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Being in good marketplaces
with larger banks leaving some of the middle market customers underserved has Unity
Bancorp positioned for continued growth
Financial
Regional Northeast Banks
(UNTY-NASDAQ)
Unity Bancorp, Inc.
64 Old Highway 22
Clinton, NJ 08809
Phone: 908-730-7630
James A. Hughes
President and CEO
Alan J. Bedner
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
April 6, 2006
BIO: James A. Hughes has
been President, CEO and Director of Unity Bancorp, Inc., since December 2004. Prior to
being promoted to CEO and President, Mr. Hughes served as Director and CFO of Unity
Bancorp, Inc. from December 2000. Prior to joining Unity, Mr. Hughes was a Senior Vice
President of Finance at Summit Bancorp from August 1989 to December 2000. From September
1983 to July 1989, he was an Audit Manager with KPMG in Short Hills, New Jersey. Mr.
Hughes was an Accounting Professor at Rutgers University, New Brunswick, New Jersey, from
September 1988 to May 1990. He has an MBA in Finance from Seaton Hall University, a
BS in Accounting/Finance from Mount St. Marys College and is a Certified Public
Accountant.
Company Profile: Unity Bancorp, Inc. is a financial service
organization headquartered in Clinton, New Jersey, with approximately $614 million in
assets and $522 million in deposits. Unity Bank provides financial services to retail,
corporate & small business customers through its 14 retail service centers located in
Hunterdon, Middlesex, Somerset, Union and Warren 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.
CEOCFO: Mr. Hughes, how has it changed under your leadership?
Mr. Hughes: Ive been a part of the management
team here since I joined the company along with Mr. Bedner. I wouldnt say that there
has been any significant change in the direction that we started to embark on back in
early 2001; weve stuck to the strategy of growing our core franchise aggressive
deposit gathering, prudent lending, continuing to focus on our Commercial and SBA (Small
Business Administration) line of businesses and more recently we have commenced our branch
expansion strategy.
CEOCFO: Please tell us about the communities you serve.
Mr.Hughes: We are headquartered in Clinton, New Jersey,
in Hunterdon County, which is the third most affluent Counties in the country. Therefore,
we are in a great marketplace for our headquarters. Unitys branch network is
primarily across the Rout 78 corridor in New Jersey, in Warren County, Somerset County and
Essex County, which are predominantly high income areas. We also have branch locations in
Middlesex and Union Counties so we are in a good marketplace.
CEOCFO: What is the mix between business and consumer
customers and would you like to see that change?
Mr. Hughes: We are a commercial bank. Approximately 80%
of our revenues are derived from the commercial side of business and the commercial
umbrella would also include SBA lending. We also provide residential mortgage lending and
consumer lending. The majority of our depositing gathering is on the consumer side and
most of our lending is on commercial side. Going forward Unity will continue to
focus on commercial loans and deposits.
CEOCFO: You mentioned increasing the SBA area; how important
is that to you?
Mr. Hughes: SBA lending is a significant portion of our
revenue; three or four years ago, SBA accounted for 50% of our net profitability. As we
continue to grow the core bank, it continues to be significant to our overall operating
results, but a smaller percentage of our revenue. That being said, we want to continue to
focus in on being a premiere SBA lender; nationally we are ranked 26th or 27th,
in the country. We received the gold award this year from the SBA in Newark and we are
planning, in the first Quarter of this year, to open up a Long Island, New York, SBA
lending office. Therefore, SBA is going to continue to be a significant portion of Unity
Bancorps future.
CEOCFO: Why the reach into Long Island, New York?
Mr. Hughes: Weve had SBA loan officers in New
York for the last 5 to 6 years and weve been very successful in our lending,
predominantly in the Long Island area. There is high density there; a lot of business and
we think that we compete very well in that marketplace. Last year we were named bank of
the year from the Long Island Development Corporation.
CEOCFO: So opening an office there is building on what you
have already developed.
Mr. Hughes: That is correct.
CEOCFO: What is it that Unity Bancorp understands that allows
you to be tops in this area and attract new business?
Mr. Hughes: Unity Bancorp is going to be celebrating
its 15th year anniversary this year and almost since its inception Unity has
been a preferred SBA lender. After doing it for 15 years, weve learned how to do it
right. We have the back office operation to support SBA lending and several underwriters
supporting the development officers. We have developed relationships with brokers, SBA
offices and weve earned a reputation for being good at what we do.
CEOCFO: What contributes to your success in addition to SBA?
Mr. Hughes: This year we were successful in not only
commercial loan generation, but also deposit generation, Unity has grown its deposits and
loan portfolio, approximately 20% in 2005. We believe that core reason that we excelled is
our sales people and the training of our staff. We are in good marketplaces and we believe
that the larger banks leave some of the middle market customers underserved and those are
the prospects that we try to attract.
CEOCFO: How do you generate your new customers?
