Hello, and welcome to the Annual Meeting of Shareholders of Unity Bancorp, Inc. Please note that today's meeting is being recorded. During the meeting, we'll have a question and answer session. You can submit questions or comments at any time by clicking on the Q&A tab. It is now my pleasure to turn today's meeting over to Mr. David Dallas, Chairman of the board of directors of Unity Bancorp. Mr. Dallas, the floor is yours.
Thank you. Good morning, ladies and gentlemen. My name is David Dallas, and I'm honored to be the chairman of the board of directors of Unity Bancorp. On behalf of the board of directors, management, and staff, I would like to welcome all those listening to the 2022 annual meeting of the shareholders of Unity Bancorp. As a community bank, we are dedicated to building long-lasting relationships and providing the highest level of personal service. Our aim is to deliver the same measure of focus, flexibility, and responsiveness to both our large and small business customers while giving back to the community through our charitable programs. We are committed to enriching our communities and being a good corporate citizen. Unity Bank continues to build a diverse team of bankers focusing on providing credit to all members of the community and maintaining environmentally conscious principles and practices.
Last year brought record-breaking results for our company, with the company posting its highest-ever annual profit of $36.1 million with the return on average assets of 1.87%, marking a truly outstanding year. I'd also like to acknowledge Unity Bank's awards and recognition in 2021. Unity Bank earned its spot as being named one of the best places to work in New Jersey for the fifth year in a row by New Jersey Business Magazine, as well as being ranked in the top 5% of all community banks nationwide by American Banker. Mr. Hughes will further elaborate on more of Unity's accomplishments, the year's highlights, Unity's strategic goals, and future growth of the organization later in this morning's meeting. I would now like to proceed according to today's agenda. First on the agenda is the recap voted for.
As you may know, this year our shareholders of record have been asked to cast their votes on the following proposals for the election of Unity's three nominees for director and to ratify the selection of RSM U.S. LLP as the company's independent external auditors for the year ending December 31, 2022. If you have not voted or wish to change your vote, you may do so by clicking on the vote tab. Any shareholder who has already voted and does not want to change their vote need not take any further action. The next item on the agenda is the appointment of judges, the inspector of election, and the announcement of appointment. Today's judges of election are Mr. George Boyan, Unity Bank's Executive Vice President and Chief Financial Officer, and Ms. Linda McDermott, Unity Bank's Corporate Secretary. Would you both please say hello and state your names?
George Boyan, present.
Thank you. Today's inspector of election is Ms. Marleen Grandeson- Mills, a representative from the company's stock transfer agent, Computershare. Ms. Mills, may I please have the current tally for the total votes received and the percentage of the total outstanding shares that that tally represents.
Mr. Chairman, based on the total votes received of 9,162,563, representing 87.61% of the total outstanding shares, a quorum is determined to exist for the continuation of today's meeting.
Thank you, Ms. Mills. Now I would like to encourage any shareholder present to submit questions online by clicking on the Q&A tab. Please try to limit your questions to one or two each. We will try to address as many questions as possible towards the end of this meeting. If your question is not answered, please feel free to reach out through our investor relations link on the Unity Bank website. Also, within the virtual meeting portal, you will see a link to view our 2021 annual report and our 2022 proxy report. Within our proxy report, you will find a full list of our directors and executive management team. The next item on the agenda is the company's report to our shareholders. I would like now to turn the meeting over to our President and Chief Executive Officer, Mr. James Hughes. Jim.
Thank you, David. Good morning, everyone. Thank you for participating in today's meeting. Before I get into the results for 2021, I just wanna go over briefly the results for the first quarter. My remarks are very similar to what I said last year. I've never felt more positive about Unity Bank, our balance sheet, and our prospects for the future, despite all the challenges
You know, all businesses face rising inflation, rise in interest rates, employment shortages. We continue to have very strong loan growth. Real estate values in our marketplace continue to hold up. The first quarter, I think, is going to be consistent for the duration of the year. Very optimistic for 2022. You can see the first slide. Net income for the first quarter was slightly over $9 million. Net income per share of $0.85. Now, when we go through the slide presentations today, trying to do an apples to oranges comparison. Last year, there was a lot of activity with provisions in 2020 versus 2021, where we took very few provisions, and I'll talk more about that.
I would say 2022, there's very little accretion to earnings through the PPP program, roughly $500,000 in the first quarter. Our core earnings were probably closer to the $0.80 versus the $0.85. When you look at our operating ratios, 1.8% ROA, which is very, very high compared to our peers. Return on equity, very strong at 17.5%. Our efficiency ratio continues to be under 50 at 45.86. The real story here is our net interest margin continues to flourish, 4.11. We have the second highest margin out of all New Jersey banks, so we're very, very proud of that. We expect in a rising rate environment that our margin will continue to hold up or actually potentially even increase.
