SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _______.
Commission file number: 1-12431
UNITY BANCORP, INC.
-------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3282551
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification)
64 Old Highway 22, Clinton, New Jersey 08809
(Address of principal executive offices) (zip code)
(908)730-7630
-------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding of each of the registrant's classes of common
stock, as of November 14, 1997: Common Stock, No Par Value: 1,985,275 shares
outstanding; Warrants, No Par Value: 399,650.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, December 31,
1997 1996
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................ $ 20,273,241 $ 15,848,021
Federal funds sold ............................................................. 9,650,000 17,600,000
------------- --------------
Total cash and cash equivalents ........................................ 29,923,241 33,448,021
------------- --------------
Securities
Available for sale (at market value) ....................................... 15,022,026 11,152,967
Held to maturity (aggregate market value of $26,646,690 and $25,246,902) ... 27,219,891 25,999,907
------------- --------------
42,241,917 37,152,874
------------- --------------
Loans (including loans held for sale of $1,693,639 and $2,041,650) ............. 127,521,591 97,847,453
Less: Unearned income ..................................................... 10,868 19,544
Allowance for possible loan losses .............................. 1,214,029 886,465
------------- --------------
Net loans ....................................................... 126,296,694 96,941,444
------------- --------------
Premises and equipment, net .................................................... 3,639,347 3,103,931
Accrued interest receivable .................................................... 1,361,193 1,052,809
Other assets ................................................................... 1,057,559 988,597
------------- --------------
Total assets ........................................................... $ 204,519,951 $ 172,687,676
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand
Noninterest Bearing .................................................... $ 36,659,499 $ 31,385,323
Interest bearing ....................................................... 25,837,268 21,282,010
Savings .................................................................... 30,243,282 24,976,839
Time (includes deposits $100,000 and over of $21,790,847 and $13,801,000) .. 91,140,307 75,910,888
------------- --------------
Total deposits ......................................................... 183,880,356 153,555,060
------------- --------------
Obligation under capital lease ................................................. 341,970 380,275
Accrued interest payable ....................................................... 613,260 533,695
Accrued expenses and other liabilities ......................................... 473,875 228,645
------------- --------------
Total liabilities ...................................................... 185,309,461 154,697,675
------------- --------------
Commitments and contingencies Shareholders' Equity
Common stock, no par value, 7,500,000 shares authorized;
1,985,275 and 1,964,113 issued and outstanding ......................... 17,124,001 16,867,120
Retained earnings .......................................................... 2,121,060 1,183,357
Net unrealized loss on available for sale securities ....................... (34,571) (60,476)
------------- --------------
Total Shareholders' Equity ............................................. 19,210,490 17,990,001
------------- --------------
Total liabilities and Shareholders' Equity ............................. $ 204,519,951 $ 172,687,676
============= ==============
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ------------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest Income
Interest on loans ................................... $ 3,028,535 $ 2,036,399 $ 8,081,495 $ 5,523,077
Interest on Securities .............................. 826,385 644,871 2,330,796 1,933,748
Interest on Federal Funds Sold ...................... 121,775 145,624 530,068 319,468
----------- ----------- ------------ -----------
Total interest income ............................... 3,976,695 2,826,894 10,942,359 7,776,293
----------- ----------- ------------ -----------
Interest expense ........................................ 1,654,987 1,268,956 4,623,217 3,405,096
----------- ----------- ------------ -----------
Net interest income ..................................... 2,321,708 1,557,938 6,319,142 4,371,197
----------- ----------- ------------ -----------
Provision for possible loan losses ...................... 160,400 107,790 395,587 365,078
----------- ----------- ------------ -----------
Net interest income after provision for
possible loan losses .................................. 2,161,308 1,450,148 5,923,555 4,006,119
----------- ----------- ------------ -----------
Other income
Service charges on deposits ......................... 197,904 134,864 532,913 358,585
Gain on sale of loans ............................... 304,831 450,058 1,081,310 1,067,669
Gain on sale of securities .......................... - 1 - 31,851
Other income ........................................ 158,828 98,459 423,639 275,481
