UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to
_______________.
Commission file number 0-16637
BROAD NATIONAL BANCORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2395057
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
905 Broad Street, Newark, New Jersey 07102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(201) 624-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $1.00 per share
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the 3,343,066 shares of voting
stock of the Registrant held by non-affiliates of the Registrant
on February 28, 1997, computed by reference to the closing sale
price of such stock as reported on NASDAQ, was approximately
$46,803,000. As of February 28, 1997, there were 4,654,688
shares of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference
into the indicated parts of this report: definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders to be filed
with the Commission pursuant to Regulation 14A - Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
BUSINESS OF BANCORPORATION
GENERAL
Broad National Bancorporation ("Bancorporation") is a
bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). Although Bancorporation
was incorporated under the laws of the State of New Jersey on
April 7, 1981, it did not engage in any business activity until
February 1, 1983. On that date, it acquired all of the issued
and outstanding capital stock of Broad National Bank, a national
banking association (the "Bank") pursuant to a corporate
reorganization involving an exchange of shares. Bancorporation's
activities currently are limited to ownership of the outstanding
capital stock of the Bank and to performing certain services for
the Bank. Except as otherwise provided herein, references herein
to "Bancorporation" include Bancorporation and its consolidated
subsidiaries.
Bancorporation's principal executive offices are
located at 905 Broad Street, Newark, New Jersey 07102, and its
telephone number is (201) 624-2300.
DESCRIPTION OF BUSINESS
BANCORPORATION
Bancorporation is a bank holding company registered
under the BHC Act. Bancorporation's activities currently are
limited to ownership of the outstanding capital stock of the Bank
and to performing certain services for the Bank.
THE BANK
The Bank is a national banking association organized in
1925 under the laws of the United States with offices in Newark
(7 offices), East Orange, Millburn, North Arlington, Livingston,
Perth Amboy, Kearny and Elizabeth (2 offices), New Jersey. The
Bank is a full service commercial bank and offers a broad range
of commercial and retail banking services. It offers checking
accounts, savings accounts, money market accounts and individual
retirement accounts (IRAs), as well as various other types of
time deposits which are insured by the Bank Insurance Fund
("BIF") administered by the Federal Deposit Insurance Corporation
("FDIC") to the full extent provided by law. The Bank also
provides typical bank services such as cashiers checks, United
States Savings Bonds and travelers checks. The Bank had total
deposits of $429,681,000 as of December 31, 1995 and of
<PAGE>
$485,073,000 as of December 31, 1996. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operation."
The Bank originates and services both secured and
unsecured loans which totaled $259,728,000 as of December 31,
1995 and $278,585,000 as of December 31, 1996, in each case, net
of deferred loan fees and the allowance for possible loan losses.
Commercial lending operations include various types of credit for
the Bank's commercial and industrial customers. The Bank's
installment loan department makes direct loans to individuals.
The Bank's mortgage loan department makes a variety of
residential, industrial, and commercial loans secured by real
estate. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation."
The Bank also provides agency and custody services for
individuals and institutional accounts, serves as fiscal and
paying agent, and as escrow agent. The Bank has trust powers
which permit it to administer trusts and estates, although the
Bank has no trust accounts at this time.
The Bank currently has fourteen branch banking
facilities in addition to its main location. See "Item 2.
Properties."
EMPLOYEES
Bancorporation and the Bank have approximately 191
full-time employees and 27 part-time employees. Neither
Bancorporation nor the Bank is a party to any collective
bargaining agreement and employee relations are deemed to be
satisfactory.
SERVICE AREA AND COMPETITION
The principal market is defined as all of Essex County,
the southern quadrant of Bergen County, the northeast quadrant of
Union County and the northeast quadrant of Middlesex County, New
Jersey. This market area is highly competitive with many banks
and financial institutions vying for the same business. Most of
the Bank's competitors are institutions of far greater size and
the Bank's deposits constitute less than one percent of the
commercial bank deposits in its market area.
The Bank encounters intense competition in local and
national markets from non-banking as well as banking sources in
all of its activities, including many competitors which have
substantially greater resources, name recognition and market
presence than the Bank. As a lender it competes not only with
other banks but also with savings and loan associations, savings
banks, credit unions, finance companies, mortgage companies,
<PAGE>
factoring companies, insurance companies, and other financial
institutions, many of which have higher legal lending limits. It
competes for deposits with other banks, savings banks, savings
and loan associations, credit unions, mutual funds, money market
funds, and issuers of commercial paper and other securities.
Such competition is particularly intense from the Bank's Newark,
New Jersey-based competitors. Trends toward the consolidation of
the banking industry may make it more difficult for smaller banks
and financial institutions, such as the Bank, to compete with
large, national and regional banking institutions.
SUPERVISION AND REGULATION
FEDERAL BANK HOLDING COMPANY ACT
GENERAL. Bancorporation is a registered bank holding
company within the meaning of the BHC Act, subject to the
supervision of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). Bancorporation is required
to file with the Federal Reserve Board an annual report and such
other additional information as the Federal Reserve Board may
require pursuant to the BHC Act. Also, the Federal Reserve Board
periodically examines Bancorporation. The Federal Reserve Board
has authority to issue cease and desist orders against bank
holding companies if it determines that their actions represent
unsafe and unsound practices or violations of law. In addition,
the Federal Reserve Board is empowered to impose substantial
civil money penalties for violations of banking statutes and
regulations. Regulation by the Federal Reserve Board is intended
to protect depositors of the Bank, not shareholders of
Bancorporation.
SOURCE OF STRENGTH. Federal Reserve Board policy
requires a bank holding company to serve as a source of financial
and managerial strength to its subsidiary banks. Under this
policy, a bank holding company is expected to stand ready to use
its available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity,
and to maintain resources and the capacity to raise capital which
it can commit to its subsidiary banks. It is the Federal Reserve
Board's position that the failure of a bank holding company to
serve as a source of strength to a distressed subsidiary bank is
an unsafe and unsound banking practice. This has become known as
the "source of strength doctrine." It is not clear whether the
source of strength doctrine is legally enforceable by the Federal
Reserve Board.
LIMITATION ON ACQUISITIONS. The BHC Act requires every
bank holding company to obtain the prior approval of the Federal
Reserve Board before (i) taking any action that causes a bank to
become a controlled subsidiary of the bank holding company, (ii)
acquiring direct or indirect ownership or control of voting
<PAGE>
shares of any bank or bank holding company, if the acquisition
results in the acquiring bank holding company having control of
more than 5% of the outstanding shares of any class of voting
securities of such bank or holding company and such bank or bank
holding company is not majority-owned by the acquiring bank
holding company prior to the acquisition, (iii) the acquisition
by a bank holding company or any nonbank subsidiary thereof of
all or substantially all of the assets of a bank, or (iv) a
merger or consolidation with another bank holding company.
In determining whether to approve a proposed
acquisition, merger or consolidation, the Federal Reserve Board
is required to take into account the competitive effects of the
proposed acquisition, the convenience and needs of the community
to be served, and the financial and managerial resources and
future prospects of the bank holding companies and banks
concerned. If a proposed acquisition, merger or consolidation
might have the effect in any section of the United States to
substantially lessen competition or to tend to create a monopoly,
or if such proposed acquisition, merger, or consolidation
otherwise would be in restraint of trade, then the Federal
Reserve Board may not approve it unless it finds that the
anticompetitive effects are clearly outweighed in the public
interest by the probable effect of the proposed transaction in
meeting the convenience and needs of the community to be served.
Bancorporation has no current plans to acquire any interest in
the voting stock or assets of any bank or other financial
institution, although such an acquisition may be considered in
the future.
LIMITATION ON CERTAIN ACTIVITIES. The BHC Act also
prohibits a bank holding company, with certain exceptions, from
engaging in, and from acquiring direct or indirect ownership or
control of the voting shares or assets of any company engaged in
any activity other than banking or managing or controlling banks,
and any activity which the Federal Reserve Board determines to be
so closely related to banking, or managing or controlling banks,
as to be a proper incident thereto. In acting on an application
to engage in such an activity, the Federal Reserve Board is
required to weigh the expected benefits to the public, such as
greater convenience, increased competition or gains in
efficiency, against the risks of possible adverse effects, such
as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
This consideration includes an evaluation of the financial and
managerial resources of the applicant, including its
subsidiaries, and any company to be acquired, and the effect of
the proposed transaction on those resources.
To date, the Federal Reserve Board, by regulation, has
determined that, subject to expressed limitations, certain
activities are permissible for bank holding companies and their
<PAGE>
subsidiaries and may be engaged in upon notice to the Federal
Reserve Board without prior approval. These permissible
activities include furnishing or providing services for the
internal operations of the bank holding company and its
subsidiaries, operating a safe deposit business, making and
servicing loans, operating an industrial bank, performing certain
trust company functions, acting as an investment or financial
advisor in certain capacities, leasing certain real or personal
property, making certain investments to promote community
development, providing certain data processing services,
performing certain insurance agency and underwriting functions,
owning, controlling and operating a savings association,
providing specified courier services, providing management
consulting advice to nonaffiliated banks and nonbank depository
institutions, selling certain money orders, United States savings
bonds and traveler's checks, performing appraisals of real and
personal property, arranging certain commercial real estate
equity financing, providing certain securities brokerage
services, underwriting and dealing in certain government
obligations and money market instruments, providing foreign
exchange advisory and transactional services, acting as a futures
commission merchant, providing investment advice on financial
futures and options on futures, providing consumer financial
counseling, providing tax planning and preparation services,
providing certain check guaranty services, operating a collection
agency and operating a credit bureau.
The Federal Reserve Board has also determined that
certain other activities, including real estate brokerage and
syndication, land development, property management, management
consulting, underwriting of life insurance not sold in connection
with a credit transaction, and insurance premium funding are
improper activities for bank holding companies and their
subsidiaries. In the future the Federal Reserve Board may take
additional actions adding and refusing to add particular
activities to the list of activities that the Federal Reserve
Board deems to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Certain
bank holding companies and their subsidiaries possess
"grandfather rights" giving them authority to engage in one or
more of the activities which are not generally permissible
because they were engaged in such activities prior to the
adoption of legislation restricting such activities.
Under cross-guaranty provisions of the Federal Deposit
Insurance Act (the "FDIA"), bank subsidiaries of a bank holding
company are liable for any loss incurred (or reasonably
anticipated to be incurred) by the Bank Insurance Fund (the
"BIF"), the federal deposit insurance fund for banks, in
connection with the failure of any other bank subsidiary of the
bank holding company. Liability under such cross-guaranty would
be junior to deposit liabilities and most secured obligations,
<PAGE>
but senior to obligations to shareholders and most obligations to
affiliates. The Federal Deposit Insurance Corporation (the
"FDIC") has authority to prospectively waive the cross-guaranty
provision. Currently the Bank is the only subsidiary of
Bancorporation.
A bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit or the lease or sale of
any property or the furnishing of services. Subsidiary banks of
a bank holding company are also subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or
investment in the stock or other securities thereof, and on the
taking of such stocks or securities as collateral for loans.
REGULATORY CAPITAL REQUIREMENTS. The Federal Reserve
Board has promulgated "capital adequacy guidelines" for use in
its examination and supervision of bank holding companies. A
holding company's ability to pay dividends and expand its
business through the acquisition of new banking subsidiaries can
be restricted if its capital falls below levels established by
these guidelines. In addition, holding companies whose capital
falls below specified levels can be required to implement a plan
to increase capital.
The Federal Reserve Board's capital adequacy guidelines
provide for the following types of capital: Tier 1 capital (also
referred to as core capital), Tier 2 capital (also referred to as
supplementary capital), Tier 3 capital (consisting of short-term
subordinated debt that meets certain conditions and used only in
the measure of market risk, as discussed below) and Total
capital. A bank holding company's Tier 1 capital generally
includes the following elements: common shareholders' equity
(excluding unrealized gain (loss) on securities available-for-sale),
qualifying noncumulative perpetual preferred stock and
related surplus, qualifying cumulative perpetual preferred stock
and related surplus (limited to a maximum of 25% of Tier 1
capital elements) and minority interests in the equity accounts
of consolidated subsidiaries. Goodwill is generally excluded
from Tier 1 capital. Most intangible assets also are deducted
from Tier 1 capital. A bank holding company's Tier 2 capital
generally includes allowances for loan and lease losses (limited
to 1.25% of risk-weighted assets), most perpetual preferred stock
and any related surplus (noncumulative and cumulative, without
percentage limits), certain hybrid capital instruments, perpetual
debt and mandatory convertible debt securities, and certain
intermediate-term preferred stock and intermediate-term
subordinated debt instruments (to a maximum of 50% of Tier 1
capital excluding goodwill, but phased-out as the instrument
matures). The maximum amount of supplementary capital that
qualifies as Tier 2 capital is limited to 100% of Tier 1 capital
<PAGE>
(net of goodwill). For purposes of calculating the total
risk-based capital ratio, Total capital generally includes Tier 1
capital, plus qualifying Tier 2 capital, minus investments in
unconsolidated subsidiaries, reciprocal holdings of bank holding
company capital securities, certain deferred tax assets and other
deductions as determined by the Federal Reserve Board.
The Federal Reserve Board issued a regulation that
limits the amount of intangible assets which may be included in
Tier 1 capital. Under the regulation, mortgage servicing rights
("MSRs") and purchased credit card relationships ("PCCRs") would
be included in Tier 1 capital to the extent that, in the
aggregate, they do not exceed 50% of Tier 1 capital and, to the
further extent that PCCRs, individually, do not exceed 25% of
Tier 1 capital. MSRs and PCCRs in excess of these limits, as
well as core deposit intangibles ("CDI") and all other identified
intangible assets, must be deducted in determining Tier 1
capital. As of December 31, 1996, Bancorporation did not have
MSRs, PCCRs, CDIs or other identified intangible assets.
The Federal Reserve Board's capital adequacy guidelines
require a bank holding company to satisfy a Tier 1 Leverage
Ratio, a total risk-based capital ratio and a Tier 1 risk-based
capital ratio. Under the Tier 1 Leverage Ratio capital
guideline, a bank holding company must have and maintain Tier 1
capital in an amount equal to at least 3.0% of its average total
consolidated assets. In general, average total consolidated
assets means the quarterly average total assets (net of the
allowance for loan and lease losses) reported on a bank holding
company's Consolidated Financial Statements (FR Y-9C Report),
minus goodwill and any other intangible assets or investments in
subsidiaries which are deducted from Tier 1 capital. The 3.0%
minimum Tier 1 Leverage Ratio is considered the absolute minimum
amount of Tier 1 capital which the most highly rated bank holding
companies (those rated composite 1 under the BOPEC rating system
for bank holding companies) are required to maintain. All other
bank holding companies must maintain a minimum Tier 1 Leverage
Ratio of 3.0% plus an additional cushion of at least 100 to 200
basis points.
Under the Federal Reserve Board's capital adequacy
guidelines, a bank holding company must have and maintain a ratio
of Total capital to risk-weighted assets of 8.00%, and a ratio of
Tier 1 capital to risk-weighted assets of 4.00%. The amount of a
bank holding company's risk-weighted assets is determined by
multiplying the balance sheet amount of each of the bank holding
company's consolidated assets by a specified risk-weight factor
of 0%, 20%, 50% or 100%, in accordance with the relative risk
level of the asset. In determining risk-weighted assets, off-
balance sheet items, such as standby letters of credit, are
converted to an on-balance sheet credit equivalent amount by
multiplying the face amount of the off-balance sheet item by a
<PAGE>
credit conversion factor of 0%, 20%, 50% or 100%, in accordance
with the probability that the off-balance sheet item will become
a credit extended by the bank holding company. In general,
intangible assets and other assets which are deducted in
determining Tier 1 capital and Total capital must also be
excluded from risk-weighted assets.
The Federal Reserve Board has proposed to permit
portions of claims (including repurchase agreements)
collateralized by cash on deposit with the lending institution or
by securities issued or guaranteed by the U.S. Treasury, U.S.
government agencies, or the central governments in other OECD
countries to be eligible for a zero percent risk weight. The
effect of this proposal is to allow banks and bank holding
companies to hold less capital for these types of collateralized
transactions.
On September 6, 1996, the Federal Reserve Board amended
its credit risk-based capital standards to incorporate a measure
for market risk to cover all positions located in an
institution's trading account and foreign exchange and commodity
positions wherever located. The new regulation applies to any
bank or bank holding company (i) whose trading activity equals
10% or more of its total assets or (ii) whose trading activity
equals $1 billion or more. By January 1, 1998, each of these
institutions must use its own internal value-at-risk model to
measure its exposure to market risk and hold capital in support
of that exposure. The regulation does not mandate a standardized
approach for measuring general market risk. However, the
regulation does retain the standardized approach methodologies
for determining capital charges for specific risk, which an
institution must use as its basis for its specific risk charge
for debt and equity positions in its trading account. The
regulation supplements the existing credit risk-based capital
standards by requiring an affected institution to adjust its
risk-based capital ratio to reflect market risk. In measuring
market risk, institutions may use Tier 3 capital to meet the
market risk capital requirements. Tier 3 capital is subordinated
debt that is unsecured, fully paid up, has an original maturity
of at least two years, is not redeemable before maturity without
the prior approval of the institution's supervisor, is subject to
a lock-in clause that prevents the issuer from repaying the debt
even at maturity if the issuer's capital ratio is, or with
repayment, would become, less than the minimum 8% risk-based
capital ratio, and does not contain and is not covered by any
covenants, terms or restrictions that may be inconsistent with
safe and sound banking practices.
On December 31, 1996, Bancorporation was in compliance
with all of the Federal Reserve Board's capital guidelines. On
such date, Bancorporation had a Tier 1 Leverage Ratio of 6.92%
(compared with a requirement of 4% to 5%), and a ratio of total
<PAGE>
capital to risk-weighted assets of 12.44% (compared with a
requirement of 8%) and a ratio of Tier 1 capital to risk-weighted
assets of 11.17% (compared with a requirement of 4%). There can
be no assurance, however, that Bancorporation will remain in
compliance with regulatory capital requirements. For additional
information on Bancorporation capital, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Shareholders' Equity."
LIMITATION ON INCURRED DEBT. Bancorporation currently
has no plans to incur any indebtedness. If Bancorporation
determines to do so in the future, it will be subject to the
general statutory and regulatory restrictions and, in addition,
to certain commitments made by it to the Federal Reserve Board at
the time Bancorporation received approval to become a bank
holding company. One such commitment which remains in effect is
an agreement by Bancorporation that it will not incur debt
without the prior approval of the Federal Reserve Bank of New
York. In the past, Bancorporation, with the approval of the
Federal Reserve Bank of New York, has incurred indebtedness for
the purpose of augmenting the Bank's capital to support growth.
INTERSTATE BANKING AND BRANCHING. Under the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act"), bank holding companies may acquire the stock
or substantially all of the assets of banks located in any state
regardless of whether such transaction is prohibited under the
laws of any state. The Federal Reserve Board, however, may not
approve an interstate acquisition if as a result of the
acquisition the bank holding company would control more than 10%
of the total amount of insured deposits in the United States or
would control more than 30% of the insured deposits in the home
state of the acquired bank. The 30% of insured deposits state
limit does not apply if the acquisition is the initial entry into
a state by a bank holding company or if the home state waives
such limit.
Under the Riegle-Neal Act, individual states may
restrict interstate acquisitions in two ways. First, a state may
prohibit an out-of-state bank holding company from acquiring a
bank located in the state unless the target bank has been in
existence for a specified minimum period of time (not to exceed
five years). Second, a state may establish limits on the total
amount of insured deposits within the state which are controlled
by a single bank holding company (a "deposit cap"), provided that
such deposit limit does not discriminate against out-of-state
bank holding companies.
The Riegle-Neal Act now permits affiliated banks in
different states to act as agents for each other for purposes of
receiving deposits, renewing time deposits, closing loans,
servicing loans and receiving payments on loans and other
<PAGE>
obligations. A bank acting as an agent for an affiliated bank is
not considered a branch of the affiliated bank.
Beginning on June 1, 1997, the Riegle-Neal Act
authorizes interstate branching by a merger of banks with
different home states which results in a single bank with
branches in both states. The Riegle-Neal Act gives states the
right to "opt out" and prohibit interstate mergers by passing
legislation before June 1, 1997 that expressly prohibits all
merger transactions with out-of-state banks. The Riegle-Neal Act
also gives states the right to "opt in" and authorize early
interstate mergers by passing legislation that expressly permits
interstate merger transactions with all out-of-state banks. The
Riegle-Neal Act authorizes banks to establish and operate a de
novo branch in a state (other than the bank's home state) only if
the host state "opts in" to authorize de novo interstate banking
by passing legislation that expressly permits all out-of-state
banks to establish de novo branches in the state. As of March 1,
1997, approximately 43 states have opted into the Riegle-Neal
Act. Only one state, Texas, has opted out. The states of New
Jersey, New York, Connecticut, Pennsylvania, Delaware and
Maryland have opted into the Riegle-Neal Act, and of those
states, Connecticut, Pennsylvania, and Maryland permit de novo
interstate branching for banks located in any state which enacts
a reciprocal statute.
STATE BRANCHING LIMITATIONS
In general, New Jersey law permits a bank, with prior
regulatory approval, to establish a full branch office, a
mini-branch office or a communications terminal branch office
anywhere in the State. A bank, however, generally may not
establish a full branch office or a mini-branch office (except in
connection with a bank merger or an acquisition from a bank in
liquidation or in danger of liquidation) in a municipality, other
than in the municipality in which it maintains its principal
office, which has a population of less than 10,000 and in which
another banking institution maintains its principal office. For
this purpose the principal office of a bank that is a subsidiary
of a bank holding company which controls two or more banking
institutions is deemed to be a branch office.
FEDERAL BANK REGULATION
GENERAL. As a national bank, the Bank is subject to
regulation and examination primarily by the Office of the
Comptroller of the Currency (the "OCC"). The Bank is also
regulated by the Federal Reserve Board and the FDIC. Regulation
by these agencies is designed to protect depositors of the Bank
rather than shareholders of Bancorporation. The OCC has the
authority to issue cease and desist orders if it determines that
activities of the Bank represent unsafe and unsound banking
<PAGE>
practices or violations of law. In addition, the OCC is
empowered to impose substantial civil money penalties for
violations of banking statutes and regulations.
REGULATORY CAPITAL REQUIREMENTS. The OCC has adopted
minimum capital requirements applicable to national banks which
are substantially similar to the capital adequacy guidelines
established by the Federal Reserve Board for bank holding
companies. There are, however, technical differences in the
methodologies used to calculate the capital ratios.
On December 31, 1996, the Bank was in compliance with
all of the OCC's minimum capital requirements. On such date, the
Bank had a Tier 1 Leverage Ratio of 6.82% (compared with a
requirement for the Bank of 4% to 5%), and a ratio of Total
capital to risk-weighted assets of 12.26% (compared with a
requirement of 8%), and a ratio of Tier 1 capital to
risk-weighted assets of 11.00% (compared with a requirement of
4%).
CLASSIFICATION OF BANKS. Federal banking laws classify
financial institutions in one of the following five categories,
depending upon the amount of their capital: well-capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized or critically undercapitalized. Under OCC
regulations, a bank is deemed to be (i) "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, a Tier 1
risk-based capital ratio of 6% or greater and a Tier 1 leverage
ratio of 5% or greater (and is not subject to any order or
written directive specifying any higher capital ratio), (ii)
"adequately capitalized" if it has a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater and a Tier 1 leverage ratio of 4% or greater (or a
Tier 1 leverage ratio of 3% or greater, if the bank has a CAMEL
rating of 1), (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8%, a Tier 1
risk-based capital ratio that is less than 4% or a Tier 1
leverage ratio that is less than 4% (or a Tier 1 leverage ratio
that is less than 3%, if the bank has a CAMEL rating of 1), (iv)
"significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6%, a Tier 1 risk based capital
ratio that is less than 3% or a Tier 1 leverage ratio that is
less than 3%, and (v) "critically undercapitalized" if it has a
Tier 1 leverage ratio that is equal to or less than 2%. Federal
banking laws require the federal regulatory agencies to take
prompt corrective action against undercapitalized financial
institutions. Under OCC regulations, the Bank was a well
capitalized institution as of December 31, 1996.
DEPOSIT INSURANCE AND ASSESSMENTS. The deposits of the
Bank are insured by the BIF administered by the FDIC, in general,
to a maximum of $100,000 per insured depositor. Under FDIA and
<PAGE>
FDIC regulations, the Bank is required to pay annual assessments
to the FDIC for deposit insurance. The FDIC has adopted a
risk-based assessment system. Under the risk-based assessment
system, BIF members pay varying assessment rates depending upon
the level of the institution's capital and the degree of
supervisory concern over the institution. The assessment rates
are set by the FDIC semiannually. The FDIC's assessment rates
through June 30, 1997 range from zero (0) cents to 31 cents per
$100 of insured deposits. Institutions qualifying for the $0
assessment rate are no longer required to pay the minimum deposit
premium payment of $2,000 annually. As of January 1, 1997, the
Bank's assessment rate was zero cents per $100 of insured
deposits. The FDIC has authority to increase the annual
assessment rate if it determines that a higher assessment rate is
necessary to increase BIF's reserve ratio. There is no cap on
the annual assessment rate which the FDIC may impose.
In addition to any assessments that may be imposed by
the FDIC as described above, the Deposit Insurance Funds Act of
1996 provides for the imposition of annual assessments by the
Financing Corporation on Savings Association Insurance Fund-
assessable deposits and BIF-assessable deposits. These
assessments are scheduled to remain in effect from January 1,
1997 through December 31, 1999. As of January 1, 1997, the
annual assessment rate applicable to the Bank was approximately
1.29 basis points of its assessable deposits.
INTEREST RATES. The rate of interest a bank may charge
on certain classes of loans is limited by state and federal law.
At certain times in the past, these limitations, in conjunction
with national monetary and fiscal policies that affect the
interest rates paid by banks on deposits and borrowings, have
resulted in reductions of net interest margins on certain classes
of loans. Such circumstances may recur in the future, although
the trend of recent federal and state legislation has been to
eliminate restrictions on the rates of interest which may be
charged on some types of loans and to allow maximum rates on
other types of loans to be determined by market factors.
LOANS TO ONE BORROWER. In addition to limiting the
rate of interest chargeable by banks on certain loans, federal
law imposes additional restrictions on a national bank's lending
activities. Under federal law the maximum amount that a national
bank may lend to one borrower (and certain related interests of
such borrower) generally is limited to 15% of the bank's
unimpaired capital and unimpaired surplus, plus an additional 10%
for loans fully secured by readily marketable collateral. There
are certain exceptions to the general rule including loans fully
secured by government securities or deposit accounts in the bank.
As of December 31, 1996, the Bank's lending limit under this
regulation was approximately $6,820,000.
<PAGE>
PAYMENT OF DIVIDENDS. The National Bank Act restricts
the payment of dividends by a national bank as follows: (i) no
dividends may be paid if the bank has no undivided profits or
retained earnings then on hand; (ii) until the surplus fund of
the bank is equal to its capital stock, no dividends may be
declared unless there has been carried to the surplus fund not
less than one-tenth of the bank's net profits of the preceding
half-year period in the case of quarterly or semiannual
dividends, or not less than one-tenth of the net profits of the
preceding two consecutive half-year periods in the case of annual
dividends; and (iii) the approval of the OCC is required if
dividends declared by the bank in any year would exceed the total
of net profits for that year combined with retained net profits
for the preceding two years, less any required transfers to
surplus.
As of December 31, 1996, retained earnings of the Bank
of $6,942,000 were available for payment of dividends to
Bancorporation without regulatory approval. For additional
information on the Bank's capital, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Shareholders' Equity."
COMMUNITY REINVESTMENT ACT. On May 4, 1995, the
Federal Reserve Board, the FDIC and the OCC adopted regulations
relating to the Community Reinvestment Act (the "CRA"). The
purpose of the CRA regulations is to establish the framework and
criteria by which the bank regulatory agencies assess an
institution's record of helping to meet the credit needs of its
community, including low- and moderate-income neighborhoods, and
to provide that the agencies' assessment shall be taken into
account in reviewing certain applications. The regulations seek
to emphasize an institution's performance rather than the
process, to promote consistency in evaluation of institutions,
and to eliminate unnecessary reporting burdens. The regulations
replace the previous twelve assessment factors for large banks
with three tests: (i) a lending test, (ii) a service test, and
(iii) an investment test. While documentation requirements have
been substantially reduced, the safe harbors from CRA protest
have also been eliminated.
OTHER REGULATORY LIMITATIONS. Bancorporation and the
Bank are "affiliates" within the meaning of the Federal Reserve
Act. As such, the amount of loans or extensions of credit which
the Bank may make to Bancorporation or to third parties secured
by securities or obligations of Bancorporation are substantially
limited by the Federal Reserve Act and the FDIA. Such acts
further restrict the range of permissible transactions between a
bank and an affiliated company. A bank and its subsidiaries may
engage in certain transactions, including loans and purchases of
assets, with an affiliated company only if the terms and
conditions of the transaction, including credit standards, are
<PAGE>
substantially the same as, or at least as favorable to the bank
as, those prevailing at the time for comparable transactions with
non-affiliated companies or, in the absence of comparable
transactions, on terms and conditions that would be offered to
non-affiliated companies.
The Bank is also authorized to invest in a service
corporation that can offer the same services as the banking
related services that bank holding companies are authorized to
provide. However, prior regulatory approval must generally be
obtained prior to making such an investment or performing such
services.
BANKING ACTIVITIES. The investments and activities of
the Bank are subject to substantial regulation by the OCC and the
FDIC, including without limitation investments in subsidiaries,
investments for their own account (including limitations on
investments in junk bonds and equity securities), investments in
loans, loans to officers, directors and affiliates, security
requirements, truth-in-lending, community reinvestment, the types
of interest bearing deposit accounts which they can offer, trust
department operations, brokered deposits, audit requirements,
issuance of securities, branching and mergers and acquisitions.
MONETARY POLICY AND ECONOMIC CONDITIONS. The principal
sources of funds essential to the business of banks and bank
holding companies are deposits, shareholders' equity, and
borrowed funds. The availability of these various sources of
funds and other potential sources such as preferred stock or
commercial paper and the extent to which they are utilized depend
on many factors, the most important of which are the monetary
policies of the Federal Reserve Board and the relative costs of
different types of funds.
An important function of the Federal Reserve Board is
to regulate the national supply of bank credit in order to combat
recession and curb inflationary pressures. Among the instruments
of monetary policy used by the Federal Reserve Board to implement
these objectives are open market operations in U.S. Government
securities, changes in the discount rate on bank borrowings, and
changes in reserve requirements against bank deposits.
The Bank is subject to regulations issued by the
Federal Reserve Board which require depository institutions to
maintain non-interest-bearing reserves against their transaction
accounts and non-personal time deposits. These regulations
currently require depository institutions to maintain reserves
equal to 3% of transaction accounts up to $49.3 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8%
and 14%) of the total over $49.3 million. In addition, reserves,
subject to adjustment by the Federal Reserve Board between 0% and
9%, must be maintained on non-personal time deposits. This
<PAGE>
reserve percentage is currently 0%. Depository institutions may
designate and exempt up to $4.4 million of reservable liabilities
from the above reserve requirements. Because these reserves must
generally be maintained in cash or non-interest-bearing accounts,
the effect of the reserve requirements is to increase the cost of
funds to depository institutions. As of December 31, 1996, the
Bank was required to maintain a reserve balance of $9.4 million.
Substantially all of the restrictions on the maximum
interest rates banks are permitted to pay on deposits have been
removed, although banks are still prohibited from paying interest
on demand deposits. Consequently, banks and thrift organizations
are substantially free to pay interest at any rate. Deregulation
has increased competition among such institutions for attracting
deposits and has resulted in an overall increase in such
institutions' cost of funds.
The monetary policies of the Federal Reserve Board have
had a significant effect on the operating results of commercial
banks in the past and are expected to continue to do so in the
future. In view of continuing changes in regulations affecting
commercial banks and other actions and proposed actions by the
Federal government and its monetary and fiscal authorities,
including proposed changes in the structure of banking in the
United States and general economic conditions, no prediction can
be made as to future changes in interest rates, credit
availability, deposit levels, loan demand, or the overall
performance of banks generally and of the Bank and Bancorporation
in particular.
The references in the foregoing discussion to various
aspects of statutes and regulations are merely summaries which do
not purport to be complete and which are qualified in their
entirety by reference to the actual statutes and regulations.
ITEM 2. PROPERTIES.
The main offices of both the Bank and Bancorporation
are located at 905 Broad Street, Newark, New Jersey 07102. The
building, which is owned by the Bank, is a two-story structure
constructed in 1960. It has approximately 18,000 square feet of
usable office space, which currently are used for the Bank's
operations. During 1987, a wholly-owned subsidiary of the Bank
purchased the five-story (approximately 45,000 square feet)
Western Union Building at 909 Broad Street in Newark, New Jersey,
adjacent to its main office. During 1994, the Bank and
Bancorporation increased the amount of space available for the
Bank's use in this building from approximately 55% to 81% of the
building. Approximately 19% of the building is leased to
nonaffiliated companies.
<PAGE>
The Bank currently has fourteen branch banking
facilities as described below in addition to its main location:
Approximate Expiration
Location Square Feet Date of Lease
Plaza Banking Center 5,092 December 31,
745 Broad Street 1998 /1/
Newark, New Jersey
Ironbound Banking Center 4,100 February 28,
7 Wheeler Point Road 1999 /1/
Newark, New Jersey
North Newark Banking Center 3,500 December 31,
466 Bloomfield Avenue 1997 /1/
Newark, New Jersey
Millburn Banking Center 2,600 March 31, 2001
225 Millburn Avenue
Millburn, New Jersey
Gateway III Banking Center 2,076 September 7,
100 Mulberry Street 1999 /1/
Newark, New Jersey
North Arlington Banking Center 1,700 October 7,
65 River Road 1997
North Arlington, New Jersey
Jackson Street Banking Center 10,900 Owned
123-133 Jackson Street
Newark, New Jersey
Bayway Banking Center 3,700 April 30,
1000 South Elmora Avenue 2006 /2/
Elizabeth, New Jersey
Livingston Banking Center 3,450 November 30,
30 W. Mt. Pleasant Avenue 2001 /3/
Livingston, New Jersey
Perth Amboy Banking Center 3,400 August 31,
Convery Plaza, Route 35 1997 /4/
Perth Amboy, New Jersey
East Orange Central 6,070 Owned
Banking Center
554 Central Avenue
East Orange, New Jersey
<PAGE>
Elizabeth Banking Center 3,190 Owned
826 Elizabeth Avenue
Elizabeth, New Jersey
Kearny Banking Center 700 March 31,
180 Schuyler Ave. 2000 /5/
Kearny, New Jersey
East Ferry Office 800 November 30,
290 Ferry Street 2000 /2/
Newark, New Jersey
_______________________
/1/ The Bank has the option to extend the term of the lease for
one additional five year period.
/2/ The Bank has the option to extend the term of the lease for
up to four additional five year periods.
/3/ The Bank has the option to extend the term of the lease for
up to one additional five year period and one additional ten
year period.
/4/ The Bank has the option to extend the term of the lease for
three additional five year periods.
/5/ The Bank has the option to extend the term of the lease for
two additional five year periods.
The Bank also owns an 18,000 square foot building
located at 465 Bloomfield Avenue, Bloomfield, New Jersey. Under
a lease agreement dated August 1993 between the Bank and EDS, all
of the space in the Bloomfield Avenue building is being leased to
EDS, which uses the space to provide data processing services,
related professional services, information processing and related
outsourcing services to the Bank and other financial
institutions.
During 1995, the Bank opened a new full-service banking
center in Kearny, New Jersey and converted its Gateway III
Banking Center to a fully electronic branch, featuring multiple
ATM's and a video banking link. During 1996, the Bank opened a
new full-service banking center in Newark, New Jersey.
Bancorporation neither owns nor leases any property.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Neither Bancorporation nor the Bank is involved in any
material pending legal proceedings, other than routine litigation
incidental to their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of Bancorporation's
shareholders during the fourth quarter of the year ended December
31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of Bancorporation and of the Bank
are elected annually and serve until their successors are elected
and qualified at the next annual meeting of the directors of the
respective corporations. The following table sets forth
information with respect to the executive officers of
Bancorporation and of the Bank.