Looking at the next slide. As Dave said, we made $36 million in 2021, compared to the prior year of $23.6 million. Again, as I said, the prior year in 2020, we took a $7 million loan loss provision. Virtually no provision in 2021. When you kind of equate it, we probably would have made around $25 million or $27 million-$28 million in 2020 versus $36 million. When you look at the five-year compounded growth rate close to 30%, earning $3.4 per share, when you really look at our dividend payout ratio, which is pretty low, about $0.40 a share, we're adding $3 to book value every year. That's a real strong growth for future market value appreciation.
On the following slide, you can see our growth in net interest income, close to 20% increase from the prior year. Again, there's a couple of dollars in there from the PPP impact, probably $5 million or $6 million, in total, but still very strong growth. Provision for loan loss of $200,000. You know, our asset quality continues to be very, very strong, about 0.5%, NPAs. Very, very stable, in what I would call a very good environment for financial institutions. Non-interest income. The decline was really twofold. One, the mortgage division in 2020 did an outstanding job with the refi boom. That slowed in 2021 due to rise in rates.
The SBA program, which is doing better than it ever has, we've made the decision in 2021 because of the growth in net interest income to hold on to some of the paper. You know, theoretically, you make more money holding SBA paper for the duration. We'll be more opportunistic as to whether we hold or sell in the future. We did a pretty good job controlling our expenses, only up 3.9%. We had significant BSA expenses in 2020. We were able to reduce that significantly in 2021. Salaries expense continues really to be the hurdle, I think, for all businesses nationwide as salary inflation continues and will continue to work very diligently on controlling our expenses and keeping our efficiency ratio under 50%. Provision for income tax.
The reason that increased is because of the dissolution of state tax benefits. Our effective tax rate basically going from 21% to 25%, and that we have expected to stay at or around the 25% range in 2022 and beyond. Diluted earnings per share, again, 3.43. The real story here is return on average equity close to 20%. It was an outstanding year and our margin at 4.16. You look at the next slide. Just to remind everybody, Unity Bank is currently under a consent order for BSA. We just had our safety and soundness exam. I'm happy to report that the FDIC did concur that our program is compliant.
When they lift the order is really up to them, but we were very pleased with the tone of our exit meeting. We do believe that growing retail branch franchises is the best strategic plan for growth. We have 19 branches currently. We will be closing the Ramsey branch this summer. It just didn't meet its targeted growth rates. You can see here on the slide, we also opened up a branch in Lakewood. It was an old Capital One facility which we entered into a lease.
We currently only use it as a loan production office, but we intend when the consent order is lifted to convert that to a full-service branch. Once the consent order is lifted, we will also continue our plan for branch growth of one to two branches per year. The next slide. Again, the story, loan growth has never been more robust. You know, the hurdle that we had a little bit in 2021, and I think across the industry, prepayments were very strong in all segments. When you look down at the bottom of the slide, you know, it was 6.15% increase in loans, but it was actually really higher.
I would expect in 2022 almost to hit double-digit growth based upon the volume that we were getting. We had a big increase in residential construction loans. Some of that was due to the delays in completing some of the construction projects with COVID. The increase in SBA was again tied to our desire to hold some of our paper. Consumer loan growth was strong. Commercial loan growth was strong, about $74 million of growth. Again, a lot of runoff, primarily in the residential portfolio, where we really had about a $60 million decline in outstanding. It seems like in the first quarter that tide had stopped, so I'm very optimistic about future loan growth. Deposit growth was very, very strong, and it has been strong for the entire industry.
I guess when you print 40% of all your dollars as a result of the PPP initiatives and the government funding, banks are flush with cash. We had 12.9% increase in total deposits with the same number of branches. The story I think for us is we've been able to reposition our funding source from more of time deposits to non-interest-bearing deposits to core deposits. About 30% of our total deposits is in non-interest-bearing. Going over to the next slide in total loans. Again, looking at some of the components on the bottom, you can see the growth in our commercial going from $840-$932. That was good, commercial loan growth.
The unfortunate story in 2021 was the decline in residential mortgages from $468 to $409. But all things being equal, it was a very, very good year for loan production. Credit quality, again, remains very, very sound, about 0.55% NPAs. You know, it looks like credit quality continues to hold up, even though everybody's talking about dark clouds on the horizon. We are being proactive in lowering LTVs on new loans and picking and choosing our battles in the event that there would be a recession next year or beyond. Looking at total deposits on the next slide.
