================================================================================
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 MARCH 31, 1998.
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 b 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or period that the registrant was required to file such reports), and
(2) has been subje requirements for the past 90 days. YES |X| NO |_|
The number of shares outstanding of each of the registrant's classes of common
equity Common Stock, No Par Value: 2,037,897 shares outstanding
Transitional Small Business Disclosure Format (check one): YES |_| NO |X|
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................. $ 13,954,414 $ 19,567,200
Federal funds sold ...................................... 13,550,000 13,050,000
------------- -------------
Total cash and cash equivalents ................... 27,504,414 32,617,200
------------- -------------
Securities
Available for sale, at fair value ...................... 33,528,689 17,409,103
Held to maturity, at amortized cost
(aggregate fair value of $21,745,293 and $23,499,307 .. 22,105,040 23,899,060
------------- -------------
55,633,729 41,308,163
------------- -------------
Loans (including loans held for sale of $1,851,962 and
$2,786,480 ............................................. 134,131,088 134,196,719
Less: Unearned income .................................. 6,562 20,734
Allowance for loan losses ........................ 1,321,954 1,321,735
------------- -------------
Net loans ........................................ 132,802,572 132,854,250
------------- -------------
Premises and equipment, net ............................. 4,400,237 4,268,906
Accrued interest receivable ............................. 1,317,128 1,347,860
Other assets ............................................ 1,630,941 1,385,587
------------- -------------
Total assets ...................................... $ 223,289,021 $ 213,781,966
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand
Noninterest Bearing ............................... $ 39,178,273 $ 41,093,550
Interest bearing .................................. 34,658,301 29,897,843
Savings ................................................ 31,659,083 31,199,141
Time (includes deposits $100,000 and over of $25,245,757 96,217,601 90,223,951
------------- -------------
Total deposits .................................... 201,713,258 192,414,485
------------- -------------
Obligation under capital lease .......................... 327,168 334,634
Accrued interest payable ................................ 517,310 492,627
Accrued expenses and other liabilities .................. 731,030 549,979
------------- -------------
Total liabilities ................................. 203,288,766 193,791,725
------------- -------------
Commitments and contingencies Shareholders' Equity
Common stock, no par value, 7,500,000 shares authorized;
3,019,159 and 2,979,228 issued and outstanding ........ 17,516,459 17,127,308
Treasury Stock, at cost; 37,350 shares in 1998 ......... (521,825) --
Retained earnings ...................................... 3,142,013 2,901,175
Accumulated other comprehensive loss ................... (136,392) (38,242)
------------- -------------
Total Shareholders' Equity ........................ 20,000,255 19,990,241
------------- -------------
Total liabilities and Shareholders' Equity ........ $ 223,289,021 $ 213,781,966
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
2
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
---------- ----------
Interest Income
Interest on loans ................ $3,039,020 $2,348,710
Interest on Securities ........... 807,009 696,642
Interest on Federal Funds Sold ... 245,831 227,145
---------- ----------
Total interest income ..... 4,091,860 3,272,497
---------- ----------
Interest expense .................. 1,746,548 1,426,458
---------- ----------
Net interest income ............... 2,345,312 1,846,039
---------- ----------
Provision for loan losses ......... 203,944 58,316
---------- ----------
Net interest income after provision
for possible loan losses ......... 2,141,368 1,787,723
---------- ----------
Other income
Service charges on deposits ...... 201,164 162,970
Gain on sale of loans ............ 369,981 270,061
Gain on sale of securities ....... 72,783 --
Other income ..................... 177,030 131,397
---------- ----------
Total other income ............... 820,958 564,428
---------- ----------
Other expenses
Salaries and employee benefits ... 1,201,766 1,047,931
Occupancy expense ................ 259,273 257,570
Other operating expenses ......... 950,699 725,645
---------- ----------
Total other expenses ............. 2,411,738 2,031,146
---------- ----------
Income before taxes ............... 550,588 321,005
Provision for income taxes ........ 210,126 124,553
---------- ----------
Net income ........................ $ 340,462 $ 196,452
========== ==========
Basic earnings per share .......... $ 0.11 $ 0.07
Diluted earnings per share ........ $ 0.11 $ 0.07
Weighted average shares outstanding 2,990,420 2,958,357
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
Net income ........................... $ 340,462 $ 196,452
========= =========
Other comprehensive income
Unrealized loss on securities. (158,610) (36,780)
Tax Benefit .................. 60,460 14,712
--------- ---------
Net unrealized losses on securities,