Position with
Bancorporation
and Bank and Year Principal
Name Age First Elected Occupation /1/
Donald M. Karp 60 Chairman of Position with
the Board of Bancorporation
Bancorporation (1985) and the Bank/2/
and the Bank (1985);
Chief Executive Officer
of Bancorporation (1991)
and the Bank (1991);
Vice Chairman of the
Board of Bancorporation
(1981-1985) and the
Bank (1978-1985);
Director (1972)
John A. Dorman 58 President of Position with
Bancorporation (1992) Bancorporation
and the Bank (1992); and the Bank/3/
Director (1992)
<PAGE>
Fred S. Campo 47 Senior Vice President Position with
of the Bank (1986); Bancorporation
Secretary of and the Bank/4/
Bancorporation (1982)
and the Bank (1991)
Fred Perry, Jr. 67 Senior Vice Position with
President of the Bank
the Bank (1978)
Peter Kenny 51 First Vice Position with
President of the Bank /5/
the Bank (1991);
Senior Vice
President of the
Bank (1992)
James Boyle 46 Treasurer of Position with
Bancorporation; Bancorporation
Vice President and and the Bank/6/
Comptroller of the
Bank (1988); Senior
Vice President of the
Bank (1992)
Ellen Rogoff 47 First Vice President Position with
of the Bank (1993); the Bank /7/
Senior Vice President
of the Bank (1994)
___________________
/1/ Unless otherwise indicated, each of the persons listed has
been employed in the indicated principal occupation during
the last five years.
/2/ Mrs. Donald M. Karp is the niece of Stanley J. Lesnik and
the daughter of Harriet M. Alpert, a principal shareholder
of Bancorporation.
/3/ Prior to joining Bancorporation and the Bank, Mr. Dorman was
an executive vice president of Chemical Bank New Jersey
where he managed the Statewide Commercial Lending division.
For the two years prior to the merger in 1989 of Horizon
Bank Corp. and Chemical Bank, Mr. Dorman served as President
and Chief Executive Officer of Chemical New Jersey
<PAGE>
Corporation, Chemical Banking Corporation's loan production
office in New Jersey.
/4/ Mr. Campo joined the Bank in December 1978 as an internal
auditor. In 1982, Mr. Campo became secretary of
Bancorporation. In 1986, he was promoted to senior vice
president of the Bank. In 1991, he became secretary of the
Bank.
/5/ For at least five years prior to joining Bancorporation, Mr.
Kenny was executive vice president and secretary of United
Jersey Bank, Northwest.
/6/ Prior to joining Bancorporation, from April 1982 to December
1988 Mr. Boyle was a vice president and project director at
National Westminister Bancorporation NJ (formerly First
Jersey National Bank).
/7/ For the three years prior to joining the Bank, Ms. Rogoff
was Manager of Human Resources for Bristol Myers. For at
least two years prior to joining Bristol Myers, Ms. Rogoff
was Manager of Human Resources for Action Tungsram.
There are no arrangements or understandings between any
of the executive officers or any other persons pursuant to which
any of the executive officers have been selected to their
respective positions.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Shares of the Common Stock of Bancorporation have been
traded under the symbol BNBC on the NASDAQ National Market System
since June 2, 1988, and in the over-the-counter market prior to
this date. The following table sets forth the range of high and
low closing sale price quotations per share for Bancorporation's
Common Stock as reported by NASDAQ, together with cash dividends
per share paid on Bancorporation's Common Stock, during the
periods indicated.
The market price information does not include retail
markups, markdowns or commissions, but is based on actual
transactions.
<PAGE>
Bancorporation High* Low* Dividend*
1996 1st Quarter $10 5/8 $8 3/8 $.06
2nd Quarter 10 5/8 9 1/2 .06
3rd Quarter 10 9 1/8 .07
4th Quarter 12 1/4 9 1/2 .08
1995 1st Quarter $7 1/2 $6 1/8 $.03
2nd Quarter 9 1/8 6 3/8 .04
3rd Quarter 9 3/4 8 .05
4th Quarter 12 8 1/8 .05
____________
* The market prices and dividends have been restated to give
effect to the 10% stock dividend which was distributed
October 3, 1996.
As of January 31, 1997, there were 4,667,188 shares of
Bancorporation's Common Stock outstanding and approximately 900
holders of record of such stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain historical
financial data with respect to Bancorporation on a consolidated
basis. The information contained in this table should be read in
conjunction with Bancorporation's historical Consolidated
Financial Statements and related notes thereto included elsewhere
in this Report.
<TABLE>
December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Selected Consolidated
Statements of
Condition Information
Total assets $533,615 $481,185 $428,630 $438,532 $405,634
Loans, gross 287,364 267,419 267,422 265,920 256,293
Investment securities 159,214 116,212 110,933 102,165 99,654
Total deposits 485,073 429,681 391,466 406,066 378,699
Short-term borrowings
and long-term debt 1,000 782 177 342 3,660
Shareholders' equity 38,358 34,529 30,266 27,421 18,975
Consolidated Statements of Income
Information
Interest income $ 35,162 $ 33,398 $ 29,795 $ 28,313 $ 30,441
Interest expense 11,818 10,082 7,464 8,082 11,817
Net interest income 23,344 23,316 22,331 20,231 18,624
Provision for possible
loan losses 1,350 720 450 900 2,435
Net interest income
after provision
for possible loan
losses 21,994 22,596 21,881 19,331 16,189
Non-interest income 6,556 4,491 3,649 4,023 4,405
Non-interest expense 19,849 19,536 20,073 19,813 17,590
Provision for income
taxes 3,428 3,131 768 1,491 1,311
</TABLE>
<PAGE>
<TABLE>
December 31,
1996 1995 1994 1993 1992
<CAPTION> (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net income before cumulative
effect of a change in
accounting principle $ 5,273 $ 4,420 $4,689 $ 2,050 $ 1,693
Cumulative effect of a
change in accounting
principle 0 0 0 1,086 0
Net income $ 5,273 $ 4,420 $ 4,689 $ 3,136 1,693
Per Share Data
Net income per common share
Primary
Before cumulative
effect of a change
in accounting
principle $1.13 $1.16 $1.29 $0.45 $0.52
Cumulative effect of
a change in
accounting principle 0.00 0.00 0.00 0.35 0.00
Primary earnings per
common share $1.13 $1.16 $1.29 $0.80 $0.52
Fully diluted
Before cumulative
effect of a change
in accounting
principle $1.10 $0.93 $1.00 $0.46 $0.52
Cumulative effect of
a change in
accounting principle 0.00 0.00 0.00 0.24 0.00
Fully diluted earnings
per common share $1.10 $0.93 $1.00 $0.70 $0.52
Cash dividends per
common share 0.28 0.17 0.16 0.00 0.00
Book value per
common share 8.21 7.40 7.15 6.26 5.89
Dividend payout ratio 24.58% 26.58% 19.27% 18.05% 0.00%
Weighted average
number of common shares
outstanding (in thousands):
Primary 4,650 3,302 3,168 3,121 3,093
Assuming full
dilution 4,791 4,735 4,676 4,553 3,216
FINANCIAL RATIOS
Return on average assets 1.05% 0.97% 1.04% 0.48% 0.39%
Return on average
shareholders' equity 14.58 13.52 16.16 7.83 9.27
Average equity to
average assets 7.20 7.14 6.44 6.12 4.24
Earnings to fixed
charges /1/ 1.74 1.71 1.68 1.30 1.25
Net interest margin 5.05 5.59 5.41 5.12 4.68
Net interest spread 4.33 4.88 4.92 4.55 4.05
ASSET QUALITY RATIOS
Non-performing loans as
a % of gross loans 3.39% 3.82% 3.63% 7.72% 7.57%
Non-performing loans as
a % of total assets 1.82 2.12 2.26 4.68 4.79
Allowance for possible
loan losses as a
% of gross loans 2.97 2.77 2.84 4.23 4.94
Allowance for possible
loan losses as a % of
non-performing loans 87.65 72.47 78.32 54.81 65.21
Net chargeoffs as a %
of average gross loans 0.08 0.35 1.56 0.90 0.67
Non-performing assets as
a % of loans and OREO 5.03 6.00 5.81 10.03 10.98
CAPITAL RATIOS
Leverage capital 6.92% 7.17% 7.00% 6.23% 4.34%
Tier 1 capital to total
risk-weighted assets 11.17 10.58 9.87 9.16 6.55
Total capital to total
risk-weighted assets 12.44 11.85 11.13 10.45 7.84
</TABLE>
/1/ The ratio of earnings to fixed charges is computed by dividing the sum of
income before taxes, fixed charges and preferred stock dividends by the
sum of fixed charges and preferred stock dividends. Fixed charges
represent interest expense and payment of debt.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS MADE IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
BANCORPORATION'S ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS
COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL
CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS
OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN BANCORPORATION'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
The following discussion and analysis is intended to
provide information about the financial condition and results of
operations of Broad National Bancorporation and its subsidiaries
on a consolidated basis and should be read in conjunction with
the Consolidated Financial Statements and their related notes.
As used in the following discussion, the term "Company" refers to
Broad National Bancorporation and its subsidiaries on a
consolidated basis; the term "Bank" refers to Broad National Bank
and its subsidiaries on a consolidated basis; and the term
"Bancorporation" refers to Broad National Bancorporation on a
parent company only basis. When necessary, reclassifications
have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with 1996
data.
SUMMARY
The Company recorded net income of $5,273,000 or $1.10
per fully diluted common share in 1996, compared to net income of
$4,420,000 or $0.93 per fully diluted common share in 1995 and
net income of $4,689,000 or $1.00 per fully diluted common share
in 1994. Net income in 1994 included tax benefits of $1,500,000
as well as a one-time recovery of $875,000 ($578,000 tax
effected) of legal expenses in conjunction with an insurance
settlement.
The per-share data for 1995 and 1994 have been restated
to reflect the effects of the 10% stock dividend declared
September 20, 1996 and distributed October 3, 1996.
An improvement in non-interest income, particularly the
increase in service charges on deposit accounts resulting from a
more consistent collection of fee income for services provided,
is the primary reason for the increase in net income for 1996 as
compared to 1995.
<PAGE>
An improved net interest margin, an increase in non-
interest income and a decline in non-interest expense contributed
to the increase in income, before income taxes, for 1995 as
compared to 1994. The increase in income tax expense offset
these improvements and resulted in the overall decrease of net
income for 1995 as compared to 1994.
The Company's return on average assets was 1.05% for
1996, 0.97% for 1995 and 1.04% for 1994. The Company's return on
average shareholders' equity was 14.58% for 1996, 13.52% for 1995
and 16.16% for 1994.
The Company's total assets increased $52,430,000 or
10.9% in 1996 following an increase of $52,555,000 or 12.3% in
1995. Total deposits increased $55,392,000 or 12.9% in 1996
following an increase of $38,215,000 or 9.8% in 1995. Total
loans, net of the allowance for possible loan losses and unearned
income, increased $18,857,000 or 7.26% in 1996 following growth
of $282,000 or 0.11% in 1995.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the primary source of earnings for
the Company, is the difference between interest and fees earned
on loans and other earning assets, and interest paid on deposits
and other interest bearing liabilities. Earning assets include
loans, investment securities and federal funds sold. Interest
bearing liabilities include savings, interest bearing demand and
time deposits, and short-term borrowings and long-term debt.
The following table shows the Company's consolidated
average balance of assets, liabilities, and shareholders' equity
as well as the amount of interest income or interest expense and
the average rate for each category of interest-earning assets and
interest-bearing liabilities. Non-accrual loans are included in
average loans and interest on loans includes loan fees which are
not material. Nontaxable income from investment securities and
loans is presented on a tax-equivalent basis assuming a 34% tax
rate.
<PAGE>
<TABLE>
NET INTEREST INCOME
1996 1995 1994
Average Interest Average Average Interest Average Average Interest Average
Balance and Fees Rate Balance and Fees Rate Balance and Fees Rate
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 48,201 $ 2,567 5.24% $ 38,383 $ 2,253 5.87% $ 44,509 $1,836 4.13%
Investment Securities
Securities
held-to-
maturity /1/ 75,403 4,745 6.29 87,128 5,154 5.92 83,861 4,588 5.47
Securities
available-for-sale 61,948 3,689 5.95 27,029 1,682 6.22 23,548 1,257 5.34
Total investment
securities 137,351 8,434 6.14 /2/ 114,157 6,836 5.99 /2/ 107,409 5,845 5.44/2/
Loans
Mortgage 186,717 16,188 8.67 179,371 16,425 9.16 169,128 14,741 8.72
Installment 15,083 1,460 9.68 11,328 1,125 9.93 9,251 870 9.40
Commercial 75,459 6,485 8.59 74,248 6,691 9.01 82,388 6,417 7.79
States and political
subdivisions /1/ 756 88 11.64 1,148 146 12.72 1,286 154 11.98
Total loans 278,015 24,221 8.11 /2/ 266,095 24,387 9.16 /2/ 262,053 22,182 8.46/2/
Total interest
earning assets 463,567 $35,222 7.60%/2/ 418,635 $33,476 8.00%/2/ 413,971 $29,863 7.21%/2/
Less-Allowance for
possible loan
losses 7,869 7,558 9,691
All other assets 46,517 46,749 46,336
Total assets $502,215 $ 457,826 $ 450,616
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits
Savings and interest
bearing demand
deposits $222,912 $4,899 2.20% $221,749 $4,900 2.21% $248,752 $ 5,018 2.02%
Time deposits:
Under $100,000 84,077 4,222 5.02 78,511 3,973 5.06 63,118 1,949 3.09
Over $100,000 52,891 2,639 4.99 20,279 1,040 5.13 13,875 491 3.54
Total interest
bearing
deposits 359,880 11,760 3.27 320,539 9,913 3.09 325,745 7,458 2.29
Short-term borrowings 1,149 58 4.97 2,808 169 6.02 275 6 2.18
Total interest bearing
liabilities 361,029 $11,818 3.27% 323,347 $10,082 3.12% 326,020 $7,464 2.29%
Other liabilities 7,831 6,516 5,905
Demand deposits 97,197 95,264 89,683
Shareholders' equity 36,158 32,699 29,008
Total liabilities and
shareholders' equity $502,215 $457,826 $450,616
NET INTEREST INCOME $23,404 $23,394 $22,399
NET INTEREST SPREAD 4.33% 4.88% 4.92%
NET INTEREST MARGIN 5.05%/3/ 5.59%/3/ 5.41%/3/
</TABLE>
(1) Interest income for investments in states and political
subdivisions include tax-equivalent adjustments at a
34% rate.
(2) Average rates reflect the tax-equivalent adjusted
yields on non-taxable investments and loans.
(3) Represents the difference between interest earned and
interest paid, divided by total interest-earning
assets.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect of changes in average balance and rate from
the corresponding prior period on interest income, interest
expense and net interest income for the years ended December 31,
1996 and 1995 is set forth below. The effect of a change in
average balance has been determined by applying the average rate
for the earlier period to the change in average balance for the
later period, as compared with the earlier period. The effect of
a change in the average rate has been determined by applying the
average balance for the earlier period to the <PAGE> change in average
rate for the later period, as compared with the earlier period.
The variances attributable to simultaneous balance and rate
changes have been allocated in proportion to the relationship of
the dollar amount of change in each category.
<TABLE>
1996 Compared with 1995 1995 Compared with 1994
Increase (Decrease) Increase (Decrease)
Due to a Change in Due to a Change in
Average Average Average Average
Balance Rate Total Balance Rate Total
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $1,073 $(1,239) $ (166) $ 438 $1,767 $2,205
Investment securities 1,421 177 1,598 381 610 991
Federal funds sold 578 (264) 314 (288) 705 417
Total interest income $3,072 $(1,326) $1,746 $ 531 $3,082 $3,613
Interest paid on:
Savings and interest
bearing demand
deposits $ 1 $ (2) $ (1) $(657) $ 539 $(118)
Time deposits:
Under $100,000 282 (33) 249 568 1,456 2,024
Over $100,000 1,673 (74) 1,599 278 271 549
Short-term borrowings (87) (24) (111) 136 27 163
Total interest
expense $1,869 $ (133) $1,736 $ 325 $2,293 $2,618
Change in net
interest income $1,203 $(1,193) $ 10 $ 206 $ 789 $ 995
Percent increase in
net interest income
over the prior period 0.04% 4.44%
</TABLE>
Total tax equivalent interest income of $35,222,000 for
1996 represents an increase of $1,746,000 or 5.2% over total tax
equivalent interest income of $33,476,000 for 1995. This
improvement is primarily due to an increase of $44,932,000 in the
average balance of interest earning assets for 1996 as compared
to 1995. The largest increase in average balances is reflected
in total investment securities, for which the average balance of
$137,351,000 for 1996 is $23,194,000 higher than 1995. The
average balances of total loans and federal funds sold for 1996
as compared to 1995 increased $11,920,000 and $9,818,000,
respectively. The overall increase in the average balance of
total interest earning assets contributed an additional
$3,072,000 to total tax equivalent interest income for 1996 as
compared to 1995. However, this increase was partially offset by
a decrease of $1,326,000 in total tax equivalent interest income
for 1996 as compared to 1995, resulting from a decline of 40
basis points in the average rate earned on interest earning
assets. Decreases in the federal funds rate and the prime rate
are the primary reasons for the decline in the average rates
earned on total interest earning assets.
Total interest expense of $11,818,000 for 1996 was
$1,736,000 or 17.2% higher than 1995. The cost of total interest
bearing liabilities increased to 3.27% for 1996 as compared to
3.12% for 1995. An increase of $37,682,000 in total interest
bearing liabilities, and a change in the mix of interest bearing
liabilities contributed to the increase in total interest expense
for 1996 as compared to 1995. Total <PAGE> average time deposits of
$136,968,000 for 1996 were $38,178,000 or 38.7% higher than 1995
total average time deposits. This increase in average time
deposit balances increased 1996 interest expense by $1,955,000 as
compared to 1995 interest expense. The increase in the average
balance of total time deposits also resulted in higher cost time
deposits representing 37.9% of total interest bearing liabilities
for 1996 as compared to 30.6% of total interest bearing
liabilities for 1995. This change in the mix of interest bearing
liabilities contributed to the increase in the cost of interest
bearing liabilities to 3.27% for 1996 as compared to 3.12% for
1995.
Tax equivalent net interest income for 1996 was $10,000
or .04% higher than 1995 tax equivalent net interest income. The
decline in the average rate on interest earning assets and the
increase in the volume of interest bearing liabilities,
particularly higher cost time deposits, offset the increased
interest income which resulted from the increased volume of
interest earning assets.
During 1995, total interest income, on a tax equivalent
basis, increased $3,613,000 or 12.1% compared to 1994. The mix
of average interest earning assets changed slightly for 1995 as
compared to 1994. Average federal funds sold declined to 9.2% of
average interest earning assets, as compared to 10.8% for 1994,
while total investment securities increased to 27.3% of average
interest earning assets for 1995 as compared to 25.9% for 1994.
Total loans remained relatively unchanged, representing 63.5% of
average interest earning assets for 1995, as compared to 63.3%
for 1994. The increase of $3,613,000 in total interest income
for 1995 as compared to 1994 was primarily attributable to an
increase of 79 basis points in the average rate earned on total
average interest earning assets, and to a lesser extent, an
increase of $4,664,000 in total average interest earnings assets.
An increase of $4,042,000 in the average balance of loans
combined with an increase of 70 basis points in the average rate
earned on loans to result in an increase of $2,205,000 in
interest income earned on loans. Similarly, an increase of
$6,748,000 in the average balance of investment securities
combined with a 55 basis point increase in the average rate
earned on investment securities to result in an increase of
$991,000 in interest income earned on investment securities.
Interest income earned on federal funds sold increased $417,000,
primarily as the result of an increase of 174 basis points in the
average rate earned on federal funds sold, which increase was
partially offset by a decrease of $6,126,000 in the average
balance of federal funds sold.
Total interest expense of $10,082,000 for 1995 was
$2,618,000 or 35% higher than 1994. The increase in interest
expense was primarily attributable to an increase in the average
rates paid on interest bearing liabilities, and to a lesser
extent due to the change in the mix of interest bearing
liabilities. The average rate paid for interest bearing
liabilities during 1995 was 83 basis points higher than 1994,
with the largest increase in rates reflected in time deposits and
short-term borrowings. In addition to the increase in average
rates, the average balance of relatively higher costing time
deposits and short- <PAGE> term borrowings increased during 1995.
Average rates on time deposits under $100,000 were 197 basis
points higher for 1995 as compared to 1994, while average rates
on time deposits over $100,000 were 159 basis points higher for
1995 than for 1994. The average rate on short-term borrowings
for 1995 was 384 basis points higher than 1994. The increase in
the average rate paid on all interest bearing liabilities was
responsible for an increase of $2,293,000 in total interest
expense. Additionally, increases in the average balance of time
deposits and short-term borrowings contributed to an additional
$325,000 increase in total interest expense for 1995 as compared
to 1994.
Tax equivalent net interest income for 1995 increased
$995,000 or 4.4% from 1994, and the net interest margin for 1995
was 18 basis points higher than that for 1994. The increase is
primarily attributable to the fact that average rates earned on
interest earning assets increased more quickly than rates paid on
interest bearing liabilities.
PROVISION FOR POSSIBLE LOAN LOSSES
In determining the provision for possible loan losses,
management considers historical loan loss experience, changes in
composition and volume of the portfolio, the level and
composition of non-performing loans, the adequacy of the
allowance for possible loan losses, and prevailing economic
conditions. The provision for possible loan losses was
$1,350,000, $720,000 and $450,000 for 1996, 1995 and 1994,
respectively. The increase in the provision for possible loan
losses during 1996 was primarily due to the increase in loans
outstanding, as well as management's efforts to address specific
problem loans and improve the Company's asset quality ratios.
Actual net loan charge-offs were $221,000 or .08% of
average total loans, $920,000 or .35% of average total loans and
$4,100,000 or 1.56% of average total loans for 1996, 1995 and
1994, respectively. Included in the net charge-off figure of
$4,100,000 for 1994 are charge-offs for approximately $2,696,000
related to the sale of $5,651,000 of troubled loans, including
approximately $4,500,000 of non-performing loans, which was
completed during the second quarter of 1994. The net charge-off
figure for 1994 also includes a $500,000 recovery received in
conjunction with a previously discussed insurance settlement.
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
Total non-interest income of $6,556,000 for 1996 was
$2,065,000 or 46% higher than 1995. The most significant
component of this increase is represented by service charges on
deposit accounts, which were $1,855,000 or 52.8% higher for 1996
as compared to 1995. This improvement is attributable to a more
consistent application and collection of certain deposit fee
income for services provided to the existing base of deposit
accounts. The 52.8% annual growth rate for 1996 is not
indicative of future growth, and future growth, if any, of
<PAGE>
service charge income will more closely coincide with increases
in the number of deposit accounts, increased fees, or new fees
associated with new services.
Other non-interest income increased $344,000 in 1996 as
compared to 1995. The largest component of this increase was a
non-recurring recognition of $285,000 which represented damages
awarded to the bank in settlement of a lawsuit it had filed
against an outside service provider for breach of duty. Non-
interest income for 1996 also included a loss of $45,000 from the
sale of securities available-for-sale, compared to a gain of
$71,000 from the sale of securities available-for-sale in 1995.
Total non-interest income increased $842,000 or 23.1%
for 1995 as compared to 1994. The most significant changes were
represented by investment security and loan sale transactions.
During 1995, the Company recorded a gain of $71,000 from the sale
of securities available-for-sale. This gain represented an
improvement of $240,000 over the loss of $169,000 recorded from
the sale of securities available-for-sale in 1994. Additionally,
during 1995 the Company recorded gains of $18,000 from the sale
of residential mortgages. These gains represented an improvement
of $314,000 over the loss of $296,000 realized from the sale of
residential mortgages during 1994. Increases of $40,000 in ATM
fee income and $36,000 in credit card fees represented the larger
components of the $166,000 increase in other income.
Total non-interest expense of $19,849,000 for 1996 was
$313,000 or 1.6% higher than 1995.
Salaries expense totaled $7,896,000 for 1996, an
increase of $161,000, or 2.1%, compared to 1995. Merit increases
and increased incentive salary programs were partially offset by
reductions in staff. Employee benefits expense was $231,000 or
10.2% higher for 1996 as compared to 1995. Most of this increase
is attributable to higher costs for hospital and medical
insurance and pension plans.
Furniture and equipment expense of $1,090,000 for 1996
was $123,000 or 10.1% lower than 1995. This is primarily
attributable to the reduction of equipment rental costs resulting
from the Company's decision to purchase rather than lease its
personal computer equipment.
Legal fees totaled $858,000 for 1996, an increase of
$311,000, or 56.9%, as compared to 1995. Most of this increase
is attributable to increased legal expenses associated with the
Bank's efforts to work out its problem loans.
Professional fees of $1,307,000 for 1996 were $488,000
or 59.6% higher than for 1995. The largest contributing factor
to this increase were fees of approximately $625,000 paid to an
outside consulting firm which assisted management with a
reengineering project for the Bank. All identifiable direct
costs associated with this project were expensed in 1996, and
fees paid to this firm for future <PAGE> services are anticipated to be
significantly lower than fees paid in 1996. However, management
anticipates that the expected savings from lower fees will be
partially offset by higher costs to address ongoing staff
training and bankwide technology improvements identified during
the 1996 reengineering process.
FDIC and OCC assessments totaled $112,000 for 1996, a
decrease of $455,000, or 80.2%, compared to 1995. The FDIC
assessment declined from $461,000 in 1995 to the $2,000 minimum
assessment which the Bank was required to pay in 1996 as a well
capitalized institution as defined in the regulatory prompt
corrective action framework for capital adequacy requirements.
As the result of the Deposit Insurance Act of 1996, the $2,000
annual minimum deposit insurance assessment was repealed, and in
1997 the Bank's insurance assessment will increase to 1.29 cents
per $100 in deposits, which is anticipated to result in an annual
FDIC assessment of approximately $60,000 for 1997, subject to
changes in the Bank's level of deposits.
Other real estate expense of $202,000 for 1996 was
$103,000 or 104% higher than for 1995. A significant factor
contributing to this increase was a loss of approximately $95,000
resulting from the sale of an OREO property during 1996.
Total non-interest expenses of $19,536,000 for 1995
were $537,000 or 2.7% lower than 1994. Salaries and wages in
1995 were $292,000 or 3.9% higher than those for 1994. This
increase was attributable in part to an increase of approximately
$112,000 in incentive salary programs as well as payments of
approximately $60,000 to selected employees who qualified for and
elected to participate in an early retirement program. The
remaining increase was primarily attributable to merit increases.
Employee benefits expense increased $260,000 or 13% during 1995
as compared to 1994. The most significant component of this
increase was additional pension expense of $150,000 related to
the early retirement program for selected employees. Legal fees
in 1995 of $547,000 represented an increase of $411,000 over 1994
legal fees; however, 1994 legal fees were reduced by a one-time
recovery of $875,000 resulting from the settlement of an
insurance claim. FDIC and OCC assessments were $586,000 lower in
1995 than 1994 as the result of the reduction of the FDIC
assessment during 1995. The largest component of the decrease in
other expenses was a decline in expenses associated with a data
processing conversion that occurred during 1994.
INCOME TAXES
The effective tax rates for 1996, 1995 and 1994 were
39.4%, 41.5% and 14.1%, respectively. The decrease in the
effective tax rate to 39.4% for 1996 was primarily due to the
recognition of tax benefits resulting from the adjustment of the
valuation allowance for deferred tax assets. The decrease in the
effective rate to 14.1% for 1994 was also primarily due to the
recognition of tax benefits resulting from the adjustment of the
valuation allowance for deferred tax assets.
<PAGE>
The net change in the total valuation allowance for
1996 was a decrease of $160,000, which was primarily the result
of the reduction of the Bank's state tax loss carryforward during
1996. The net change in the total valuation allowance for 1994
was a decrease of $1,500,000, which was the result of the
accelerated recognition of temporary differences related to the
sale of non-performing loans in 1994 and improvement in the
Bank's core earnings.
FINANCIAL CONDITION
LOANS
Total loans, net of deferred loan fees, of $287,116,000
at December 31, 1996 increased $19,986,000 or 7.5% from the
December 31, 1995 balance of $267,130,000. The most significant
growth occurred in the residential mortgage category, which
benefitted from a new fixed rate equity loan program, as well as
an increased emphasis on an adjustable rate one to four family
mortgage program. Average loans totaled $278,015,000 for 1996,
an increase of $11,920,000 or 4.5% compared to an average of
$266,095,000 for 1995. For 1996, average loans represented 60.0%
of total interest earning assets, compared to 63.5% of total
interest earning assets for 1995.
The following table shows the classification of loans
by major category, at December 31, for each of the past five
years.
<TABLE>
December 31,
1996 1995 1994 1993 1992
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction $ 5,990 $ 4,097 $ 3,913 $ 5,209 $ 6,602
Mortgage
Residential 69,341 59,390 61,396 64,570 72,014
Commercial 126,050 122,347 114,901 108,749 108,548
Commercial loans 73,171 68,479 76,465 66,612 58,090
Installment loans 11,791 12,418 9,746 9,178 10,768
Other loans 1,021 688 1,001 559 271
Loans held for sale
(market value $11,153) 0 0 0 11,043 0
Total gross loans $287,364 $267,419 $267,422 $265,920 $256,293
</TABLE>
Real estate loans include construction mortgages,
residential mortgages (including home equity loans), and
commercial mortgages.
Construction loans are predominately floating rate
loans and the term thereof generally does not exceed one year.
The majority of the Bank's construction loans consist of loans
secured by single - or multi- family dwellings located in the
Bank's primary market area.
Residential mortgage loans include mortgages for the
purchase or refinancing of residential properties and are secured
by first liens <PAGE> on those properties. This category also includes
home equity loans which are secured by either a first or second
lien on real estate.
Commercial mortgages include mortgages on owner
occupied buildings and investment properties, secured by first
mortgages on these properties. Amortization is generally based
on terms of 15 years or less, and most loans have interest rate
reset terms of 5 years or less.
Commercial loans primarily represent loans to
commercial borrowers for working capital and other short-term
needs and term loans for the acquisition of assets. The terms of
such loans generally range from one to five years.
Installment loans are granted primarily to individuals
on an installment basis, may be secured by liens on personally
held assets or may be unsecured, and include auto loans, home
improvement loans, student loans, revolving credit plans and
personal loans.
The following table summarizes the contractual maturities of
certain loan categories at December 31, 1996.
Within 1-5 Over
One Year Years 5 Years Total
(Dollars in Thousands)
Real estate loans:
Construction $ 5,990 $ 0 $ 0 $ 5,990
Mortgage 29,309 46,894 119,188 195,391
Commercial loans 35,122 27,805 10,244 73,171
The table below presents the breakdown of loans with fixed
and variable rates at December 31, 1996 for loans with a term of
greater than one year in the following categories:
Fixed Variable
Interest Rates Interest Rates
(Dollars in Thousands)
Real Estate loans:
Mortgage $ 95,546 $70,536
Commercial loans 18,263 19,786
The Company's loan portfolio is varied, with no undue
concentration in any single industry, although most of the loans
in the Company's loan portfolio have been made to borrowers in
New Jersey. The Company's home equity loan portfolio (which is
included in real estate mortgages in the table above) and a
substantial portion of its commercial loan portfolio have
interest rates that reprice with changes in the prime rate.
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at
an amount considered adequate by management and the Board of
Directors to provide for potential credit losses based upon a
periodic evaluation of the risk characteristics of the loan
portfolio.
Management and the Board of Directors of the Company
review the allowance for possible loan losses on a regular basis.
Management and the Board evaluate a number of factors in
determining the appropriate level of the allowance for possible
loan losses. Weakening credits are evaluated individually and
factors such as the creditworthiness of the borrower, the
adequacy of underlying collateral and the probable impact of
business and economic conditions upon the borrower are examined.
The review process also takes into consideration the possibility
that there may be losses in the loan portfolio which cannot
currently be identified, and the degree of risk inherent in the
composition of the loan portfolio. The volume of non-performing
and other classified loans and their relationship to the loan
portfolio, as well as historical charge-off experience, are also
examined.
The following table summarizes the activity in the
allowance for possible loan losses over each of the past five
years. Also presented are certain key ratios regarding the
allowance.
<TABLE>
December 31,
1996 1995 1994 1993 1992
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average loans outstanding
during the year $278,015 $266,095 $262,053 $255,634 $270,994
Total gross loans at
period end $287,364 $267,419 $267,422 $265,920 $256,293
Allowance, beginning
of the year $ 7,402 $ 7,602 $ 11,252 $ 12,659 $ 12,030
Loans charged-off
during the year:
Commercial 569 1,952 2,184 2,047 1,551
Mortgage 520 80 2,809 379 136
Installment 175 91 148 157 584
Total loans charged-off
during the year 1,264 2,123 5,141 2,583 2,271
Recoveries during the year:
Commercial 804 1,005 890 111 354
Mortgage 104 142 10 0 2
Installment 135 56 141 165 109
Total recoveries during
the year 1,043 1,203 1,041 276 465
Net loans charged-off
during the year 221 920 4,100 2,307 1,806
Provision charged to
operations 1,350 720 450 900 2,435
Allowance, end of the year $ 8,531 $ 7,402 $7,602 $11,252 $ 12,659
Ratio of net loans
charged-off to average
loans outstanding
during the year 0.08% 0.35% 1.56% 0.90% 0.67%
Allowance for possible
loan losses as a
percentage of total
gross loans 2.97% 2.77% 2.84% 4.23% 4.94%
</TABLE>
<PAGE>
The following table reflects the allowance for possible loan losses
by category as of December 31, for each of the past five years:
<TABLE>
December 31,
1996 1995 1994 1993 1992
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to to to to to
Dollar Total Dollar Total Dollar Total Dollar Total Dollar Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 30 2% $ 163 2% $ 163 2% $ 817 2% $ 1,538 2%
Mortgage 1,880 68 1,765 68 1,984 66 3,370 65 2,999 71
Commercial loans 6,303 26 5,052 26 5,147 29 6,664 25 7,466 23
Installment loans 171 4 271 4 308 3 401 4 406 4
Other 147 * 151 * 0 * 0 4 250 *
Total $8,531 100% $7,402 100% $7,602 100% $11,252 100% $12,659 100%
* Less than 1.0%
</TABLE>
As previously discussed under "PROVISION FOR POSSIBLE
LOAN LOSSES", approximately $2,696,000 of the $5,141,000 of loans
charged off during 1994 resulted from the sale of troubled loans.
The allowance for possible loan losses includes an
allocation for all loans classified as special mention,
substandard, doubtful or loss (See "Asset Quality" below for
definitions of such classifications). After allocating the
allowance for classified loans, an allocation is made for all
non-classified loans. The allocation for non-classified loans is
made by loan category, based upon the historical loss experience
for each loan category as well as perceived risk of loss for each
loan category. The amount of the allowance applicable to
non-classified loans was $5,819,000 and $3,778,000 at December
31, 1996 and December 31, 1995, respectively. Since these
factors are subject to change, the allocation of the allowance
for possible loan losses should not be interpreted as an
indication that such amounts or proportions will continue or
indicate future trends.
The specific amount of the allowance in any particular
category may prove excessive or inadequate and consequently may
be reallocated in the future to reflect current conditions.
Accordingly, the Company considers the entire reserve to be
available to absorb losses in any category.
ASSET QUALITY
Various degrees of credit risk are associated with
substantially all investing activities. Management believes that
the lending function, however, carries the greatest risk of loss.
The Bank's credit due diligence begins at the time a
borrower and the Bank begin to discuss the origination of a loan.
Documentation including a borrower's credit history, materials
establishing the value and liquidity of potential collateral, the
<PAGE>
purpose of the loan, the source and timing of the repayment of
the loan and other factors are analyzed before a loan is
submitted for approval.
The Company attempts to minimize overall credit risk
through loan diversification. The Company's loan portfolio is
varied, with no undue concentration in any single industry,
although most of the loans in the Company's loan portfolio have
been made to borrowers in New Jersey.
Individual loan officers are assigned to monitor
non-installment and non-residential mortgage loans and are
responsible for the periodic updating of their reviews of such
loans. Loan officers are actively encouraged to identify
potential deteriorating loan situations through a self-reporting
system.
