SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(Mark One) | ||
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR | ||
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| 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 |
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 |
| (I.R.S. employer |
|
|
|
64 Old Highway 22, Clinton, NJ |
| 08809 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (908) 730-7630
Indicate by check mark whether the Registrant:registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of 1934, as amended, 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 ý No o
Indicate by check mark whether the Registrantregistrant is an accelerated filer (as defined in rule 12b-2Rule 12 b-2 of the Exchange Act) Yes o No ý
The number of shares outstanding of each of the Registrant’sregistrant’s classes of common equity stock, as of October 31, 2002:
CommonApril 30, 2003: common stock, no par value: 5,238,3765,393,891 shares outstanding
2
Part 1.-Financial1.-Consolidated Financial Information
Item 1.-1.-Consolidated Financial Statements
|
|
| (unaudited) |
|
|
| (unaudited) |
| |||
(in thousands) |
| 09/30/02 |
| 12/31/01 |
| 09/30/01 |
| |||
Assets |
|
|
|
|
|
|
| |||
Cash and due from banks |
| $ | 14,686 |
| $ | 16,832 |
| $ | 12,973 |
|
Federal funds sold |
| 20,000 |
| — |
| 12,000 |
| |||
Securities: |
|
|
|
|
|
|
| |||
Available for sale |
| 51,230 |
| 59,773 |
| 59,819 |
| |||
Held to maturity |
| 25,218 |
| 20,923 |
| 22,238 |
| |||
Total securities |
| 76,448 |
| 80,696 |
| 82,057 |
| |||
Loans: |
|
|
|
|
|
|
| |||
SBA held for sale |
| 14,124 |
| 17,719 |
| 15,019 |
| |||
SBA held to maturity |
| 43,989 |
| 35,754 |
| 34,216 |
| |||
Commercial |
| 154,321 |
| 119,262 |
| 97,649 |
| |||
Residential mortgage |
| 64,189 |
| 73,144 |
| 78,066 |
| |||
Consumer |
| 26,955 |
| 26,680 |
| 26,918 |
| |||
Total loans |
| 303,578 |
| 272,559 |
| 251,868 |
| |||
Less: Allowance for loan losses |
| 3,786 |
| 3,165 |
| 2,871 |
| |||
Net loans |
| 299,792 |
| 269,394 |
| 248,997 |
| |||
Premises and equipment, net |
| 8,772 |
| 8,567 |
| 8,812 |
| |||
Accrued interest receivable |
| 2,368 |
| 2,261 |
| 2,445 |
| |||
Other assets |
| 1,924 |
| 1,482 |
| 1,305 |
| |||
Total assets |
| $ | 424,990 |
| $ | 379,232 |
| $ | 368,589 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
| |||
Liabilities: |
|
|
|
|
|
|
| |||
Deposits |
|
|
|
|
|
|
| |||
Non-interest bearing |
| $ | 71,496 |
| $ | 64,697 |
| $ | 58,646 |
|
Interest bearing checking |
| 165,017 |
| 119,864 |
| 111,075 |
| |||
Savings deposits |
| 36,545 |
| 30,982 |
| 30,776 |
| |||
Time deposits, under $100,000 |
| 76,887 |
| 83,644 |
| 91,757 |
| |||
Time, $100,000 and over |
| 24,149 |
| 40,767 |
| 37,717 |
| |||
Total deposits |
| 374,094 |
| 339,954 |
| 329,971 |
| |||
Other debt |
| 12,787 |
| 12,853 |
| 12,874 |
| |||
Trust preferred securities |
| 9,000 |
| — |
| — |
| |||
Accrued interest payable |
| 294 |
| 366 |
| 1,120 |
| |||
Accrued expense and other liabilities |
| 1,145 |
| 1,223 |
| 951 |
| |||
Total liabilities |
| $ | 397,320 |
| $ | 354,396 |
| $ | 344,916 |
|
Commitments and contingencies |
|
|
|
|
|
|
| |||
Shareholders’ equity |
|
|
|
|
|
|
| |||
Preferred stock, class A, 10%, 104 shares authorized 6 issued and outstanding |
| 285 |
| 285 |
| 285 |
| |||
Common stock, no par value, 12,500 shares authorized |
| 32,159 |
| 33,248 |
| 32,702 |
| |||
Retained deficit |
| (6,015 | ) | (8,692 | ) | (9,632 | ) | |||
Accumulated other comprehensive income (loss) |
| 241 |
| (5 | ) | 318 |
| |||
Total Shareholders’ Equity |
| $ | 26,670 |
| $ | 24,836 |
| $ | 23,673 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 424,990 |
| $ | 379,232 |
| $ | 368,589 |
|
|
|
|
|
|
|
|
| |||
Issued common shares |
| 5,094 |
| 5,113 |
| 4,984 |
| |||
Outstanding common shares |
| 5,094 |
| 5,113 |
| 4,984 |
| |||
|
|
|
|
|
|
|
|
Unity Bancorp, Inc
Consolidated Balance Sheets
|
| (unaudited) |
|
|
| (unaudited) |
| |||
(in thousands) |
| 03/31/03 |
| 12/31/02 |
| 3/31/02 |
| |||
Assets |
|
|
|
|
|
|
| |||
Cash and due from banks |
| $ | 12,188 |
| $ | 12,237 |
| $ | 13,762 |
|
Federal funds sold |
| 25,000 |
| 18,000 |
| 12,000 |
| |||
Securities: |
|
|
|
|
|
|
| |||
Available for sale |
| 55,813 |
| 55,570 |
| 57,979 |
| |||
Held to maturity |
| 24,106 |
| 26,184 |
| 21,988 |
| |||
Total securities |
| 79,919 |
| 81,754 |
| 79,967 |
| |||
Loans: |
|
|
|
|
|
|
| |||
SBA held for sale |
| 13,846 |
| 14,396 |
| 14,279 |
| |||
SBA held to maturity |
| 50,045 |
| 49,784 |
| 37,816 |
| |||
Commercial |
| 173,191 |
| 163,813 |
| 131,487 |
| |||
Residential mortgage |
| 52,321 |
| 56,297 |
| 69,757 |
| |||
Consumer |
| 29,209 |
| 27,504 |
| 26,247 |
| |||
Total loans |
| 318,612 |
| 311,794 |
| 279,586 |
| |||
Less: Allowance for loan losses |
| 4,382 |
| 4,094 |
| 3,180 |
| |||
Net loans |
| 314,230 |
| 307,700 |
| 276,406 |
| |||
Premises and equipment, net |
| 8,569 |
| 8,669 |
| 8,333 |
| |||
Accrued interest receivable |
| 2,455 |
| 2,579 |
| 2,270 |
| |||
Other assets |
| 2,909 |
| 1,935 |
| 1,492 |
| |||
Total assets |
| $ | 445,270 |
| $ | 432,874 |
| $ | 394,230 |
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
| |||
Liabilities: |
|
|
|
|
|
|
| |||
Deposits |
|
|
|
|
|
|
| |||
Non-interest bearing |
| $ | 80,794 |
| $ | 75,567 |
| $ | 62,246 |
|
Interest bearing checking |
| 181,599 |
| 176,640 |
| 135,196 |
| |||
Savings deposits |
| 36,484 |
| 34,663 |
| 32,141 |
| |||
Time deposits, under $100,000 |
| 67,850 |
| 75,883 |
| 84,378 |
| |||
Time depostis, $100,000 and over |
| 27,298 |
| 19,832 |
| 39,816 |
| |||
Total deposits |
| 394,025 |
| 382,585 |
| 353,777 |
| |||
Other debt |
| 12,745 |
| 12,768 |
| 12,831 |
| |||
Trust preferred securities |
| 9,000 |
| 9,000 |
| — |
| |||
Accrued interest payable |
| 236 |
| 280 |
| 412 |
| |||
Accrued expense and other liabilities |
| 1,440 |
| 1,135 |
| 1,350 |
| |||
Total liabilities |
| $ | 417,446 |
| $ | 405,768 |
| $ | 368,370 |
|
Commitments and contingencies |
| — |
| — |
| — |
| |||
Shareholders’ equity |
|
|
|
|
|
|
| |||
Preferred stock, class A, 10%, 104 shares authorized 6 thousand issued and outstanding |
| — |
| — |
| 285 |
| |||
Common stock, no par value, 12,500 shares authorized |
| 31,827 |
| 31,827 |
| 33,630 |
| |||
Retained deficit |
| (3,854 | ) | (5,006 | ) | (7,878 | ) | |||
Accumulated other comprehensive (loss) income |
| (149 | ) | 285 |
| (177 | ) | |||
Total Shareholders’ Equity |
| 27,824 |
| $ | 27,106 |
| 25,860 |
| ||
Total Liabilities and Shareholders’ Equity |
| $ | 445,270 |
| $ | 432,874 |
| $ | 394,230 |
|
|
|
|
|
|
|
|
| |||
Issued common shares |
| 5,393 |
| 5,393 |
| 5,440 |
| |||
Outstanding common shares |
| 5,393 |
| 5,393 |
| 5,440 |
|
See accompanying notesAccompanying Notes to the consolidated financial statements.Consolidated Financial Statements
3
Unity Bancorp |
|
|
|
| For the three months ended September 30, |
| For the nine months ended September 30, |
| ||||||||||
(in thousands, except per share amounts) |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| ||||||
Interest income: |
|
|
|
|
|
|
|
|
| ||||||
Fed funds sold and interest on deposits |
| $ | 69 |
| $ | 132 |
| $ | 130 |
| $ | 965 |
| ||
Securities: |
|
|
|
|
|
|
|
|
| ||||||
Available for sale |
| 564 |
| 877 |
| 2,084 |
| 2,456 |
| ||||||
Held to maturity |
| 362 |
| 368 |
| 1,083 |
| 1,207 |
| ||||||
Total securities |
| 926 |
| 1,245 |
| 3,167 |
| 3,663 |
| ||||||
Loans: |
|
|
|
|
|
|
|
|
| ||||||
SBA loans |
| 922 |
| 880 |
| 2,706 |
| 2,537 |
| ||||||
Commercial loans |
| 2,862 |
| 2,008 |
| 7,761 |
| 5,793 |
| ||||||
Residential mortgage loans |
| 1,054 |
| 1,229 |
| 3,166 |
| 3,454 |
| ||||||
Consumer loans |
| 394 |
| 469 |
| 1,172 |
| 1,512 |
| ||||||
Total loan interest income |
| 5,232 |
| 4,586 |
| 14,805 |
| 13,296 |
| ||||||
Total interest income |
| 6,227 |
| 5,963 |
| 18,102 |
| 17,924 |
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
| ||||||
Interest bearing checking |
| 760 |
| 749 |
| 2,007 |
| 2,550 |
| ||||||
Savings deposits |
| 199 |
| 194 |
| 554 |
| 554 |
| ||||||
Time deposits |
| 986 |
| 1,652 |
| 3,293 |
| 5,588 |
| ||||||
Total deposit interest expense |
| 1,945 |
| 2,595 |
| 5,854 |
| 8,692 |
| ||||||
Borrowings |
| 200 |
| 196 |
| 593 |
| 584 |
| ||||||
Total interest expense |
| 2,145 |
| 2,791 |
| 6,447 |
| 9,276 |
| ||||||
Net interest income |
| 4,082 |
| 3,172 |
| 11,655 |
| 8,648 |
| ||||||
Provision for loan losses |
| 375 |
| 275 |
| 1,950 |
| 575 |
| ||||||
Net interest income after provision for loan losses |
| 3,707 |
| 2,897 |
| 9,705 |
| 8,073 |
| ||||||
Non-interest Income: |
|
|
|
|
|
|
|
|
| ||||||
Deposit service charges |
| 407 |
| 286 |
| 1,116 |
| 935 |
| ||||||
Loan and servicing fees |
| 363 |
| 322 |
| 1,082 |
| 923 |
| ||||||
Net gains on loan sales |
| 729 |
| 485 |
| 2,614 |
| 1,537 |
| ||||||
Net security gains |
| — |
| 34 |
| 228 |
| 68 |
| ||||||
Other income |
| 123 |
| 206 |
| 835 |
| 471 |
| ||||||
Total non-interest income |
| 1,622 |
| 1,333 |
| 5,875 |
| 3,934 |
| ||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
| ||||||
Compensation and benefits |
| 1,867 |
| 1,760 |
| 5,605 |
| 5,071 |
| ||||||
Occupancy |
| 422 |
| 405 |
| 1,228 |
| 1,242 |
| ||||||
Processing and communications |
| 564 |
| 545 |
| 1,636 |
| 1,547 |
| ||||||
Furniture and equipment |
| 271 |
| 283 |
| 820 |
| 816 |
| ||||||
Professional fees |
| 204 |
| 151 |
| 515 |
| 563 |
| ||||||
Deposit insurance |
| 42 |
| 39 |
| 119 |
| 463 |
| ||||||
Loan servicing costs |
| 104 |
| 50 |
| 306 |
| 189 |
| ||||||
Other expenses |
| 356 |
| 268 |
| 1,153 |
| 1,046 |
| ||||||
Total non-interest expense |
| 3,830 |
| 3,501 |
| 11,382 |
| 10,937 |
| ||||||
Net income before provision for income taxes |
| $ | 1,499 |
| $ | 729 |
| $ | 4,198 |
| $ | 1,070 |
| ||
Provision for income taxes |
| 537 |
| 3 |
| 1,498 |
| 14 |
| ||||||
Net income |
| $ | 962 |
| $ | 726 |
| $ | 2,700 |
| $ | 1,056 |
| ||
Preferred stock dividends |
| 8 |
| 1,795 |
| 23 |
| 2,055 |
| ||||||
Net income (loss) to common shareholders |
| $ | 954 |
| $ | (1,069 | ) | $ | 2,677 |
| $ | (999 | ) | ||
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) per common share — Basic |
| $ | 0.18 |
| $ | (0.23 | ) | $ | 0.51 |
| $ | (0.25 | ) | ||
