<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION NO. 33-78050
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
Registration Statement Under the Securities Act of 1933
-----------------------
YARDVILLE NATIONAL BANCORP
(Name of small business issuer in its charter)
NEW JERSEY 6021 22-2670267
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
YARDVILLE NATIONAL BANCORP
3111 QUAKERBRIDGE ROAD
TRENTON, NEW JERSEY 08619
TELEPHONE (609) 585-5100
(Address and telephone number of registrant's principal executive offices
and principal place of business)
Patrick M. Ryan, President
Yardville National Bancorp
3111 Quakerbridge Road
Trenton, New Jersey 08619
Telephone (609) 584-2110
(Name, address and telephone number of agent for service)
-----------------------
Please send copies of all communications to:
Brian S. Vargo, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
-----------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the Registration Statement becomes effective.
-----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
PROSPECTUS
LOGO
156,566 SHARES OF COMMON STOCK
This Prospectus relates to 156,566 shares of Common Stock, no par value per
share ("Common Stock"), of Yardville National Bancorp (the "Company"), a bank
holding company headquartered in Hamilton Township, New Jersey that provides
commercial and retail banking services through its wholly-owned subsidiary,
Yardville National Bank (the "Bank").
The 156,566 shares of Common Stock to which this Prospectus relates may be
offered for sale from time to time by certain stockholders (the "Selling
Security Holders") of the Company. The Company will not receive any proceeds
from the offering.
The Common Stock is traded on the NASDAQ National Market System under the
symbol "YANB". The last reported sale price of the Common Stock on the NASDAQ
National Market System on August 2, 1996, was $15.88 per share.
See "Investment Considerations" at page 6 herein for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds
Underwriting to the
Discounts Proceeds Selling
and to the Security
Price to the Public(1) Commission Company(2) Holders(1)(2)(3)
--------------------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Per share $15.88 -- N/A $15.88
Total $15.88 N/A $15.88
</TABLE>
- - ------
(1) Based on the last reported sale price per share of Common Stock on the
NASDAQ National Market System on August 2, 1996.
(2) The Company will not receive any proceeds from the offering.
(3) Before applicable underwriting discounts or commissions and state
registration or qualification fees and expenses, none of which can be
estimated at this time.
The date of this Prospectus is August 6, 1996.
<PAGE>
INSERT
YARDVILLE NATIONAL BANCORP MAP
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) on Form SB-2 under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. Copies of such
materials may be obtained from the Public Reference Section of the
Commission, Washington, D.C., at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance with the
Exchange Act, files periodic reports, proxy statements and other information
with the Commission. Reports, proxy statements and other information filed by
the Company with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's
regional offices at 7 World Trade Center, New York, New York 10048, and
Citicorp Building, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials may be obtained from the Public Reference
Section of the Commission, Washington, D.C., at prescribed rates.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary of certain information contained elsewhere in this
Prospectus is not intended to be complete and is qualified in its entirety by
reference to, and should be read in conjunction with, the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. References to the "Company" in
this Prospectus include the Company and its consolidated subsidiaries, unless
the context requires otherwise.
THE COMPANY
Yardville National Bancorp (the "Company") is a bank holding company
headquartered in Hamilton Township, New Jersey, that provides retail and
commercial banking services through its wholly-owned subsidiary, Yardville
National Bank (the "Bank"). Founded in 1924, the Bank currently operates eight
community banking offices in Mercer County, New Jersey. At March 31, 1996, the
Company had total consolidated assets of $421.9 million, deposits of $310.5
million and stockholders' equity of $32.4 million.
The Bank provides financial products and services designed to meet the
borrowing and depository needs of small and medium sized businesses and
consumers in the local communities that it serves. As a community bank, the
Bank's business strategy emphasizes customer service and relationship banking,
and targets those customers who desire personalized attention and prompt, local
decision making and with whom the Bank can develop both loan and deposit
relationships. As a result of its emphasis on broad-based customer
relationships, the Bank's lending and investing activities are funded almost
entirely with core deposits, approximately 58% of which are demand and savings
deposits, with the balance being funded primarily with certificates of deposit.
In November, 1992, Patrick M. Ryan became President and Chief Executive
Officer of the Company after joining the Bank in November, 1991 as Executive
Vice President and Senior Lending Officer. Under Mr. Ryan's leadership, the Bank
has focused on increasing its loan portfolio, particularly its commercial loan
portfolio, and expanding its credit administration department to support this
growth. This commitment to community lending has resulted in the Bank's
loan-to-deposit ratio increasing from 53% at December 31, 1991 to 85% at March
31, 1996 and contributed to a return on average assets of .99% and a return on
average equity of 13.84% for the year ended December 31, 1995, and a return on
average assets of .98% and a return on average equity of 12.49% for the three
months ended March 31, 1996.
THE OFFERING
The Selling Security Holders intend to offer for sale from time to time an
aggregate of 156,566 shares of Common Stock. The Selling Security Holders may
sell shares of Common Stock pursuant to this Prospectus from time to time on
terms to be determined at the time of sale, either directly or through
agents, dealers or underwriters designated from time to time. The aggregate
proceeds to the Selling Security Holders will be the offering price of the
shares sold, less applicable agents' commissions and underwriters' discounts,
if any.
3
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the offering.
INVESTMENT CONSIDERATIONS
Prospective investors of the Common Stock offered hereby should read and
consider carefully the information set forth under the heading "Investment
Considerations."
COMMON STOCK
Common Stock Authorized ....... The Company is authorized to issue 6,000,000
shares of Common Stock, no par value per share.
Common Stock Outstanding and
Issuable .................... As of July 15, 1996 there were 2,428,754
shares of Common Stock issued and outstanding,
and outstanding options to purchase 99,885
shares of Common Stock.
Dividends...................... Currently paid quarterly at an annual rate of
$0.44 per share. See "Market for Common Stock
and Related Stockholder Matters."
NASDAQ National Market
System Symbol................ YANB
All information in this Prospectus has been adjusted to reflect a 100% Common
Stock dividend distributed on November 18, 1994, and a 5% Common Stock dividend
distributed on October 9, 1992.
4
<PAGE>
SUMMARY FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income .................... $ 4,120 $ 3,352 $ 14,495 $ 11,644 $ 8,700 $ 7,330 $ 6,718
Provision for loan losses .............. 265 180 865 305 -- 50 3,239
Gains (losses) on sales of securities
and mortgages, net ..................... (21) (1) 72 (32) 648 504 239
Other non-interest income .............. 531 475 1,927 1,586 1,542 1,499 1,525
Non-interest expense ................... 2,818 2,518 10,260 9,285 8,423 8,325 7,655
Net income (loss) ...................... 992 756 3,403 2,523 1,925 568 (1,852)
BALANCE SHEET DATA:
Assets ................................. $421,917 $321,454 $403,115 $280,550 $223,438 $205,494 $188,702
Investment securities and securities
available for sale 125,513 69,610 133,853 63,235 68,670 77,811 76,575
Loans, net of unearned income .......... 262,918 216,297 245,054 196,910 134,983 106,993 93,174
Allowance for loan losses .............. 3,858 3,121 3,677 2,912 2,703 2,940 3,310
Deposits ............................... 310,482 277,056 302,972 259,296 206,688 192,223 175,816
Stockholders' equity ................... 32,363 19,529 31,717 18,451 14,208 10,829 10,261
PER SHARE DATA:
Net income (loss) - fully diluted(1) .... $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86 $ 0.61 $ (2.00)
Cash dividends ......................... 0.11 0.09 0.38 0.28 -- -- 0.07
Book value(2) .......................... 13.51 12.59 13.50 11.92 12.42 11.69 11.09
PERFORMANCE RATIOS:
Return on average assets ............... 0.98% 1.03% 0.99% 1.04% 0.92% 0.29% (0.97)%
Return on average stockholders' equity . 12.49 15.56 13.84 15.89 15.81 5.44 (17.05)
Net interest margin (FTE)(3) ............ 4.31 4.87 4.49 5.16 4.51 3.99 3.84
Efficiency ratio(4) .................... 60.86 65.81 62.75 70.35 77.35 89.20 90.25
LIQUIDITY AND CAPITAL RATIOS:
Total loans to total deposits .......... 84.68% 78.07% 80.88% 75.94% 65.31% 55.66% 53.00%
Stockholders' equity to total assets ... 7.67 6.08 7.87 6.58 6.36 5.27 5.44
Average stockholders' equity to average
assets ................................ 7.81 6.60 7.14 6.57 5.79 5.24 5.71
Leverage ratio(5) ....................... 7.78 6.27 7.84 6.97 6.36 5.27 5.44
Tier 1 capital as a percentage of
risk-weighted assets ................... 11.41 9.20 11.95 9.59 9.38 8.81 9.20
Total capital as a percentage of
risk-weighted assets ................... 12.66 10.45 13.20 10.84 10.64 10.07 10.70
ASSET QUALITY RATIOS:
Nonperforming assets(6) to total
assets ................................ 0.73% 0.75% 0.85% 0.85% 1.73% 2.79% 4.83%
Nonperforming assets(6) to total loans
and other real estate owned (period end) 1.17 1.12 1.40 1.21 2.83 5.30 9.66
Allowance for loan losses to
nonperforming loans(7) (period end) .... 159.88 147.98 130.44 140.95 109.30 63.65 41.95
Net loan charge offs (recoveries)
to average total loans ................. 0.03 (0.01) 0.05 0.06 0.20 0.45 1.68
</TABLE>
- - --------------
(1) Earnings per share for the three month periods ended March 31, 1996, and
March 31, 1995 and the years ended December 31, 1995 and December 31,
1994, were calculated utilizing the modified treasury stock method, while
prior periods' earnings per share were calculated utilizing the treasury
stock method. The modified treasury stock method includes the potential
dilutive effect of options and warrants not included in the treasury
stock method.
(2) Book value per share at March 31, 1996, March 31, 1995 and December 31,
1995 and December 31, 1994 reflects the unrealized gain (loss) on
securities available for sale in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," adopted on January 1, 1994. See Note 1.C. to the
Company's Consolidated Financial Statements, which appears at page F-8.
(3) Tax equivalent based on a 34% federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(4) Efficiency ratio is equal to non-interest expense divided by the sum of
net interest income and non-interest income.
(5) Leverage ratio is Tier 1 capital to period end total assets less
intangible assets.
(6) Nonperforming assets include nonperforming loans and other real estate
owned.
(7) Nonperforming loans include nonaccrual loans, restructured loans, and
loans 90 days past due or greater and still accruing interest.
5
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective investors should consider the following factors, in addition to
the other information contained in this Prospectus, prior to making an
investment in the Common Stock.
GROWTH OF LOAN PORTFOLIO
Between December 31, 1991, and March 31, 1996, the Bank's loan portfolio
increased by almost 300%, from $93.2 million at December 31, 1991, to $262.9
million at March 31, 1996. Commercial loans and commercial mortgage loans
increased during this period from $10.8 million to $126.3 million, accounting
for 68.0% of the total growth of the loan portfolio, and represented 48.0% of
the loan portfolio at March 31, 1996. Accordingly, the Bank does not have a long
period of experience with some of its borrowers. However, the majority of the
growth in the Bank's commercial loan portfolio consisted of loans to established
businesses that, while new to the Bank, had been experienced borrowers with
other financial institutions. In addition, while the increase in commercial
loans has created a more diversified loan portfolio, it has also increased the
overall credit risk inherent in the loan portfolio as commercial loans involve
relatively more credit risk than other types of loans in the Bank's loan
portfolio. The Company's strategy will continue to focus on expanding the Bank's
lending business at a rate that management deems prudent given prevailing
economic and competitive conditions.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation, as well as certain
federal and New Jersey laws and regulations, will assist the Company in
maintaining its status as an independent publicly-owned corporation. The
Company's Restated Certificate of Incorporation provides for a classified board
of directors and does not provide for cumulative voting for directors. In
addition, the Company's Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Company entitled to vote for the election of directors in
order to remove any director or the entire Board of Directors. The Company's
Restated Certificate of Incorporation also authorizes the Board of Directors to
issue Preferred Stock from time to time without stockholder approval upon such
terms as the Board of Directors determines. These provisions, together with the
provisions concerning the approval of certain business combinations discussed
below, may enhance the ability of current management to remain in control of the
Company.
The Company's Restated Certificate of Incorporation requires the affirmative
vote of holders of at least 80% of the outstanding shares of capital stock of
the Company entitled to vote generally in the election of directors to approve
business combinations with holders of 10% or more of the voting stock of the
Company, unless the business combination has been approved by the disinterested
directors of the Company or certain other conditions are satisfied. The share
ownership of the Company's current directors and executive officers as of July
15, 1996, represents approximately 16% of all the issued and outstanding shares
of Common Stock of the Company. In addition, as of July 15, 1996, the Company's
current directors and executive officers have the right to acquire an additional
81,176 shares of Common Stock under options that are presently exercisable,
which would if exercised increase their ownership to approximately 19% of the
issued and outstanding Common Stock of the Company. This share ownership,
together with the provisions of the Company's Restated Certificate of
Incorporation (and, secondarily, the New Jersey Shareholders Protection Act),
could enable the Company's Board of Directors to prevent any business
combination or takeover and may discourage potential proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors of the Company. Accordingly, stockholders could be deprived
of an opportunity to sell their shares at a substantial premium over the market
price of the shares. See "Description of Capital Stock -- Rights of Holders of
Common Stock." In addition, federal law also requires the approval of the Board
of Governors of the Federal Reserve System prior to the acquisition of "control"
of a bank holding company. See "Supervision and Regulation -- Change in Bank
Control Act."
6
<PAGE>
THE COMPANY
The Company is a bank holding company headquartered in Hamilton Township, New
Jersey, that provides commercial and retail banking services through the Bank.
The Bank received its charter from the Office of the Comptroller of the Currency
in 1924. The Company was incorporated under the laws of New Jersey and became
the holding company of the Bank in 1985. The Bank's deposits are insured by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation. At March 31,
1996, the Company had total consolidated assets of $421.9 million, deposits of
$310.5 million and stockholders' equity of $32.4 million.
The Bank provides a full range of retail and commercial banking services
designed to meet the borrowing and depository needs of small and medium sized
businesses and consumers in the local communities that it serves. Such products
include demand, savings and time deposits, letters of credit, and commercial,
real estate and consumer loans. In order to compete more effectively with larger
financial institutions in its market area, the Bank concentrates on building
relationships through superior service and attention to customers' needs. The
Bank seeks to attract customers that will have both deposit and lending
relationships with the Bank. The Company believes that customers value personal
service and attention and that its emphasis on personal service and local
customer relationships, together with its active approach to lending and careful
credit administration, have been and will continue to be important factors in
the Company's success and growth.
In November, 1991, Patrick M. Ryan joined the Bank as Executive Vice
President and Senior Loan Officer, bringing with him over 20 years of prior
banking experience, including extensive experience in remediating problem loans.
Subsequently, he was promoted to the position of President and Chief Executive
Officer of the Company in November, 1992. Since Mr. Ryan's arrival, the Bank's
nonperforming assets have been reduced to .73% of total assets at March 31,
1996, its loan portfolio has nearly tripled in size to $262.9 million at March
31, 1996, and its credit administration department has been significantly
expanded to support its increased lending activity, particularly in the
commercial loan area.
The Bank's loan portfolio increased from $93.2 million at December 31, 1991,
to $262.9 million at March 31, 1996. In the past several years the Bank has
focused on making commercial loans and commercial mortgage loans in order to
achieve a better balance in its loan portfolio. As a community bank, the Bank's
strategy in commercial lending has been to actively market its personal service
and local presence and target small and medium sized businesses. As a result, at
March 31, 1996, the portfolio contained a balanced mix of loans, with commercial
loans and commercial mortgage loans aggregating $126.3 million or 48.0% of the
loan portfolio, residential mortgage loans aggregating $75.2 million or 28.6% of
the loan portfolio and home equity and consumer loans aggregating $37.0 million
or 14.0% of the loan portfolio. The Bank presently intends to maintain a
comparable mix of loan types in its portfolio but intends to continue to
increase the proportion of commercial and commercial real estate loans in the
portfolio. The sales volume of the Bank's commercial loan customers ranges from
$100,000 to $35 million (with the average being approximately $2 million) and
the average commercial loan was approximately $275,000 at March 31, 1996.
Substantially all of the Bank's loans are to borrowers, and secured by property,
located within Mercer County or, to a much lesser extent, the contiguous
counties of Burlington and Middlesex, New Jersey, and Bucks County,
Pennsylvania.
In conducting its lending activities, the Bank emphasizes loan quality and
loan and credit administration. At July 15, 1996, the Bank's lending staff
consisted of a total of 43 people, of which 19 people were in the commercial
lending department (11 in loan production and 8 in credit administration). The
three senior staff members in the lending area (including Mr. Ryan) average 28
years of banking experience and actively participate in the credit approval and
monitoring process. Although the Bank's legal lending limit was $5.4 million at
March 31, 1996, its general policy is to limit aggregate loans to any one
borrower (including affiliates) to $2.5 million. As of March 31, 1996, the Bank
had several lending relationships where the aggregate loans to any one borrower
(including affiliates) exceeded $2.5 million and, although the Bank does not
seek such loans, it may make such loans in the future in selected cases where
the Bank deems it appropriate in light of the customer relationship and the
Bank's collateral or other security position for the loan. Finally, in making
loans the Bank seeks, and in nearly all cases obtains, collateral security to
reduce credit risk and its lending policies and procedures emphasize careful
documentation. At March 31, 1996, the Company's nonperforming assets totaling
approximately $3.1 million, consisting of fifteen nonaccrual loans totaling $1.8
million, fourteen loans 90 days or more past due and still accruing interest
totaling $619,000 and four properties classified as other real estate owned
totaling $659,000.
The Company's strategy will continue to focus on expanding the Bank's lending
business as management deems prudent given economic and competitive conditions,
while increasing deposits to fund lending activities. The Company will also
7
<PAGE>
utilize wholesale funding when deemed appropriate. Among its efforts to increase
deposits, the Bank introduced two new products in 1994, one offering a package
of free services to customers maintaining certain minimum checking or savings
balances and one designed to attract two-year and three-year certificates of
deposit. Another relationship-oriented deposit product targeting customers aged
50 years and an additional product designed to attract two and three year
certificates of deposit were introduced in 1995. By developing new products and
services and branching into contiguous geographic markets, the Company intends
to expand the Bank's existing customer relationships and attract new customers
to the Bank. In addition to its headquarters, the Bank operated for 20 years
from four branches in Hamilton Township, New Jersey. More recently, the Bank has
embarked upon a plan of expansion by opening a branch in Ewing Township in
April, 1994, a branch in East Windsor Township in March, 1995, a branch in
Trenton in May, 1995 and a branch in Hamilton Square in May, 1996. The Bank
plans to open a branch in West Trenton sometime in August, 1996.
As of July 15, 1996, the Company employed a full-time equivalent staff of
151. Management considers relations with employees to be good.
The Company's principal executive offices are located at 3111 Quakerbridge
Road, Trenton, New Jersey 08619, and its telephone number there is (609)
585-5100.
COMPETITION
The Bank is subject to vigorous competition in all aspects of its business
from other financial institutions such as commercial banks, savings banks,
savings and loan associations, credit unions, insurance companies and finance
and mortgage companies. Within the direct market area of the Bank there are a
significant number of offices of competing financial institutions. The Bank
competes in its market area with a number of larger commercial banks that have
substantially greater resources, higher lending limits, larger branch systems
and that provide a wider array of banking services. Money market funds also
actively compete with banks for deposits. Savings banks, savings and loan
associations and credit unions also actively compete for deposits and for
various types of loans. In its lending business, the Bank is subject to
increasing competition from consumer finance companies and mortgage companies,
which are not subject to the same kind of regulatory restrictions as banks.
Financial institutions compete generally on the basis of rates and service.
Financial institutions are intensely competitive in the interest rates they
offer, especially for time deposits. In addition, finance companies, which are
not subject to the same regulation as banks, are becoming increasingly
significant competitors because they often offer lower loan rates than
banks. Finally, a number of the Bank's competitors provide a wider array of
services (such as trust and international services, which the Bank does not
provide) and, by virtue of their greater financial resources, have higher
lending limits and larger branch systems.
The effect of liberalized branching and acquisition laws, especially after
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, has
been to lower barriers to entry into the banking business and increase
competition for banking business, as well as to increase both competition for
and opportunities to acquire other financial institutions. The Company
anticipates that the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, enacted in September, 1994, and the corresponding New Jersey interstate
banking legislation enacted in 1991 will increase competitive pressures in the
Bank's market by permitting entry of additional competitors. In addition,
legislation recently enacted in New Jersey is expected to increase
competition for the Bank from out of state financial institutions. See
"Supervision and Regulation -- Recent Banking Laws and Regulations."
While the Bank will seek to remain competitive with the interest rates that
it charges on loans and offers on deposits, the Company believes that its
success has been and will continue to be due to its emphasis on community
banking, customer service and relationships. In the past several years,
consolidation in the banking industry, particularly in the Company's markets,
has created opportunities for smaller profitable banks to attract customers who
prefer the level of attention and customer service which they receive from a
community bank. Management of the Company believes it can profitably exploit
such opportunities by establishing a local presence in such areas to provide
community banking services.
PROPERTIES
The principal executive offices of the Company and the Bank are located at
3111 Quakerbridge Road, Trenton, New Jersey, in a building owned by the Bank.
The Bank owns and maintains its operations center at 4569 South Broad Street,
Yardville, New Jersey. The Bank owns four banking offices in Hamilton
Township as well as the site of the Bank's future branch in West Trenton. The
Bank leases its banking offices in Ewing Township, East Windsor Township,
Trenton and Hamilton Square.
8
<PAGE>
THE OFFERING
The following table sets forth the name of certain owners of shares of
Common Stock (the "Selling Security Holders") and the number of shares of
Common Stock owned, and that may be sold pursuant to this Prospectus, by each
Selling Security Holder as of the date hereof, based upon information
furnished to the Company:
<TABLE>
<CAPTION>
Total Number
of Shares to be
Total Number Total Number Owned Upon
of Shares of Shares Completion of
Name of Selling Security Holder Owned Offered Offering
--------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Philip Marfuggi ....................................... 9,000 9,000 0
Maria M. Marfuggi, Trustee under Irrevocable Trust of
Eugene P. Marfuggi ................................... 8,440 8,440 0
Garrison Enterprise, Inc. ............................. 8,000 8,000 0
Domenic J. and Gisela B. Sciarra (as tenants by the
entireties) .......................................... 8,000 8,000 0
AB Management Services of New Jersey, Inc. ............. 71,000 50,000 21,000
Leo Zamparelli ........................................ 8,000 8,000 0
Rein Clabbers ......................................... 8,000 8,000 0
Anthony M. Giampetro, M.D., custodian for Anthony
Giampetro, John Giampetro and Celeste Giampetro, under
Pennsylvania Uniform Gift to Minors Act .............. 13,126 13,126 0
Bellarmino-Giampetro Profit Sharing Fund .............. 8,000 8,000 0
Bellarmino-Giampetro Pension Fund (Voluntary
Contribution) ........................................ 11,800 10,000 1,800
Elizabeth Bralynski Bowman ............................ 10,000 10,000 0
Michael Koretsky ...................................... 8,000 8,000 0
Steven G. Vasso IRA ................................... 8,000 8,000 0
------- ------- ------
TOTAL ............................................... 179,366 156,566 22,800
======= ======= ======
</TABLE>
Anthony Giampetro is a director of the Company. Certain Selling Security
Holders and their associates are customers of and have had transactions with the
Bank, and it is expected that such persons will continue to be customers of and
have such transactions in the future. All such transactions (which include
deposit accounts, loans, and commitments) were made in the ordinary course of
business of the Bank on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and, in the opinion of management of the Company and the Bank,
did not involve more than normal risks of collectibility or present other
unfavorable features. Except as described in this paragraph and other than by
ownership of Common Stock and options to acquire Common Stock, none of the
Selling Security Holders has had any material relationship with the Company
within the past three years.
All of the shares of Common Stock that may be offered and sold by the Selling
Security Holders pursuant to this Prospectus were acquired by them from the
Company in a private placement to accredited investors, including the Selling
Security Holders, that closed on August 31, 1993.
The Selling Security Holders may sell all or a portion of the Common Stock
from time to time directly to purchasers or through agents, dealers who may act
as principals for their own account or underwriters on terms to be determined at
the times of such sales. Any agent, dealer or underwriter through whom the
shares of Common Stock are sold may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling Security
Holders and/or the purchasers of the shares of Common Stock for whom they act as
agent. To the extent required, the number of shares of Common Stock to be sold,
the offering price thereof, the name of each Selling Security Holder and each
agent, dealer and underwriter, if any, and any applicable discounts or
commissions concerning a particular offering will be set forth in an
accompanying Prospectus Supplement. The aggregate proceeds to the Selling
Security Holders from the shares of Common Stock offered by them hereby will be
the offering price of such shares of Common Stock less applicable commissions or
discounts.
9
<PAGE>
There is no assurance that the Selling Security Holders will sell any of the
shares of Common Stock offered hereby.
In order to comply with the securities laws of certain states or other
jurisdictions, if applicable, the shares of Common Stock will be sold in such
jurisdictions only through registered or licensed brokers or dealers where
required. In addition, in certain States or other jurisdictions the shares of
Common Stock may not be sold unless they have been registered or qualified for
sale under the securities laws of such jurisdictions or an exemption from the
registration and qualification requirements of such laws is available and the
conditions of such exemption are satisfied.
The Selling Security Holders and any broker-dealers, agents or underwriters
that participate with the Selling Security Holders in the distribution of the
shares of Common Stock may be deemed to be "underwriters" within the meaning of
the Securities Act, in which case any commissions received by such
broker-dealers, agents or underwriters and any profit on the resale of the
shares of Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
Each Selling Security Holder and any other person who participates in a
distribution of the shares of Common Stock will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by the Selling Security Holders. The
applicable provisions of the Exchange Act and the rules and regulations
thereunder may affect the marketability of the shares of Common Stock and the
ability of any person to engage in market making activities for the shares of
Common Stock.
The Company will not receive any proceeds from the offering. The Company will
not pay any fees and expenses of the offering, other than the fees and expenses
incident to the preparation and filing of the Registration Statement.