Installment and residential mortgage loans are
primarily monitored through an analysis of their payment status.
Classified loan reports are prepared and reviewed
regularly by the problem loan committee. Classified loans are
categorized into one of several categories, depending upon the
condition of the borrower and the strength and amount of
collateral.
Classifications consist of "special mention loans,"
defined as loans with only modest deficiencies in documentation
and with potentially weakening credit features; "substandard
loans," defined as loans that have a well-defined credit
weakness; "doubtful loans," defined as loans that have a
significantly higher probability of loss than substandard loans;
and "loss" loans which are charged-off when they are deemed
uncollectible.
Non-performing assets consist of (i) non-performing
loans, which include non-accrual loans and loans past due 90 days
or more as to interest or principal payments but not placed on
non-accrual status; (ii) loans that have been restructured due to
a weakening in the financial position of the borrower
(restructured loans) and (iii) other real estate owned ("OREO"),
net of reserves.
<PAGE>
The following table reflects the components of
non-performing assets at December 31, for each of the past five
years:
<TABLE>
December 31,
1996 1995 1994 1993 1992
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Past due, 90 days or more:
Mortgage $1,068 $1,938 $1,388 $4,535 $5,112
Commercial 247 1,167 714 1,434 1,607
Installment 34 18 23 53 163
Total past due 90 days
or more $1,349 $3,123 $2,125 $6,022 $6,882
Non-accrual loans:
Mortgage $2,800 $4,042 $4,357 $9,858 $6,316
Commercial 5,584 3,049 3,222 4,641 6,180
Installment 0 0 2 7 36
Total non-accrual loans $8,384 $7,091 $7,581 $14,506 $12,532
Total non-performing loans $9,733 $10,214 $9,706 $20,528 $19,414
Restructured loans
(excluding
amounts classified as
non-performing loans) 3,934 5,105 5,445 5,721 8,380
Other real estate owned, net 841 772 400 461 402
Total non-performing
assets $ 14,508 $16,091 $15,551 $26,710 $28,196
Non-performing loans as
a percent of total
gross loans 3.39% 3.82% 3.63% 7.72% 7.57%
Non-performing loans as
a percent of total assets 1.82% 2.12% 2.26% 4.68% 4.79%
Non-performing assets as a
percent of loans and
other real estate owned 5.03% 6.00% 5.81% 10.03% 10.98%
Allowance for possible
loan losses $ 8,531 $ 7,402 $ 7,602 $11,252 $12,659
Allowance for possible
loan losses as a percent
of non-performing loans 87.65% 72.47% 78.32% 54.81% 65.21%
</TABLE>
It is the Company's general policy to discontinue the
accrual of interest and reverse previously accrued but unpaid
interest as to a particular loan when interest or principal is
more than 90 days past due on such loan or other circumstances
indicate that full collection is questionable, unless the loan is
adequately secured and in the process of collection. Income on
non-accrual loans is recognized only in the period in which it is
collected.
In addition to the non-performing and restructured
loans as of December 31, 1996 and 1995, the Company had
classified an additional $3,088,000 and $4,932,000, respectively,
as substandard loans. A loan loss reserve has been allocated to
such loans in accordance with the Company's policies.
In the course of resolving non-performing loans, the
Bank may restructure the contractual terms of its loans with its
borrowers. If, prior to such restructuring, the loan was
classified as non-accrual, it is the Bank's policy to continue to
carry these restructured loans on non-accrual status for a period
of time (typically six months) before management considers their
<PAGE>
return to accrual status. At December 31, 1996, loans
aggregating $3,934,000 were categorized as restructured. These
loans are currently performing in accordance with their modified
terms.
The level of non-performing assets is heavily dependent
upon local economic conditions. The December 31, 1996 total
non-performing assets of $14,508,000 represents a decrease of
$1,583,000 or 9.8% from December 31, 1995. There can be no
assurance that the level of the Company's non-performing assets
will not increase in the future.
In May of 1993, FASB issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" and Statement of Financial Accounting
Standards No. 118 "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure" which apply to financial
statements for fiscal years beginning after December 15,1994.
These Statements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at
the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. There was no
material impact on the financial position or results of
operations as a result of the Company adopting these statements
during 1995.
INVESTMENT SECURITIES AND FEDERAL FUNDS SOLD
The Company invests a portion of its available funds in
short-term and longer-term instruments, including federal funds
sold and investment securities.
Federal funds sold are used primarily for daily cash
management purposes. Average federal funds sold of $48,201,000
for 1996 represented 10.4% of total average interest earning
assets, as compared to 9.2% for 1995.
Investment securities include obligations of the U.S.
Government or its agencies, obligations of states and political
subdivisions, Federal Reserve Bank stock and debt securities.
The Company's investment securities portfolio is utilized to
collateralize certain of the Bank's lines of credit and public
and fiduciary deposits. It also provides liquidity through
proceeds from scheduled maturities. The majority of the
Company's investment securities carry fixed interest rates.
Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). The financial impact of the adoption was $57,000, net of
tax, which was recorded as an increase to shareholders' equity.
<PAGE>
SFAS 115 requires companies to divide their securities
holdings among three categories: held-to-maturity,
available-for-sale, and trading securities. The accounting
standard provides a different accounting treatment for each
category.
The Company does not have trading securities, but does
differentiate between held-to-maturity securities and
available-for-sale securities. Management determines the
appropriate classification of securities at the time of purchase.
If management has the positive intent and the Company
has the ability at the time of purchase to hold securities until
maturity, they are classified as held-to-maturity securities.
Such securities are stated at amortized cost, adjusted for
unamortized purchase premiums and discounts.
Securities in the available-for-sale category are those
for which the Company does not have the positive intent and
ability to hold to maturity. Available-for-sale securities are
reported at fair value. Any unrealized appreciation or
depreciation in the available-for-sale securities, net of tax
effects, is reported as a separate component of equity capital.
At December 31, 1996 and 1995, the Company reported net
unrealized securities gains of $146,000 and $284,000,
respectively, in the Shareholders' Equity section of the
consolidated statement of condition.
On November 15, 1995, the Financial Accounting
Standards Board (FASB) issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The guidance in this
Special Report became effective November 15, 1995.
Included within the Special Report is guidance that
permitted banking organizations to perform a one-time assessment
to determine the appropriateness of the designations of all
securities currently held. Any resulting redesignations were to
be made in conjunction with the guidance which allowed banking
organizations to transfer debt securities from the held-to-
maturity portfolio before year-end 1995, without calling into
question their intent to hold other debt securities to maturity.
In accordance with the guidance contained within the
Special Report, effective December 1, 1995 the Company
transferred securities with a book value of $37,911,000 from
held-to-maturity to available-for-sale. These securities had a
market value of $38,238,000 which resulted in the Company
recording an unrealized gain on securities available-for-sale,
net of tax, within Shareholders' Equity of $216,000.
<PAGE>
At December 31, 1996, securities held-to-maturity of
$90,170,000 represented 56.6% of the total investment securities
portfolio, as compared to 51.9% at December 31, 1995. Securities
available-for-sale of $69,044,000 at December 31, 1996
represented 43.4% of the total investment securities portfolio,
as compared to 48.1% at December 31, 1995. Total average
investment securities of $137,351,000 for 1996 represented 29.6%
of 1996 total average interest earning assets, up from 27.3% of
total average interest earning assets for 1995.
The table below presents the amortized cost and total
estimated fair values of securities held-to-maturity as of year
end for each of the past five years:
<TABLE>
1996 1995 1994 1993 1992
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 0 $ 0 $11,795 $ 8,804 $54,107
U.S. Government Agencies 33,862 11,055 3,080 1,089 151
Mortgage-backed securities 52,946 46,108 73,204 59,670 44,915
States and political
subdivisions 1,182 1,875 1,336 1,009 100
Other 2,180 1,228 374 376 381
Amortized cost $90,170 $60,266 $89,789 $70,948 $99,654
Estimated fair value $89,482 $59,948 $84,188 $70,759 $99,817
</TABLE>
Maturities and weighted average yields of securities
held-to-maturity at December 31, 1996, segregated by contractual
maturity, are illustrated below. Expected maturities will differ
from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
Maturing
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Agencies $ -- --% $10,697 6.73% $19,165 7.16% $4,000 7.50% $33,862 7.07%
Mortgage-backed
securities 129 7.27 37,358 5.93 13,035 6.71 2,424 6.75 52,946 6.16
States and political
subdivisions /1/ -- -- 1,182 6.66 -- -- -- -- 1,182 6.66
Other -- -- -- -- -- -- 2,180 6.02 2,180 6.02
Total book value $ 129 7.27% $49,237 6.12% $32,200 6.98% $8,604 6.92% $90,170 6.50%
(1) The weighted average yields have been computed based on a tax-equivalent basis, assuming a 34% income
tax rate.
</TABLE>
The table below presents the amortized cost and total
estimated fair values of securities available-for-sale at
December 31, 1996, 1995, 1994 and 1993. There were no such
securities available-for-sale for years prior to 1993:
<PAGE>
December 31,
1996 1995 1994 1993
(Dollars in Thousands)
U.S. Treasury $12,513 $14,745 $10,932 $14,008
U.S. Government
Agencies 1,000 1,000 0 0
Mortgage-backed
securities 55,309 39,774 11,297 17,209
Amortized cost $68,822 $55,519 $22,229 $31,217
Estimated fair value $69,044 $55,946 $21,144 $31,303
Maturities and weighted average yields of securities
available-for-sale at December 31, 1996, segregated by
contractual maturity, are illustrated below. Expected maturities
will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
Maturing
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<CAPTION>
<C> <C> <C>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.Treasury $ -- --% $12,513 6.15% $ -- --% $ -- --% $12,513 6.15%
U.S. Government
Agencies -- -- 1,000 5.76 -- -- -- -- 1,000 5.76
Mortgage-backed
securities 2,303 5.84 20,082 6.44 -- -- 32,924 6.71 55,309 6.52
Total book value $2,303 5.84% $33,595 6.31% $ -- --% $32,924 6.71% $68,822 6.44%
</TABLE>
Realized gains (losses) from the sale of securities
available-for-sale were ($45,000), $71,000 and ($169,000) for
1996, 1995 and 1994, respectively.
DEPOSITS
The Bank's deposit base is its primary source of funds.
The Bank offers a broad range of deposit products, including
non-interest bearing demand deposits, NOW accounts, savings
accounts, IMMA's and certificates of deposit.
The December 31, 1996 total deposit balance of
$485,073,000 represents an increase of $55,932,000 or 12.9% from
the December 31, 1995 balance of $429,681,000. This growth
occurred in time deposits of $100,000 or more, which time
deposits served primarily as the funding source to support the
growth in the investment and loan portfolios. This growth in
time deposits originated from new or expanded relationships with
municipal government units within markets served by the bank, and
served as an alternative to other sources of borrowed funds.
Average time deposits over $100,000 of $52,891,000 for 1996
represented 14.7% of total average interest bearing deposits as
compared to 6.3% in 1995. This increase in relatively higher
cost deposits was a significant contributor to the overall
increase in the cost of funds for 1996 as compared to 1995.
<PAGE>
The following table shows a breakdown of the average
balances and average rates paid on the following deposit
categories for each of the past three years:
<TABLE>
Year Ended December 31,
1996 1995 1994
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(Dollars in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 97,197 - % $ 95,264 - % $ 89,683 - %
Savings and
interest bearing
demand deposits 222,912 2.20 221,749 2.21 248,752 2.02
Time deposits 136,968 5.01 98,790 5.07 76,993 3.17
Total average
deposits $457,077 2.57% $415,803 2.38% $415,428 1.79%
</TABLE>
The following is a breakdown of the maturity of time
certificates of deposit and other time deposits in excess of
$100,000 as of December 31, 1996 and December 31, 1995,
respectively:
Dec. 31, 1996 Dec. 31, 1995
(Dollars in Thousands)
Under three months $71,160 $12,463
Three to six months 5,851 4,904
Six to twelve months 2,993 2,057
Over twelve months 1,160 1,483
Total $81,164 $20,907
SHORT-TERM BORROWINGS
Short-term borrowings represent federal funds purchased
and securities sold under agreements to repurchase, which are
used to supplement the Bank's deposit base as a source of
funding. The majority of these instruments have terms ranging
from one to thirty days. These balances increased $218,000 to
$1,000,000 at December 31, 1996 from $782,000 at December 31,
1995. The average balance of short-term borrowings represented
less than 1% of total average interest bearing liabilities for
both 1996 and 1995.
Information regarding the levels of short-term
borrowings for each of the past three years is as follows:
December 31,
1996 1995 1994
(Dollars in Thousands)
Balance, end of year $ 1,000 $ 782 $ 177
Maximum outstanding during
the year at any month end $ 1,282 $21,345 $ 177
Average interest rate,
end of year 4.95% 5.69% 2.95%
Average outstanding
during the year $ 1,149 $ 2,808 $ 275
Average interest rate
for the year 4.97% 6.02% 2.18%
<PAGE>
The average amounts outstanding were computed from daily averages
and the average interest rates for the period were computed by
dividing the respective interest expense by the average balance
outstanding.
LIQUIDITY OF THE BANK
The Bank actively monitors its liquidity position to
ensure that it has sufficient funds to provide for cash outflows
without incurring losses from the premature liquidation of assets
or the unexpected acquisition of costly liabilities. The Bank's
cash outflows encompass interest paid to depositors and other
creditors, deposit withdrawals, and disbursements to acquire
assets and pay general operating costs. The Bank obtains cash
from customers in the form of interest and principal payments on
loans, fees paid for services, and from new deposits. Investment
maturities also provide a source of cash.
Many different measurements of liquidity are used in
the banking industry. The ratios of cash and cash equivalents
(including federal funds sold) and short-term securities to total
assets and net loans to total deposits are among some of the more
commonly used indicators. These measurements are set forth below
as of December 31, 1996 and 1995.
Dec. 31, 1996 Dec. 31, 1995
Cash and cash equivalents
and securities maturing in
one year to total assets 14.9% 22.1%
Net loans to total deposits 57.4% 60.4%
To assist in the management of its liquidity, the Bank
had available $23,750,000 in lines of credit with correspondent
banks, which lines were not in use at December 31, 1996.
Managing the Bank's liquidity position involves a
significant degree of analytical estimation and other objective
factors. Although customer demand for funds, in the form of
loans or deposit withdrawals, is largely dependent on general
economic factors outside of the Bank's control, management
believes that its present liquidity structure is adequate to meet
such needs.
LIQUIDITY OF BANCORPORATION
Bancorporation's ability to meet its cash requirements,
including dividend payments, is generally dependent upon the
declaration and payment of dividends by the Bank to
Bancorporation.
Under Federal law, the approval of the Comptroller of
the Currency is required for the payment of dividends in any
calendar year by Broad National Bank to Broad National
Bancorporation if the total of all dividends declared in any
calendar year exceeds the net income for that year combined with
the retained net income for the preceding two calendar years. As
of December 31, 1996, retained <PAGE> earnings of the Bank of $6,942,000
are available for payment of dividends to the parent company
without regulatory approval.
Additionally, at December 31, 1996, Bancorporation had
available $684,000 of cash for the purpose of paying future
dividends and operating costs. However, a change in
circumstances, such as changes in regulatory requirements or in
the Bank's financial condition, could result in Bancorporation
being required by regulatory authorities to utilize its funds to
increase the Bank's capital. In such event, Bancorporation may
not have sufficient cash for operations or to make dividend
payments and may be required to seek other sources of capital and
liquidity, if available.
INTEREST RATE SENSITIVITY
Management of interest rate sensitivity involves
matching the maturity and repricing dates of interest-earning
assets with those of interest-bearing liabilities in an effort to
manage the impact of fluctuating net interest rates on net
interest margins.
The Company's Asset/Liability Committee (the
"Committee") meets at least monthly to establish, communicate,
coordinate and control asset/liability management procedures.
The purpose of the Committee is to monitor the volume and mix of
the Company's interest sensitive assets and liabilities
consistent with the Company's overall liquidity, capital, growth,
risk and profitability goals.
Interest rate sensitivity is measured as the difference
between the percentage of assets and liabilities in the Company's
existing portfolio that are subject to repricing within specified
time periods. These differences, known as interest sensitivity
gaps, are usually calculated cumulatively for blocks of time.
Companies that are asset-sensitive (a positive gap)
have more assets than liabilities subject to repricing within
specified time periods and these companies are likely to benefit
in periods of rising interest rates, but suffer as rates
decrease. Companies that are liability-sensitive (a negative
gap) are likely to benefit in periods of declining rates, but
suffer as rates increase.
At December 31, 1996, there was a cumulative twelve
month liability sensitive gap of .51:1. In a rising rate
environment, a liability sensitive gap position generally
indicates that increases in the cost of interest bearing
liabilities will outpace increases in income from interest
earning assets. This risk can be reduced by various strategies,
including the management of liability costs and the investment of
asset maturities and cash flows in such a way as to insulate net
interest income from the effects of changes in interest rates.
<PAGE>
An interest sensitivity table is not a complete picture
of the possible effect of interest rate changes on net interest
income. First, changes in the general level of interest rates
will not affect all categories of assets and liabilities equally
or simultaneously. Second, the table represents a one-day
position: variations occur daily as the Company adjusts its
interest sensitivity throughout the year. Third, the repricing
distribution of interest sensitive assets may not be indicative
of the liquidity of those assets. Finally, since this table is
based on contractual maturities, it does not include required
principal payments or estimates of early principal payments on
residential mortgages, installment loans and investment
securities. These static measurements are best used as early
indicators of potential interest rate exposure.
These gap positions are also monitored through the use
of simulation modeling techniques which apply alternative
interest rate scenarios to periodic forecasts of future business
activity and estimate the related impact on net interest income.
The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in ever-changing
interest rate environments.
The table below indicates as of December 31, 1996 the
time period in which interest-earning assets and interest-bearing
liabilities are scheduled to mature or reprice in accordance with
their contractual terms.
<TABLE>
After After After
Three Six One
Three Through Through Through
Months Six Twelve Five After
Or Less Months Months Years Five Years Total
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment
securities $ 26,628 $ 0 $ 2,473 $ 87,336 $ 42,777 $159,214
Loans 83,434 8,512 16,133 71,684 107,601 287,364
Federal funds sold 57,075 0 0 0 0 57,075
Other assets 0 0 0 0 29,962 29,962
Total assets $167,137 $8,512 $18,606 $159,020 $180,340 $533,615
Liabilities and
Shareholders' Equity
NOW and savings
accounts $192,659 $ 0 $ 0 $ 0 $ 0 $192,659
Money market
accounts 24,591 0 0 0 0 24,591
Time deposits 104,718 35,732 17,848 8,193 387 166,878
Short term
borrowings 1,000 0 0 0 0 1,000
Other liabilities
and shareholders'
equity 0 0 0 0 148,487 148,487
Total liabilities
and shareholders'
equity $322,968 $35,732 $17,848 $ 8,193 $148,874 $533,615
Sensitivity gap $(155,831) $(27,220) $ 758 $150,827 $ 31,466 $ 0
Gap as a percentage
of assets -29.20% -5.10% 0.14% 28.27% 5.90% 0%
Cumulative
sensitivity gap $(155,831) $(183,051) $(182,293) $(31,466) $ 0 $ 0
Cumulative gap as
a percentage
of assets -29.20% -34.30% -34.16% -5.90% 0% 0%
Cumulative
sensitivity ratio 51.75% 48.97% 51.59% 91.82% 100.0% 0%
</TABLE>
<PAGE>
SHAREHOLDERS' EQUITY
Shareholders' equity of $38,358,000 at December 31,
1996 was $3,829,000 or 11.1% higher as compared to December 31,
1995. The ratio of average total equity to average total assets
was 7.20% for 1996 compared to 7.14% for 1995. Book value per
common share increased to $8.21 at December 31, 1996 from $7.40
at December 31, 1995.
The redemption of both classes of the Company's
preferred stock was completed during 1996 and 3,947 shares of
both classes of preferred stock were redeemed. In lieu of
redemption, 575,730 shares or 99.3% of the total outstanding
shares of both classes of preferred stock were converted into
1,176,522 shares of common stock.
The Company and its bank subsidiary are subject to
various regulatory capital requirements. Capital adequacy for
the Company is measured against guidelines established by the
Federal Reserve Board. The Federal Reserve Board measures
capital adequacy for bank holding companies by using a risk-based
capital framework and by monitoring compliance with minimum
leverage guidelines. Effective December 31, 1992, bank holding
companies were required to maintain a ratio of at least 8.00%
between capital and risk-weighted assets, of which approximately
one-half (4.00%) must be in Tier 1 capital. In addition, the
Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide
for a minimum leverage ratio (Tier 1 capital to quarterly average
total assets less goodwill) of 3% for bank holding companies that
meet certain criteria, including that they maintain the highest
regulatory rating. All other bank holding companies are required
to maintain a leverage ratio of 3% plus an additional cushion of
at least 100 to 200 basis points.
The Bank is subject to generally similar capital
requirements adopted by the OCC.
<PAGE>
The tables below present in summary form the risk-based
and leverage capital ratios of the Company and the Bank as of
December 31, 1996 and 1995.
<TABLE>
The Company The Bank
(Dollars in Thousands)
1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
Ratios:
Tier 1 leverage 6.92% 7.17% 6.82% 7.00%
Tier 1 risk-based capital 11.17 10.58 11.00 10.34
Total risk-based capital 12.44 11.85 12.26 11.60
Capital:
Tier 1 $ 37,512 $33,545 $36,939 $32,779
Tier 2 4,252 4,005 4,252 4,005
Total Regulatory $ 41,764 37,550 $41,191 $36,784
Assets:
Risk-adjusted assets $335,854 $316,995 $335,854 $316,995
Average assets
(leverage capital basis) $541,903 $468,088 $541,903 $468,088
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995 the FASB issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights." The Statement requires
capitalization of the value of rights to service mortgage loans
for others, whether those rights were acquired through purchase
or origination. SFAS No. 122 also requires that capitalized
mortgage servicing rights be evaluated for impairment based on
their fair value with any adjustments recognized through a
valuation allowance. The Company did not sell any loans in 1996
and therefore has not been impacted by SFAS No.122. The Company
does not expect the adoption of SFAS No.122 to have a material
effect on its future financial position or results of operations.
In October 1995 the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This Statement
encourages use of a fair value based method of accounting for
stock-based compensation plans while allowing continued use of
the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees." Entities electing to continue using the
APB No. 25 method of accounting must make pro forma disclosures
of net income and earnings per shares as if the fair value based
method of accounting, as defined is SFAS No. 123, had been
applied.
The Company adopted SFAS No. 123 effective January 1,
1996 and will continue accounting for stock-based compensation
under APB No. 25 and include the pro forma disclosures required
by SFAS No. <PAGE> 123 in annual financial statements beginning in the
year ended December 31, 1996.
In June 1996, the FASB issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial-
components approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. SFAS No. 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective
for transfers that occur after December 31, 1996, and will be
applied prospectively. The Company does not expect the adoption
of SFAS No. 125 to have a material effect on its future financial
position or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS
In order to take advantage of the safe harbor
provisions for forward-looking statements contained in Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, added to those
Acts by the Private Securities Litigation Reform Act of 1995,
Bancorporation is hereby identifying important risks and
uncertainties that could affect Bancorporation's actual results
of operations, financial condition or business and could cause
Bancorporation's actual results of operations, financial
condition or business to differ materially from its historical
results of operations, financial condition or business, or the
results of operations, financial condition or business
contemplated by forward-looking statements made herein or
elsewhere orally or in writing, by, or on behalf of,
Bancorporation. Factors that could cause or contribute to such
differences include, but are not limited to, those factors
described below.
ECONOMIC CONDITIONS IN BANCORPORATION'S PRIMARY MARKET AREA
The profitability of Bancorporation is dependant on the
profitability of its subsidiary, Broad National Bank, which is a
national banking association operating out of New Jersey. The
Bank's financial condition is affected by fluctuations in the
economic conditions prevailing in that portion of New Jersey in
which the Bank's banking operations are located. Accordingly,
the financial conditions of both the Bank and <PAGE> Bancorporation
would be adversely affected by deterioration in the general
economic and real estate climate in the State of New Jersey. The
Bank's business is also subject to fluctuations in interest
rates, national and local economic conditions, monetary and
regulatory policies and consumer and institutional confidence in
the Bank. The fluctuations are neither predictable nor
controllable and may have materially adverse consequences upon
the operations and financial condition of the Bank and
Bancorporation in the future even if other favorable events
occur.
IMPORTANCE OF NET INTEREST INCOME AND SUSCEPTIBILITY TO CHANGES
IN INTEREST RATES
The primary source of earnings for the Bank and
Bancorporation is net interest income, which is the difference
between interest and fees earned on loans and other interest-
earning assets, and the interest paid on deposits and other
interest-bearing liabilities. There may be a difference between
the amount of interest-earning assets scheduled to reprice in any
given period and the amount of interest-bearing liabilities
scheduled to reprice over the same time. Any difference can
create a lag between the time it takes the rate the bank earns
interest to respond to market fluctuations and the time it takes
the rate the bank incurs interest costs to respond to market
fluctuations, and vice-versa. Because of these "interest
sensitivity gaps," the amount of net interest income may be
affected by fluctuations in the interest rate.
ASSET QUALITY AND LENDING RISKS
Success in the banking industry largely depends on the
quality of loans and other assets. The Bank's loan officers are
actively encouraged to identify deteriorating loans. Loans are
also monitored and categorized through an analysis of their
payment status. The Bank's failure to timely and accurately
monitor the quality of its loans and other assets could have a
materially adverse effect on the operations and financial
condition of the Bank and Bancorporation. There is a degree of
credit risk associated with any lending activity. Bancorporation
attempts to minimize its credit risk through loan
diversification. Although Bancorporation's loan portfolio is
varied, with no undue concentration in any one industry,
substantially all of the loans in the portfolio have been made to
borrowers in New Jersey. Therefore, the loan portfolio is
susceptible to factors affecting the New Jersey area and the
level of non-performing assets is heavily dependant upon local
conditions. See "Economic Conditions in Bancorporation's Primary
Market Area." There can be no assurance that the level of
Bancorporation's non-performing assets will not increase above
current levels. High levels of non-performing assets could have
a materially adverse effect on <PAGE> the operations and financial
condition of the Bank and Bancorporation.
PROVISIONS FOR POSSIBLE LOAN LOSSES
Bancorporation makes a provision for possible loan
losses based upon management's analysis of potential losses in
the loan portfolio and consideration of prevailing economic
conditions. Bancorporation may need to increase the provision
for loan losses through additional provisions in the future if
the financial condition of any of its borrowers deteriorates or
if real estate values decline. See "Asset Quality and Lending
Risks." Furthermore, various regulatory agencies, as an integral
part of their examination process, periodically review
Bancorporation's loan portfolio, provision for loan losses, in-
substance foreclosed loans, and real estate acquired by
foreclosure. Such agencies may require, and in the past have
required, Bancorporation to recognize additions to the provision
for loan losses based on their judgments of information available
to them at the time of the examination. Any additional
provisions for possible loan losses, whether required as a result
of regulatory review or initiated by Bancorporation itself, may
materially alter the financial outlook of the Bank and
Bancorporation.
COMPETITION IN BANCORPORATION'S MARKET AREA
Vigorous competition exists in all major areas where
Bancorporation and the Bank presently engage in business. The
Bank faces intense competition in local and national markets from
other major banking institutions. The Bank is in direct
competition with some larger institutions that have substantially
greater resources, better name recognition, stronger market
presence, and the ability to offer a wider range of services.
Competition from larger institutions is especially prevalent due
to the accelerated pace of bank mergers in the New Jersey area.
The long-term impact of such mergers and consolidations on the
New Jersey market area is uncertain. The Bank may face even more
intense competition because of the proliferation of bank mergers.
An increase in the intensity of competition from other banks in
the New Jersey market could have a materially adverse impact on
the operations and financial condition of the Bank and
Bancorporation.
In addition to the competition from rival banking
companies, the Bank faces competition from non-bank institutions
including: finance companies; mortgage lenders; small loan
companies; credit unions; insurance companies; and a variety of
other financial service and advisory companies. The stock
market, mutual funds, and other non-federally insured investments
also compete with the Bank for customer deposits. The Bank may
face more intense competition from these and other <PAGE> non-banking
industries and investments in the future. A failure of the Bank
to be competitive could have a materially adverse effect on the
Bank and Bancorporation.
REGULATION
Banks and bank holding companies such as Bancorporation are
subject to regulation by both federal and state bank regulatory
agencies. The regulations, which are designed to protect
borrowers and promote certain social policies, include
limitations on the operations of banks and bank holding
companies, such as minimum capital requirements and restrictions
on dividend payments. These regulations are not necessarily
designed to maximize the profitability of banking institutions.
Future changes in the banking laws and regulations could have a
materially adverse effect on the operations and financial
condition of the Bank and Bancorporation.
IMPORTANCE OF EXECUTIVE OFFICERS
The success of the Bank and Bancorporation has been
largely dependant on the efforts of Donald Karp, John Dorman and
the other executive officers. These individuals are expected to
continue to perform their services. However, the loss of the
services of Donald Karp, John Dorman, or any of the other key
executive officers could have a materially adverse effect on the
Bank and Bancorporation.
ADDITIONAL FACTORS
Additional risks and uncertainties that may affect the
future results of operations, financial condition or business of
the Bank and Bancorporation include, but are not limited to: (i)
the ability to keep pace with technological change including
developing and implementing technological advances timely and
cost-effectively in order to provide better service and remain
competitive; (ii) adverse publicity, news coverage by the media,
or negative reports by brokerage firms, industry and financial
analysts regarding the Bank or Bancorporation; and (iii) changes
in accounting policies and practices.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report as of December 31, 1996
and 1995 and for the years ended December 31, 1996,
1995 and 1994 53
Consolidated Statements of Condition as of December 31,
1996 and 1995 54
Consolidated Statements of Income for each of the years
ended December 31, 1996, 1995 and 1994 55
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994 57
Consolidated Statements of Cash Flows for each of the
years ended December 31, 1996, 1995 and 1994 58
Notes to Consolidated Financial Statements 59
All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of
Broad National Bancorporation:
We have audited the accompanying consolidated
statements of condition of Broad National Bancorporation and
subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Broad National Bancorporation and
subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in note 1 to the consolidated financial
statements, Broad National Bancorporation and subsidiaries
adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" in 1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 15, 1997
<PAGE>
Broad National Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION
December 31, 1996 and 1995
(Dollars in thousands, except share amounts)
1996 1995
ASSETS
CASH AND DUE FROM BANKS (Note 10) $ 19,782 $25,810
FEDERAL FUNDS SOLD 57,075 61,300
CASH AND CASH EQUIVALENTS 76,857 87,110
SECURITIES HELD-TO-MATURITY
(aggregate market value $89,482
and $59,948, respectively) (Note 2) 90,170 60,266
SECURITIES AVAILABLE-FOR-SALE (Note 2) 69,044 55,946
LOANS, net of deferred loan fees (Note 3) 287,116 267,130
LESS - Allowance for possible loan
losses (Note 4) 8,531 7,402
NET LOANS 278,585 259,728
PREMISES AND EQUIPMENT, net (Note 5) 8,888 9,418
ACCRUED INTEREST RECEIVABLE 3,351 2,819
OTHER ASSETS (Note 6) 6,720 5,898
TOTAL ASSETS $533,615 $481,185
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Non-interest bearing demand $100,945 $102,207
Savings and interest bearing demand 217,250 220,058
Time deposits less than $100,000 85,714 86,509
Time deposits of $100,000 or more 81,164 20,907
Total deposits 485,073 429,681
SHORT-TERM BORROWINGS (Note 9) 1,000 782
ACCRUED TAXES, INTEREST AND OTHER
LIABILITIES (Notes 6 and 7) 9,184 16,193
TOTAL LIABILITIES 495,257 446,656
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Note 11)
Preferred stock-1985 class, $10 par
value, authorized 17,124 shares,
outstanding 0 shares in 1996 and 17,124
shares in 1995 0 171
8 1/2% Cumulative Convertible Preferred
Stock-1992 class, $1 par value,
authorized 690,000 shares, outstanding
0 shares in 1996 and 562,553 shares in 1995 0 563
Common stock, $1 par value, authorized
5,500,000 shares; issued: 1996,
4,677,188 shares; 1995, 3,059,203 shares 4,677 3,059
Capital surplus 26,589 23,145
Retained earnings 7,004 7,307
Common stock in treasury, at cost:
5,000 shares in 1996 and 0 shares in 1995 (58) 0
Unrealized gain on securities
available-for-sale, net 146 284
TOTAL SHAREHOLDERS' EQUITY 38,358 34,529
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $533,615 $481,185
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
<PAGE>
Broad National Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
1996 1995 1994
INTEREST INCOME
Interest and fees on loans (Note 3) $24,190 $24,337 $22,130
Interest on securities held-to-maturity
Taxable 4,667 5,071 4,544
Tax exempt 49 55 28
Interest on securities available-for-sale 3,689 1,682 1,257
Interest on federal funds sold 2,567 2,253 1,836
TOTAL INTEREST INCOME 35,162 33,398 29,795
INTEREST EXPENSE
Interest on savings and interest bearing
demand deposits 4,899 4,900 5,018
Interest on time certificates of
deposit of $100,000 or more 2,639 1,040 491
Interest on other time deposits 4,222 3,973 1,949
Interest on short-term borrowings 58 169 6
TOTAL INTEREST EXPENSE 11,818 10,082 7,464
NET INTEREST INCOME 23,344 23,316 22,331
PROVISION FOR POSSIBLE LOAN LOSSES (Note 4) 1,350 720 450
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 21,994 22,596 21,881
NON-INTEREST INCOME
Service charges on deposit accounts 5,370 3,515 3,393
Other income 1,231 887 721
Gain (loss) on sale of securities available-
for-sale (Note 2) (45) 71 (169)
Gain (loss) on sale of loans 0 18 (296)
TOTAL NON-INTEREST INCOME 6,556 4,491 3,649
NON-INTEREST EXPENSES
Salaries and wages 7,896 7,735 7,443
Employee benefits (Note 7) 2,486 2,255 1,995
Occupancy expense (Note 10) 1,923 1,975 1,927
Furniture and equipment expense 1,090 1,213 1,361
Advertising 406 425 360
Data processing fees 1,070 1,086 1,256
Legal fees 858 547 136
Professional fees 1,307 819 806
Insurance 413 415 374
Postage, delivery and communication 675 624 589
FDIC and OCC assessments 112 567 1,153
Other real estate expense 202 99 169
Other expenses 1,411 1,776 2,504
TOTAL NON-INTEREST EXPENSES 19,849 19,536 20,073
INCOME BEFORE INCOME TAXES 8,701 7,551 5,457
PROVISION FOR INCOME TAXES (Note 6) 3,428 3,131 768
NET INCOME $ 5,273 $ 4,420 $4,689
<PAGE>
NET INCOME APPLICABLE TO COMMON
STOCK (NOTE 11) $ 5,273 $ 3,840 $4,075
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 11)
PRIMARY 4,650 3,302 3,168
ASSUMING FULL DILUTION 4,791 4,735 4,676
NET INCOME PER COMMON SHARE (Note 11)
PRIMARY EARNINGS PER COMMON SHARE $1.13 $1.16 $1.29
FULLY DILUTED EARNINGS PER COMMON SHARE $1.10 $0.93 $1.00
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
<PAGE>
Broad National Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
(In thousands, except per share amounts)
<TABLE>
Unrealized
Gain
Number (Loss) On
Of Pre- Pre- Securities
Common ferred ferred Common Capital Retained Treasury Available
Shares Stock- Stock- Stock Surplus Earnings Stock for-Sale,
1985 1992 Net Total
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31,
1993 2,738 $172 $657 $2,738 $22,273 $1,581 -- -- $27,421
NET INCOME -
1994 -- -- -- -- 4,689 -- -- 4,689
UNREALIZED GAIN
ON SECURITIES
AVAILABLE-FOR-
SALE -- -- -- -- -- -- -- 57 57
CONVERSION OF
1992 PREFERRED
STOCK 7 -- (4) 7 (3) -- -- -- --
CONVERSION OF
1985 PREFERRED
STOCK 1 (1) -- 1 -- -- -- -- --
EFFECT OF 5%
STOCK DIVIDEND 137 -- -- 137 943 (1,080) -- -- --
CASH DIVIDENDS
DECLARED COMMON
STOCK - $0.16
PER SHARE -- -- -- -- -- (511) -- -- (511)
PREFERRED STOCK
- 1992 -
$0.85 PER
SHARE -- -- -- -- -- (558) -- -- (558)
PREFERRED STOCK
- 1985 -
$3.42 PER
SHARE -- -- -- -- -- (59) -- -- (59)
NET CHANGE IN
UNREALIZED GAIN
(LOSS) ON
SECURITIES
AVAILABLE-FOR-
SALE, NET -- -- -- -- -- -- -- (773) (773)
BALANCE,
DECEMBER 31,
1994 2,883 $171 $653 $2,883 $23,213 $4,062 -- $(716) $30,266
NET INCOME
- 1995 -- -- -- -- -- 4,420 -- -- 4,420
CONVERSION OF
1992 PREFERRED
STOCK 173 -- (90) 173 (83) -- -- -- --
EXERCISE OF
STOCK OPTIONS 3 -- -- 3 15 -- -- -- 18
CASH DIVIDENDS
DECLARED COMMON
STOCK-$0.17
per share -- -- -- -- -- (595) -- -- (595)
PREFERRED STOCK
- 1992 - $0.85
PER SHARE -- -- -- -- -- (521) -- -- (521)
PREFERRED STOCK
- 1985 - $3.42
PER SHARE -- -- -- -- -- (59) -- -- (59)
NET CHANGE IN
UNREALIZED GAIN
(LOSS) ON
SECURITIES
AVAILABLE-FOR-
SALE, NET -- -- -- -- -- -- -- 1,000 1,000
Balance,
December 31,
1995 3,059 $171 $563 $3,059 $23,145 $7,307 -- $ 284 $34,529
NET INCOME
- 1996 -- -- -- -- -- 5,273 -- -- 5,273
REDEMPTION OF
1985 PREFERRED
STOCK -- (2) -- -- (6) -- -- -- (8)
CONVERSION OF
1985 PREFERRED
STOCK 110 (169) -- 110 59 -- -- -- --
REDEMPTION OF
1992 PREFERRED
STOCK -- -- (4) -- (35) (5) -- -- (44)
CONVERSION OF
1992 PREFERRED
STOCK 1,067 -- (559) 1,067 (508) -- -- -- --
EXERCISE OF
STOCK OPTIONS 16 -- -- 16 82 -- -- -- 98
EFFECT OF 10%
STOCK DIVIDEND 425 -- -- 425 3,852 4,277) -- -- --
CASH DIVIDENDS
DECLARED
COMMON STOCK -
$0.27 PER SHARE -- -- -- -- -- (1,294) -- -- (1,294)
PURCHASE OF
TREASURY STOCK -- -- -- -- -- -- (58) -- (58)
NET CHANGE IN
UNREALIZED GAIN
(LOSS) ON
SECURITIES
AVAILABLE-FOR-
SALE, NET -- -- -- -- -- -- -- (138) (138)
BALANCE,
DECEMBER 31,
1996 4,677 $ 0 $ 0 $4,677 $26,589 $7,004 $(58) $146 $38,358
The accompanying notes to the consolidated financial statements are an integral part of
these statements.
