Unity pays $650G for CEO probe

The Star-Ledger, January 19th, 2003

The Star-Ledger Archive COPYRIGHT © The Star-Ledger 2003

Date: 2003/12/19 Friday Page: 033 Section: BUSINESS Edition: FINAL Size: 761 words

Unity pays $650G for CEO probe

Vouchers in question worth less than $15,000

By SAM ALI STAR-LEDGER STAFF

The fate of embattled Unity Bancorp Chief Executive Anthony Feraro remains unclear.

But following a nearly month-long probe by the Clinton-based bank into questionable expense vouchers submitted by Feraro, one thing is clear: Unity, which operates 13 branches in central New Jersey, has so far spent $650,000 on the investigation, according to a filing with the Securities and Exchange Commission.

Unity's chief financial officer, James Hughes, said the bank's board of directors met yesterday to discuss the findings of the expense account inquiry, but had not yet reached a conclusion regarding Feraro's employment. Last month, Feraro agreed to take a leave of absence pending the outcome of the probe.

While the bank would not comment on the details of Feraro's expense account audit, Hughes confirmed the amount in question was less than $15,000. Three sources close to the investigation described the amount as inconsequential.

"The issue, however, was not focused on the expenses per se, but why they were even made (by Feraro) in the first place," Hughes said. "And if this request was made, we now needed to go back and look at all financial transactions made by Mr. Feraro."

In a brief telephone interview yesterday, Feraro, who joined the bank three years ago at a time when Unity was hemorrhaging money and plagued by declining profits, was adamant he would be vindicated.

"They've turned up absolutely nothing," he said. Last month, the state Department of Banking and Insurance confirmed it also was looking into the matter. Yesterday, a department spokesman would not comment on the status of that inquiry.

According to Hughes, Unity's independent auditors, KPMG, "mandated" an expense account audit after the bank brought Feraro's vouchers to their attention during a review of third-quarter financial results.

KPMG refused to certify the financial results as a required by Nasdaq listing standards until the inquiry was completed - a delay that could result in an automatic delisting of Unity's stock from Nasdaq.

Unity requested an arbitration hearing with Nasdaq, scheduled for Dec. 22 in Washington, D.C., to explain the delay and get an extension.

Yesterday, KPMG certified the bank's financial results in a regulatory filing with the SEC, and Unity asked Nasdaq to cancel the arbitration hearing since it is now in full compliance with listing standards, Hughes said.

Nasdaq declined to comment on the Unity case.

Feraro said yesterday he did not know if he would be returning to the bank.

"It's going to be up to the board," he said.

The 56-year-old career banker said his record speaks for itself. Feraro was hired in November 2000 to clean up Unity's finances after the $460 million-asset bank landed in hot water with regulators.

Unity was founded in 1991 through the purchase of two branches of a failed savings and loan, First Atlantic Bank. Its troubles started in 1998 after it drained its capital by expanding too quickly into Middlesex and Union counties, doubling its branch network in a short period of time.

"I think all the public has to do is look at the bank four years ago and look at the bank today and make their own conclusions," said Feraro, a native of Bound Brook who previously worked at Zion's First National Bank in St. Louis as executive vice president.

"When I arrived, the stock was trading at $1.90 and they were losing $5 million a year. Today, the stock is trading at $11.27 and up through the third quarter of 2003 (the bank) had earned $3.6 million. So I've never lost money for the bank."

During his tenure, Unity has boosted its revenue and profits and watched its stock skyrocket by nearly 490 percent.

In 2002, the bank was officially given a clean bill of health by state and federal regulators.

Until Feraro's fate is determined, David Dallas, 47, the bank's chairman, will stay on as interim CEO, Hughes said.

Last month, Unity reported third-quarter net income of $1.3 million, or 23 cents a diluted share, a 35.3 percent increase over the year-ago period. It was the bank's 15th consecutive quarter of improved operating results.

Those numbers will not be impacted by the Feraro inquiry, Hughes said. The $650,000 audit bill will be recognized in the fourth quarter of 2003, he said. And the $5,000 fee Unity had to pay in order to schedule an arbitration hearing with Nasdaq is non-refundable.

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