Net income (loss) per common share — Diluted |
| 0.17 |
| (0.23 | ) | 0.48 |
| (0.25 | ) | ||||||
|
|
|
|
|
|
|
|
|
| ||||||
Weighted average shares outstanding — Basic |
| 5,383 |
| 4,683 |
| 5,245 |
| 4,036 |
| ||||||
Weighted average shares outstanding — Diluted |
| 5,663 |
| 4,733 |
| 5,589 |
| 4,063 |
| ||||||
Consolidated Statements of Income
|
| For the three months |
| ||||
(in thousands, except per share amounts) |
| 2003 |
| 2002 |
| ||
Interest income: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Fed funds sold and interest on deposits |
| $ | 16 |
| $ | 30 |
|
Securities: |
|
|
|
|
| ||
Available for sale |
| 545 |
| 791 |
| ||
Held to maturity |
| 307 |
| 333 |
| ||
Total securities |
| 852 |
| 1,124 |
| ||
Loans: |
|
|
|
|
| ||
SBA loans |
| 1,042 |
| 899 |
| ||
Commercial loans |
| 3,019 |
| 2,263 |
| ||
Residential mortgage loans |
| 877 |
| 1,043 |
| ||
Consumer loans |
| 384 |
| 389 |
| ||
Total loan interest income |
| 5,322 |
| 4,594 |
| ||
Total interest income |
| 6,190 |
| 5,748 |
| ||
Interest expense: |
|
|
|
|
| ||
Interest bearing demand deposits |
| 788 |
| 572 |
| ||
Savings deposits |
| 106 |
| 167 |
| ||
Time deposits |
| 744 |
| 1,182 |
| ||
Other debt and trust preferred securities |
| 301 |
| 197 |
| ||
Total interest expense |
| 1,939 |
| 2,118 |
| ||
Net interest income |
| 4,251 |
| 3,630 |
| ||
Provision for loan losses |
| 450 |
| 600 |
| ||
Net interest income after provision for loan losses |
| 3,801 |
| 3,030 |
| ||
Non-interest Income: |
|
|
|
|
| ||
Deposit service charges |
| 570 |
| 343 |
| ||
Loan and servicing fees |
| 421 |
| 352 |
| ||
Net gains on SBA loan sales |
| 819 |
| 784 |
| ||
Net security gains |
| 83 |
| — |
| ||
Other income |
| 214 |
| 412 |
| ||
Total non-interest income |
| 2,107 |
| 1,891 |
| ||
Non-interest expense: |
|
|
|
|
| ||
Compensation and benefits |
| 1,910 |
| 1,808 |
| ||
Occupancy |
| 478 |
| 408 |
| ||
Processing and communications |
| 574 |
| 511 |
| ||
Furniture and equipment |
| 241 |
| 285 |
| ||
Professional fees |
| 252 |
| 153 |
| ||
Deposit insurance |
| 16 |
| 38 |
| ||
Loan servicing costs |
| 120 |
| 67 |
| ||
Other expenses |
| 464 |
| 382 |
| ||
Total non-interest expense |
| 4,055 |
| 3,652 |
| ||
Net income before provision for income taxes |
| 1,853 |
| 1,269 |
| ||
Provision for income taxes |
| 701 |
| 447 |
| ||
Net income |
| $ | 1,152 |
| $ | 822 |
|
|
|
|
|
|
| ||
Preferred stock dividends |
| — |
| 8 |
| ||
|
|
|
|
|
| ||
Net income to common shareholders |
| $ | 1,152 |
| $ | 814 |
|
Net income per common share - Basic |
| $ | 0.21 |
| $ | 0.15 |
|
Net income per common share - Diluted |
| 0.20 |
| 0.14 |
| ||
Weighted average shares outstanding – Basic |
| 5,393 |
| 5,389 |
| ||
Weighted average shares outstanding – Diluted |
| 5,671 |
| 5,825 |
|
See accompanying notesAccompanying Notes to the consolidated financial statements.Consolidated Financial Statements
4
Unity Bancorp, Inc
Consolidated Statements of Changes in Shareholders’ Equity
For the Ninethree months ended September 30,March 31, 2003 and 2002 and 2001
(unaudited)
(In thousands) |
| Preferred Stock |
| Common Stock |
| Treasury Stock |
| Retained Deficit |
| Accumulated Other Comprehensive Income (loss) |
| Total Shareholders’ Equity |
| |||||||||
Balance, December 31, 2000 |
| $ | 4,929 |
| $ | 26,234 |
| $ | (1,762 | ) | $ | (7,793 | ) | $ | (294 | ) | $ | 21,314 |
| |||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net Income |
| — |
| — |
| — |
| 1,056 |
| — |
| 1,056 |
| |||||||||
Unrealized holding gain on securities arising during the period, net of tax $398 |
| — |
| — |
| — |
| — |
| 612 |
| 612 |
| |||||||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 1,668 |
| |||||||||
Employee benefit plans |
| — |
| — |
| 114 |
| (65 | ) | — |
| 49 |
| |||||||||
Private placement offering |
| — |
| 39 |
| 1,648 |
| (1,045 | ) | — |
| 642 |
| |||||||||
Preferred stock exchange |
| (4,644 | ) | 6,429 |
| — |
| (1,785 | ) | — |
| — |
| |||||||||
Balance, September 30, 2001 |
| $ | 285 |
| $ | 32,702 |
| $ | — |
| $ | (9,632 | ) | $ | 318 |
| $ | 23,673 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, December 31, 2001 |
| $ | 285 |
| $ | 33,248 |
| $ | — |
| $ | (8,692 | ) | $ | (5 | ) | $ | 24,836 |
| |||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net Income |
| — |
| — |
| — |
| 2,700 |
| — |
| 2,700 |
| |||||||||
Net unrealized holding gain on securities arising during the period, net of tax $116 |
| — |
| — |
| — |
| — |
| 246 |
| 246 |
| |||||||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 2,946 |
| |||||||||
Preferred stock dividends |
| — |
| — |
| — |
| (23 | ) | — |
| (23 | ) | |||||||||
Warrant exercises (332 shares) |
| — |
| 1,356 |
| — |
| — |
| — |
| 1,356 |
| |||||||||
Benefit plans (18 shares) |
| — |
| 102 |
| — |
| — |
| — |
| 102 |
| |||||||||
Repurchase and retirement of common stock (369 shares) |
| — |
| (2,547 | ) | — |
| — |
| — |
| (2,547 | ) | |||||||||
Balance, September 30, 2002 |
| $ | 285 |
| $ | 32,159 |
| $ | — |
| $ | (6,015 | ) | $ | 241 |
| $ | 26,670 |
| |||
(In thousands) |
| Preferred |
| Common |
| Retained |
| Accumulated |
| Total |
| |||||
Balance, December 31, 2001 |
| $ | 285 |
| $ | 33,248 |
| $ | (8,692 | ) | $ | (5 | ) | $ | 24,836 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
| — |
| — |
| 822 |
| — |
| 822 |
| |||||
Unrealized holding loss on securities arising during the period, net of tax $277 |
| — |
| — |
| — |
| (172 | ) | (172 | ) | |||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| 650 |
| |||||
Preferred stock dividends |
| — |
| — |
| (8 | ) | — |
| (8 | ) | |||||
Warrant exercises (63 shares) |
| — |
| 349 |
| — |
| — |
| 349 |
| |||||
Benefit plans (5 shares) |
| — |
| 33 |
| — |
| — |
| 33 |
| |||||
Balance, March 31, 2002 |
| $ | 285 |
| $ | 33,630 |
| $ | (7,878 | ) | $ | (177 | ) | $ | 25,860 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, December 31, 2002 |
| $ | — |
| $ | 31,827 |
| $ | (5,006 | ) | $ | 285 |
| $ | 27,106 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
| — |
| — |
| 1,152 |
| — |
| 1,152 |
| |||||
Net unrealized holding loss on securities arising during the period, net of tax $282 |
| — |
| — |
| — |
| (434 | ) | (434 | ) | |||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| 718 |
| |||||
Balance, March 31, 2003 |
| $ | — |
| $ | 31,827 |
| $ | (3,854 | ) | $ | (149 | ) | $ | 27,824 |
|
See accompanying notesAccompanying Notes to the consolidated financial statements.Consolidated Financial Statements.
5
Unity Bancorp, Inc
Consolidated Statements of Cash Flows
(unaudited)
|
| For the nine months ended |
|
| For the three months ended |
| ||||||||
(In thousands) |
| 2002 |
| 2001 |
|
| 2003 |
| 2002 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 2,700 |
| $ | 1,056 |
|
| $ | 1,152 |
| $ | 822 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| |||||||||
Provision for loan losses |
| 1,950 |
| 575 |
| |||||||||
Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses |
| 450 |
| 600 |
| |||||||||
Depreciation and amortization |
| 872 |
| 734 |
|
| 243 |
| 355 |
| ||||
Net gain on sale of securities |
| (228 | ) | (68 | ) |
| (83 | ) | — |
| ||||
Gain on sale of SBA loans held for sale |
| (2,614 | ) | (1,537 | ) |
| (819 | ) | (784 | ) | ||||
Gain on sale of OREO |
| — |
| (36 | ) | |||||||||
Origination of SBA loans held for sale |
| (29,798 | ) | (31,915 | ) |
| (8,763 | ) | (6,875 | ) | ||||
Proceeds from the sale of SBA loans |
| 36,007 |
| 25,175 |
|
| 10,132 |
| 11,099 |
| ||||
Net change in other assets and liabilities |
| (901 | ) | 3,086 |
|
| (961 | ) | 197 |
| ||||
Net cash provided by (used in) operating activities |
| 7,988 |
| (2,930 | ) | |||||||||
Net cash provided by operating activities |
| 1,351 |
| 5,414 |
| |||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Purchases of securities held to maturity |
| (10,502 | ) | (9,292 | ) |
| (2,216 | ) | (3,026 | ) | ||||
Purchases of securities available for sale |
| (28,072 | ) | (48,283 | ) |
| (18,209 | ) | (7,890 | ) | ||||
Maturities and principal payments on securities held to maturity |
| 6,207 |
| 20,122 |
|
| 4,294 |
| 1,961 |
| ||||
Maturities and principal payments on securities available for sale |
| 24,634 |
| 18,564 |
|
| 11,014 |
| 9,407 |
| ||||
Proceeds from sale of securities available for sale |
| 12,605 |
| 8,762 |
|
| 7,035 |
| — |
| ||||
Purchase of loans |
| (10,373 | ) | (11,610 | ) |
| (955 | ) | (3,373 | ) | ||||
Net increase in loans |
| (25,682 | ) | (6,197 | ) |
| (6,672 | ) | (7,709 | ) | ||||
Purchases in premises and equipment |
| (913 | ) | (145 | ) | |||||||||
Proceeds from of the sale of OREO |
| — |
| 423 |
| |||||||||
Purchases of premises and equipment |
| (108 | ) | (29 | ) | |||||||||
Net cash used in investing activities |
| (32,096 | ) | (27,656 | ) |
| (5,817 | ) | (10,659 | ) | ||||
Financing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Increase in deposits |
| 34,140 |
| 9,653 |
|
| 11,440 |
| 13,823 |
| ||||
Decrease in borrowings |
| (66 | ) | (25 | ) |
| (23 | ) | (22 | ) | ||||
Issuance of Trust preferred securities |
| 9,000 |
| — |
| |||||||||
Proceeds from the issuance of common stock |
| 1,458 |
| 691 |
|
| — |
| 382 |
| ||||
Purchase of common stock |
| (2,547 | ) | — |
| |||||||||
Dividends on preferred stock |
| (23 | ) | — |
|
| — |
| (8 | ) | ||||
Net cash provided by financing activities |
| 41,962 |
| 10,319 |
|
| 11,417 |
| 14,175 |
| ||||
Increase (Decrease) in cash and cash equivalents |
| 17,854 |
| (20,267 | ) | |||||||||
Increase in cash and cash equivalents |
| 6,951 |
| 8,930 |
| |||||||||
Cash and cash equivalents at beginning of year |
| 16,832 |
| 45,240 |
|
| 30,237 |
| 16,832 |
| ||||
Cash and cash equivalents at end of period |
| $ | 34,686 |
| $ | 24,973 |
|
| $ | 37,188 |
| $ | 25,762 |
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
| ||||
Cash: |
|
|
|
|
|
|
|
|
|
| ||||
Interest paid |
| $ | 6,519 |
| $ | 8,823 |
|
| $ | 1,983 |
| $ | 2,072 |
|
Income taxes paid |
| 1,709 |
| — |
|
| 773 |
| — |
| ||||
Non-Cash investing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Transfer of loan to Other Real Estate Owned |
| 53 |
| 407 |
|
| 62 |
| — |
|
See accompanying notesAccompanying Notes to the consolidated financial statements.Consolidated Financial Statements.