</TABLE>
<PAGE>
Broad National Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,273 $4,420 $4,689
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,229 1,185 1,255
Amortization of securities premium, net 709 440 749
Amortization of deferred points and fees
and deferral of loan origination costs (297) (571) (229)
Provision for possible loan losses 1,350 720 450
Deferred tax (benefit) provision (392) 899 (830)
(Decrease)increase in accrued taxes,
interest, and other liabilities (7,009) 9,472 2,018
(Gain) loss on sale of securities
available-for-sale 45 (71) 169
(Gain) loss on sale of loans 0 (18) 296
Write down of other real estate owned 0 0 151
Loss on the sale of other real estate owned 96 23 18
(Increase) decrease in accrued interest
receivable (532) 41 (456)
Other assets, net (747) (3,040) 261
Net cash provided by (used in) operating
activities ($ 275) $13,500 $8,541
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of other real estate
owned $ 292 $ 308 $ 737
Net (increase) decrease in loan
balances (19,909) 1,144 (20,079)
Proceeds from the sale of loans 0 1,432 14,499
Proceeds from the maturities of
securities held-to-maturity 14,745 8,936 20,386
Purchase of securities held-to-maturity (44,986) (17,722) (39,854)
Proceeds from the maturities of
securities available-for-sale 15,795 1,846 6,137
Proceeds from the sale of securities
available-for-sale 17,103 18,896 11,670
Purchase of securities available-
for-sale (46,623) (16,093) ( 8,941)
Capital expenditures (699) ( 1,077) ( 1,307)
Net cash used in investing activities $ (64,282) $(2,330) $(16,752)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time
deposits $59,462 $32,028 $(4,913)
Net increase (decrease) in demand deposit,
savings and interest bearing demand
deposits (4,070) 6,187 (9,687)
Net increase (decrease) in short term
borrowings 218 605 (165)
Dividends paid (1,294) (1,175) (1,071)
Issuance of Common Stock 98 0 0
Redemption of Preferred Stock (52) 0 0
Purchase of Treasury Stock (58) 0 0
Net cash provided by (used in) financing
activities $54,304 $37,645 $(15,836)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (10,253) 48,815 (24,047)
CASH AND CASH EQUIVALENTS, beginning of
year 87,110 38,295 62,342
CASH AND CASH EQUIVALENTS, end of year $76,857 $ 87,110 $ 38,295
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for
Interest $11,939 $ 8,823 $7,430
Income taxes 2,847 3,031 1,002
NONCASH OPERATING ACTIVITIES:
Transfer of loans to other real
estate owned $ 458 $ 702 $ 390
Transfer of securities
held-to-maturity
to securities available-for-sale $ 0 $ 37,911 $ 0
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
<PAGE>
Broad National Bancorporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies not described
elsewhere in these notes are as follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of Broad National Bancorporation (the Company), its
wholly owned subsidiary Broad National Bank (the Bank) and the
Bank's wholly owned subsidiaries, BNB Investment Corporation,
Broad National Realty Corporation and Bronatoreo. All
intercompany accounts and transactions have been eliminated.
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing the consolidated financial statements,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the
date of the statements of condition and results of operations for
the periods indicated. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination
of the allowance for possible loan losses and the valuation of
other real estate owned. In connection with the determination of
these allowances, management generally obtains independent
appraisals.
While management uses available information to
recognize losses on loans and other real estate owned, future
additions may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review
the Company's allowance for losses on loans, and valuation of
other real estate owned. Such agencies may require the Company
to recognize additions to the allowance or changes in valuation
based on their judgments of information available to them at the
time of their examination.
A substantial portion of the Company's loans are
secured by real estate in New Jersey. Accordingly, as with most
financial institutions in this market area, the ultimate
collectibility of a substantial portion of the Company's loan
portfolio is susceptible to changes in New Jersey's market
conditions.
FEDERAL HOME LOAN BANK OF NEW YORK (FHLBNY) STOCK
The Bank, as a member of the FHLBNY, is required to
hold shares of capital stock of FHLBNY, which are carried at
cost, based upon a specified formula.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). The financial impact of the adoption was $57,000, net of
tax, which was recorded as an increase to shareholders' equity.
SFAS 115 requires companies to divide their securities holdings
among three categories: held-to-maturity, available-for-sale,
and trading securities. The accounting standard provides a
different accounting treatment for each category.
The Company does not have trading securities, but does
differentiate between held-to-maturity securities and
available-for-sale securities. Management determines the
appropriate classification of securities at the time of purchase.
If management has the positive intent and the Company
has the ability at the time of purchase to hold securities until
maturity, they are classified as held-to-maturity securities.
Such securities are stated at amortized cost, adjusted for
unamortized purchase premiums and discounts.
Securities in the available-for-sale category are
those for which the Company does not have the positive intent and
ability to hold to maturity. Available-for-sale securities are
reported at fair value. Any unrealized appreciation or
depreciation in the available-for-sale securities, net of tax
effects, is reported as a separate component of shareholders'
equity. Realized gains or losses on the sale of securities
available-for-sale are recognized on the specific identification
method.
LOANS AND LOAN FEES
Loans are stated at their principal amount outstanding,
net of deferred loan fees and costs.
Non-refundable fees and costs associated with
originating or acquiring loans are deferred and amortized over
the expected remaining life of the related loans by use of a
method which approximates the level yield method.
It is the policy of the Bank to discontinue the accrual
of interest and reverse previously accrued but unpaid interest
where interest or principal is more than 90 days past due or when
other circumstances indicate that collection is questionable,
unless the loans are adequately secured and in the process of
collection. Income on these loans is recognized only in the
period in which it is collected.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at
a level considered adequate to provide for potential loan losses.
The allowance is increased by provisions charged to expense and
reduced by net charge-offs. The level of the allowance is based
upon management's evaluation of potential losses in the loan
portfolio, after consideration of prevailing economic conditions.
Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114
requires that the value of an impaired loan be measured based
upon the present value of expected future cash flows discounted
at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral dependent. Smaller balance
homogeneous loans that are collectively evaluated for impairment,
such as residential mortgage loans and installment loans, are
specifically excluded from impaired loans. The impaired loan
portfolio is primarily collateral dependent, as defined by SFAS
114. <PAGE> Impaired loans are assessed to determine that each loan's
carrying value is not in excess of the fair value of the related
collateral or the present value of expected future cash flows.
The Bank has identified the population of loans to be evaluated
for impairment to be non-accrual loans and loans internally
classified as substandard or below and in each instance above an
established dollar threshold. All loans below the established
dollar threshold are considered in the Bank's normal credit
evaluation process.
Effective January 1, 1995, the Bank adopted Statement
of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures" ("SFAS 118"). The Bank has chosen to maintain
existing income recognition policies with respect to non-accrual
loans.
OTHER REAL ESTATE OWNED
Other real estate owned is composed of foreclosed
properties where the Bank has actually received title. Such
properties are carried at the lower of cost or fair value less
estimated cost to sell. The fair value of such assets is
determined based upon independent appraisals and other relevant
factors. Operating expenses, and gains or losses from the sale
of other real estate owned are charged or credited to other real
estate expense.
Other real estate owned is included in "Other Assets"
in the Consolidated Statements of Condition.
PREMISES AND EQUIPMENT
These assets are stated at cost less accumulated
depreciation and amortization, which are computed primarily using
the straight-line method over the estimated useful lives of the
assets. Gains or losses on dispositions are reflected in current
operations. Maintenance and repairs are charged to expense as
incurred.
INCOME TAXES
Bancorporation and the Bank file a consolidated federal
income tax return. State income tax returns are filed on a
separate basis.
The Company accounts for income taxes using the asset
and liability method. Temporary differences between the basis of
assets and liabilities for financial reporting and tax purposes
are measured as of the balance sheet date. Deferred tax
liabilities or recognizable deferred tax assets are calculated on
such differences, using current statutory rates which result in
future taxable or deductible amounts. The effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
NET INCOME PER SHARE
Primary net income per share is computed by dividing
net income, less dividends on preferred stock, by the weighted
average number of common shares outstanding during each year
adjusted for dilutive stock options. Fully diluted per share
amounts are computed by dividing net income by the weighted
average number of common shares outstanding adjusted for shares
issuable upon conversion of preferred stock and dilutive stock
options.
<PAGE>
All share and per share amounts have been restated to
reflect the 5% stock dividend distributed in December 1994, and
the 10% stock dividend distributed in October 1996.
STOCK COMPENSATION PLANS
Prior to January 1, 1996, the Bank accounted for its
stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Bank adopted
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), which permits
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-
value-based method defined in SFAS 123 had been applied. The
Bank has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS 123.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, noninterest bearing amounts due
from banks, and federal funds sold.
RECLASSIFICATIONS
Certain amounts in the consolidated financial
statements presented for prior periods have been reclassified to
conform with the 1996 presentation.
NOTE 2: INVESTMENT SECURITIES
<TABLE>
The amortized costs, gross unrealized gains and losses and estimated fair values
of securities held-to-maturity are as follows (in thousands):
December 31
1996 1995
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Agencies $33,862 $ 42 $(177) $ 33,727 $11,055 $ 35 $ (39) $11,051
Mortgage-Backed
Securities 52,946 30 (591) 52,385 46,108 50 (376) 45,782
States and Political
Subdivisions 1,182 8 0 1,190 1,875 12 0 1,887
Other Bonds 32 0 0 32 32 0 0 32
Total Debt
Securities $88,022 $ 80 $(768) $87,334 $59,070 $97 $ (415) $58,752
FRB and FHLB Stock 2,148 0 0 2,148 1,196 0 0 1,196
Total Securities
Held-to-Maturity $90,170 $80 $(768) $89,482 $60,266 $97 $ (415) $59,948
</TABLE>
The amortized cost and estimated fair value of
securities held-to-maturity at December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
<PAGE>
Estimated
Amortized Fair
Cost Value
(in Thousands)
Due in one year or less $ 129 $129
Due in one year through five years 49,237 48,736
Due after five years through ten years 32,200 32,100
Due after ten years 6,456 6,369
Total Debt Securities $88,022 87,334
FRB and FHLB Stock 2,148 2,148
Total Securities held-to-maturity $90,170 $89,482
On November 15, 1995, the Financial Accounting
Standards Board (FASB) issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The guidance in this
Special Report became effective November 15, 1995. In accordance
with the guidance contained within the Special Report, effective
December 1, 1995 the Company transferred securities with a book
value of $37,911,000 from held-to-maturity to available-for-sale.
These securities had a market value of $38,238,000 which resulted
in the Company recording an unrealized gain on securities
available-for-sale, net of tax, within shareholders' equity of
$216,000.
The amortized costs, gross unrealized gains and losses
and estimated fair values of securities available-for-sale are as
follows (in thousands):
<TABLE>
December 31
1996 1995
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Notes $12,513 $ 83 $ (1) $12,595 $14,745 $200 $ (8) $14,937
U.S. Government
Agencies 1,000 0 (4) 996 1,000 1 0 1,001
Mortgage Backed
Securities 55,309 280 (136) 55,453 39,774 310 (76) 40,008
$68,822 $363 $(141) $69,044 $55,519 $511 $ (84) $55,946
</TABLE>
The amortized cost and estimated fair value of
securities available-for-sale at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized Fair
Cost Value
(in Thousands)
Due in one year or less $ 2,303 $ 2,302
Due in one year through five years 33,595 33,642
Due after five years through ten years 0 0
Due after ten years 32,924 33,100
$68,822 $69,044
Gross realized gains (losses) from the sale of
securities available-for-sale were $52,000 and ($97,000) during
1996, $71,000 and ($0) during 1995 and $0 and ($169,000) during
1994.
At December 31, 1996 and 1995, securities having a book
value of $75,559,000 and $49,509,000 respectively, were pledged
to secure lines of credit, letters of credit, public deposits and
for other purposes as required by law.
<PAGE>
NOTE 3: LOANS
Loans are summarized as follows (in thousands):
December 31
1996 1995
Real Estate loans
Construction $ 5,990 $4,097
Secured conventional
Residential 69,341 59,390
Nonresidential 126,050 122,347
Commercial and
industrial loans 73,171 68,479
Loans to individuals
Automobile 2,488 2,440
Revolving credit 315 286
Other installment loans 8,988 9,692
All other loans 1,021 688
Total loans $287,364 267,419
Less deferred loan fees (248) (289)
Total loans net of deferred loan fees $287,116 $267,130
Non-performing loans and non-performing assets include
the following (in thousands):
December 31
1996 1995
Non-accrual loans $ 8,384 $7,091
Accruing loans past due
90 days or more 1,349 3,123
Total non-performing loans $ 9,733 $10,214
Restructured loans(excluding amounts
classified as non-performing loans) 3,934 5,105
Other real estate owned, net 841 772
Total non-performing assets $14,508 $16,091
If the non-accrual loans had continued to accrue
interest in accordance with their original contract terms,
interest income would have increased approximately $710,500,
$689,000 and $475,000, in 1996, 1995 and 1994, respectively. No
interest income was collected on these loans subsequent to their
classification as non-accrual in 1996, 1995 and 1994.
At December 31, 1996 and 1995, the recorded investment
in loans that are considered to be impaired under SFAS 114 was
$10,109,000 and $6,662,000, respectively. The related allowance
for credit losses was $500,000 at December 31, 1996, and $770,000
at December 31, 1995. The impaired loan portfolio is primarily
collateral dependent, as defined by SFAS 114. The change in the
allowance for impaired loans represented a recovery of $270,000
during 1996 as compared to a provision of $123,000 during 1995.
The average recorded investment in impaired loans during the
years ended December 31, 1996 and 1995 was approximately
$9,657,000 and $5,213,000, respectively. For the years ended
December 31, 1996 and 1995, the Company recognized cash basis
interest income on these impaired loans of $265,500 and $70,000,
respectively.
All loans to directors, executive officers, significant
shareholders and their related interests are current as to
principal and interest payments at December 31, 1996. The
following summarizes the activity for related party loans for the
year ended December 31, 1996 (in thousands):
<PAGE>
Balance, beginning of year $2,178
Additions 265
Payments 685
Balance, end of year $1,758
The Bank is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financial needs of its customers. These financial
instruments include commercial and standby letters of credit and
unused lines of credit and involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the
statements of condition. The contract or notional amounts of
these instruments express the extent of involvement the Bank has
in each class of financial instruments.
The Bank's exposure to credit loss from non-performance
by the other party to the above mentioned financial instruments
is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
Unless otherwise noted, the Bank does not require
collateral or other security to support financial instruments
with off-balance-sheet credit risk.
Contract or
Notional Amount
Financial Instruments Whose Contract at December 31,1996
Amounts Represent Credit Risk (in Thousands)
Commercial and standby letters of credit $ 3,742
Outstanding loan commitments-fixed rate $15,270
Outstanding loan commitments-variable rate $49,121
Commercial and standby letters of credit are
conditional commitments issued by the Bank guaranteeing
performance by a customer to a third party. Outstanding loan
commitments represent the unused portion of loan commitments
available to individuals and companies as long as there is no
violation of any condition established in the contract.
Outstanding loan commitments generally have a fixed expiration
date of one year or less, except for home equity lines of credit
commitments which generally have an expiration date of 15 years.
The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based upon
management's credit evaluation of the customer. Various types of
collateral may be held, including property and marketable
securities.
The credit risk involved in these financial instruments
is essentially the same as that involved in extending loan
facilities to customers.
NOTE 4: ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based upon
estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in
the periods in which they become known.
The following summarizes the activity in the allowance
for possible loan losses (in thousands):
<PAGE>
<TABLE>
Year Ended December 31,
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Balance, beginning of year $ 7,402 $ 7,602 $11,252
Provisions charged to operations 1,350 720 450
Loans charged-off ( 1,264) (2,123) (5,141)
Recoveries of charged-off loans 1,043 1,203 1,041
Balance, end of year $ 8,531 $ 7,402 $ 7,602
</TABLE>
Approximately $2,696,000 of the $5,141,000 of loans
charged off during 1994 resulted from the sale of troubled loans.
Additionally, approximately $500,000 of the $1,041,000 of
recoveries resulted from the settlement of certain claims made
under the Company's insurance policy for reimbursement of losses
arising from alleged loan irregularities discovered in February
1991.
The allowance for loan losses for Federal income tax
purposes was $3,024,000 at December 31, 1996, $3,360,000 at
December 31, 1995 and $3,151,000 at December 31, 1994.
NOTE 5: PREMISES AND EQUIPMENT
The detail of premises and equipment is as follows (in
thousands):
December 31
1996 1995
Land $ 1,309 $ 1,309
Building 8,550 8,416
Furniture and equipment 7,609 7,153
Leasehold improvements 4,058 3,981
$21,526 $20,859
Less-Accumulated depreciation
and amortization 12,638 11,441
$ 8,888 $ 9,418
NOTE 6: INCOME TAXES
The provision for income taxes (benefit) comprises the
following components (in thousands):
Year Ended December 31
1996 1995 1994
Federal
Current tax expense $3,124 $2,126 $1,434
Deferred tax expense (benefit) (334) 563 (1,051)
State
Current tax expense 696 106 164
Deferred tax expense (58) 336 221
$3,428 $3,131 $768
In accordance with SFAS 115 (See Note 1), deferred tax
expense (benefit) of $68,000,$143,000 and ($436,000) has been
provided through shareholders' equity to reflect unrealized gains
(losses) on available-for-sale securities at December 31,
1996,1995 and 1994, respectively.
<PAGE>
The following is a reconciliation of the Federal income
tax expense as reported with the statutory Federal tax on income
before income taxes (in thousands):
Year Ended December 31
1996 1995 1994
Tax at statutory rate $ 2,958 $2,567 $1,855
Tax exempt interest income (15) (38) (31)
State income taxes, net of
Federal tax benefit 421 292 254
Contributions and other 31 34 0
Valuation allowance (160) 0 (1,500)
Other, net 193 276 190
Total $ 3,428 $3,131 $ 768
Effective tax rate 39.4% 41.5% 14.1%
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and deferred
tax liabilities are as follows (in thousands):
December 31
1996 1995
Deferred tax assets:
Deferred fee income $ 93 $ 145
Allowance for possible loan losses 2,228 1,708
Nonaccrual loan interest 1,185 1,040
Allowance for losses on OREO 38 38
Pension expense 440 383
Premises and equipment, principally
due to differences in depreciation 789 696
Net operating loss carryforwards 0 140
Other 110 518
Total gross deferred tax asset 4,883 4,668
Valuation allowance (270) (430)
Total net deferred tax asset $ 4,613 $4,238
Deferred tax liabilities:
Investment securities, principally
due to accretion of discounts $ 25 $ 42
Unrealized gain-securities
available-for-sale 75 143
Total gross deferred tax liabilities $ 100 $ 185
Net deferred tax asset $ 4,513 $ 4,053
Management has projected that the Company will generate
sufficient taxable income to utilize the net deferred tax asset.
There can be no assurance, however, that the Company will
generate any earnings or any specific level of continuing
earnings.
The valuation allowance for deferred tax assets as of
December 31, 1996 and 1995 was $270,000 and $430,000,
respectively. The net change in the total valuation allowance
for 1996 was a decrease of $160,000 which is the result of the
reduction of the Bank's state tax loss carry forward. There was
no change in the valuation allowance for 1995.
<PAGE>
NOTE 7: BENEFITS PLANS
PENSION PLAN:
The Bank has a noncontributory defined benefit pension
plan which covers substantially all employees. Actuarial gains
and losses, if any, are amortized on a straight line basis over
the average expected future service of the active employees. The
Company makes annual contributions to the plan equal to the
amount accrued for pension expense if deductible for tax
purposes.
The following table sets forth the plan's funded status
and amounts recognized in the Company's consolidated financial
statements (in thousands):
December 31
1996 1995
Actuarial present value of benefit obligation
Accumulated benefit obligations,
including vested benefits of $2,425 and
$1,662 in 1996 and 1995, respectively $2,554 $1,797
Plan assets at fair value, primarily
listed stocks, U.S. Bonds, and
commingled funds $4,141 $3,387
Projected benefit obligation for service
rendered to date 4,874 3,375
Plan assets greater (less) than projected
benefit obligation (733) 12
Unrecognized net loss due to past experience
different from assumptions made and effects
of changes in assumptions (218) (801)
Unrecognized prior service cost 211 238
Unrecognized transition asset being amortized
over 15 years (146) (170)
Accrued pension cost included in other
liabilities $(886) $(721)
Net pension cost for 1996, 1995 and 1994 included the
following components (in thousands):
Year Ended December 31
1996 1995 1994
Service cost-benefits earned
during the year $ 543 $ 387 $ 386
Interest cost on projected
benefit obligation 289 250 222
Actual (return) loss
on plan assets (377) (697) 124
Net deferral and amortization 68 448 (403)
Net pension cost $523 $ 388 $ 329
In determining the projected benefit obligation, the
weighted average assumed discount rate was 7% for 1996 and 8% for
1995 and 1994, respectively, while the rate of increase in future
salary levels was 5% for 1996, 1995 and 1994, respectively. The
expected long term rate of return on <PAGE> assets, used in determining
the net period pension cost was 8% for all years presented.
Effective in 1995, the Bank established a non-qualified
deferred compensation plan for certain officers. All benefits
provided under this plan are unfunded. As of December 31, 1996,
approximately $138,000 was included in accrued expense for this
plan. For the year ended December 31,1996 and 1995, expenses
related to this plan were $51,000 and $87,000, respectively.
401K PLAN:
The Bank sponsors a 401k Plan which provides several tax
deferred investment opportunities to salaried employees of the
Bank who have satisfied the service requirements of the Plan.
The Plan allows eligible employees to make periodic contributions
of certain percentages of their salary, subject to the Internal
Revenue Code limits on maximum annual contributions. The Bank
matches part of these contributions. The Bank's matching
contribution expense was $62,300, $65,100 and $61,000 for 1996,
1995, and 1994, respectively.
NOTE 8: STOCK COMPENSATION PLANS:
At December 31, 1996, the Company had five stock based
compensation plans, which are described below. The Company
applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost is
recognized for its stock option plans. Had compensation cost for
the Company's five stock -based compensation plans been
determined consistent with SFAS NO.123, the Company's net income
and earnings per share would have been reduced to the proforma
amounts indicated below (in thousands, except per share amounts):
1996 1995
Net income As Reported $5,273 $4,420
Pro forma $5,152 $4,368
Primary earnings As Reported $1.13 $1.16
per share Pro forma $1.11 $1.15
Fully diluted As Reported $1.10 $0.93
earnings per
share Pro forma $1.08 $0.92
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996,
and 1995, respectively: dividend yield of 2.4 percent and 2.3
percent; expected volatility of 45 percent for both periods;
risk-free interest rates of 6.7 percent, and 7.0 percent for the
1993 Non-Statutory Plan options, 6.3 percent, and 5.7 percent for
the 1993 and 1996 Incentive Plan options; and expected lives of 8
years for both periods for the 1993 Non-Statutory Plan options,
and 7 years for both periods for the 1993 and 1996 Incentive Plan
options. The effects of applying SFAS 123 on the pro forma net
income may not be representative of the effects on the pro forma
net income for future years.
<PAGE>
STOCK OPTION PLANS:
The Company has five option plans. The 1986 Incentive Stock
Option Plan expired April 16, 1996. No additional options are
available for granting under this plan. The 36,039 options
issued and outstanding prior to April 16,1996 remain available
for exercise until their expiration dates.
Under the 1993 Broad National Incentive Stock Option Plan
(1993 Incentive Plan), the Company may grant options to its
management personnel for up to 231,000 shares of common stock.
Under the 1993 Broad National Directors Non-Statutory Stock
Option Plan (1993 Non-Statutory Plan), the Company may grant
options to its directors for up to 86,625 shares of common stock.
Under the 1996 Broad National Bancorporation Incentive Stock
Option Plan (1996 Incentive Plan), the Company may grant options
to its management personnel for up to 200,000 shares of common
stock.
Under the 1996 Broad National Bancorporation Directors Non-
Statutory Stock Option Plan (1996 Non-Statutory Plan), the
Company may grant options to its directors for up to 75,000
shares of common stock.
Both the 1996 Incentive Stock Option Plan and the 1996 Non-
Statutory Stock Option Plan were approved by the Company's Board
of Directors in December 1996, but remain subject to shareholder
approval at the Company's 1997 Annual Meeting of Shareholders.
26,000 options granted under the 1996 Incentive Stock Option Plan
were subject to such shareholder approval at December 31, 1996.
Under all plans, the exercise price of each option is no
less than the market price of the Company's stock on the date of
grant, and an option's maximum term is ten years.
Options granted under the 1993 and 1996 Non-Statutory Plans
vest at the expiration of two years from the granting date.
Vesting under the 1993 and the 1996 Incentive Plans is
subject to the authority of the committee which administers these
plans, and all options granted to date under these plans vest 40%
at the end of the second year and 20% each year over the next
three years.
<PAGE>
A summary of the status of the Company's stock option plans
as of December 31, 1994, 1995 and 1996, and changes during the
years ended on those dates is presented below:
Shares Under Weighted-Avg.
Option Exercise Price
Outstanding at December 31, 1993 170,964 $6.14
Granted in 1994 72,957 6.38
Expired unexercised in 1994 ( 5,526) 6.63
Outstanding at December 31, 1994 238,395 6.20
Exercised in 1995 (3,572) 5.25
Granted in 1995 83,050 8.67
Expired unexercised in 1995 ( 2,143) 8.95
Outstanding at December 31, 1995 315,730 6.84
Exercised in 1996 (18,098) 5.43
Granted in 1996 77,150 12.16
Expired unexercised in 1996 ( 7,593) 6.89
Outstanding at December 31, 1996 367,189 8.03
Weighted-average fair value 1996 1995
of options granted during the year $5.30 $4.09
<TABLE>
The following table summarizes information about stock options outstanding at December 31,
1996:
Options Outstanding Option Exercisable
Weighted-Avg. Weighted Weighted
Range Number Remaining -Avg. Number -Avg.
of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
<CAPTION>
<S> <C> <C> <C> <C> <C>
$ 5.84 - $6.78 196,308 5.9 years $ 6.11 130,441 $ 6.05
7.02 - 8.64 71,830 8.9 8.34 6,930 7.02
9.50 - 10.01 29,051 4.8 9.69 5,951 10.01
12.13 - 13.34 70,000 8.9 12.39 0 0.00
$ 5.84 -$13.34 367,189 7.0 $ 8.03 143,322 $ 6.27
</TABLE>
NOTE 9: SHORT-TERM BORROWINGS
Details with respect to other short-term borrowings are as
follows (in thousands):
December 31
1996 1995
Balance, end of year $ 1,000 $ 782
Maximum outstanding during the year
at any month end $ 1,282 $21,345
Average interest rate, end of year 4.95% 5.69%
Average outstanding during the year $ 1,149 $ 2,808
Average interest rate for the year 4.97% 6.02%
The average amounts outstanding were computed primarily from
daily averages and the average interest rate for the year and at
the end of the year were computed by dividing the respective
interest expenses by the average balances outstanding.
The Bank has available $23,750,000 in lines of credit with
correspondent banks. At December 31, 1996, these line of credit
were not in use.
<PAGE>
NOTE 10: COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company and the Bank
may be a party to outstanding legal proceedings and claims. In
its judgement, management does not believe that the Company's
consolidated financial position or results of operations will be
materially affected by any of these present proceedings.
Cash balances reserved to meet the requirements of the bank
regulatory authorities amounted to $9,408,000 at December 31,
1996.
The Bank has lease commitments on certain of its branches
expiring at various dates through 2006. Rental expense on these
leases charged to operations amounted to $544,000, $567,000 and
$519,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. The minimum annual rentals under the terms of the
leases as of December 31, 1996 were as follows:
1997 $429,000
1998 332,000
1999 251,000
2000 189,000
2001 129,000
Thereafter 77,000
NOTE 11: SHAREHOLDERS' EQUITY
Stock dividends:
On September 20, 1996, the Board of Directors of the Company
declared a 10% stock dividend which was distributed October 3,
1996.
On November 17, 1994, the Board of Directors of the Company
declared a 5% stock dividend which was distributed December 16,
1994 to shareholders of record two weeks prior thereto.
All per share data included in the accompanying financial
statements and notes thereto reflect the retroactive effect of
these stock dividends.
PREFERRED STOCK 1992 CLASS:
On January 29, 1993 the Company completed its Rights
Offering of 8-1/2% Cumulative Convertible Preferred Stock 1992
Class, $1.00 par value ("1992 Preferred Stock"). All 690,000
shares of the 1992 Preferred Stock were sold at a price of $10.00
per share.
On November 16, 1995, the Board of Directors of the Company
called for redemption 250,000 shares of the 1992 Preferred Stock.
Additionally, on January 18, 1996, the Board of Directors of the
Company called for redemption all of the remaining outstanding
shares of the 1992 Preferred Stock. On April 8, 1996, the
Company completed the redemption of the 1992 Preferred Stock. As
a result of the redemption programs, 3,750 shares of 1992
Preferred Stock were redeemed at the price of $10.60 per share,
for a total redemption price of $43,750. In lieu of redemption,
558,803 shares of 1992 Preferred Stock were converted into
1,066,616 shares of common stock. Cash was paid for fractional
shares resulting from conversion.
PREFERRED STOCK 1985 CLASS:
On December 31, 1985, the Company issued 20,000 shares of
nonvoting, 9% Cumulative Convertible Preferred Stock-1985 Class
("1985 Preferred Stock").
<PAGE>
On November 16, 1995, the Board of Directors of the Company
called for redemption all of the outstanding shares of the 1985
Preferred Stock. The redemption of the 1985 Preferred Stock was
completed on January 7, 1996 and 197 shares of the 1985 Preferred
Stock were redeemed at a price of $38 per share, for a total
redemption price of $7,486. In lieu of redemption, 16,927 shares
of the 1985 Preferred Stock were converted into 109,916 shares of
common stock. Cash was paid for fractional shares resulting from
conversion.
STOCK BUYBACK PROGRAM:
On November 21, 1996, the Board of Directors of the Company
authorized the repurchase of up to 100,000 of its outstanding
common shares. These repurchases will be made from time to time
in the open market, subject to prevailing conditions and in a
manner to avoid disrupting the market. Purchasing activities may
be discontinued and resumed at any time, as market conditions
warrant. The repurchased shares will be held in treasury and may
be used by the Company for general corporate purposes including
stock-based employee benefit plans and stock dividends.
At December 31, 1996, the Company had repurchased 5,000
shares of common stock at a cost of $57,500.
NOTE 12: REGULATORY MATTERS
Capital adequacy for the Company is measured against
regulations established by the Federal Reserve Board (FRB). The
Bank is subject to generally similar capital regulations adopted
by the Office of the Comptroller of the Currency (the OCC).
These regulations require the Company and the Bank to maintain
minimum levels of regulatory capital. Under the regulations in
effect at December 31,1996, the Company and the Bank were
required to maintain (i) a minimum leverage ratio of Tier 1
capital to total adjusted assets of 4.0%, and (ii) minimum ratios
of Tier 1 and total capital to risk-weighted assets of 4.0% and
8.0%, respectively.
Under its prompt corrective action regulations, the FDIC is
required to take certain supervisory actions ( and may take
additional discretionary actions) with respect to an
undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The
regulations establish a framework for the classification of
financial institutions into five categories: well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a
leverage(Tier 1) capital ratio of at least 5.0%; a Tier 1 risk-
based capital ratio of at least 6.0%; and a total risk-based
capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific
quantitative measures of assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications are also subject
to qualitative judgments by the FRB, the OCC and the FDIC about
capital components, risk weightings and other factors.
Management believes that, as of December 31, 1996, the
Company and the Bank meet all capital adequacy requirements to
which they are subject. Further, the most recent FDIC
notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations.
There have been no conditions or events since that notification
that management believes have changed the Bank's capital
classification.