Again, look at the decline in time deposits from $439 million to $292 million, and look at the growth in non-interest bearing from $460 million to $529 million. We're very, very proud that our business model, which is focused in on small business loans, small business relationships, has been able to have been monetized and growth in non-interest income. The next slide, you can see net interest income, our primary source of revenue, grew from $64 million to $77 million, and the growth in our margin from 3.85% to 4.16%. The two positive things here are, you know, we're an asset-sensitive bank. We've been able to reduce our cost of funding on the deposit side to around 33 basis points. Our margins are still very, very strong on our interest-earning assets.
As rates rise, we expect our margin to continue to grow. We're slightly asset sensitive. Non-interest income, again, fairly strong relative to our peer group, with the fact that we have both an SBA division and a residential division. Service and loan fee income. Again, I talked about prepayments of loans. That's the primary cause of the increase in service and loan fee income. The decline in SBA, again, was intentional. We had more production. We did in the mid-20s, in 2020, we did in the mid-30s in SBA volume, and we're expecting to do even more this year. The gains on SBA's sales were actually premiums are still in the 12%-14% range. Again, our decision to hold for a longer-term loan growth.
Gain on sale of mortgages, again, we are achieving higher levels of return on a per sale. But the refi boom is over, and our business model on residential mortgages again is still focused in on one realtor at a time. We expect to break over $400 million in residential loan production in 2022. When you look at the next slide, book value growth. You know, if our projections are what they were last year, we should be adding approximately $3 million to book value per year. When you're trading at 1.4 book, you know, we should be hopefully market value appreciation of more north of $4 per share. But you can see the correlation between book value and market price.
Obviously 2020 was impacted by the pandemic, but I think we're trading back to more normalized levels. The following slide talks about our returning capital to shareholders. Again, our philosophical approach to dividends is we like to build capital as versus some of our peers. Our dividend payout ratio is about 13%, which I view as a positive. We're able to build capital quickly. We took advantage of the pandemic by buying back our stock at very affordable prices. We bought back about 700,000 shares. When you think about, you know, 700,000 shares that we would have had to earn $3.40 on a per share basis, which would have been $2.1 million of saved money.
It was the most accretive things to our shareholders to buy back our stock when we had the opportunity. We still have an active buyback plan, but unfortunately, we're trading that right now. We have taken our foot off the pedal there. We probably will not be buying any stock for the foreseeable future unless there is a decline in the market value of the stock. The board this morning, prior to this meeting, approved an increase in the quarterly dividend to shareholders to $0.11, payable to shareholders of record on June 10th, and the payment on June 24th. Up from $0.10 per share to $0.11 per share.
Lastly, our capital ratio is extremely strong as we continue to, again, with a low dividend payout ratio and strong earnings, we are building capital at a very rapid pace. Excluding our PPP loans, which is basically at the tail end right now, we only have about $40 million of PPP loans. Our core capital community bank leverage ratio is around 11% and will continue to grow during the duration of the year. With that, I will hand it over to Mr. Dallas.
Thank you, Jim. Next item on the agenda will be us providing answers to any questions that have been submitted during today's meeting. Are there any questions?
Mr. Chairman, there are no questions.
That's fine. Thank you. I would now like to proceed with the remainder of today's meeting by closing the polls and requesting the report of the inspector of election. Ms. Mills, may I please have the final tally on the voting for the two proposals at today's meeting? Ms. Mills?
Mr. Chairman?
It works. Okay. Ms. Mills?
I am here, and, I apologize. I will need to send you the tally under separate cover. Will that be okay?
You will need to send us the tally on a separate cover?
Yes, sir.
Okay. Well, thank you. On a final note, as we conclude our 2022 annual meeting, I'd like to personally thank Mr. Allen Tucker, who has announced, or he will be announcing his retirement from the board of directors following this meeting. Mr. Tucker has served on the board for more than 25 years, and we would like to commemorate you for your hard work and dedication building this company to where it is today. On behalf of the board, thank you. In closing, I'd like to thank those in attendance for participating in today's meeting and your continued support of Unity Bank. I look forward to all of you joining us next year. There being no further business to come before today's annual meeting, I would like to entertain a motion to adjourn. Is there a motion to adjourn?
Raj Patel, Director, making motion to adjourn.
Thank you, Raj. Is there a second?
Second.
Second, Peter Maricondo, Director. All in favor? Aye.
Aye.
Thank you. The 2022 annual meeting of the shareholders of Unity Bancorp is adjourned. Thank you all.
This concludes the meeting. You may now disconnect.