10
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
DIVIDENDS
On each of February 15, 1996, and May 15, 1996, the Company paid a cash
dividend in the amount of $0.11 per share on the Common Stock. The Company paid
four quarterly cash dividends aggregating $0.38 per share on the Common Stock in
1995 and four quarterly cash dividends aggregating $0.28 per share on the Common
Stock in 1994. Because substantially all of the funds available for the payment
of cash dividends are derived from the Bank, future cash dividends will depend
primarily upon the Bank's earnings, financial condition, need for funds, and
government policies and regulations applicable to both the Bank and the Company.
As of March 31, 1996, the net profits of the Bank available for distribution to
the Company as dividends without regulatory approval were approximately $5.3
million. See "Supervision and Regulation -- Limitations on Payment of
Dividends."
PRICE RANGE OF COMMON STOCK AND CASH DIVIDENDS
The Common Stock of the Company began trading in the NASDAQ National Market
on June 9, 1995. However, prior to June 9, 1995, there was no active public
trading market for the Common Stock, although the Common Stock was traded
sporadically in the over-the-counter market. The following table shows the range
of high and low closing bid prices of the Common Stock, as reported by the
National Quotation Bureau for the periods prior to the second quarter of 1995
and thereafter on the NASDAQ National Market, and the cash dividends declared
per share on the Common Stock, in each case for the periods indicated. The price
quotations reflect inter-dealer quotations without adjustment for retail markup,
markdown or commission, and may not represent actual transactions.
Bid Price
-----------------
Cash
High Low Dividends Declared
------ ----- ------------------
Year Ended December 31, 1994:
- - -----------------------------
First Quarter .............. $ 8 1/2 $ 7 3/4 $.05
Second Quarter ............. 10 1/2 8 .075
Third Quarter .............. 12 8 7/8 .075
Fourth Quarter ............. 12 11 .08
Year Ended December 31, 1995:
- - -----------------------------
First Quarter .............. $12 1/4 $11 3/4 $.09
Second Quarter ............. 15 14 1/4 .09
Third Quarter .............. 17 1/2 17 .10
Fourth Quarter ............. 16 1/2 15 3/4 .10
Quarter Ended March 31, 1996: $17 $15 3/4 $.11
- - -----------------------------
Quarter Ended June 30, 1996 $16 3/4 $15 1/2 $.11
On August 2, 1996, the last reported sale price of the Common Stock on the
NASDAQ National Market System was $15.88 per share.
HOLDERS
The Common Stock was held by approximately 573 holders of record on July 15,
1996.
OUTSTANDING STOCK OPTIONS AND SHARES AVAILABLE FOR RESALE
At July 15, 1996, there were options outstanding to purchase 99,885 shares of
Common Stock. Of such options, 1,431 were exercisable at a price of $14.75 per
share, 67,454 were exercisable at a price of $8.75 per share, 27,208 were
exercisable at a price of $8.00 per share, 3,200 were exercisable at a price of
$15.75 per share, and 592 will become exercisable at a price of $8.00 per share
later in 1996.
11
<PAGE>
Of the 2,428,754 shares of Common Stock outstanding as of July 15, 1996,
1,892,554 shares may be sold without restriction and 156,566 shares may be sold
from time to time by the Selling Security Holders pursuant to this Prospectus.
The Company has agreed with the Selling Security Holders to maintain the
Registration Statement in effect until all shares of such Selling Security
Holders registered for sale thereunder have been sold or August 8, 1997,
whichever is earlier. In addition, 379,634 shares of Common Stock held by the
Company's current directors and executive officers presently may be sold either
pursuant to a registration statement filed by the Company under the Securities
Act with respect to shares issued to directors and officers under the Company's
stock option plans or pursuant to Rule 144 under the Securities Act. In general,
under Rule 144 as currently in effect, a stockholder (or stockholders whose
shares are aggregated) who (A) has beneficially owned "restricted" shares for at
least two years or (B) is an affiliate of the Company (which includes directors
and executive officers and may include other stockholders in certain
circumstances) is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume of
the Common Stock reported through the NASDAQ National Market during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company.
Other than the offering of Common Stock pursuant to this Prospectus and the
issuance of Common Stock upon exercise of stock options that have been granted
and that may be granted to directors and employees pursuant to the Company's
stock option plans, the Company has no present plan to register the issuance and
sale of any securities and has not agreed to register the sale of any securities
by any stockholder under the Securities Act.
12
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data with respect
to the Company on a consolidated basis for the three months ended March 31, 1996
and 1995 and each year in the five-year period ended December 31, 1995. The
unaudited data have been prepared on the same basis as the other consolidated
financial statements of the Company and, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results for the unaudited periods have been made. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of results that may be expected for any other period.
This table should be read in conjunction with the Company's historical
consolidated financial statements and related notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
At or for the Three Months
Ended March 31, At or for the Year
(unaudited) Ended December 31,
-------------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Interest income ......................... $ 7,887 $ 5,878 $ 27,336 $ 18,004 $ 14,055 $ 13,990 $ 15,739
Interest expense ........................ 3,767 2,526 12,841 6,360 5,355 6,660 9,021
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income ..................... 4,120 3,352 14,495 11,644 8,700 7,330 6,718
Provision for loan losses ............... 265 180 865 305 -- 50 3,239
Securities gains (losses), net .......... (21) -- (91) (124) 294 153 54
Gains (losses) on sales of mortgages, net. -- (1) 19 92 354 351 185
Other non-interest income ............... 531 475 1,927 1,586 1,542 1,499 1,525
Non-interest expense .................... 2,818 2,518 10,260 9,285 8,423 8,325 7,655
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before income tax expense
(benefit) and cumulative effect of the
change in accounting principle ......... 1,547 1,128 5,225 3,608 2,467 958 (2,412)
Income tax expense (benefit) ............ 555 372 1,822 1,085 733 390 (560)
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before cumulative effect of
the change in accounting principle ..... 992 756 3,403 2,523 1,734 568 (1,852)
Cumulative effect of the change in
accounting principle ................... -- -- -- -- 191 -- --
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss) ....................... $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925 $ 568 (1,852)
========== ========== ========== ========== ========== ======== ========
BALANCE SHEET
Assets .................................. $ 421,917 $ 321,454 $ 403,115 $ 280,550 $ 223,438 $205,494 $188,702
Loans, net of unearned income ........... 262,918 216,297 245,054 196,910 134,983 106,993 93,174
Deposits ................................ 310,482 277,056 302,972 259,296 206,688 192,223 175,816
Stockholders' equity .................... 32,363 19,529 31,717 18,451 14,208 10,829 10,261
Allowance for loan losses ............... 3,858 3,121 3,677 2,912 2,703 2,940 3,310
PER SHARE DATA
Net income (loss) -- fully diluted* ..... $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86 $ 0.61 $ (2.00)
Cash dividends .......................... $ 0.11 $ 0.09 $ 0.38 $ 0.28 $ -- $ -- $ 0.07
Book value** ............................ $ 13.51 $ 12.59 $ 13.50 $ 11.92 $ 12.42 $ 11.69 $ 11.09
OTHER DATA
Average shares outstanding .............. 2,530,000 2,047,000 2,192,000 1,757,000 1,036,000 926,000 926,000
</TABLE>
- - --------------
* Earnings per share for the three-month periods ended March 31, 1996 and
March 31, 1995 and the years ended December 31, 1995 and 1994, were
calculated utilizing the modified treasury stock method, while prior periods'
earnings per share were calculated utilizing the treasury stock method. The
modified treasury stock method includes the potential dillutive effect of
options and warrants not included in the treasury stock method.
** Book value per share at March 31, 1996 and 1995 and December 31, 1995 and
1994 reflects the unrealized gain (loss) on securities available for sale
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
adopted on January 1, 1994. See Note 1.C. to the Company's Consolidated
Financial Statements, which appears at page F-8.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(continued)
<TABLE>
<CAPTION>
At or for the Three
Months At or for the Year
Ended March 31, Ended December 31,
-------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets ........................ 0.98% 1.03% 0.99 1.04% 0.92% 0.29% (0.97)%
Return on average stockholders' equity .......... 12.49 15.56 13.84 15.89 15.81 5.44 (17.05)
Net interest margin (FTE)(1) .................... 4.31 4.87 4.49 5.16 4.51 3.99 3.84
Efficiency Ratio (2) ............................ 60.86 65.81 62.75 70.35 77.35 89.20 90.25
LIQUIDITY AND CAPITAL RATIOS:
Total loans to total deposits ................... 84.68% 78.07% 80.88 75.94% 65.31% 55.66% 53.00%
Stockholders' equity to total assets ............ 7.67 6.08 7.87 6.58 6.36 5.27 5.44
Average stockholders' equity to average assets ... 7.81 6.60 7.14 6.57 5.79 5.24 5.71
Dividend payout ratio ........................... 26.01 18.46 21.69 15.06 -- -- (4.00)
Leverage ratio (3) .............................. 7.78 6.27 7.84 6.97 6.36 5.27 5.44
Tier 1 capital as a percentage of
risk-weighted assets ........................... 11.41 9.20 11.95 9.59 9.38 8.81 9.20
Total capital as a percentage of
risk-weighted assets ........................... 12.66 10.45 13.20 10.84 10.64 10.07 10.70
ASSET QUALITY RATIOS:
Nonperforming loans (4) to total loans .......... 0.92% 0.98% 1.15% 1.05% 1.83% 4.32% 8.47%
Nonperforming assets to total assets ............ 0.73 0.75 0.85 0.84 1.73 2.79 4.83
Nonperforming assets (5) to total loans and other
real estate owned (period end) ................. 1.17 1.12 1.40 1.21 2.83 5.30 9.66
Allowance for loan losses to nonperforming loans
(4) (period end) ............................... 159.88 147.98 130.44 140.95 109.30 63.65 41.95
Allowance for loan losses to
nonperforming assets (5) ....................... 125.59 128.70 106.77 122.35 69.92 51.34 36.29
Allowance for loan losses to total loans (period
end) ........................................... 1.47 1.44 1.50 1.48 2.00 2.75 3.55
Net loan charge offs (recoveries) to average total
loans .......................................... 0.03 (0.01) 0.05 0.06 0.20 0.45 1.68
</TABLE>
- - ----------
(1) Tax equivalent based on a 34% federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(2) Efficiency ratio is equal to non-interest expense divided by the sum of
net interest income and non-interest income.
(3) Leverage ratio is Tier 1 capital to period end total assets less intangible
assets.
(4) Nonperforming loans include nonaccrual loans, restructured loans, and loans
90 days or more past due and still accruing interest. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition."
(5) Nonperforming assets include nonperforming loans and other real estate
owned. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income increased 31.2% for the three months ended March 31, 1996 over the
results recorded for the three months ended March 31, 1995. This increase in net
income was attributable primarily to increased interest income resulting from a
higher volume of outstanding loans.
In 1995, the Company achieved continued solid growth in earnings performance.
The Company's year was highlighted by the successful completion of its
underwritten public offering and coinciding trading on the NASDAQ National
Market System under the symbol "YANB" on June 9, 1995. Amid the challenges of
increased competition, the Company was able to grow its deposit and lending base
16.8% and 24.4%, respectively, in 1995.
Net income amounted to $3,403,000 for the year ended December 31, 1995, a
34.9% increase, compared to the record results of $2,523,000 reported in 1994.
Earnings were enhanced by the considerable loan growth experienced during the
year. The loan portfolio increased over $48,000,000 in 1995 from a year ago.
Asset quality remained strong, as reflected in the nonperforming loans as a
percentage of total loans ratio which equalled only 1.15% as of December 31,
1995.
The Company's capital base was fortified by the completion of its June 1995
public offering and 1995 earnings. Stockholders' equity totaled $31,717,000 at
December 31, 1995, an increase of 71.9% from the $18,451,000 reported at
December 31, 1994. The net addition of approximately $7,900,000 from the public
offering will provide the framework for continued sustainable growth.
Although 1995 key performance measures declined from 1994, they remained
strong in comparison to industry standards. Return on average assets decreased
to 0.99% from 1.04% in 1994. The 1995 return on average stockholders' common
equity decreased to 13.84% compared to 15.89% in 1994.
RESULTS OF OPERATIONS
The Company reported net income of $992,000 for the three months ended March
31, 1996, an increase of $236,000 or 31.2%, from net income of $756,000 reported
for the same time period in 1995. The increase in net income for the three
months ended March 31, 1996 compared to the same period of 1995 was primarily
attributable to an increase in net interest income partially offset by increases
in the provision for loan losses and non- interest expenses.
On a per share basis, the net income was $.40 for the first three months of
1996 compared to the same $.40 for the first three months of 1995 on a fully
diluted basis. While net income rose by 31% in the first quarter of 1996
compared to the first quarter of 1995, earnings per share stayed the same as a
result of the additional shares of Common Stock issued in the Company's 1995
underwritten public offering. The Company earned $3,403,000 or $1.60 per share
for the year ended December 31, 1995 compared to $2,523,000 or $1.56 per share
for the year ended December 31, 1994. The Company reported net income of
$1,925,000 or $1.86 per share in 1993. Earnings per share amounts for 1996, 1995
and 1994 were calculated utilizing the modified treasury stock method while
prior years were calculated utilizing the treasury stock method. The modified
treasury stock method includes the potential dilutive effect of options and
warrants not included in the treasury stock method.
NET INTEREST INCOME
Net interest income, the Company's largest and most significant component of
operating income, is the difference between interest and fees earned on loans
and other earning assets, and interest paid on deposits and borrowed funds. Net
interest income is impacted by the volume of interest earning assets, level of
rates earned on those assets, and the cost of interest bearing liabilities.
15
<PAGE>
The following tables set forth the Company's consolidated average balances of
assets, liabilities and stockholders' equity as well as the amount of interest
income and expense on related items, and the Company's average yields earned and
rates paid for the three-month periods ended March 31, 1996 and 1995 and for the
years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------------------------ -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- ---------- --------- ----------- ---------- ---------
(Dollars in thousands)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Time deposits with other banks ............ $ 2,552 $ 34 5.33% $ 373 $ 5 5.36%
Federal funds sold ........................ 4,264 57 5.35 5,931 89 6.00
Securities ................................ 124,439 1,909 6.14 66,957 942 5.63
Loans, net of unearned income (1) ......... 256,001 5,887 9.20 205,914 4,842 9.41
-------- ------ ----- -------- ------ -----
Total interest earning assets ........... $387,256 $7,887 8.15% $279,175 $5,878 8.42%
-------- ------ ----- -------- ------ -----
NON-INTEREST EARNING ASSETS:
Cash and due from banks ................... $ 9,162 $ 8,046
Allowance for loan losses ................. (3,748) (2,997)
Premises and equipment, net ............... 4,285 3,972
Other assets .............................. 9,624 6,395
-------- --------
Total non-interest earning assets ....... 19,323 15,416
-------- --------
Total Assets .............................. $406,579 $294,591
======== ========
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking ........... $129,240 972 3.01% $118,284 $1,007 3.41%
Certificates of deposit of $100,000 or
more................................... 15,233 203 5.33 18,835 263 5.59
Other time deposits ..................... 114,509 1,617 5.65 86,511 1,083 5.01
-------- ------ ----- -------- ------ -----
Total interest bearing deposits ...... 258,982 2,792 4.31 223,630 2,353 4.21
Borrowed funds ............................ 66,718 975 5.85 11,288 173 6.13
-------- ------ ----- -------- ------ -----
Total interest bearing liabilities ...... $325,700 3,767 4.63 234,918 2,526 4.30
-------- ------ ----- -------- ------ -----
NON-INTEREST BEARING
LIABILITIES:
Demand deposits ........................... $ 46,390 $ 38,960
Other liabilities ......................... 2,726 1,277
Stockholders' equity ...................... 31,763 19,436
-------- --------
Total non-interest bearing liabilities
and stockholders' equity ............ $ 80,879 $ 59,673
-------- --------
Total liabilities and stockholders' equity . $406,579 $294,591
======== ========
Interest rate spread (2) .................. 3.52% 4.12%
===== =====
Net interest income and margin (3) ........ $4,120 4.26% $3,352 4.80%
====== ===== ====== =====
Net interest income and margin
(tax equivalent basis) (4) ............. $4,171 4.31% $3,401 4.87%
====== ===== ====== =====
</TABLE>
- - -----------
(1) Loan origination fees are considered an adjustment to interest income.
For the purpose of calculating loan yields, average loan balances include
nonaccrual loans with no related interest income.
(2) The interest rate spread is the difference between the average yield on
interest earning assets and the average rate paid on interest bearing
liabilities.
(3) The net interest margin is equal to net interest income divided by
average interest earning assets.
(4) In order to make pretax income and resultant yields on tax exempt
investments and loans comparable to those on taxable investments and
loans, a tax equivalent adjustment is made equally to interest income and
income tax expense with no effect on after tax income. The tax equivalent
adjustment has been computed using a federal income tax rate of 34% and
has increased interest income $51,000 and $49,000 for the three months
ended March 31, 1996 and 1995, respectively.
16
<PAGE>
NET INTEREST INCOME -- (CONTINUED)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------------------------------
December 31, 1995 December 31, 1994 December 31, 1993
--------------------------- ---------------------------- -------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Time deposits with other banks... $ 685 $ 36 5.26% $ 643 $ 23 3.58% $ 1,266 $ 34 2.69%
Federal funds sold ............. 7,838 464 5.92 1,200 52 4.33 3,211 97 3.02
Securities ..................... 97,456 5,756 5.91 70,045 3,761 5.37 72,928 3,939 5.40
Loans, net of unearned income (1) 221,232 21,080 9.53 157,411 14,168 9.00 117,671 9,985 8.49
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest earning assets . $327,211 $27,336 8.35% $229,299 $18,004 7.85% $195,076 $14,055 7.20%
-------- ------- ---- -------- ------- ---- -------- ------- ----
NON-INTEREST EARNING ASSETS:
Cash and due from banks ......... $ 8,778 $ 8,079 $ 9,449
Allowance for loan losses ...... (3,265) (2,736) (2,860)
Premises and equipment, net .... 4,175 3,857 3,812
Other assets ................... 7,490 3,207 4,699
-------- -------- --------
Total non-interest earning
assets ....................... 17,178 12,407 15,100
-------- -------- --------
Total Assets ................... $344,389 $241,706 $210,176
======== ======== ========
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking $123,029 $ 4,107 3.34% $113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69%
Certificates of deposit of
$100,000 or more .......... 15,521 883 5.69 7,083 299 4.22 4,202 168 4.00
Other time deposits .......... 103,637 5,792 5.59 66,020 2,810 4.26 55,827 2,338 4.19
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
deposits .................. 242,187 10,782 4.45 186,342 6,265 3.36 165,207 5,338 3.23
Borrowed funds ................. 33,339 2,059 6.18 2,248 95 4.23 747 17 2.28
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
liabilities ............... 275,526 12,841 4.66 188,590 6,360 3.37 165,954 5,355 3.23
-------- ------- ---- -------- ------- ---- -------- ------- ----
NON-INTEREST BEARING LIABILITIES:
Demand deposits ................ $ 42,321 $ 36,634 $ 31,082
Other liabilities .............. 1,950 605 967
Stockholders' equity ........... 24,592 15,877 12,173
-------- -------- --------
Total non-interest bearing
liabilities and stockholders'
equity .................. $ 68,863 $ 53,116 $ 44,222
-------- -------- --------
Total liabilities and stockholders'
equity ....................... $344,389 $241,706 $210,176
======== ======== ========
Interest rate spread (2) ....... 3.69% 4.48% 3.97%
==== ==== ====
Net interest income and margin (3) $14,495 4.43% $11,644 5.08% $ 8,700 4.46%
======= ==== ======= ==== ======= ====
Net interest income and margin (tax
equivalent basis) (4) ........ $14,697 4.49% $11,838 5.16% $ 8,805 4.51%
======= ==== ======= ==== ======= ====
</TABLE>
- - ------------
(1) Loan origination fees are considered an adjustment to interest income.
For the purpose of calculating loan yields, average loan balances include
nonaccrual loans with no related interest income.
(2) The interest rate spread is the difference between the average yield on
interest earning assets and the average rate paid on interest bearing
liabilities.
(3) The net interest margin is equal to net interest income divided by
average interest earning assets.
(4) In order to make pretax income and resultant yields on tax exempt
investments and loans comparable to those on taxable investments and
loans, a tax equivalent adjustment is made equally to interest income and
income tax expense with no effect on after tax income. The tax equivalent
adjustment has been computed using a federal income tax rate of 34% and
has increased interest income 202,000, $194,000 and $105,000 for the
years ended December 31, 1995, December 31, 1994 and December 31, 1993,
respectively.
17
<PAGE>
Net interest income also may be analyzed by segregating the volume and
rate components of interest income and interest expense. The following table
demonstrates the impact on net interest income of changes in the volume of
interest earning assets and interest bearing liabilities and changes in
interest rates earned and paid.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to changes in: Due to changes in: Due to changes in:
--------------------- -------------------- -------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----- ------ ---- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Time deposits with other banks .... $ 29 $ -- $ 29 $ 2 $ 11 $ 13 $ (20) $ 9 $ (11)
Federal funds sold ................ (23) (9) (32) 386 26 412 (76) 31 (45)
Securities ........................ 875 92 967 1,589 406 1,995 (134) (44) (178)
Loans, net of unearned income (1) . 1,154 (109) 1,045 6,039 873 6,912 3,546 637 4,183
------ ----- ------ ------- ------ ------ ------ ---- ------
Total interest income ........... 2,035 (26) 2,009 8,016 1,316 9,332 3,316 633 3,949
------ ----- ------ ------- ------ ------ ------ ---- ------
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking ..... $ 88 $(123) $ (35) $ 289 $ 662 $ 951 $ 222 $102 $ 324
Certificates of deposit of $100,000
or more .......................... (48) (12) (60) 452 132 584 121 10 131
Other time deposits ............... 383 151 534 1,925 1,057 2,982 433 39 472
------ ----- ------ ------- ------ ------ ------ ---- ------
Total deposits .................. 423 16 439 2,666 1,851 4,517 776 151 927
Borrowed funds .................... 810 (8) 802 1,901 63 1,964 55 23 78
------ ------ ------ ------- ------ ------ ------ ---- ------
Total interest expense .......... 1,233 8 1,241 4,567 1,914 6,481 831 174 1,005
------ ------ ------ ------- ------ ------ ------ ---- ------
Net interest income ............... $ 802 $ (34) $ 768 $3,449 $ (598) $2,851 $2,485 $459 $2,944
------ ----- ------ ------- ------ ------ ------ ---- ------
</TABLE>
- - -------------
(1) Loan origination fees are considered adjustments to interest income.
The Company's net interest income for the three months ended March 31, 1996
was $4,120,000, an increase of 22.9% over the $3,352,000 for the comparable 1995
period. The principal factor contributing to the increase in net interest income
for the three months ended March 31, 1996 was an increase in interest income of
$2,009,000 resulting from a substantial increase in loan volume, particularly
commercial loans, offset by an increase in interest expense of $1,241,000 due to
higher levels of time deposits and borrowed funds, higher costing funding
sources.
For the three-month period ended March 31, 1996 total interest income of
$7,887,000 increased $2,009,000 or 34.2% as compared to the same period a year
earlier. The increase in interest income is due to the higher volume of average
loan and securities assets. Average loans and securities increased $50,087,000
and $57,480,000 or 24.3% and 85.8%, respectively, for the three months ended
March 31, 1996 compared to the same 1995 period. The average yield on the loan
portfolio decreased 21 basis points for the comparable period due to the
Company's competitive marketplace. The average yield on the securities
portfolio, conversely, increased 51 basis points. Interest on Federal funds sold
decreased $32,000 for the three month period ended March 31, 1996 due to
decreases in average balances of $1,667,000 and average yields of 65 basis
points.
Overall, the yield on the Company's interest earning assets decreased 27
basis points to 8.15% for the period ended March 31, 1996 from 8.42% for the
three month period ended March 31, 1995 for the reasons discussed above.
Total interest expense increased $1,241,000 or 49.1% to $3,767,000 for the
three months ended March 31, 1996 compared to $2,526,000 reported for the three
months ended March 31, 1995. The increase in interest expense for the comparable
time periods is the result of a larger deposit base, higher market interest
rates and significantly greater levels of borrowed funds. The average rate paid
on interest bearing liabilities increased 33 basis points for the time period
discussed. Deposit products continued to be competitively priced to increase the
Bank's deposit base and provide a source of funds for asset growth.
Average interest bearing liabilities amounted to $325,700,000 for the three
months ended March 31, 1996 compared to $234,918,000 for the three months ended
March 31, 1995. Increases in deposit account relationships, attributable in part
to increased commercial loan activity and community presence, are reflected in
the results. Average time deposits, a higher costing funding source, increased
$24,396,000 of 23.2% for the first quarter of 1996 compared to the first quarter
a year earlier.
18
<PAGE>
Interest expense on borrowed funds increased significantly for the
comparative time periods. Interest expense increased $802,000 during the first
quarter of 1996 compared to the same period in 1995 as a result of significantly
higher average balances. Through March 31, 1996 management has purchased
investments utilizing repurchase agreements totaling approximately $59,000,000.
FHLB advances totaled $15,000,000 through the first quarter of 1996 to
provide liquidity and a source of funds for asset growth. The Company's total
borrowed funds position at March 31, 1996 was $75,270,000 compared to
$22,358,000 at March 31, 1995. Management's strategy, however, is to further
build the Bank's core deposit base to fund asset growth and use borrowed funds
to meet short term liquidity needs and as an additional source of funding for
the loan and investment portfolios.
The Company's net interest income totaled $14,495,000 in 1995, an increase of
24.5% from the $11,644,000 reported in 1994. The prior year's increase was 33.8%
from 1993's net interest income of $8,700,000. The principal factor contributing
to the increase in net interest income in 1995 was an increase in interest
income of $9,332,000 due to a substantial increase in commercial loan volume
offset by increases in deposits and borrowed funds and the related interest
expense. The Company's average loan portfolio increased by 40.5% from
$157,411,000 to $221,232,000 from December 31, 1994 to December 31, 1995. The
yield on interest earning assets increased 50 basis points to 8.35% in 1995 from
7.85% in 1994.