The following is a summary of the Company's and the Bank's
actual capital amounts and ratios as of December 31, 1996 and
1995, compared to the regulatory minimum capital adequacy
requirements and the regulatory requirements for classification
as a well-capitalized institution:
<PAGE>
<TABLE>
Regulatory Requirements
Minimum Capital For Classification
as Well
Company Actual Adequacy Capitalized
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Leverage (Tier 1)
capital $37,512 6.92% $21,676 4.00% $27,095 5.00%
Risk-based capital
Tier 1 $37,512 11.17% $13,434 4.00% $20,151 6.00%
Total $41,764 12.44% $26,868 8.00% $33,585 10.00%
December 31, 1995
Leverage (Tier 1)
capital $33,545 7.17% $18,724 4.00% $23,404 5.00%
Risk-based capital:
Tier 1 $33,545 10.58% $12,680 4.00% $19,020 6.00%
Total $37,550 11.85% $25,360 8.00% $31,700 10.00%
</TABLE>
<TABLE>
Regulatory Requirements
Minimum Capital For Classification
as Well
Company Actual Adequacy Capitalized
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Leverage (Tier 1)
capital $36,939 6.82% $21,676 4.00% $27,095 5.00%
Risk-based capital
Tier 1 $36,939 11.00% $13,434 4.00% $20,151 6.00%
Total $41,191 12.26% $26,868 8.00% $33,585 10.00%
December 31, 1995
Leverage (Tier 1)
capital $32,779 7.00% $18,724 4.00% $23,404 5.00%
Risk-based capital:
Tier 1 $32,779 10.34% $12,680 4.00% $19,020 6.00%
Total $36,784 11.60% $25,360 8.00% $31,700 10.00%
</TABLE>
NOTE 13: SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information for the two
years ended December 31, 1996 and 1995, is unaudited. However,
in the opinion of management all adjustments, which include only
normal recurring adjustments necessary to present fairly the
results of operations for the periods, are reflected. Results of
operations for these three-month periods are not necessarily
indicative of the results for the entire year or any other
interim period (in thousands, except per share amounts):
<TABLE>
1996
March June September December
<CAPTION>
<S> <C> <C> <C> <C>
Interest income $8,104 $8,474 $9,060 $9,524
Interest expense 2,613 2,658 3,118 3,429
Provision for possible
loan losses 225 225 450 450
Non-interest income 1,072 1,306 1,685 2,493
Non-interest expenses 4,700 5,076 5,007 5,066
Net income 1,037 1,127 1,262 1,847
Net income per common
share:
Primary earnings
per common share $ 0.24 $ 0.24 $ 0.26 $ 0.39
Fully diluted
earnings per
common share $ 0.22 $ 0.23 $ 0.26 $ 0.39
</TABLE>
<PAGE>
<TABLE>
1995
March June September December
<CAPTION>
<S> <C> <C> <C> <C>
Interest income $7,999 $8,400 $8,500 $8,499
Interest expense 2,142 2,612 2,690 2,638
Provision for possible
loan losses 100 120 120 380
Non-interest income 1,013 1,103 1,176 1,199
Non-interest expenses 5,031 5,085 4,690 4,730
Net income 1,008 973 1,279 1,160
Net income per common
share:
Primary earnings
per common share $ 0.26 $ 0.26 $ 0.34 $ 0.30
Fully diluted
earnings per
common share $ 0.22 $ 0.20 $ 0.27 $ 0.24
</TABLE>
NOTE 14: FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("SFAS
107") requires that the Company disclose estimated fair values
for its financial instruments whether or not recognized in the
Statement of Financial Condition.
Limitations: The fair value estimates made at December 31,
1996 and 1995 were based on pertinent market data and relevant
information on the financial instrument at that time. These
estimates do not reflect any premium or discount that could
result from offering for sale at one time the entire portion of
the financial instruments. Because no market exists for a
portion of the financial instruments, fair value estimates may be
based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and-off
balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial
instruments. In addition, the tax implications related to the
realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been
considered in many of the estimates.
Fair value estimates, methods and assumptions are set forth
below for the Company's financial instruments (in thousands):
<TABLE>
At December 31,
1996 1995
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<CAPTION>
<S> <C> <C> <C> <C>
Financial Assets
Cash and short-term
investments $ 76,857 $ 76,857 $ 87,110 $87,110
Securities held-to-
maturity 90,170 89,482 60,266 59,948
Securities available-
for-sale 69,044 69,044 55,946 55,946
Loans, net 278,585 281,052 259,728 261,858
Financial Liabilities
Deposits 485,073 485,042 429,681 429,995
Short term borrowings 1,000 1,000 782 782
</TABLE>
The following methods and assumptions were used to estimate
the fair value of each class of financial instrument:
<PAGE>
CASH AND SHORT-TERM INVESTMENTS
The carrying amount approximates fair value.
INVESTMENT SECURITIES
The fair values are based on quoted market prices obtained
from outside sources.
LOANS
The fair value of the loan portfolio was estimated using the
discounted value of the future cash flows expected to be received
using a market discount rate. For loans that have short-term
maturities or that reprice to market rates, the carrying value
was used as an estimate of fair value.
DEPOSIT LIABILITIES
The fair value of deposits is equal to the amount payable on
demand at the reporting dates except for the fair value of fixed
maturity certificates of deposit which were estimated by
discounting the value of the future cash flows expected to be
paid on deposits.
SHORT TERM BORROWINGS
The carrying amount approximates fair value.
COMMITMENTS TO EXTEND CREDIT AND LETTER OF CREDIT
The fair market value of unearned fees associated with
financial instruments with off-balance sheet risk at December 31,
1996 approximates the fees received. Amount is not material.
NOTE 15: CONDENSED FINANCIAL INFORMATION OF BANCORPORATION
(PARENT COMPANY ONLY)
Condensed Statements of Condition (in thousands):
December 31,
1996 1995
Assets
Cash, principally on deposit with
subsidiary bank $ 684 $ 220
Investment in subsidiary 37,784 33,763
Other assets 375 975
Total Assets $38,843 $34,958
Liabilities and Shareholders' Equity
Other liabilities $ 485 $ 429
Shareholders' equity 38,358 34,529
Total Liabilities and Shareholders'
Equity $38,843 $34,958
<PAGE>
Condensed Statements of Income for the years ended December
31, 1996, 1995 and 1994 (in thousands):
December 31,
1996 1995 1994
Income
Equity in undistributed income
of subsidiary $ 4,160 $2,782 $3,860
Dividends received from banking
subsidiary 1,230 1,818 945
$ 5,390 $4,600 $4,805
Expenses
Salaries and related benefits $ 39 $ 39 $ 39
Other 78 141 77
$ 117 $ 180 $ 116
Net income $ 5,273 $4,420 $4,689
Condensed Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (in thousands):
December 31,
1996 1995 1994
Cash flows from operating
activities:
Net income $5,273 $4,420 $4,689
Less-
Equity in undistributed income
of subsidiary (4,160) (2,782) (3,860)
Increase in other liabilities 56 123 73
Other, net 601 (975) (56)
Net cash provided by operating
activities $1,770 $ 786 $ 846
Cash flows from investing
activities:
Investments in and advances
to subsidiary $ 0 $ 0 $ (600)
Net cash used in investing
activities $ 0 $ 0 $ (600)
Cash flows from financing
activities:
Redemption of preferred stock $ (52) $ 0 $ 0
Proceeds from issuance of
common stock 98 18 0
Dividends to shareholders (1,294) (1,175) (1,071)
Purchase of treasury stock (58) 0 0
Net cash used in
financing activities $(1,306) $(1,157) $(1,071)
Net increase (decrease) in
cash and cash equivalents 464 (371) (825)
Cash and cash equivalents-
beginning of year 220 591 1,416
Cash and cash equivalents-
end of year $ 684 $ 220 $ 591
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item (except for the information set
forth in Item 4A of Part I hereof with respect to the
Registrant's executive officers) is incorporated herein by
reference to (i) the information under the caption "Election of
Directors" (except that the information set forth under the
following subcaptions thereunder is expressly excluded from such
incorporation: "Compensation of Directors" and "Meetings of the
Board and Committees") and (ii) the information under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of
1934," in each case, in the Registrant's definitive Proxy
Statement for its 1997 Annual Meeting of Shareholders to be filed
pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Executive
Compensation and Other Information" (except that the information
set forth under the following subcaptions thereunder is expressly
excluded from such incorporation: "Compensation Committee and
Board of Directors Report on Executive Compensation" and "Company
Performance") in the Registrant's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Ownership of
Bancorporation Capital Stock" in the Registrant's definitive
Proxy Statement for its 1997 Annual Meeting of Shareholders to be
filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Transactions With
Management and Others" in the Registrant's definitive Proxy
Statement for its 1997 Annual Meeting of Shareholders to be filed
pursuant to Regulation 14A.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Exhibits and Financial Statement Schedules:
1. The following consolidated financial statements of the
Registrant and subsidiaries and report of the Registrant's
independent auditors included in Item 8 to this report:
Independent Auditors' Report as of December 31,
1996 and 1995 and for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Condition as of
December 31, 1996 and 1995.
Consolidated Statements of Income for each of the
years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in
Shareholders' Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for each of
the years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: All schedules are
omitted because they are not applicable, or not required, or
because the required information is included in the financial
statements or the notes thereto.
3. Exhibits:
NUMBER DESCRIPTION
3.1 Restated Certificate of Incorporation of the Registrant
as amended through and including June 29, 1995 (filed
as Exhibit 3 to the Registrant's Form 10-Q for the
quarter ended March 31, 1996 and incorporated by
reference herein).
3.2 Bylaws of the Registrant, as amended to date (filed as
Exhibit 3(d) to the Registrant's Form 10-K Report for
the fiscal year ended December 31, 1989 and
incorporated herein by reference).
10.1 Lease between The Prudential Insurance Company of
America and Broad National Bank dated as of December
15, 1988 (filed as Exhibit 3(e) to the Registrant's
Form 10-K Report for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.1.1 Amendment of Lease between The Prudential Insurance
Company of America and Broad National Bank dated as of
February 7, 1996 (filed as Exhibit 10.1.1 to the
<PAGE>
Registrant's Form 10-K Report for the fiscal year ended
December 31, 1995 and incorporated herein by
reference).
10.2 Lease between Third Newark Gateway Urban Renewal
Association and Broad National Bank, dated September 7,
1984 (filed as Exhibit 10(b) to Registration Statement
No. 33-01560 and incorporated herein by reference).
10.3 Lease between O. Navigador Bar, Inc. and Broad National
Bank (filed as Exhibit 10(c) to Amendment No. 1 to
Registration Statement No. 2-78220 and incorporated
herein by reference).
10.4 Lease between Millburn Common Associates and Broad
National Bank dated June 16, 1976, and Amendment to
such Lease, dated September 10, 1985 (filed as Exhibit
10(d) to Registration Statement No. 33-01560 and
incorporated herein by reference).
10.5 Lease between Cada Holding Corp. and Broad National
Bank dated October 8, 1976 (filed as Exhibit 10(e) to
Amendment No. 1 to Registration Statement No. 2-78220
and incorporated herein by reference).
10.6 Lease between Euro Associates and Broad National Bank
acknowledged by the parties on December 12, 1985 and
December 10, 1985 (filed with Amendment No. 2 to the
Registrant's Registration Statement No. 33-53658 as
Exhibit 10.6 and incorporated herein by reference).
10.7 Workletter Agreement between Euro Associates and Broad
National Bank (filed with Amendment No. 2 to the
Registrant's Registration Statement No. 33-53658 as
Exhibit 10.7 and incorporated herein by reference).
10.8 Lease between 1000 South Elmora Associates and Broad
National Bank dated May 18, 1986 (filed with Amendment
No. 2 to the Registrant's Registration Statement No.
33-53658 as Exhibit 10.8 and incorporated herein by
reference).
10.9 Lease between Convery Associates and Broad National
Bank dated July 1, 1987, and Rider to Lease Agreement,
dated September 1, 1992 (filed with Amendment No. 2 to
the Registrant's Registration Statement No. 33-53658 as
Exhibit 10.10 and incorporated herein by reference).
10.10 Lease Agreement and Amendment between 466 Bloomfield
Avenue Associates, Inc. and Broad National Bank dated
February 9, 1988 (filed as Exhibit 10(l) to the
Registrant's Form 10-K Report for the fiscal year ended
December 31, 1989 and incorporated herein by
reference).
10.11 Lease Agreement between George Zeik and Broad National
Bank dated September 1, 1989 (filed as Exhibit 10(m) to
the Registrant's Form 10-K Report for the fiscal year
<PAGE>
ended December 31, 1989 and incorporated herein by
reference).
10.12 Lease between Broad National Realty Corporation and
Broad National Bank dated May 1, 1990 (filed as Exhibit
10(n) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1990 and incorporated by reference
herein).
10.12.1 Rider to Lease Agreement between Broad National Realty
and Broad National Bank dated December 21, 1993 (filed
as Exhibit 10.13.1 to the Registrant's Form 10-K for
the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.13 Broad National Bank Employees' Retirement Plan (filed
as Exhibit 10(g) to Registration Statement No. 2-78220
and as Exhibit 10(f) to Amendment No. 1 to Registration
Statement No. 2-78220 and incorporated herein by
reference).*
10.14 Form of Amendment to Sections 2.1 and 3.1(c) of the
Broad National Bank Employees' Retirement Plan (filed
as Exhibit 10(p) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1990 and incorporated by
reference herein).*
10.15 Description of Bonus Plan for Designated Officers and
Employees (appears on page 10 of the Registrant's
definitive proxy statement for its 1991 Annual Meeting
of Shareholders and is incorporated herein by
reference).*
10.16 Incentive Stock Option Plan for certain employees
adopted on March 26, 1987, and amended April 27, 1989
(filed as Exhibit 10.18 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1992 and
incorporated by reference herein).*
10.17 Non-Statutory Stock Option Plan for directors adopted
on March 26, 1987 (filed with Amendment No. 2 to the
Registrant's Registration Statement No. 33-53658 as
Exhibit 10.19 and incorporated herein by reference).*
10.18 Employment Agreement between Donald M. Karp and the
Registrant dated December 31, 1996.*
10.19 Employment Agreement by and between John A. Dorman,
Broad National Bank and the Registrant, dated December
31, 1996.*
10.20 Consultant Agreement between Stanley J. Lesnik and the
Registrant dated November 16, 1995 (filed as Exhibit
10.20 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by
reference).*
10.21 Lease between Broad National Bank, landlord, and
Newtrend L.P., tenant, dated August 10, 1993 (filed as
Exhibit <PAGE> 10.22 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
10.22 Newtrend Service Bureau Agreement between Newtrend,
Inc. and Broad National Bank dated August 10, 1993
(filed as Exhibit 10.23 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.23 Newtrend Item Processing Addendum between Newtrend,
Inc. and Broad National Bank dated August 10, 1993
(filed as Exhibit 10.24 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.24 1993 Broad National Incentive Stock Option Plan for
certain employees adopted on September 19, 1994 (filed
as Exhibit 10.24 to the Registrant's Form 10-K Report
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).*
10.25 1993 Broad National Directors Non-Statutory Stock
Option Plan for directors adopted on September 19, 1994
(filed as Exhibit 10.25 to the Registrant's Form 10-K
Report for the fiscal year ended December 31, 1994 and
incorporated herein by reference).*
10.26 Lease between Lucky Realty LLC and Broad National Bank
(filed as Exhibit 10.26 to the Registrant's Form 10-K
Report for the fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.27 Lease between A.J. Seabra Supermarkets V, Inc. and
Broad National Bank dated as of April 20, 1995 (filed
as Exhibit 10.27 to the Registrant's Form 10-K Report
for the fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.28 1996 Broad National Bancorporation Incentive Stock
Option Plan for certain employees adopted on December
19, 1996 and subsequently amended on January 16, 1997.*
10.29 1996 Broad National Bancorporation Directors Non-
Statutory Stock Option Plan for directors adopted on
December 19, 1996.*
10.30 Broad National Bank Long-Term Capital Accumulation Plan
for certain employees adopted on October 19, 1995.*
10.31 Broad National Bank Deferred Compensation Plan for
certain employees and directors adopted on October 19,
1995.*
10.32 Broad National Bank Management Incentive Plan for
certain employees adopted on October 19, 1995.*
<PAGE>
11 Statement re Computation of Net Income Per Share.
22 List of Subsidiaries (filed with Amendment No. 3 to the
Registrant's Registration Statement No. 33-53658 as
Exhibit 22 and incorporated herein by reference).
24 Consent of KPMG Peat Marwick LLP with regard to
Bancorporation's Registration Statement on Form S-8
(Reg. No. 33-28183).
27 Financial Data Schedule.
______________________
* Management contracts or compensatory plans or arrangements
required to be identified by Item 14(a)(3).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last
quarter of 1996.
(c) Exhibits
See Exhibits identified above under Item 14(a)(3).
(d) Financial Statement Schedules
See Item 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BROAD NATIONAL BANCORPORATION
By /s/ Donald M. Karp
Donald M. Karp
Chairman of the Board and
Chief Executive Officer
Dated: March 20, 1997
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
SIGNATURE AND TITLE DATE
/s/ Donald M. Karp March 20, 1997
Donald M. Karp, Director, Chairman
of the Board and Chief Executive
Officer (Principal Executive Officer)
/s/ John A. Dorman March 20, 1997
John A. Dorman, Director, President
and Chief Operating Officer
/s/ James Boyle March 20, 1997
James Boyle, Treasurer and Comptroller
(Principal Financial and Accounting
Officer)
/s/ Licinio Cruz March 20, 1997
Licinio Cruz, Director
<PAGE>
/s/ Arthur Fischman March 20, 1997
Arthur Fischman, Director
/s/ John J. Iannuzzi March 20, 1997
John J. Iannuzzi, Director
/s/ James J. Lazarus March 20, 1997
James J. Lazarus, Director
/s/ Edward J. Lenihan March 20, 1997
Edward J. Lenihan, Director
/s/ Stanley J. Lesnik March 20, 1997
Stanley J. Lesnik, Director
/s/ Louis J. Owen March 20, 1997
Louis J. Owen, Director
/s/ Catherine McFarland March 20, 1997
Catherine McFarland, Director
/s/ A. Harold Schwartz March 20, 1997
A. Harold Schwartz, Director
/s/ Hubert Williams March 20, 1997
Hubert Williams, Director
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
3.1 Restated Certificate of Incorporation of the **
Registrant as amended through and including
June 29, 1995 (filed as Exhibit 3 to the
Registrant's Form 10-Q for the quarter ended
March 31, 1996 and incorporated by reference
herein).
3.2 Bylaws of the Registrant, as amended to date **
(filed as Exhibit 3(d) to the Registrant's Form
10-K Report for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.1 Lease between The Prudential Insurance Company **
of America and Broad National Bank dated as of
December 15, 1988 (filed as Exhibit 3(e) to the
Registrant's Form 10-K Report for the fiscal year
ended December 31, 1989 and incorporated herein by
reference).
10.1.1 Amendment of Lease between The Prudential **
Insurance Company of America and Broad National
Bank dated as of February 7, 1996 (filed as
Exhibit 10.1.1 to the Registrant's Form 10-K
Report for the fiscal year ended December 31,
1995 and incorporated herein by reference).
10.2 Lease between Third Newark Gateway Urban **
Renewal Association and Broad National Bank,
dated September 7, 1984 (filed as Exhibit 10(b)
to Registration Statement No. 33-01560 and
incorporated herein by reference).
10.3 Lease between O. Navigador Bar, Inc. and Broad **
National Bank (filed as Exhibit 10(c) to
Amendment No. 1 to Registration Statement No.
2-78220 and incorporated herein by reference).
10.4 Lease between Millburn Common Associates and **
Broad National Bank dated June 16, 1976, and
Amendment to such Lease, dated September 10,
1985 (filed as Exhibit 10(d) to Registration
Statement No. 33-01560 and incorporated herein
by reference).
10.5 Lease between Cada Holding Corp. and Broad **
National Bank dated October 8, 1976 (filed as
Exhibit 10(e) to Amendment No. 1 to Registration
Statement No. 2-78220 and incorporated herein by
reference).
<PAGE>
10.6 Lease between Euro Associates and Broad National **
Bank acknowledged by the parties on December 12,
1985 and December 10, 1985 (filed with Amendment
No. 2 to the Registrant's Registration Statement
No. 33-53658 as Exhibit 10.6 and incorporated
herein by reference).
10.7 Workletter Agreement between Euro Associates and **
Broad National Bank (filed with Amendment No. 2
to the Registrant's Registration Statement No.
33-53658 as Exhibit 10.7 and incorporated herein
by reference).
10.8 Lease between 1000 South Elmora Associates and **
Broad National Bank dated May 18, 1986 (filed with
Amendment No. 2 to the Registrant's Registration
Statement No. 33-53658 as Exhibit 10.8 and
incorporated herein by reference).
10.9 Lease between Convery Associates and Broad **
National Bank dated July 1, 1987, and Rider to
Lease Agreement, dated September 1, 1992 (filed
with Amendment No. 2 to the Registrant's
Registration Statement No. 33-53658 as Exhibit
10.10 and incorporated herein by reference).
10.10 Lease Agreement and Amendment between 466 **
Bloomfield Avenue Associates, Inc. and Broad
National Bank dated February 9, 1988 (filed as
Exhibit 10(1) to the Registrant's Form 10-K
Report for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.11 Lease Agreement between George Zeik and Broad **
National Bank dated September 1, 1989 (filed as
Exhibit 10(m) to the Registrant's Form 10-K
Report for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.12 Lease between Broad National Realty Corporation **
and Broad National Bank dated May 1, 1990 (filed
as Exhibit 10(n) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1990 and
incorporated by reference herein).
10.12.1 Rider to Lease Agreement between Broad National **
Realty and Broad National Bank dated December 21,
1993 (filed as Exhibit 10.13.1 to the Registrant's
Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference).
<PAGE>
10.13 Broad National Bank Employees' Retirement Plan **
(filed as Exhibit 10(g) to Registration Statement
No. 2-78220 and as Exhibit 10(f) to Amendment No. 1
to Registration Statement No. 2-78220 and
incorporated herein by reference ).*
10.14 Form of Amendment to Sections 2.1 and 3.1(c) **
of the Broad National Bank Employees' Retirement
Plan (filed as Exhibit 10(p) to the Registrant's
Form 10-K for the fiscal year ended December 31,
1990 and incorporated by reference herein).*
10.15 Description of Bonus Plan for Designated Officers **
and Employees (appears on page 10 of the
Registrant's definitive proxy statement for its
1991 Annual Meeting of Shareholders and is
incorporated herein by reference).*
10.16 Incentive Stock Option Plan for certain employees **
adopted on March 26, 1987, and amended April 27,
1989 (filed as Exhibit 10.18 to the Registrant's
Form 10-K for the fiscal year ended December 31,
1992 and incorporated by reference herein).*
10.17 Non-Statutory Stock Option Plan for directors **
adopted on March 26, 1987 (filed with Amendment
No. 2 to the Registrant's Registration Statement
No. 33-53658 as Exhibit 10.19 and incorporated
herein by reference).*
10.18 Employment Agreement between Donald M. Karp and --
the Registrant dated December 31, 1996.*
10.19 Employment Agreement by and between John A. --
Dorman, Broad National Bank and the Registrant,
dated December 31, 1996.*
10.20 Consultant Agreement between Stanley J. Lesnik **
and the Registrant dated November 16, 1995 (filed
as Exhibit 10.20 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995 and
incorporated herein by reference).*
10.21 Lease between Broad National Bank, landlord, **
and Newtrend, L.P., tenant, dated August 10,
1993 (filed as Exhibit 10.22 to the Registrant's
Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference).
10.22 Newtrend Service Bureau Agreement between **
Newtrend, Inc. and Broad National Bank dated
August 10, 1993 (filed as Exhibit 10.23 to the
<PAGE>
Registrant's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein
by reference).
10.23 Newtrend Item Processing Addendum between **
Newtrend, Inc. and Broad National Bank dated
August 10, 1993 (filed as Exhibit 10.24 to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by
reference).
10.24 1993 Broad National Incentive Stock Option Plan **
for certain employees adopted on September 19,
1994 (filed as Exhibit 10.24 to the Registrant's
Form 10-K Report for the fiscal year ended
December 31, 1994 and incorporated herein by
reference).*
10.25 1993 Broad National Directors Non-Statutory Stock **
Option Plan for directors adopted on September 19,
1994 (filed as Exhibit 10.25 to the Registrant's
Form 10-K Report for the fiscal year ended
December 31, 1994 and incorporated herein by
reference).*
10.26 Lease between Lucky Realty LLC and Broad National **
Bank (filed as Exhibit 10.26 to the Registrant's
Form 10-K Report for the fiscal year ended
December 31, 1995 and incorporated herein by
reference).
10.27 Lease between A.J. Seabra Supermarkets V, Inc. **
and Broad National Bank dated as of April 20,
1995 (filed as Exhibit 10.27 to the Registrant's
Form 10-K Report for the fiscal year ended
December 31, 1995 and incorporated herein by
reference).
10.28 1996 Broad National Bancorporation Incentive --
Stock Option Plan for certain employees adopted
on December 19, 1996 and subsequently amended
on January 16, 1997.*
10.29 1996 Broad National Bancorporation Directors --
Non-Statutory Stock Option Plan for directors
adopted on December 19, 1996.*
10.30 Broad National Bank Long-Term Capital --
Accumulation Plan for certain employees adopted
on October 19, 1995.*
<PAGE>
10.31 Broad National Bank Deferred Compensation Plan --
for certain employees and directors adopted on
October 19, 1995.*
10.32 Broad National Bank Management Incentive Plan --
for certain employees adopted on October 19,
1995.*
11 Statement re Computation of Net Income Per Share. --
22 List of Subsidiaries (filed with Amendment No. 3 **
to the Registrant's Registration Statement No.
33-53658 as Exhibit 22 and incorporated herein
by reference).
24 Consent of KPMG Peat Marwick LLP with regard to --
Bancorporation's Registration Statement on Form
S-8 (Reg. No. 33-28183).
27 Financial Data Schedule. --
__________________________
* Management contracts or compensatory plans or
arrangements required to be identified by Item
14(a)(3).
** Incorporated by reference from previous filings.
EMPLOYMENT AGREEMENT
This Agreement is made the 31st day of December, 1996
by and between DONALD M. KARP (hereinafter referred to as "Karp")
and BROAD NATIONAL BANCORPORATION, a corporation organized under
the laws of the State of New Jersey (hereinafter, together with
any successor entity, referred to as the "Corporation").
WITNESSETH:
WHEREAS, Karp has for a number of years been employed
as Chairman and Chief Executive Officer of the Corporation and
its subsidiary, Broad National Bank, a national banking
association (hereinafter, together with any successor entity,
referred to as the "Bank"); and
WHEREAS, the Board of Directors of the Corporation
believes that the continued leadership and productivity of Karp
will be extremely beneficial and will significantly contribute to
the continued growth and financial security of the Corporation
and the Bank; and
WHEREAS, the Corporation wishes to assure itself and
the Bank of the services of Karp as an employee, officer and, if
elected, director of the Corporation and the Bank for the period
provided in this Agreement, and Karp has agreed to serve in the
employ of the Corporation and the Bank in such capacities on the
terms and conditions hereinafter set forth; and
WHEREAS, there is currently in effect an Employment
Agreement, dated October 16, 1995, by and between Karp and the
Corporation (the "Prior Agreement"); and
WHEREAS, the Board of Directors of the Corporation has
determined that the best interests of the Corporation would be
served by replacing the Prior Agreement with this Agreement as of
the Commencement Date hereinafter set forth;
NOW, THEREFORE, for and in consideration of the
employment of Karp with the Corporation, the compensation to be
paid and the other benefits to be provided to Karp by the
Corporation for his services and the mutual covenants set forth
in this Agreement, the parties hereto hereby agree as follows:
1. EMPLOYMENT
1.1 The Corporation agrees to the continued
employment of Karp, and Karp agrees to continue to be employed by
the Corporation and the Bank for the period stated in Section 2.1
hereof and upon the other terms and conditions herein provided.
2. TERM, POSITION AND RESPONSIBILITIES
2.1 TERM OF EMPLOYMENT. The period of Karp's
employment under this Agreement shall commence as of January 1,
1997 (the "Commencement Date") and shall continue for a period of
sixty (60) full calendar months thereafter and any extensions
thereafter, unless this Agreement is earlier terminated in
accordance with the terms hereof (the "Employment Period"). The
Prior Agreement (as defined in the recitals hereto) shall remain
in full force and effect, subject to the terms and conditions
thereof, from the date of this Agreement until the Commencement
Date, whereupon this Agreement shall <PAGE> automatically supersede the
Prior Agreement in its entirety without further action by the
parties hereto. At the expiration of each calendar month hereof,
this Agreement shall be deemed extended for one additional
calendar month, so that at all times this Agreement shall have a
term of sixty (60) months. Notwith-standing the foregoing, such
term shall not be extended past five years following the date on
which the Board of Directors shall give a notice to Karp which
provides that from the date of the notice the term of employment
shall be no more than five (5) years from that date.
2.2 DUTIES DURING EMPLOYMENT. During the
Employment Period, Karp shall serve as the Chairman and Chief
Executive Officer of the Corporation and the Bank and shall have
the customary duties and responsibilities of each such office.
In addition, during the Employment Period, if elected, Karp shall
also serve, without any additional compensation or fees, as a
member of the Boards of Directors and as a member of the
Executive Committees of the Corporation and of the Bank.
3. COMPENSATION AND REIMBURSEMENT OF EXPENSES
3.1 COMPENSATION - BASE SALARY.
A. The compensation specified under this
Agreement shall constitute the salary and benefits paid Karp for
his services as described in Section 2.2 by the Corporation and
the Bank. Effective as of the Commencement Date, the Corporation
shall pay or cause the Bank to pay Karp as compensation an annual
salary ("Base Salary") at the combined rate of not less than two
hundred eighteen thousand five hundred dollars $218,500 per year.
During the period of this Agreement it is understood and agreed
that Karp's Base Salary shall be reviewed by the Board of
Directors of the Corporation or the Bank or a committee or
committees thereof at least annually. The first such review
shall be made no later than December 31, 1997. The Board of
Directors of the Corporation or the Bank or the committee or
committees thereof may, in their sole discretion, increase the
Base Salary to be paid to Karp from time to time, to reflect
Karp's performance and to maintain a compensation level
comparable to that of similarly situated executives in the
financial institutions industry, but the Base Salary may not be
decreased below the Base Salary specified above in this paragraph
A without the written consent of Karp. Karp's salary shall be
payable in accordance with the customary payroll practices of the
Bank and the Corporation, respectively, but in no event less
frequently than monthly.
B. From time to time, the Boards of
Directors of the Corporation and Bank shall apportion between the
Bank and the Corporation amounts payable hereunder without
affecting Karp's rights hereunder. Such apportionment shall be
made (i) on the basis of the judgment of such Boards of Directors
as to Karp's relative responsibilities and contributions with
respect to the Bank and the Corporation, and (ii) on the basis of
such other factors as such Boards of Directors may deem
appropriate. Any amounts not allocated to the Bank hereunder
shall be allocated to the Corporation.
3.2 PARTICIPATION IN BONUS PLAN. Karp shall be
entitled to participate in such bonus or other incentive
compensation plan(s) as currently is or may hereafter be
established by the Corporation or the Bank for their respective
executive officers during the Employment Period. Any such bonus
shall be payable in the manner specified by the appropriate Board
of Directors, or committee of such Board of Directors, at the
time such bonus is awarded.
3.3 PARTICIPATION IN BENEFIT PLANS. The payments
provided for in Sections 3, 5 and 6 hereof, except where
specifically provided otherwise, are in addition to any other
benefits to which Karp may be, or may become, entitled under any
group hospitalization, health, dental care, or sick-leave <PAGE> plan,
life or other insurance or death benefit plan, travel or accident
insurance, retirement income or pension plan or program of the
Corporation or Bank, or other present or future group employee
benefit plan or program of the Bank or Corporation, for which
their executive officers are or shall become eligible to receive
during the Employment Period, and during any subsequent period
for which Karp shall be entitled to receive payments from the
Corporation under sections 5 and 6 to the extent permissible
under the general terms and provisions of such plans or programs
and in accordance with the provisions thereof. Karp shall
contribute such amounts towards such benefits as are required of
all employees so long as he receives such benefits. Nothing
contained in this Agreement shall prevent the Board of Directors
of the Corporation or the Bank from amending or otherwise
altering any such plan, program or arrangement so long as such
amendment or alteration equitably affects all executive officers
of the Bank or Corporation.
3.4 ADDITIONAL BENEFITS. The Corporation
recognizes that it is essential to the performance by Karp of his
duties and responsibilities that the Corporation, at its cost,
provide him with the use of certain facilities and that the
Corporation incur certain expenses during the Employment Period,
as follows:
A. An office commensurate with his
position, and a secretary, as he requires, and the continued
nonexclusive use of the offices and facilities on the second
floor of the Bank's building previously used by Karp.
B. The exclusive use of an automobile
comparable to that now being used by Karp now or previously,
which vehicle shall be no more than two years old at any time
hereunder.
C. Payment of or reimbursement to Karp, in
accordance with such policies and procedures as the respective
Boards of Directors of the Bank or the Corporation may establish
from time to time, for all reasonable travel, entertainment,
country club dues and other expenses incurred by Karp in the
performance of his obligations under this Agreement; except that
country club dues shall not be paid for Karp except as specified
by the Board.
D. Karp shall be entitled to four (4)
weeks' paid vacation per calendar year (prorated in any calendar
year or in which Karp is employed hereunder for less than such
entire year).
E. Participation in the Bank's Split Dollar
Life Insurance Plan with coverage of $500,000 per a policy
previously purchased.
4. TERMINATION OF EMPLOYMENT
4.1 TERMINATION OF EMPLOYMENT. Karp's employment
under this Agreement may be terminated by the Corporation or Karp
as follows:
A. DISABILITY. If, as a result of Karp's
incapacity due to physical or mental illness or injury, Karp
shall have been absent from his duties with the Corporation on a
full time basis or he is unable to substantially perform the
services required for his employment for a period of six (6)
consecutive months, or shorter periods aggregating one hundred
eighty (180) days within any consecutive twelve (12) month
period, and within thirty (30) days after written notice of
potential termination is given by either the Bank or the
Corporation he shall not have returned to the full-time
<PAGE>
performance of his duties within such notice period, then Karp's
employment under this Agreement will terminate for "Disability".
B. DEATH. If Karp dies while employed
under this Agreement, his employment with the Corporation under
this Agreement will terminate as of the date of his death ("Date
of Death").
C. TERMINATION BY KARP. Karp shall be
entitled to terminate his employment with the Corporation (i) if
the Corporation defaults or otherwise commits a breach of a
material term or condition of this Agreement, or (ii) for "Good
Reason" as defined below.
For purposes of this Agreement "Good Reason" shall
mean continuation of any of the following after reasonable notice
by Karp to the Corporation that he believes any such action has
occurred:
1. The assignment to Karp of any
duties inconsistent with, or the reduction of powers or functions
associated with Karp's position, title, duties, responsibilities
and status with the Corporation as set forth herein, or as later
agreed upon by Karp and the Corporation;
2. Any removal of Karp from, or any
failure to re-elect Karp to, any position(s) or office(s) Karp
held immediately prior to such action;
3. A reduction by the Corporation in
Karp's annual base Compensation;
4. The Corporation's transfer of Karp
to another geographic location from his present office location,
except for required travel on the Corporation's business to an
extent substantially consistent with Karp's business travel
obligations immediately prior to the date hereof;
5. The failure by the Corporation to
continue in effect any employee benefit plan, program or
arrangement (including, without limitation the Corporation's
retirement plan, benefit equalization plan, life insurance plan,
health and accident plan, disability plan, deferred compensation
plan or long term stock incentive plan) in which Karp is
participating immediately prior to the date hereof (except that
the Corporation may institute or continue plans, programs or
arrangements providing Karp with substantially similar benefits);
the taking of any action by the Corporation which would adversely
affect Karp's participation in or materially reduce Karp's
benefits under, any of such plans, programs or arrangements; or
the failure to continue, or the taking of any action which would
deprive Karp, of any material fringe benefit enjoyed by Karp
immediately prior to the date hereof; or
6. Any purported termination of Karp's
employment by the Corporation during the term of this Agreement
which is not effected pursuant to all of the requirements of this
Agreement; and, for purposes of this Agreement, no such purported
termination shall be effective.
D. TERMINATION BY CORPORATION.
Notwithstanding any other provisions of this Agreement, the
Corporation shall be entitled to terminate Karp's employment with
or without "cause". For purposes of this Agreement, "cause"
shall mean (i) improper action by Karp which shall result in his
removal from office by direction of a regulatory agency having
jurisdiction over the Corporation or the Bank; (ii) the finding
by any such regulatory agency, following any supervisory action,
<PAGE>
that Karp has engaged in willful misconduct, dishonest acts or
violations of law to the material detriment of the Corporation or
Bank; or (iii) conviction of a crime, other than a traffic
violation, habitual drunkenness, drug abuse, or excessive
absenteeism other than for illness, after a warning (with respect
to drunkenness or absenteeism only) in writing from the Board of
Directors to refrain from such behavior. No act or failure to
act on the part of Karp shall be considered willful unless done,
or omitted to be done, by Karp not in good faith and without
reasonable belief that the action or omission was in the best
interest of the Corporation.
4.2 NOTICE OF TERMINATION. Any purported
termination by the Corporation or by Karp in accordance with
Section 4.1 (excluding Section 4.1B), shall be communicated by
written Notice of Termination to the other party or parties
hereto in accordance with this Section 4.2. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Karp's employment under the provision so
indicated.