----------- ----------- ------------ -----------
Total other income .................................. 661,563 683,382 2,037,862 1,733,586
----------- ----------- ------------ -----------
Other expenses
Salaries and employee benefits ...................... 874,590 725,954 2,898,892 2,020,451
Occupancy expense ................................... 254,602 221,199 780,541 549,367
Other operating expenses ............................ 752,472 619,757 2,261,611 1,788,354
SAIF Special Assessment ............................. - 370,141 - 370,141
----------- ----------- ------------ -----------
Total other expenses ................................ 1,881,664 1,937,051 5,941,044 4,728,313
----------- ----------- ------------ -----------
Income before taxes ..................................... 941,207 196,479 2,020,373 1,011,392
Provision for income taxes .............................. 365,373 69,741 785,858 382,036
----------- ----------- ------------ -----------
Net income .............................................. $ 575,834 $ 126,738 $ 1,234,515 $ 629,356
=========== =========== ============ ===========
Net income per share .................................... $0.29 $0.09 $0.63 $0.47
Weighted average shares outstanding .................... 1,977,609 1,394,571 1,974,892 1,347,648
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flow (Unaudited)
1997 1996
------------ -------------
<S> <C> <C>
For the nine months ended September 30,
Operating activities:
Net income ............................................................ $ 1,234,515 $ 629,356
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Provision for possible loan losses ............................... 395,587 358,585
Depreciation and amortization .................................... 392,885 203,142
Net gain on sale of securities ................................... - (31,851)
Gain on sale of loans ............................................ (1,081,310) (1,067,669)
Amortization of securities premiums, net ......................... (6,687) 43,343
Deferred tax benefit ............................................. (16,520) 0
Increase in accrued interest receivable .......................... (308,384) (48,044)
Increase in other assets ......................................... (78,337) (653,242)
Increase in accrued interest payable ............................. 79,565 127,994
Increase in accrued expenses and other liabilities ............... 206,925 238,905
------------ -------------
Net cash provided by (used in) operating activities ......... 818,239 (199,481)
------------ -------------
Investing activities:
Proceeds from sales of securities available for sale .................. - 1,234,436
Purchases of securities held to maturity .............................. (11,275,894) (2,006,172)
Purchases of securities available for sale ............................ (7,289,081) (8,448,191)
Maturities and principal payments on securities held to maturity ...... 6,786,101 772,404
Maturities and principal payments on securities available for sale .... 6,738,944 9,383,639
Proceeds from sale of loans ........................................... 10,702,919 11,505,862
Net increase in loans ................................................. (39,372,446) (41,483,598)
Capital expenditures .................................................. (918,926) (1,759,710)
------------ -------------
Net cash used in investing activities ............................ (34,628,383) (30,801,330)
------------ -------------
Financing activities:
Increase in deposits .................................................. 30,325,296 32,037,466
Proceeds from issuance of common stock, net ........................... 256,881 8,187
Subordinated Debt Issuance ............................................ 0 2,010,000
Cash Dividends ........................................................ (296,812) (185,794)
------------ -------------
Net cash provided by financing activities ........................ 30,285,365 33,869,859
------------ -------------
(Decrease) Increase in cash and cash equivalents .......................... (3,524,780) 2,869,048
Cash and cash equivalents at beginning of year ............................ 33,448,021 24,689,858
------------ -------------
Cash and cash equivalents at end of period ................................ $ 29,923,241 $ 27,558,906
------------ -------------
Supplemental disclosures:
Interest paid ......................................................... $ 4,611,631 $ 3,183,169
Income taxes paid ..................................................... 647,750 965,000
Subordinated debt exchanged for common stock .......................... 3,520,000
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
4
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. The accompanying consolidated financial statements of Unity Bancorp, Inc.
(the "Company") and its subsidiary, First Community Bank (the "Bank"),
reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation of interim results. The
financial information has been prepared in accordance with the Company's
customary accounting practices and has not been audited.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to
the SEC rules and regulations. These interim financial statements should be
read in conjunction with the Company's consolidated financial statements
and notes thereto for the year ended December 31, 1996.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the year.