Interest expense was $12,841,000 in 1995, an increase of $6,481,000, or
101.9%, from the $6,360,000 in 1994. The increase in interest expense for the
comparable time periods was the result of a larger deposit base, higher market
interest rates and greater levels of borrowed funds, Specifically, average
interest bearing liabilities increased 46.1% in 1995 compared to 1994. The cost
of all interest bearing liabilities rose 129 basis points to 4.66% in 1995 from
3.37% in 1994. Deposit products, particularly time deposits, were competitively
priced throughout 1995 to fund the commercial loan growth that was experienced.
Net interest income was $11,644,000 in 1994, an increase of 33.8% from
$8,700,000 in 1993. The increase resulted principally from a substantial
increase in commercial loan volume. Average loans increased by 33.8% from 1993
to 1994 while the average cost of interest bearing liabilities rose only 14
basis points.
The Company's net interest margin between yields on average interest earning
assets and costs of average funding sources was 4.31% for the three months ended
March 31, 1996 compared to 4.87% for the three months ended March 31, 1995. The
net interest margin between yields on average interest earning assets and costs
of average funding sources was 4.49% for the year ended 1995 versus 5.16% in
1994 and 4.51% in 1993. The decrease in the net interest margin in 1995 and 1996
was principally due to two factors. In the second half of 1995 management
instituted a strategy to increase net interest income by purchasing investments
using repurchase agreements. By year-end 1995 approximately $55,000,000 in
investments had been purchased. The targeted spread on this strategy was 75
basis points after tax. This strategy, while successful in increasing net
interest income, had a negative impact on the net interest margin. The increase
in the cost of interest bearing liabilities compared to interest earning assets
also accounted, in part, for the reduction in the net interest margin.
Average interest earning assets exceeded interest bearing liabilities by
$51,685,000 in 1995, $40,709,000 in 1994 and $29,122,000 in 1993. The ratio of
average interest bearing liabilities to average interest earning assets
increased from 82.2% in 1994 to 84.2% in 1995. Average non-interest bearing
demand deposits increased 15.5% to $42,321,000 in 1995 from $36,634,000 in 1994.
Throughout the comparative periods, increases in average non-interest bearing
deposits contributed to the increase in net interest income because a larger
portion of interest earning assets was being funded by non-interest bearing
liabilities.
Nonaccrual loans totaled $1,567,000 at December 31, 1995, a decrease of 9.1%
from the $1,724,000 reported at December 31, 1994. Had such nonaccrual loans
been paid in the manner and at the rate and time contracted at the time the
loans were made, the Company would have recognized additional interest income of
approximately $143,000 in 1995, $183,000 in 1994 and $226,000 in 1993. Moreover,
the Company's net interest margin would have been .05% higher in 1995, .08%
higher in 1994 and .12% higher in 1993.
NON-INTEREST INCOME
Non-interest income continues to be an important source of revenue for the
Company. The major components of non-interest income are presented in the
following table.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
(Unaudited) Year ended December 31,
(in thousands) 1996 1995 1995 1994 1993
---------------------------- ------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $290 $270 $1,069 $932 $943
Other service fees 112 86 381 370 312
Gains (losses) on sales of
mortgages, net -- (1) 19 92 354
Securities gains (losses),
net (21) -- (91) (124) 294
Other non-interest income 129 119 477 284 287
---- ---- ------ ------ ------
Total $510 $474 $1,855 $1,554 $2,190
==== ==== ====== ====== ======
</TABLE>
Non-interest income consists primarily of service charges on deposit
accounts, gains on sale of mortgages and securities gains or losses. The Company
also generates non-interest income from a variety of fee-based services. These
include mortgage servicing fees, safe deposit box rentals and check fee income.
Total non-interest income was $510,000 for the first three months of 1996
compared to $474,000 for the same period in 1995. The increase of $36,000 or
7.6% is attributable to increased service charge and other non- interest income
offset by securities losses realized.
Service charges on deposit accounts increased $20,000, or 7.4%, for the first
three months of 1996 as compared to the same period a year earlier. The increase
in service charge income was the product of a larger deposit base and the fee
income associated with it. The Company realized $21,000 in net losses on the
sale of securities, in the first quarter of 1996 versus no losses on the sale of
securities, in the first quarter of 1995. Proceeds from securities sold were
utilized to fund higher yielding commercial loan assets. Other non-interest
income increased $36,000 or 17.6% in the first quarter of 1996 versus the first
quarter of 1995. This increase was principally due to additional fee income
derived from life insurance assets and increases in other fee income.
For 1995, non-interest income totaled $1,855,000, an increase of $301,000, or
19.4%, from non-interest income of $1,554,000 for 1994. Non-interest income in
1994 decreased by $636,000, or 29.0% from 1993's reported total of $2,190,000.
Service charges on deposit accounts have historically represented the largest
single source of non-interest income. This continued to be the case in 1995, as
such revenues totaled $1,069,000, an increase of 14.7%, compared to $932,000 in
1994. Service charge income totaled $943,000 in 1993. Service charge income
increased in 1995 as the result of a larger account base and the fee income
associated with it. This component of non-interest income represented 57.6%,
60.0% and 43.1% of the total non-interest income in 1995, 1994 and 1993,
respectively. The Company's Product Development and Management Committee reviews
and develops established and new deposit products and the service charges
associated with them. Deposit services are repriced periodically to reflect
current costs and competitive factors.
Gains on sales of mortgages, net, decreased in 1995 to $19,000 from $92,000
and $354,000 in 1994 and 1993, respectively. Throughout the comparative time
period mortgage banking activity was adversely impacted by reduced refinancing
activity and higher mortgage rates. Gains on sales of mortgages, net, were 79.3%
lower in 1995 compared to 1994. Gains on sales of mortgages, net, in 1993
reflected lower mortgage rates, which led to strong refinancing activity and
greater income levels.
The Company recorded net securities losses of $91,000 and $124,000 in 1995
and 1994, respectively. Sales of securities in 1993 resulted in net gains of
$294,000. Net securities losses realized during 1995 and 1994 were the result of
management's decision to reposition funds in the portfolio to improve yield and
provide funds for loan growth. CMO's were sold in 1995 to reduce outstandings in
this portion of the portfolio, providing funds for higher yielding loan assets.
In the third quarter of 1993, management segregated its investment portfolio
into two categories: available for sale and investment securities, in
anticipation of the adoption of Statement of Financial Accounting Standards, No.
115 as of January 1, 1994. This segregation was followed in the fourth quarter
of 1993 with the sale of several securities to establish the desired size of the
available for sale portfolio and resulted in a net gain of approximately
$221,000.
20
<PAGE>
NON-INTEREST EXPENSE
Total non-interest expense increased $300,000 or 11.9% to $2,818,000 for the
first three months of 1996 compared to $2,518,000 for the first three months of
1995. The increase in non-interest expense is the result of increases in
salaries and employee benefits and occupancy and equipment expense.
Salaries and employee benefits were $1,581,000 for the first three months of
1996, an increase of $194,000 or 14.0% compared to the same three month period
of 1995. The increase resulted from increased staffing required as the Company
has grown for the comparable time periods and normal annual salary increases.
Employee benefits also increased 16.4% for the comparable time periods. Full
time equivalent staff increased to 151 at March 31, 1996 from 146 at March 31,
1995.
Net occupancy expenses increased $56,000 or 34.1% for the first three months
of 1996 as compared to the same period in 1995 as the result of significantly
increased snow removal costs and the additional occupancy costs associated with
new branch offices. Equipment expense increased $64,000 or 56.6% for the same
period primarily due to increased depreciation costs associated with new
furniture and fixtures in the Company's new branches and computer equipment.
Other non-interest expenses totaled $840,000 for the three months ended March
31, 1996, a decrease of $14,000 or 1.6%, from the comparable 1995 period. The
decrease in other non-interest expense is the result of eliminated FDIC
insurance premiums offset by increases in professional fees, computer expenses
and stationary and supplies costs associated with a growing branch network.
Non-interest expense totaled $10,260,000 in 1995, an increase of $975,000, or
10.5%, compared to $9,285,000 in 1994. Non-interest expense in 1994 increased
10.2% from $8,423,000 in 1993. The increase in non-interest expense, for the
comparative periods, is principally the result of increases in salaries and
employee benefits and other non-interest expense.
Salaries and employee benefits, which represent the largest portion of
non-interest expense, recorded an increase in 1995 of $665,000 or 13.2% over
1994. Salaries and employee benefits in 1994 increased $703,000, or 16.3% over
1993. The increase in 1995 over 1994 primarily was the result of increased
staffing associated with the opening of the Company's sixth and seventh
branches, hiring of experienced lending professionals, expansion of the
financial services division and normal annual salary increases. Full time
equivalent employees increased to 147 at December 31, 1995 from 143 at December
31, 1994. The increase in 1994 over 1993 primarily was the result of increased
staffing from the Company's fifth branch opening, hiring of experienced lending
professionals, increased benefits costs and annual merit increases. Salaries and
employee benefits as a percent of average assets were 1.7% in 1995 and 2.1% in
1994 and 1993, respectively.
Net occupancy expense increased $115,000 to $726,000 in 1995 from $611,000
reported in 1994. The increase in occupancy expenses is the result of additional
lease and building maintenance costs associated with two new branches (Lalor
Street and East Windsor) in 1995 and a full year's expense on the Company's
fifth branch (Ewing) which opened in the second quarter of 1994. This component
of non-interest expense has remained constant as a percentage of average assets
at 0.2% in 1995 and 0.3% in 1994 and 1993, respectively. Equipment expenses
increased $47,000, or 10.1%, to $513,000 in 1995 from $466,000 in 1994. In 1994
equipment expenses decreased 4.5% from 1993. The increase in equipment expenses
in 1995 was attributable to increased depreciation costs associated with new
furniture and fixtures and computer equipment in the Company's new branches.
Certain computer equipment was also purchased in 1995, as well, in preparation
for the implementation of an in-house computer system planned in the first
quarter of 1996 which resulted in additional depreciation expense.
Other non-interest expenses were $3,328,000, $3,180,000 and $3,071,000 in
1995, 1994 and 1993, respectively.
21
<PAGE>
The following table sets forth the components of other non-interest
expense for the periods indicated:
Three Months
Ended
March 31, Year Ended December 31,
---------------- ------------------------------
(unaudited)
1996 1995 1995 1994 1993
------ ------ ------- -------- -------
(in thousands)
FDIC insurance premium . $ -- $137 $ 290 $ 464 $ 488
O.R.E. expenses ........ 8 36 166 306 386
Stationery and supplies . 101 87 300 229 208
Computer services ...... 116 70 285 270 295
Insurance (other) ...... 21 27 93 119 169
Marketing .............. 117 117 479 415 280
Other .................. 477 380 1,715 1,377 1,245
---- ---- ------ ------ ------
Total ............. $840 $854 3,328 $3,180 $3,071
==== ==== ====== ====== ======
FDIC insurance premiums decreased by $174,000, or 37.5% in 1995 to $290,000
from $464,000 in 1994. FDIC insurance premiums totaled $488,000 in 1993. On
January 31, 1995, the FDIC proposed to reduce the deposit insurance assessment
rates of Bank Insurance Fund ("BIF") insured institutions, effective at the date
the BIF fund reaches the required level of 1.25% of BIF-insured deposits. During
1995 the fund reached the 1.25% level. Premiums totaling approximately $168,000
were rebated to the Company on September 15, 1995. The Company's deposit
insurance premium assessment was lowered from 23 basis points to 4 basis points
effective for the fourth quarter of 1995. As defined by the FDIC, the Company is
a well capitalized institution and under new FDIC guidelines first-half 1996
premiums have been eliminated. It is anticipated that premiums for the second
half of 1996 will also be eliminated under current FDIC guidelines.
Other real estate expenses decreased by $140,000, or 45.8% in 1995 to
$166,000 from $306,000 in 1994. Other real estate expenses declined by 20.7% in
1994 compared to 1993. Throughout the comparative periods, management has
effectively managed the level of other real estate owned and the expenses
associated with loan workout and foreclosed properties.
Computer expenses increased $15,000, or 5.6%, in 1995 to $285,000. These
expenses were $270,000 in 1994, a decrease of $25,000, or 8.5%, from $295,000 in
1993. The increase in computer expenses in 1995 resulted from increased volume
processing due to growth. The reduction in expense in 1994 compared to 1993 was
the result of a renegotiated contract with the Company's computer servicer.
Management has terminated its agreement with its computer servicer effective
late February 1996 as the result of implementing a new in-house computer system.
Marketing expenses increased by $64,000, or 15.4% in 1995 to $479,000,
compared to $415,000 in 1994. Marketing expenses totaled $280,000 in 1993. The
increase in marketing expenses for the comparative periods reflects the
Company's emphasis on participation in community activities. To a lesser extent,
expenses in this category have increased as the result of additional promotions
in connection with branch openings.
Other expenses, which include various professional fees, communication
expense, postage expense and various loan related expenses, were $1,715,000 in
1995, an increase of $338,000, or 24.5%, from $1,377,000 in 1994. Other expenses
totaled $1,245,000 in 1993. The increase in 1995 other expenses compared to
1994, in part, is attributable to attorney fees, consulting fees, and the
processing of our mortgage system by a third party vendor to improve service
quality and management flexibility.
The Company's ratio of non-interest expense to average assets decreased to
3.0% for 1995 compared to 3.8% for 1994 and 4.0% for 1993.
INCOME TAXES
Income tax expense, which is comprised of Federal and state income taxes, was
$1,822,000 in 1995 compared to $1,085,000 in 1994 and $733,000 in 1993. The
increase was primarily the result of higher pre-tax income. The effective income
tax rate was 34.9% for 1995, compared to 30.1% for 1994 and 29.7% for 1993. The
increase in the effective tax rate for 1995 was the result of increased pre-tax
earnings with a relatively constant level of tax-free income.
22
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109) as of January 1, 1993 and the
cumultive effect of this change is reported in the 1993 Consolidated
Statement of Income. The favorable cumulative effect at January 1, 1993 was
$191,000.
FINANCIAL CONDITION
TOTAL ASSETS
Total consolidated assets at March 31, 1996 totaled $421,917,000, an
increase of $18,802,000 or 4.7%, compared to $403,115,000 at December 31,
1995. The Company's assets were $403,115,000 at year-end 1995 versus
$280,550,000 the previous year, an increase of $122,565,000, or 43.7%. The
growth in the Company's asset base throughout 1995 and during the first
quarter of 1996 was, in part, the product of a strategy to improve the
profitability of the organization through relationship banking and the
origination of quality loans in the Company's marketplace. During the third
and fourth quarters of 1995 total consolidated assets grew approximately
$69,000,000, predominantly as the result of a strategy to purchase
investments utilizing borrowed funds. At March 31, 1996 the Company's asset
base includes investments of approximately $59,000,000 purchased since June
1995 utilizing repurchase agreements.
The Company's ratio of average interest earning assets to average assets
increased slightly to 95.0% at December 31, 1995 compared to 94.9% at
December 31, 1994. The Company's ratio of average interest bearing
liabilities to average assets increased from 78.0% at December 31, 1994 to
80.0% at December 31, 1995.
SECURITIES
Total securities decreased by $8,340,000 in the first three months of 1996
compared to year end 1995. The investment portfolio through the maturity and
sales of U.S. Treasuries, calls of U.S. agency securities and principal
paydowns from mortgage-backed securities provided funding for strong first
quarter loan growth.
At March 31, 1996 the amortized cost of investment securities classified
as held to maturity was $34,576,000, compared to $35,384,000 at December 31,
1995, a decrease of $808,000 or 2.3%
Net unrealized losses as of March 31, 1996 in the Company's available for
sale securities portfolio were $737,000. Net unrealized losses of $443,000,
net of tax effect, were reported as a reduction of stockholders' equity at
March 31, 1996. The available for sale portfolio was $91,674,000 at March 31,
1996, and represented 73% of the entire investment portfolio and provides a
secondary source of liquidity.
The Company's securities portfolio represented $133,853,000 or 33.2% of
assets at December 31, 1995 versus $63,235,000, or 22.5%, at December 31,
1994. On an average basis, the securities portfolio represented 29.8% of
average interest earning assets for the year ended December 31, 1995 compared
to 30.5% of average interest earning assets for 1994. In the second half of
1995, approximately $55,000,000 in available for sale securities were
purchased utilizing repurchase agreements to increase net interest income.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), was
adopted by the Company on January 1, 1994. This statement requires the
classification of securities into one of three categories: held to maturity,
available for sale or trading. Available for sale securities are reported at
fair market value with unrealized gains and losses, net of tax, included as a
separate component of stockholders' equity. At March 31, 1996 and December
31, 1995, the Company held all of its securities in either the held to
maturity or available for sale categories. There are no securities designated
for trading.
23
<PAGE>
The following table represents the book and market values of the Company's
securities available for sale portfolio at March 31, 1996 and December 31,
1995 and 1994.
<TABLE>
<CAPTION>
March 31, December 31,
------------------ ---------------------------------------------------------------------
(in thousands) 1996 (1) 1995 (1) 1994 (1) 1993
------------------ ------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other federal
agencies $14,751 $14,653 $17,795 $17,823 $6,366 $6,150 $ 3,011 $ 3,042
Mortgage--backed securities 74,398 73,759 78,725 78,874 18,358 16,755 22,442 22,623
Federal Reserve Bank stock 550 550 512 512 173 173 -- --
Federal Home Loan Bank stock 1,975 1,975 1,260 1,260 1,074 1,074 -- --
------- ------- ------- ------- ------- ------ ------- -------
Total $91,674 $90,937 $98,292 $98,469 $25,971 $24,152 $25,453 $25,665
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- - ------------
(1) Securities available for sale as of March 31, 1996 and December 31, 1995
are marked to market with an adjustment to stockholders' equity, net of
income tax, in accordance with SFAS No. 115.
The securities available for sale portfolio increased to $98,469,000 at
December 31, 1995 from $24,152,000 at December 31, 1994. The large increase
is due primarily to the purchase of securities utilizing repurchase
agreements. Securities available for sale are held for indefinite periods of
time and may be sold due to changing market and interest rate conditions as
part of the Company's asset/liability management strategy. As of December 31,
1995 available for sale securities represented 73.6% of the entire portfolio.
This portfolio is principally comprised of mortgage-backed securities issued
by Federal agencies, U.S. Treasury and other agency securities, providing a
secondary source of liquidity for the Company.
<PAGE>
The followng table represents the book and market values of the Company's
securities portfolio classified as held to maturity at March 31, 1996 and at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- -----------------------------------------------------------------
(in thousands) 1996 1995 1994 1993
-------------------- ------------------- ------------------ ---------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of State and political
subdivisions $ 8,623 $ 8,552 $8,630 $ 8,659 $ 8,392 $ 7,777 $ 7,410 $ 7,503
Mortgage--backed securities 25,953 25,229 26,754 26,378 30,691 27,972 35,675 35,193
Federal Reserve Bank Stock -- -- -- -- -- -- 132 132
------- ------- ------- ------- ------- ------- ------- -------
Total $34,576 $33,781 $35,384 $35,037 $39,083 $35,749 $43,217 $42,828
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Investment securities classified as held to maturity totaled $34,576,000
at March 31, 1996 and $35,384,000 at December 31, 1995 compared to
$39,083,000 at December 31, 1994. This portfolio is comprised of mortgage-
backed securities and state and municipal securities.
The average balance of tax-exempt securities amounted to $8,624,000 for
the three months ended March 31, 1996, an increase of 3.6% from the average
for the year ended December 31, 1995. The average balance of tax-exempt
securities amounted to $8,321,000 for the year ended December 31, 1995, as
compared to $8,237,000 for the year ended December 31, 1994. The Company's
profitability has increased the value of owning tax-exempt securities.
24
<PAGE>
The following table shows the maturities and weighted average yields for
the securities available for sale portfolio at amortized cost at March 31,
1996. Yields on tax-exempt securities are presented on a tax equivalent basis
assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------------------
After one After five
Within but within but within After
one year five years ten years ten years Total
---------- ------------ ------------ ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities and obligations
of other government agencies .......... $5,750 $ 9,001 $ -- $ -- $14,751
Mortgage-backed securities ............. 6 2,698 8,967 62,727 74,398
Federal Reserve Bank Stock ............. -- -- -- 550 550
Federal Home Loan Bank Stock ........... -- -- -- 1,975 1,975
------ ------- ------ ------- -------
Total ................................. $5,756 $11,699 $8,967 $65,252 $91,674
====== ======= ====== ======= =======
Weighted average yield, computed on a tax
equivalent basis ...................... 5.95% 5.76% 7.00% 7.16% 6.89%
====== ======= ====== ======= =======
</TABLE>
Investments in mortgage-backed securities involve prepayment and
reinvestment risk. In a period of decreasing interest rates, the underlying
mortgages which collateralize the mortgage-backed securities have a tendency
to prepay more rapidly, resulting in an accelerated payback of principal to
the Company. Reinvestment risk is a resultant risk to the Company as the
Company is required to reinvest the cash proceeds into lower yielding
instruments which in turn can compress the Company's net interest margin. In
periods of increasing interest rates, the underlying mortgages which
collateralize the mortgage-backed securities have a tendency to prepay more
slowly, resulting in longer security average lives and less cash available
from paydowns to reinvest in a higher interest rate environment.
The Company attempts to minimize these risks by diversifying the coupons
of the mortgage-backed securities, buying seasoned securities with consistent
and predictable prepayment histories and adhering to strict pricing policies
when purchasing mortgage-backed securities.
Collateralized mortgage obligations ("CMOs") totaled approximately
$5,900,000 at March 31, 1996. The CMOs in the investment portfolio are agency
named and were generally purchased with original average lives of two to four
years. At March 31, 1996, the Company held no private label or corporate
CMOs. Stress tests are performed on a semi-annual basis to assess prepayment
speeds and their impact on the average lives and yields on those securities.
All CMO's at March 31, 1996 were held in the available for sale category.
25
<PAGE>
The maturities and weighted average yields for investment securities
classified as held to maturity were as follows at March 31, 1996.
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------------------
After one After five
Within but within but within After
one year five years ten years ten years Total
---------- ------------ ------------ ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Obligations of State and political
subdivisions ....................... $-- $ 3,100 $4,988 $ 535 $ 8,623
Mortgage-backed securities .......... -- 17,382 -- 8,571 25,953
--- ------- ------ ------ -------
Total ............................... $-- $20,482 $4,988 $9,106 $34,576
=== ======= ====== ====== =======
Weighted average yield, computed on a
tax equivalent basis ............... -- 5.23% 4.69% 6.53% 5.50%
=== ======= ====== ====== =======
</TABLE>
LOAN PORTFOLIO
The continued growth in the Company's loan portfolio is a result of
management's emphasis on establishing relationships, service, and taking
advantage of opportunities associated with consolidation in the banking
industry, particularly in the Company's markets.
Total loans, net of unearned discounts, increased by $17,864,000, or 7.3%,
to $262,918,000 at March 31, 1996 from $245,054,000 at December 31, 1995.
During 1995, total loans increased by $48,144,000, or 24.4% to $245,054,000
at December 31, 1995 from 196,910,000 at December 31, 1994. The Company's
loan portfolio represented 62.3% of assets at March 31, 1996, 60.8% of assets
at December 31, 1995, and 70.2% of assets at December 31, 1994.
The following table sets forth the components of the Company's loan
portfolio for the periods indicated.
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- --------------- ---------------- ------------- -------------- -------------
Amount % Amount % Amount % Amount % Amount % Amount %
-------- -- --------- --- -------- --- -------- --- -------- --- -------- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate --
mortgage:
Residential . $ 75,196 28.6% $ 73,076 29.8% $ 60,156 30.5% $ 35,283 26.1 % $37,632 35.2 % $41,375 44.4 %
Commercial . 91,947 35.0% 73,164 29.8 49,186 25.0 32,517 24.1 13,559 12.7 9,219 9.9
Home equity . 25,343 9.6% 26,951 11.0 29,388 14.9 30,107 22.3 28,648 26.8 26,427 28.4
Commercial and
agricultural 34,310 13.0% 33,218 13.6 26,626 13.5 17,642 13.1 14,822 13.8 1,612 1.7
Real estate --
construction 17,748 6.8% 19,353 7.9 15,560 7.9 9,742 7.2 5,250 4.9 7,741 8.3
Consumer ..... 11,656 4.4% 12,386 5.1 10,934 5.6 7,440 5.5 6,287 5.9 6,063 6.5
Other loans .. 6,718 2.6% 6,906 2.8 5,060 2.6 2,252 1.7 795 0.7 737 0.8
------- ------ -------- ----- -------- ------ -------- ------ -------- ----- ------- -----
Total loans . $262,918 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0 % $106,993 100.0 % $93,174 100.0 %
======= ====== ======== ===== ======== ====== ======== ====== ======== ===== ======= =====
</TABLE>
The Company's lending focus over the past few years has been centered on
commercial loans, owner- occupied commercial mortgage loans and tenanted
commercial real estate loans. In underwriting such loans, the Company first
evaluates the cash flow capability of the borrower to repay the loan. In
addition, a substantial majority of commercial loans are also secured by real
estate, business assets and guarantees. The Company makes commercial loans
primarily to small to medium sized businesses and professionals.
26
<PAGE>
The Company showed positive results throughout its loan portfolio for the
three months ended March 31, 1996 as a result of management's emphasis on
customer service and relationships and taking advantage of opportunities
associated with consolidation in the banking industry, particularly in the
Company's markets. On a component basis, for the three month period ended
March 31, 1996, commercial loan balances increased 3.3%. Real estate --
commercial mortgages and real estate -- residential mortgages increased 25.6%
and 2.9%, respectively, for the first quarter of 1996. The increase in actual
dollars in these loans since year end 1995 is $18,744,000 and $2,179,000,
respectively. The increase in real estate-mortgage loans in the first quarter
was reflective of lower mortgage rates early in 1996. Consumer loan balances
decreased 6.0% through the first three months of 1996.
Real estate-residential loans are primarily comprised of residential
mortgage loans and business loans secured by residential real estate. This
portion of the loan portfolio totaled $75,196,000 at March 31, 1996 and
$73,076,000 at December 31, 1995. Residential mortgage loans represented
$49,335,000, or 65.6%, of the total at March 31, 1996. The Company's
residential mortgage loans are secured by first liens on the underlying real
property. At March 31, 1996 approximately 32.5% of the residential mortgage
loan portfolio had fixed interest rates and 67.5% had adjustable interest
rates.
The home equity portfolio totaled $25,343,000 or 9.6% of the Company's
loan portfolio at March 31, 1996. The home equity portfolio totaled
$26,951,000 or 11.0% of the Company's loan portfolio at December 31, 1995.