4.3 DATE OF TERMINATION, ETC. "Date of
Termination" shall mean (a) if Karp's employment is terminated
for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the
performance of his duties on a full time basis during such 30-day
period), and (b) if his employment is terminated for any other
reason, the date specified in the Notice of Termination;
provided, that if within thirty (30) days after a Notice of
Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the
earlier of: (i) the date upon which the dispute is finally
determined by mutual agreement of the parties or by a binding
arbitration award entered in accordance with Section 9 hereof; or
(ii) the expiration of the Employment Period then existing under
this Agreement; provided, further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable dispatch and
diligence. Notwithstanding the pendency of any such dispute, the
Corporation will continue to pay Karp his full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue him as
a participant in all compensation, benefit and insurance plans in
which he was participating when the notice giving rise to the
dispute was given as though termination had not occurred, until
the dispute is finally resolved in accordance with this Section
at which time the parties shall adjust for any overpayment or
underpayment made. Amounts paid under this Section are in
addition to other amounts due under this Agreement and unless
specifically provided otherwise shall not be offset against to
reduce any other amounts due under this Agreement.
5. TERMINATION BENEFITS
5.1 DISABILITY TERMINATION BENEFITS. Upon the
termination of Karp's employment with the Corporation as a result
of "Disability" pursuant to Section 4.1A, the Corporation shall
pay to Karp a monthly disability benefit equal to one hundred
(100%) percent of his Base Salary, at the rate in effect on the
"Date of Termination", for a period of one year from and after
said date; provided, however, that any amounts payable under this
Section 5.1 shall be reduced by any amounts paid to Karp under
any other disability program or policy (other than Social
Security) maintained by the Bank or the Corporation. If the
amount of such disability insurance payments exceeds the amount
otherwise payable under this Section 5.1, Karp may retain the
entire amount of such disability insurance payments inclusive of
the excess, if any. Such payments shall be made by the
Corporation to Karp, or in the event of his <PAGE> subsequent death, to
his beneficiary or beneficiaries, or his estate, as the case may
be, in accordance with the customary payroll practices of the
Corporation.
During the period Karp is entitled to receive payments
from the Corporation under this Section 5.1, the Corporation
shall maintain or cause to be maintained life and health
insurance benefits for Karp at least equivalent to those he had
at the Date of Termination with any amendments and/or alterations
subsequently made equitably to all executive officers of the Bank
and/or the Corporation. During the period Karp is entitled to
receive payment from the Corporation under this Section 5.1 he
shall not be an agent of the Corporation, and shall not be
considered an "employee" of the Corporation except as respects
any requirements specifically imposed by law or as may otherwise
be required to continue any insurance benefits provided for in
this Section 5.1.
5.2 BENEFITS PAYABLE UPON DEATH. Within thirty
(30) days after the Date of Death, the Corporation shall pay to
Karp's beneficiary or beneficiaries, or his estate, as the case
may be, a lump sum benefit equal to one full year salary from the
date of death.
5.3 TERMINATION BY KARP PURSUANT TO SECTION 4.1C.
In the event that Karp terminates his employment with the
Corporation under Section 4.1C of this Agreement, the Corporation
shall pay to Karp within thirty (30) days of such termination as
severance a lump sum equal to the aggregate amount of the future
Base Salary and bonus payments Karp would have received if he
continued in the employ of the Corporation for the remainder of
the then existing Employment Period of this Agreement at the
highest rate of Base Salary and bonus paid to Karp at any time
under this Agreement or within two years prior to the date
hereof. Karp shall not be required to mitigate damages by
seeking other employment and payments required to be made
hereunder shall not be reduced by any other income which Karp may
receive or by any set-offs or claims which may exist against Karp
for any reason whatsoever.
5.4 TERMINATION BY THE CORPORATION FOR CAUSE. If
Karp's employment under this Agreement is terminated by the
Corporation for "cause" (as defined in Section 4.1D), or if Karp
voluntarily resigns his employment other than pursuant to Section
4.1C, the Corporation shall pay to Karp his Base Salary as then
in effect that has accrued to the Date of Termination. Unless
otherwise determined by the Board of Directors of the
Corporation, Karp shall have no right to receive compensation or
other benefits under this Agreement after such a termination for
"cause" or following a voluntary resignation except as otherwise
provided in this Agreement.
5.5 TERMINATION BY THE CORPORATION FOR OTHER THAN
CAUSE. If during the Employment Period the Bank or the
Corporation or both of them terminate Karp's employment other
than for "cause" (as defined in Section 4.1D) or other than for
the reasons specified in Sections 1.3, 1.4, 1.5 and 1.6 of this
Agreement, then in such event the Corporation shall, within
thirty (30) days following such termination, pay Karp, or in the
event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance a lump sum equal
to the aggregate amount of the future Base Salary and bonus
payments Karp would have received if he continued in the employ
of the Corporation for the remainder of the then existing
Employment Period of this Agreement at the highest rate of Base
Salary and bonus paid to Karp at any time under this Agreement or
within two years prior to the date hereof. Karp shall not be
required to mitigate damages by seeking other employment and
payments required to be made hereunder shall not be reduced by
any other income which Karp may receive or by any set-offs or
claims which may exist against Karp for any reason whatsoever.
<PAGE>
6. OTHER TERMINATION BENEFITS
6.1 INSURANCE. If Karp's employment with the
Corporation shall be terminated either by Karp pursuant to the
provisions of Section 4.1C or by the Corporation without "cause",
the Corporation will continue or cause to be continued life and
health insurance coverage substantially identical to the coverage
maintained by the Corporation for Karp prior to his severance.
Karp shall contribute such amounts toward such benefits as are
required of all employees of the Corporation so long as he
receives such benefits.
6.2 SPECIAL RETIREMENT BENEFITS. If Karp's
employment with the Corporation shall be terminated either by
Karp pursuant to the provisions of Section 4.1C or by the
Corporation or either of them without "cause", Karp shall be
entitled to receive "Special Retirement Benefits" from the
Corporation so that the total retirement benefits Karp receives
from the Corporation will approximate the total retirement
benefits Karp would have received under all qualified retirement
plans (which shall not include severance plans) of the
Corporation in which Karp participates were Karp fully vested
under such qualified retirement plans as if Karp had continued in
the employ of the Corporation for the remaining term of this
Agreement or until his retirement. The benefits specified in
this Section 6.2 will include all ancillary benefits, such as
early retirement and survivor rights and benefits available at
retirement. The amount payable to Karp or his beneficiary(s)
under this Section 6.2 shall equal the excess of (1) the benefits
that would be paid to Karp or his beneficiaries, under all
retirement plans of the Corporation in which Karp participates if
Karp were fully vested under such plans over (2) the benefits
that are payable to Karp or his beneficiaries under all
retirement plans of the Corporation in which Karp participates.
These Special Retirement Benefits are provided on an unfunded
basis, are not intended to meet the qualification requirements of
Section 401 of the Internal Revenue Code and shall be payable
solely from the general assets of the Corporation. These Special
Retirement Benefits shall be payable at all times and in the
manner provided in the applicable retirement plans to which they
relate.
6.3 SPLIT DOLLAR INSURANCE. If Karp's employment
with the Corporation shall be terminated by him pursuant to
Section 4.1C or by the Corporation, or if the Corporation shall
terminate Karp's employment otherwise than for cause, the
Corporation shall continue to pay the premium for and maintain
the Broad National Bank Split Dollar Life Insurance or comparable
plan for and on behalf of Karp with coverage of $500,000 until
such time as said policy is fully paid.
6.4 USE OF VEHICLE. If Karp shall terminate his
employment with the Corporation pursuant to Section 4.1C or if
the Corporation shall terminate his employment otherwise than for
cause, the Corporation shall at its option provide Karp with the
use of the late model car specified in Section 3.4B for a period
of twenty-four (24) months following the Date of Termination or
the reasonable value corresponding to such usage; provided,
however, that notwithstanding the foregoing Karp may in lieu
thereof elect to purchase said vehicle at its then present value
by providing the Corporation with written notice of such
election.
6.5 PAYMENTS UPON TERMINATION. Termination of
this Agreement on any grounds whatsoever will not affect the
obligations of the parties to make payment of any sums that have
accrued or remain unpaid at the effective date of such
termination.
<PAGE>
7. FEDERAL INCOME TAX WITHHOLDING
The Corporation may withhold from any benefits
payable under this Agreement all federal, state, city or other
taxes as shall be required pursuant to any law or governmental
regulation or ruling.
8. ARBITRATION
In the event that any claim, controversy, issue or
other dispute arises under this Agreement, the breach thereof,
the termination of Karp's employment by the Corporation under
Section 4 of this Agreement, including any claim based in whole
or in part on federal or state constitutions, statutes or
regulations, local ordinances, the common law or public policy,
including, but not limited to Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the
Employee Retirement Income Security Act of 1974, Americans with
Disabilities Act, the Worker Adjustment and Retraining
Notification Act, the Employee Polygraph Protection Act of 1988,
the Occupational Safety and Health Act, the Fair Labor Standards
Act, the Civil Rights Act of 1971, the Rehabilitation Act of 1973
and the Vietnam Era Veterans Readjustment Assistance Act of 1974,
or the amount of any payments under Sections 5 or 6, if the
claim, controversy, issue or dispute is not settled by agreement
among the parties, the dispute shall be settled by a panel of
three (3) arbitrators in the State of New Jersey, the arbitrators
to be chosen by The American Arbitration Association, under the
auspices of, and in accordance with the applicable rules of, the
American Arbitration Association then in effect, and the decision
of the three arbitrators shall be final and conclusive on the
parties and judgment upon such decision may be entered in any
court having jurisdiction thereof. The award of the arbitrators
shall be in writing and shall specify the factual and legal basis
for the award. Karp shall be entitled to reimbursement by the
Corporation for all reasonable legal and other professional fees
and expenses incurred by him in such arbitration or in enforcing
the award, including reasonable attorneys' fees. The parties
agree that resolution of any such claim, controversy, issue or
other dispute pursuant to the foregoing arbitration proceeding is
intended to be final and binding on them and any award rendered
by such arbitrator shall constitute a complete, final and binding
adjudication of any and all legal or factual issues pertaining to
or arising out of the matter that gave rise to the controversy or
dispute. The provisions of this Article 8 shall survive the
termination of this Agreement for any reason whatsoever.
9. ENTIRE AGREEMENT
This writing shall constitute the entire Agreement
of the parties as to the employment and compensation of Karp by
the Corporation, and shall supersede any and all prior agreements
and understandings, whether they be oral or in writing; provided
that this Agreement shall not supersede the Prior Agreement until
the Commencement Date hereof.
10. SEVERABILITY
If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not effect any
other provision of this Agreement not held so invalid, and each
such other provision shall to the full extent consistent with law
continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in
no way affect the rest of such provision not held so invalid and
the rest of such provision together with all provisions of this
Agreement shall to the full extent consistent with law continue
in full force and effect.
<PAGE>
11. AMENDMENT OF AGREEMENT
This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
12. WAIVER
No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel
against the enforcement of any provision of this Agreement,
except by a written instrument executed by the party charged with
such waiver or estoppel. No such written waiver shall be deemed
a continuing waiver unless specifically stated therein, and each
waiver shall operate as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for
the future nor as to any act other than that specifically waived.
13. HEADINGS
Headings used in this Agreement are for
convenience only and shall not affect the construction of this
Agreement.
14. BINDING EFFECT AND GOVERNING LAW
All of the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of, and be
enforceable by and against Karp and his executors, administrators
and heirs and the Corporation and their respective permitted
successors and assigns. This Agreement has been executed and
delivered in the State of New Jersey and its validity,
interpretation, performance and enforcement shall be governed by
the laws of said State.
15. NO ATTACHMENT
Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge,
pledge or hypothecation or to execution, attachment, levy or
similar process or assignment by operation of law, and any
attempt to voluntarily or involuntarily effect any such action
shall be null, void and of no effect.
16. NONASSIGNABILITY
Neither this Agreement nor any right or interest
hereunder shall be assignable by Karp, his beneficiaries or legal
representatives without the Corporation's prior written consent;
provided, however, that nothing in this Section 16 shall preclude
(a) Karp from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (b) the executors,
administrators or other legal representatives of Karp or his
estate from assigning any rights hereunder to the person or
persons entitled thereto.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused
this Agreement to be executed and its seal to be affixed hereunto
by its duly authorized officers, and Karp, has signed this
Agreement, all as of the date first written above.
ATTEST: BROAD NATIONAL BANCORPORATION
____________________________ By_____________________________
Name: James Boyle Name: John A. Dorman
Title: Secretary Title: President & COO
WITNESS:
____________________________ _______________________________
Name: DONALD M. KARP
BROAD NATIONAL BANK, a national banking association
organized under the laws of the United States of America, hereby
acknowledges and agrees to be bound to the extent applicable by
the terms of the Employment Agreement, dated December 16, 1996,
between DONALD M. KARP and BROAD NATIONAL BANCORPORATION and
guarantees payment and performance of the terms of said agreement
to the extent permitted by the laws of New Jersey and the laws of
the United States of America.
ATTEST: BROAD NATIONAL BANK
______________________________ By_____________________________
Name: James Boyle Name: John A. Dorman
Title: Secretary Title: President and COO
WITNESS:
______________________________ Dated: December ___, 1996
Name:
EMPLOYMENT AGREEMENT
This Agreement is made the 31st day of December, 1996,
by and among JOHN A. DORMAN, who currently resides at 44
Fairmount Road, Ridgewood, New Jersey 07450 (hereinafter referred
to as "Dorman"), BROAD NATIONAL BANK, a national banking
association organized under Acts of Congress, with its principal
office located at 905 Broad Street in the City of Newark, County
of Essex and State of New Jersey (hereinafter referred to as the
"Bank"), and BROAD NATIONAL BANCORPORATION, the holding company
for the Bank, a corporation organized under the laws of the State
of New Jersey, with its principal office located at 905 Broad
Street in the City of Newark, County of Essex and State of New
Jersey (hereinafter referred to as the "Bancorp"). The Bank and
Bancorp are sometimes referred to herein collectively as the
"Corporation" or the "Corporations". In any instance where
reference is made to both the Bank and Bancorp or to the
Corporation or Corporations, unless the context clearly requires
otherwise, conditions, practices or actions referred to shall be
identical or joint.
W I T N E S S E T H:
WHEREAS, Dorman has since April 9, 1992 been employed
as President and Chief Operating Officer of the Bank and of
Bancorp; and
WHEREAS, the Boards of Directors of the Corporations
believe that the continued leadership and productivity of Dorman
will be extremely beneficial and will significantly contribute to
the growth and financial security of the Corporations; and
WHEREAS, the Corporations wish to assure themselves of
the services of Dorman as a employee, officer and, if elected,
director of the Corporations for the period provided in this
Agreement, and Dorman has agreed to serve in the employ of the
Corporations on a full-time basis in such capacities on the terms
and conditions hereinafter set forth; and
WHEREAS, there is currently in effect an Employment
Agreement, dated October 1, 1995, by and among Dorman and the
Corporations (the "Prior Agreement"); and
WHEREAS, the Boards of Directors of the Corporations
have determined that the best interests of the Corporations would
be served by replacing the Prior Agreement with this Agreement as
of the Commencement Date hereinafter set forth;
NOW, THEREFORE, for and in consideration of the
employment of Dorman with the Corporations, the compensation to
be paid and the other benefits to be provided to Dorman by the
Corporations for his services and the mutual covenants set forth
in the Agreement, the parties hereto hereby agree as follows:
<PAGE>
1. EMPLOYMENT
1.1 The Corporation agrees to the continued employment
of Dorman, and Dorman agrees to continue to be employed by the
Corporations for the period stated in Section 2.1 hereof and upon
the other terms and conditions herein provided.
1.2 If Dorman is suspended from office and/or
temporarily prohibited from participating in the conduct of the
affairs of the Bank or Bancorp, or both of them, by a notice
served under Section 1818(e)(3) or Section 1818(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3), or
1818(g)(1)), all obligations of the Corporations under this
Agreement shall be suspended as of the date of service of the
notice, unless stayed by appropriate proceedings. If the charges
specified in the notice are dismissed, Dorman shall be reinstated
in his employment with the Corporations and the Corporations may
in their discretion (i) pay Dorman all or part of the
compensation withheld while their obligations under this
Agreement were suspended, and/or (ii) reinstate (in whole or in
part) any of their obligations which were suspended.
1.3 If Dorman is removed and/or permanently prohibited
from participating in the conduct of the affairs of the Bank or
Bancorp, or both of them, by an order issued under
Section 8(e)(4) or Section (g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(e)(4) or 1818(g)(1)), all
obligations of the Corporations under this Agreement shall
terminate as of the effective date of the order, and Dorman shall
not have the right to receive compensation or any of the other
benefits provided for hereunder, unless and then only to the
extent required by law, for any period after such removal or
prohibition.
1.4 If the Bank is in default (as defined in
Section 1813(x)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(x)(1)), all obligations of the Corporations under
this Agreement shall terminate as of the date of default, but
this section shall not affect any vested rights of the parties.
1.5 All obligations of the Corporation under this
Agreement shall be terminated, except to the extent it is
determined that continuation of this Agreement is necessary for
the continued operation of the Bank, (i) by the Federal Deposit
Insurance Corporation ("FDIC"), at any time the FDIC enters into
an agreement to provide assistance to or on behalf of the Bank
under the authority of Section 1823(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1823(c)), or (ii) by the FDIC at any
time the FDIC approves a supervisory merger to resolve problems
related to the operation of the Bank or when the Bank is
determined by FDIC to be in an unsafe or unsound condition, but,
in any of the above-described events, the vested rights of Dorman
shall not be affected.
<PAGE>
1.6 In the event of receipt of any notice or order, a
default, an agreement to provide assistance, or an approval of
the supervisory merger as such are described in Sections 1.2,
1.3, 1.4 or 1.5 hereof, the suspension or termination of the
obligations of the Corporations hereunder shall be automatic and
shall not be conditioned upon any further action by the
Corporations or delivery of notice to Dorman and shall be deemed
a suspension or termination of employment jointly and severally
by the Bank, Bancorp and the regulatory body providing or
delivering such document; provided, however, that such suspension
or termination shall not prejudice Dorman's vested rights under
this Agreement.
2. TERMS, POSITION AND RESPONSIBILITIES
2.1 TERM OF EMPLOYMENT. The period of Dorman's
employment under this Agreement with the Bank and with Bancorp,
respectively, shall commence as of January 1, 1997 (the
"Commencement Date") and shall continue for a period of twelve
(12) full calendar months thereafter and any extension
thereafter, unless this Agreement is earlier terminated in
accordance with the terms hereof (the "Employment Period"). The
Prior Agreement (as defined in the recitals hereto) shall remain
in full force and effect, subject to the terms and conditions
thereof, from the date of this Agreement until the Commencement
Date, whereupon this Agreement shall automatically supersede the
Prior Agreement in its entirety without further action by the
parties hereto. Notwithstanding the foregoing, if at any time
during the Employment Period the shareholders of Bancorp vote
either (i) to approve an agreement to merge or consolidate
Bancorp or the Bank with or into another corporation or (ii) to
sell or otherwise dispose of all or substantially all of its or
their assets, in either case, in a transaction in which a
majority of the outstanding stock of the surviving or acquiring
corporation following such merger, consolidation or sale of
assets shall not be held by persons who held a majority of the
outstanding shares of Bancorp immediately prior to such
transaction the period of Dorman's employment shall automatically
be extended without further action by the respective parties for
an additional twenty-four (24) calendar months. In such event,
the Employment Period of this Agreement shall for all purposes
hereunder be deemed to include the foregoing twenty-four (24)
calendar month extension.
2.2 DUTIES DURING EMPLOYMENT. During the Employment
Period, Dorman shall serve as the President and Chief Operating
Officer of Broad National Bank and of Broad National
Bancorporation, and shall have the customary duties and
responsibilities of each such office. The employment of Dorman
in such foregoing capacities is a material condition of this
Agreement for purposes of Section 4.1C. In addition, during the
Employment Period, if elected, Dorman shall also serve, without
any additional compensation or fees, as a member of the Boards of
Directors and as a member of the Executive Committees of the
Corporations.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT OF EXPENSES
3.1 COMPENSATION - BASE SALARY.
A. The compensation specified under this
Agreement shall constitute the salary and benefits paid Dorman
for his services as described in Section 2.2 by the Bank and
Bancorp. The Corporations shall pay Dorman as compensation an
annual salary ("Base Salary") at the combined rate of One Hundred
Sixty Nine Thousand Five Hundred Dollars ($169,500) for the
calendar year 1997. During the period of this Agreement it is
understood and agreed that Dorman's Base Salary shall be reviewed
by the Board of Directors of the Corporation or the Bank or a
committee or committees thereof at least annually. The Board of
Directors of the Corporation or the Bank or the committee or
committees thereof may, in their sole discretion, increase the
Base Salary to be paid to Dorman from time to time, to reflect
Dorman's performance and to maintain a compensation level
comparable to that of similarly situated executives in the
financial institutions industry, but the Base Salary may not be
decreased below the Base Salary specified above in this paragraph
A without the written consent of Dorman.
B. From time to time, the Boards of Directors of
the Corporations shall apportion between the Bank and Bancorp the
amounts payable hereunder without affecting Dorman's rights
hereunder. Such apportionment shall be made (i) on the basis of
the judgment of such Boards of Directors as to Dorman's relative
responsibilities and contributions with respect to the Bank and
Bancorp, and (ii) on the basis of such other factors as such
Boards of Directors may deem appropriate.
3.2 PARTICIPATION IN BONUS PLAN. Dorman shall be
entitled to participate in such bonus or other incentive
compensation plan(s) as currently is or may hereafter be
established by the Corporations for their respective executive
officers during the Employment Period. Any such bonus shall be
payable in the manner specified by the appropriate Board of
Directors, or committee of such Board of Directors, at the time
such bonus is awarded.
3.3 PARTICIPATION IN BENEFIT PLANS. The payments
provided for in Sections 3, 5 and 6 hereof, except where
specifically provided otherwise, are in addition to any other
benefits to which Dorman may be, or may become, entitled under
any group hospitalization, health, dental care, or sick-leave
plan, life or other insurance or death benefit plan, travel or
accident insurance, retirement income or pension plan or program
of the Corporations, or other present or future group employee
benefit plan or program of the Bank or Bancorp, for which their
executive officers are or shall become eligible to receive during
the Employment Period, and during any subsequent period for which
Dorman shall be entitled to receive payments from the
Corporations under sections 5 and 6 to the extent permissible
under the general terms and provisions of such plans or programs
and in accordance with the provisions thereof. Dorman shall
contribute such amounts towards such
<PAGE>
benefits as are required of all employees so long as he receives
such benefits. Nothing contained in this Agreement shall prevent
the Boards of Directors of the Corporations from amending or
otherwise altering any such plan, program or arrangement so long
as such amendment or alteration equitably affects all executive
officers of the Bank or Bancorp.
3.4 ADDITIONAL BENEFITS. The Corporations recognize
that it is essential to the performance by Dorman of his duties
and responsibilities that the Corporations, at their cost,
provide him with the use of certain facilities and that the
Corporations incur certain expenses during the Employment Period,
as follows:
A. An office commensurate with his position, and
a secretary, as he requires.
B. The nonexclusive use of a late model Buick or
Oldsmobile or comparable car which shall be used by other
personnel of the Corporations when not used by Dorman.
C. Payment of or reimbursement to Dorman, in
accordance with such policies and procedures as the respective
Boards of Directors of the Bank or the Corporation may establish
from time to time, for all reasonable travel, entertainment,
country club dues and other expenses incurred by Dorman in the
performance of his obligations under this Agreement; except that
country club dues shall not be paid for Dorman unless there is a
Change in Control as defined herein or as otherwise specified by
the Board.
D. Dorman shall be entitled to four (4) weeks
paid vacation per calendar year, or such longer period as the
Corporations may from time to time determine (prorated in any
calendar year in such longer period during which Dorman is
employed hereunder for less than such entire year or longer
period).
E. Participation in the Bank's Split Dollar Life
Insurance Plan with coverage of $500,000.
4. TERMINATION OF EMPLOYMENT
4.1 TERMINATION OF EMPLOYMENT. Dorman's employment
under this Agreement may be terminated by the Corporation or
Dorman as follows:
A. DISABILITY. If, as a result of Dorman's
incapacity due to physical or mental illness or injury, Dorman
shall have been absent from his duties with the Corporation(s) on
a full time basis or he is unable to substantially perform the
services required for his employment for a period of six (6)
consecutive months, or shorter periods aggregating one hundred
eighty (180) days within any consecutive twelve (12) month
period, and within thirty (30) days after written notice of
potential termination is given by either the
<PAGE>
Bank or Bancorp he shall not have returned to the full-time
performance of his duties within such notice period, then
Dorman's employment under this Agreement will terminate
for "Disability".
B. DEATH. If Dorman dies while employed under
this Agreement, his employment with the Corporations under this
Agreement will terminate as of the date of his death ("Date of
Death").
C. TERMINATION BY DORMAN. Dorman shall be
entitled to terminate his employment with the Corporation (i) if
the Corporation defaults or otherwise commits a breach of a
material term or condition of this Agreement, (ii) for Good
Reason as defined below or (iii) upon the occurrence of a Change
in Control as defined below.
For purposes of this Agreement "Good Reason" shall
mean continuation of any of the following after reasonable notice
by Dorman to the Corporation that he believes any such action has
occurred:
1. The assignment to Dorman of any duties
inconsistent with, or the reduction of powers or
functions associated with Dorman's position, title,
duties, responsibilities and status with the
Corporation as set forth herein, or as later agreed
upon by Dorman and the Corporation;
2. Any removal of Dorman from, or any
failure to re-elect Dorman to, any position(s) or
office(s) Dorman held immediately prior to such action;
3. A reduction by the Corporation in
Dorman's annual base Compensation;
4. The Corporation's transfer of Dorman to
another geographic location from his present office
location, except for required travel on the
Corporation's business to an extent substantially
consistent with Dorman's business travel obligations
immediately prior to the date hereof;
5. The failure by the Corporation to
continue in effect any employee benefit plan, program
or arrangement (including, without limitation the
Corporation's retirement plan, benefit equalization
plan, life insurance plan, health and accident plan,
disability plan, deferred compensation plan or long
term stock incentive plan) in which Dorman is
participating immediately prior to the date hereof
(except that the Corporation may institute or continue
plans, programs or arrangements providing Dorman with
substantially similar benefits); the taking of any
action by the Corporation which would adversely affect
Dorman's participation in or materially reduce Dorman's
benefits under,
<PAGE>
any of such plans, programs or arrangements; or the
failure to continue, or the taking of any action
which would deprive Dorman, of any material fringe
benefit enjoyed by Dorman immediately prior to the
date hereof; or
6. Any purported termination of Dorman's
employment by the Corporation during the term of this
Agreement which is not effected pursuant to all of the
requirements of this Agreement; and, for purposes of
this Agreement, no such purported termination shall be
effective.
For purposes of this Agreement, a "Change in
Control" shall mean and shall be deemed to have occurred, if at
any time during the Employment Period, directly or indirectly, in
one or a series of transactions:
1. Any person or group (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended, (15 U.S.C. 78m(d) and 15 U.S.C.
78(d)) or under the rules or regulations of the Federal
Home Loan Bank Board or of the Federal Deposit
Insurance Corporations) as in effect on the date hereof
other than Bancorp or Donald Karp has acquired:
(a) more than twenty (20%) percent
of the outstanding common
stock of the Bank or Bancorp,
or equivalent in voting power
of any class or classes of
outstanding securities of the
Bank or Bancorp ordinarily
entitled to vote in elections
of directors;
(b) irrevocable proxies
representing more than twenty
(20%) percent of any class of
voting stock of the Bank or
Bancorp;
(c) any combination of voting
stock and irrevocable proxies
representing more than twenty
(20%) percent of any class of
voting stock of the Bank or
Bancorp; or
(d) the ability to control in any
manner the election of a
majority of the directors of
the Bank or Bancorp;
2. The Karp/Lesnik family sells or
otherwise disposes of fifty (50%) percent or more of
the voting securities of the Bank or Bancorp
<PAGE>
owned by such family as of the date Dorman first
became employed by the Corporations to a nonfamily
member or members;
3. Any merger or consolidation of the Bank
or Bancorp into or with another entity has occurred and
the holders of a majority of the voting stock of the
surviving entity shall not have been shareholders of
Bancorp immediately prior to such transaction; or
4. Any transfer or sale of all or
substantially all of the assets of the Bank or Bancorp
has occurred.
D. TERMINATION BY CORPORATIONS. Notwithstanding
any other provisions of this Agreement, the Corporation shall be
entitled to terminate Dorman's employment with or without
"cause". For purposes of this Agreement, "cause" shall mean
(i) willful and continued failure by Dorman to perform his duties
for the Corporation under this Agreement (as it may be modified
or supplemented in the event of a Change in Control) after at
least one warning in writing from the Corporation's Board of
Directors identifying specifically any such failure; (ii) the
willful engaging by Dorman in misconduct which causes material
injury to the Corporation as specified in a written notice to
Dorman from the Board of Directors; or (iii) conviction of a
crime, other than a traffic violation, habitual drunkenness, drug
abuse, or excessive absenteeism other than for illness, after a
warning (with respect to drunkenness or absenteeism only) in
writing from the Board of Directors to refrain from such
behavior. No act or failure to act on the part of Dorman shall
be considered willful unless done, or omitted to be done, by
Dorman not in good faith and without reasonable belief that the
action or omission was in the best interest of the Corporation.
4.2 NOTICE OF TERMINATION. Any purported termination
by the Corporations or by Dorman in accordance with Section 4.1,
(excluding Section 4.1B) shall be communicated by written Notice
of Termination to the other party or parties hereto in accordance
with this Section 4.2. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Dorman's employment
under the provision so indicated.
4.3 DATE OF TERMINATION, ETC. "Date of Termination"
shall mean (a) if Dorman's employment is terminated for
Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the
performance of his duties on a full time basis during such 30-day
period), and (b) if his employment is terminated for any other
reason, the date specified in the Notice of Termination; provided
that if within thirty (30) days after a Notice of Termination is
given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the
Date of Termination shall be the earlier of: (i) the date upon
which the dispute is finally determined by mutual agreement of
the parties or by a binding arbitration
<PAGE>
award entered in accordance with Section 9 hereof; or, (ii) the
expiration of the Employment Period then existing under this
Agreement; provided, further, that the Date of Termination
shall be extended by a notice of dispute only if such notice
is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable dispatch and
diligence. Notwithstanding the pendency of such dispute, the
Corporations will continue to pay Dorman his full compensation
in effect when the notice giving rise to dispute was given
(including, but not limited to, base salary) and continue
him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice
giving rise to the dispute was given as though termination
had not occurred, until the dispute is finally resolved in
accordance with this Section at which time the parties shall
adjust for any overpayment or underpayment made. Amounts paid
under this Section are in addition to the other amounts due
under this Agreement and unless specifically provided otherwise
shall not be offset against to reduce any other amounts
due under this Agreement.
5. TERMINATION BENEFITS
5.1 DISABILITY TERMINATION BENEFITS. Upon the
termination of Dorman's employment with the Corporations as a
result of "Disability" pursuant to Section 4.1A, the Corporations
shall pay to Dorman a monthly disability benefit equal to one
hundred (100%) percent of his Base Salary, at the rate in effect
on the "Date of Termination", for a period of one year from and
after said date; provided, however, that any amounts payable
under this Section 5.1 shall be reduced by any amounts paid to
Dorman under any other disability program or policy (other than
Social Security) maintained by the Bank or Bancorp. If the
amount of such disability insurance payments exceeds the amount
otherwise payable under this Section 5.1, Dorman may retain the
entire amount of such disability insurance payments inclusive of
the excess, if any. Such payments shall be made by the
Corporations to Dorman, or in the event of his subsequent death,
to his beneficiary or beneficiaries, or his estate, as the case
may be, in accordance with the customary payroll practices of the
Corporations.
During the period Dorman is entitled to receive
payments from the Corporations under this Section 5.1, the
Corporations shall maintain or cause to be maintained life and
health insurance benefits for Dorman at least equivalent to those
he had at the Date of Termination with any amendments and/or
alterations subsequently made equitably to all executive officers
of the Bank and/or Bancorp. During the period Dorman is entitled
to receive payments from the Corporations under this Section 5.1
he shall not be considered an "employee" of the Corporations
except as respects any requirements specifically imposed by law
or as may otherwise be required to continue any insurance
benefits provided for this Section 5.1.
5.2 BENEFITS PAYABLE UPON DEATH. Within thirty
(30) days after the Date of Death, the Corporations shall pay to
Dorman's beneficiary or beneficiaries or his estate, as the case
may be, a lump sum benefit equal to three (3) times the monthly
rate of Dorman's Base Salary as in effect on the Date of Death.
<PAGE>
5.3 BENEFITS PAYABLE UPON TERMINATION BY DORMAN. In
the event that Dorman terminates his employment with the
Corporations under Section 4.1 of this Agreement, the
Corporations shall pay to Dorman within thirty (30) days of such
termination as severance a lump sum equal to the aggregate amount
of the future Base Salary, at the monthly rate then in effect,
Dorman would have received if he continued in the employ of the
Corporations for the remainder of the Employment Period then
existing under this Agreement plus, if the Employment Period
shall not have been already extended pursuant to the terms of
Section 2.1 by reason of a vote of shareholders, an additional
twenty-four (24) months and the incentive bonuses to which he
would have otherwise been entitled during such period of time,
based on the average incentive bonus received by him during the
then two most recent fiscal years of the Corporations.
5.4 TERMINATION BY THE CORPORATIONS FOR CAUSE. If
Dorman's employment under this Agreement is terminated by either
the Bank or Bancorp for "cause" (as defined in Section 4.1D), or
if Dorman voluntarily resigns his employment other than pursuant
to Section 4.1C, the Corporations shall pay to Dorman his Base
Salary as then in effect that has accrued to the Date of
Termination. Unless otherwise determined by the Boards of
Directors of the Corporations, Dorman shall have no right to
receive compensation or other benefits under this Agreement after
such a termination for "cause" or following a voluntary
resignation.
5.5 TERMINATION BY THE CORPORATIONS FOR OTHER THAN
CAUSE. If during the Employment Period the Bank or Bancorp or
both of them terminate Dorman's employment other than for "cause"
(as defined in Section 4.1D) or other than for the reasons
specified in Sections 1.3, 1.4, 1.5 and 1.6 of this Agreement,
then in such event the Corporations shall pay Dorman, or in the
event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance a lump sum equal
to the aggregate amount of the future Base Salary payments Dorman
would have received if he continued in the employ of the
Corporations for the remainder of the then existing Employment
Period of this Agreement plus twenty-four (24) months at the
highest rate of Base Salary and bonus paid to Dorman at any time
under this Agreement or within two years prior to the date
hereof. Dorman shall not be required to mitigate damages by
seeking other employment and payments required to be made
hereunder shall not be reduced by any other income which Dorman
may receive or by any setoffs or claims which may exist against
Dorman for any reason whatsoever.
5.6 CERTAIN REDUCTION OF PAYMENTS BY THE CORPORATIONS.
A. Anything in this Agreement to the contrary
notwithstanding, prior to the payment of any lump sum amount
payable hereunder, by reason of termination related to a Change
of Control, the certified public accountants of the Corporations
immediately prior to a Change of Control (the "Certified Public
Accountants") shall
<PAGE>
determine as promptly as practical and in any event within
20 business days following the termination of employment of
Dorman whether any payment or distribution by the Corporations
to or for the benefit of Dorman (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would more likely than
not be nondeductible by the Corporations for Federal income
purposes because of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and if it is then the aggregate
present value of amounts payable or distributable to or for the
benefit of Dorman pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced (but not below zero)
to the "Reduced Amount". For purposes of this paragraph, the
"Reduced Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of Agreement Payments
without causing any Payment to be nondeductible by the
Corporations because of said Section 280G of the Code.
