UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 11-K

 

(X) ANNUAL REPORT UNDER SECTION l5(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2014

 

OR

 

( ) TRANSITIONAL REPORT PURSUANT TO SECTION l5(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For transition period from:

 

Commission File Number: 1-12431

 

 

UNITY BANK EMPLOYEES’ SAVINGS

AND PROFIT SHARING PLAN AND TRUST

 

 

UNITY BANCORP, INC.

64 OLD HIGHWAY 22 CLINTON, NJ 08809

 

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust 

 

 

 

 

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust 

Index

 

 

 

 

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Report of Independent Registered Public Accounting Firm

 

 

To the Board of Trustees

Unity Bank Employees’ Savings and Profit Sharing Plan and Trust:

 

 

We have audited the accompanying statements of net assets available for benefits of the Unity Bank Employees’ Savings and Profit Sharing Plan and Trust (the “Plan”) as of December 31, 2014 and 2013, and the related statement of changes in net assets available for benefits for the year ended December 31, 2014. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2014 and 2013, and the changes in net assets available for benefits for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

 

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2014 and the supplemental schedule of reportable transactions in excess of 5% for the year ended December 31, 2014 are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the United States Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  The supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

 

 

/s/  McGladrey LLP  

Blue Bell, Pennsylvania

June 29, 2015

 

 

 

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust

Statements of Net Assets Available for Benefits

December 31, 2014 and 2013

 

 

 

See accompanying notes to financial statements.

 

 

 

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust

Statement of Changes in Net Assets Available for Benefits

For the year ended December 31, 2014

 

 

 

 

See accompanying notes to financial statements.

 

 

 

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust

Notes to Financial Statements

December 31, 2014 and 2013

 

 

Basis of Presentation

 

The accompanying financial statements of the Unity Bank Employees’ Savings and Profit Sharing Plan and Trust (the "Plan") for employees of Unity Bank (the "Bank") have been prepared on an accrual basis and present the net assets available for benefits and the changes in those net assets.  Investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The Statements of Net Assets Available for Benefits present the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.

 

Administrative Expenses

 

Administrative fees of the Plan include certain fees charged directly to individual participants, related directly to transactions or events associated with individual participant accounts.  Expenses of administering the Plan are paid directly by the Bank.

 

Investment Valuation and Income Recognition

 

Investments are reported at fair value.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Notes 6 and 7 for discussion of fair value measurements.

 

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

 

Notes Receivable from Participants

 

Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest.  Delinquent participant loans are reclassified as distributions based upon the terms of the plan document. 

 

Payment of Benefits

 

Benefits are recorded when paid.

 

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Risks and Uncertainties

 

The assets of the Plan are primarily financial instruments, which are monetary in nature. Accordingly, interest rates have a more significant impact on the Plan's performance than do the effects of general levels of inflation. Interest rates generally do not move in the same direction or with the same magnitude as prices of goods and services as measured by the consumer price index. Investments in funds are subject to risk conditions of the individual funds' objectives, stock market performance, interest rates, economic conditions, and world affairs.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates.

 

Subsequent Events

 

The Plan has evaluated subsequent events through June 29, 2015, the date the financial statements were issued. Effective January 1, 2015, eligible employees are automatically enrolled in the Plan unless an opt-out election is made.

 

 

 

The following description of the Plan provides only general information. Participants should refer to the plan agreement for a more complete description of the Plan's provisions.

 

General

 

The Plan is a participant-directed, Federal income tax deferred defined contribution plan that was initiated in August of 2003 and is administered by the Bank. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").

 

Investment Options

 

The participant contributions and employer safe harbor basic matching contributions may be allocated to various investment funds, and/or the Unity Bank Stock Fund at the discretion of the participant, provided that all directed allocations be in whole percentages.

 

Benefits and Contributions

 

Eligible participants, as defined, include employees of the Bank who have attained the age of 18 amended for the plan year 2014 from the attained age of 21 during the previous plan year. Eligible participants can begin making contributions after three months of employment. Participants are eligible to receive employer matching and discretionary contributions when they have completed three months of service, as defined. Benefits are determined based on accumulated participants' and employer's contributions and related investment earnings or losses on those contributions. The participant can contribute up to 75% of base compensation, as defined, subject to legal limitations. The employer’s safe harbor basic matching contributions are equal to 100% of the participants' contributions, up to 3% of eligible compensation and 50% of the participant’s contributions for the next 2% of eligible compensation, as defined.  Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans.