6
Unity Bancorp, Inc
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 2002
March 31, 2003
NOTE 1. Organization and principlesSummary of consolidationSignificant Accounting Policies
The accompanying consolidated financial statements include the accounts of Unity Bancorp, Inc. (the “Parent Company”) and its wholly-owned subsidiaries, Unity (NJ) Statutory Trust I and Unity Bank (the “Bank”, or when consolidated with the Parent Company, the “Company”), 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. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The financial information has been prepared in accordance with generally accepted accounting principles and has not been audited. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the statements of financial condition and revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Estimates that are particularly susceptible to significant changes related to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market. The interim unaudited consolidated financial statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for the three and nine months ended September 30, 2002March 31, 2003 are not necessarily indicative of the results, which may be expected for the entire year. As used in this Form 10-Q, “we” and “us” and “our” refer to Unity Bancorp, Inc and its consolidated subsidiaries, Unity Bank and Unity (NJ) Statutory Trust I, depending on the context. Interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2001,2002, included in the Company’s annual reportAnnual Report on Form 10-K.10-K for the year ended December 31, 2002.
In December, 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148 “Accounting for Stock-Based Compensation Transition and Disclosure, An amendment of FASB Statement No. 123”. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company elected to remain on its historic accounting method related to stock-based awards. The Company has provided the expanded disclosures required by SFAS No. 148 below.
The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its Option Plans. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans has an exercise price equal to the market value of their underlying common stock on the date of grant.
SFAS 148 Proforma Restatement
(In thousands, except per share data) |
| Three months ended Mar. 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
Net income to common shareholders as reported: |
|
|
|
|
| ||
As reported |
| $ | 1,152 |
| $ | 814 |
|
Pro forma |
| 1,104 |
| 737 |
| ||
Income per share: |
|
|
|
|
| ||
Diluted as reported |
| $ | 0.20 |
| $ | 0.14 |
|
Pro forma |
| 0.19 |
| 0.13 |
|
NOTE 2. Litigation
The Company may,On February 20, 2003, the Bank was named as a defendant in a lawsuit initiated by Commerce Bank, N.A. and Commerce Bank/Shore, N.A. in the ordinary courseSuperior Court of business become a partyNew Jersey, Essex County alleging that the Bank, as payor of certain checks written against certain deposit accounts held at the Bank, improperly refused to litigation involving collection matters, contract claimshonor approximately $4,000,000 of checks. Commerce Bank, N.A. and other legal proceedings relating toCommerce Bank/Shore, N.A. have petitioned the conductSuperior Court of its business.New Jersey, Essex County for compensatory and consequential damages of $4,028,584, interest, attorney’s fees and costs of suit. The Company doesBank has reviewed the relevant circumstances and believes that it acted properly and that the outcome of the lawsuit will not believe that any existing legal claims or proceedings will have a material impact on the Company’sconsolidated financial position or results of operations.operations of the Company.
7
From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition, or operating results of the Company.
NOTE 3. Earnings per share
The following is a reconciliation of the calculation of basic and dilutive earnings per share. Basic net income per common share is calculated by dividing net income to common shareholders by the weighted average common shares outstanding during the reporting period. Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options and warrants, were issued during the reporting period. On January 27, 2003 the Company announced a 5% stock dividend payable on March 12, 2003, all share amounts have been restated to include the effect of the dividend.
(In thousands, except per share data) |
| Three months ended Sept. 30, |
| Nine months ended Sept. 30, |
| ||||||||
|
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| ||||
Net income (loss) to common shareholders |
| $ | 954 |
| $ | (1,069 | ) | $ | 2,677 |
| $ | (999 | ) |
Basic weighted-average common shares outstanding |
| 5,383 |
| 4,683 |
| 5,245 |
| 4,036 |
| ||||
Plus: Common stock equivalents |
| 280 |
| 50 |
| 344 |
| 27 |
| ||||
Diluted weighted —average common shares outstanding |
| 5,663 |
| 4,733 |
| 5,589 |
| 4,063 |
| ||||
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.18 |
| $ | (0.23 | ) | $ | 0.51 |
| $ | (0.25 | ) |
Diluted |
| 0.17 |
| (0.23 | ) | 0.48 |
| (0.25 | ) |
7
(In thousands, except per share data) |
| Three months ended Mar. 31, |
| ||||
|
| 2003 |
| 2002 |
| ||
Net income to common shareholders |
| $ | 1,152 |
| $ | 814 |
|
Basic weighted-average common shares outstanding |
| 5,393 |
| 5,389 |
| ||
Plus: Common stock equivalents |
| 278 |
| 436 |
| ||
Diluted weighted –average common shares outstanding |
| 5,671 |
| 5,825 |
| ||
Net income per common share: |
|
|
|
|
| ||
Basic |
| $ | 0.20 |
| $ | 0.15 |
|
Diluted |
| 0.21 |
| 0.14 |
|
NOTE 4. Recent accounting pronouncements
In October 2002, the FASB issued Statement of Financial Accounting Standards No. 147, Acquisitions of Certain FinancialInstitutions- an amendment to FASB Statements No. 72 and 144 and FASB Interpretation No. 9. This Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. The provisions149, “Amendment of Statement No. 147 that relate to the application of the purchase method of accounting apply to all acquisitions of financial institutions, except transactions between two or more mutual enterprises.
Statement No. 147 clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the transaction should be accounted for as an acquisition of net assets that does not result in the recognition of goodwill. The provisions of Statement No. 147 are effective October 1, 2002. This Statement will have no effect133 on the Company’s financial statements.
In July 2002, the FASBDerivative Instruments and Hedging Activities,” was issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.on April 30, 2003. The Statement is to be applied prospectively to exit or disposalamends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities initiated after December 31, 2002.
In April 2002, the FASB issued SFAS No. 145. SFAS No. 145 among other things rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishments of Debt. Under SFAS No. 4, gains and losses from the extinguishment of debt were required to be classified as an extraordinary item, if material. Under SFAS No. 145, gains or losses from the extinguishment of debt are to be classified as a component of operating income, rather than an extraordinary item. SFAS No. 145under Statement 133. This statement is effective for fiscal years beginningcontracts entered into or modified after May 15, 2002, with earlyJune 30, 2003. The adoption of the provisions relatedthis Statement is not expected to the rescission of SFAS No. 4 encouraged. Upon adoption, companies must reclassify prior period amounts previously classified as an extraordinary item. Management does not anticipate that the initial adoption of SFAS 145 will have a significant impacteffect on the Company’s consolidated financial statements.
NOTE 5. Business Combinations and Joint Ventures
On May 20, 2002 the Company announced that it has agreed to partner with Hallmark Title Insurance Agency. The Company will have a 40% ownership interest in a newly created title insurance agency located in Somerville NJ, and will perform core title agency services. Unity’s investment is not material to its financial statements.
On August 20, 2002 Unity Bank reported that First Bank of Central Jersey (First Bank) and Unity had ended negotiations for a definitive agreement under which First Bank would have merged into Unity Bank. On June 12th, Unity Bank and First Bank had signed a letter of intent providing for such merger. After subsequent due diligence, both parties were unable to reach a definitive agreement and all negotiations have ended.
Note 6. Subsequent Events
All of the 1.1 million common stock purchase warrants issued on July 13, 2001, in connection with the Series A Preferred Stock exchange offer have been exercised and issued under the warrant terms. All of the warrants were to expire on October 16, 2002. Under the terms of the warrant agreement, each warrant permitted the holder to purchase one share of common stock at an exercise price of $5.50. Alternatively, the warrants could also be exercised on a “cashless basis” by receiving common stock equal to the intrinsic value of the cancelled warrants. The intrinsic value of the warrants was defined as the difference between the $5.50 exercise price and the average closing market price of Unity five days prior to the exercise.
Of the 1.1 million warrants exercised, 495,736 warrants were exercised for $2.7 million in cash, and 615,673 warrants were exercised with the issuance of 118,758 shares. In total 614,494 common shares were issued with respect to the exercise of the warrants.
On October 20, 2002, the Company redeemed for $300,000 all of the outstanding 6,000 shares of the Company’s 10% Series A Preferred Stock in accordance with its terms.
The Board of Directors has authorized the repurchase of up to 500,000 shares common stock, no par value, which constitutes approximately 10% of the shares outstanding. Such purchases would be made from time to time over the next two years in open market transactions. The amount and timing of purchases will be dependent upon a number of factors, including the price and availability of the Company’s shares, general market conditions and competing alternate uses of funds, and may be discontinued at any time.
8
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the 2002 consolidated financial statements and notes. When necessary, reclassifications have been made to prior period data throughout the following discussion and analysis for purposes of comparability. This quarterlyQuarterly Report on Form 10-Q contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated” and “potential”. Examples of forward looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of Unity Bancorp, Inc. that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include: changes in general, economic, and market conditions, legislative and regulatory conditions, or the development of an interest rate environment that adversely affects Unity Bancorp, Inc.’s interest rate spread or other income anticipated from operations and investments.
Overview and Strategy
Unity Bancorp, Inc. (the “Parent Company”) is incorporated in New Jersey and is a bank holding company under the Bank Holding Company Act of 1956, as amended. It’s wholly ownedwholly-owned subsidiary, Unity Bank (the “Bank” or, when consolidated with the Parent Company, the “Company”) was granted a charter by the New Jersey Department of Banking and Insurance and commenced operations on SeptemberMarch 13, 1991. The Bank provides a full range of commercial and retail banking services through 12 branch offices located in Hunterdon, Somerset, Middlesex, and Union counties in New Jersey. These services include the acceptance of demand, savings, and time deposits; extension of consumer, real estate, Small Business Administration and other commercial credits, as well as personal investment advisory services through the Bank’s wholly ownedwholly-owned subsidiary, Unity Financial Services, Inc. Unity Investment Company, Inc. is also a wholly ownedwholly-owned subsidiary of the Bank, used to hold parta portion of the Bank’s investment portfolio.
