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Similar to the prior two years, this year has been an extremely challenging time for community banks. In 2005 and 2006, we were faced with a difficult interest rate environment, as the Federal Reserve aggressively raised interest rates 300 basis points over those two years, creating a significant increase in the cost of funds for financial institutions. In 2007, the financial markets were significantly impacted by the collapse of the subprime market, which had collateral repercussions, creating volatile pricing for financial instruments as well as significantly reducing market liquidity. Based on the current economic forecast, this year may be another challenging one for banks, yet the fundamentals of Unity continue to be sound. We have remained focused on our strategic plan of doing what we do best - True Community Banking. Although the performance of the Company has been impacted by the economy, we have continued to grow market share, we have expanded our footprint and we have continued to improve our products. We are stronger now than ever before and are well positioned for the future.
Operating earnings for 2007 were $4.7 million, or $0.66 per diluted share, a 19 percent decrease compared to $5.8 million, or $0.81 per diluted share for 2006. Results for the year were impacted by the Company's decision to retain a significant portion of its SBA loan production as a result of reduced bids on sales caused by current market conditions. Also, during the fourth quarter, the Company recorded a $404 thousand after-tax charge on Freddie Mac securities classified as other than temporarily impaired due to current market conditions. As a result, return on average assets and average common equity for 2007 were 0.66 percent and 10.11 percent, compared to 0.90 percent and 13.56 percent, respectively, for 2006. During 2007, total assets grew 8.4 percent to $752 million, compared to $694 million at December 31, 2006. This growth in assets was due entirely to a record year for loan volume offset primarily by declines in federal funds sold and investment securities. Total loans grew by 16.2 percent with commercial loans increasing 17.2 percent. A portion of the growth in the loan portfolio was attributed to the Company’s decision to both expand the SBA program and to hold more SBA loans for long-term investment We are proud of our commercial and SBA programs which offer a wide array of products for our customers. We believe that community banking is all about service and flexibility; a valued proposition that sets us apart from the larger financial service providers. Our loan officers are empowered to negotiate loan terms and conditions that benefit our customers. We look not to complete transactions, but to foster long-term relationships. During 2007, Unity demonstrated its commitment to the Small Business Program by taking the program national. We opened several loan production offices along the Eastern United States to increase production. As a result, we closed approximately $80 million of SBA 7(a) loans in 2007, making this a record year since we became a Preferred Lender 15 years ago. This was a good year for deposit growth, as total deposits grew 6.1 percent over the prior year as a result of growth in time deposits. We continued to offer extremely competitive pricing and to guarantee to pay higher yields on CDs than the larger banks. We rolled out U-Deposit which is a remote scanner that allows small businesses to scan checks right at their location for deposit into their account. We also upgraded our business software application, eCorp, to enable our customers to effectively manage their accounts, automate their wires and to provide business bill payment functionality. We will continue to aggressively add new products as well as price our products competitively to grow our customer base, thus giving us additional opportunities to cross-sell products and services. We executed on our commitment to grow our branch network by adding two full-service branches this year. We opened our second Pennsylvania location in Palmer Township as well as our most recent location in Middlesex, NJ. We now have seventeen locations and although we continue to look to expand in growth markets, we will also be looking to close branches that are not providing adequate returns. In April 2008, we will be closing our Bridgewater branch. If you are a depositor, you know that many of our branches are open seven days a week. In addition, Unity branches are open longer hours to make it more convenient for our customers. Our online banking and bill pay applications give our customers access to their accounts 24 hours a day, seven days a week. In 2008, we will be upgrading our website to allow for automatic online account openings to provide future customers access to our products through alternative delivery channels outside of the traditional branch network. The Unity Commandments define our Corporate Culture. We recognize that to be successful in this highly competitive business, it is critical that our employees are aligned to our commandments and that we continually reinforce our principles. We believe these commandments speak for themselves. Hire the best employees, train them well, and keep them highly motivated. With great employees providing the highest level of service for our customers, increased profits of the bank are sure to follow. Banking is a commodity business and the only way to grow market share is to provide excellent service on a consistent basis. Our vision and strategy for Unity has not changed; we are committed to exceptional customer service, personal attention, local decision-making and concern for the financial well-being of our customers and shareholders. We look forward to exceeding your expectations in 2008. We and the employees of Unity are committed to achieving our financial goals and look forward to the challenges ahead. The Board of Directors, management and staff thank you and we continue to appreciate your loyalty and support. Very truly yours, James A. Hughes
President and Chief Executive Officer
February 25, 2008
This news release contains certain forward-looking statements, either expressed or implied, which anticipates future financial performance. These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to factors beyond the company's control and could impede its ability to achieve these goals. These factors include general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.
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Message from James A. Hughes 