 

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Forfeitures

 

Any forfeited amounts reduce the employer's contributions to the Plan. At December 31, 2014 and 2013, forfeited non-vested accounts amounted to $5,468 and $123 respectively.   For the years ended December 31, 2014 and 2013, there were $123 and $1,042 of forfeited non-vested account balances, respectively, which were used to reduce the employer’s contributions to the Plan. These forfeited balances were related to participants who enrolled in the Plan prior to January 1, 2006.

 

Vesting

 

All participants are fully vested in their voluntary contributions and related investment earnings or losses. Beginning on January 1, 2006, Unity Bank’s 401(k) plan became a “Safe Harbor Plan” which means employer matching contributions made from that date forward are automatically vested.  Employer matching contributions made prior to January 1, 2006 are 100% vested after completing six years of service.

 

Participant Accounts

 

Each participant’s account is credited with the participant’s contribution and an allocation of (a) the Company’s contribution and (b) Plan earnings, and charged with an allocation of administrative expenses.  Allocations are based on participant earnings or account balances, as defined.  The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

 

Funding

 

Employee contributions are funded through biweekly payroll deductions, and employer matching is funded each pay period.

 

 

Payment of Benefits

 

Upon normal retirement at age 62 or termination of employment, a participant may elect to receive a lump-sum amount equal to his or her vested account balance at termination date, various annuity options, or, by agreement with the plan administrator, a lump-sum payment at any date prior to the April 1 following the taxable year he or she attains, or would have attained, age 59-1/2. The benefit to which a participant is entitled is the benefit which can be provided from the participant's vested account balance.

 

 

 

Employees participating in the Plan are eligible to receive loans from the Plan. Loans that are granted to the participant are subject to the following conditions:

 

 

The interest rates on loans are at reasonable rates of interest based on interest rates that institutions in the business of making loans would charge under similar circumstances, currently prime plus 1.0% which was 4.25% at December 31, 2014.  The loans are secured by the balance in the participant’s account.  Loans are repaid (principal and interest) and added back to the participant account balances generally through regular after-tax payroll deductions.

 

 

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Although it has not expressed any intent to do so, the employer has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will fully vest and receive the value of their accounts as a lump-sum distribution.

 

 

 

The Plan adopted a volume submitter plan in August 2003 intended to meet the form requirements of Internal Revenue Code Section 401(a).  The employer had not applied for a determination letter.  Plan management believes that that the Plan was designed and had operated in compliance with the applicable provisions of the Internal Revenue Code.   

 

Effective October 2014, the Plan adopted a prototype plan as a result of a change of the administrative functions of the Plan. Accordingly, the Plan meets the form requirements of Internal Revenue Code Section 401(a). The employer has not applied for a determination letter.  Plan management believes that that the Plan is currently designed and being operated in compliance with the applicable provisions of the Internal Revenue Code.  Therefore, no provision for income taxes has been included in the Plan’s financial statements.

 

Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service.  The plan administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2014, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements.  The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.  The plan administrator believes it is no longer subject to income tax examinations for years prior to 2011.

 

 

 

The Plan follows FASB ASC Topic 820, “Fair Value Measurement and Disclosures,” which requires additional disclosures about the Plan’s assets that are measured at fair value.   Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  In determining fair value, the Plan uses various methods including market, income and cost approaches.  Based on these approaches, the Plan may utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable inputs.  The Plan utilizes techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  Based on the observability of the inputs used in valuation techniques, the Plan is required to provide information according to the fair value hierarchy.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed as follows:

 

 Level 1 Inputs:

 

 Level 2 Inputs:

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Level 3 Inputs:

The following is a description of the valuation methodologies used for assets measured at fair value:

 

Short-term money market instruments:

Short-term money market instruments are stated at amortized cost, which approximates fair value.

 

Unity Bancorp, Inc. stock fund: 

This is comprised of Unity Bancorp, Inc. common stock which is traded on NASDAQ and valued at its quoted market price at the daily close.  The fund is valued at the net asset value ("NAV") of the units of stock, cash, interest, accrued dividends and administrative fees.

 

Common collective trusts: 

Common collective trusts are valued at the NAV of shares held by the plan at year-end.  The NAV is derived from each Fund's audited financial statements and not published prices.  This category is further broken down into the following types of funds:

 

Stable Value fund:

The fund invests in a variety of investment contracts such as guaranteed investment contracts ("GIC's") issued by insurance companies and other investment products ("synthetic GIC's") with similar characteristics, in addition to similar investments in short-term investments and U.S. Treasury notes.