9
|
|
|
Unity Bancorp, Inc. |
|
| Three Months Ended |
| ||||||||||||||
|
| September 30, 2002 |
| September 30, 2001 |
| ||||||||||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and interest-bearing deposits with banks |
| $ | 17,003 |
| $ | 69 |
| 1.61 | % | $ | 17,457 |
| $ | 132 |
| 3.00 | % |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available for sale |
| 50,131 |
| 564 |
| 4.50 |
| 58,256 |
| 877 |
| 6.02 |
| ||||
Held to maturity |
| 23,570 |
| 362 |
| 6.14 |
| 23,607 |
| 368 |
| 6.24 |
| ||||
Total securities |
| 73,701 |
| 926 |
| 5.03 |
| 81,863 |
| 1,245 |
| 6.08 |
| ||||
Loans, net of unearned discount: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBA loans |
| 57,908 |
| 922 |
| 6.37 |
| 42,666 |
| 880 |
| 8.25 |
| ||||
Commercial |
| 151,342 |
| 2,862 |
| 7.50 |
| 94,946 |
| 2,008 |
| 8.39 |
| ||||
Residential Mortgages |
| 67,319 |
| 1,054 |
| 6.26 |
| 80,027 |
| 1,229 |
| 6.14 |
| ||||
Consumer |
| 26,644 |
| 394 |
| 5.87 |
| 27,334 |
| 469 |
| 6.81 |
| ||||
Total loans |
| 303,213 |
| 5,232 |
| 6.87 |
| 244,973 |
| 4,586 |
| 7.45 |
| ||||
Total interest-earning assets |
| 393,917 |
| 6,227 |
| 6.30 |
| 344,293 |
| 5,963 |
| 6.90 |
| ||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| 12,408 |
|
|
|
|
| 9,302 |
|
|
|
|
| ||||
Allowance for loan losses |
| (3,805 | ) |
|
|
|
| (2,769 | ) |
|
|
|
| ||||
Other assets |
| 12,166 |
|
|
|
|
| 12,881 |
|
|
|
|
| ||||
Total noninterest-earning assets |
| 20,769 |
|
|
|
|
| 19,414 |
|
|
|
|
| ||||
Total Assets |
| $ | 414,686 |
|
|
|
|
| $ | 363,707 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing checking |
| $ | 163,065 |
| 760 |
| 1.85 |
| $ | 110,655 |
| 749 |
| 2.69 |
| ||
Savings deposits |
| 35,894 |
| 199 |
| 2.20 |
| 31,729 |
| 194 |
| 2.43 |
| ||||
Time deposits |
| 106,054 |
| 986 |
| 3.69 |
| 125,615 |
| 1,652 |
| 5.22 |
| ||||
Total interest-bearing deposits |
| 305,013 |
| 1,945 |
| 2.53 |
| 267,999 |
| 2,595 |
| 3.84 |
| ||||
Other borrowed funds |
| 13,315 |
| 200 |
| 5.96 |
| 12,882 |
| 196 |
| 6.04 |
| ||||
Total interest-bearing liabilities |
| 318,328 |
| 2,145 |
| 2.67 |
| 280,881 |
| 2,791 |
| 3.94 |
| ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 65,866 |
|
|
|
|
| 58,626 |
|
|
|
|
| ||||
Other liabilities |
| 2,233 |
|
|
|
|
| 1,834 |
|
|
|
|
| ||||
Total noninterest-bearing liabilities |
| 68,099 |
|
|
|
|
| 60,460 |
|
|
|
|
| ||||
Shareholders’ equity |
| 28,259 |
|
|
|
|
| 22,366 |
|
|
|
|
| ||||
Total Liabilities and Shareholders’ Equity |
| $ | 414,686 |
|
|
|
|
| $ | 363,707 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest spread |
|
|
| 4,082 |
| 3.63 | % |
|
| 3,172 |
| 2.96 | % | ||||
Tax-equivalent basis adjustment |
|
|
| — |
|
|
|
|
| — |
|
|
| ||||
Net interest income |
|
|
| $ | 4,082 |
|
|
|
|
| $ | 3,172 |
|
|
| ||
Net interest margin |
|
|
|
|
| 4.15 | % |
|
|
|
| 3.69 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||||||||||||
|
| March 31, 2003 |
| March 31, 2002 |
| ||||||||||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and interest-bearing deposits with banks |
| $ | 6,300 |
| $ | 16 |
| 1.03 | % | $ | 7,675 |
| $ | 30 |
| 1.59 | % |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available for sale |
| 53,709 |
| 545 |
| 4.06 |
| 57,483 |
| 791 |
| 5.50 |
| ||||
Held to maturity |
| 25,813 |
| 307 |
| 4.76 |
| 20,773 |
| 333 |
| 6.41 |
| ||||
Total securities |
| 79,522 |
| 852 |
| 4.29 |
| 78,256 |
| 1,124 |
| 5.75 |
| ||||
Loans, net of unearned discount: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBA loans |
| 68,645 |
| 1,042 |
| 6.07 |
| 53,795 |
| 899 |
| 6.68 |
| ||||
Commercial |
| 167,536 |
| 3,019 |
| 7.31 |
| 123,553 |
| 2,263 |
| 7.43 |
| ||||
Residential Mortgages |
| 55,522 |
| 877 |
| 6.32 |
| 71,354 |
| 1,043 |
| 5.85 |
| ||||
Consumer |
| 28,533 |
| 384 |
| 5.46 |
| 26,524 |
| 389 |
| 5.95 |
| ||||
Total loans |
| 320,236 |
| 5,322 |
| 6.71 |
| 275,226 |
| 4,594 |
| 6.97 |
| ||||
Total interest-earning assets |
| 406,058 |
| 6,190 |
| 6.15 |
| 361,157 |
| 5,748 |
| 6.41 |
| ||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| 15,026 |
|
|
|
|
| 14,616 |
|
|
|
|
| ||||
Allowance for loan losses |
| (4,338 | ) |
|
|
|
| (3,347 | ) |
|
|
|
| ||||
Other assets |
| 13,050 |
|
|
|
|
| 12,018 |
|
|
|
|
| ||||
Total noninterest-earning assets |
| 23,738 |
|
|
|
|
| 23,287 |
|
|
|
|
| ||||
Total Assets |
| $ | 429,796 |
|
|
|
|
| $ | 384,444 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing checking |
| $ | 178,649 |
| 788 |
| 1.79 |
| $ | 127,986 |
| 572 |
| 1.81 |
| ||
Savings deposits |
| 34,726 |
| 106 |
| 1.24 |
| 32,058 |
| 167 |
| 2.11 |
| ||||
Time deposits |
| 93,580 |
| 744 |
| 3.22 |
| 123,085 |
| 1,182 |
| 3.89 |
| ||||
Total interest-bearing deposits |
| 306,955 |
| 1,638 |
| 2.16 |
| 283,129 |
| 1,921 |
| 2.75 |
| ||||
Other borrowed funds |
| 21,908 |
| 301 |
| 5.57 |
| 14,023 |
| 197 |
| 5.70 |
| ||||
Total interest-bearing liabilities |
| 328,863 |
| 1,939 |
| 2.39 |
| 297,152 |
| 2,118 |
| 2.89 |
| ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 72,892 |
|
|
|
|
| 60,468 |
|
|
|
|
| ||||
Other liabilities |
| 925 |
|
|
|
|
| 1,516 |
|
|
|
|
| ||||
Total noninterest-bearing liabilities |
| 73,817 |
|
|
|
|
| 61,984 |
|
|
|
|
| ||||
Shareholders’ equity |
| 27,116 |
|
|
|
|
| 25,308 |
|
|
|
|
| ||||
Total Liabilities and Shareholders’ Equity |
| $ | 429,796 |
|
|
|
|
| $ | 384,444 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest spread |
|
|
| 4,251 |
| 3.76 | % |
|
| 3,630 |
| 3.52 | % | ||||
Net interest income |
|
|
| $ | 4,251 |
|
|
|
|
| $ | 3,630 |
|
|
| ||
Net interest margin |
|
|
|
|
| 4.19 | % |
|
|
|
| 4.02 | % |
10
|
|
|
|
|
| Nine months Ended |
| ||||||||||||||
|
| September 30, 2002 |
| September 30, 2001 |
| ||||||||||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and interest-bearing deposits with banks |
| $ | 10,877 |
| $ | 130 |
| 1.60 | % | $ | 28,656 |
| $ | 965 |
| 4.50 | % |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available for sale |
| 53,210 |
| 2,084 |
| 5.22 |
| 53,751 |
| 2,456 |
| 6.09 |
| ||||
Held to maturity |
| 22,994 |
| 1,083 |
| 6.28 |
| 25,456 |
| 1,207 |
| 6.08 |
| ||||
Total securities |
| 76,204 |
| 3,167 |
| 5.54 |
| 80,207 |
| 3,663 |
| 6.09 |
| ||||
Loans, net of unearned discount: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBA loans |
| 55,565 |
| 2,706 |
| 6.49 |
| 36,699 |
| 2,537 |
| 9.22 |
| ||||
Commercial |
| 139,868 |
| 7,761 |
| 7.42 |
| 89,085 |
| 5,793 |
| 8.69 |
| ||||
Residential Mortgages |
| 69,898 |
| 3,166 |
| 6.04 |
| 76,820 |
| 3,454 |
| 5.99 |
| ||||
Consumer |
| 26,473 |
| 1,172 |
| 5.92 |
| 28,200 |
| 1,512 |
| 7.17 |
| ||||
Total loans |
| 291,804 |
| 14,805 |
| 6.78 |
| 230,804 |
| 13,296 |
| 7.69 |
| ||||
Total interest-earning assets |
| 378,885 |
| 18,102 |
| 6.38 |
| 339,667 |
| 17,924 |
| 7.04 |
| ||||
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| 13,051 |
|
|
|
|
| 10,427 |
|
|
|
|
| ||||
Allowance for loan losses |
| (3,557 | ) |
|
|
|
| (2,678 | ) |
|
|
|
| ||||
Other assets |
| 12,117 |
|
|
|
|
| 13,483 |
|
|
|
|
| ||||
Total noninterest-earning assets |
| 21,611 |
|
|
|
|
| 21,232 |
|
|
|
|
| ||||
Total Assets |
| $ | 400,496 |
|
|
|
|
| $ | 360,899 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing checking |
| $ | 144,160 |
| 2,007 |
| 1.86 |
| $ | 107,476 |
| 2,550 |
| 3.17 |
| ||
Savings deposits |
| 33,494 |
| 554 |
| 2.21 |
| 31,139 |
| 554 |
| 2.38 |
| ||||
Time deposits |
| 116,996 |
| 3,293 |
| 3.76 |
| 130,514 |
| 5,588 |
| 5.72 |
| ||||
Total interest-bearing deposits |
| 294,650 |
| 5,854 |
| 2.66 |
| 269,129 |
| 8,692 |
| 4.32 |
| ||||
Other borrowed funds |
| 13,591 |
| 593 |
| 5.83 |
| 12,896 |
| 584 |
| 6.05 |
| ||||
Total interest-bearing liabilities |
| 308,241 |
| 6,447 |
| 2.80 |
| 282,025 |
| 9,276 |
| 4.40 |
| ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 63,651 |
|
|
|
|
| 55,602 |
|
|
|
|
| ||||
Other liabilities |
| 1,899 |
|
|
|
|
| 1,498 |
|
|
|
|
| ||||
Total noninterest-bearing liabilities |
| 65,550 |
|
|
|
|
| 57,100 |
|
|
|
|
| ||||
Shareholders’ equity |
| 26,705 |
|
|
|
|
| 21,774 |
|
|
|
|
| ||||
Total Liabilities and Shareholders’ Equity |
| $ | 400,496 |
|
|
|
|
| $ | 360,899 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest spread |
|
|
| 11,655 |
| 3.58 | % |
|
| 8,648 |
| 2.64 | % | ||||
Tax-equivalent basis adjustment |
|
|
| — |
|
|
|
|
| — |
|
|
| ||||
Net interest income |
|
|
| $ | 11,655 |
|
|
|
|
| $ | 8,648 |
|
|
| ||
Net interest margin |
|
|
|
|
| 4.10 | % |
|
|
|
| 3.39 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Results of Operations for the three and nine months ended September 30, 2002end March 31, 2003
Net Income
Net income for the three months ended September 30, 2002,March 31, 2003, was $962 thousand,$1.2 million, or $0.18$0.21 per basic and $0.17$0.20 per diluted common share, compared to a net income of $726$814 thousand, or $0.23 loss$0.15 per basic and $0.14 per diluted common share for the same period in 2001. Net income for the nine months ended September 30, 2002, was $2.7 million, or $0.51 per basic and $0.48 per diluted share, compared to a net income of $1.1 million, or $0.25 loss per basic and diluted share for the same period in 2001. In the third quarter of 2001, a one time preferred dividend of $1.8 million was recorded as a result of the preferred stock exchange offer for the Company’s common stock and warrants. As a result, the Company reported a loss to common shareholders in the third quarter of 2001 of $0.23 per basic and diluted common share and a loss of $0.25 per basic and diluted share for the nine months ended 2001.2002. The improved operating results for the three and nine months ended September 30, 2002March 31, 2003 were primarily the result of increases in net interest income and non-interest income, and continued expense controls. The following are key performance indicators for the three and nine months ended September 30, 2002,March 31, 2003, and 2001.2002.