1. Shareholders' Equity:
In December 1996, the Company completed a stock offering resulting in the
issuance of 401,500 shares of common stock and, attached to each share, a
nontransferable warrant to purchase one share of common stock at an
exercise price of $15.75 at any time within two years after the offering.
As of September 30, 1997, outstanding warrants totaled 399,650.
On April 29, 1994, the Company's shareholders approved
the 1994 Employee Non qualified Stock Option Plan (the Employee Plan)
and the 1994 Non employee Director Stock Option Plan (the Director Plan).
Transaction under the plan are summarized as follows:
Exercise
Number Price
of Shares Per Share
--------- -------------
Outstanding, December 31, 1996 49,999 $ 9.72-$10.80
Options granted 37,000 11.47-$13.38
Options exercised (5,312) 9.72
Options exercised (5,000) 11.47
Options expired
------- -------------
Outstanding September 30, 1997 76,687 $ 9.72-$13.38
======= =============
The following table summarizes information about stock options outstanding at
September 30, 1997:
Remaining
Number Contractual Number
Exercise Price Outstanding Life Exercisable
-----------------------------------------------------------
$10.80 38,125 3.25 years 38,125
9.72 6,562 3.25 years 6,562
13.38 24,000 4.25 years 24,000
11.47 8,000 4.25 years 8,000
--------------------------------------------------------
$11.50 76,687 3.67 years 76,687
===========================================================
In addition, select key employees and board members are eligible to participate
in the company's Stock Award Plan. The Company granted 9,000 shares to its
directors in January 1997, resulting in a charge to
5
<PAGE>
operations of approximately $140,000. As of September 30, 1997, the Company has
12,929 shares reserved for issuance under the Stock Award Plan.
The Board of Directors declared a cash dividend on March 25, 1997, June 26, 1997
and September 25, 1997. Share holders of record on April 15, 1997 and July
7,1997 and October 10,1997, received a $.05 per share cash dividend, paid on May
5, August 1, 1997 and November 3, 1997.
6
<PAGE>
Item 2. Management's Discussion and Analysis
UNITY BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This financial review presents management's discussion and analysis of the
Company's financial condition and results of operations. It should be read in
conjunction with the consolidated condensed financial statements and the
accompanying notes.
FINANCIAL CONDITION
The Company's total assets increased to $204.5 million at September 30, 1997,
$31.8 million, or 18.4%, above year end 1996 total assets of $172.7. Total loans
increased by 30.3%, to $126.3 million from $96.9 million at December 31, 1996.
The Company's securities portfolio, including securities held to maturity and
available for sale, grew to $42.2 million at September 30, 1997, compared to
$37.2 million at December 31, 1996. Shareholders' equity increased to $19.2
million at September 30, 1997 from $18.0 million at December 31, 1996, an
increase of 6.8%, or $1.2 million. The growth in the Company's total assets,
loans receivable, securities and deposits was a result of the Company's branch
expansion, continued penetration of its existing markets, emphasis on customer
service, competitive rate structures, selective marketing and growing product
line. The increase in the Company's shareholders' equity was primarily
attributable to the Company's increase in retained earnings, issuance of stock
awards and exercise of stock options as of September 30, 1997.
These increases in total assets were funded primarily by the Company's total
deposits which increased to $183.9 million at September 30, 1997, an increase of
$30.3 million, or 19.8%, over total deposits of $153.6 million at December 31,
1996. Time deposits increased by $15.2 million, or 20.1% and noninterest bearing
demand deposits increased by $5.3 million, or 16.8%. The increase in time
deposits was primarily caused by the Company's promotional activities at its new
locations, as well as the Company's continued penetration of its existing
markets. Deposits are obtained primarily from the market areas which the Company
serves. As of September 30, 1997 the Company did not have any brokered deposits
and neither solicited nor offered premiums for such deposits.