B. If under paragraph A. of this section the
Certified Public Accountants determine that any Payment would
more likely than not be nondeductible by the Corporations because
of Section 280G of the Code, the Corporations shall promptly give
Dorman notice to that effect and a copy of the detailed
calculation thereof and of the Reduced Amount, and Dorman may
then elect, in his sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Agreement
Payments equals the Reduced Amount), and shall advise the
Corporations in writing of his election within 20 business days
of his receipt of notice. If no such election is made by Dorman
within such 20-day period, the Corporations may elect which and
how much of the Agreement Payments shall be eliminated or reduced
(as long as after such election the aggregate present value of
the Agreement Payments equal the Reduced Amount) and shall notify
Dorman promptly of such election. For purposes of this
paragraph, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the
Certified Public Accountants shall be binding upon the
Corporations and Dorman and shall be made within 20 business days
of a termination of employment of Dorman. With the consent of
Dorman, the Corporations may suspend part or all of the lump sum
payment due Dorman hereunder until the Certified Public
Accountants finish the determination and Dorman (or the
Corporations, as the case may be) elect how to reduce the
Agreement Payments, if necessary. As promptly as practicable
following such determination and the elections hereunder, the
Corporations shall pay to or distribute to or for the benefit of
Dorman such amounts as are then due to Dorman under this
Agreement and shall promptly pay to or distribute for the benefit
of Dorman in the future such amounts as become due to Dorman
under this Agreement.
C. As a result of the uncertainty in the application
of Section 280G of the Code, it is possible that Agreement
Payments may have been made by the Corporations which should not
have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Corporations could
have been made ("Underpayment"), in each case, consistent with
the calculation of the Reduced Amount
<PAGE>
hereunder. In the event that the Certified Public Accountants,
based upon the assertion of a deficiency by the Internal
Revenue Service against the Corporations or Dorman which said
Certified Public Accountants believe has a high probability
of success, determines that an Overpayment has been made,
any such Overpayment shall be treated for all purposes as
a loan to Dorman which Dorman shall repay to the Corporations
together with interest at the applicable Federal rate provided
for in Section 7871(f)(2)(B) of the Code; provided, however,
that no amount shall be payable by Dorman to the Corporations
to the extent such payment would not reduce the amount which
is subject to taxation under Section 4999 of the Code.
In the event that the Certified Public Accountants, based
upon controlling precedent, determine that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the
Corporations to or for the benefit of Dorman together with
interest at the applicable Federal rate provided for in Section
7872(f)(2)(B) of the Code.
6. OTHER TERMINATION BENEFITS
6.1 INSURANCE. If Dorman's employment with the
Corporations shall be terminated either by Dorman pursuant to the
provisions of Section 4.1C or by the Corporations or either of
them without "cause", the Corporations will continue or cause to
be continued life and health insurance coverage substantially
identical to the coverage maintained by the Corporations for
Dorman prior to his severance. Dorman shall contribute such
amounts towards such benefits as are required of all employees of
the Corporations so long as he receives such benefits.
6.2 SPECIAL RETIREMENT BENEFITS. If Dorman's
employment with the Corporations shall be terminated either by
Dorman pursuant to the provisions of Section 4.1C or by the
Corporations or either of them without "cause", Dorman shall be
entitled to receive "Special Retirement Benefits" from the
Corporations so that the total retirement benefits Dorman
receives from the Corporations will approximate the total
retirement benefits Dorman would have received under all
qualified retirement plans (which shall not include severance
plans) of the Corporations in which Dorman participates were
Dorman fully vested under such qualified retirement plans as if
Dorman had continued in the employ of the Corporations for at
least sixty (60) consecutive months in the absence of early
termination or until his retirement. The benefits specified in
this Section 6.2 will include all ancillary benefits, such as
early retirement and survivor rights and benefits available at
retirement. The amount payable to Dorman or his beneficiary(s)
under this Section 6.2 shall equal the excess of (1) the benefits
that would be paid to Dorman or his beneficiaries, under all
retirement plans of the Corporations in which Dorman participates
if Dorman were fully vested under such plans or (2) the benefits
that are payable to Dorman or his beneficiaries under all
retirement plans of the Corporations in which Dorman
participates. These Special Retirement Benefits are provided on
an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code and
shall be payable solely from the general assets of the
Corporations. These Special Retirement Benefits shall
<PAGE>
be payable at the times and in the manner provided in the
applicable retirement plans to which they relate.
6.3 SPLIT DOLLAR INSURANCE. If pursuant to Section
4.1C Dorman's employment with the Corporations following a Change
in Control shall terminate, the Corporations shall continue to
pay the premium for and maintain the Broad National Bank Split
Dollar Life Insurance for and on behalf of Dorman with coverage
of $500,000 until such time as said policy is fully paid.
6.4 USE OF VEHICLE. If pursuant to Section 4.1C
Dorman shall terminate his employment with the Corporations
following a Change in Control, the Corporations shall at their
option provide Dorman with the use of the late model car
specified in Section 3.4B for a period of twenty-four (24) months
following the Date of Termination or the reasonable value
corresponding to such usage; provided, however, that
notwithstanding the foregoing Dorman may in lieu thereof elect to
purchase said vehicle at its then present value by providing the
Corporations with written notice of such election.
6.5 PAYMENTS UPON TERMINATION. Termination of this
Agreement on any grounds whatsoever will not affect the
obligations of the parties to make payment of any sums that have
accrued but remain unpaid at the effective date of such
termination.
7. SOURCE OF FUNDS
Except for those benefits payable directly from the
qualified retirement or pension plan of the Corporations or
either of them, all payments and benefits provided in Sections 3,
5 or 6 shall be paid to Dorman or paid for on behalf of Dorman
from the general funds of the Corporations and no special or
separate funds shall be established and no other segregation of
assets shall be made to assure payment. Dorman shall have no
right, title or interest whatsoever in or to any investments
which the Corporations may make to aid them in meeting their
obligations hereunder.
8. FEDERAL INCOME TAX WITHHOLDING
The Corporations may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation
or ruling.
9. ARBITRATION
In the event that any claim, controversy, issue or
other dispute arises under this Agreement, the breach thereof,
the termination of Dorman's employment by the Corporations under
Section 4 of this Agreement, including any claim based in whole
or in part on federal or state constitutions, statutes or
regulations, local ordinances, the common law or public
<PAGE>
policy, including, but not limited to Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act
of 1967, the Employee Retirement Income Security Act of 1974,
Americans with Disabilities Act, the Worker Adjustment and
Retraining Notification Act, the Employee Polygraph Protection
Act of 1988, the Occupational Safety and Health Act, the Fair
Labor Standards Act, the Civil Rights Act of 1971; the
Rehabilitation Act of 1973 and the Vietnam Era Veterans
Readjustment Assistance Act of 1974, or the amount of any
payments under Sections 5 or 6, if the claim, controversy,
issue or dispute is not settled by agreement among the parties,
the dispute shall be settled by a single arbitration conducted by
three arbitrators in the State of New Jersey, under the
auspices of, and in accordance with the applicable rules of, the
American Arbitration Association then in effect. One arbitrator
shall be selected by the Corporation, one arbitrator shall be
selected by Dorman and the third arbitrator shall be selected by
the two selected in such manner. The decision of the arbitrators
shall be final and conclusive on the parties and judgment upon
such decision may be entered in any court having jurisdiction
thereof. The award of the arbitrators shall be in writing and
shall specify the factual and legal basis for the award.
Dorman shall be entitled to reimbursement by the
Corporations for all reasonable legal and other professional fees
and expenses incurred by him in such arbitration or in enforcing
the award, including reasonable attorneys' fees. The parties
agree that resolution of any such claim, controversy, issue or
other dispute pursuant to the foregoing arbitration proceeding is
intended to be final and binding on them and any award rendered
by such arbitration shall constitute a complete, final and
binding adjudication of any and all legal or factual issues
pertaining to or arising out of the matter that gave rise to the
controversy or dispute. The provisions of this Article 9 shall
survive the termination of this Agreement for any reason
whatsoever.
10. CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the
Corporations or either of them from consolidating or merging into
or with, or transferring all or substantially all of their assets
to, another corporation which assumes this Agreement and all
obligations and undertakings of the Corporations hereunder.
11. POST-TERMINATION COVENANTS
11.1 COVENANT NOT TO COMPETE. Dorman covenants and
agrees that, in consideration of the amounts to be paid and
benefits to be provided to Dorman hereunder, for a period of
twelve (12) months following the termination of his employment
with the Corporations pursuant to Sections 4.1A, 4.1C or 4.1D,
Dorman shall not be employed as an executive officer of, shall
not control, manage or otherwise participate in the management
of, any other financial institution having its principal
headquarters and/or executive offices in the County of Essex,
State of New Jersey, or of a company that owns or controls a
majority of the voting securities of any such financial
institution. The term "financial institution" shall mean and
include any bank, savings bank, savings and loan association or
credit union.
<PAGE>
11.2 In the event of a Change in Control, either before
or after a Date of Termination, Article 11 shall in its entirety
become legally inoperative and Dorman will no longer be bound by
any of the covenants contained therein.
11.3 SOLICITATION OF EMPLOYEES. Dorman covenants and
agrees that, in consideration of the amounts to be paid and
benefits to be provided to Dorman hereunder, for a period of
twelve (12) months following the termination of his employment
with the Corporations irrespective of the time, manner or cause
of said termination, Dorman shall not solicit any employee of the
Bank or Bancorp to leave its or their employ or join the
employment of, or employ, or permit any business of which he is
an owner, partner, substantial shareholder or principal executive
to solicit the employment of or employ, any person who is
employed by the Bank or Bancorp or has been employed by the Bank
or Bancorp within two (2) years prior to the time of such
solicitation of employment.
11.4 COVENANTS TO SURVIVE. The parties hereto agree
and acknowledge that except as provided in Section 11.2 above,
the terms of this Article 11 and of Article 20 shall survive the
termination of this Agreement for any reason whatsoever.
12. ENTIRE AGREEMENT
This writing shall constitute the entire Agreement of
the parties as to the employment and compensation of Dorman by
the Corporations, and shall supersede any and all prior
agreements and understandings, whether they be oral or in
writing; provided that this Agreement shall not supersede the
Prior Agreement until the Commencement Date hereof.
13. SEVERABILITY
If, for any reason, any provision of this Agreement is
held invalid, such invalidity shall not effect any other
provision of this Agreement not held so invalid, and each such
other provision shall to the full extent consistent with law
continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in
no way affect the rest of such provision not held so invalid and
the rest of such provision together with all provisions of this
Agreement shall to the full extent consistent with law continue
in full force and effect.
14. AMENDMENT OF AGREEMENT
This Agreement may not be modified or amended except by
an instrument in writing signed by the parties hereto.
<PAGE>
15. WAIVER
No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by a
written instrument executed by the party charged with such waiver
or estoppel. No such written waiver shall be deemed a continuing
waiver unless specifically stated therein, and each waiver shall
operate as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future nor
as to any act other than that specifically waived.
16. HEADINGS
Headings used in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
17. BINDING EFFECT AND GOVERNING LAW
All of the terms and provisions of this Agreement shall
be binding upon, shall inure to the benefit of, and be
enforceable by and against Dorman and his executors,
administrators and heirs and Broad National Bank and Broad
National Bancorporation and their respective permitted successors
and assigns. This Agreement has been executed and delivered in
the State of New Jersey and its validity, interpretation,
performance and enforcement shall be governed by the laws of said
State.
18. NO ATTACHMENT
Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation,
communication, alienation, sale, assignment, encumbrance, charge,
pledge or hypothecation or to execution, attachment, levy or
similar process or assignment by operation of law, and any
attempt to voluntarily or involuntarily effect any such action
shall be null, void and of no effect.
19. NONASSIGNABILITY
Neither this Agreement nor any right or interest
hereunder shall be assignable by Dorman, his beneficiaries or
legal representative without the Corporations' prior written
consent; provided, however, that nothing in this Section 19 shall
preclude (a) Dorman from designating a beneficiary to receive any
benefit payable hereunder upon his death, or (b) the executors,
administrators or other legal representatives of Dorman or his
estate from assigning any rights hereunder to the person or
persons entitled thereto.
20. CONFIDENTIAL INFORMATION
20.1 Dorman shall not, directly or indirectly, during
the term of his employment hereunder and any time after
termination of his employment for any reason, to
<PAGE>
the detriment of the Corporations, knowingly divulge, disclose,
disseminate, publish, reveal or otherwise communicate to any
unauthorized person any Confidential Information relating to
the Corporations or to any of the businesses operated by them.
20.2 Dorman confirms that the Confidential Information
constitutes the exclusive property of the Corporations. Upon
termination of his employment hereunder, Dorman will promptly
return to the Corporations all materials (whether prepared by
Dorman or others) containing, constituting, embodying or
illustrating Confidential Information, and all other property of
the Corporations then in his possession or custody.
20.3 As used in this Article 20, the following terms
shall have the following meanings:
A. The term "Confidential Information" means
information disclosed to Dorman or known to Dorman as a
consequence of or through his employment by the Corporations and
not generally known in the banking industry. Such information
includes, but is not limited to, information relating to the
Corporations' products, research, developments, accounting,
finances, marketing, merchandising and selling, and specifically
includes future business plans, client list, applicant list, and
training and operating methods and techniques. The term
"Confidential Information" does not include information which
(i) at the time it was received by Dorman was generally available
to the public; (ii) prior to its use by Dorman, becomes generally
available to the public through no act or failure of Dorman;
(iii) prior to its becoming known to Dorman as a consequence of
or through his employment by the Corporations, was otherwise
known to Dorman; or (iv) is received by Dorman from a person who
is not a party to this Agreement and who was not under an
obligation of confidence with respect to such information.
B. "Materials" includes, but is not limited to,
books, notebooks, documents, records, photographs, films, video
tapes, audio recordings, discs, diskettes, or other electronic or
optical storage media, software and support materials, and
similar or other materials.
20.4 Dorman shall not otherwise knowingly act or
conduct himself (a) to the material detriment of the
Corporations, or (b) in a manner which is inimical or contrary to
the interest thereof.
<PAGE>
IN WITNESS WHEREOF, the Corporations have caused this
Agreement to be executed and their respective seals to be affixed
hereunto by their duly authorized officers, and Dorman, has
signed this Agreement, all as of the date first written above.
BROAD NATIONAL BANK, a national banking association
organized under the laws of the United States of America, hereby
acknowledges and agrees to be bound to the extent applicable by
the terms of the Employment Agreement dated October 1, 1995
between JOHN A. DORMAN and BROAD NATIONAL BANCORPORATION and
guarantees payments and performance of the terms of said
agreement to the extent permitted by the laws of New Jersey and
the laws of the United States of America.
ATTEST: BROAD NATIONAL BANCORPORATION
_________________________ By: ______________________________
Name: Fred S. Campo Name: Donald M. Karp
Title: Secretary Title: Chairman & CEO
ATTEST: BROAD NATIONAL BANK
_________________________ By: ______________________________
Name: Fred S. Campo Name: Donald M. Karp
Title: Secretary Title: Chairman & CEO
WITNESS:
_________________________ By: ______________________________
Name: JOHN A. DORMAN
1996
BROAD NATIONAL BANCORPORATION
INCENTIVE STOCK OPTION PLAN
(Amended)
BROAD NATIONAL BANCORPORATION, a corporation organized
and existing under the laws of the State of New Jersey (the
"Company"), hereby formulates and adopts, subject to the approval
of the holders of a majority of the issued and outstanding shares
of common stock of the Company ("Broad National Common Stock")
voting in person or by proxy at a duly constituted meeting of the
stockholders of the Company, an incentive stock option plan for
certain key employees of the Company and its subsidiaries as
follows:
1. Purpose of Plan. The purpose of this 1996 Broad
National Bancorporation Incentive Stock Option Plan (the "Plan")
is to encourage certain employees of the Company and its
subsidiaries to participate in the ownership of the Company, and
to provide additional incentive for such employees to promote the
success of its business through sharing in the future growth of
such business.
2. Effectiveness of Plan. The provisions of this Plan
shall become effective on the date the Plan is adopted by the
Board of Directors of the Company (the "Board of Directors"),
subject to the requirement that the Plan is approved by the
holders of a majority of the shares of Broad National Common
Stock voting in person or by proxy at a duly constituted meeting
of the stockholders of the Company to be held within twelve (12)
months after the date on which the Plan is adopted by the Board
of Directors.
3. Administration. This Plan shall be administered by a
committee ("Committee") which shall be selected by the Board of
Directors and which shall be composed of not less than two (2)
nor more than five (5) members of the Board of Directors who are
not employees and who qualify as "Non-Employee Directors" within
the meaning of Securities and Exchange Commission Rule 16b-3(b)(3).
The Committee shall have full power and authority to
construe, interpret and administer the Plan, and may from time to
time adopt such rules and regulations for carrying out this Plan
as it may deem proper and in the best interests of the Company.
Subject to the terms, provisions and conditions of the Plan, the
Committee shall have exclusive authority (i) to select the
employees to whom options shall be granted, (ii) to determine the
number of shares subject to each option, (iii) to determine the
time or times when options will be granted, (iv) to determine the
option price of the shares subject to each option, (v) to
determine the time when each option may be exercised, (vi) to fix
such other provisions of each option agreement as the Committee
may deem necessary or desirable, consistent with the terms of
this Plan, and (vii) to determine all other questions relating to
the administration of this Plan. The interpretation and
construction of this Plan by the Committee shall be final,
conclusive and binding upon all persons.
<PAGE>
4. Eligibility.
(a) Key employees--Options to purchase shares of Broad
National Common Stock shall be granted under this Plan only to
key employees of the Company or of any of its subsidiary
corporations, as that term is defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"). Key
employees to whom options may be granted under this Plan will be
those employees selected by the Committee from time to time who,
in the sole discretion of the Committee, have made material
contributions in the past, or who are expected to make material
contributions in the future, to the successful performance of the
Company.
(b) Stock ownership limitation--No option shall be
granted under this Plan to any employee of the Company or of a
subsidiary corporation who, immediately before the option is
granted, owns (either directly or by application of the rules
contained in Section 424(d) of the Code) stock possessing more
than 10 percent of the total combined voting power of all classes
of stock of the Company or of any of its subsidiary corporations
unless at the time of such grant the option price is fixed at not
less than 110 percent of the fair market value of the stock
subject to the option, and the exercise of such option is
prohibited by its terms after the expiration of five (5) years
from the date such option is granted.
5. Shares Subject to the Plan. Options granted under this
Plan shall be granted solely with respect to shares of Broad
National Common Stock. Subject to any adjustments made pursuant
to the provisions of Section 12, the aggregate number of shares
of Broad National Common Stock which may be issued upon exercise
of the options which will be granted under this Plan shall not
exceed two hundred thousand (200,000) shares.
If any option granted under this Plan shall expire or
terminate for any reason without having been exercised in full,
such option shall expire as to the unpurchased shares, and the
unpurchased shares subject to such option shall be added to the
number of shares otherwise available for options which may be
granted in accordance with the terms of this Plan.
The shares to be delivered upon exercise of the options
granted under this Plan shall be made available, at the
discretion of the Board of Directors, from either the authorized
but unissued shares of Broad National Common Stock or any
treasury shares of Broad National Common Stock held by the
Company.
6. Option Agreement. Each option granted under this Plan
shall be evidenced by an incentive stock option agreement, which
shall be signed by an officer of the Company and by the employee
to whom the option is granted (the "optionee"). The terms of
said incentive stock option agreement shall be in accordance with
provisions as may be approved by the Committee. The granting of
an option under this Plan shall be deemed to occur on the date on
which the incentive stock option agreement evidencing such option
is executed by the Company. Each incentive stock option
agreement shall constitute a binding contract between <PAGE> the Company
and the optionee, and every optionee, upon the execution of an
incentive stock option agreement, shall be bound by the terms and
restrictions of this Plan and such incentive stock option
agreement.
7. Option Price. The price at which shares of Broad
National Common Stock may be purchased under an option granted
pursuant to this Plan shall be determined by the Committee, but
in no event shall the price be less than the greater of (a) the
par value thereof, or (b) 100 percent of the fair market value of
such shares on the date that the option is granted. The fair
market value of shares of Broad National Common Stock for
purposes of this Plan shall be determined by the Committee, in
its sole discretion, and the Committee may adopt such formulas as
in its opinion shall reflect the true fair market value of such
stock from time to time, and may rely on such independent advice
with respect to such fair market value as the Committee shall
deem appropriate.
8. Period and Exercise of Option.
(a) Period--Subject to the provisions of Section 10
hereof with respect to the death or termination of employment of
an optionee, the period during which each option granted under
this Plan may be exercised shall be fixed by the Committee at the
time such option is granted, provided that such period shall
expire no later than ten (10) years from the date on which the
option is granted. In the event the Company shall not be the
surviving corporation in any merger, consolidation, or
reorganization, or in the event of acquisition by another
corporation of all or substantially all of the assets of the
Company, every option outstanding hereunder may be assumed (with
appropriate changes) by the surviving, continuing, successor or
purchasing corporation, as the case may be, subject to any
applicable provisions of the Code or replaced with new options of
comparable value (in accordance with Section 424(a) of the Code).
In the event (i) that such surviving, continuing, successor or
purchasing corporation, as the case may be, does not assume or
replace the outstanding options hereunder, or (ii) of liquidation
or dissolution of the Company, the Committee may provide that
each optionee shall have the right, within a period commencing
not more than 30 days immediately prior to and ending on the day
immediately prior to such merger, consolidation, reorganization
or acquisition by another corporation of all or substantially all
of the assets of the Company or the liquidation or dissolution of
the Company, to exercise the optionee's outstanding options to
the extent of all or any part of the aggregate number of shares
subject to such option(s). In the event of a "Change of Control"
(as defined below) the Committee may accelerate the time at which
options granted under this Plan may be exercised by the optionee.
For purposes of this paragraph (a) "Change of Control" shall mean
a change in control of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation
14A (in effect on the date hereof) promulgated under the
Securities Exchange Act of 1934, as in effect on the date hereof;
provided, however, that, without limitation, such a Change of
Control shall be deemed to occur when either (i) a person (other
than a current stockholder, or a director nominated or selected
by the Board of Directors or an officer elected by the Board of
Directors) acquires beneficial ownership (as defined by
Securities and <PAGE> Exchange Commission Rule 13d-3) of 25 percent or
more of the combined voting power of the Company's voting
securities, or (ii) less than a majority of the directors are
persons who were either nominated or selected by the Board of
Directors.
(b) Exercise--Any option granted under this Plan may
be exercised by the optionee (or by a person acting under Section
10(b) below) only by (i) delivering to the Company written notice
of the number of shares with respect to which the optionee is
exercising his or her option right, (ii) paying in full the
option price of the purchased shares, and (iii) if the shares to
be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for
the Company to secure an exemption from such registration,
furnishing to the Company such representation or agreement in
writing signed by the optionee (or person) as shall be necessary
in the opinion of such counsel to secure such exemption. Subject
to the limitations of this Plan and the terms and conditions of
the respective incentive stock option agreement, each option
granted under this Plan shall be exercisable in whole or in part
at such time or times as the Committee may specify in such
incentive stock option agreement.
(c) Payment for shares--Payment for shares of Broad
National Common Stock purchased pursuant to an option granted
under this Plan may be made either in cash or in other shares of
Broad National Common Stock (such other shares of Broad National
Common Stock shall be valued for this purpose at 100 percent of
the fair market value (as defined in Section 7 hereof) of such
shares on the date that payment of the option price is made).
(d) Delivery of certificates--As soon as practicable
after receipt by the Company of the notice and representation
described in subsection (b), and of payment in full of the option
price for all of the shares being purchased pursuant to an option
granted under this Plan, a certificate or certificates
representing such shares of stock shall be registered in the name
of the optionee and shall be delivered to the optionee. However,
no certificate for fractional shares of stock shall be issued by
the Company notwithstanding any request therefor. Neither any
optionee, nor the legal representative, legatee or distributee of
any optionee, shall be deemed to be a holder of any shares of
stock subject to an option granted under this Plan unless and
until the certificate or certificates for such shares have been
issued. All stock certificates issued upon the exercise of any
options granted pursuant to this Plan may bear such legend as the
Committee shall deem appropriate regarding restrictions upon the
transfer or sale of the shares evidenced thereby.
(e) Limitations on exercise--Except as provided in
Section 10 hereof, no option granted under this Plan shall be
exercised unless the optionee is at the time of such exercise
employed by the Company or one of its subsidiary corporations and
shall have been so employed by the Company or one of its
subsidiary corporations at all times since the date on which such
option was granted.
<PAGE>
9. Limitation on Incentive Stock Options Granted to
Individual Employees. The aggregate fair market value
(determined at the time the options are granted) of stock with
respect to which incentive stock options are exercisable for the
first time by any individual during any calendar year under this
Plan (and under any other plan or plans of such individual's
employer corporation and any parent or subsidiary corporation or
corporations) shall not exceed $100,000; provided, however, the
foregoing $100,000 limitation shall only apply to incentive stock
options and shall not limit the aggregate fair market value of
stock with respect to which all other options granted under the
Plan are exercisable for the first time by any individual during
any calendar year, and any options in excess of the $100,000
limitation shall be non-statutory stock options subject to all
other provisions of this Plan. The $100,000 limitation provided
by the preceding sentence shall be applied by taking options into
account in the order in which they are granted. For purposes of
this Plan, "incentive stock options" shall mean options that meet
the requirements of the Code.
10. Termination of Employment. If an optionee shall cease
to be employed by the Company or any of its subsidiary
corporations for any reason other than death, disability (as
defined herein), for cause (as defined herein) or on account of
voluntary termination, any option or unexercised portion thereof
granted to him under this Plan which is otherwise exercisable
shall terminate unless it is exercised within thirty (30) days of
the date on which such optionee ceases to be so employed, and in
any event no later than the expiration date of such option as
specified in the respective stock option agreement. Nothing in
this Plan or in any stock option agreement shall be construed as
an obligation on the part of the Company or any of its subsidiary
corporations to continue the employment of any employee.
(a) Termination Of Employment for Cause or On Account
of Voluntary Termination. If an optionee's employment by the
Company or by any of its subsidiary corporations should be
terminated for cause or if an optionee should voluntarily
terminate his employment with the Company or with any subsidiary
of the Company, any option or unexercised portion thereof granted
to him under this Plan shall immediately be terminated and
forfeited without any payment being due therefor from the Company
or any subsidiary thereof. For purposes of this paragraph (a),
the term "cause" shall mean, with respect to any optionee, (1)
cause as defined in the employment agreement with the Company or
any subsidiary thereof to which the optionee is a party or, if
none, (2) the occurrence of any of the following events:
(i) the willful and continued failure by such optionee
to substantially perform his duties with the Company or any
subsidiary thereof on a full-time basis (other than any such
failure resulting from total or partial incapacity due to
physical or mental illness) after a written demand for
substantial performance is delivered to such optionee by the
Board of Directors, which demand identifies the manner in
which the Board believes that he has not substantially
performed such duties;
(ii) the willful engaging by such optionee in conduct
which is significantly injurious to the Company or to any
subsidiary of the Company, monetarily or <PAGE> otherwise, after a
written demand for cessation of such conduct is delivered to
such individual by the Board of Directors, which demand
specifically identifies the manner in which the Board
believes that such individual has engaged in such conduct
and the injury to the Company or to any subsidiary of the
Company resulting therefrom;
(iii) the commission by such optionee of an act or
acts constituting a crime involving moral turpitude;
(iv) the breach by such optionee of one or more
covenants, if any, in any agreement to which the optionee
and the Company are parties;
(v) such optionee's use of illegal drugs, abuse of
other controlled substances or habitual intoxication; or
(vi) the commission by such optionee of a significant
act of dishonesty, deceit or breach of fiduciary duty in the
performance of the optionee's duties with the Company or
with any subsidiary of the Company.
For purposes of clauses (i) and (ii) of this definition, no
act, or failure to act, on the part of an optionee shall be
deemed to be willful unless knowingly done, or omitted to be
done, by such optionee not in good faith and without a
reasonable belief that such action or omission was in the
best interests of the Company or of a subsidiary of the
Company.
(b) Termination of Employment on Account of Death or
Disability of Optionee. In the event of the death or disability
of an optionee while he is an employee of the Company or of a
subsidiary of the Company (or within thirty (30) days of the date
on which such optionee ceases to be so employed) any option or
unexercised portion thereof granted to him under this Plan which
is otherwise exercisable shall terminate unless it is exercised
within a period of one (1) year following the optionee's death or
disability (but in no event later than the expiration date of the
option as specified in the respective incentive stock option
agreement). In the event of the death of the optionee, the
option may be exercised in accordance with the provisions of this
paragraph (b) only by the person or persons to whom such
optionee's rights under the option pass by operation of the
optionee's will or the laws of descent and distribution. For
purposes of this paragraph (b), the term "disability" shall mean,
with respect to any optionee, physical or mental incapacity
resulting in such optionee being unable to substantially perform
his duties for more than six (6) consecutive months or an
aggregate of six (6) months in any period of twelve (12)
consecutive months as determined in writing by a qualified
independent physician mutually acceptable to the optionee and the
Company.
<PAGE>
11. Nontransferability of Options. Each option granted
under this Plan shall not be transferable or assignable by the
optionee other than by will or the laws of descent and
distribution, and during the lifetime of the optionee may be
exercised only by said optionee.
12. Adjustments upon Changes in Capitalization. In the
event of any change in the capital structure of the Company,
including but not limited to a change resulting from a stock
dividend, stock split, reorganization, merger, consolidation,
liquidation or any combination or exchange of shares, the number
of shares of Broad National Common Stock subject to this Plan and
the number of such shares subject to each option granted
hereunder shall be correspondingly adjusted by the Committee.
The option price for which shares of Broad National Common Stock
may be purchased pursuant to an option granted under this Plan
shall also be adjusted so that there will be no change in the
aggregate purchase price payable upon the exercise of any option.
13. Amendment and Termination of Plan. No option shall be
granted pursuant to this Plan after December 19, 2006, on which
date this Plan will expire except as to options then outstanding
under the Plan, which options shall remain in effect until they
have been exercised or have expired. The Board of Directors may
at any time before such date amend, modify or terminate the Plan;
provided, however, that the Board of Directors may not, without
further approval by the holders of a majority of the issued and
outstanding shares of Broad National Common Stock voting in
person or by proxy at a duly constituted meeting of the
stockholders of the Company, (i) increase the maximum number of
shares of Broad National Common Stock as to which options may be
granted pursuant to this Plan, (ii) change the class of employees
eligible to be granted options pursuant to the Plan, (iii) extend
the period under this Plan during which options may be granted or
exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to
change the manner of determining the fair market value of shares
of Broad National Common Stock. No amendment, modification or
termination of this Plan may adversely affect the rights of any
optionee under any then outstanding option granted hereunder
without the consent of such optionee.
14. Governing Law. This Plan and the rights of all persons
claiming hereunder shall be construed and determined in
accordance with the laws of the State of New Jersey.
* * *
1996
BROAD NATIONAL BANCORPORATION
DIRECTORS NON-STATUTORY STOCK OPTION PLAN
BROAD NATIONAL BANCORPORATION, a corporation organized
and existing under the laws of the State of New Jersey (the
"Company"), hereby formulates and adopts, subject to the approval
of the holders of a majority of the issued and outstanding shares
of common stock of the Company ("Broad National Common Stock")
voting in person or by proxy at a duly constituted meeting of the
stockholders of the Company, a non-statutory stock option plan
for members of the Board of Directors of the Company
("Directors") as follows:
1. Purpose of Plan. The purpose of this 1996 Broad
National Bancorporation Directors Non-Statutory Stock Option Plan
(the "Plan") is to enable Directors to participate in the
ownership of the Company, and to provide additional incentive for
such Directors to promote the success of its business through
sharing in the future growth of such business.
2. Effective Date of Plan. The provisions of this Plan
shall become effective on the date the Plan is adopted by the
Board of Directors of the Company (the "Board of Directors"),
subject to the requirement that the Plan is approved by the
holders of a majority of the shares of Broad National Common
Stock voting in person or by proxy at a duly constituted meeting
of the stockholders of the Company within twelve (12) months from
the date the Plan is adopted by the Board of Directors. The
granting of an option under this Plan (the "Granting Date") shall
be deemed to occur on the date of each annual meeting of the
Board of Directors.
3. Eligibility. Options to purchase shares of Broad
National Common Stock shall be granted under this Plan to those
Directors serving as Directors following the annual meeting of
the stockholders of the Company beginning with the first annual
meeting of the Board of Directors occurring after December 31,
1996.
4. Shares Subject to the Plan. Options granted under this
Plan shall be granted solely with respect to shares of Broad
National Common Stock. Subject to any adjustments made pursuant
to the provisions of Section 11, the aggregate number of shares
of Broad National Common Stock which may be issued upon exercise
of the options which will be granted under this Plan shall not
exceed seventy five thousand (75,000) shares.
(a) On the date of each annual meeting of the Board of
Directors following the annual meeting of the stockholders of the
Company, commencing with the first annual meeting of the Board of
Directors occurring after December 31, 1996, the Company shall
grant to each Director serving as a Director immediately
following such annual meeting (whether or not such Director was
also serving as a Director on the date the Plan was adopted) an
option to purchase five hundred (500) shares of Broad National
Common Stock.
<PAGE>
(b) The shares to be delivered upon exercise of the
options granted under this Plan shall be made available, at the
discretion of the Board of Directors, from either the authorized
but unissued shares of Broad National Common Stock or any
treasury shares of Broad National Common Stock held by the
Company.
Any option granted hereby shall first become exercisable
upon the later of (i) the expiration of two (2) years from the
Granting Date or (ii) the date on which the Company shall have
paid a cash dividend with respect to its Common Stock in each of
two (2) consecutive calendar years during the term of the option.
Each option granted hereunder shall expire upon the expiration of
the period provided in Section 7 of the Plan. If any option
granted under this Plan shall expire or terminate for any reason
without having been exercised in full, such option shall expire
as to the unpurchased shares, and the unpurchased shares subject
to such option shall be added to the number of shares otherwise
available for options which may be granted in accordance with the
terms of this Plan.
5. Option Agreement. Each option granted under this Plan
shall be evidenced by a stock option agreement which shall be
signed by an officer of the Company and by the Director to whom
the option is granted (the "optionee"). The terms of said stock
option agreement shall be in accordance with the provisions of
this Plan. Each stock option agreement shall constitute a
binding contract between the Company and the optionee, and every
optionee, upon the execution of a stock option agreement, shall
be bound by the terms and restrictions of this Plan and such
stock option agreement.
6. Option Price. The price at which shares of Broad
National Common Stock may be purchased under an option granted
pursuant to this Plan shall be equal to the greater of (i) the
par value thereof, or (ii) 100 percent of the fair market value
of such shares on the Granting Date. The fair market value of
shares of Broad National Common Stock for purposes of this Plan
shall be the mean between the highest and lowest selling prices
of such shares on the Granting Date. If there are no sales on
the Granting Date, but there are sales on dates within a
reasonable period of time (ten days) both before and after the
Granting Date, the fair market value shall be equal to the
weighted average of the means between the highest and lowest
selling prices for such shares on the nearest date before and the
nearest date after the Granting Date. If there are no sales
within a reasonable period of time both before and after the
Granting Date, the fair market value shall be the mean between
the bona fide bid and asked prices on the Granting Date, and if
none, the fair market value shall be the weighted average of the
means between the bona fide bid and asked prices on the nearest
trading date before and the nearest trading date after the
Granting Date, provided both such nearest dates are within a
reasonable period of time (ten days) from the Granting Date. Any
such selling prices or bid and asked quotations shall be
determined from the reports of the exchange or automated
quotation system on which shares of Broad National Common Stock
are principally dealt, if any, and if none, as such selling
prices or bid and asked quotations are reported on any composite
listing of any combined exchanges, if any.
<PAGE>
7. Period and Exercise of Option.
(a) Period--Subject to the provisions of Sections 8
and 9 hereof with respect to the death or termination of status
as a Director, the period during which each option granted under
this Plan may be exercised shall expire ten (10) years from the
Granting Date of such option. In the event the Company shall not
be the surviving corporation in any merger, consolidation, or
reorganization, or in the event of acquisition by another
corporation of all or substantially all of the assets of the
Company, every option outstanding hereunder may be assumed (with
appropriate changes) by the surviving, continuing, successor or
purchasing corporation, as the case may be, subject to any
applicable provisions of the Code or replaced with new options of
comparable value (in accordance with Section 424(a) of the Code).