(In thousands) |
| Three Months ended Sept. 30, |
| Nine months ended Sept. 30, |
|
| Three Months ended Mar. 31, |
| ||||||||||||
|
| 2002 |
| 2001 |
| 2002 |
| 2001 |
|
| 2003 |
| 2002 |
| ||||||
Net Income |
| $ | 962 |
| $ | 726 |
| $ | 2,700 |
| $ | 1,070 |
|
| $ | 1,152 |
| $ | 822 |
|
Preferred stock dividends |
| 8 |
| 1,795 |
| 23 |
| 2,055 |
|
| — |
| 8 |
| ||||||
Net Income (loss) to common stockholders |
| 954 |
| (1,069 | ) | 2,677 |
| (999 | ) | |||||||||||
Net Income (loss) per common share-basic |
| 0.18 |
| (0.23 | ) | 0.51 |
| (0.25 | ) | |||||||||||
Net Income (loss) per common share-diluted |
| 0.17 |
| (0.23 | ) | 0.48 |
| (0.25 | ) | |||||||||||
Net Income to common stockholders |
| 1,152 |
| 814 |
| |||||||||||||||
Net Income per common share-basic |
| 0.21 |
| 0.15 |
| |||||||||||||||
Net Income per common share-diluted |
| 0.20 |
| 0.14 |
| |||||||||||||||
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Return on average assets |
| 0.92 | % | 0.79 | % | 0.90 | % | 0.39 | % |
| 1.09 | % | 0.87 | % | ||||||
Return on average common equity |
| 13.53 |
| (19.75 | ) | 13.55 |
| (7.34 | ) |
| 17.23 |
| 13.19 |
| ||||||
Efficiency ratio |
| 67.15 |
| 78.30 |
| 65.78 |
| 87.40 |
| |||||||||||
Efficiency ratio* |
| 64.62 |
| 66.15 |
|
*The efficiency ratio is calculated by taking total non-interest expenses, divided by total interest income plus total non-interest income less securities gains.
Net Interest Income
Interest income was $6.2 million for the three months ended September 30, 2002,March 31, 2003, an increase of $0.2 million$442 thousand or 0.67.7 percent, compared to $6.0$5.7 million a year ago. Interest-earning assets averaged $393.9$406.1 million, an increase of $49.6$44.9 million, or 14.412.4 percent, compared to the prior year period. The increases in average earning assets occurred due to a $58.2$45.0 million increase in the loan portfolio, partially offset byand a decrease of $8.2$1.3 million increase in the securities available for sale.portfolio. The rate earned on interest-earning assets decreased 6026 basis points to 6.306.15 percent for the three months ended September 30, 2002,March 31, 2003, compared to the same period a year ago, due to a lower rate environment. Theenvironment, partially offset by an increase in interest earning assets.. Of the $442 increase in interest income $825 is attributable to a $1.0 millionan increase in interest earning assets, offset by a decline of $767$383 thousand due to the reduction in yield.
Interest expense was $2.1$1.9 million a decrease of $646 thousand or 23.1 percent for the three months ended September 30, 2002,March 31, 2003, a decrease of $179 thousand or 8.5 percent, compared to $2.8$2.1 million the same period a year ago. Interest-bearing liabilities averaged $318.3$328.9 million for the three months ended September 30, 2002,March 31, 2003, an increase of $37.4$31.7 million, or 13.310.7 percent, compared to $280.9$297.2 million for the prior year period. The increases in average interest bearing liabilities werewas the result of an increase in interest-bearing deposits.deposits and other borrowed funds utilized to fund loan growth. The rate paid on interest bearing liabilities decreased 12750 basis points from the same period in 20012002 to 2.672.39 percent.
Total interest-bearing deposits were $305.0$307.0 million on average, an increase of $37.0$23.8 million or 13.88.4 percent compared to $268.0$283.1 million from the same period a year ago. The increase in average interest-bearing deposits was as a result of increases in interest-bearing demand deposits, partially offset by the planned reduction of higher costing time deposits. The rate paid on interest bearing deposits was 2.532.16 percent for the quarter ended September 30, 2002,March 31, 2003, a decrease of 1.3159 basis points from the same period a year agoago.
Net interest income was $4.1$4.3 million for the three months ended September 30, 2002,March 31, 2003, an increase of $910$621 thousand, or 28.717.1 percent, compared to the $3.2$3.6 million from the same period a year ago. The rise in net interest income was due to the increase in net interest spread earned on a larger portfolio of net earning assets. The net interest spread (the difference between the rate earned on average interest-earning assets and the rate paid on average interest-bearing liabilities) was 3.633.76 percent for the three months ended September 30, 2002March 31, 2003 compared to 2.96 for the same period a year ago. Net interest margin (net interest income as a percentage of average interest earning assets) was 4.15 percent for the quarter compared to 3.69 percent for the same period a year ago.
12
Interest income was $18.1 million for the nine months ended September 30, 2002, an increase of 178 thousand, or 1.0 percent compared to $17.9 million a year ago. Interest-earning assets averaged $378.9 million, an increase of $39.2 million, or 11.5 percent, compared to $339.7 million in the prior year period. The increases in average earning assets occurred primarily due to the $61.0 million increase in the loan portfolio, partially offset by a decrease of $17.8 million in Federal funds sold and $4.0 million in investment securities. The rate earned on interest-earning assets decreased 66 basis points to 6.38 percent for the nine months ended September 30, 2002, compared to the same period a year ago, primarily due to a lower rate environment. The increase in interest earning assets contributed $3.0 million to the increase in interest income, partially offset by the $2.8 million decline due to yield.
Interest expense was $6.4 million a decrease $2.8 million, or 30.5 percent for the nine months ended September 30, 2002, compared to $9.3 million the same period a year ago. Interest-bearing liabilities averaged $308.2 million for the nine months ended September 30, 2002, an increase of $26.2 million or 9.3 percent compared to the prior year period. The increase in average interest bearing liabilities occurred primarily in interest-bearing deposits. The increase in interest-bearing liabilities contributed $246 thousand in additional interest expense more than offset by the decline of $3.1 million in interest expense as a result of lower rates paid on interest bearing liabilities. The rate paid on interest bearing liabilities decreased 1.60 basis points to 2.80 percent. Total interest-bearing deposits were $294.7 million, an increase of $25.5 million or 9.5 percent compared to $269.1 million the same period a year ago. The increase in interest-bearing deposits was as a result of an increase in interest bearing demand deposits offset by the planned reduction in higher costing time deposits. The rate paid on interest bearing deposits was 2.66 percent for the nine months ended September 30, 2002, a decrease of 166 basis points from last year.
Net interest income was $11.7 million for the nine months ended September 30, 2002, an increase of $3.0 million, or 34.8 percent, compared to $8.6 million from the same period a year ago. The rise in net interest income was due to the increase in net interest spread and increased levels of net earning assets. The net interest spread (the difference between the rate earned on average interest-earning assets and the rate paid on average interest-bearing liabilities) was 3.58 percent for the nine months ended September 30, 2002 compared to 2.643.52 percent for the same period a year ago. Net interest margin (net interest income as a percentage of average interest earning assets) was 4.104.19 percent for the ninethree months ended March 31, 2003 compared to 3.394.02 percent for the same period a year ago.
11
The rate volume table below presents an analysis of the impact on interest income and expense resulting from changes in average volume and rates over the periods presented. Changes that are not due to volume or rate variances have been allocated proportionally to both, based on their relative absolute values. Amounts have been computed on a full tax-equivalent basis, assuming a federal income tax rate of 34.0 percent.
Rate Volume Table |
| Amount of Increase (Decrease) |
| ||||||||||
|
| Three months ended Sept. 30, 2002 |
| Nine months ended Sept 30, 2002 |
| ||||||||
|
| versus Sept. 30, 2001 |
| versus Sept 30, 2001 |
| ||||||||
|
| Due to change in: |
| Due to change in: |
| ||||||||
|
| Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 271 |
| (229 | ) | 42 |
| 1,061 |
| (892 | ) | 169 |
|
SBA |
| 1,086 |
| (232 | ) | 854 |
| 2,913 |
| (945 | ) | 1,968 |
|
Residential mortgage |
| (199 | ) | 24 |
| (175 | ) | (316 | ) | 28 |
| (288 | ) |
Consumer |
| (12 | ) | (63 | ) | (75 | ) | (89 | ) | (251 | ) | (340 | ) |
Total Loans |
| 1,146 |
| (500 | ) | 646 |
| 3,569 |
| (2,060 | ) | 1,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
| (111 | ) | (202 | ) | (313 | ) | (25 | ) | (347 | ) | (372 | ) |
Held to maturity securities |
| (1 | ) | (5 | ) | (6 | ) | (163 | ) | 39 |
| (124 | ) |
Federal funds sold and interest bearing deposits |
| (3 | ) | (60 | ) | (63 | ) | (409 | ) | (426 | ) | (835 | ) |
Total Interest Earning assets |
| 1,031 |
| (767 | ) | 264 |
| 2,972 |
| (2,794 | ) | 178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking |
| 289 |
| (278 | ) | 11 |
| 707 |
| (1,250 | ) | (543 | ) |
Savings deposits |
| 25 |
| (20 | ) | 5 |
| 41 |
| (41 | ) | — |
|
Time deposits |
| (231 | ) | (435 | ) | (666 | ) | (533 | ) | (1,762 | ) | (2,295 | ) |
Total Interest Bearing Deposits |
| 83 |
| (733 | ) | (650 | ) | 215 |
| (3,053 | ) | (2,838 | ) |
Borrowings |
| 7 |
| (3 | ) | 4 |
| 31 |
| (22 | ) | 9 |
|
Total interest-bearing liabilities |
| 90 |
| (736 | ) | (646 | ) | 246 |
| (3,075 | ) | (2,829 | ) |
Net interest income |
| 941 |
| (31 | ) | 910 |
| 2,726 |
| 281 |
| 3,007 |
|
Increase in net interest income |
|
|
|
|
| 910 |
|
|
|
|
| 3,007 |
|
Rate Volume Table
13
|
| Three months ended Mar. 31, 2003 |
| |||||||
|
| Due to change in: |
|
|
| |||||
|
| Volume |
| Rate |
| Total |
| |||
Interest Income |
|
|
|
|
|
|
| |||
Commercial |
| $ | 794 |
| $ | (88 | ) | $ | 143 |
|
SBA |
| 231 |
| (38 | ) | 756 |
| |||
Residential mortgage |
| (245 | ) | 79 |
| (166 | ) | |||
Consumer |
| 28 |
| (33 | ) | (5 | ) | |||
Total Loans |
| 808 |
| (80 | ) | 728 |
| |||
|
|
|
|
|
|
|
| |||
Available for sale securities |
| (49 | ) | (197 | ) | (246 | ) | |||
Held to maturity securities |
| 70 |
| (96 | ) | (26 | ) | |||
Federal funds sold and interest bearing deposits |
| (4 | ) | (10 | ) | (14 | ) | |||
Total interest earning assets |
| $ | 825 |
| $ | (383 | ) | $ | 442 |
|
|
|
|
|
|
|
|
| |||
Interest Expense |
|
|
|
|
|
|
| |||
Interest bearing checking |
| $ | 222 |
| $ | (6 | ) | $ | 216 |
|
Savings deposits |
| 14 |
| (75 | ) | (61 | ) | |||
Time deposits |
| (255 | ) | (183 | ) | (438 | ) | |||
Total Interest Bearing Deposits |
| (19 | ) | (264 | ) | (283 | ) | |||
Borrowings |
| 109 |
| (5 | ) | 104 |
| |||
Total interest-bearing liabilities |
| 90 |
| (269 | ) | (179 | ) | |||
Net interest income |
| $ | 735 |
| $ | (114 | ) | $ | 621 |
|
Increase in net interest income |
|
|
|
|
| $ | 621 |
|
Provision for Loan Losses
The provision for loan losses was $375$450 thousand for the three months ended September 30, 2002,March 31, 2003, an increasedecrease of $100$150 thousand, compared to $275$600 thousand for the same period a year ago. The provision for loan losses was $2.0 million for the nine months ended September 30, 2002, an increase of $1.4 million compared to $575 thousand for the same period a year ago. The increasedecrease from a year ago was primarily attributable to increasedlower levels of charge offs, during the increase in past due loans and the increase and change in the compositionfirst quarter of the loan portfolio.2003 “See Financial Condition-Asset Quality”.Quality.” The provision is based on management’s assessment of the adequacy of the allowance for loan losses, described under the caption “Financial Condition-Allowance for Loan Losses”.Losses.” The current provision is considered appropriate under the assessment of the adequacy of the allowance for loan losses.
