President's Message

Message from James A. Hughes
Unity Bank President

It has been three years since the economic implosion of both the US and worldwide economy. Real unemployment continues. Demand for real estate continues to be weak and, as a result, residential and commercial real estate values continue to be under stress. Most economic pundits would agree, that the worst is now behind us and the road to recovery is under construction. It is anticipated that we will experience a slow rebound that hinges on real job growth. The economic events that occurred over the past three years will forever change the way we live as Americans.

Many of our borrowers have lost their jobs. Many of our small business customers have experienced significant declines in sales and profitability. As a result, loan defaults and credit losses have had a material impact on our performance. Virtually all of our Small Business Administration (SBA) loans are to small retail businesses that have been impacted by the economy. While most of these credits have real estate collateral and the substantial guarantee of the SBA, default rates continue to be high and the collection efforts are significant. We continue to be aggressive in working with our borrowers to mitigate our losses. While the process is slow and deliberate, we believe that working through these credits is the best way to maximize recoveries rather than taking steep discounts on the sale of non-performing notes.

Nonetheless, positive things are developing. We have taken many proactive measures to grow revenues and cut expenses. It was a profitable year for Unity. We have weathered the storm and look forward to improving our operating results in 2011 and beyond. In 2010 we continued to build on our sales and marketing efforts resulting in many accomplishments. Growth in core deposits continues as well as significant reduction in our portfolio of higher cost deposits. Net interest margin grew from 3.22% in 2009, to 3.67% in 2010. In addition, our noninterest-bearing deposits have grown almost 14% to $91.3 million as of December 31, 2010.

Last year, we predicted 2010 would be a year of transition. Although our earnings for 2010 were significantly reduced by loss provisions associated with nonperforming loans, the Company reported net income of $720 thousand as compared to a loss of $2.6 million for 2009. Earnings for 2009 were materially impacted by a $2.6 million impairment charge on two pooled trust preferred securities and a one-time FDIC special assessment.

In a continuing effort to increase our customer product offerings and reduce expenses we have introduced new services in 2010. This year we have provided our customers with eStatements and Foreign Currency Exchange Service while at the same time streamlining and reducing the cost of Loan Statement processing.

In keeping with the goals of focusing on the community, Unity Bank has partnered with community-based Non-Profit organizations and their supporters. We introduced the UCare program that provides a charitable contribution from Unity Bank based on deposit growth by supporters of those organizations.

In 2011 Unity Bank will continue to enhance our current product offerings while looking to the future with a commitment to invest in existing and new technologies. With such a strategic customer-focused goal in mind, Unity Bank is preparing to offer a robust mobile banking product and a new credit card program. In addition, we will be implementing operational efficiencies such as digital signature cards and electronic document storage. These strategies are consistent with our Going Green initiative and also support minimizing expenses.

This past year, we made a conscious decision to shrink the balance sheet. With interest rates at all time lows, both investments and loans experienced accelerated prepayments. Excluding residential loan production, loan demand is extremely sluggish. As a result, new loan production has not exceeded the amortization of our existing portfolio. We have aggressively adjusted our cost of funding downward reducing our portfolio of high-rate accounts. As a result, our net interest income actually increased while our net earning assets have declined. We are optimistic that in 2011 we will be able to sustain the improvement in our margins and commence balance sheet growth as the economy recovers.

Until our core earnings substantially improve, it is unlikely that we will expand our branch footprint in 2011. Our focus will be to maximize the opportunities in our existing markets. In addition, we will continue to rationalize our existing locations. We have finally received approval for our site in Washington, NJ, and construction will begin later in the year.

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. 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 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.

James A. Hughes
President/CEO

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.