net of reclassification adjustment
(see disclosure) ................... (98,150) (22,068)
--------- ---------
Other comprehensive income, net
of tax ............................. (98,150) (22,068)
--------- ---------
Comprehensive income ................. $ 242,312 $ 174,384
========= =========
Disclosure:
reclassificaztion amount, net of tax
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
Unrealized holding losses arising
during period ...................... $ (53,025) $ (22,068)
less: reclassification adjustment
for gains in net income ........ 45,125 --
--------- ---------
$ (98,150) $ (22,068)
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flow (Unaudited)
<TABLE>
<CAPTION>
For the three month and quarter ended March 31, 1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income .......................................................... $ 340,462 $ 196,452
Adjustments to reconcile net income to net cash provided by (used in)
(used in) operating activities
Provision for possible loan losses ................................. 203,944 58,316
Depreciation and amortization ...................................... 147,305 137,009
Net gain on sale of securities ..................................... (72,783) --
Gain on sale of loans .............................................. (369,981) (270,061)
Amortization of securities premiums, net ........................... 7,655 7,007
Decrease (increase) in accrued interest receivable ................. 30,732 (28,724)
Increase in other assets ........................................... (306,012) (23,474)
Increase in accrued interest payable ............................... 24,683 111,681
Increase in accrued expenses and other liabilities ................. 181,051 153,949
------------ ------------
Net cash provided by (used in) operating activities .............. 187,056 342,155
------------ ------------
Investing activities:
Proceeds from sale of securities .................................... 3,792,564 --
Net increase in securities .......................................... (18,211,612) (183,461)
Proceeds from sale of loans ......................................... 4,625,345 2,549,124
Net increase in loans ............................................... (4,297,103) (9,703,388)
Capital expenditures ................................................ (275,511) (522,360)
------------ ------------
Net cash used in investing activities ............................ (14,366,317) (7,860,085)
------------ ------------
Financing activities:
Increase in deposits ................................................ 9,298,773 14,434,670
Proceeds from issuance of common stock, net ......................... 389,151 109,993
Treasury stock purchases ............................................ (521,825) --
Cash Dividends ...................................................... (99,624) (98,671)
------------ ------------
Net cash provided by financing activities ........................ 9,066,475 14,445,992
------------ ------------
(Decrease) Increase in cash and cash equivalents ..................... (5,112,786) 6,928,062
Cash and cash equivalents at beginning of year ....................... 32,617,200 33,448,021
------------ ------------
Cash and cash equivalents at end of period ........................... $ 27,504,414 $ 40,376,083
------------ ------------
Supplemental disclosures:
Interest paid ....................................................... $ 1,715,988 $ 1,291,116
Income taxes paid ................................................... 100,000 75,000
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of
Unity Bancorp, Inc. (the "Parent Company") and its wholly-owned
subsidiary, First Community Bank (the "Bank", or when consolidated with
the Parent Company, the "Company"), and reflect all adjustments and
disclosures which are, in the opinion of management, necessary for a fair
presentation of interim results. All significant intercompany balances and
transactions have been eliminated in consolidation. 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, 1997.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the year.
1. Shareholders' Equity:
The Board of Directors on April 24, 1998 approved a three for two stock
split payable June 1, 1998 to shareholders of record as of May 15, 1998.
All share and per share information for all periods presented in these
financial statements has been adjusted to give effect for the stock split.
The Board of Directors declared a cash dividend on January 6, 1998.
Shareholders of record on January 19, 1998, received a $.03 per share cash
dividend paid on February 9, 1998.
The Company initiated a dividend reinvestment program pursuant to which
shareholders of the Company will be permitted to purchase additional
shares of the Company's common stock with their quarterly dividends and
additional cash contributions up to $2,500. The dividend reinvestment
program became effective on May 15, 1998.
The Board of Directors approved a stock repurchase program pursuant to
which the Company may repurchase from time to time up to 100,000 shares of
its outstanding stock. Shares purchased by the Company through the
repurchase program will be used to fund the dividend reinvestment program,
the Company's stock option plans and for other corporate purposes. As of
March 31, 1998, the Company has repurchased 37,350 shares under the Plan.