The home equity portfolio has provided significant operating income to the
Company with controllable delinquencies and minimal losses.
Real estate-commercial loans increased $18,783,000, or 25.7%, to
$91,947,000 at March 31, 1996 from $73,164,000 at December 31, 1995. Real
estate commercial loans increased by $23,978,000 or 48.7%, in 1995 from
$49,186,000 at December 31, 1994. The Company's lending policies require an
80% or lower loan-to-value ratio for commercial real estate mortgages.
Collateral values are established based upon independently prepared
appraisals. Generally these loans are secured by owner-occupied properties
and are part of a broader commercial lending relationship.
Commercial and agricultural loans increased by $1,092,000, or 3.3%, to
$34,310,000 at March 31, 1996 from $33,218,000 at December 31, 1995.
Commercial and agricultural loans increased by $6,592,000, or 24.8%, at
December 31, 1995 from $26,626,000 at December 31, 1994 .
Real estate construction loans declined $1,605,000 to $17,748,000 at March
31, 1996 from $19,353,000 at December 31, 1995 after increasing by $3,793,000
from $15,560,000 at December 31, 1994. Real estate construction loans
represented 6.8% of the total loan portfolio at March 31, 1996 . The Company
makes loans to finance primarily the construction of residential and, to a
limited extent, non-residential properties. Construction loans generally are
secured by first liens on real estate and have floating interest rates. These
loans are closely monitored with advances made only after work is completed
and independently inspected and verified by qualified professionals.
The Company makes automobile, motorcycle, personal and other loans to
consumers. Consumer loans decreased to $11,656,000 at March 31, 1996 from
$12,386,000 at December 31, 1995. Consumer loans totaled $10,934,000 at
December 31, 1994.
27
<PAGE>
The following table provides information concerning the maturity and
interest rate sensitivity of the Company's commercial and agricultural loan
and real estate-construction loan portfolios for the periods presented.
March 31, 1996
-------------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
---------- ------------ -------- ---------
(in thousands)
Maturities:
Commercial and
agricultural ....... $22,427 $10,263 $1,620 $34,310
Real estate --
construction ....... 17,748 -- -- 17,748
---------- ------------ -------- ---------
Total .............. $40,175 $10,263 $1,620 $52,058
========== ============ ======== =========
Type:
Fixed rate loans ..... $ 240 $10,263 $1,620 $12,123
Floating rate loans .. 39,935 -- -- 39,935
---------- ------------ -------- ---------
Total .............. $40,175 $10,263 $1,620 $52,058
========== ============ ======== =========
December 31, 1995
-------------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
---------- ------------ ------- ----------
(in thousands)
Maturities:
Commercial and
agricultural ....... $ 22,449 $ 9,888 $ 881 $33,218
Real estate --
construction ....... 19,353 -- -- 19,353
---------- ------------ ------- ----------
Total .............. $ 41,802 $ 9,888 $ 881 $52,571
========== ============ ======= ==========
Type:
Fixed rate loans ..... $ 770 $ 9,888 $ 881 $11,539
Floating rate loans .. 41,032 -- -- 41,032
---------- ------------ ------- ----------
Total .............. $ 41,802 $ 9,888 $ 881 $52,571
========== ============ ======= ==========
The loan maturity table is based upon original loan terms and is not
adjusted for "rollovers." In the ordinary course of business, loans maturing
within one year may be renewed, in whole or in part, as to principal amount,
at interest rates prevailing at the date of renewal. As of March 31, 1996,
there was no concentration of loans to any one type of industry exceeding 10%
of total loans, except for loans to non-residential builder operators (which
represented 12.3% of total loans), nor were there any loans classified as
highly leveraged transactions.
The majority of the Company's business is with customers located within
Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount
of real estate are subject to changes in the region's real estate market.
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate
owned. In accordance with the adoption of SFAS No. 114, loans previously
classified as insubstance foreclosures have been reclassified to
nonperforming loans for all periods presented.
Nonperforming loans are composed of (1) loans on a nonaccrual basis, (2)
loans which are contractually past due 90 days or more as to interest and
principal payments but have not been classified as nonaccrual and (3) loans
whose terms have been restructured to provide a reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower.
The Company's policy with regard to nonaccrual loans varies by the type of
loan involved. Generally, commercial loans are placed on a nonaccrual status
when they are 90 days past due unless they are well secured and in the
process of collection or, regardless of the past due status of the loan, when
management determines that the complete recovery of principal and interest is
in doubt. Consumer loans are generally charged off after they
28
<PAGE>
become 90 days past due. Mortgage loans are not generally placed on a
nonaccrual basis unless the value of the real estate has deteriorated to the
point that a potential loss of principal or interest exists. Subsequent
payments are credited to income only if collection of principal is not in
doubt.
The Corporation adopted the provisions of SFAS No. 114 and SFAS No. 118
effective January 1, 1995. All loans receivable have been evaluated for
collectibility under the provisions of these statements.
The Corporation has defined the population of impaired loans to be all
nonaccrual commercial loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value
of the collateral or the present value of the loan's expected cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, including residential mortgage and consumer loans, are
specifically excluded from the impaired loan portfolio.
The recorded investment in loans receivable for which an impairment has
been recognized and the related allowance for loan losses were $1,320,000 and
$175,000, respectively, at March 31, 1996, and $1,291,000 and $184,000,
respectively at December 31, 1995, of the total investment in impaired loans
of March 31, 1996, $1,280,000 had related allowance for credit losses of
$175,000 and the remaining $40,000 had no related allowance for credit
losses. The average recorded investment in impaired loans during 1995 was
$1,322,000. There was no interest income recognized on impaired loans in
1995 or for the quarter ended March 31, 1996.
At March 31, 1996 nonperforming loans, totaled $2,413,000. Nonperforming
loans totaled $2,819,000 at December 31, 1995, an increase of 36.4% or
$753,000 from the $2,066,000 amount reported at December 31, 1994. The
increase is primarily attributable to the increase in the Company's loan
portfolio.
The following table sets forth nonperforming assets and risk elements in
the Company's loan portfolio by type for the periods indicated.
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- -------- -------- -------- -------- --------
(unaudited) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial and agricultural $ -- $ -- $ -- $ -- $ 34 $ 101
Real estate -- mortgage .. 1,728 1,395 1,203 1,764 2,651 3,037
Real estate -- construction 66 142 521 480 1,514 2,798
Consumer ................. -- 30 -- 17 17 65
----------- -------- -------- -------- -------- --------
Total .................. $1,794 $1,567 $1,724 $2,261 $4,216 $6,001
----------- -------- -------- -------- -------- --------
Restructured Loan ............. $ -- $ 612 $ -- $ -- $ -- --
Loans 90 days or more past due:
Commercial and agricultural 2 -- -- -- 1 95
Real estate -- mortgage .. 586 588 326 209 388 1,644
Real estate -- construction -- -- -- -- -- --
Consumer ................. 31 52 16 3 14 151
----------- -------- -------- -------- -------- --------
Total .................. 619 640 342 212 403 1,890
----------- -------- -------- -------- -------- --------
Total nonperforming loans ..... 2,413 2,819 2,066 2,473 4,619 7,891
----------- -------- -------- -------- -------- --------
Other real estate ........ 659 625 314 1,393 1,107 1,229
----------- -------- -------- -------- -------- --------
Total nonperforming assets .... $3,072 $3,444 $2,380 $3,866 $5,726 $9,120
=========== ======== ======== ======== ======== ========
</TABLE>
Total nonperforming assets decreased to $3,072,000 at March 31, 1996
compared to $3,444,000 at year end 1995. Nonperforming assets as a percentage
of total loans were 1.17% at March 31, 1996. The decline in nonperforming
assets is reflective of an active strategy to reduce those assets and improve
asset quality. Management remains committed to improving asset quality.
Nonperforming assets increased $1,064,000, or 44.7%, to $3,444,000 at
December 31, 1995 compared to $2,380,000 at December 31, 1994. The increase
in nonperforming assets is primarily attributable to one loan
29
<PAGE>
totaling approximately $1,000,000 moved into nonaccrual status in 1995. This
loan is currently in the process of being restructured. Nonperforming assets
represented 0.85% of total assets at December 31, 1995 and 1994.
Nonaccrual loans were $1,794,000, or 0.7% of total loans, at March 31,
1996. Nonaccrual loans were $1,567,000, or 0.6% of total loans, at December
31, 1995, a decrease of 9.1% from $1,724,000, or 0.9% of total loans, at
December 31, 1994. Had interest income on nonaccrual loans at March 31, 1996
and 1995 and December 31 of each year been paid in the manner and at the rate
and time contracted at the time that each loan was made, the Company would
have earned additional interest income of $35,000 and $45,000 during the
three months ended March 31, 1996 and 1995, respectively, and $143,000,
$183,000 and $226,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Loans that were 90 days or more past due but still accruing interest at
March 31, 1996 totaled $619,000, or 0.2% of total loans. At December 31,
1995, loans that were 90 days or more past due but still accruing interest
totaled $640,000, or 0.3% of total loans, compared to $342,000, or 0.2% of
total loans, at December 31, 1994. Management's decision to accrue income on
these loans was based on the level of collateral and the status of collection
efforts.
The Company's restructured loan totaled $612,000 at December 31, 1995.
Prior to 1995 there were no restructured loans for the years presented. This
represents one loan, which is being paid in compliance with restructured
terms and conditions.
At March 31, 1996 Other Real Estate (O.R.E.) totaled $659,000, $625,000 at
December 31, 1995 and $314,000 at December 31, 1994. O.R.E. represented 0.3%
of total loans at March 31, 1996 and 0.3% of total loans at December 31, 1995
and is reflective of an active strategy to liquidate these assets and
re-employ the proceeds in the Company's loan portfolio.
30
<PAGE>
ALLOWANCE FOR LOAN LOSSES
Management utilizes a systematic and documented allowance adequacy
methodology for loan losses that requires specific allowance assessment for
all loans including residential real estate mortgage and consumer loans. This
methodology assigns reserves based upon credit risk ratings for specific
loans and general reserves for all other loans. The general reserves are
based on various factors including historical performance and the current
economic environment. On a quarterly basis, management reviews all criticized
credits as reported by the loan review officer and monitors weekly all
commercial loan and mortgage, residential and consumer delinquencies.
Management continually reviews the process utilized to determine the adequacy
of the allowance for loan losses. The following table presents, for the
periods indicated, an analysis of the allowance for loan losses and other
related data.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year ended December 31,
--------------------- --------------------------------------------------------
(unaudited)
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance balance, beginning of period ... $ 3,677 $ 2,912 $ 2,912 $ 2,703 $ 2,940 $ 3,310 $ 1,812
Charge offs:
Commercial, financial and agriculture . -- -- -- (47) -- (291) (1,567)
Real estate -- mortgage ............. -- -- (26) (51) (222) (42) (175)
Real estate -- construction ......... (34) -- (30) (25) (45) (270) --
Consumer ............................ (62) (24) (153) (83) (84) (101) (204)
-------- -------- ------- -------- -------- ------- --------
Total charge offs ................. $ (96) $ (24) $ (209) $ (206) $ (351) $ (704) $ (1,946)
======== ======== ======= ======== ======== ======= ========
Recoveries:
Commercial, financial and agriculture . $ -- $ -- $ -- $ 20 $ 21 $ 135 $ 23
Real estate -- mortgage ............. -- 37 64 43 37 20 5
Real estate -- construction ......... -- -- -- -- -- -- --
Consumer ............................ 12 16 45 47 56 129 177
-------- -------- ------- -------- -------- ------- --------
Total recoveries .................. 12 53 109 110 114 284 205
-------- -------- ------- -------- -------- ------- --------
Net recoveries (charge offs) ............. (84) 29 (100) (96) (237) (420) (1,741)
Provision charged to operations .......... 265 180 865 305 -- 50 3,239
-------- -------- ------- -------- -------- ------- --------
Allowance balance, end of period ......... $ 3,858 $ 3,121 $ 3,677 $ 2,912 $ 2,703 $ 2,940 $ 3,310
======== ======== ======= ======== ======== ======= ========
Loans, end of period ..................... $262,918 $216,297 $245,054 $196,910 $134,983 $106,993 $ 93,174
Average loans outstanding ................ $256,001 $205,914 $221,232 $157,411 $117,671 $ 93,245 $103,590
Ratio of allowance for loan losses to total
loans, end of period ................... 1.47% 1.44% 1.50% 1.48% 2.00% 2.75% 3.55%
Ratio of net charge offs (recoveries) to average
loans outstanding ...................... 0.03% (0.01)% 0.05% 0.06% 0.20% 0.45% 1.68%
Nonperforming loans to total loans ....... 0.92% 0.98% 1.15% 1.05% 1.83% 4.32% 8.47%
Nonperforming assets to total loans and other
real estate owned (period end) ......... 1.17% 1.12% 1.40% 1.21% 2.83% 5.30% 9.66%
Ratio of allowance for loan losses to
nonperforming assets, end of period .... 125.59% 128.70% 106.77% 122.35% 69.92% 51.34% 36.29%
Ratio of allowance for loan losses to
nonperforming loans, end of period ..... 159.88% 147.98% 130.44% 140.95% 109.30% 63.65% 41.95%
</TABLE>
The Company provides for possible loan losses by a charge to current
operations to maintain the allowance for loan losses at an adequate level
determined according to management's documented allowance adequacy
methodology. The provision for loan losses for the three months ended March
31, 1996 was $265,000, reflective of the continued substantial growth in the
loan portfolio. The provision for loan losses for 1995 was $865,000. This
compares to a provision of $305,000 in 1994 and no provision in 1993. It is
management's assessment that the allowance for possible loan losses is
adequate in relation to credit risk exposure levels.
The allowance for loan losses increased to $3,858,000, or 1.47% of total
loans and 125.6% of nonperforming assets, at March 31, 1996. At December 31,
1995, the allowance for loan losses totaled $3,677,000, an increase of
$765,000, or 26.3%, from $2,912,000, at December 31, 1994. The ratio of
allowance for loan losses to total loans was 1.50% and 1.48% at December 31,
1995 and 1994, respectively. Another measure of the allowance for loan losses
is the ratio of the allowance to total nonperforming loans. This ratio was
159.9% at March 31, 1996, 130.4% at December 31, 1995, and 140.9% at December
31, 1994.
31
<PAGE>
The Company had net charge offs of $84,000 for the three months ended
March 31, 1996. The Company's gross charge offs in 1995 totaled $209,000,
compared with $206,000 in 1994 and $351,000 in 1993. Losses on loans and
loans which are determined to be uncollectible are charged against the
allowance and subsequent recoveries, if any, are credited to it. The
Company's gross recoveries totaled $109,000 in 1995 compared with $110,000 in
1994 and $114,000 in 1993 as a result of collection efforts. The balance of
the allowance for possible loan losses is determined by an overall analysis
of the loan portfolio and reflects an amount which, in management's judgment,
is adequate to provide for potential loan losses.
Management has established the necessary steps to identify potential
credit problems in its loan portfolio by strengthening lending policies and
improving loan and credit administration. Management reviews all criticized
loans on a quarterly basis. Allocations to the allowance for loan losses,
both specific and general, are determined after this review. Loans are
classified as "satisfactory, special mention, substandard, doubtful and
loss." Loan classifications are based on internal reviews and evaluations
performed by the lending staff. These evaluations are, in turn, examined by
the Company's internal loan review officer.
The following tables describe the allocation for loan losses among various
categories of loans and certain other information as of the dates indicated.
The allocation is made for analytical purposes and is not necessarily
indicative of the categories in which future loan losses may occur. The total
allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995 December 31, 1994
---------------------------------- ---------------------------------- -------------------------------
Percent of Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
------- ---------- ------------ ------- ---------- ----------- ------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural $ 653 16.9% 13.0% $ 983 26.7% 13.6% $1,137 39.0% 13.5%
Real estate --
mortgage ... 2,186 56.7 73.2 1,816 49.4 70.6 1,152 39.6 70.4
Real estate --
construction 784 20.3 6.8 664 18.1 7.9 398 13.7 7.9
Consumer ...... 156 4.1 4.4 132 3.6 5.1 141 4.8 5.6
Other loans ... 79 2.0 2.6 82 2.2 2.8 84 2.9 2.6
------ ----- ----- ------ ----- ----- ------ ----- -----
Totals ....... $3,858 100.0% 100.0% $3,677 100.0% 100.0% $2,912 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
December 31, 1993 December 31, 1992 December 31, 1991
---------------------------------- ---------------------------------- -------------------------------
Percent of Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
------- ---------- ------------ ------- ---------- ----------- ------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial,
financial and
agricultural $ 933 34.5% 13.1% $1,002 34.1% 14.1% $ 351 10.6% 1.8%
Real estate --
mortgage ... 1,415 52.3 72.5 1,443 49.1 75.2 1,712 51.7 84.2
Real estate --
construction 237 8.8 7.2 204 6.9 4.0 1,112 33.6 6.5
Consumer ...... 86 3.2 5.5 73 2.5 6.0 99 3.0 6.7
Other loans ... 32 1.2 1.7 218 7.4 0.7 36 1.1 0.8
------ ----- ----- ------ ----- ----- ------ ----- -----
Totals ....... $2,703 100.0% 100.0% $2,940 100.0% 100.0% $3,310 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
</TABLE>
32
<PAGE>
DEPOSITS
The Company's deposit base is the principal source of funds supporting
interest earning assets. The Company offers a full range of deposit products,
including demand deposits, savings deposits, insured money market accounts
and certificates of deposit. The Company's overall philosophy of building and
maintaining long-term customer relationships is the key to further expanding
the Company's deposit base, which, in turn, presents opportunities for the
Company to cross-sell its services.
Total deposits amounted to $310,482,000 at March 31, 1996 compared to
$302,972,000 at December 31, 1995, an increase of 2.5%. The amount at
December 31, 1995 represented an increase of 16.8% from $259,296,000 at
December 31, 1994. In 1995, the Company's deposit base grew primarily through
the competitive pricing of certificates of deposit to help fund loan growth.
Growth in the deposit base through March 31, 1996, continued in certificates
of deposit and premium money market accounts, both higher cost funding
sources.
The following table provides information concerning average rates and
average balances of deposits for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months Ended --------------------------------------------------------------------------
March 31, 1996 1995 1994 1993
------------------- ----------------------- ---------------------- -----------------------
(Dollars in thousands)
% of % of % of % of
Balance Rate Total Balance Rate Total Balance Rate Total Balance Rate Total
------- ---- ----- ------- ---- ----- ------- ---- ----- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest
bearing demand
deposits ....... $ 46,390 -- % 15.19% $ 42,321 -- % 14.88% $ 36,634 -- % 16.43% $ 31,082 -- % 15.84%
Interest bearing
demand deposits . 21,759 2.61 7.12 21,236 2.77 7.46 16,346 2.01 7.33 14,827 2.01 7.55
Savings deposits . 107,481 3.09 35.20 101,793 3.46 35.78 96,893 2.92 43.45 90,351 2.80 46.03
Time deposits ... 129,742 5.61 42.49 119,158 5.60 41.88 73,103 4.25 32.79 60,029 4.17 30.58
-------- ---- ------ -------- ---- ------ -------- ---- ------ -------- ---- ------
Total .......... $305,372 3.66% 100.00% $284,508 3.79% 100.00% $222,976 2.81% 100.00% $196,289 2.72% 100.00%
======== ==== ====== ======== ==== ====== ======== ==== ====== ======== ==== ======
</TABLE>
The average balance of non-interest bearing demand deposits for the three
months ended March 31, 1996 was $46,390,000, an increase of $4,069,000, or
9.6%, from $42,321,000 during 1995. The 1995 amount represented an increase
of $5,687,000, or 15.5%, from $36,634,000 during 1994. Non-interest bearing
demand deposits represent a stable, interest free source of funds. The
increase in demand deposits is a contributing factor in the growth of net
interest income.
Average interest bearing demand, savings and time deposits increased 2.5%,
5.6% and 8.9%, respectively, from December 31, 1995 to March 31, 1996.
Average interest bearing demand, savings and time deposits increased 29.9%,
5.1% and 63.0%, respectively, from 1994 to 1995.
Total average time deposits, which consists of certificates of deposit and
individual retirement accounts, increased $10,584,000, or 8.9%, to
$129,742,000 for the three months ended March 31, 1996 as compared to
$119,158,000 in 1995. Total average time deposits increased $46,055,000 to
$119,158,000 from $73,103,000 in 1994. The "Always Win CD" was introduced in
early 1995 to help fund loan growth, particularly commercial mortgages.
Competitively priced, this product offered a two or three year maturity with
automatic increases in the interest rate at the midpoint to maturity if the
current rate is higher. This product accumulated approximately $34,400,000 in
funds by year-end 1995.
The average rate paid on the Company's deposits decreased to 3.66% at
March 31, 1996. The average rate paid on the Company's deposit balances in
1995 was 3.79%, a 34.9% increase from the 2.81% average rate for 1994.
Reflective of 1995's higher interest rate environment, depositors shifted
their funds to higher-yielding certificates of deposit and premium money
market accounts, both higher cost funding sources, resulting in the increase
in the average rate paid on deposits.
33
<PAGE>
The following table details amounts and maturities for certificates of
deposit of $100,000 or more for the periods indicated:
March 31, December 31,
---------- -----------------------
1996 1995 1994
---------- --------- ---------
(in thousands)
Maturity Range:
Within three months .......... $ 3,473 $ 3,095 $13,178
After three but within six months 2,658 3,323 1,232
After six but within twelve months 5,820 5,890 6,029
After twelve months .......... 3,161 2,713 1,735
---------- --------- ---------
Total ...................... $15,112 $15,021 $22,174
========== ========= =========
Certificates of deposit of $100,000 or more totaled $15,112,000 or 4.9% of
deposits, at March 31, 1996 compared to $15,021,000, or 5.0% of deposits, at
December 31, 1995 and $22,174,000, or 8.6% of deposits, at December 31, 1994.
Approximately $11,000,000 of the growth experienced in 1994 was in short term
certificates of deposit issued to a local municipality in the fourth quarter
of 1994. From time to time the Company will bid on short term municipal
certificates of deposit for liquidity purposes.
The Company has not purchased deposits through wholesale deposit brokers,
preferring to rely on more stable core deposits to support growth. Core
deposits, which exclude deposits of $100,000 or more, represented 95.1% of
total deposits at March 31, 1996, 95.0% of total deposits at December 31,
1995 and 91.4% at December 31, 1994.
BORROWED FUNDS
Borrowed funds consist of securities sold under agreements to repurchase,
Federal Home Loan Bank of New York (FHLB) advances, Federal funds purchased,
treasury tax and loan deposits and other forms of short-term borrowings.
Management utilizes, from time to time, two unsecured Federal funds lines of
credit with two of its correspondent banks for daily funding needs.
Borrowed funds totaled $75,270,000 at March 31, 1996 compared to
$65,221,000 at December 31, 1995 and 1,215,000 at December 31, 1994. The
growth in the first quarter of 1996 was due to the increase of $4,225,000 in
repurchase agreements and an additional $5,000,000 in FHLB advances to
strengthen short term liquidity and support core deposits in funding balance
sheet growth. At March 31, 1996 the Company had $15,000,000 outstanding in
FHLB advances all with a maturity of less than 1 year. The Company used FHLB
advances in 1995 in order to meet particularly strong commercial loan
demands. Repurchase agreements totaling approximately $55,000,000 during 1995
were used as part of a strategy to increase net interest income through the
investment portfolio.
Borrowed funds averaged $33,339,000 in 1995, an increase of $31,091,000
from the average reported in 1994 of $2,248,000. At year-end 1995 there was
$10,000,000 in outstanding borrowings with the FHLB and no outstanding
borrowings from the Company's correspondents. Management will continue to
strategically utilize borrowed funds to meet short-term liquidity needs and
as an additional source of funding for the loan and investment portfolios.
LIQUIDITY
The Company has an Asset/Liability Committee (ALCO) whose function is to
monitor and coordinate all activities relating to the maintenance of
liquidity and protection of net interest income from fluctuations in market
interest rates.
Liquidity management refers to the Company's ability to support asset
growth while satisfying the borrowing needs and deposit withdrawal
requirements of customers. In addition to maintaining liquid assets, factors
such as capital position, profitability, asset quality and availability of
funding affect a bank's ability to meet its liquidity needs. Principal
sources of liquidity are deposit generation, maturities and repayment of
loans, Federal funds sold and securities available for sale.
34
<PAGE>
The Company has the availability to borrow up to $16,000,000 from the FHLB
through its line of credit program. In addition, the bank is eligible to
borrow up to 30% of assets under the FHLB advance program subject to FHLB
stock level requirements, collateral requirements and individual advance
proposals based on FHLB credit standards. Yardville also has the ability to
borrow at the Federal Reserve discount window along with agreements to use
two unsecured federal funds lines of credit with two of its correspondent
banks for daily funding needs. Management's strategy, however, is to further
build the bank's core deposit base to fund asset growth and use borrowed
funds to meet short term liquidity needs and as an additional source of
funding for the loan and investment portfolios.
At March 31, 1996 and December 31, 1995, the Company had a total of
$57,967,000 and $58,554,000, or 13.7% and 16.7%, respectively, of total
assets (excluding securities purchased utilizing repurchase agreements) in
cash and cash equivalents, interest bearing deposits, and marketable
government and government agency securities available for sale. This compares
to a total of $35,099,000 or 17.5% of its assets, in such assets at December
31, 1994. Securities provide cash flow through maturities and periodic
repayments of principal. The available for sale portfolio is of high credit
quality which enhances marketability and therefore liquidity. The Company's
security credit quality remained a source of strength, as government and
agency obligations, with their about triple A rating represented 84.9% of the
entire securities portfolio (excluding securities purchased utilizing
repurchase agreements) at March 31, 1996. These assets represent the
Company's primary source of liquidity.
The Company's liquidity position is enhanced by a stable core deposit
base, built on management's philosophy of establishing and maintaining
long-term customer relationships, which totaled 95.1% of total deposits at
March 31, 1996, 95.0% of total deposits in 1995, and 91.4% of total deposits
in 1994. There were approximately $22,000,000 in lines of credit available
for general corporate purposes, at March 31, 1996.
FEDERAL FUNDS
At March 31, 1996 Federal funds sold totaled $7,470,000, an increase of
$4,675,000 as compared to $2,795,000 at December 31, 1995. Federal funds sold
levels reflect management's desire to maintain adequate short term liquidity
funds.