Non-Interest Income
(in thousands) |
| Three months ended September, 30 |
| Nine months ended September 30, |
| ||||||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
| Three months ended March, 30 |
| |||||||||||
|
| 2002 |
| 2001 |
| Change |
| 2002 |
| 2001 |
| Change |
|
| 2003 |
| 2002 |
| Percent |
| |||||||
(in thousands) |
|
| |||||||||||||||||||||||||
Deposit service charges |
| $ | 407 |
| $ | 286 |
| 42.3 | % | $ | 1,116 |
| $ | 935 |
| 19.4 | % |
| $ | 570 |
| $ | 343 |
| 66.2 | % | |
Loan and servicing fees |
| 363 |
| 322 |
| 12.7 |
| 1,082 |
| 923 |
| 17.2 |
|
| 421 |
| 352 |
| 19.6 |
| |||||||
Net gains on loan sales |
| 729 |
| 485 |
| 50.3 |
| 2,614 |
| 1,537 |
| 70.1 |
| ||||||||||||||
Net gains on SBA loan sales |
| 819 |
| 784 |
| 4.5 |
| ||||||||||||||||||||
Net security gains |
| — |
| 34 |
| — |
| 228 |
| 68 |
| 235.3 |
|
| 83 |
| — |
| 100.0 |
| |||||||
Other income |
| 123 |
| 206 |
| (40.3 | ) | 835 |
| 471 |
| 77.3 |
|
| 214 |
| 412 |
| (48.1 | ) | |||||||
Total non-interest income |
| $ | 1,622 |
| $ | 1,333 |
| 21.7 | % | 5,875 |
| $ | 3,934 |
| 49.3 | % |
| $ | 2,107 |
| $ | 1,891 |
| 11.4 | % |
Non-interest income consists of service charges on deposits, loan and servicing fees, net gains on sales of securities and loans and other income. Non-interest income was $1.6$2.1 million for the three months ended September 30, 2002,March 31, 2003, an increase of $289$216 thousand compared with 2001, and was $5.9 million2002.
Deposit service charges increased $227 thousand, or 66.2 percent, for the ninethree months ended September 30, 2002, an increase of $2.0 million,March 31, 2003, compared to the same period a year ago.
Deposit service charges increased $121 thousand, or 42.3 percent, for the three months ended September 30, 2002, compared to the same period a year ago and increased $181 thousand, or 19.4 percent, for the nine months ended September 30, 2002, compared with the same period a year ago. Deposit service charges increased for the three and nine months as a result of higher fees and the growth in the deposit base.
Loan and servicing fees increased $41$69 thousand, or 12.719.6 percent, for the three months ended September 30, 2002, and increased $159 thousand, or 17.2 percent, forMarch 31, 2003, compared to the nine months ended September 30, 2002.same period a year ago. The growth in loan and servicing fees for the three and nine months ended March 31, 2003 is attributed to higher
12
servicing fees and the growth of the serviced SBA loan portfolio, which amounted to $122.9$133.8 million at September 30, 2002,March 31, 2003, compared to $99.6$106.5 million at September 30, 2001.March 31, 2002.
Net gains on loan sales include participation in the SBA’s guaranteed loan program. Under the program, the SBA guarantees up to 8575 percent of the principal of a qualifying loan. The guaranteed portion of the loan is then sold into the secondary market. The premium received on the sale of the loans sold is recorded as a gain on the sale. SBA loan sales, all without recourse, totaled $9.4$9.3 million infor the three months ended and $33.4March 31, 2003, compared to $10.3 million for the ninethree months ended September 30, 2002, compared to $7.5 million and $23.6 million, respectively, for the three and nine month periods ended September 30, 2001.March 31, 2002. Gains on SBA loan sales were $729 million for the three months ended, and $2.6 million for the nine months ended September 30, 2002$819 thousand compared to $485 thousand and $1.5 million, respectively,$784 for the same periodsperiod a year ago. The increase in gains on the sale of SBA loans is a result of the increase in volume of SBA loans being sold, and higher premiums received on sales.sales and higher servicing fees.
On October 1, 2002, the SBA passed its appropriation bill for fiscal year 2003. Included it the appropriation bill is a limit of $500,000 on the total dollar amount for all 7(a) loans approved to small business and its affiliates. Historically the majority of the SBA 7(a) loans made by the Company have been in excess of $500,000. Going forward the Company expects that the $500,000 limitation on loan size will reduce the amount of gains on SBA loan sales.
Other non-interest income decreased $83$198 thousand for the three months ended September 30, 2002,March 31, 2003, compared with 2001 and increased $364 thousand for the nine months then ended, compared with the same period a year ago.2002. The decrease for the three months ended March 31, 2003 was primarily due to a decrease in commercial loan referral fees which amounted to $10$49 thousand for the three months ended September 30, 2001,March 31, 2003, compared to $93$297 thousand for the same period a year ago. The increase for the nine months ended is primarily due to an increase in commercial loan referral fees which amounted to $501 thousand the nine months ended September 30, 2002, compared to $169 thousand for the same period a year ago.
14
|
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
| ||||
|
| 2002 |
| 2001 |
| Change |
| 2002 |
| 2001 |
| Change |
| ||||
Compensation and benefits |
| $ | 1,867 |
| $ | 1,760 |
| 6.1 | % | $ | 5,605 |
| $ | 5,071 |
| 10.5 | % |
Occupancy |
| 422 |
| 405 |
| 4.2 |
| 1,228 |
| 1,242 |
| (1.1 | ) | ||||
Processing and communications |
| 564 |
| 545 |
| 3.5 |
| 1,636 |
| 1,547 |
| 5.8 |
| ||||
Furniture and equipment |
| 271 |
| 283 |
| (4.2 | ) | 820 |
| 816 |
| 0.5 |
| ||||
Professional services |
| 204 |
| 151 |
| 35.1 |
| 515 |
| 563 |
| (8.5 | ) | ||||
Deposit insurance |
| 42 |
| 39 |
| 7.7 |
| 119 |
| 463 |
| (74.3 | ) | ||||
Loan servicing costs |
| 104 |
| 50 |
| 108.0 |
| 306 |
| 189 |
| 61.9 |
| ||||
Other expenses |
| 356 |
| 268 |
| 32.8 |
| 1,153 |
| 1,046 |
| 10.2 |
| ||||
Total non-interest expense |
| $ | 3,830 |
| $ | 3,501 |
| 9.4 | % | 11,382 |
| $ | 10,937 |
| 4.1 | % | |
|
| Three months ended March 31, |
| ||||||
|
| 2003 |
| 2002 |
| Percent |
| ||
(in thousands) |
|
|
|
| |||||
Compensation and benefits |
| $ | 1,910 |
| $ | 1,808 |
| 5.6 | % |
Occupancy |
| 478 |
| 408 |
| 17.2 |
| ||
Processing and communications |
| 574 |
| 511 |
| 12.3 |
| ||
Furniture and equipment |
| 241 |
| 285 |
| (15.4 | ) | ||
Professional services |
| 252 |
| 153 |
| 64.7 |
| ||
Deposit insurance |
| 16 |
| 38 |
| (57.9 | ) | ||
Loan servicing costs |
| 120 |
| 67 |
| 79.1 |
| ||
Other expenses |
| 464 |
| 382 |
| 21.5 |
| ||
Total non-interest expense |
| $ | 4,055 |
| $ | 3,652 |
| 11.0 | % |
Compensation and benefits expense decreased $107increased $102 thousand, or 6.15.6 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and increased $534 thousand, or 10.5 percent for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase in compensation and benefits was a result of merit increases effective January 1, 2002, compensation incentives not awarded in 20012003, and the increase in the number of employees. Total employees amounted to 149160 at September 30, 2002,March 31, 2003, compared to 145144 at September 30, 2001.March 31, 2002.
Occupancy expense increased $17$70 thousand, or 4.217.2 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and decreased $14 thousand, or 1.1 percent, for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase for the three months ended was due to higher property taxes, depreciation and maintenance expenses. The decrease for the nine month periods is related to lower maintenanceexpenses and increased snow removal costs.
Processing and communications expense increased $19$63 thousand, or 3.512.3 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and increased $89 thousand, or 5.8 percent, for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase for the three and nine month periods is primarily as a result of higher items processing costs related to the growth in the deposit and loan portfolios and the increase in postage expense due the increase in rates that was effective July 1, 2002.rates.
Furniture and equipment expense decreased $12$44 thousand, or 4.215.4 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and was flat for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The decline in furniture and equipment for the three months ended is primarily related to lower depreciation expense.expense as a result of assets being fully depreciated.
Professional fees increased $53$99 thousand, or 35.164.7 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and decreased $48 thousand, or 8.5 percent, for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase for the three months ended is due to legal and consulting fees related to the due diligence conducted on the terminated Firstlaw-suit initiated by Commerce Bank, merger. The decrease for the nine months ended is due to reduced legal and accounting costs.N.A. See “Part II-Other Information-Item 1. Legal Proceedings”.
Deposit insurance increased $3decreased $22 thousand for the three months ended September 30, 2002, compared to the same period a year ago, and decreased $344 thousand for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increasedecrease for the three months ended is due to the increase in the deposit base. The decrease for the nine months ended is due to a reduced insurance assessment related to the Company’s improved financial and regulatory condition.premium assessment.
Loan servicing expense increased $54$53 thousand, or 108.079.1 percent for the three months ended September 30, 2002, compared to the same period a year ago, and increased $117 thousand, or 61.9 percent, for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase in loan servicing expenses for the current three and nine month periodsperiod is primarily related to higher legal costs related to loan collections on the commercial portfolio.and SBA portfolios.
Other expense increased $88$82 thousand, or 32.821.5 percent, for the three months ended September 30, 2002, compared to the same period a year ago, and increased $107 thousand, or 10.2 percent, for the nine months ended September 30, 2002,March 31, 2003, compared to the same period a year ago. The increase is the result of higher advertising expensesstationary and supplies expense, increased director fees.fees and a credit for data processing expense that was received in 2002.
Income Tax Expense
For the thirdfirst quarter of 2002,2003, the provision for income taxes was $537$701 thousand compared to $3 thousand for the same period a year ago and $1.5 million for the nine months ended compared to $14$447 thousand for the same period a year ago. In 2001, the Company reversed tax valuation reserves to substantially offset tax expense. The current 20022003 tax provision represents an effective tax rate of approximately 36 percent.38 percent as compared 35 percent for the prior year. Management anticipates an effective rate of 36approximately 38 percent for the remainder of 2002 and a slightly higher rate in 2003.
1513
Financial Condition at September 30, 2002March 31, 2003
Total assets at September 30, 2002March 31, 2003 were $424.0$445.3 million compared to $368.6$394.2 million a year ago and $379.2$432.9 million from year-end 2001.2002. The increases in assets were the result of deposit generation used to fund loan growth.
2002.
The increase in rate is attributed to the payoff of lower rate adjustable rate mortgages and reduced amortization of premium.
16
loans amounted to $27.0$29.2 million at September 30, 2002,March 31, 2003, an increase of $0.3$1.7 million from year-end December 2001.2002. The increase in the consumer loan portfolio was primarily the result of an increase in home equity loans offset by pay-downs.loans. The yield on consumer loans was 5.925.46 percent for the ninethree months ended September 30, 2002,March 31, 2003, compared to 7.175.95 percent for the same period a year ago.
The declinesdecline in yield throughout the loan portfolio reflect the declining interest rate environment.
14
Asset Quality
Inherent in the lending function is the possibility a customer may not perform in accordance with the contractual terms of the loan. A borrower’s inability to pay its obligations according to the contractual terms can create the risk of past due loans and ultimately credit losses, especially on collateral deficient loans.
|
|
| Sept. 30, 2002 |
| December 31, 2001 |
| Sept. 30, 2001 |
| |||||||||||||
Non-performing loans |
| Mar. 31, 2003 |
| Dec. 31, 2002 |
| Mar. 31, 2002 |
| |||||||||||||
|
| (In thousands) |
|
|
|
|
|
|
|
| ||||||||||
Non-performing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA |
| $ | 2,667 |
| $ | 2,015 |
| $ | 2,169 |
|
| $ | 2,621 |
| $ | 2,882 |
| $ | 1,991 |
|
Commercial |
| 88 |
| 989 |
| 275 |
|
| 296 |
| — |
| 435 |
| ||||||
Residential mortgage |
| 75 |
| — |
| — |
|
| 434 |
| 461 |
| — |
| ||||||
Consumer |
| 169 |
| 180 |
| 142 |
|
| 194 |
| 214 |
| 186 |
| ||||||
Total non-performing loans |
| 2,999 |
| 3,184 |
| 2,586 |
|
| 3,545 |
| 3,557 |
| 2,612 |
| ||||||
OREO |
| 206 |
| 258 |
| 163 |
|
| 257 |
| 196 |
| 194 |
| ||||||
Total Non-Performing Assets |
| 3,205 |
| $ | 3,442 |
| $ | 2,748 |
|
| $ | 3,802 |
| $ | 3,753 |
| $ | 2,806 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Past Due 90 days or more and still accruing interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA |
| 41 |
| 13 |
| 21 |
|
| — |
| — |
| — |
| ||||||
Commercial |
| 724 |
| — |
| 2,303 |
|
| 2,124 |
| 365 |
| — |
| ||||||
Residential mortgage |
| — |
| — |
| — |
|
| — |
| — |
| 74 |
| ||||||
Consumer |
| 10 |
| 56 |
| 37 |
|
| 6 |
| 1 |
| 10 |
| ||||||
Total accruing loans 90 days or more past due |
| 775 |
| $ | 69 |
| 2,360 |
|
| 2,130 |
| $ | 366 |
| 84 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-Performing assets to total assets |
| 0.75 | % | 0.91 | % | 0.75 | % |
| 0.85 | % | 0.87 | % | 0.71 | % | ||||||
Non-Performing assets to loans and OREO |
| 1.06 | % | 1.26 | % | 1.09 | % |
| 1.19 | % | 1.20 | % | 1.00 | % | ||||||
Allowance for loans losses as a Percentage of non-performing loans |
| 126.24 | % | 99.40 | % | 111.06 | % |
| 123.61 | % | 115.10 | % | 121.75 | % | ||||||
Allowance for loan losses to total loans |
| 1.25 | % | 1.16 | % | 1.14 | % |
| 1.38 | % | 1.31 | % | 1.14 | % |
Non-performing assets amounted to $3.2$3.8 million at September 30, 2002, a decreaseMarch 31, 2003, an increase of $238$49 thousand from $3.4 million at year-end 2001.2002. Loans past due 90 days or more and still accruing interest at September 30, 2002March 31, 2003 amounted to $775 thousand$2.1 million compared to $69$366 thousand at December 31, 2001.2002. Loans past due 90 days or more generally consist of loans
17
where customers continue to make the monthly payments, however, the loans have matured and are pending renewal. Included in non-performing assets at September 30, 2002March 31, 2003 are $1.1$1.4 million of loans guaranteed by the SBA.