RESULTS OF OPERATIONS
Net Income
For the nine months ended September 30, 1997, the Company earned net income of
$1.2 million, or $.63 per share, compared to net income of $629 thousand, or
$.47 per share, earned for the comparable period of 1996. Earnings per share
were calculated on 1,974,892 weighted average shares outstanding at September
30, 1997, compared to 1,347,648 shares outstanding a year earlier, a 46.5%
increase totaling 627,244 shares. The changes in the components of net income
included a $1.9 million, or 47.8%, increase in net interest income after
provision for loan losses, and a $304 thousand, or 17.6% increase in noninterest
income. These items were partially offset by an increase in noninterest expenses
of $1.2 million, or 25.6%, as the Company continued its branch expansion and
increased staff to support and deliver its new products.
For the three months ended September 30, 1997, net income grew 354.3%, totaling
$575.8 thousand, or $.29 per share, compared to $126.7 thousand, or $.09 per
share for the same period in 1996. Earnings per share were calculated on
1,977,609 weighted average shares outstanding for the quarter ended September
30, 1997, compared to 1,396,697 shares outstanding a year earlier, a 41.6%
increase totaling 580,912 shares.
7
<PAGE>
Net income for the period ending September 30, 1996 included the one-time
congressionally mandated SAIF assessment of $370 thousand. Operating net income
excluding the one-time SAIF assessment for the quarter ending September 30, 1996
totaled $349 thousand, or $.25 per share and $851 thousand or $.63 per share for
the nine month period in 1996.
Net Interest Income
The Company's interest income increased by $3.2 million, or 40.7%, to $10.9
million for the nine months ended September 30, 1997 from $7.8 million for the
comparable period of 1996. The increase was attributed to an additional $49.1
million in average earning assets, a 37.6% increase over prior year. Interest
expense increased by $1.2 million, or 35.8%, to $4.6 million for the nine months
ended September 30, 1997 from $3.4 million for the comparable period of 1996.
This increase in interest expense was primarily attributable to the $40.8
million, or 28.6%, increase in the Company's total deposits from $143.0 million
as of September 30, 1996 to $183.9 million as of September 30, 1997 and the
change in the composition of the Company's deposits, as a greater percentage of
the Company's deposits were in time deposits, which generally pay higher rates
of interest. Since interest income increased more than interest expense, the
Company experienced growth in its net interest margin from 4.46% for the nine
months ended September 30, 1996 to 4.70% for the nine months ended September 30,
1997.
Provision for Loan Losses
The Company's provision for loan losses increased by $30.5 thousand to $396
thousand for the nine months ended September 30, 1997 from $365 thousand for the
comparable period of 1996. For the second quarter of 1997, the provision for
loan losses increased by $52.6 thousand, or 48.8%, over the comparable period of
1996. Management determines provisions as necessary to maintain the allowance
for loan losses at targeted levels as measured against total loans and/or past
due accounts
Noninterest Income
Service charges on deposits increased $174 thousand to $533 thousand for the
nine months ended September 30, 1997, a 48.6% increase over $359 thousand
reported September 30, 1996. The majority of the increase is due to growth in
the demand accounts which includes higher volumes of transactions processed,
improvement in return check fee collection ratios, repricing transaction fees in
March 1996 and additional fee income generated by ATM service charges.
Other income increased 53.8%, to $424 thousand for the nine month period ended
September 30, 1997 due to a larger portfolio of loans serviced and two new loan
products which accounted for an increase in loan application and appraisal fee
income. In January 1997, the Company introduced two new products to augment its
lending efforts, a full-service residential mortgage department and "Cash Flow
Manager". The mortgage department offers a variety of traditional fixed and
variable rate products. "Cash Flow Manager" involves the purchase of accounts
receivable on a recourse basis as a means of generating both fees and interest
income to the Company and providing small businesses with a means of increasing
their cash availability for operating needs or expansion plans.
The Company's gain on sale of loans increased by $13 thousand to $1.1 million
for the nine months ended September 30, 1997 from $1.1 million for the
comparable period of 1996. This increase in the gain on sale of loans reflects
the Company's increased participation in the Small Business Administration's
("SBA") guaranteed loan program as the Company has been designated a "preferred
lender" for the states of New Jersey, Delaware, New York and Pennsylvania. Under
the SBA program, the SBA guarantees up to 90% of the principal of a qualifying
loan. The Company then sells the guaranteed portion of the loan into the
secondary market.