INTEREST RATE SENSITIVITY
The objectives of interest rate risk management are to reduce, minimize,
and, to the degree possible, control the effect of interest rate fluctuations
on net interest income. The ALCO manages the interest rate sensitivity or
repricing characteristics of the Company's assets and liabilities.
A traditional form of asset/liability management is the static gap report.
The static gap categorizes interest bearing assets and liabilities by
repricing or maturity characteristics. These static measurements do not
reflect the results of any projected activity. On a cumulative basis, as of
March 31, 1996 and December 31, 1995, more of the Company's liabilities than
assets repriced in the three month, six month and one year periods.
35
<PAGE>
As shown below interest rate sensitivity to interest rate fluctuations is
measured in a number of time frames.
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------------------------------------------------------------------------
After six After
Within After three months one year
three months but but within but within After five Non-interest
months within six months one year five years years sensitive(1) Total
--------- ----------------- ------------ ------------ ---------- ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and interest
bearing deposits ............... $ 11,624 $ -- $ -- $ -- $ -- $ -- $ 11,624
Available for sale securities(2) . 14,665 2,169 16,260 11,700 44,356 2,524 91,674
Investment securities ........... -- -- -- 20,482 14,094 -- 34,576
Loans, net of unearned income ... 102,852 3,803 11,076 107,202 36,326 1,659 262,918
-------- -------- -------- -------- ------- ------- --------
Total interest earning assets .. $129,141 $ 5,972 $ 27,336 $139,384 $94,776 $ 4,183 $400,792
======== ======== ======== ======== ======= ======= ========
INTEREST BEARING SOURCES:
Portion of non-interest bearing
funding sources used to fund
earning assets ................. $ -- $ -- $ -- $ -- $ -- 64,071 $ 64,071
Savings and interest checking ... 131,618 -- -- -- -- -- 131,618
Certificates of deposit of $100,000
or more ........................ 3,473 2,658 5,820 3,161 -- -- 15,112
Other time deposits ............. 20,963 23,974 16,854 52,843 87 -- 114,721
Borrowed funds .................. 34,470 5,000 12,000 23,800 -- -- 75,270
-------- -------- -------- -------- ------- ------- --------
Total funding sources .......... $190,524 $ 31,632 $ 34,674 $ 79,804 $ 87 $ 64,071 $400,792
======== ======== ======== ======== ======= ======= ========
Interest rate sensitivity gap ... $(61,383) $(25,660) $ (7,338) $ 59,580 $94,689 $(59,888)
Ratio of rate sensitive assets to
rate sensitive liabilities ..... 0.68 0.19 0.79 1.75 -- 0.07
Cumulative interest rate sensitivity
gap ............................ $(61,383) $(87,043) $(94,381) $(34,801) $59,888 $ --
Ratio of cumulative rate sensitive
assets to rate sensitive
liabilities .................... 0.68 0.61 0.63 0.90 1.18 1.00
</TABLE>
- - ------
(1) Non-interest sensitive includes assets and liabilities that do not earn
or pay interest, such as nonaccrual loans, overdrafts and demand
deposits.
(2) Available for sale securities are included in the above table at amortized
cost.
Note: No effect is given to prepayments in the amounts included above.
36
<PAGE>
At March 31, 1996, the Company's twelve month cumulative gap position was
negative $94,381,000. Over the next twelve months, $94,381,000 more
liabilities are eligible to reprice than assets, indicating a liability
sensitive position. A liability sensitive gap may indicate an exposure to
earnings if interest rates increase. However, the Company's deposits that
reprice within one year are predominantly core savings, NOW and money market
deposits that are bank administered. Historically, these accounts have been
much less volatile than the prime and Fed funds rates, which to a large
degree effect earning asset yields. Therefore, management believes the gap
position may overstate the actual risk to earnings over the next twelve month
period.
To analyze the potential future effect on earnings of its market sensitive
assets and less rate sensitive core deposit accounts, management utilizes a
simulation model to project levels of net interest income under various
interest rate environments and balance sheet structures. The "base case"
scenario uses the current balance sheet strategy and tests the income effects
of flat interest rates, rising rates of 3% and falling rates of 3% over a
twelve month period. Management has established guidelines to limit the
amount that net interest income can vary within these rate ranges. An
analysis of the Company's gap position at March 31, 1996 indicates that the
Company's net interest income will not be materially negatively affected
under this base case scenario.
The use of simulation models assists management in its continuing effort
to develop strategies to produce consistent earnings growth in changing
interest rate environments.
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------------------------------
After six After
Within After three months one year
three months but but within but within After five Non-interest
months within six months one year five years years sensitive(1) Total
--------- ----------------- ------------ ------------ ---------- ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and interest
bearing deposits ............... $ 3,828 $ -- $ -- $ -- $ -- $ -- $ 3,828
Available for sale securities(2) . 50,625 5,123 2,663 10,973 27,136 1,772 98,292
Investment securities ........... -- -- -- 21,026 14,358 -- 35,384
Loans, net of unearned income ... 101,957 5,462 10,162 99,478 26,497 1,498 245,054
-------- -------- -------- -------- ------- ------- --------
Total interest-earning assets .. $156,410 $ 10,585 $ 12,825 $131,477 $67,991 $ 3,270 $382,558
======== ======== ======== ======== ======= ======= ========
FUNDING SOURCES:
Portion of non-interest bearing
funding sources used to fund earning
assets ......................... -- -- -- -- -- 61,047 61,047
Savings and interest checking ... 127,490 -- -- -- -- -- 127,490
Certificates of deposit of $100,000
or more ........................ 3,095 3,323 5,890 2,713 -- -- 15,021
Other time deposits ............. 19,700 20,373 21,221 52,410 75 -- 113,779
Other borrowed funds ............ 29,421 -- 17,000 18,800 -- -- 65,221
-------- -------- -------- -------- ------- ------- --------
Total funding sources .......... $179,706 $ 23,696 $ 44,111 $ 73,923 $ 75 $ 61,047 $382,558
======== ======== ======== ======== ======= ======= ========
Interest rate sensitivity gap ... $(23,296) $(13,111) $(31,286) $ 57,554 $67,916 $(57,777)
Ratio of rate sensitive assets to rate
sensitive liabilities .......... 0.87 0.45 0.29 1.78 -- 0.05
Cumulative interest rate sensitivity
gap ............................ $(23,296) $(36,407) $(67,693) $(10,139) $57,777 $ --
Ratio of cumulative rate sensitive
assets to rate sensitive
liabilities .................... 0.87 0.82 0.73 0.97 1.18 1.00
</TABLE>
- - ------
(1) Non-interest sensitive includes assets and liabilities that do not earn
or pay interest, such as nonaccrual loans, overdrafts and demand
deposits.
(2) Available for sale securities are included in the above table at amortized
cost.
Note: No effect is given to prepayments in the amounts included above.
37
<PAGE>
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Total stockholders' equity increased $646,000, or 2.0%, to $32,363,000 at
March 31, 1996 from $31,717,000 at December 31, 1995. This increase resulted
primarily from earnings of $992,000 (less dividends of $258,000).
Warrants to purchase 526,950 shares of Common Stock were outstanding at
March 31, 1996. 8,259 shares of Common Stock were issued upon exercise of
Warrants during the first quarter. The exercise price of the Warrants is
calculated at 120% of consolidated book value ($16.21 until June 13, 1996) as
defined and as determined as of the calendar quarter immediately preceding
the notice of exercise. All Warrants will expire on June 13, 1996.
Stockholders' equity at December 31, 1995 totaled $31,717,000 compared to
$18,451,000 at December 31, 1994. This represents an increase of $13,266,000
or 71.9%. This increase resulted from (i) earnings of $3,403,000 (less
dividend payments of $738,000) and a positive equity adjustment of $1,198,000
for the unrealized gain on securities available for sale, (ii) net proceeds
of $7,918,000 for the Company's underwritten public offering, (iii) proceeds
of $202,000 from exercised options and (iv) proceeds of $1,283,000 from
warrants exercised that were issued in connection with the Company's 1993
Private Placement Capital Offering and 1994 Shareholders' Rights Offering.
Coinciding with the Company's underwritten public offering on June 14,
1995, the Common Stock began trading in the NASDAQ National Market under the
symbol "YANB," increasing liquidity for the Company's stockholders.
As a result of the Company's performance, the common stock cash dividend
was increased from $0.09 a share to $0.10 per share for the last two
quarterly dividend payments in 1995 and to $0.11 for the two dividend
payments made in 1996.
The Company is subject to minimum risk-based and leverage capital
guidelines issued by the Federal Reserve Board and Comptroller of the
Currency. The measurement of risk-based capital takes into account the credit
risk of both balance sheet assets and off-balance sheet exposures. These
guidelines require minimum risk-based capital ratios of 4% for Tier 1
capital and 8% for total capital (Tier 1 plus Tier 2). In addition, the
current minimum regulatory guideline for the Tier 1 leverage ratio is 3.0%.
The Company continues to meet the regulatory requirements as shown by the
chart below for the periods indicated:
December 31,
------------------------------
March 31, 1996 1995 1994 1993
--------------- ------ ------ ------
Tier 1 leverage ratio .... 7.8% 7.8% 7.0% 6.4%
Tier 1 risk-based ........ 11.4% 12.0% 9.6% 9.4%
Total risk-based ......... 12.7% 13.2% 10.8% 10.6%
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five capital level designations ranging from "well capitalized"
to "critically undercapitalized." A bank is considered "well capitalized" if
it has minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
See Supervision and Regulation -- Capital Rules
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of ", was issued by the FASB in March 1995. SFAS 121 requires
that a review for impairment be performed whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not
be recoverable. In performing the review for
38
<PAGE>
recoverability, the Corporation should estimate the future undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition. SFAS 121 is effective for fiscal years beginning after December
15, 1995. Management believes that the implementation of SFAS 121 will not
have a material impact on the consolidated financial statements of the
Corporation.
Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
"Accounting for Mortgage Servicing Rights," was issued by the FASB in May
1995. This statement amends SFAS 65, "Accounting for Certain Mortgage Banking
Activities." This statement eliminates the accounting distinction between
originated and purchased mortgage servicing rights. In addition, guidance is
provided for a consistent structure in measuring impairment of mortgage
servicing rights. SFAS 122 is effective for fiscal years beginning after
December 15, 1995. Management believes that the implementation of SFAS 122
will not have a material impact on the consolidated financial statements of
the Corporation.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," was issued by the FASB in October
1995. SFAS 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion 25, Accounting for Stock Issued to
Employees. Entities electing to remain with accounting in Opinion 25 must
make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in this Statement has been
applied. SFAS 123 is effective for fiscal years beginning after December 15,
1995. Management anticipates that it will elect to remain with the accounting
of Opinion 25 for the employee and director stock option plans and provide
the pro forma disclosures required by SFAS 123.
39
<PAGE>
MANAGEMENT
The Company's Board of Directors presently consists of twelve directors,
one-third (as nearly as practicable) of whom, under the Company's Restated
Certificate of Incorporation and By-Laws, are to be elected annually to serve
for a term of three years.
The following table sets forth the name, age and term of office of each
director and executive officer of the Company and the Bank and the business
experience of these individuals during the past five years. The executive
officers are appointed to their respective offices annually. All directors of
the Company also serve as directors of the Bank. Unless otherwise indicated,
the principal occupation listed for a director has been his principal
occupation for more than the past five years.
<TABLE>
<CAPTION>
Director or Year Term
Name, Age and Principal Occupations Officer as Director
Position with Company During Past Five Years Since Expires
------------------------------- --------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
C. West Ayres, 68
Director ..................... President, Ayres Pontiac-Cadillac Company, Inc.
(car sales) 1978 1999
Jay G. Destribats, 61
Chairman ..................... Partner, Destribats, Campbell, DeSantis, Magee
and O'Donnell (counselors at law) 1990 1999
Gilbert W. Lugossy, 60
Director ..................... Member, New Jersey State Parole Board (April 1990
to present); formerly, Mercer County, New Jersey
Sheriff (1977-1990) 1991 1999
Weldon J. McDaniel, Jr., 69
Director (1) ................. Technical Assistant-Engineering, USX Corporation
(March 1993 to present); formerly Designer, Orbital
Engineering, Inc. (March 1990 to March 1993) 1986 1999
Lorraine Buklad, 60
Director ..................... Funeral Director, President of Buklad Memorial
Homes, Hamilton Township and Yardville, New Jersey 1988 1997
Edward M. Hendrickson, 84
Director ..................... Retired for more than five years; formerly
self-employed farmer 1961 1997
William J. Steiner, Jr., 71
Director .................... Retired for more than five years; formerly Educator
with Pemberton Township Board of Education 1985 1997
John C. Stewart, 85
Vice-Chairman (1) ............ Retired for more than five years; formerly
self-employed real estate developer and insurance
broker 1966 1997
Anthony M. Giampetro, 59
Director ..................... Physician, private practice 1994 1998
</TABLE>
- - ------
(1) John C. Stewart is Weldon J. McDaniel, Jr.'s father-in-law.
40
<PAGE>
<TABLE>
<CAPTION>
Director or Year Term
Name, Age and Principal Occupations Officer as Director
Position with Company During Past Five Years Since Expires
------------------------------- --------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Elbert G. Basolis, Jr., 34 President, CFO and Owner of Aqua Control Inc.; 1996 1998
Executive Vice President of Garrison Enterprises,
Inc.; Vice President, CFO and owner of South Jersey
Wiping Cloth Co.; CFO and owner of Trans Continental
Trading
Patrick M. Ryan, 51
President and Chief President and Chief Executive Officer of the Company 1992 1998
Executive Officer ............ and the Bank, October 1992 to present; employed
by the Bank since November 7, 1991; previously
a bank officer with Howard Savings Bank (April
1989 to October 1991)
F. Kevin Tylus, 41
Director ..................... Vice-President and CEO for Prudential HealthCare 1992 1998
Group (July 1995 to present) Formerly Vice President
and Chief Operating Officer for Eastern Mercy Health
System (September 1992 to July 1995); formerly,
Management Consulting partner with Deloitte &
Touche (November 1984 to September 1992)
Stephen F. Carman, 39
Secretary and Treasurer ...... Secretary and Treasurer of the Company and Executive 1992 --
Vice President and Chief Financial Officer of the
Bank (December 1992 to present); employed by the
Bank since February 1979
James F. Doran, 52
First Senior Vice President .. First Senior Vice President and Senior Loan Officer 1992 --
of the Bank (December 1994 to present); officer
of the Bank (December 1992 to December 1994); Vice
President of Howard Savings Bank (April 1989 to
December 1992)
Frank Durand, III, 45
Senior Vice President ........ Senior Vice President and Bank Administrator 1988 --
Richard A. Kauffman, 49
Senior Vice President ........ Senior Vice President and Controller of the Bank 1989 --
(March 1995 to present); Senior Vice President
and Auditor of the Bank (April 1991 to March 1995);
Senior Vice President of Operations of the Bank
(January 1989 to April 1991)
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Director or Year Term
Name, Age and Principal Occupations Officer as Director
Position with Company During Past Five Years Since Expires
------------------------------- --------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Mary C. O'Donnell, 48
First Senior Vice President .. First Senior Vice President, Credit 1992 --
Administration, of the Bank (September 1992 to
present); Vice President, Credit Administration,
of the Bank (November 1991 to September 1992);
Vice President, First Fidelity Bank (May 1991 to
September 1991)
</TABLE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors' Compensation
For fiscal year 1995, Jay G. Destribats was paid $90,000 as a retainer
salary for his services as Chairman. Mr. Destribats will be paid a salary of
$120,000 in 1996 for his service as Chairman pursuant to a two-year
employment contract. Under the employment agreement, Mr. Destribats will
devote a substantial amount of time to the Company and the Bank as Chairman
of the Board of each. The Bank also has entered into a Salary Continuation
Plan for the benefit of Mr. Destribats on terms comparable to the plan for
Mr. Ryan discussed below, but with a normal retirement date at age 70 on
March 27, 2005.
Non-employee directors of the Company (which includes all directors other
than Mr. Destribats and Mr. Ryan) are paid $100 for each Company Board of
Directors meeting attended which is not held on the same day that a Bank
Board meeting is held. Non-employee directors are paid a fee of $600 per Bank
Board meeting. Non-employee directors are also paid $150 for attending each
committee meeting of the Board of Directors of the Company or the Bank ($200
in the case of the chairman of such meeting). When committee meetings are
held on the same day, only one fee is paid to each such director who attends
such meetings. In addition, the Company in 1995 paid premiums in the amount
of $6,743 for health insurance for Ms. Buklad and Messrs. Hendrickson and
Stewart. The aggregate compensation paid to non-employee directors in 1995
was $80,243.
In 1996, non-employee directors will be paid an annual retainer fee of
$1,600 in addition to normal Board and committee fees. Director fees and
retainers for the Company and the Bank are not paid to directors who are also
full time officers of the Bank or the Company.
Pursuant to a deferred compensation plan that became effective on January
1, 1995, non-employee directors are allowed to defer all or a portion of
their annual fees and retainers. The Company matched each director's deferral
at a rate $0.25 per dollar deferred. Effective January 1, 1996, the Company
will match each director's deferral at a rate of $0.50 per dollar deferred.
The cost to the Company for 1995 was approximately $7,800. If a participant
ceases to be a director for any reason, such participant will at that time be
entitled to receive from the Company the aggregate amount of his or her
deferred fees and retainers and the Company's matching contributions, plus
earnings on such amount at an annual rate which may vary from year to year.
The rate is based upon the prime rate and is adjusted annually. The total
amount to which any participating director will be entitled will depend upon
several factors, including the number of years of participation and the
amount of fees and retainers earned and deferred.
In 1994, the Company's Board of Directors adopted the Yardville National
Bancorp 1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan is to be
administered by a committee (the "1994 Plan Committee") of not less than two
employee directors of the Company. Presently, Mr. Destribats and Mr. Ryan
constitute the 1994 Plan Committee. Under the 1994 Plan, the 1994 Plan
Committee may grant options to purchase up to 40,000 shares of Common Stock
in the aggregate to non-employee directors of the Company. The purchase price
per share under each option shall be determined by the 1994 Plan Committee
but may not be less than 100% of the fair market value of a share of Common
Stock on the date of grant. The 1994 Plan provides for adjustment of the
number of shares subject to the 1994 Plan and the number of shares that may
be purchased and the purchase price under each outstanding option in the
event of any changes in the outstanding Common Stock by reason of
42
<PAGE>
stock dividends, stock splits, mergers, recapitalizations and similar events.
The 1994 Plan Committee has discretion to establish the term and vesting
schedule for each option, although the term may not exceed ten years and the
1994 Plan provides that options generally will vest during a period of up to
five years after the date of grant.
On April 27, 1994, the 1994 Plan Committee granted to each non-employee
director of the Company an option to purchase up to 3,200 shares of Common
Stock (32,000 shares in the aggregate) at a purchase price of $8.75 per
share. Each option was exercisable in full immediately upon the grant. At the
time of grant, the number of shares that could be purchased by exercise of
each option would be reduced in installments of up to 800 shares in each of
the twelve-month periods ending on April 26 in 1995 through 1998 if and to
the extent that the option had not been exercised to purchase such
installment of 800 shares by the end of such period. In addition, on June 12,
1996, a director was granted options to purchase 3,200 shares at $15.75 per
share. Each option was exercisable in full immediately upon the grant. At the
time of the grant the number of shares that could be purchased by exercise of
each option would be reduced in installments of up to 800 shares in each
twelve-month period ending on June 11, 1997 through 2000 if and to the extent
that the option had not been exercised to purchase such installment of 800
shares by the end of such period. Options to purchase 13,714 shares were
outstanding and exercisable as of July 15, 1996.
Executive Officers' Compensation
Summary Compensation Table. The following table sets forth compensation
paid or allocated with respect to the years ended December 31, 1995, 1994 and
1993 for services rendered in all capacities to the Company and its
subsidiaries by the President and Chief Executive Officer of the Company, the
only executive officer whose aggregate salary and bonus exceeded $100,000 in
any of such years:
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------- ---------------------
Name and Principal Securities Underlying All Other
Position Year Salary($) Bonus($)(1) Options(2) (#) Compensation($)(3)
-------------------------- ------ --------- ---------- ---------------------- -----------------
<S> <C> <C> <C> <C> <C>
Patrick M. Ryan, President 1995 150,000 68,060 0 2,250
and CEO of the Company 1994 133,330 50,665 40,000 2,007
1993 130,000 19,380 0 1,500
</TABLE>
- - ------
(1) Paid in the fiscal year following the fiscal year for which they are
reported.
(2) Represents options to acquire Common Stock granted to Mr. Ryan pursuant
to the Yardville National Bancorp 1988 Stock Option Plan.
(3) Represents the Company's contribution under its 401(k) plan for Mr.
Ryan's benefit.
Employees of the Company and the Bank are eligible to receive options to
purchase Common Stock pursuant to the Yardville National Bancorp 1988 Stock
Option Plan (the "1988 Plan"). The 1988 Plan is to be administered by a
committee (the "1988 Plan Committee") of not less than two directors of the
Company, none of whom may be granted options under the 1988 Plan while they
serve on the 1988 Plan Committee. Under the 1988 Plan, the 1988 Plan
Committee may grant options to purchase up to 164,000 shares of Common Stock
in the aggregate. The purchase price per share under each option shall be
determined by the 1988 Plan Committee but may not be less than 100% of the
fair market value of the Common Stock on the date of grant (110% in the case
of options granted to a person who on the date of grant owns more than 10% of
the Common Stock). The 1988 Plan provides for adjustment of the number of
shares subject to the 1988 Plan and the number of shares that may be
purchased and the purchase price under each outstanding option in the event
of any changes in the outstanding Common Stock by reason of stock dividends,
stock splits, mergers, recapitalizations and similar events. The 1988 Plan
Committee has discretion to establish the term and vesting schedule for
options, although the term may not exceed ten years (five years in the case
of an option granted to a person who owns more than 10% of the Common Stock
on the date of grant) and the 1988 Plan provides that options generally will
vest during a period of up to five years after the date of grant. Options to
purchase 85,579 shares were outstanding and exercisable as of July 15, 1996.
Employment Contracts
The Company employs Patrick M. Ryan as President and Chief Executive
Officer of the Bank and as President and Chief Executive Officer of the
Company under an employment contract that became effective as of
43
<PAGE>
October 28, 1994. Mr. Ryan is employed for the period of 27 months commencing
October 28, 1994, and the contract automatically renews for successive
12-month periods thereafter unless either of the parties gives notice to the
contrary. The employment contract provides for an annual base salary of
$150,000, which salary will be reviewed and may be adjusted annually by the
Board of Directors. In addition, Mr. Ryan will receive a cash performance
bonus equal to 2% of profits of the Company, after taxes, when such profits
are $2,000,000 or higher. Mr. Ryan is also entitled to participate in any
employee benefit plan established by the Company or the Bank and is eligible
for the use of an automobile. Mr. Ryan has also been granted certain stock
options under the employment contract. The employment contract may be
terminated with or without cause (as defined in the employment contract). In
the event the employment contract is terminated by the Company, other than
for death, disability or cause, within three years after a Change in Control
(as defined below), or by Mr. Ryan, other than for death or disability,
within six months after a Change in Control, Mr. Ryan will be entitled to
receive an amount equal to three times his annual salary at the time of such
termination in a lump sum promptly after the occurrence of such termination.
If the Company terminates the employment contract other than for disability,
death or cause, and in the absence of a Change in Control, Mr. Ryan will be
entitled to receive a lump-sum payment upon termination equal to the amount
that would have been payable to him at his then current annual salary for the
remainder of the contract term. For purposes of the Mr. Ryan's employment
contract, the term "Change in Control" means:
(i) the acquisition by any person or group acting in concert of the
beneficial ownership of 40% or more of any class of equity security of the
Company, or
(ii) the approval by the Board of Directors of the Company of the sale
of all or substantially all of the assets of the Bank or the Company, or
(iii) the approval by the Board of Directors of the Company of any
merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause
(i) or (ii) above.
The Bank has entered into a Salary Continuation Plan for the benefit of
Mr. Ryan, dated October 28, 1994, whereby the Bank has agreed to make monthly
payments to Mr. Ryan or his designated beneficiary upon the termination of
his employment in certain circumstances and subject to certain conditions, as
described below, based upon the amount of his annual salary at the time of
termination (the "Final Annual Salary").
If Mr. Ryan continues to be an employee of the Bank until his normal
retirement date upon the attainment of age 65, which date is June 21, 2009,
Mr. Ryan may thereafter retire and he or his designated beneficiary will be
entitled to receive a monthly payment equal to (i) 50% of the Final Annual
Salary divided by (ii) 12 (the "Monthly Retirement Payment"), payable for a
period of 180 months or for his life, if longer. In addition, during the 180
month period following retirement, Mr. Ryan has agreed to be an independent
contractor/consultant to the Bank for a reasonable fee to be mutually agreed
upon and paid by the Bank to Mr. Ryan for his consulting services. During
this 180 month period, Mr. Ryan has also agreed to be subject to certain
prohibitions on competition with the Bank.
If Mr. Ryan becomes totally disabled, as determined by the Bank, while he
is an employee of the Bank, and his employment terminates, the Bank will
continue to pay Mr. Ryan for six months. Thereafter, if Mr. Ryan remains
disabled, the Bank will continue his final salary in equal monthly
installments until Mr. Ryan attains age 65. Any amount paid by the Bank after
the initial six month period will be reduced on a dollar-for-dollar basis by
any payment received by Mr. Ryan under the Bank's long-term disability
insurance policies. This disability payment will commence the first month
after such termination and continue until Mr. Ryan recovers from such
disability, reaches the age of 65, or dies, whichever occurs first. If such
disability continues beyond June 21, 2009, Mr. Ryan will then be entitled to
the Monthly Retirement Payment as described above.
If Mr. Ryan terminates his employment with the Bank or if the Bank
terminates Mr. Ryan's employment for any reason other than disability prior
to June 21, 2009, the Bank will make 180 monthly payments to Mr. Ryan
commencing June 21, 2009. Each payment will be in an amount equal to
one-twelfth of the product obtained by multiplying (a) 50% of the Final
Annual Salary by (b) a fraction, the numerator of which is the number of full
years between the date of the Salary Continuation Plan and the date of
termination of Mr. Ryan's
44
<PAGE>
employment and the denominator of which is the number of full years between
the date of the Salary Continuation Plan and June 21, 2009. The foregoing
will not apply, however, if the Bank terminates Mr. Ryan's employment because
he has committed an act which exposes the Bank to economic harm or damages
the reputation or good will of the Bank.