15
the identification of specific reserves for identified problem loans based on loan grades and the calculation of general reserves based on minimum reserve levels by loan type. Risks within the loan portfolio are analyzed on a continuous basis by management, and periodically by an independent credit review function and by the audit committee. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and to quantify the appropriate level of loss reserves. Along with the risk system, management further evaluates risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrowers, past and expected loss experience based upon current conditions in the portfolio, and other factors management feels deserve recognition in establishing an adequate reserve. This risk assessment process, which includes the determination of the adequacy of the allowance for loan losses, is performed at least quarterly, and, as adjustments become necessary, they are realized in the periods in which they become known.
Provisions charged to expense increase the allowance and the allowance is reduced by net charge-offs. Although management attempts to maintain the allowance at a level deemed adequate to provide for potential losses, future additions to the allowance may be necessary based upon certain factors including obtaining updated financial information about the borrower’s financial condition and changes in market conditions. In addition, various regulatory agencies periodically review the adequacy of the allowance for loan losses. These agencies have in the past and may in the future require the Bank to make additional adjustments based on their judgments about information available to them at the time of their examination.
The allowance for loan losses totaled $3.8$4.4 million, $4.1 million, and $3.2 million and $2.9 million at September 30, 2002,March 31, 2003, December 31, 2001,2002, and September 30, 2001,March 31, 2002, respectively with resulting allowance to total loan ratios of 1.251.38 percent, 1.161.31 percent and 1.14 percent respectively. Net charge offs amounted to $152 thousand and $1.3 million, respectively, for the three and nine months ended September 30, 2002, compared to $68 thousand and $262$162 thousand for the three and nine months ended September 30, 2001. The increase in net charge offsMarch 31, 2003, compared to $585 thousand for the three and nine months ended is primarily due to charge offs on commercial lease loans and a credit to an insurance finance company.March 31, 2002.
1816
The following is a reconciliation summary of the allowance for loan losses the three and nine months ended September 30, 2002March 31, 2003 and 2001:2002:
Allowance for Loan Loss Activity |
| Three months ended Sept. 30, |
| Nine Months ended Sept. 30, |
| ||||
(In thousands) |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
|
Balance, beginning of period |
| 3,563 |
| 2,664 |
| 3,165 |
| 2,558 |
|
Provision charged to expense |
| 375 |
| 275 |
| 1,950 |
| 575 |
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
SBA |
| 188 |
| — |
| 210 |
| — |
|
Commercial |
| 2 |
| — |
| 1,120 |
| 199 |
|
Residential mortgage |
| — |
| — |
| 13 |
| 48 |
|
Consumer |
| 8 |
| 80 |
| 112 |
| 93 |
|
Total Charge-offs |
| 198 |
| 80 |
| 1,455 |
| 340 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
SBA |
| 2 |
| — |
| 31 |
| — |
|
Commercial |
| 35 |
| 10 |
| 70 |
| 35 |
|
Residential mortgage |
| — |
| — |
| — |
| 39 |
|
Consumer |
| 9 |
| 2 |
| 25 |
| 4 |
|
Total recoveries |
| 46 |
| 12 |
| 126 |
| 78 |
|
Total net charge-offs |
| 152 |
| 68 |
| 1,329 |
| 262 |
|
Balance, end of period |
| 3,786 |
| 2,871 |
| 3,786 |
| 2,871 |
|
Selected loan quality ratios: |
|
|
|
|
|
|
|
|
|
Net charge offs to average loans |
| 0.20 | % | 0.11 | % | 0.61 | % | 0.15 | % |
Allowance for loan losses to total loans at period end |
| 1.25 | % | 1.14 | % | 1.25 | % | 1.14 | % |
Allowance for loan losses to non-performing loans |
| 126.24 | % | 111.06 | % | 126.24 | % | 111.06 | % |
Allowance for Loan Loss Activity |
| Three months ended Mar 31 |
| ||
| 2003 |
| 2002 |
| |
Balance, beginning of period |
| 4,094 |
| 3,165 |
|
Provision charged to expense |
| 450 |
| 600 |
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
SBA |
| 60 |
| — |
|
Commercial |
| 144 |
| 544 |
|
Residential mortgage |
| — |
| — |
|
Consumer |
| 31 |
| 70 |
|
Total Charge-offs |
| 235 |
| 614 |
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
SBA |
| 4 |
| 27 |
|
Commercial |
| 50 |
| — |
|
Residential mortgage |
| — |
| — |
|
Consumer |
| 19 |
| 2 |
|
Total recoveries |
| 73 |
| 29 |
|
Total net charge-offs |
| 162 |
| 585 |
|
Balance, end of period |
| 4,382 |
| 3,180 |
|
|
|
|
|
|
|
Selected loan quality ratios: |
|
|
|
|
|
Net charge offs to average loans (annualized) |
| 0.21 | % | 0.86 | % |
Allowance for loan losses to total loans at period end |
| 1.38 | % | 1.14 | % |
Allowance for loan losses to non-performing loans |
| 123.61 | % | 121.75 | % |
Deposits
Deposits, which include non-interest and interest bearing demand deposits and interest-bearing savings and time deposits, are the primary source of the Company’s funds. The Company offers a variety of products designed to attract and retain customers, with primary focus on building and expanding relationships. For the first ninethree months of the year2003 the Company realized continued growth in deposits. This growth was achieved through emphasis on customer service, competitive rate structures and selective marketing. The Company attempts to establish a comprehensive relationship with business borrowers, seeking deposits as well as lending relationships.
Total deposits increased $34.1$11.4 million to $374.1$394.0 million at September 30, 2002March 31, 2003 from $340.0$382.6 million at December 31, 2001.2002. The increase in deposits was primarily the result of a $6.8$5.2 million increase in demand deposits and $50.7$6.8 million increase in interest bearing checking and savings, partially offset by a decline in time deposits totaling $23.4 million.deposits. The decline in time deposits is the result of promotional high rate deposits maturing in a lower interest rate environment and the disintermediation into the Company’s higher yielding checking product “Opportunity Checking”.Checking.” Included in deposits at March 31, 2003 are $29.8$26.3 million of Government deposits, as compared to $33.2$27.8 million at December 31, 2001.2002. These deposits are very sensitive to price competition. The Company has significantly reduced its reliance on these deposits as a source of funds, and believes the current portfolio of these deposits to be appropriate.
Other Debt
Other debt, which includes $10.0 million in advances from the Federal Home Loan Bank (“FHLB”), and $2.8$2.7 million of lease obligations, amounted to $12.8$12.7 million at September 30, 2002,March 31, 2003, a decline of $66$23 thousand from year-end 2001.2002. The 4.92% borrowings from the FHLB mature in 2010 and are callable at any time.
Trust Preferred Securities
On September 26, 2002, Unity (NJ) Statutory Trust I a statutory business trust and wholly-owned subsidiary of Unity Bancorp Inc., issued $9.0 million of floating rate capital trust pass through securities to investors due on September 26, 2032. The capital securities have preference over the common securities with respect to liquidation and other distributions and qualify as Tier I capital. The Subordinate Debentures are redeemable in whole or part, prior to maturity but after September 26, 2007. The floating interest rate on the Subordinate Debentures is three-month LIBOR plus 3.40% and re-prices quarterly. The initial rate at September 30, 2002March 31, 2003 was 5.21%5.07%. The additional capital will beraised with respect to the issuance of the floating rate capital pass through securities was used to bolster the Company’s capital ratios and for general corporate purposes, including among other things, capital contributions to Unity Bank and to fund stock repurchases.purposes.
1917
Interest Rate Sensitivity
The principal objectives of the asset and liability management function are to establish prudent risk management guidelines, evaluate and control the level of interest rate risk in balance sheet accounts, determine the level of appropriate risk given the business focus, operating environment, capital, and liquidity requirements, and actively manage risk within the Board approved guidelines. The Company seeks to reduce the vulnerability of the operations to changes in interest rates, and actions in this regard are taken under the guidance of the Asset/Liability Management Committee (“ALCO”) of the Board of Directors. The ALCO reviews the maturities and repricing of loans, investments, deposits and borrowings, cash flow needs, current market conditions, and interest rate levels.
The Company utilizes Modified Duration of Equity and Economic Value of Portfolio Equity (“EVPE”) models to measure the impact of longer-term asset and liability mismatches beyond two years. The modified duration of equity measures the potential price risk of equity to changes in interest rates. A longer modified duration of equity indicates a greater degree of risk to rising interest rates. Because of balance sheet optionality, an EVPE analysis is also used to dynamically model the present value of asset and liability cash flows, with rate shocks of 200 basis points. The economic value of equity is likely to be different as interest rates change. Like the simulation model, results falling outside prescribed ranges require action by the ALCO. The Company’s variance in the economic value of equity, as a percentage of assets with rate shocks of 200 basis points at September 30 2002,March 31 2003, is a decline of 0.80.78 percent in a rising rate environment and ana decrease of 0.80.95 percent in a falling rate environment. Both variances are within the board-approved guidelines of +/- 3.00 percent. At December 31, 20012002 the economic value of equity with rate shocks of 200 basis points was a decline of 1.41.05 percent in a rising rate environment and an increasea decrease of 0.11.07 percent in a falling rate environment.
Operating, Investing, and Financing Cash
Cash and cash equivalents amounted to $34.7$37.2 million at September 30, 2002,March 31, 2003, an increase of $17.9$7.0 million from December 31, 2001.2002. Net cash provided by operating activities for the ninethree months ended September 30, 2002,March 31, 2003, amounted to $8.0$1.4 million, primarily from proceeds from the sales of loans held for sale, net income from operations and the provision for loan losses partially offset by originations of loans held for sale. Net cash used in investing activities amounted to $32.1$5.8 million for the ninethree months ended September 30, 2002,March 31, 2003, primarily from the funding of and purchases in the loan portfolio, increased investment in securities, partially offset by maturities of securities.portfolio. Net cash provided by financing activities, amounted to $42.0$11.4 million for the ninethree months ended September 30, 2002,March 31, 2003, attributable to deposit growth of $34.1 million, proceeds from the issuance of common stock of $1.5 million and the issuance of $9.0 million of Trust Preferred Securities, partially offset by the purchase and retirement of $2.5 million in common stock.growth.
The Company’s liquidity is a measure of its ability to fund loans, withdrawals or maturities of deposits and other cash outflows in a cost-effective manner.
HoldingParent Company
At September 30, 2002,March 31, 2003, the HoldingParent Company had $7.2$5.7 million in cash and $89 thousand in marketable securities compared to $1.3$5.8 million and $123 thousand respectively at December 31, 2001.2002. The increase in cash at the parent company was due to the issuance of the Trust preferred securities and the exercise of common stock warrants offset by the purchase of the Company’s common stock. Expenses at the HoldingParent Company are minimal and the management believes that the HoldingParent Company has adequate liquidity to fund its obligations.
Consolidated Bank
Liquidity is a measure of the ability to fund loans, withdrawals or maturities of deposits and other cash outflows in a cost-effective manner. The principal sources of funds are deposits, scheduled amortization and repayments of loan principal, sales and maturities of investment securities and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.