 

Mutual funds

Mutual funds are valued at the daily closing price as reported by the fund.  Mutual funds held by the Plan are open-end mutual funds that are registered with the SEC.  These funds are required to publish their daily net asset value (“NAV”) and to transact at that price.  The mutual funds held by the Plan are deemed to be actively traded. 

 

Guaranteed interest contract

The guaranteed interest account is a stable value investment with a guaranteed rate of return and a guarantee of principal that is insured. Value is based on a market value formula as defined under the terms of the contract. There is no observable price.

 

 

 

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The following tables present, by level within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2014 and December 31, 2013: 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Qualitative Information about Significant Unobservable Inputs Used In Level 3 Fair Value Measurements

 

Level 3 assets include a Stable Value Fund which uses net asset value (“NAV”) as a practical expedient to estimate fair value.  Consequently it is subject to ASU 2009-12  “Fair Value Measurements and Disclosures (ASC Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” and not the Level 3 quantitative disclosures required under ASU 2011-04 “Fair Value Measurement.”

 

Guaranteed interest contracts are principally valued using a market value formula approach. The estimated fair value of the contract is determined to be the calculated market value of the contract using the following unobservable inputs:

 

 

Quanitative Information about Significant Unobservable Inputs Used In Level 3 Fair Value Measurements

 

The following table presents certain quantitative information about the significant unobservable inputs used in the Level 3 fair value measurements of the guaranteed interest contract as of December 31, 2014:

 

 

 

Sensitivity to Changes in Unobservable Inputs

 

A description of the sensitivity of the estimated fair value to changes in significant unobservable inputs for assets measured at fair value on a recurring basis within Level 3 of the fair value hierarchy is as follows:

 

 

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The following tables set forth additional disclosures of the Plan’s investments whose fair value is estimated using net asset value per share (or its equivalent) as of December 31, 2013:

 

 

 

 

 

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For the year ended December 31, 2014, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value as follows:

 

 

 

The following table represents the individual investments, which exceed 5% of the Plan’s net assets as of December 31, 2014 and 2013:

 

 

 

 

The following is a reconciliation of net assets available for benefits per the Plan’s financial statements to the Form 5500:

 

 

 

 

 

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In 2014, the Plan entered into a fully benefit-responsive guaranteed investment contract with Mass Mutual Insurance Company (“Mass Mutual.”)  Mass Mutual maintains the contributions in a general account.  The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses.  The guaranteed investment contract is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.

 

Because the guaranteed investment contract is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract.  The guaranteed investment contract is presented on the face of the statement of net assets available for benefits at fair value with an adjustment to contract value in arriving at net assets available for benefits.  Contract value, as report to the Plan by Mass Mutual, represents contributions made under the contract, plus earnings, less participant withdrawals, and administrative expenses.  Participants may ordinarily direct withdrawal or transfer of all or a portion of their investment at contract value.

 

There are no reserves against contract value for credit risk of the contract issuer or otherwise.  The fair value of the investment at December 31, 2014 was $849,671.  The crediting interest rate is based on a formula agreed upon with the issuer, but it may not be less than 1.0 percent.  Such interest rates are reviewed on a quarterly basis for resetting.

 

Certain events limit the ability of the Plan to transact at contract value with the issuer.  Such events include: (1) amendments to the Plan documents (including complete or partial Plan termination or merger with another plan), (2) changes to the Plan’s prohibition on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-off of a subsidiary) that cause a significant withdrawal from the Plan, or (4) the failure of the trust to qualify for exemption from federal income taxes or any require prohibited transaction exemption under ERISA.  The Plan administrator believes that any events that would limit the Plan’s ability to transact at contract value with participants are probable of not occurring.

 

The guaranteed investment contract does not permit the insurance company to terminate the agreement prior to the scheduled maturity date.

 

The average yields earned by the guaranteed investment contract for 2014 are as follows:

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UNITY BANK

Employees’ Savings and Profit Sharing Plan and Trust

Schedule H, Line 4(i) - Schedule of Assets

(Held at End of Year)

December 31, 2014

 

 

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SIGNATURE OF PLAN ADMINISTRATOR

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

UNITY BANK

Date: June 29, 2015

 

 

 

By:

 

/s/     Alan J. Bedner, Jr.     

Alan J. Bedner, Jr.

Plan Administrator

EVP and Chief Financial Officer

 

 

 

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EXHIBIT INDEX

 

 

 

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