In the event of a change of control of the Bank, (i.e., acquisition of at
least 40% of the Bank by an entity or individual that is not currently a
stockholder of the Company), if Mr. Ryan either resigns from his position
with the Bank or if his employment is terminated for any reason, which
termination shall be deemed to have occurred if Mr. Ryan's responsibilities
are diminished or assumed by another individual, then Mr. Ryan or his
designated beneficiary will be entitled to receive the Monthly Retirement
Payment as described above without reduction on account of termination prior
to June 21, 2009.
If Mr. Ryan dies before June 21, 2009, commencing with the first month
following his death and continuing for 179 months thereafter, the Bank shall
pay the Monthly Retirement Payment to Mr. Ryan's named beneficiary as
described above.
Option Exercises in Last Fiscal Year and Year-End Option Values. The
following table sets forth the aggregate stock options exercised by the Chief
Executive Officer during the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
----------------- ------------------
Shares Acquired Value Exercisable(E)/ Exercisable(E)/
Name on Exercise(#) Realized($) Unexercisable(U) Unexercisable(U)
---------------- --------------- ----------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
(E) (U) (E) (U)
Patrick M. Ryan . 7,350 87,998 50,000 0 376,500 0
</TABLE>
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION
The Organization and Compensation Committee of the Company's Board of
Directors is responsible for establishing annual compensation and long-term
compensation plans for executive officers of the Company. In 1995, the
Organization and Compensation Committee consisted of Mr. Destribats, who is
an employee director and Mr. Ryan, who is an officer of the Company and
Messrs. McDaniel Jr. and Hendrickson. Samuel E. Proctor served as a member of
the Organization and Compensation Committee in 1995 from January 1, 1995 to
August 31, 1995.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Destribats, the Chairman of the Board of the Company and Chairman of
the Organization and Compensation Committee, is a partner in the law firm of
Destribats, Campbell, DeSantis, Magee and O'Donnell. The firm performed
general legal services for the Bank during 1995 and continues to perform such
services in 1996. In 1995, Destribats, Campbell, DeSantis, Magee and
O'Donnell was paid $36,724 by the Bank for its services. In 1994, Destribats,
Campbell, DeSantis and Magee were paid $27,600 by the Bank for its services.
Certain directors and officers of the Company and their associates are or
have been in the past customers of and have had transactions with the Bank,
and it is expected that such persons will continue to have such transactions
in the future. The aggregate extension of credit to directors, officers, and
their associates as a group was approximately $3.6 million as of December 31,
1995. All deposit accounts, loans, and commitments comprising such
transactions were made in the ordinary course of business of the Bank on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons,
and, in the opinion of management of the Company and the Bank, did not
involve more than normal risks of collectibility or present other unfavorable
features.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 14A:3-5 of the New Jersey Business Corporation Act, as amended,
and the Restated Certificate of Incorporation of the Company provide for
indemnification of the Company's directors and officers against
45
<PAGE>
claims, liabilities, amounts paid in settlement and expenses in a variety of
circumstances. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of the Common Stock as
of July 15, 1996 by each person who is known by the Company to beneficially
own 5% or more of the Common Stock, each director and the Chief Executive
Officer of the Company and all directors and executive officers of the
Company and the Bank as a group. All shares of a named person are deemed to
be subject to that person's sole voting and investment power unless otherwise
indicated. Shares subject to stock options are excluded except to the extent
such options are exercisable within 60 days. All directors and the Chief
Executive Officer have an address c/o Yardville National Bancorp, 3111
Quakerbridge Road, Trenton, New Jersey 08619.
<TABLE>
<CAPTION>
Number of
Shares Percent of
Beneficially Common Stock
Name of Beneficial Owner Owned(1) (2)
----------------------------------------------------------------- -------------- --------------
<S> <C> <C>
C. West Ayres ................................................... 39,225(3) 1.62%
Elbert G. Basolis, Jr. .......................................... 8,200(4) *
Lorraine Buklad ................................................. 63,178(5) 2.60
Jay G. Destribats ............................................... 26,316(6) 1.08
Anthony M. Giampetro ............................................ 34,326(7) 1.41
Edward M. Hendrickson ........................................... 91,198(3)(8) 3.76
Gilbert W. Lugossy .............................................. 5,371(3) *
Weldon J. McDaniel, Jr. ......................................... 42,604(3)(9) 1.75
Patrick M. Ryan ................................................. 63,525(10) 2.62
William J. Steiner, Jr. ......................................... 13,732 *
John C. Stewart ................................................. 28,813(3) 1.19
F. Kevin Tylus .................................................. 7,300(3) *
Anthony J. Filiti and A.B. Management Services of New Jersey, Inc. 147,000(11) 6.05
Directors and Executive Officers of the Company as a group
(17 persons) ................................................... 461,138(12) 18.98
</TABLE>
- - ------
* Less than 1%.
(1) The number of beneficially owned shares includes shares over which the
named person, directly or indirectly through any contract, arrangement,
understanding, relationship or otherwise, has or shares (1) voting
power, which includes the power to vote, or direct the voting of, such
security; or (2) investment power, which includes the power to dispose,
or to direct the disposition of, such security. It also includes shares
owned by any person who, directly or indirectly, creates or uses a
trust, proxy, power of attorney, pooling arrangement or any other
contract, arrangement or device with the purpose or effect of divesting
such person of beneficial ownership of a security or preventing the
vesting of such beneficial ownership. It also includes shares subject to
options that are exercisable within 60 days after July 15, 1996.
(2) The number of shares subject to options that are held by each person and
are or will be exercisable within sixty days after July 15, 1996 are
deemed outstanding for purposes of computing the percentage ownership of
such person. The number of shares subject to options that are held by
directors and executive officers as a group and are or will be
exercisable within sixty days after July 15, 1996 are deemed outstanding
for purposes of computing the aggregate percentage ownership of such
persons.
(3) Includes in each case 1,600 shares issuable upon exercise of options
held by the person named which were granted pursuant to the Company's
1994 Stock Option Plan (the "1994 Plan").
(4) Includes 3,200 shares issuable upon exercise of options held by Mr.
Basolis under the 1994 Plan.
46
<PAGE>
(5) Includes 914 shares issuable upon exercise of options held by Ms. Buklad
under the 1994 Plan.
(6) Includes 10,000 shares issuable upon exercise of options held by Mr.
Destribats under the Company's 1988 Stock Option Plan (the "1988 Plan").
(7) Includes 13,126 shares held in the name of Anthony M. Giampetro, M.D.,
custodian for Anthony Giampetro, John Giampetro and Celeste Giampetro,
under Pennsylvania Uniform Gift to Minors Act, 8,000 shares held in the
name of Bellarmino-Giampetro Profit Sharing Fund, 11,800 shares held in
the name of Bellarmino-Giampetro Pension Voluntrary Contribution, and
1,400 shares issuable upon exercise of options held by Mr. Giampetro
under the 1994 Plan.
(8) Includes 5,860 shares held by Mr. Hendrickson's spouse (as to which Mr.
Hendrickson disclaims beneficial ownership) and 11,356 shares held by
the Maryanna Hendrickson Residual Trust, under which Mr. Hendrickson is
a co-trustee and a beneficiary.
(9) Includes 12,114 shares held in the name of Mr. McDaniel's spouse, as
trustee (as to which Mr. McDaniel disclaims beneficial ownership) and
2,000 shares issuable upon exercise of Warrants held by Mr. McDaniel's
spouse, as trustee (as to which Mr. McDaniel disclaims beneficial
ownership). Also includes 1,050 shares issuable upon exercise of
Warrants held by Mr. McDaniel.
(10) Includes 30,000 shares issuable upon exercise of options held by Mr.
Ryan under the 1988 Plan.
(11) Includes 71,000 shares held by A.B. Management Services of New Jersey,
Inc. ("A.B. Management"), one hundred percent (100%) of the stock of
which is owned by Anthony J. Filiti. Also includes 5,000 shares
beneficially owned by Mr. Anthony J. Filiti.
(12) Includes 81,176 shares issuable upon exercise of options held by such
persons as a group under the 1988 Plan and the 1994 Plan.
47
<PAGE>
SUPERVISION AND REGULATION
SUPERVISION AND REGULATION OF THE COMPANY
Bank holding companies, banks and their operations are extensively
regulated under both Federal and state laws. Bank holding companies and banks
may be subject to potential enforcement actions by the Board of Governors of
the Federal Reserve System ("FRB"), the Office of the Comptroller of the
Currency ("OCC") or the Federal Deposit Insurance Corporation ("FDIC") for
unsafe or unsound practices in conducting their businesses, or for violations
of any law, rule or regulation, any cease-and-desist or consent order, any
condition imposed in writing imposed by the agency or any written agreement
with the agency. Because the Company is a "bank holding company" under the
Bank Holding Company Act of 1956 (the "Bank Holding Company Act"), the FRB,
acting through the Federal Reserve Bank of Philadelphia ("FRBP") is the
primary supervisory authority for, and examines, the Company and any non-bank
subsidiaries which are not subsidiaries of the Bank. Because the Bank is a
national bank, the primary supervisory authority for the Bank and its
subsidiaries is the OCC, which regularly examines the Bank. The FDIC and the
FRB (because the Bank is a member of the Federal Reserve System) also
regulate, supervise and have power to examine the Bank and its subsidiaries.
Enforcement actions may include the imposition of a conservator or receiver,
additional cease-and-desist orders and written agreements, the termination of
insurance on deposits, the imposition of civil money penalties and removal
and prohibition orders. If any enforcement action is taken by a banking
regulator, the value of an equity investment in the Company could be
substantially reduced or eliminated.
BANK HOLDING COMPANY ACT
The Bank Holding Company Act requires a "bank holding company" such as the
Company to secure the prior approval of the FRB before it owns or controls,
directly or indirectly, more than 5% of the voting shares or substantially
all of the assets of any bank. Subject to changes recently enacted in the
Interstate Banking Act (see discussion below), it also prohibits acquisition
by any bank holding company of more than 5% of the voting shares of, or
interest in, or all or substantially all of the assets of, any bank located
outside of the state in which a current bank subsidiary is located unless
such acquisition is specifically authorized by laws of the state in which
such bank is located. A bank holding company is prohibited from engaging in
or acquiring direct or indirect control of more than 5% of the voting shares
of any company engaged in non-banking activities unless the FRB, by order or
regulation, has found such activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In making
this determination, the FRB considers whether the performance of these
activities by a bank holding company would offer benefits to the public that
outweigh possible adverse effects. Applications under the Bank Holding
Company Act and the Change in Control Act (see discussion below) are subject
to review based upon the record of compliance of the applicant with the
Community Reinvestment Act of 1977 ("CRA") as discussed below.
The Company is required to file an annual report with the FRB and any
additional information that the FRB may require pursuant to the Bank Holding
Company Act. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit or provision of credit or provision of any property
or services. The so-called 'anti-tie-in' provisions state generally that a
bank may not condition the pricing or provision of certain products and
services on a requirement that the customer provide certain products or
services to the bank holding company or bank, or that the customer not obtain
certain products or services from competitors, or that the customer also
obtain certain other products or services from the bank or bank holding
company. There is an exception to the tie-in prohibition for "traditional"
banking products and services.
The FRB permits bank holding companies to engage in non-banking activities
so closely related to banking or managing or controlling banks as to be a
proper incident thereto. A number of activities are authorized by FRB
regulation, while other activities require prior FRB approval. The types of
permissible activities are subject to change by the FRB.
FRB regulations require a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. The FRB has, in
some cases, entered orders for bank holding companies to take affirmative
action to strengthen the finances or management of subsidiary banks.
48
<PAGE>
CHANGE IN BANK CONTROL ACT
Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no
person, acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control" of any federally insured depository
institution unless the appropriate Federal banking agency has been given 60
days' prior written notice of the proposed acquisition and within that period
has not issued a notice disapproving of the proposed acquisition or has
issued written notice of its intent not to disapprove the action. For this
purpose, "control" is generally defined as the power, directly, or
indirectly, to direct the management or policies of an institution or to vote
25% or more of any class of its voting securities. In addition, a person will
be presumed to have acquired "control" of an institution or holding company
upon most acquisitions of power to vote 10% or more (but less than 25%) of
any class of voting securities if the institution or holding company has
registered securities under Section 12 of the Securities Exchange Act of 1934
or if no other person will own a greater percentage of that class of voting
securities immediately after the transaction, but this presumption may be
rebutted upon a formal finding by the appropriate Federal banking agency that
the acquisition will not result in control. The period for the agency's
disapproval may be extended by the agency. Upon receiving such notice, the
Federal agency is required to provide a copy to the appropriate state
regulatory agency if the institution of which control is to be acquired is
state chartered, and the Federal agency is obligated to give due
consideration to the views and recommendations of the state agency. Upon
receiving a notice, the Federal agency is also required to conduct an
investigation of each person involved in the proposed acquisition. Notice of
such proposal is to be published and public comment solicited thereon. A
proposal may be disapproved by the Federal agency if the proposal would have
anticompetitive effects, if the proposal would jeopardize the financial
stability of the institution to be acquired or prejudice the interests of its
depositors, if the competence, experience or integrity of any acquiring
person or proposed management personnel indicates that it would not be in the
interest of depositors or the public to permit such person to control the
institution, if any acquiring person fails to furnish the Federal agency with
all information required by the agency, or if the Federal agency determines
that the proposed transaction would result in an adverse effect on a deposit
insurance fund. In addition, the Change in Control Act requires that,
whenever any federally insured depository institution makes a loan or loans
secured, or to be secured, by 25% or more of the outstanding voting stock of
a federally insured depository institution, the president or chief executive
officer of the lending bank must promptly report such fact to the appropriate
Federal banking agency regulating the institution whose stock secures the
loan or loans.
SUPERVISION AND REGULATION OF THE BANK
The operations of the Bank are subject to Federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System and to banks whose deposits are insured
by the FDIC. Bank operations are also subject to regulations of the OCC, the
FRB and the FDIC.
The primary supervisory authority of the Bank is the OCC (also its primary
Federal regulator), which regularly examines the Bank. The OCC has the
authority to prevent a national bank from engaging in an unsafe or unsound
practice in conducting its business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, loans a bank may make and collateral
it may take, the activities of a bank with respect to mergers and
consolidations and the establishment of branches. All nationally and
state-chartered banks in New Jersey are permitted to maintain branch offices
in any county of the state. National bank branches may be established only
after approval by the OCC. It is the general policy of the OCC to approve
applications to establish and operate domestic branches, including ATM's and
other automated devices that take deposits, provided that approval would not
violate applicable Federal or state laws regarding the establishment of such
branches. The OCC reserves the right to deny an application or grant approval
subject to conditions if (1) there are significant supervisory concerns with
respect to the application or affiliated organizations, (2) in accordance
with CRA, the applicant's record of helping meet the credit needs of its
entire community, including low and moderate income neighborhoods, consistent
with safe and sound operation, is less than satisfactory, or (3) any
financial or other business arrangement, direct or indirect, involving the
proposed branch or device and bank "insiders" (directors, officers, employees
and 10%-or-greater stockholders) involves terms and conditions more
favorable to the insiders than would be available in a
49
<PAGE>
comparable transaction with unrelated parties. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") the FDIC's prior
approval is also required for any new branch applications of a bank which is
ranked in any of the three "undercapitalized" categories established by
FDICIA.
Under the Federal Deposit Insurance Act, the OCC possesses the power to
prohibit institutions regulated by it (such as the Bank) from engaging in any
activity that would be an unsafe and unsound banking practice and in
violation of the law. Moreover, recent Federal law enactments have expanded
the circumstances under which officers or directors of a bank may be removed
by the institution's Federal supervisory agency, restricted and further
regulated lending by a bank to its executive officers, directors, principal
stockholders or related interests thereof and restricted management personnel
of a bank from serving as directors or in other management positions with
certain depository institutions whose assets exceed a specified amount or
which have an office within a specified geographic area, and restricted
management personnel from borrowing from another institution that has a
correspondent relationship with their bank.
As a member of the Federal Reserve System, the Bank is subject to certain
restrictions on transactions with "affiliates" such as the Company and any
other subsidiaries of the Company pursuant to Sections 23A and 23B of the
Federal Reserve Act. In summary, Section 23A (i) imposes individual and
aggregate percentage of capital limits on the dollar amount of a wide variety
of affiliate dealings coming within the definition of a "covered
transaction"; (ii) establishes rules for ensuring arms' length dealings
between a bank and its affiliates; (iii) precludes the acquisition of "low
quality" assets by a bank from its affiliates; and (iv) imposes detailed
collateralization requirements for affiliate credit transactions. For
purposes of Section 23A a "covered transaction" includes the following (with
certain exceptions and exemptions): (A) a loan or extension of credit to an
affiliate; (B) a purchase of, or an investment in, securities issued by an
affiliate; (C) a purchase of assets (including assets subject to an agreement
to repurchase) from an affiliate, with certain exceptions; (D) the acceptance
of securities issued by an affiliate as collateral security for a loan or
extension of credit to any person or company; and (E) the issuance of a
guarantee, acceptance, or letter of credit, including an endorsement or
standby letter of credit, on behalf of an affiliate. Section 23B requires a
wide range of transactions between must be on terms which are at least as
favorable to the bank as would apply to similar transactions with
non-affilated companies. The transactions covered by section 23B include
"covered transactions" that are subject to section 23A, as well as (I) a
sales of securities or other assets to an affiliate including assets subject
to an agreement to repurchase; (II) a payment of money or the furnishing of
services to an affiliate under contract, lease, or otherwise; (III) any
transaction in which an affiliate acts as an agent or broker or receives a
fee for its services to the association or to any other person; or (IV) any
transaction or series of transactions with a third party if an affiliate has
an interest in the third party or participates in the transaction. The
Federal Reserve Act and FRB regulations also place certain limitations and
reporting requirements on extensions of credit by the Bank to principal
stockholders of its parent holding company, among others, and to related
interests of such principal stockholders. Such legislation and regulations
may affect the terms upon which any person becoming a principal stockholder
of a holding company may obtain credit from banks with which the subsidiary
bank maintains a correspondent relationship.
In addition, as a bank whose deposits are insured by the FDIC, the Bank
may not pay dividends or distribute any of its capital assets while it
remains in default of any assessment due to the FDIC. The Bank is not in
default under any of its obligations to the FDIC. The FDIC also has authority
under the Federal Deposit Insurance Act to prohibit an insured bank from
engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or
unsound practice in conducting its business. It is possible, depending upon
the financial condition of the Bank and other factors, that the FDIC could
claim that the payment of dividends or other payments might, under some
circumstances, be an unsafe or unsound banking practice.
Under the Bank Secrecy Act ("BSA"), the Bank is required to report to the
Internal Revenue Service currency transactions of more than $10,000 or
multiple transactions of which the Bank is aware in any one day that
aggregate in excess of $10,000. Civil and criminal penalties are provided
under the BSA for failure to file a required report, for failure to supply
information required by the BSA or for filing a false or fraudulent report.
Under CRA, the record of a bank holding company and its subsidiary banks
must be considered by the appropriate Federal banking agencies in reviewing
and approving or disapproving a variety of regulatory applications including
approval of a branch or other deposit facility, office relocation, a merger
and certain acquisitions of bank shares. Federal banking agencies have
recently denied applications more frequently based on
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unsatisfactory CRA performance, and news reports indicate that community
groups have begun to focus more closely on CRA compliance of small
institutions such as the Bank. Regulators are required to assess the record
of the Company and the Bank to determine if they are meeting the credit needs
of the community (including low and moderate neighborhoods) they serve.
Regulators make publicly available an evaluation of banks' records in meeting
credit needs in their communities, including a descriptive rating and a
statement describing the basis for the rating.
In addition, the Bank is subject to a variety of banking laws and
regulations governing consumer protection (including the Truth in Lending
Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Home
Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the Real
Estate Settlement Procedures Act), FDIC deposit insurance regulations, and
FRB regulations governing such matters as reserve requirements for deposits,
securities margin lending, collection of checks and other items and
availability of deposits for withdrawal by customers, security procedures,
and prohibitions of payment of interest on demand deposits. Under the
Americans With Disabilities Act ("ADA"), certain bank facilities are
identified as "public accommodations" and are subject to regulation to
promote accessibility of their facilities for disabled persons.
CAPITAL RULES
Federal banking agencies have issued "risk-based capital" guidelines,
which supplement other capital requirements. In addition, the FRB imposes
certain "leverage" requirements on member banks such as the Bank. Banking
regulators have authority to require higher minimum capital ratios for an
individual bank or bank holding company in view of its circumstances.
The risk-based guidelines require all banks and bank holding companies to
maintain two "risk-weighted assets" ratios. The first is a minimum ratio of
total capital ("Tier 1" and "Tier 2" capital) to risk-weighted assets equal
to 8.00%; the second is a minimum ratio of "Tier 1" capital to risk-weighted
assets equal to 4.00%. Assets are assigned to five risk categories, with
higher levels of capital being required for the categories perceived as
representing greater risk. In making the calculation, certain intangible
assets must be deducted from the capital base. The risk-based capital rules
are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding companies and to
minimize disincentives for holding liquid assets.
Pursuant to FDICIA, the Federal banking agencies proposed in 1992 to
revise the risk-based capital rules to account for interest rate risk. Under
the proposed rules, institutions with interest rate risk exposure above a
normal level would be required to hold extra capital in proportion to that
risk. Under the proposals, the threshold for normal risk is defined as a 1%
or less decline in the net economic value of an institution based on a 100
basis point upward or downward shift in interest rates. Effective September
1, 1995, the federal banking agencies adopted a final rule to implement
minimum capital standards for interest rate risk exposures in a two-step
process. The 1995 rule implements the first step of that process by revising
the capital standards of the banking agencies to explicitly include a bank's
exposure to declines in the economic value of its capital due to changes in
interest rates as a factor that the banking agencies will consider in
evaluating a bank's capital adequacy. The rule uses information and exposure
estimates collected through a new proposed supervisory measurement process as
one quantitative factor used by examiners to determine the adequacy of an
individual bank's capital for interest rate risk. Under the rule, examiners
also will consider qualitative factors, including the adequacy of the bank's
internal interest rate risk management. The 1995 rule does not codify an
explicit minimum capital charge for interest rate risk, based on the level of
bank's measured interest rate risk exposure, but the banking agencies
announced that they will implement this second step at some future date,
through a subsequent and separate proposed rule after the banking agencies
and the banking industry have gained more experience with the proposed
supervisory measurement and assessment process. Federal law requires the
banking agencies to coordinate the development of interest rate risk capital
standards with the Bank for International Settlements and members of the
Basle Committee on Banking Supervision. However, the timing and nature of any
international standard for monitoring and assessing capital for interest rate
risk is uncertain. The Bank currently monitors and manages its assets and
liabilities for interest rate risk, and management believes that the interest
rate risk rules which have been implemented and proposed will not materially
adversely affect the Bank's operations.
The OCC "leverage" ratio rules require national banks which are rated the
highest by the OCC in the composite areas of capital, asset quality,
management, earnings and liquidity to maintain a ratio of "Tier 1" capital
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to "adjusted total assets" (equal to the bank's average total assets as
stated in its most recent quarterly call report filed with the OCC, minus
end-of-quarter intangible assets that are deducted from Tier 1 capital) of
not less than 3.00%. For banks which are not the most highly rated, the
minimum "leverage" ratio will range from 4.00% to 5.00% and is required to be
at a level commensurate with the nature of the riskiness of the bank's
condition and activities.
For purposes of the capital requirements, "Tier 1" or "core" capital is
defined to include common stockholders equity and certain noncumulative
perpetual preferred stock and related surplus. "Tier 2" or "qualifying
supplementary" capital is defined to include a bank's allowance for loan and
lease losses up to 1.25% of risk-weighted assets, plus certain types of
preferred stock and related surplus, certain "hybrid capital instruments" and
certain term subordinated debt instruments.
The Bank is in compliance with each of these capital rules and as of
December 31, 1995 and December 31, 1994 the required ratios and the Bank's
actual ratios are as follows:
December 31,
------------------
Capital Required
Rule Ratio 1995 1994
- - ------- ---------- ------- -------
Tier 1 Risk-Based Capital ............... 4.00% 12.0% 9.6%
Total (Tiers 1 and 2) Risk-Based Capital . 8.00% 13.2% 10.8%
Leverage Ratio .......................... 5.00% 7.8% 7.0%
The FRB leverage ratio rules also require bank holding companies to
maintain a minimum level of "primary capital" to total assets of 5.5% and a
minimum level of "total capital" to total assets of 6%. For this purpose,
"primary capital" includes, among other items, common stock, contingency and
other capital reserves, and the allowance for loan and lease losses, "total
capital" includes, among other things, certain subordinated debt, and "total
assets" is increased by the allowance for loan and lease losses. The Company
is in compliance with each of these capital rules, and as of December 31,
1995 and December 31, 1994 the required ratios and the Company's actual
ratios are as follows:
December 31,
-------------------------
Capital Required
Rule Ratio 1995 1994
- - ------- ---------- ------ ------
Primary Capital ........ 5.50% 8.7% 8.1%
Total Capital ......... 6.00% 8.7% 8.1%
DEPOSIT INSURANCE ASSESSMENTS
Deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund ("BIF"). Deposits of certain savings associations are insured by the
FDIC through another fund known as the Savings Association Insurance Fund.
The FDIC sets deposit insurance assessment rates on a semiannual basis and
will increase deposit insurance assessments whenever the ratio of reserves to
insured deposits in a fund is less than 1.25. The insurance assessments paid
by an institution are to be based on the probability that the fund will incur
a loss with respect to the institution. The rate at which institutions pay
assessments is based principally on two measures of risk. These measures
involve capital and supervisory factors.
For the capital measure, institutions are assigned semiannually to one of
three capital groups according to their levels of supervisory capital as
reported on their call reports: "well capitalized" (group 1), "adequately
capitalized" (group 2) and "undercapitalized" (group 3). The capital ratio
standards for classifying an institution in one of these three groups are
total risk-based capital ratio (10 percent or greater for group 1, and
between 8 and 10 percent for group 2), the Tier 1 risk-based capital ratio (6
percent or greater for group 1, and between 4 and 6 percent for group 2), and
the leverage capital ratio (5 percent or greater for group 1, between 4 and 5
percent for group 2).