2. Disclosure of accumulated other comprehensive income balances
Unrealized Unrealized
Loss on Loss on
Securities Securities
March 31, 1998 1997
- ------------------------------------------------------------------------------
Beginning accumulated other
comprehensive balances $(38,242) $(60,476)
Current-period change (98,150) (22,068)
==============================================================================
Ending accumulated other
comprehensive balances $(136,392) $(82,544)
6
<PAGE>
UNITY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
3. Recently issued accounting pronouncements
The Company Adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("Statement 130") effective January 1,
1998. Statement 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Under Statement 130, comprehensive income is divided
into net income and other comprehensive income. Other comprehensive income
includes items previously recorded directly in equity, such as unrealized
gains or losses on securities available-for-sale. Comparative financial
statements provided for earlier periods are reclassified to reflect
application of the provisions of the statement.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("Statement 131") was
issued June, 1997. Statement 131 establishes standards for the way public
business enterprises are to report information about operating segments in
annual financial statements and requires those enterprises to report
selected financial information about operating segments in interim
financial reports to shareholders. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. The
Company has no separate reportable segments.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Post retirement Benefits" ("Statement
132") was issued February, 1998. Statement 132 revises employers'
disclosures about pension and other post retirement benefit plans. The
Statement becomes effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. The Company has elected not to
adopt this statement prior to its effective date and has not determined
the effect, if any, on its current disclosures.
7
<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 $223.3 million at March 31, 1998, $9.5
million, or 4.4%, above year end 1997 total assets of $213.8. Net loans remained
relatively unchanged at $132.8, compared to $132.9 at December 31, 1997. The
Company funded approximately $9 million in loans, which was offset by loan
payments, payoffs and SBA loan sales. The Company's securities portfolio,
including securities held to maturity and available for sale, grew to $55.6
million at March 31, 1998, compared to $41.3 million at December 31, 1997. As of
March 31, 1998 Shareholders' Equity totaled $20.0 million compared to $20.0
million at December 31, 1997. The growth in the Company's total assets,
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
Company's Shareholders' Equity increases were attributable to retention of
earnings, issuance of stock award and exercised of stock options and warrants,
but was subsequently offset by treasury stock purchases as of March 31, 1998.
These increases in total assets were funded by increases in the Company's total
deposits which increased to $201.7 million at March 31, 1998, an increase of
$9.3 million, or 4.8%, over total deposits of $192.4 million at December 31,
1997. Time deposits increased by $6.0 million, or 6.6%, and interest bearing
demand deposits increased by $4.8 million, or 15.9%, offset by the decrease in
noninterest bearing demand by 1.9 million, or 4.7%. Promotional activities
contributed to the increase in time deposits as well as the Company's continued
penetration of existing markets. The decrease in demand deposit balances is
attributed to transfers amoung other deposits and normal check processing.
Deposits are Deposits are obtained primarily from the market areas which the
Company serves. As of March 31, 1998 the Company did not have any brokered
deposits and neither solicited nor offered premiums for such deposits.
The Company's nonaccrual loans increased by $1.3 million from year end 1997 to
$2.3 million at March 31, 1998. This net increase was attributable to $1.6
million of additional nonaccrual loans partially offset by $82 thousand in
payments received and charge-offs totaling $204 thousand. The increase in
nonaccrual loans is substantially the result of Management's decision to place
two real estate secured loans on nonaccrual status due to delinquent payments.
At At March 31, 1998, $1.1 million in loans were contractually past due greater
than 90 days but still accruing interest, compared to $552 thousand for the year
ending December 31, 1997. In Management's best judgment all non performing
assets are either fully collateralized or reserved based on circumstances known
at this time.
The Corporation achieved a 9.08% Tier I Leverage Ratio at March 31, 1998
compared to the federally-mandated minimum Tier I Capital Ratio of 4.0%.
RESULTS OF OPERATIONS
Net Income
For the three months ended March 31, 1998, the Company earned net income of $340
thousand, or $.11 basic earnings per share, compared to net income of $196
thousand, or $.07 basic earnings per share, earned for the comparable period of
1997. Basic earnings per share were calculated on 2,990,420 weighted average
shares outstanding at March 31, 1998
8
<PAGE>
compared to 2,958,357 weighted average shares outstanding a year earlier,
adjusted for the 3 for 2 stock split declared April 24, 1998. The changes in the
components of net income included a $354 thousand, or 19.8%, increase in net
interest income after provision for loan losses, and a $256 thousand, or 45.4%
increase in noninterest income. These items were partially offset by an increase
in noninterest expenses of $381 thousand, or 18.7%, as the Company continued its
branch expansion and increased staff required to support and deliver its new
products introduced in 1997.
Net Interest Income
The Company's interest income increased by $819 thousand, or 25.0%, to $4.1
million for the three months ended March 31, 1998 from $3.3 million for the
comparable period of 1997. The increase was attributed to an additional $42.9
million in average earning assets, a 25.4% increase over prior year. Interest
expense increased by $320 thousand, or 22.4%, to $1.7 million for the three
months ended March 31, 1998 from $1.4 million for the comparable period of 1997.