Mr. Hughes: On the lending side we have approximately 9
SBA loan officers and approximately the same number of commercial loan officers For a
small community bank of our size it is not typical, having a lending staff of 18 loan
officers. Our SBA loan officers are a great source of referrals for commercial loans as
are the commercial loan officers are a source of referrals for the SBA business. We are as
aggressive as possible, while maintaining credit quality in the organization, so where
some of the larger banks will walk away after a million dollar deal; Unity Bank will look
at that as an opportunity. On the deposit side, we do several things to grow our core
deposit base; we make our branches more appealing than a majority of our competitors by
offering cappuccinos at our branches and we have a kids corner. We allow our
customers to advertise their products in our branches and we are now rolling out internet
kiosks in our branches, with free internet bill pay and internet banking for all of our
customers. We guarantee to pay higher CD rates over our larger bank competitors such as
Wachovia Corporation (NYSE: WB), Bank of America Corporation (NYSE: BAC) and PNC Financial
Services Group (NYSE: PNC). We show their rates along with the Unity Bank rates at our
branches. We are very aggressive in our deposit price sheet and we try to advertise in
such a way that we get the most bang for our buck. We advertise in a lot of the local
newspapers, we do direct mail and we give away color TVs and digital cameras. Therefore,
we try all sorts of things; some of them work and some of them dont, and the things
that work we continue to roll out there.
CEOCFO: Do your customers tend to stay with you?
Mr. Hughes: Yes; we believe that we have a high
retention rate. While most banks have a hard time; with deposit growth in 2005, we were
able to grow our deposits by 20%.
CEOCFO: Where do you stand with competition from other
community and smaller local banks?
Mr. Hughes: A couple of things go into the dynamics of
our strategy. We recognize that on the eastern side of our state that the population is
going to be stagnant. There has been negative population growth or it is going sideways,
so going forward, we continue to focus our growth going west. In our press releases
weve announced branch locations that are on the western side of the state, where
people are moving. There are new home construction sales and population growth. Having
said that, there continues to be M&A activity in the marketplace and some of the
smaller banks that we were competing against have now merged, so weve been able to
gather deposits from bank mergers. Further, there are deposits that were also
attracting from the larger banks, because weve been better at customer service and
offer longer hours and to some degree, better pricing on our products.
CEOCFO: One your Unity Bank commandments is, we always
do the right thing, can you give us an example?
Mr. Bedner: We always do the right thing for the
customer; many times you will have a mortgage company out there that will push someone
into a product and three or four months down the road the customer realize this
wasnt what they wanted. There are also times that a customer wont want a
product that is right for them and a lot of what we do here at Unity is try to put the
product with the right people; so that they are a customer for life.
CEOCFO: As you continue to grow, how do you continue to
relate to your customers on a personal level?
Mr. Hughes: At the end of the day what makes a customer
feel good about coming into a branch is seeing the same people there week after week,
month after month. Therefore, we are working very hard to reduce our turnover at the
branch level and it is typical in banking that the turnover is very high at the branch
levels. Because of this we have instituted teller retention programs in order to retard
turnover at branches and to create stability in the branch franchise.
CEOCFO: What do you see ahead for Unity Bancorp two or three
years down the line?
Mr. Hughes: In 2006 we are going to start focusing on
growing our branch franchise; we purchased our Philipsburg branch in 2005 and we acquired
two sites in 2005 that we hope to have opened in 2006. We are actively scouting the Lehigh
Valley area for branch sites to be announced, hopefully this year (2006), if we can find
some reasonable locations. As we continue to execute on our strategic plan and hopefully
the market value of our company increases with continued performance. We will continue to
look for strategic partners going forward. Our goal is to continue executing our strategic
plan and as the company grows more opportunities will arise to allow us to grow at an
accelerated rate.
CEOCFO: When you say strategic partners are you talking about
new services or acquisitions?
Mr. Hughes: Primarily acquisitions; in addition
weve considered looking at insurance agencies and other ancillary products that we
dont currently have. However, for the most part we are focusing on what we do best
and that is the core business of community banking.
CEOCFO: Address potential investors; why should they be
interested and what is often overlooked?
Mr. Bedner: If investors look at our results over the
last 5 years, our return on equity has been significantly above our peer group, yet the
market value of our stock trades below our peers. Therefore, we believe that there is a
value proposition when you look at Unity Bank. The larger we get, the more visibility we
are getting in the marketplace and we are starting to see that when you look at the
activity in our stock. Therefore, management continues to be very bullish on the direction
of the company.
CEOCFO: Is reaching potential investors a focus for you?
Mr. Hughes: We are very comfortable with the
shareholder mix that we have right now; we do spend an appropriate amount of time getting
our word out. Bi-annually Alan and I do investor conferences to make sure that
institutional investors hear the story. Hence, we continue to get more institutional
ownership as the quarters go by. However, we are happy with the performance of the stock
and our primary thought process is to focus in on the returns on the company and the
returns on the stock will follow.
CEOCFO: Finally, as CEO, what would you say is your daily
focus?
Mr. Hughes: A little bit of everything. I get involved
in sales calls, I go out and do prospecting, I make sure that any potential problem loans
are resolved and corporately I work very closely with Mr. Bedner, who is our CFO and our
financial strategist. I oversee compliance and all of the executives report to me, so I
get involved in all aspects of the company from marketing to sales and operational issues.
I also keep the board informed as to the direction that we are going.
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