In the event (i) that such surviving, continuing, successor or
purchasing corporation, as the case may be, does not assume or
replace the outstanding options hereunder, or (ii) of liquidation
or dissolution of the Company, each optionee shall have the
right, within a period commencing 30 days immediately prior to
and ending on the day immediately prior to such merger,
consolidation, reorganization or acquisition by another
corporation of all or substantially all of the assets of the
Company or the liquidation or dissolution of the Company, to
exercise the optionee's outstanding options to the extent of all
or any part of the aggregate number of shares subject to such
option(s). In the event of a "Change of Control" (as defined
below) the time at which options granted under this Plan may be
exercised by the optionee shall be accelerated so as to be
immediately exercisable. For purposes of this paragraph (a)
"Change of Control" shall mean a change in control of a nature
that would be required to be reported in response to item 6(e) of
Schedule 14A of Regulation 14A (in effect on the date hereof)
promulgated under the Securities Exchange Act of 1934, as in
effect on the date hereof; provided, however, that, without
limitation, such a Change of Control shall be deemed to occur
when either (i) a person (other than a current stockholder, or a
director nominated or selected by the Board of Directors or an
officer elected by the Board of Directors) acquires beneficial
ownership (as defined by Securities and Exchange Commission Rule
13d-3) of 25 percent or more of the combined voting power of the
Company's voting securities, or (ii) less than a majority of the
directors are persons who were either nominated or selected by
the Board of Directors.
(b) Exercise--Any option granted under this Plan may
be exercised by the optionee (or by a person acting under Section
9 below) only by (i) delivering to the Company written notice of
the number of shares with respect to which the optionee is
exercising his or her option right, (ii) paying in full the
option price of the purchased shares, and (iii) if the shares to
be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for
the Company to secure an exemption from such registration,
furnishing to the Company such representation or agreement in
writing signed by the optionee (or person) as shall be necessary
in the opinion of such counsel to secure such exemption. Subject
to the limitations of this Plan and the terms and conditions of
the respective stock option agreement, each option granted under
this Plan shall be exercisable in whole or in part commencing at
such time as is specified under Section 4 above.
<PAGE>
(c) Payment for shares--Payment for shares of Broad
National Common Stock purchased pursuant to an option granted
under this Plan may be made either in cash or in other shares of
Broad National Common Stock (such other shares of Broad National
Common Stock shall be valued for this purpose at 100 percent of
the fair market value (as defined in Section 6 hereof) of such
shares on the date that payment of the option price is made).
(d) Delivery of certificates--As soon as practicable
after receipt by the Company of the notice and representation
described in subsection (b), and of payment in full of the option
price for all of the shares being purchased pursuant to an option
granted under this Plan, a certificate or certificates
representing such shares of stock shall be registered in the name
of the optionee and shall be delivered to the optionee. No
certificate for fractional shares of stock shall be issued by the
Company, however, but in lieu thereof the Company shall
distribute at such time to the optionee who otherwise would have
been entitled to receive a fractional share an amount in cash
equal to the value of said fractional share determined by
multiplying the fraction by the mean of the high and low bid
prices of Broad National Common Stock on the date on which the
Company receives the notice and representation described in
subsection (b). Neither any optionee, nor the legal
representative, legatee or distributee of any optionee, shall be
deemed to be a holder of any shares of stock subject to an option
granted under this Plan unless and until the certificate or
certificates for such shares have been issued.
(e) Limitations on exercise--Except as provided in
Sections 8 and 9 hereof, no option granted under this Plan shall
be exercised unless the optionee is at the time of such exercise
a Director.
8. Termination of Status. If an optionee shall cease to
be a Director for any reason other than death, any option or
unexercised portion thereof granted to him under this Plan which
is otherwise exercisable shall terminate unless it is exercised
within thirty (30) days of the date on which such optionee ceases
to be a Director, and in any event no later than the expiration
date of such option as specified in the respective stock option
agreement. Nothing in this Plan or in any stock option agreement
shall be construed as an obligation on the part of the Company or
its stockholders to continue the status of such optionee as a
Director.
9. Death of Optionee. In the event of the death of an
optionee while he is a Director (or within thirty (30) days of
the date on which such optionee ceases to be a Director) any
option or unexercised portion thereof granted to him under this
Plan which is otherwise exercisable may be exercised by the
person or persons to whom such optionee's rights under the option
pass by operation of the optionee's will or the laws of descent
and distribution, at any time within a period of one (1) year
following the death of the optionee (but in no event later than
the expiration date of the option as specified in the respective
stock option agreement).
10. Nontransferability of Options. Each option granted
under this Plan shall not be transferable or assignable by the
optionee other than by will or the laws of descent and
distribution, and during the lifetime of the optionee may be
exercised only by said optionee.
<PAGE>
11. Adjustments upon Changes in Capitalization. In the
event of any change in the capital structure of the Company,
including but not limited to a change resulting from a stock
dividend, stock split, reorganization, merger, consolidation,
liquidation or any combination or exchange of shares, the number
of shares of Broad National Common Stock subject to this Plan and
the number of such shares subject to each option granted
hereunder shall be correspondingly adjusted. The option price
for which shares of Broad National Common Stock may be purchased
pursuant to an option granted under this Plan shall also be
adjusted so that there will be no change in the aggregate
purchase price payable upon the exercise of any option.
12. Amendment and Termination of Plan. The Plan will
expire on December 19, 2006, except as to options then
outstanding under the Plan, which options shall remain in effect
until they have been exercised or have expired. A majority of
the members of the Board of Directors may at any time before such
date amend, modify or terminate the Plan; provided, however, that
no such amendment, modification or termination shall be effective
without obtaining the further approval of the holders of a
majority of the issued and outstanding shares of Broad National
Common Stock voting in person or by proxy at a duly constituted
meeting of the stockholders of the Company; and provided further,
that the Plan shall not be amended more than once every six
months, other than to comport with changes in the law. No
amendment, modification or termination of this Plan may adversely
affect the rights of any optionee under any then outstanding
option granted hereunder without the consent of such optionee.
13. Governing Law. This Plan and the rights of all persons
claiming hereunder shall be construed and determined in
accordance with the laws of the State of New Jersey.
* * *
BROAD NATIONAL BANK
LONG-TERM CAPITAL ACCUMULATION PLAN
PLAN DOCUMENT
1.0 PLAN OBJECTIVES
1.1 Provide a balance between short-term and long-range
performance objectives.
1.2 Provide strong financial incentive for key management
to achieve long-term corporate objectives that relate
to Broad National Bank's profitability and growth
results.
1.3 Provide an additional opportunity for increasing the
Awards based on increased shareholder value.
2.0 PARTICIPATION
2.1 Participation is limited to Top Management (the
Chairman/Chief Executive officer and President/Chief
Operating Officer of Broad National Bank, constituting
Tier I of the Bank) and Senior Management (the senior
officers of Broad National Bank constituting Tier II of
the Bank), as selected and approved by the Committee of
disinterested outside directors constituted pursuant to
Section 5.1 below (the "Plan Administrators").
2.2 A participant must be actively employed at the
conclusion of the three (3) year Performance Period in
order to be eligible to receive an Award. Participants
whose employment terminates during the Performance
Period will forfeit all Awards for such Performance
Period. The Plan Administrators at their sole
discretion may provide an Award under the terms of the
Plan.
3.0 PERFORMANCE AWARDS
3.1 The Performance Period cycles over three (3) years, and
for the first Performance Period, will commence on
January 1, 1996 and end on December 31, 1998. The Plan
will cycle two additional times, January 1, 1999
through December 31, 2001, and January 1, 2002 through
December 31, 2004, for a total of nine (9) years.
1996 1997 1998 1999 2000 2001 2002 2003 2004
P A D
P A D
P A
P = Performance measure established
A = Award earned
D = Award distributed
3.2 Awards are specified at the beginning of each three (3)
year Performance Period and earned at the end of the
period.
3.3 Performance will be measured against increases in
shareholder value over the three (3) year Performance
Period, as indicated by Return on Equity, as well as
the Bank's Efficiency Ratio, equal to or better than
peer banks. The Plan Administrators will establish
appropriate peer banks for each specific Performance
Period. In addition, the Plan Administrators may
select other similar performance indices, as necessary.
<PAGE>
3.4 Three (3) year Awards are equal to a percentage of a
participant's base salary at the beginning of the
Performance Period, as follows:
Tier I CEO and President 100%
Tier II Senior Management 70%
3.5 Threshold performance will be determined at the
beginning of the Performance Period by the Plan
Administrators and must be met before any Awards will
be paid.
3.6 Awards will be paid in a combination of 60% stock and
40% cash, with the cash portion being awarded to offset
the potential tax liability. The Plan Administrators
may, prior to the beginning of any Performance Period,
change the ratios of stock to cash for that period.
3.7 For purposes of determining the number of shares of
stock to be paid as part of the Award, the stock price
will be the average closing sale price of Broad
National Bancorporation's Common Stock over the prior
30 business days preceding the beginning of each
Performance Period. The stock price (regardless of
whether at the beginning or the end of the Performance
Period) has no effect on the aggregate Award being
distributed to a participant, although the stock price
at the beginning of the Performance Period as
determined pursuant to the immediately preceding
sentence is relevant for purposes of determining the
number of shares issued as part of an Award. For
example, if an aggregate Award of $100,000 is being
distributed to a participant in the form of $60,000 of
stock and $40,000 in cash, the number of shares of
stock so issued to the participant shall be determined
by dividing $60,000 by the stock price at the beginning
of the Performance Period. If such stock price is $10
per share, for example, a total of 6,000 shares would
be issued (regardless of the stock price at the end of
the Performance Period or as of the date the stock is
issued). For income tax purposes, however, the shares
will be valued as of the date vested.
3.8 Awards paid in stock will become immediately vested on
the date of issuance, and participants will have full
rights to the stock (dividends and voting rights).
However, the stock may not be sold, transferred, or
collateralized for three years from the date of
issuance, under any circumstances, without the prior
approval of the Plan Administrators. Regardless of
whether the prior approval of the Plan Administrators
has been obtained for any sale, transfer or
collateralization of stock, all shares issued to a
participant under the Plan must be held at least six
months from the date of issuance before any such sale,
transfer or collateralization may be made. Any resale
must be in accordance with Federal and State Securities
Laws.
3.9 Awards may be increased based on the level of
performance actually achieved, subject to the
determination of the Plan Administrators. The
aggregate number of shares of Broad National
Bancorporation Common Stock that may be awarded under
<PAGE>
the Plan is limited to 400,000 shares, subject to
increase or decrease in the event of a change in the
capital structure of Broad National Bancorporation.
3.10 Additional Plan Feature:
a. At the sole discretion of the Plan Administrators,
an additional feature may be included that will
increase the Earned Awards under the Plan, based
on above average increases in shareholder value.
4.0 AWARD DISTRIBUTION
4.1 Awards will be calculated and paid within a reasonable
period following the end of the three (3) year period
for which the Awards have been earned.
4.2 The Bank will make appropriate withholding for income
taxes on Awards.
4.3 A participant who has been involuntary terminated,
other than for Cause, may be eligible to receive a
prorated Award at the end of the Performance Period, as
long as he/she has at least one year participation in
the Plan.
4.4 Participants terminated for cause will immediately
forfeit any Earned Awards not yet paid, and they are
ineligible to receive any Award regardless of the
Bank's performance.
4.5 In the event of the death, total disability or
retirement of a participant during the Performance
Period, a pro-rated Award may be paid at the conclusion
of the three (3) year period based on overall results,
if earned, at the determination of the Plan
Administrators.
4.6 If a participant is demoted during the Performance
Period into an ineligible position, he/she may be
eligible to receive a prorated Award at the end of the
Performance Period, as long as he/she has at least one
year participation in the Plan. If a participant is
promoted into a position where the eligibility and
Target Award changes, he/she may receive, at the
discretion of the Plan Administrator, the higher Award.
If the participant is promoted into an eligible
position, and his/her participation in the Plan has
been approved by appropriate management, he/she may be
eligible to receive a pro-rated Award, subject to the
determination of the Plan Administrators.
4.7 Each participant would agree to sign an investment
undertaking with respect to any shares issued, if
requested by Broad National Bancorporation, and to have
a legend placed on the certificate(s) for such
participant's stock to prevent resale thereof in
violation of Federal or State Securities Laws.
<PAGE>
4.8 In the event of any merger transaction in which Broad
National Bancorporation is not the surviving
organization, the Performance Period shall terminate
and Awards shall be prorated by the Plan
Administrators.
4.9 Awards may be adjusted to reflect changes in the equity
structure of the Bank that may affect the number of
outstanding shares (i.e., stock dividends, stock
splits, combination or exchange of shares, merger,
consolidation or other change in capitalization with a
similar effect upon the Plan or the Awards granted
under the Plan). The Plan Administrators shall have
the power and sole discretion to determine the nature
and amount of the adjustment to be made in each case.
5.0 GENERAL
5.1 The Plan Administrators, consisting of a Committee
comprised of two or more disinterested outside
directors, shall be responsible for the implementation
and ongoing administration of the Plan.
5.2 Interpretation of all matters related to this Plan,
including but not limited to eligibility, selection of
participants, and the timing of the calculation and
determination of Awards, as well as the resolution of
any questions relating to accounting procedures of the
Plan, shall be at the sole and final determination of
the Plan Administrators.
5.3 The Bank may amend or discontinue this Plan at any time
in respect to future Awards; however, any Awards earned
up to the date of modification or termination will be
distributed in accordance with Plan provisions at the
time they were earned.
5.4 Nothing in this Plan shall be interpreted as giving any
participant the right to be retained as an employee of
the Bank, or of limiting the Bank's rights to control
or terminate the service of any employee at any time in
the course of its business.
5.5 This Plan shall be construed in accordance with all
applicable Federal, State, securities and regulatory
laws. In the event that any section, or portion of a
section, of the Plan shall be held invalid, illegal, or
unenforceable, that section, or portion of that
section, shall not affect any other section hereof.
This Plan shall be construed and enforced as if the
invalid, illegal, or unenforceable section, or portion
of the section, had never been contained herein.
BROAD NATIONAL BANK
NON-QUALIFIED DEFERRED COMPENSATION PLAN
PLAN DOCUMENT
1.0 PURPOSE
The purpose of the Broad National Bank Non-Qualified
Deferred Compensation Plan (the "Plan") is to provide funds
for long-term capital accumulation to be used for retirement
or other expenses for Board of Directors and certain
executive employees by providing such Directors and
employees with a means to defer receipt of director fees,
salary, incentive bonuses, and/or other cash compensation to
a future date.
2.0 DEFINITIONS
2.1 Beneficiary. "Beneficiary" means the person, persons,
or entity designated by the Participant to receive any
benefits payable under the Plan. Any Beneficiary
designation made by a Participant shall be made in a
written instrument filed, received and accepted by the
Plan Administrators.
2.2 Bank. "Bank" means Broad National Bank and its
successors, any subsidiary or affiliated organizations
authorized by the Plan Administrators to participate in
the Plan and any organization into which or with which
the Bank may merge or consolidate or to which all or
substantially all of its assets may be transferred.
2.3 Change of Control. For purposes of this Plan, "Change
of Control" shall mean any reorganization, merger,
consolidation, or public offering of the Bank, with
respect to which persons who were shareholders of the
Bank immediately prior to such reorganization, merger,
consolidation, or public offering do not immediately
thereafter own, directly or indirectly, more than 50%
of the combined voting power entitled to vote the
Bank's then outstanding voting securities; or a
liquidation or dissolution of the Bank or the sale of
all or substantially all of the assets of the Bank.
2.4 Compensation. "Compensation" means director fees,
salary, incentive bonuses, and/or other cash
compensation that is paid by the Bank to a participant
in a Plan Year.
2.5 Deferred Account. "Deferred Account" means the account
maintained on the books of the Bank for each
Participant pursuant to Article VI. Separate Deferred
Accounts shall be maintained for each Participant.
More than one Deferred Account may be maintained for
each Participant as necessary to reflect (a) various
interest credits and/or (b) separate year deferral
elections. A Participant's Deferred Account shall be
utilized solely as a device for the measurement and
determination of the amounts to be paid to the
Participant pursuant to this Plan. A Participant's
Deferred Account shall not constitute or be treated as
a trust fund of any kind.
2.6 Election Form. "Election Form" means the agreement
filed by a Participant prior to the beginning of the
first period for which the Participant's Compensation
is to be deferred pursuant to the Plan and Election
Form. Notwithstanding the foregoing sentence, the
Election Form for the first Plan Year of the Plan may
be filed no later than ten days after notification of
eligibility to participate in the Plan.
<PAGE>
2.7 Participant. "Participant" means any individual who is
designated by the Plan Administrators to participate in
the Plan and who elects to participate by filing an
Election Form as provided in Article IV.
2.8 Plan Administrators. The Plan shall be administered by
the Plan Administrators, consisting of three
individuals selected by the Chairman/CEO and the
President/COO of the Bank. The Plan Administrators
shall have the authority to make, amend, interpret, and
enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any
and all questions, including interpretations of this
Plan, as may arise in connection with the Plan. In
addition, the Plan Administrators shall have the
authority to select, monitor, instruct, and terminate
any contractual relationship with a third-party Trustee
who will be responsible to invest, manage and provide
accounting for any deferred assets pursuant to this
Plan.
2.9 Plan Trustee. If a trust is established pursuant to
the Plan, the Plan Trustee shall be a financial
institution selected by the Plan Administrators to
invest, manage and maintain accounts on behalf of the
Participants. The Plan Trustee is responsible to
maintain the Deferred Account, make proper
distributions, pay taxes, purchase insurance as
appropriate, and adhere to the rules as set forth by
the Plan Administrators.
2.10 Plan Year. "Plan Year" means a twelve month period
commencing January 1 and ending the following December
31. The first Plan Year shall commence on January 1,
1996.
3.0 ADMINISTRATION
3.1 Binding Effect of Decisions. The decision or action of
the Plan Administrators in respect to any questions
arising out of or in connection with the
administration, interpretation, and application of the
Plan and the rules and regulations promulgated
hereunder shall be final, conclusive, and binding upon
all persons having any interest in the Plan. In the
event that a Participant or other interested party
wishes to submit a written appeal, he or she may do so
in writing, within sixty (60) days of the disputed
action. The appeal will be reviewed by the Plan
Administrators, and the decision of the Plan
Administrators shall be final, conclusive, and binding
on the Participant and all persons claiming by,
through, or under the Participant.
4.0 PARTICIPATION
4.1 Participation. Participation in the Plan shall be
limited to the Board of Directors, as well as Top
Management (the Chairman/Chief Executive Officer and
President/Chief Operating Officer of the Bank,
constituting Tier I of the Bank) and Senior Management
(the senior officers of the Bank, constituting Tier II
of the Bank) selected by the Compensation Committee of
the Board who elect to participate in the Plan by
filing an Election Form with the Plan Administrators.
An Election Form must be filed prior to the period for
which the Compensation would be earned, and <PAGE> the
election to participate shall be effective on the first
day following receipt by the Plan Administrators of a
properly executed and completed Election Form.
5.0 DEFERRED COMPENSATION
5.1 Deferral Amount. A Participant may elect in any Plan
Year to defer all or a portion of his/her Compensation
in one percent (1%) increments, whole one thousand
dollar amounts, or an amount over a specified dollar
amount. The length of the deferral period will be
specified by the Participant in the Election Form, and
such specification of the deferral length is
irrevocable and cannot be changed.
5.2 Elective Deferred Compensation. The amount of
Compensation that a Participant elects to defer as
evidenced by the executed Election Form, with respect
to each Plan Year of participation in the Plan, shall
be credited by the Plan Administrators to the
Participant's Deferred Account. To the extent that the
Plan Administrators are required to withhold any taxes
or other amounts from the Participant's deferred
compensation pursuant to any state, Federal, or local
law, such amounts shall be taken out of the portion of
the Participant's Compensation that is not deferred
under this Plan.
5.3 Supplemental Contributions. In addition to earnings
required to be credited to the amounts deferred under
the Plan, the Bank may, but is not required to,
contribute supplemental monies to the deferred account
for any Participant. Such contribution is intended to
reflect monies not paid by the Bank to its qualified
plans on behalf of such Participant because of Internal
Revenue Code limitations. For this purpose, the Bank
may take into account Compensation, but shall not
include any amounts earned or paid under the Bank's
Long-Term Capital Accumulation Plan. The determination
to make a supplemental contribution to the account of a
Participant shall be made at the sole discretion of the
Bank's Board of Directors, exclusive of members who are
salaried employees of the Bank.
5.4 Vesting of Deferred Account. A Participant shall be
100% vested in his/her account with respect to the
Compensation deferred that he/she would have received,
had it not been deferred, and interest earned thereon,
consistent with the Bank's Employee's Retirement Plan
(i.e., cliff vesting at five (5) vesting years of
service). If the Participant is 100% vested in the
Bank's Employee's Retirement Plan, he/she will be deemed
to be 100% vested in his/her account. In any event,
Participants will be 100% vested in the Bank's
supplemental contribution and earnings thereon in the
event of his/her death, permanent disability, Change of
Control or normal retirement.
6.0 DEFERRED ACCOUNT
6.1 Accrual Options. A Participant may be entitled to elect
one or both of two options with respect to the accrual
of an investment return on the amounts deferred:
a. Interest Option. A Participant may elect to defer
any Compensation to which he/she would otherwise
have been entitled and have interest accrued at an
<PAGE>
interest rate equal to the 90-day treasury bill
rate, adjusted quarterly, or a similar type of
financial instrument as may be deemed appropriate
by the Plan Administrators.
b. Rabbi Trust Option. If permitted by the Bank, the
Participant may elect to have any deferred amounts
applied to fund a Rabbi Trust that will invest such
deferred amounts under such investment policy or
directive as the Bank, the Participant, and the
Plan Trustee of such Trust shall approve. In order
to achieve income tax deferral it is necessary that
the funds in such Trust remain subject to the
claims of creditors of the Bank. Any net annual
income tax cost to the Bank of any such Rabbi Trust
shall be charged to the Participants' accounts.
The Bank's net annual income tax cost with respect
to any Participant's Rabbi Trust shall be the
amount, if any, by which the income tax on any
income or capital gains realized on the assets in
the Trust in any year is greater than any income
tax benefit realized by the Bank on payments made
out of the Participant's deferred compensation
account to such Participant.
6.2 Statement of Accounts. The Bank shall submit to each
Participant, at least once per quarter, a statement in
such form as the Bank deems desirable, setting forth the
balance credited to such Participant in his/her Deferred
Account as of the last day of the preceding quarter.
7.0 BENEFITS
7.1 Payment of Benefits. A Participant's Deferred Account
will be paid to the Participant and/or his/her estate or
beneficiary in ten (10) annual installments unless the
Participant had selected a lump sum payment at the time
the original election to defer was completed and signed.
7.2 Form of Payment. Payment of the balance of a
Participant's Deferred Account will be in the form of
cash.
7.3 Withholding of Taxes. To the extent required by the law
in effect at the time payments are made, the Bank shall
withhold from payments made hereunder, any taxes
required to be withheld from a Participant's Deferred
Account for the Federal or any state or local
government.
7.4 Commencement of Payments. Commencement of payments
under this Plan shall be made promptly following the
expiration of the deferral period or occurrence of the
event, which entitles a Participant (or a Beneficiary)
to payments under this Plan.
7.5 Legal Fees. The reasonable legal fees incurred by any
Participant to enforce his/her rights hereunder shall be
paid for by the Bank to the Participant in addition to
sums otherwise due hereunder, whether or not the
Participant is successful in enforcing his/her rights or
whether or not the matter is settled; provided, however,
the Bank shall not be obligated to pay such legal fees
in the event that the Plan <PAGE> Administrators determine, in
their sole discretion, that such legal fees were
incurred by the Participant in the pursuit of frivolous
claims allegedly related to the enforcement of his/her
rights under the Plan.
8.0 BENEFICIARY DESIGNATION
8.1 Beneficiary Designation. Each Participant shall have
the right, at any time, to designate any person, persons
or entity as his/her Beneficiary or Beneficiaries (both
principal as well as contingent) to whom payment under
this Plan shall be paid in the event of his/her death
prior to complete distribution to the Participant or the
Beneficiaries due him/her under the Plan.
8.2 Amendments. Any Beneficiary Designation may be changed
by a Participant by the written filing of such change on
a form reasonably acceptable to the Bank. The filing of
a new Beneficiary Designation Form with the Plan
Administrators will cancel all Beneficiary Designations
previously filed.
8.3 No Beneficiary Designation. If a Participant fails to
designate a Beneficiary as provided above, or if all
designated Beneficiaries predecease the Participant,
then any amounts to be paid to the Participant's
Beneficiary shall be paid to the Participant's estate.
8.4 Effect of Payment. The payment to the Beneficiary or
the Participant's estate as aforesaid shall completely
discharge the Bank's obligations under this Plan with
respect to the Participant.
9.0 AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment. The Bank may at any time amend the Plan in
whole or part, provided however, that no amendment shall
be in effect to decrease or restrict any Deferred
Account at any time of such amendment.
9.2 Bank's Right to Terminate. The Bank may at any time
terminate the Plan with respect to new elections to
defer if, in its judgment, the continuance of the Plan,
the tax, accounting, other effects thereof, or potential
payments thereunder, would not be in the best interests
of the Bank.
10.0 MISCELLANEOUS PROVISIONS
10.1 Unsecured General Creditor. Participants and their
Beneficiaries shall have no legal or equitable rights,
interest, or claims in any property or assets of the
Bank. The assets of the Plan, except to the extent held
in a Rabbi Trust established under the Plan, shall be
and remain, the general, unpledged, unrestricted assets
of the Bank. The Bank's obligation under the Plan shall
be merely that of an unfunded and unsecured promise of
the Bank to pay money in the future.
10.2 Non-assignability. Neither a Participant nor any other
person shall have the right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, nor otherwise
<PAGE>
encumber, transfer, hypothecate, or convey in advance of
actual receipt of amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments,
alimony, or separate maintenance owed by a Participant
or any other person, nor be transferable by operation of
law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.3 Not a Contract of Employment. The terms and conditions
of this Plan shall not be deemed to constitute a
contract of employment between the Bank and the
Participant (or his/her Beneficiary) and the Participant
(or his/her Beneficiary) shall have no rights against
the Bank except as may otherwise be specifically
provided herein. Moreover, nothing in this Plan shall
be deemed to give a Participant the right to be retained
in the service of the Bank or to interfere with the
right of the Bank to discipline or discharge him/her at
any time.
10.4 Protective Provisions. A Participant will cooperate
with the Bank by furnishing any and all information
requested by the Bank in order to facilitate the payment
of benefits hereunder, by taking such physical
examinations as may be required by an insurance company
as a condition to establishing an insurance policy under
the Plan, and by taking such other action as may be
requested by the Bank.
10.5 Severability. If any part of this Plan Document for any
reason shall be declared invalid, such decision shall
not affect the validity of any remaining portion, which
shall remain in full force and effect.
BROAD NATIONAL BANK
MANAGEMENT INCENTIVE PLAN (MIP)
PLAN DOCUMENT
1.0 PLAN OBJECTIVES:
1.1 Focus attention on the achievement of corporate,
functional area and individual performance measures.
1.2 Foster a strong team working relationship and corporate
identity among the Senior Management of Broad National
Bank.
1.3 Ensure that the objectives of the functional areas are
consistent with corporate goals.
1.4 Recognize the different contributions of line and staff
functions. Provide a method of establishing individual
objectives that are consistent with and lead to the
achievement of overall goals.
2.0 DEFINITIONS:
2.1 Bank - Broad National Bank or BNB
2.2 Board - The Board of Directors of Broad National Bank
(BNB).
2.3 Committee - The Compensation Committee of the Board of
Directors of BNB.
2.4 Corporate Performance - BNB's annual financial measures
and specific objectives as established by Top
Management, the attainment of which will be the basis
for granting the Corporate Award Component. For FY96,
Corporate Performance will consist of Return on Assets
(ROA) and the Bank's Efficiency Ratio.
2.5 Earned Award - The MIP Award a participant would
receive based on the level of performance achieved
against each component: Corporate, Functional, and
TOPs.
2.6 Efficiency Ratio - Non-interest expenses divided by
non-interest and net interest income, to be used as a
measure of Corporate Performance. Ideally, the
Efficiency Ratio would be reduced over the previous
Plan Year.
2.7 Functional Performance - The specific financial and
operation targets established for each functional area,
the attainment of which will be the basis for granting
the Functional Award Component.
2.8 Plan Year - The twelve month performance period
corresponding to BNB's fiscal year.
2.9 Senior Management - The senior officers of Broad
National Bank constituting Tier II of the Bank.
2.10 Target Award - The percentage of a participant's base
salary that he/she would receive assuming that 100%
performance level on each of the assigned targets is
achieved.
<PAGE>
2.11 Targeted Objectives for Performance (TOPs)- Specific
performance objectives established for each participant
reflective of his/her functional area and individual
responsibilities.
2.12 Top Management - The Chairman/Chief Executive Officer
and President/Chief Operating Officer of the Bank,
constituting Tier I.
2.13 Threshold Performance Level - The minimum level of
performance that must be achieved before any Earned
Awards are paid.
3.0 PARTICIPATION
3.1 Participation is limited to Top Management and Senior
Management of the Bank (Tiers I and II).
3.2 A participant who has been with the Bank for less than
one year, but more than six months, or promoted into an
eligible position during the Plan Year, may receive a
prorated Earned Award based on his/her evaluated
performance. A participant employed for less than six
months may be eligible to receive an Earned Award
subject to the approval of Top Management.
4.0 PERFORMANCE MEASURES
4.1 Top Management will establish, subject to the approval
of the Compensation Committee, the corporate and
functional financial performance measures, as well as
appropriate performance targets and performance
thresholds.
4.2 BNB's Corporate Performance must meet or exceed the
Threshold (minimum) performance level in order for
Earned Awards to be paid under the Corporate Component
of this Plan.
4.3 TOPs will be established for each participant that
focuses attention on key desired results within their
respective area of responsibility.
4.4 The three performance components, Corporate,
Functional, and TOPs, and their relative weighting,
will be established for each Plan Year, based on the
desired focus. For FY96, the allocation of Performance
measurements vades by tier as follows:
Performance Targets
Tier Corporate Functional TOPs
I 80% - 20%
II 40% 40% 20%
<PAGE>
5.0 DETERMINATION OF EARNED AWARDS
5.1 Earned Awards reflect a combination of Corporate,
Functional, and TOPs performance which are indicative
of each participant's performance and contribution.
Each performance component may be up to 150% of Target
Performance.
5.2 The Earned Award is the sum of the weighted performance
components multiplied by a discretionary portion as
determined by Top Management (for Tier II) and the
Board (for Tier I).
5.3 Each participant's Earned Award will be based on the
level of performance achieved against assigned
performance measures. Awards may be adjusted up or
down by up to 20% based on the discretion of Top
Management. For Tier I participants, the Board will
recommend and approve the discretion portion and the
Earned Awards; Top Management will be responsible for
Tier II participants. Ultimately, the Board is
responsible for reviewing the overall Award budget for
all participants.
6.0 ANNUAL AWARDS
6.1 Target Awards are calculated as a percentage of the
participant's base salary based on the participant's
organizational level. Earned Award may range from 0%
to 150% of the Target Award. The FY96 Target Awards
are as follows:
Tier I Target Tier II Target
CEO 45.0% Line 30.0%
President 37.5% Staff 25.0%
6.2 Earned Awards will be calculated and rounded to the
nearest whole one hundred dollars.
7.0 AWARD DISTRIBUTION
7.1 Earned Awards will be paid in cash. Earned Awards will
be calculated and paid within a reasonable period
following the end of the Plan Year for which the Awards
have been earned.
7.2 A participant must be actively employed at the end of
the Plan Year in order to be eligible to receive an
Award.
7.3 Earned Awards will be pro-rated if the participant has
less than twelve (12) full months of service.
7.4 In the event that a participant terminates during the
Plan Year as a result of death, total disability or
retirement at age 59 1/2 or older, a pro-rated Award
may be paid at the <PAGE> conclusion of the Plan Year based on
overall results, if earned, at the determination of Top
Management.
7.5 If a participant is demoted during the Plan Year into
an ineligible position, he/she would not be eligible to
receive any Award. If a participant is promoted into a
position where the eligibility and Target Award
changes, he/she may receive, at the discretion of Top
Management, the higher Award.
8.0 GENERAL
8.1 The President/COO or his designee shall be responsible
for the implementation and on-going administration of
the Plan.
8.2 Interpretation of all matters related to this Plan,
including but not limited to eligibility, calculation
and determination of Earned Awards, as well as the
resolution of any questions relating to accounting
procedures of the Plan, shall be at the sole and final
determination of the Board.
8.3 The Bank may amend or discontinue this Plan at any time
in respect to future Awards; however, any Awards earned
up to the date of modification or termination will be
distributed in accordance with Plan provisions at the
time they were earned.
8.4 Nothing in this Plan shall be interpreted as giving any
participant the right to be retained as an employee of
the Bank, or of limiting the Bank's rights to control
or terminate the service of any employee at any time in
the course of its business.
EXHIBIT 11
BROAD NATIONAL BANCORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
Year Ended December 31,
1996 1995(1) 1994(1)
(Dollars In Thousands,
Except Per Share Amounts)
<CAPTION>
<S> <C> <C> <C>
PRIMARY:
Average number of common shares
outstanding. . . . . . . . . 4,561,066 3,245,081 3,164,227
Assumed exercise of options outstanding 88,712 56,641 4,164
Average number of common shares and
common share equivalents outstanding 4,649,778 3,301,722 3,168,391
Net income . . . . . . . . . . $5,273,146 $4,419,660 $4,688,711
Less: Cumulative Preferred Dividends. . . 0 579,548 613,933
Net income available to common
shareholders . . . . . . . . $5,273,146 $3,840,112 $4,074,778
PRIMARY EARNINGS PER COMMON SHARE: . . . . $ 1.13 $ 1.16 $ 1.29
ASSUMING FULL DILUTION:
Average number of common shares
outstanding. . . . . . . . . 4,561,066 3,245,081 3,164,227
Assumed exercise of options outstanding 120,102 68,192 17,396
Assumed conversion of preferred shares 110,067 1,421,305 1,494,400
Adjusted average number of common
shares outstanding . . . . . 4,791,235 4,734,578 4,676,023
Net income. . . . . . . . . . . $5,273,146 $4,419,660 $4,688,711
FULLY DILUTED EARNINGS PER COMMON SHARE: . .$ 1.10 $ 0.93 $ 1.00
</TABLE>
(1) All share and per share amounts have been restated to reflect the 10%
stock dividend which was distributed October 3, 1996.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Broad National Bancorporation:
We consent to incorporation by reference in the Registration
Statement No. 33-28183 on Form S-8 of Broad National
Bancorporation of our report dated January 15, 1997, relating
to the consolidated statements of condition of Broad National
Bancorporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of
the years in the three-year period ended December 31, 1996,
which report appears in the December 31, 1996 Annual Report on
Form 10-K of Broad National Bancorporation.
Our report refers to a change in accounting for certain
investments in debt and equity securities in 1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,782
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 57,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,044
<INVESTMENTS-CARRYING> 90,170
<INVESTMENTS-MARKET> 89,482
<LOANS> 287,116
<ALLOWANCE> 8,531
<TOTAL-ASSETS> 533,615
<DEPOSITS> 485,073
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 9,184
<LONG-TERM> 0
0
0
<COMMON> 4,677
<OTHER-SE> 33,681
<TOTAL-LIABILITIES-AND-EQUITY> 533,615
<INTEREST-LOAN> 24,190
<INTEREST-INVEST> 8,405
<INTEREST-OTHER> 2,567
<INTEREST-TOTAL> 35,162
<INTEREST-DEPOSIT> 11,760
<INTEREST-EXPENSE> 11,818
<INTEREST-INCOME-NET> 23,344
<LOAN-LOSSES> 1,350
<SECURITIES-GAINS> (45)
<EXPENSE-OTHER> 19,849
<INCOME-PRETAX> 8,701
<INCOME-PRE-EXTRAORDINARY> 8,701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,273
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 5.05
<LOANS-NON> 8,384
<LOANS-PAST> 1,349
<LOANS-TROUBLED> 3,934
<LOANS-PROBLEM> 3,088
<ALLOWANCE-OPEN> 7,402
<CHARGE-OFFS> 1,264
<RECOVERIES> 1,043
<ALLOWANCE-CLOSE> 8,531
<ALLOWANCE-DOMESTIC> 8,531
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,819
</TABLE>