This increase in interest expense was primarily attributable to the $28.4
million, or 21.2%, increase in the Company's interest bearing deposits from
$134.2 million as of March 31, 1997 to $162.5 million as of March 31, 1998. As
interest income increased more rapidly than interest expense, the Company
experienced a growth in its net interest margin to 4.49% for the three months
ended March 31, 1998 from 4.43% for the same period ended March 31, 1997.
Provision for Loan Losses
The Company's provision for loan losses increased by $146 thousand to $204
thousand for the three months ended March 31, 1998 from $58 thousand for the
comparable period of 1997. The increased provision is primarily the result of
the aging of the Company's loan portfolio along with the increase in nonaccrual
loans. The loan loss reserve as a percent of loan of total loans, net of loans
held for sale increased to 1% as of March 31, 1998 from .91% as of March 31,
1997. The allowance is a result of Management's analysis of the estimated
inherent losses in the Bank's loan portfolio. 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 and Management's analysis
of current economic conditions.
Noninterest Income
Service charges on deposits increased $38 thousand to $201 thousand for the
three months ended March 31, 1998, a 23.4% increase over $163 thousand reported
March 31, 1997. The majority of the increase is due to the growth in the demand
accounts which includes higher volumes of transactions processed, improvement in
return check fee collection ratios, repricing transaction fees in March 1998 and
additional fee income generated by ATM services charges.
The Company's gain on sale of loans increased by $100 thousand to $370 thousand
for the three months ended March 31, 1998 from $270 thousand for the comparable
period of 1997. 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.
The Company sold $2.6 million in SBA loans as of March 31, 1998 compared to $2.2
million sold in the same period in 1997.
Proceeds from sales of securities amounted to $3.8 million at March 31, 1998.
Gross gains and (losses) on sales of securities were $90 thousand and ($17)
thousand as of the period ended March 31, 1998. There were no sales in 1997.
Other income which primarily consists of SBA servicing fee income, increased
34.7%, to $177 thousand for the three month period ended March 31, 1998 due to a
larger portfolio of loans serviced.
Noninterest Expense
The Company's total other expenses increased by $381 thousand, or 18.7%, to $2.4
million for the quarter ended March 31, 1998 from $2.0 million for the
comparable period of 1997. Salaries and employee benefits increased $154
thousand due to additional staffing required to support the increased level of
activity on new products developed in 1997, staffing required for the opening of
the Linden branch in April 1997, along with increases in commissions paid
associated with the increased volume in loan sales. Other operating expenses
which includes items such as deposits and loan expenses,
9
<PAGE>
advertising, professional services, office expenses and other miscellaneous
expenses increased $225 thousand, largely due to the increasing customer base,
branch expansion, product development and marketing.
10
<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
January 13, 1998 Announcing Cash dividend declared and Stock repurchase
program
January 20, 1998 Announcing Forth Quarter and Year End Results
11
<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: May 15, 1998 By: /s/ JOHN F. TREMBLAY
----------------------------
John F. Tremblay
President
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrants Unaudited March 31, 1998 interim financial statements and is
qualified in its entireity by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,292,742
<INT-BEARING-DEPOSITS> 11,661,672
<FED-FUNDS-SOLD> 13,550,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,528,689
<INVESTMENTS-CARRYING> 22,105,040
<INVESTMENTS-MARKET> 21,745,293
<LOANS> 134,124,526
<ALLOWANCE> 1,321,954
<TOTAL-ASSETS> 223,289,021
<DEPOSITS> 201,713,258
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,248,340
<LONG-TERM> 327,168
0
0
<COMMON> 17,516,459
<OTHER-SE> 2,483,796
<TOTAL-LIABILITIES-AND-EQUITY> 223,289,021
<INTEREST-LOAN> 3,039,020
<INTEREST-INVEST> 807,009
<INTEREST-OTHER> 245,831
<INTEREST-TOTAL> 4,091,860
<INTEREST-DEPOSIT> 1,740,671
<INTEREST-EXPENSE> 1,746,548
<INTEREST-INCOME-NET> 2,345,312
<LOAN-LOSSES> 203,944
<SECURITIES-GAINS> 72,783
<EXPENSE-OTHER> 2,411,738
<INCOME-PRETAX> 550,588
<INCOME-PRE-EXTRAORDINARY> 550,588
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340,462
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
<YIELD-ACTUAL> 4.49
<LOANS-NON> 2,350,647
<LOANS-PAST> 1,137,074
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,321,735
<CHARGE-OFFS> 203,725
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,321,954
<ALLOWANCE-DOMESTIC> 1,321,954
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