Within each capital group, institutions are assigned to one of three
supervisory risk subgroups--subgroup A, B, or C depending upon an assessment
of the institution's perceived risk based upon the results of its most recent
examination and other information available to regulators. Subgroup A will
consist of financially sound institutions with only a few minor weaknesses.
Subgroup B will consist of institutions that demonstrate weak-
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nesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the BIF. Subgroup C will
consist of institutions that pose a substantial probability of loss to the
deposit insurance fund unless effective corrective action is taken. Thus,
there are nine possible classifications to which varying assessment rates are
applicable. The regulation generally prohibits institutions from disclosing
their subgroup assignments or assessment risk classifications without FDIC
authorization.
An institution's semiannual assessment is computed primarily by
multiplying its "average assessment base" (generally, total insurable
domestic deposits) for the prior semiannual period by one-half the annual
assessment rate applicable to that institution depending upon its category.
On August 8, 1995, the FDIC adopted a new assessment rate schedule for
deposits subject to assessment by BIF. The new schedule provided for an
assessment-rate range of 4 to 31 basis points and became effective
retroactively on June 1, 1995, the beginning of the month following the month
in which the BIF reached its designated reserve ratio of 1.25 percent of
total estimated insured deposits. At the same time the FDIC adopted the new
rate schedule, it also amended the assessment regulations to permit the FDIC
to make limited adjustments to the schedule without notice-and-comment
rulemaking. Any such adjustments can be made as the FDIC Board deems
necessary to maintain the BIF reserve ratio at the designated reserve ratio,
but any such adjustment must not exceed an increase or decrease of 5 basis
points and must be uniform across the rate schedule.
On November 14, 1995, the FDIC Board adopted a resolution to reduce to a
range of 0 to 27 basis points the assessment rates applicable to deposits
assessable by the BIF for the semiannual assessment period beginning January
1, 1996. The reduction represents a downward adjustment of 4 basis points
from the revised BIF assessment rate schedule which was in effect for the
second semiannual assessment period of 1995.
While reducing the BIF assessment rate, the FDIC maintained the SAIF
assessment rates at current levels because the FDIC does not project the SAIF
fund to reach the required reserve level of 1.25% of SAIF-insured deposits.
Legislation has been introduced in Congress which may cause the merger of the
BIF and SAIF funds. It is not possible to predict with any assurance if, or
when, legislation might be enacted to merger the two insurance funds or, if
such legislation is adopted, what impact the merger of the funds and the
legislation would have upon future FDIC deposit insurance assessments on the
Bank. Regulators have predicted that a failure to merge the SAIF and BIF
funds will result in an increased incidence of conversions of deposits from
SAIF to BIF as institutions attempt to reduce their costs of funds. One
impact of the entry of new deposits into the BIF fund is to dilute the
proportion of coverage the BIF fund gives to existing BIF-insured deposits,
which in turn could, over time, increase the cost of BIF deposit insurance.
PROMPT CORRECTIVE ACTION
Federal law mandates certain "prompt corrective actions" which Federal
banking agencies are required to take, and certain actions which they have
discretion to take, based upon the capital category into which a Federally
regulated depository institution falls. Regulations set forth detailed
procedures and criteria for implementing prompt corrective action in the case
of any institution which is not adequately capitalized. Under the
regulations, an institution will be deemed to be "adequately capitalized" or
better if it exceeds the minimum Federal regulatory capital requirements.
However, it will be deemed "undercapitalized" if it fails to meet the minimum
capital requirements, "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0 percent, a Tier 1 risk-based
capital ratio that is less than 3.0 percent, or a leverage ratio that is less
than 3.0 percent, and "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is equal to or less than 2.0
percent. The regulations require an undercapitalized institution to file a
written capital restoration plan, along with a performance guaranty by its
holding company or a third party. In addition, an undercapitalized
institution becomes subject to certain automatic restrictions including a
prohibition on payment of dividends, a limitation on asset growth and
expansion, in certain cases, a limitation on the payment of bonuses or raises
to senior executive officers, and a prohibition on the payment of certain
"management fees" to any "controlling person." Institutions that are
classified as undercapitalized are also subject to certain additional
supervisory actions, including increased reporting burdens and regulatory
monitoring, a limitation on the institution's ability to make acquisitions,
open new branch offices, or engage in new lines of business, obligations to
raise additional capital, restrictions on transactions with affiliates, and
restrictions on interest rates paid by the institution on deposits. In
certain cases, bank regulatory agencies may require replacement of senior
executive
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officers or directors, or sale of the institution to a willing purchaser. If
an institution is deemed to be "critically undercapitalized" and continues in
that category for four quarters, the law requires, with certain narrowly
limited exceptions, that the institution be placed in receivership.
LIMITATIONS ON PAYMENT OF DIVIDENDS; REGULATORY AGREEMENT
Under national banking laws, a national bank must obtain the approval of
the OCC before declaring any dividend which, together with all other
dividends declared by the national bank in the same calendar year will exceed
the total of the bank's net profits of that year combined with its retained
net profits of the preceding 2 years, less any required transfers to surplus
or a fund for the retirement of any preferred stock. Net profits are to be
calculated without adding back any provision to the bank's allowance for loan
and lease losses. These restrictions will not prevent the Bank from paying
dividends from current earnings to the Company at this time. FDICIA prohibits
FDIC-insured institutions from paying dividends or making capital
distributions that would cause the institution to fail to meet minimum
capital requirements. The FDICIA restrictions would not prevent the Bank from
paying dividends from current earnings to the Company at this time. The Bank
in 1991 entered into a written agreement with the OCC (the "Regulatory
Agreement") to, among other things, create a Compliance Committee, implement
a plan to correct any compliance deficiencies, and reduce its classified
assets and to maintain the Bank's common stockholders' equity at not less
than 5% of total assets. In 1991, in connection with the Regulatory Agreement
and at the recommendation of the FRBP, the Board of Directors of the Company
adopted a resolution, under which the Board could not declare a dividend to
the Company's stockholders except with 10 days' prior written notice to the
FRBP. The Regulatory Agreement was terminated on October 18, 1993, and on
December 21, 1994, the Board of Directors of the Company rescinded its
resolution with the permission of the FRBP, which was granted on November 30,
1994.
NEW JERSEY BANKING LAWS
Provisions of the New Jersey Banking Act of 1948 with supplements (the
"New Jersey Banking Act") may apply to national banking associations with
their principal offices in New Jersey, subject to preemption by applicable
Federal laws. The New Jersey Banking Act permits branches anywhere in New
Jersey subject to limitations on branches outside of the municipality in
which the principal office of a bank is located, and subject to prior
approval of the OCC as mentioned elsewhere herein. The merger of a national
bank into a state bank requires approval of the New Jersey Commissioner of
Banking; however, a state bank may merge into a national bank without such
prior approval. The New Jersey Banking Act also purports to regulate certain
aspects of bank business, including small loans and certain deposit accounts.
With certain exceptions, and subject to the limitation on reciprocity
discussed below, any entity which owns more than 25% of the stock of a bank
located outside of New Jersey cannot own or acquire ownership of more than
five percent of the stock of a bank located in New Jersey. In that regard, an
entity that owns the stock of a bank holding company located in New Jersey is
deemed to own the stock of each bank subsidiary, if such entity owns 25% or
more of the stock of the bank holding company.
The New Jersey Banking Act authorizes bank holding companies to own banks
located in New Jersey and banks located in other eligible states. An eligible
state is: (1) any state in the Central-Atlantic Region (Delaware, Illinois,
Indiana, Kentucky, Maryland, Michigan, Missouri, New Jersey, Ohio,
Pennsylvania, Tennessee, Virginia, West Virginia, Wisconsin and the District
of Columbia), when at least three of those states, in addition to New Jersey,
each of which have $20,000,000,000 in commercial bank deposits, have
reciprocal legislation in effect, or (2) any state or territory of the United
States, when at least 13 states in addition to New Jersey have reciprocal
legislation in effect and at least four of those are among the ten states
(other than New Jersey) with the largest amount of commercial bank deposits.
Under New Jersey law, a corporation is not permitted to pay dividends on
its capital stock if, following the payment of the dividend, (i) the
corporation would be unable to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than
its total liabilities. Determinations under clause (ii) above may be based
upon (i) financial statements prepared on the basis of generally accepted
accounting principles, (ii) financial statements prepared on the basis of
other accounting principles that are reasonable under the circumstances, or
(iii) a fair valuation of other method that is reasonable in the
circumstances.
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RECENT BANKING LAWS AND REGULATIONS
1994 Interstate Banking Legislation. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), enacted
on September 29, 1994, permits bank holding companies to acquire banks in any
State one year after enactment of the legislation. State laws which require
the acquiror to have been in existence for a specified minimum period of time
are preserved, but only up to a maximum existence requirement of 5 years.
Except for initial entry into a state, after an acquisition the acquiror may
not control more than 10% of total insured deposits in the United States or
more than 30% of insured deposits in the acquiror's home state. Stricter
state deposit concentration caps apply if they are nondiscriminatory.
Effective June 1, 1997, acquired banks in different states may be merged into
a single bank, subject to any necessary regulatory approvals and provided the
banks are adequately capitalized. Once a bank has established branches in a
host state through an interstate merger transaction, it may establish and
acquire additional branches anywhere in the host state where the acquiror
could have branched. States may enact laws opting-out of interstate mergers
during the period before June 1, 1997, but if so, domestic institutions will
also be prohibited from merging interstate. States may also enact laws
permitting interstate merger transactions and interstate de novo branching
before June 1, 1997. In contrast to interstate acquisitions and mergers, the
Interstate Banking Act permits acquisition of less than all of the branches
of an insured bank only if the state's laws permit it. Unless expressly
determined to be preempted, state laws regarding community reinvestment,
consumer protection (including applicable usury ceilings), fair lending, and
establishment of intrastate branches apply to local branches of interstate
organizations to the same extent they apply to a branch of a domestic state
bank. In evaluating applications, Federal banking agencies must consider CRA
performance in each state in which an acquiring institution maintains
branches, as well applicable State community reinvestment laws. Bank
management anticipates that the Interstate Banking Act will increase
competitive pressures in the Bank's market by permitting entry of additional
competitors.
New Jersey Interstate Banking Legislation. New Jersey's Act 17 of 1996
(Senate Bill No. 307) (the "NJ Intestate Banking Act"), approved and
effective April 17, 1996, was adopted to harmonize New Jersey banking laws
with the Federal Interstate Banking Act. The NJ Interstate Banking Act
permits interstate mergers and branch acquisitions, but does not permit de
novo interstate branching. Until June 1, 1997, mergers involving New Jersey
institutions and out-of-state banks are subject to a requirement that the
laws of the home state of the out-of-state bank expressly permit interstate
merger transactions with all out-of-state banks. After June 1, 1997, the laws
of the home state of the out-of-state bank must not prohibit mergers
involving out-of-state banks. Under the NJ Interstate Banking Act, an
"out-of-state bank" is defined as a banking institution which (in the case of
state banking institutions) is chartered, or (in the case of a national bank)
whose main office is located, in another state. The NJ Interstate Banking Act
prohibits acquisitions which would result in an institution or holding
company controlling more than 30% of total deposits in New Jersey, but this
limitation may be waived by the New Jersey Banking Commissioner for good
cause. The NJ Interstate Banking Act also authorizes an institution located
in New Jersey to accept deposits and conduct other business as an agent for
any "affiliate" (a company which controls, is controlled by, or is under
common control with the institution), without being required to obtain a
license as a branch office of the affiliate.
OTHER LAWS AND REGULATIONS
The Company and the Bank are subject to a variety of laws and regulations
which are not limited to banking organizations. In lending to commercial and
consumer borrowers, and in owning and operating its own property, the Bank is
subject to regulations and risks under state and Federal environmental laws.
COMPLIANCE
While the expense of compliance is increasing and has an adverse effect on
the net income on all regulated institutions such as the Bank, management
believes the Company and the Bank are in compliance with applicable laws and
regulations in all material respects.
LEGISLATION AND REGULATORY CHANGES
Legislation and regulations may be enacted which increase the cost of
doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial services providers. No
prediction can be made as to the likelihood of any major changes or the
impact such changes might have on the Company and its subsidiary bank.
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EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of the Company are and will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States
government and its agencies. The FRB has had, and will likely continue to
have, an important impact on the operating results of commercial banks
through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The FRB has a major effect
upon the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through its
regulation of, among other things, the discount rate on borrowings of member
banks and the reserve requirements against member bank deposits. It is not
possible to predict the nature and impact of future changes in monetary and
fiscal policies.
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation and By-Laws, copies of which have been filed as exhibits to
the Registration Statement.
CAPITAL STOCK
The Company is authorized to issue 7,000,000 shares of stock, consisting
of 6,000,000 shares of Common Stock and 1,000,000 shares of preferred stock,
no par value per share, with presently unspecified rights ("Preferred
Stock"). As of July 15, 1996, 2,428,754 shares of Common Stock were issued
and outstanding. No shares of Preferred Stock have been issued.
PREFERRED STOCK
Under the terms of the Company's Restated Certificate of Incorporation,
the Board of Directors may, without stockholder approval, issue shares of
Preferred Stock from time to time and determine the relative rights,
preferences and limitations of the Preferred Stock including, without
limitation, stated value, dividend rights, rights to convert such shares into
shares of another class or series (such as Common Stock or another class of
series of Preferred Stock), voting rights, liquidation preference, redemption
rights, division into classes and into series within any class or classes,
sinking fund provisions and similar matters, and generally to determine all
the characteristics of such Preferred Stock other than the total number of
shares of Preferred Stock which the Board has authority to issue. The rights
of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions, financings
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a controlling interest in the Company. The Company has no present
plans to issue any shares of Preferred Stock.
RIGHTS OF HOLDERS OF COMMON STOCK
Dividend Rights. Subject to the rights of holders of shares, if any,
having preferences with respect to dividends, the holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors of the Company out of funds legally available therefor. The only
statutory limitation is that such dividends may not be paid when the Company
is insolvent and may be paid only out of statutory surplus. In addition,
because funds for the payment of dividends by the Company must come primarily
from the earnings of its subsidiaries (primarily the Bank), as a practical
matter any dividend restrictions on the subsidiaries of the Company act as
restrictions on the amount of funds available for the payment of dividends
which can be paid by the Company. For a description of the regulatory
restrictions on dividend payments by the Bank, as well as regulatory
guidelines which could limit the amount of dividends which the Company may
pay, see "Supervision and Regulation -- Limitations of Payment of Dividends."
Voting Rights. Each holder of Common Stock is entitled to one vote per
share. The quorum for stockholders' meetings is a majority of the outstanding
shares entitled to vote represented in person or by proxy.
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Provisions Regarding Certain Business Combinations. Article VIII of the
Company's Restated Certificate of Incorporation requires the affirmative vote
of the holders of at least 80% of the outstanding shares of capital stock of
the Company entitled to vote generally in the election of directors ("Voting
Stock") to approve mergers and certain other business combinations ("Business
Combinations") involving the Company and any holder of 10% or more of the
Voting Stock (an "Interested Stockholder"), unless (1) the transaction is
approved by a majority of the members of the Company's Board of Directors who
are unaffiliated with the Interested Stockholder and who were directors
before the Interested Stockholder became an Interested Stockholder or (2)
certain minimum price, form of consideration and procedural requirements are
met.
As of July 15, 1996, the current directors and executive officers of the
Company possessed sole or shared voting power with respect to approximately
16% of the outstanding Common Stock. In addition, as of July 15, 1996, the
Company's current directors and executive officers had the right to acquire
an additional 81,176 shares of Common Stock under options that were then
exercisable which would if exercised increase their ownership to
approximately 19% of the issued and outstanding Common Stock. See "Security
Ownership of Principal Beneficial Owners and Management" and "Market for
Common Stock and Related Stockholder Matters -- Outstanding Stock Options;
Shares Available for Resale." Consequently, the directors and executive
officers possess sufficient voting power to significantly effect the vote on,
and perhaps prevent, Business Combinations.
Election, Classification and Removal of Directors. The Company's Restated
Certificate of Incorporation provides for a classified Board of Directors,
with approximately one-third of the entire board being elected each year and
with directors serving for terms of three years. Directors are elected by a
plurality of votes cast. Holders of Common Stock do not have cumulative
voting rights. The Company's Restated Certificate of Incorporation also
provides that any director, or the entire Board of Directors, may be removed
at any time by the Company's stockholders, with or without cause, but only by
the affirmative vote of the holders of at least 80% of the shares of the
Company entitled to vote for the election of directors. The effect of these
provisions, coupled with the Board's authority to issue Preferred Stock, may
be to deter hostile takeovers, to enhance the ability of current management
to remain in control of the Company, and generally to make more difficult the
acquisition of a controlling interest in the Company.
Approval of Major Transactions. Except for Business Combinations with
Interested Stockholders, the Company is able to effect amendments to its
Restated Certificate of Incorporation (except as otherwise stated therein),
to merge or consolidate with other corporations, to make a bulk sale of its
assets not in the regular course of business and to dissolve, if the majority
of the votes cast at the stockholders meeting (at which a quorum is present)
called for the purpose of considering any such action are cast in favor of
the proposal.
Liquidation Rights. In the event of liquidation, dissolution or winding up
of the Company, holders of its Common Stock are entitled to receive equally
and pro rata per share any assets distributable to stockholders, after
payment of debts and liabilities and after the distribution to holders of any
outstanding Preferred Stock or any other outstanding shares hereafter issued
which have prior rights upon liquidation.
Other Matters. Holders of Common Stock do not have preemptive rights or
conversion rights with respect to any securities of the Company. Except in
connection with certain Business Combinations and except as noted below, the
Company can issue new shares of authorized but unissued Common Stock and/or
Preferred Stock without stockholder approval.
The bylaws of the National Association of Securities Dealers, Inc.
governing the NASDAQ National Market System, on which the Common Stock is
quoted, require issuers to obtain stockholder approval for the issuance of
securities in connection with the acquisition of a business, company, assets,
property, or securities representing such interests where the present or
potential issuance of Common Stock or securities convertible into Common
Stock could result in an increase of 20% or more in the outstanding shares of
Common Stock. Accordingly, the future issuance of Common Stock (other than
upon exercise of the Warrants or options granted under the 1994 Plan or the
1988 Plan) or a series of Preferred Stock convertible into Common Stock may
require stockholder approval under those rules.
Transfer Agent. Midlantic National Bank serves as the transfer agent of
the Company's issued and outstanding Common Stock.
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LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby has been
passed upon for the Company by Stradley, Ronon, Stevens & Young LLP,
Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994, and for each of the years in the three-year period ended
December 31, 1995, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the December 31, 1995 consolidated financial
statements refers to a change in the method of accounting for certain debt
and equity securities in 1994 and a change in method of accounting for income
taxes and postretirement benefits other than pensions in 1993.
58
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Consolidated Statements of Condition as of March 31, 1996 (unaudited), December 31, 1995 and
December 31, 1994 ............................................................................... F-3
Consolidated Statements of Income for the Three Months Ended March 31, 1996 and March 31, 1995
(unaudited) and Each of the Years in the Three Year Period Ended December 31, 1995 .............. F-4
Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31,
1996 and March 31, 1995 (unaudited) and Each of the Years in the Three Year Period Ended
December 31, 1995 ............................................................................... F-5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and March 31,
1995 (unaudited) and Each of the Years in the Three Year Period Ended December 31, 1995 ......... F-6
Notes to Consolidated Financial Statements ....................................................... F-8
</TABLE>
The unaudited data have been prepared on the same basis as the other
consolidated financial statements of the Company and, in the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results for the unaudited periods
have been made. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of results that may be expected for
any other period.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Yardville National Bancorp:
We have audited the accompanying consolidated statements of condition of
Yardville National Bancorp and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Corporation'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 Yardville
National Bancorp and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, Yardville
National Bancorp and subsidiary changed their method of accounting for
certain debt and equity securities in 1994. Additionally, as discussed in
notes 1, 8 and 9 to the consolidated financial statements, Yardville National
Bancorp and subsidiary changed their method of accounting for income taxes
and postretirement benefits other than pensions in 1993.
KPMG PEAT MARWICK LLP
Princeton, New Jersey
January 29, 1996
F-2
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------
1996 1995 1994
----------- ---------- -----------
(in thousands, except
(unaudited) share data)
<S> <C> <C> <C>
Assets:
Cash and due from banks (Note 2) .............. $ 9,689 $ 10,040 $ 9,096
Federal funds sold ............................ 7,470 2,795 2,004
----------- ---------- -----------
Cash and Cash Equivalents .................... 17,159 12,835 11,100
----------- ---------- -----------
Interest bearing deposits ..................... 4,154 1,033 1,094
Securities available for sale (Note 3) ........ 90,937 98,469 24,152
Investment securities (market value of $33,781
in 1996, $35,037 in 1995 and $35,749 in 1994)
(Note 3) ..................................... 34,576 35,384 39,083
Loans ......................................... 262,918 245,054 196,910
Less: Allowance for loan losses .............. (3,858) (3,677) (2,912)
----------- ---------- -----------
Loans, net (Note 4) .......................... 259,060 241,377 193,998
Bank premises and equipment, net (Note 5) ..... 4,964 4,026 3,935
Other real estate ............................. 659 625 314
Other assets (Note 8) ......................... 10,408 9,366 6,874
----------- ---------- -----------
Total Assets ................................. $421,917 $403,115 $280,550
=========== ========== ===========
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing ........................ $ 49,032 $ 46,682 $ 39,875
----------- ---------- -----------
Interest bearing ............................ 261,450 256,290 219,421
----------- ---------- -----------
Total Deposits (Note 6) ..................... 310,482 302,972 259,296
Borrowed funds
Securities sold under agreements to
repurchase ............................... 59,055 54,830 --
Other .................................... 16,215 10,391 1,215
----------- ---------- -----------
Total Borrowed Funds (Note 7) ............ 75,270 65,221 1,215
----------- ---------- -----------
Other liabilities ............................. 3,802 3,205 1,588
----------- ---------- -----------
Total Liabilities ............................ $389,554 $371,398 $262,099
----------- ---------- -----------
Commitments and Contingent Liabilities (Notes 9
and 12)
Stockholders' equity (Notes 9 and 10)
Preferred stock: no par value
Authorized 1,000,000 shares, none issued .
Common stock: no par value
Authorized 6,000,000 shares ..............