For the quarter ended September 30, 1997 service charges on deposits increased
$63 thousand to $197.9 thousand,
8
<PAGE>
a 46.7% increase over $359 thousand reported September 30, 1996. As stated
above, additional fee income, growth in the number of demand accounts and
collection ratios contributed to the increase in charges.
Other income increased $60 thousand or 61.3% for the three month period ending
September 30, 1997 due to a larger portfolio of loan serviced and two new loan
products as described earlier.
Gain on sale of loans decreased 32.3% or $145 thousand from $450 thousand in
1996 to $305 thousand for the three month period ended September 30, 1997. The
decrease over prior quarter can be attributed to timing differences and in
September 1996, the Bank closed and sold a $1.6 million RECD Construction loan,
the loan yielded the Bank an additional $100 thousand in premium income.
Noninterest Expense
The Company's total other expenses increased by $1.2 million, or 25.7%, to $5.9
million for the nine months ended September 30, 1997 from $4.7 million for the
comparable period of 1996. Increases are comprised of $878 thousand in salaries
and employee benefits, $231 thousand in occupancy expenses, $473 thousand in
other operating expenses less a $370 thousand one time SAIF assessment charged
in September 1996. The increases in employee benefits, occupancy and other
expenses were primarily attributable to the company's continued expansion, as
the Company opened three new branches in July 1996, December 1996 and April 1997
and added two new loan products in January 1997. In addition, the Company
completed the move into its new headquarters building in April 1996.
For the second quarter of 1997 total other expenses decreased by $55 thousand,
or 2.9%, to $1.88 million for the three month period ended September 30, 1997
from $1.94 million for the comparable period of 1996. Increases are comprised of
$148 thousand in salaries and employee benefits, $33 thousand in occupancy
expenses, $133 thousand in other operating expenses, less the 1996 one time SAIF
assessment. These increases were primarily attributable to expansion as
discussed previously.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and lawsuits in which the Company is periodically
involved incidental to the Bank's business. In the opinion of management, no
material loss is expected from any such pending claims or lawsuits.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Number (27) - Financial Data Schedule
(b) Reports on Form 8-K
July 16, 1997 Press release of July 16, 1997 Second Quarter Earnings
August 12, 1997 Press release of August 12, 1997 Resignation of
President/COO James Hyman
August 12, 1997 Press release of August 13, 1997 Appointment
Three-Member Committee to manage bank until successor hired.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITY BANCORP, INC.
Date: November 14, 1997 By: /s/ JULIE CARLSON
----------------------------------
Julie Carlson
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrants Unaudited September 30, 1997 interim financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,139,795
<INT-BEARING-DEPOSITS> 16,133,446
<FED-FUNDS-SOLD> 9,650,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,022,026
<INVESTMENTS-CARRYING> 27,219,891
<INVESTMENTS-MARKET> 26,646,690
<LOANS> 127,510,723
<ALLOWANCE> 1,214,029
<TOTAL-ASSETS> 204,519,951
<DEPOSITS> 183,880,356
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,087,135
<LONG-TERM> 341,970
0
0
<COMMON> 17,124,001
<OTHER-SE> 2,086,489
<TOTAL-LIABILITIES-AND-EQUITY> 204,519,951
<INTEREST-LOAN> 8,081,495
<INTEREST-INVEST> 2,330,796
<INTEREST-OTHER> 530,068
<INTEREST-TOTAL> 10,942,359
<INTEREST-DEPOSIT> 4,585,407
<INTEREST-EXPENSE> 4,623,217
<INTEREST-INCOME-NET> 6,319,142
<LOAN-LOSSES> 395,587
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,941,044
<INCOME-PRETAX> 2,020,373
<INCOME-PRE-EXTRAORDINARY> 2,020,373
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,234,515
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 4.70
<LOANS-NON> 707,682
<LOANS-PAST> 748,555
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 886,465
<CHARGE-OFFS> 68,024
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,214,029
<ALLOWANCE-DOMESTIC> 1,214,029
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
