steady profitability with net income of $11.6M and diluted EPS of $1.13, essentially flat sequentially and up 21% YoY; NIM expanded 9 bps QoQ to a new high of 4.46% on lower funding costs and higher asset yields .
• EPS was in line with Wall Street (consensus $1.127 vs. actual $1.13); S&P Global “Revenue” was a slight miss (consensus $28.81M vs. actual $28.04M), while reported net interest income and noninterest income both rose sequentially, and the efficiency ratio improved to 42.9% (from 44.4%) .
• Balance sheet growth was healthy: loans +$84.5M QoQ (+3.7%) and deposits +$75.1M (+3.6%); brokered deposits fell 7.2% QoQ, and uninsured/unsecured deposits stood at 20% of total; liquidity coverage of uninsured deposits was 168.8% .
• Watchpoints: provision for credit losses rose to $1.36M (from $0.47M) on loan growth, nonaccrual assets increased to $18.0M (0.65% of assets), and the effective tax rate rose to 24.8% (from 20.6%), tempering bottom-line upside .
• Potential stock catalysts near term: sustained NIM strength (management called 4.46% an “all-time high” and is optimistic it will persist), improved core deposit momentum, and capital return via a higher $0.14 quarterly dividend; offset by a modest uptick in nonaccruals and higher provisioning tied to growth .

What Went Well and What Went Wrong

• What Went Well

  • Net interest margin expanded 9 bps QoQ to 4.46% as cost of interest-bearing liabilities declined and asset yields improved; net interest income increased to $27.3M (+2.9% QoQ) .
  • Broad-based balance sheet growth: loans +$84.5M (+3.7%) driven by commercial and mortgage; deposits +$75.1M (+3.6%) with lower brokered balances (-7.2% QoQ) .
  • Efficiency improved (42.89% vs. 44.44% QoQ) with noninterest expense flat QoQ at $12.6M; noninterest income rose to $2.10M on higher service and loan fees and more SBA loan sales .
  • “We earned $11.6 million in net income, or $1.13 per diluted share, representing 1.83% ROA and 15.56% ROE.” – President & CEO James A. Hughes .
  • “Our margin is an all-time high of 4.46%... I’m very optimistic that’s going to continue [in 2025].” – CEO James A. Hughes (Annual Meeting, 4/24/25) .

• What Went Wrong

  • Credit provisioning increased: loan provision rose to $1.36M (from $0.47M) reflecting loan growth; nonaccrual assets rose to $18.0M, with nonaccrual loans/total loans up to 0.72% (from 0.58%) .
  • Effective tax rate moved up to 24.8% (from 20.6%), limiting net income growth despite higher pre-tax income .
  • Mortgage gain-on-sale declined QoQ and there was a small $11K realized loss on AFS securities; one-time $0.2M board resignation expense hit noninterest expense .

Financial Results

Estimate comparison (S&P Global definitions):

Values retrieved from S&P Global.

Segment/portfolio composition (loans)

Key KPIs and balance sheet

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We earned $11.6 million in net income, or $1.13 per diluted share, representing 1.83% ROA and 15.56% ROE.” – CEO James A. Hughes (Q1 press release) .
• “NIM increased 9 basis points to 4.46%… primarily due to the cost of interest-bearing liabilities decreasing, complemented by an increase in the yield on interest-earning assets.” (8-K) .
• “Our margin is an all-time high of 4.46%… I’m very optimistic that’s going to continue [for 2025].” – CEO (Annual Meeting) .
• “Loan-to-deposit ratio… we’re currently at 108%… loan growth has been surprisingly strong… focus on owner-occupied businesses on Main Street.” – CEO (Annual Meeting) .
• “We repriced our branch fee schedules and our loan fee schedules,” lifting fee income; gain-on-sale activity is expected to improve if rates decline. – CEO (Annual Meeting) .

Q&A Highlights

• No Q1 2025 earnings call transcript was available; highlights reflect management remarks from the April 24, 2025 Annual Shareholders Meeting. Management emphasized sustained NIM strength at 4.46% and expressed optimism it would remain elevated through 2025 .
• Balance sheet flexibility restored with loan-to-deposit ratio ~108%, enabling growth to be funded by deposits rather than wholesale sources .
• Fee income levers include repriced fee schedules; management expects gain-on-sale revenues (SBA/mortgage) to improve when interest rates decline and housing inventory normalizes .
• Strategic focus remains on owner-occupied commercial lending within footprint and selective branch expansion (1–2 new locations considered in 2025) .

Estimates Context

• EPS: $1.13 vs. $1.127 consensus (in line)*.
• “Revenue” (S&P Global definition): $28.04M vs. $28.81M consensus (–2.7%)*.
• Target price consensus: $59 (3 estimates)*.
• Implications: Street models may lift NIM and net interest income assumptions given the sequential margin expansion and lower cost of funds, while modestly trimming noninterest income from mortgage gain-on-sale; higher provisioning tied to growth and a higher tax rate may temper net income upside in the near term .
  Values retrieved from S&P Global.

Key Takeaways for Investors

• Margin-driven story: NIM reached 4.46% and management expects strength to persist—this is a key driver of earnings momentum and a potential multiple-supportive narrative .
• Quality growth: Loans (+3.7% QoQ) and deposits (+3.6% QoQ) both accelerated, with reduced reliance on brokered deposits, indicating healthier core funding and loan growth runway .
• Credit trends manageable: Provisioning increased on growth, and nonaccruals ticked up to 0.72% of loans; coverage (ACL/loans 1.18%) and low NCOs (–0.09% annualized) remain comforting .
• Capital and liquidity are solid: CET1 13.87%, leverage ratio 12.32%, cash $211.6M, and available funding $522.2M (169% of uninsured deposits) underpin resilience and optionality .
• Shareholder returns: Quarterly dividend raised 8% to $0.14; book value per share expanded 3.1% QoQ to $30.38, supporting intrinsic value compounding .
• Trading setup: Near-term upside likely tied to confirmation of sustained NIM and continued mix shift away from brokered deposits; monitor nonaccrual trajectory and tax rate as potential headwinds .
• Medium-term thesis: Community footprint, owner-occupied commercial focus, disciplined cost control (efficiency 42.9%) and prudent capital provide a path to steady EPS and BVPS compounding through the rate cycle .

Additional details and disclosures:

• Earnings press release and full financial tables (April 11, 2025) .
• Annual Shareholders Meeting transcript remarks (April 24, 2025) .
• Prior quarter press releases for context (Jan 15, 2025; Oct 11, 2024) .