At September 30, 2002, $8.1March 31, 2003, $3.8 million was available for additional borrowings from the FHLB of New York. Pledging additional collateral in the form of 1-4 family residential mortgages or investment securities can increase the line with the FHLB. The maximum borrowing line available if additional collateral was pledged as of September 30, 2002March 31, 2003 amounted to $42.3approximately $54.0 million. An additional source of liquidity is Federal Funds sold, which were $20.0$25.0 million at September 30, 2002.March 31, 2003.
As of September 30, 2002,March 31, 2003, deposits included $29.7$26.2 million of Government deposits, as compared to $33.2$27.3 million at December 31, 2001.2002. These deposits are generally short in duration, and are sensitive to price competition. The Company believes the current portfolio of these deposits to be appropriate. Included in the portfolio are $27.0$25.7 million of deposits from threefour municipalities. The withdrawal of these deposits, in whole or in part would not create a liquidity shortfall for the Company.
At September 30, 2002,March 31, 2003, the Bank had approximately $86.1$86.5 million of loan commitments, which will generally either expire or be funded within one year. The Company believes it has the necessary liquidity to honor all commitments. Many
20
of these commitments will expire and never be funded. In addition, approximately $35.0$21.2 million of these commitments are for SBA loans, which may be sold into the secondary market.
Regulatory Capital
A significant measure of the strength of a financial institution is its capital base. Federal regulators have classified and defined capital into the following components: (1) tier 1 capital, which includes tangible shareholders’ equity for common stock and
18
qualifying preferred stock, and (2) tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify for tier 1 capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require a bank to maintain certain capital as a percent of assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A bank is required to maintain, at a minimum, tier 1 capital as a percentage of risk-adjusted assets of 4.0 percent and combined tier 1 and tier 2 capital as a percentage of risk-adjusted assets of 8.0 percent.
In addition to the risk-based guidelines, regulators require that a bank which meets the regulator’s highest performance and operation standards maintain a minimum leverage ratio (tier 1 capital as a percentage of tangible assets) of 4 percent. For those banks with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased. Minimum leverage ratios for each bank are evaluated through the ongoing regulatory examination process. The increase in the Company’s capital ratios is related to the issuance of $9.0 million of Trust preferred securities which qualify as Regulatory Capital.
The Company’s capital amounts and ratios are presented in the following table.
|
| Actual |
| For Capital Adequacy Purposes |
| To Be Well Capitalized Under Prompt Corrective Action Provisions |
| ||||||||||
(In thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
As of September 30, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 35,020 |
| 8.45 | % | ³ |
| 16,721 |
| 4.00 | % | ³ |
| 20,901 |
| 5.00 | % |
Tier I risk-based ratio |
| 35,020 |
| 11.48 | % | ³ |
| 12,238 |
| 4.00 | % | ³ |
| 18,357 |
| 6.00 | % |
Total risk-based ratio |
| 39,051 |
| 12.80 | % | ³ |
| 24,476 |
| 8.00 | % | ³ |
| 30,595 |
| 10.00 | % |
As of December 31, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 24,786 |
| 6.63 | % | ³ |
| 14,977 |
| 4.00 | % | ³ |
| 18,721 |
| 5.00 | % |
Tier I risk-based ratio |
| 24,786 |
| 9.53 | % | ³ |
| 10,405 |
| 4.00 | % | ³ |
| 15,607 |
| 6.00 | % |
Total risk-based ratio |
| 27,951 |
| 10.75 | % | ³ |
| 20,810 |
| 8.00 | % | ³ |
| 26,012 |
| 10.00 | % |
|
| Actual |
| For Capital |
| To Be Well Capitalized |
| ||||||
(In thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
|
As of March 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 36,928 |
| 8.59 | % | ³ 17,198 |
| 4.00 | % | ³ 21,497 |
| 5.00 | % |
Tier I risk-based ratio |
| 36,928 |
| 10.98 | % | ³ 13,390 |
| 4.00 | % | ³ 20,085 |
| 6.00 | % |
Total risk-based ratio |
| 41,138 |
| 12.23 | % | ³ 26,780 |
| 8.00 | % | ³ 33,475 |
| 10.00 | % |
As of December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 35,688 |
| 8.38 | % | ³ 17,038 |
| 4.00 | % | ³ 21,298 |
| 5.00 | % |
Tier I risk-based ratio |
| 35,688 |
| 11.05 | % | ³ 12,919 |
| 4.00 | % | ³ 19,379 |
| 6.00 | % |
Total risk-based ratio |
| 39,789 |
| 12.32 | % | ³ 25,839 |
| 8.00 | % | ³ 32,299 |
| 10.00 | % |
The Bank’s capital amounts and ratios are presented in the following table.
|
| Actual |
| For Capital Adequacy Purposes |
| To Be Well Capitalized Under Prompt Corrective Action Provisions |
| ||||||||||
(In thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||
As of September 30, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 27,876 |
| 6.67 | % | ³ |
| 16,577 |
| 4.00 | % | ³ |
| 20,722 |
| 5.00 | % |
Tier I risk-based ratio |
| 27,876 |
| 9.11 | % | ³ |
| 12,205 |
| 4.00 | % | ³ |
| 18,308 |
| 6.00 | % |
Total risk-based ratio |
| 31,662 |
| 10.35 | % | ³ |
| 24,410 |
| 8.00 | % | ³ |
| 30,513 |
| 10.00 | % |
As of December 31, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 23,384 |
| 6.25 | % | ³ |
| 14,970 |
| 4.00 | % | ³ |
| 18,713 |
| 5.00 | % |
Tier I risk-based ratio |
| 23,384 |
| 9.00 | % | ³ |
| 10,394 |
| 4.00 | % | ³ |
| 15,591 |
| 6.00 | % |
Total risk-based ratio |
| 26,549 |
| 10.22 | % | ³ |
| 20,788 |
| 8.00 | % | ³ |
| 25,986 |
| 10.00 | % |
|
| Actual |
| For Capital |
| To Be Well Capitalized |
| ||||||
(In thousands) |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
|
As of March 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 30,724 |
| 7.15 | % | ³ 17,059 |
| 4.00 | % | ³ 21,324 |
| 5.00 | % |
Tier I risk-based ratio |
| 30,724 |
| 9.15 | % | ³ 13,326 |
| 4.00 | % | ³ 19,989 |
| 6.00 | % |
Total risk-based ratio |
| 34,934 |
| 10.40 | % | ³ 26,652 |
| 8.00 | % | ³ 33,315 |
| 10.00 | % |
As of December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
| 29,509 |
| 6.96 | % | ³ 16,956 |
| 4.00 | % | ³ 21,195 |
| 5.00 | % |
Tier I risk-based ratio |
| 29,509 |
| 9.16 | % | ³ 21,893 |
| 4.00 | % | ³ 19,339 |
| 6.00 | % |
Total risk-based ratio |
| 33,541 |
| 10.41 | % | ³ 25,786 |
| 8.00 | % | ³ 32,232 |
| 10.00 | % |
Shareholders’ Equity
Shareholders’ equity increased $1.8 million,$718 thousand, or 7.42.6 percent, to $26.7$27.8 million at September 30, 2002March 31, 2003 compared to $24.8$27.1 million at December 31, 2001.2002. This increase was the result of the $2.7$1.2 million in net income and $1.5 million from the exercise of common stock warrants and employee stock plans, and $246partially offset by $434 thousand increasedecrease in accumulated other comprehensive income, partially offset byincome. On January 27, 2003 the purchase and retirementCompany announced a 5% stock dividend payable on March 12, 2003, all share amounts have been restated to include the effect of the Company’s common stockdividend. The decline in other comprehensive income is due primarily to a $300 thousand reduction in the market value of $2.5 million. As of September 30, 2002an asset-backed AFS security reported in the March 2003 valuation report. Although the Company had 425 thousand common stock warrants exercisable at $5.50 per share,continues to receive all contractual payments and the bond is rated AA- by Moodys, the default rates on the on the underlying collateral is higher than anticipated, which expire in October 2002. As of October 16, 2002 all common stock warrants were exercised. On July 12, 2002may cause a future default on the Company increased the number of authorized common stock from 7,500,000 at December 31, 2001 to 12,500,000 at September 30, 2002.bond’s cash flows.
21
Impact of Inflation and Changing Prices
The financial statements and notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the operations. Unlike most industrial companies, nearly all the Company’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
During 2002,2003, there have been no significant changes in the Company’s assessment of market risk as reported in Item 6 of the Company’s Annual Report on Form 10-K.10-K for the year ended December 31, 2002. (See the interest rate sensitivityInterest Rate Sensitivity in Management’s discussionDiscussion and analysis.Analysis Herein.)
19
ITEM 4. Controls and Procedures
(a)Evaluation of disclosure controls and proceedings. The Company’s chief executive officer and its chief financial officer, after evaluation of the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15-d-14(c) under the Securities Exchange Act of 1934) as of the date (the “Evaluation Date”) within 90 days before the filing of this quarterly report, have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company’s and its consolidated subsidiaries would be made known to them by others within those entities.
(b)Changes in internal controls. There were not any significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II— – OTHER INFORMATION
The Company may,On February 20, 2003, the Bank was named as a defendant in a lawsuit initiated by Commerce Bank, N.A. and Commerce Bank/Shore, N.A. in the ordinary courseSuperior Court of business become a partyNew Jersey, Essex County alleging that the Bank, as payor of certain checks written against certain deposit accounts held at the Bank, improperly refused to litigation involving collection matters, contract claimshonor approximately $4,000,000 of checks. Commerce Bank, N.A. and other legal proceedings relating toCommerce Bank/Shore, N.A. have petitioned the conductSuperior Court of its business.New Jersey, Essex County for compensatory and consequential damages of $4,028,584.44, interest, attorney’s fees and costs of suit. The company doesBank has reviewed the relevant circumstances and believes that it acted properly and that the outcome of the lawsuit will not believe that any existing legal claims or proceedings will have a material impact on the Company’sconsolidated financial position or on the Company’s results of operations.operations of the Company.
From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition, or operating results of the Company.
Item 2. 2. Changes in Securities —– None
Item 3. Defaults Upon Senior Securities-NoneSecurities-None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8K
(a)Exhibits
(a) Exhibits
Included with this Quarterly Report on Form 10-Q as exhibit 99Exhibit 99.1 is the certification required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes —Oxley Act of 2002.
(b)Reports on Form 8-K
During the three month period ended September 30, 2002,March 31, 2003, the Registrant filed on Current Report on Form 8-K dated January 31, 2003 under “Item 5. Other Events and Required Regulation FD Disclosure” incorporating the press release announcing a 5% stock dividend payable March 12, 2003 to shareholders of record as of February 26, 2003.
(c) Reports on Form 8-K
During the three month period ended March 31, 2003, the Registrant filed one Current Report on Form 8-K dated August 21,2002,January 23, 2003, under Item.“Item 5. Other Events and Required Regulation FD Disclosure incorporatingDisclosure” Incorporating the press release announcing that discussions regarding the registrant’s potential acquisitionearnings for the year 2002 and the fourth quarter of Fist Bank2002. Which included Consolidated Financial Highlights, Balance Sheets and Statements of Central Jersey had been terminated.
(c)Reports on Form 8-K
DuringIncome as of , respectively December 31, 2001, September 30, 2002, and December 31, 2002 and, respectively, for the three month period ended December 31, 2001, September 30, 2002 the Registrant filed one Current Report on Form 8-K dated July 12, 2002 under Item 5. Other Events. The Registrant completed a merger, the sole result of which is the re-domicile of the Registrant from Delaware to New Jersey. In addition, the Registrant’s Certificate of Incorporation reflects an increase in the total number of shares authorized, as approved by the Registrant’s shareholders, to 12,500,000.and December 31, 2002.
2220
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. | |
|
|
|
Dated: | By: |
|
| JAMES A. HUGHES, | |
| Executive Vice President and Chief Financial Officer |
2321
I, Anthony Feraro, certify that:
l. I have reviewed this quarterly report on Form 10-Q of Unity Bancorp, Inc.;
2 Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 | Name: /S/ Anthony Feraro | |
Title: Chief Executive Officer and President |
22
Certifications
I, James A. Hughes, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Unity Bancorp, Inc;
2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: |
| |||
|
24
Certifications
I, James A. Hughes, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Unity Bancorp, Inc;
2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| May 15, 2003 |
| Name: /S/ James A. Hughes | |
|
| Title: Executive Vice President and Chief Financial Officer |
2523
quarterlyQUARTERLY REPORT ON FORM 10-Q
EXHIBIT NO. |
| DESCRIPITION |
|
|
|
|
| Certification Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
2624