James Hughes
executive
Thank you, James. Good morning, everyone. Again, my name is James Hughes. I'm here -- pleased to report the operating results for 2025. As Mr. Dallas said, we had a banner year, net income of $58 million a 40% increase from the prior year's income of $41 million, albeit this year's earnings were somewhat benefited by the gains realized on the Patriot stock of approximately $5 million, but nonetheless, return on assets of $2.17 return on average equity of 18% and a stellar net interest margin of 4.52%.
We're trying to keep our expense ratio under 2% for the year and a low efficiency ratio of 41%. We recently released our first quarter results. We're on target. I'm pleased to say. We released earnings a couple of weeks ago, $14.3 million for the first quarter, up from $11.6 million a year ago, a 23% increase. Earnings of $1.40 a share, down slightly from the prior quarter of $15.5 million. Fewer days in the first quarter increased salaries expense in the first quarter with annual merit increases and there were some unusual items in the first quarter and the fourth quarter of '25.
So still a great quarter, 2.04% ROA, 16% ROE, and our margin is holding strong at 4.53% expense ratio is slightly over the 2% target. So we'll work on that. But our efficiency ratio is still very strong at 41.77%. Our branch footprint branches now, 20 in New Jersey, 2 in the Lehigh Valley area. We opened up one in 25 in Madison and Morris County doing very, very well. We are looking to continue our expansion of retail branches, smaller branches, more efficient branches, looking more in the New Jersey market, not in the PA market. Nothing on the footprint right now, but we have branch growth in our strategic plan.
Next slide. Loan and deposit growth was very, very strong in '25, looking at our loan growth 12.6%. We were under budget in SBA. We've just hired a new SBA manager. We're looking to see vast improvements in our SBA volume Commercial and Commercial Construction lending was very strong at 18% and 13% growth, respectively. Probably won't be as robust in '25, but we're off to a strong start in the first quarter.
Residential mortgages. This is really more about loan volume. We're doing about $25 million a month of residential mortgages, the salable product. We obviously sell the whatever goes into the portfolio. When you're in a high rate environment as we are now on rate turn declining downward, loan prepayment speeds are already accelerating. So it's hard to predict the growth in that portfolio other than I do anticipate continued volume increases.
Consumer. Strong growth, 11%, more values than People, Home, more availability. Residential construction down 19%, and that is planned, I guess, we still had a lot of older projects that were laid over from COVID delays. And so the $73 million that we have in portfolio with '25 roughly about 110 projects, all current production. We're hopeful to see growth in this portfolio in '26.
Deposits, deposits, deposits. It is the name of the game as we always say at Unity Bank. Total deposit growth of 10.7%. For the year was pretty strong, roughly about 3% for the first quarter. Loan-to-deposit ratio around 109%, and so that's one of the governors in our policy to try to keep our -- our loan-to-deposit ratio under 110%, working hard at growing loans and deposits in tandem for '26. So asset quality is still very strong. You can see the chart shows net concepts for the last 5 years. Relatively immaterial losses, ranging from 5 basis points to a high of 9 basis points. '25, it was 5 basis points of charge-offs.
Nonaccrual loans relative to total assets, still very acceptable. It was ranging around 0.5 basis point, but we're now up to 1.06% of total assets. We had one large nonperforming loan go into the fourth quarter, $15.5 million to a well-secured catering facility. We're hopeful to work out of that way, with no loss or a minor loss, more to come on that story.
The next slide is the summary of the income statement. Again, showing the $58 million in net income. And you can see on the top line, most of the growth is coming from net interest income, 18% growth, that's a combination of growth in our margin and growth in our volume. And there's more slides to talk individually on each of these categories.
So let's turn to the next slide, which talks about how we achieved a 4.5% margin. So, one of the things we have on our balance sheet is so -- it's a well-positioned balance sheet. Whether rates go up or rates go down, we're able to reprice our portfolio faster than most banks. And you could see that we were able to reprice our loan portfolio from 4.58% to 6.71% over the last 5 years.
And our deposits, which is a much shorter duration, savings deposits, 6 months CDs, 1 year CDs is down to around 2.44%. We are trying not to pay for deposits. We're trying to keep our margins strong. Despite where rates go up, rates go down, we're able to keep our margin with a 4-handle. We're very optimistic that our margin will remain stable, regardless of where rates go. I think the money is betting on rates are probably going to be going down, but time will tell with that one.
Noninterest income. This is an area that we've been spending a lot of energy on and improving. And you can see we've had some success in branch fee income. Up 32%. And so we've been putting more accounts to account analysis, increasing our fees where appropriate. So we're pleased with that. Service and Loan Fee income, up 25% and that's predominantly due to prepayment penalties. And as rates are high and people are finding opportunities elsewhere, we're able to monetize with our prepayment structure.
Gains on sale of SBA loans. Kind of flat, 6% growth. I'm hoping to see a much larger number in '25. Gain on sale and mortgage loans, 1.5%. Again, that's probably a stable number up slightly, I would predict for '26, but up 2.6%. Again, our volume is up. Some months, it's more salable. Some months, it's less salable production. Debt security gains, there's that Patriot gain that I was talking about the $5 million number there. So that's behind us in the rearview mirror.
Turn to the next slide of expenses. And this is where we have some more work to do on keeping our expense ratio getting down into that 2% number. Comp and benefits. Comp is up 11% as a combination of the new branch salary increases merit increases. And so it's an inflationary cost that's been a challenge to, I think all businesses in New Jersey. Benefits are down surprisingly. And several years ago, when we went to self insurance, which has maintained dividends for us certainly in '25 when claims are down from the prior period. So, we actually had a reduction in benefit expense.
Processing communication looks like it's up 20%, but in reality, 24% is understated because we had about $400,000 of credits from our service provider. And so really 24% is really understated by the $400,000. You get into other categories. Part of compensation benefit increases and direct fees increases is the appreciation of the stock as we give restricted stock out to directors and to employees and that stock vests and a higher market price, it creates a higher expense to the bank.
But I guess, to some degree, those are positive things having a higher appreciation in the stock. So to the next slide, really -- this is really where the rubber meets the road. You can see the bottom line here. We have a very low dividend payout ratio, and that's really by design. We like to keep our dividend payout ratio. I don't want to say specifically under 15%. There was no specific number. But right now, it's under 15% of our earnings $0.16 a quarter, $0.64 annually. And so if we make $5.64, $5 will go to the book value. And if you put it in a book value, maybe you'll get a little bit more than $5 return on appreciation.
And you could see that we were trailing around 120 to price the book for a long, long time. And then -- and I think really what caused this significant increase is when we pulled away from the peer group during this high rate environment where everybody else's margins were collapses and our margin has expanded, I think it raised more attention to our brand and brought more institutional investors in, and we are now enjoying price-to-book ratio of about 150. So -- and hopefully, that will continue to go.
So I just want to say thank you to the shareholders who are attending today. Unity Bank, we have a nice diversified business model. We're strong with residential lending, strong construction. We have SBA commercial lending focusing on lending to small businesses in our footprint. We have a very experienced management team. Board and management controls a high percentage of the stock. So we're certainly invested in the future. And we have the best-in-class financial performance certainly in the top 5%, maybe in the top 2% of all banks nationwide. So -- and strong capital management practices.
So, thank you for your attendance today, and I will turn it to Mr. Dallas.
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