Issued and outstanding 2,395,171 shares in
1996, 2,349,592 shares in 1995 and
1,548,080 shares in 1994 ............... 16,870 16,409 7,006
Surplus ..................................... 2,205 2,205 2,205
Undivided profits (Note 13) ................. 13,731 12,997 10,332
Unrealized gain (loss) -- securities
available for sale ....................... (443) 106 (1,092)
----------- ---------- -----------
Total Stockholders' Equity ............... 32,363 31,717 18,451
----------- ---------- -----------
Total Liabilities and Stockholders' Equity . $421,917 $403,115 $280,550
=========== ========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- -----------------------------------
1996 1995 1995 1994 1993
-------- -------- --------- ---------- ---------
(in thousands, except per share
(unaudited) amounts)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans (Note 4) ........... $5,887 $4,842 $21,080 $14,168 $ 9,985
Interest on deposits with banks ............... 34 5 36 23 34
Interest on securities available for sale ..... 1,403 380 3,592 1,347 --
Interest on investment securities:
Taxable ..................................... 410 468 1,792 2,079 3,750
Exempt from Federal income tax .............. 96 94 372 335 189
Interest on Federal funds sold ................ 57 89 464 52 97
-------- -------- --------- ---------- ---------
Total Interest Income ........................ 7,887 5,878 27,336 18,004 14,055
-------- -------- --------- ---------- ---------
Interest Expense:
Interest on savings account deposits .......... 972 1,007 4,107 3,156 2,832
Interest on certificates of deposit of $100,000
or more ..................................... 203 263 883 299 168
Interest on other time deposits ............... 1,617 1,083 5,792 2,810 2,338
Interest on borrowed funds (Note 7) ........... 975 173 2,059 95 17
-------- -------- --------- ---------- ---------
Total Interest Expense ....................... 3,767 2,526 12,841 6,360 5,355
-------- -------- --------- ---------- ---------
Net Interest Income .......................... 4,120 3,352 14,495 11,644 8,700
Less provision for loan losses (Note 4) ....... 265 180 865 305 --
-------- -------- --------- ---------- ---------
Net Interest Income After Provision for Loan
Losses ...................................... 3,855 3,172 13,630 11,339 8,700
-------- -------- --------- ---------- ---------
Non-Interest Income:
Service charges on deposit accounts ........... 290 270 1,069 932 943
Gains on sales of mortgages, net .............. -- (1) 19 92 354
Security gains (losses), net .................. (21) -- (91) (124) 294
Other non-interest income ..................... 241 205 858 654 599
-------- -------- --------- ---------- ---------
Total Non-Interest Income .................... 510 474 1,855 1,554 2,190
-------- -------- --------- ---------- ---------
Non-Interest Expense:
Salaries and employee benefits (Note 9) ....... 1,581 1,387 5,693 5,028 4,325
Occupancy expense, net (Note 5) ............... 220 164 726 611 539
Equipment (Note 5) ............................ 177 113 513 466 488
Other non-interest expense (Note 11) .......... 840 854 3,328 3,180 3,071
-------- -------- --------- ---------- ---------
Total Non-Interest Expense ................... 2,818 2,518 10,260 9,285 8,423
-------- -------- --------- ---------- ---------
Income before income tax expense and
cumulative effect of the change in
accounting principle ...................... 1,547 1,128 5,225 3,608 2,467
Income tax expense (Note 8) ................... 555 372 1,822 1,085 733
-------- -------- --------- ---------- ---------
Income before cumulative effect of the change in
accounting principle ........................ 992 756 3,403 2,523 1,734
Cumulative effect of the change in accounting
principle (Note 8) .......................... -- -- -- -- 191
-------- -------- --------- ---------- ---------
Net Income ................................... $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925
======== ======== ========= ========== =========
<PAGE>
Earnings Per Share:
Primary:
Income before cumulative effect of the change in
accounting principle ........................ $ 0.40 $ 0.40 $ 1.61 $ 1.58 $ 1.70
Cumulative effect of the change in accounting
principle ................................... -- -- -- -- 0.16
-------- -------- --------- ---------- ---------
Net primary .................................. $ 0.40 $ 0.40 $ 1.61 $ 1.58 $ 1.86
======== ======== ========= ========== =========
Fully Diluted:
Income before cumulative effect of the change in
accounting principle ........................ $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.70
Cumulative effect of the change in accounting
principle ................................... -- -- -- -- 0.16
-------- -------- --------- ---------- ---------
Net fully diluted ............................ $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86
======== ======== ========= ========== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996 (unaudited)
and Years Ended December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------
Unrealized gain
(loss)
Common Undivided securities
stock Surplus profits available for sale Total
--------- --------- ----------- ------------------- ----------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 ................ $ 2,360 $2,205 $ 6,264 $ -- $10,829
Net income ................................ 1,925 1,925
Common stock issued:
Exercise of stock options (650 shares) 1 1
Shares sold (217,566) ................... 1,453 1,453
--------- --------- ----------- ------------------- ----------
BALANCE, December 31, 1993 ................ $ 3,814 $2,205 $ 8,189 $ -- $14,208
Net income ................................ 2,523 2,523
Cash dividends ............................ (380) (380)
Common stock issued:
Exercise of stock options (2,100 shares) 6 6
Proceeds from issuance of common stock,
net of related expense (401,492 shares) 3,186 3,186
Unrealized loss -- securities available
for sale, net of tax ................. (1,092) (1,092
--------- --------- ----------- ------------------- ----------
BALANCE, December 31, 1994 ................ $ 7,006 $2,205 $10,332 $(1,092) $18,451
Net income ................................ 3,403 3,403
Cash dividends ............................ (738) (738)
Common stock issued:
Exercise of stock options (27,663 shares) 202 202
Exercise of warrants (83,849) ........... 1,283 1,283
Proceeds from issuance of common stock,
net of related expense (690,000 shares) 7,918 7,918
Unrealized gain -- securities available for
sale, net of tax ........................ 1,198 1,198
--------- --------- ----------- ------------------- ----------
BALANCE, December 31, 1995 ................ $16,409 $2,205 $12,997 $ 106 $31,717
Net income ................................ 992 992
Cash dividends ............................ (258) (258)
Exercise of warrants ...................... 134 134
Exercise of stock options (37,320 shares)... 327 327
Unrealized loss -- securities available for
sale, net of tax ........................ (549) (549)
--------- --------- ----------- ------------------- ----------
BALANCE, March 31, 1996 ................... $16,870 $2,205 $13,731 $ (443) $32,363
========= ========= =========== =================== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ................................................... $ 3,403 $ 2,523 $ 1,925
Adjustments:
Provision for loan losses .................................. 865 305 --
Depreciation ............................................... 474 411 384
Amortization and accretion ................................. 368 320 222
(Gain) loss on sales of securities available for sale ...... 91 124 (221)
Gain on sales of investment securities, net ................ -- -- (73)
(Gain) loss on sale of other real estate ................... -- 8 (25)
Loss on disposal of bank equipment ......................... -- 16 --
Proceeds on sale of bank equipment ......................... -- 5 --
Writedown of other real estate ............................. 66 174 274
(Increase) decrease in other assets ........................ (3,289) (4,017) 325
Increase in other liabilities .............................. 1,617 344 17
----------- ---------- ----------
Net Cash Provided by Operating Activities ................. 3,595 213 2,828
----------- ---------- ----------
Cash Flows from Investing Activities:
Net (increase) decrease in interest bearing deposits ....... 61 328 (461)
Purchase of securities available for sale .................. (100,065) (15,408) --
Maturities, calls and paydowns of securities available for
sale ...................................................... 17,000 5,450 --
Proceeds from sales of securities available for sale ....... 10,481 9,380 36,380
Proceeds from maturities and paydowns of investment
securities ................................................ 4,148 4,859 32,869
Proceeds from sales of investment securities ............... -- -- 6,559
Purchase of investment securities .......................... (646) (1,109) (66,595)
Net increase in loans ...................................... (48,962) (62,353) (29,626)
Expenditures for bank premises and equipment ............... (565) (518) (390)
Proceeds from sale of other real estate .................... 353 1,301 868
Capital improvements to other real estate .................. (12) (74) (4)
----------- ---------- ----------
Net Cash Used by Investing Activities ..................... (118,207) (58,144) (20,400)
----------- ---------- ----------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand, money market,
and saving deposits ...................................... 19,044 12,128 11,609
Net increase in certificates of deposit .................... 24,632 40,480 2,856
Net increase (decrease) in borrowed funds .................. 64,006 (83) 83
Proceeds from issuance of common stock ..................... 9,403 3,192 1,454
Dividends paid ............................................. (738) (380) --
----------- ---------- ----------
Net Cash Provided by Financing Activities ................. 116,347 55,337 16,002
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ...... 1,735 (2,594) (1,570)
Cash and cash equivalents as of beginning of year ......... 11,100 13,694 15,264
----------- ---------- ----------
Cash and Cash Equivalents as of End of Year .................. $ 12,835 $ 11,100 $ 13,694
=========== ========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest expense ........................................ $ 11,432 $ 5,979 $ 5,657
Income taxes ............................................ 1,908 1,744 --
----------- ---------- ----------
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
During 1993, the Corporation transferred $61,612,000 of investment securities
to securities available for sale. The Corporation transferred $454,000 in
1995 and $220,000 in 1994 net of charge offs, from loans to other real
estate.
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ......................................................... $ 992 $ 756
Adjustments:
Provision for loan losses ........................................ 265 180
Depreciation ..................................................... 173 105
Amortization and accretion ....................................... 130 43
Securities losses, net ........................................... 21 --
Writedown of other real estate ................................... 25 1
Increase in other assets ......................................... (676) (1,175)
Increase in other liabilities .................................... 597 923
---------- ----------
Net Cash Provided by Operating Activities ....................... 1,527 833
---------- ----------
Cash Flows from Investing Activities:
Net decrease (increase) in interest bearing deposits ............. (3,121) 651
Purchase of securities available for sale ........................ (28,153) (6,685)
Maturities, calls and paydowns of securities available for sale .. 10,612 305
Proceeds from sales of securities available for sale ............. 24,049 --
Proceeds from maturities and paydowns of investment securities ... 767 718
Net increase in loans ............................................ (18,008) (19,346)
Expenditures for bank premises and equipment ..................... (1,111) (247)
Capital improvements to other real estate ........................ -- (12)
---------- ----------
Net Cash Used by Investing Activities ........................... (14,965) (24,616)
---------- ----------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand, money market, and
saving deposits................................................. 6,477 7,820
Net increase in certificates of deposit .......................... 1,033 9,940
Net increase in borrowed funds ................................... 10,049 21,143
Proceeds from issuance of common stock ........................... 461 8
Dividends paid ................................................... (258) (139)
---------- ----------
Net Cash Used by Financing Activities ........................... 17,762 38,772
---------- ----------
Net increase in cash and cash equivalents ....................... 4,324 14,989
Cash and cash equivalents as of beginning of period ............. 12,835 11,100
---------- ----------
Cash and Cash Equivalents as of End of Period ...................... $ 17,159 $ 26,089
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest expense ................................................ $ 3,789 $ 2,047
Income taxes .................................................... 150 130
---------- ----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
During the three month period ended March 31, 1996 the Corporation
transferred $60,000, net of charge offs, from loans to other real estate.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-7
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 AND YEARS ENDED DECEMBER 31, 1995,
1994, AND 1993
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND MARCH 31, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Yardville National Bancorp through its subsidiary, Yardville National Bank
(the Bank) provides a full range of services to individuals and corporate
customers in Mercer County. The Bank is subject to competition from other
financial institutions. The Bank is also subject to the regulations of
certain Federal agencies and undergoes periodic examinations by those
regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. 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 loan losses
and the valuation of real estate acquired in connection with foreclosures or
in satisfaction of loans.
A. Consolidation -- The consolidated financial statements include the
accounts of Yardville National Bancorp and its sole subsidiary, the Bank, and
the Bank's wholly owned subsidiary, The Yardville National Investment
Corporation (collectively, the Corporation). All significant intercompany
accounts and transactions have been eliminated. The consolidated financial
statements as of March 31, 1996 and for the three months ended March 31, 1996
and 1995 are unaudited and, in the opinion of management, include all
adjustments necessary (which consist of only normal recurring adjustments)
for a fair presentation of the financial position and results of operation
for the interim periods.
B. Cash and Cash Equivalents -- For purposes of the consolidated
statements of cash flows, cash and cash equivalents include cash on hand,
amounts due from banks, and Federal funds sold. Generally, Federal funds are
purchased or sold for one day periods.
C. Securities -- On January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". This pronouncement requires the Corporation's
securities portfolio to be classified into three separate portfolios: held to
maturity, available for sale and trading. The Corporation currently has no
securities classified as trading. Securities classified as available for sale
may be used by the Corporation as funding and liquidity sources and can be
used to manage the Corporation's interest rate sensitivity position. These
securities are carried at their estimated market value with their unrealized
gains and losses carried, net of income tax, as adjustments to stockholders'
equity. Amortization of premium or accretion of discount are recognized as
adjustments to interest income, on a level yield basis. Gains and losses on
disposition are included in earnings using the specific identification
method.
Investment securities are composed of securities that the Corporation has
the positive intent and ability to hold to maturity. These securities are
stated at cost, adjusted for amortization of premium or accretion of
discount. The premium or discount adjustments are recognized as adjustments
to interest income, on a level yield basis. Unrealized losses due to
fluctuations in market value are recognized as investment security losses
when a decline in value is assessed as being other than temporary.
D. Loans -- Interest on loans is recognized monthly based upon the
principal amount outstanding. Loans are stated at face value, less unearned
income and net deferred fees. Interest is not accrued on loans where a
F-8
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
1. Summary of Significant Accounting Policies - (Continued)
default of principal or interest exists over a period of ninety days, or
earlier if management considers collection of principal or interest to be
doubtful. Exceptions are made only when loans are well secured and in the
process of collection. Generally, when a loan becomes nonaccrual all
previously accrued but uncollected interest is reversed against the
appropriate income and statement of condition accounts. Loan origination and
commitment fees less certain costs are deferred and the net amount amortized
as an adjustment to the related loan's yield.
E. Allowance for Loan Losses -- For financial reporting purposes, the
provision for loan losses charged to operating expense is determined by
management and is based upon a periodic review of the loan portfolio, past
experience, the economy, and other factors that may affect the borrower's
ability to repay the loan. This provision is based on management's estimates,
and actual losses may vary from these estimates. These estimates are reviewed
and adjustments, as they become necessary, are reported in the periods in
which they become known. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize
losses on loans and other real estate, future additions to the allowance may
be necessary based on changes in economic conditions, particularly in New
Jersey. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Corporation's allowance
for loan losses and the valuation of other real estate. Such agencies may
require the Corporation to recognize additions to the allowance or
adjustments to the carrying value of other real estate based on their
judgments about information available to them at the time of their
examination.
The Corporation adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment
of a Loan", as amended by SFAS No. 118. "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures" on January 1,
1995. Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be
impaired when it is probable that the Corporation will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
When a loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or fair value of the collateral.
Impairment losses are included in the allowance for loan losses through
provisions charged to operations. In accordance with the adoption of SFAS No.
114, insubstance foreclosures have been reclassified to nonperforming loans
for all periods presented. The adoption of SFAS No. 114 and SFAS No. 118 did
not materially affect the 1995 financial statements.
F. Bank Premises and Equipment -- Bank premises and equipment are stated
at cost less accumulated depreciation. Depreciation is computed on
straight-line and accelerated methods over the estimated useful lives of the
assets (buildings 25 to 50 years, furniture and fixtures 7 to 10 years).
Charges for maintenance and repairs are expensed as they are incurred.
G. Other Real Estate (O.R.E.) -- O.R.E. comprises real properties acquired
through foreclosure or deed in lieu of foreclosure in partial or total
satisfaction of problem loans. The properties are recorded at the lower of
cost or fair value less estimated disposal costs at the date acquired. When a
property is acquired, the excess of the loan balance over the fair value is
charged to the allowance for loan losses. Any subsequent writedowns that may
be required to the carrying value of the property are included in other
non-interest expense. Gains realized from the sales of other real estate are
included in other non-interest income, while losses are included in non-
interest expense.
H. Federal Income Taxes -- Effective January 1, 1993, the Corporation
adopted SFAS No. 109 "Accounting for Income Taxes" and reported the
cumulative effect of that change in the method of accounting for income taxes
in the 1993 consolidated statement of income.
F-9
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
1. Summary of Significant Accounting Policies - (Continued)
SFAS No. 109 required a change from the deferred method of accounting for
income taxes of previously applicable accounting principles to the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in the tax
rates is recognized in income in the period of the enactment date.
I. Earnings Per Share -- Earnings per share are based on the weighted
average number of shares outstanding including common stock equivalents
(2,530,000 shares and 2,047,000 shares in the first quarter of 1996 and 1995,
respectively and 2,192,000 shares in 1995, 1,757,000 shares in 1994 and
1,036,000 shares in 1993) utilizing the modified treasury stock method in the
first quarter of 1996, 1995 and 1994 and the treasury stock method in 1993.
2. CASH AND DUE FROM BANKS
The Corporation maintains various deposits with other banks. As of March
31, 1996, December 31, 1995 and 1994, the Corporation maintained sufficient
cash on hand to satisfy Federal regulatory requirements.
3. SECURITIES
The amortized cost and estimated market value of securities available for
sale are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
March 31, 1996
U.S. Treasury securities and obligations of other U.S.
government agencies and corporations ............... $14,751 $ 21 $ (119) $14,653
Mortgage-backed securities .......................... 74,398 74 (713) 73,759
Federal Reserve Bank stock .......................... 550 -- -- 550
Federal Home Loan Bank stock ........................ 1,975 -- -- 1,975
----------- ------------ ------------ -----------
Total .............................................. $91,674 $ 95 $ (832) $90,937
=========== ============ ============ ===========
December 31, 1995
U.S. Treasury securities and obligations of other U.S.
government agencies and corporations ............... $17,795 $ 63 $ (35) $17,823
Mortgage-backed securities .......................... 78,725 320 (171) 78,874
Federal Reserve Bank Stock .......................... 512 -- -- 512
Federal Home Loan Bank Stock ........................ 1,260 -- -- 1,260
----------- ------------ ------------ -----------
Total .............................................. $98,292 $383 $ (206) $98,469
=========== ============ ============ ===========
December 31, 1994
U.S. Treasury securities and obligations of other U.S. $
government agencies and corporations ............... $ 6,366 -- $ (216) 6,150
Mortgage-backed securities .......................... 18,358 -- (1,603) 16,755
Federal Reserve Bank stock .......................... 173 -- -- 173
Federal Home Loan Bank stock ........................ 1,074 -- -- 1,074
----------- ------------ ------------ -----------
Total .............................................. $25,971 $ -- $(1,819) $24,152
=========== ============ ============ ===========
</TABLE>
F-10
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
3. Securities - (Continued)
The amortized cost and estimated market values of investment securities
are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
March 31, 1996
Obligations of state and political subdivisions... $ 8,623 $16 $ (87) $ 8,552
Mortgage-backed securities ...................... 25,953 -- (724) 25,229
----------- ------------ ------------ -----------
Total .......................................... $34,576 $16 $ (811) $33,781
=========== ============ ============ ===========
December 31, 1995
Obligations of state and political subdivisions... $ 8,630 $56 $ (27) $ 8,659
Mortgage-backed securities ...................... 26,754 -- (376) 26,378
----------- ------------ ------------ -----------
Total .......................................... $35,384 $56 $ (403) $35,037
=========== ============ ============ ===========
December 31, 1994
Obligations of state and political subdivisions... $ 8,392 $-- $ (615) $ 7,777
Mortgage-backed securities ...................... 30,691 -- (2,719) 27,972
----------- ------------ ------------ -----------
Total .......................................... $39,083 $-- $(3,334) $35,749
=========== ============ ============ ===========
</TABLE>
The amortized cost and estimated market value of securities available for
sale and investment securities as of March 31, 1996 and December 31, 1995 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.
Securities available for sale:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
(in thousands)
<S> <C> <C>
March 31, 1996
Due in one year or less ......... $ 5,750 $ 5,730
Due after 1 year through 5 years . 9,001 8,923
Due after 5 years through 10 years -- --
Due after 10 years .............. 2,525 2,525
----------- -----------
Subtotal ....................... 17,276 17,178
Mortgage-backed securities ...... 74,398 73,759
----------- -----------
Total ........................... $91,674 $90,937
=========== ===========
December 31, 1995
Due in 1 year or less ........... $ 9,595 $ 9,574
Due after 1 year through 5 years . 8,200 8,249
Due after 10 years .............. 1,772 1,772
----------- -----------
Subtotal ....................... 19,567 19,595
Mortgage-backed securities ...... 78,725 78,874
----------- -----------
Total ........................... $98,292 $98,469
=========== ===========
</TABLE>
F-11
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
3. Securities - (Continued)
INVESTMENT SECURITIES:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
(in thousands)
<S> <C> <C>
March 31, 1996
Due in one year or less ........... $ -- $ --
Due after 1 year through 5 years.... 3,100 3,069
Due after 5 years through 10 years.. 4,988 4,941
Due after 10 years ................ 535 542
----------- -----------
Subtotal ......................... 8,623 8,552
Mortgage-backed securities ........ 25,953 25,229
----------- -----------
Total ............................. $34,576 $33,781
=========== ===========
December 31, 1995
Due after 1 year through 5 years.... $ 3,102 $ 3,089
Due after 5 years through 10 years.. 4,988 5,014
Due after 10 years ................ 540 556
----------- -----------
Subtotal ......................... 8,630 8,659
Mortgage-backed securities ........ 26,754 26,378
----------- -----------
Total ............................. $35,384 $35,037
=========== ===========
</TABLE>
There were no sales of investment securities during 1995 or 1994. Proceeds
from sales of investment securities during 1993 were $6,559,000. Gross gains
of $73,000 were realized on those sales.
Proceeds from sales of securities available for sale during 1995, 1994 and
1993 were $10,481,000, $9,380,000 and $36,380,000, respectively. Gross gains
of $27,000, $23,000 and $323,000 and gross losses of $118,000, $147,000 and
$102,000, respectively, were realized on those sales. Proceeds from sales of
securities available for sale during the three months ended March 31, 1996
were $24,049,000 (gross gains and losses).
Securities with a carrying value of approximately $68,944,000 as of
December 31, 1995 and $73,111,000 as of March 31, 1996 were pledged to secure
public deposits and for other purposes as required or permitted by law. As of
December 31, 1995 Federal Home Loan Bank (FHLB) stock with a carrying value
of $1,260,000 was held by the Corporation as required by the FHLB.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table shows comparative detail of the loan portfolio:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1996 1995 1994
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Commercial and agricultural loans . $ 34,310 $ 33,218 $ 26,626
Real estate loans -- mortgage .... 192,486 173,191 138,730
Real estate loans -- construction . 17,748 19,353 15,560
Consumer loans ................... 11,656 12,386 10,934
Other loans ...................... 6,718 6,906 5,060
----------- ---------- ----------
Total loans ...................... $262,918 $245,054 $196,910
=========== ========== ==========
</TABLE>
F-12
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
4. Loans and Allowance for Loan Losses - (Continued)
Residential mortgage loans held for sale amounted to $3,132,000,
$2,979,000 and $3,167,000 as of March 31, 1996, December 31, 1995 and 1994,
respectively. These loans are accounted for at the lower of aggregate cost or
market value and are included in the table above.
The Corporation has extended credit in the ordinary course of business to
directors, officers and their associates on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with other customers of the Corporation.
The following table summarizes activity with respect to such loans:
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31, -----------------------
1996 1995 1994
------------------ -------- --------
(in thousands)
<S> <C> <C> <C>
Balance as of beginning of period . $3,581 $2,633 $1,066
Additions ....................... 256 1,400 2,040
Less amounts collected .......... 617 452 473
------------------ -------- --------
Ending balance .................. $3,220 $3,581 $2,633
================== ======== ========
</TABLE>
The majority of the Corporation's business is with customers located
within Mercer County, New Jersey and contiguous counties. Accordingly, the
ultimate collectibility of the loan portfolio and the recovery of the
carrying amount of real estate are subject to changes in the region's real
estate market. A portion of the total portfolio is secured by real estate.
The principal areas of exposure are construction and development loans, which
are primarily commercial and residential projects and commercial mortgage
loans. Commercial mortgage loans are completed projects and are generally
owner-occupied, creating cash flow.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance as of beginning of period $3,677 $2,912 $2,912 $2,703 $2,940
Loans charged off .............. (96) (24) (209) (206) (351)
Recoveries of loans charged off . 12 53 109 110 114
-------- -------- -------- --------- ---------
Net charge offs ................ (84) 29 (100) (96) (237)
Provision charged to operations . 265 180 865 305 --
-------- -------- -------- --------- ---------
Balance as of end of period .... $3,858 $3,121 $3,677 $2,912 $2,703
======== ======== ======== ========= =========
</TABLE>
<PAGE>
The detail of loans charged off is as follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
---------------- -------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and agricultural ..... $-- $-- $ -- $ 47 $ --
Real estate loans -- mortgage ... -- -- 26 51 222
Real estate loans -- construction . 34 -- 30 25 45
Consumer loans .................. 62 24 153 83 84
------ ------ ------ ------ ------
Total ........................... $96 $24 $209 $206 $351
====== ====== ====== ====== ======
</TABLE>
F-13
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
4. Loans and Allowance for Loan Losses - (Continued)
Nonperforming assets include nonperforming loans and other real estate.
The nonperforming loan category includes loans on which accrual of interest
has been discontinued with subsequent interest payments credited to income as
received and loans 90 days past due or greater on which interest is still
accruing. Nonperforming loans as a percentage of total loans were 0.92% as of
March 31, 1996, 1.15% as of December 31, 1995 and 1.05% as of December 31,
1994.
A summary of nonperforming assets is as follows:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------
1996 1995 1994
----------- -------- --------
(in thousands)
<S> <C> <C> <C>
Nonaccruing loans:
Real estate loans -- mortgage $1,728 $1,395 $1,203
Real estate loans --
construction ............. 66 142 521
Consumer loans ............. -- 30 --
----------- -------- --------
Total nonaccruing loans ......... 1,794 1,567 1,724
----------- -------- --------
Restructured loan ............... -- 612 --
Past due 90 days or more:
Commercial and agricultural ..... 2
Real estate loans -- mortgage ... 586 588 326
Consumer loans .................. 31 52 16
----------- -------- --------
Total past due 90 days or more .. 619 640 342
----------- -------- --------
Total nonperforming loans ....... 2,413 2,819 2,066
Other real estate ............... 659 625 314
----------- -------- --------
Total nonperforming assets ...... $3,072 $3,444 $2,380
=========== ======== ========
</TABLE>
The Corporation adopted the provisions of SFAS No. 114 and SFAS No. 118
effective January 1, 1995. All loans receivable have been evaluated for
collectibility under the provisions of these statements.
The Corporation has defined the population of impaired loans to be all
nonaccrual commercial loans. Impaired loans are individually assessed to
determine that the loan's carrying value is not in excess of the fair value
of the collateral or the present value of the loan's expected cash flows.
Smaller balance homogeneous loans that are collectively evaluated for
impairment, including residential mortgage and consumer loans, are
specifically excluded from the impaired loan portfolio.
The recorded investment in loans receivable for which an impairment has
been recognized and the related allowance for loan losses were $1,320,000 and
$175,000, respectively, at March 31, 1996, and $1,291,000 and $184,000,
respectively at December 31, 1995, of the total investment in impaired loans
of March 31, 1996, $1,280,000 had related allowance for credit losses of
$175,000 and the remaining $40,000 had no related allowance for credit
losses. The average recorded investment in impaired loans during 1995 was
$1,322,000. There was no interest income recognized on impaired loans in
1995.
Additional income before income taxes amounting to approximately $35,000
for the three months ended March 31, 1996 and $143,000 in 1995, $183,000 in
1994 and $226,000 in 1993 would have been recognized if interest on all loans
had been recorded based upon original contract terms.
There was $9,858 of interest income recorded on the restructured loan
during 1995. There is no commitment to lend additional funds to the borrower
whose loan has been restructured.
The Corporation originates and sells mortgage loans to Federal Home Loan
Mortgage Corporation (FHLMC) and Federal National Mortgage Association
(FNMA). Generally, servicing on such loans is retained update for March by
the Corporation. As of March 31, 1996, December 31, 1995 and 1994, loans
serviced for FHLMC were $46,754,000 and, $49,097,000 and $51,596,000,
respectively. Loans serviced for FNMA were $1,618,000 and $1,503,000 as of
March 31, 1996 and December 31, 1995, respectively.
F-14
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
5. BANK PREMISES AND EQUIPMENT
The following table represents comparative information for premises and
equipment:
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------
1996 1995 1994
----------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Land and improvements ........... $ 525 $ 524 $ 508
Buildings and improvements ...... 3,916 3,874 3,650
Furniture and equipment ......... 4,564 3,496 3,188
----------- -------- ---------
Total ........................... 9,005 7,894 7,346
Less accumulated depreciation ... 4,041 3,868 3,411
----------- -------- ---------
Bank premises and equipment, net . $4,964 $4,026 $3,935
=========== ======== =========
</TABLE>
6. DEPOSITS
Total deposits consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------
1996 1995 1994
----------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Non-interest bearing demand deposits ....... $ 49,032 $ 46,682 $ 39,875
Money market deposits ...................... 58,499 56,759 44,822
Savings deposits ........................... 73,115 70,731 70,431
Certificates of deposit of $100,000 and over . 15,112 15,021 22,174
Other time deposits ........................ 114,724 113,779 81,994
----------- ---------- -----------
Total ...................................... $310,482 $302,972 $259,296
=========== ========== ===========
</TABLE>
7. BORROWED FUNDS
Borrowed funds include securities sold under agreements to repurchase and
FHLB advances. Other borrowed funds consist of Federal funds purchased and
Treasury tax and loan deposits.
The following table presents comparative data related to borrowed funds of
the Corporation at and for the three month periods ended March 31, 1996 and
1995 and the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
March 31, December 31,
------------------- --------------------
1996 1995 1995 1994
-------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Securities sold under agreements to repurchase .$59,055 $12,000 $54,830 $ --
FHLB advance ................................. 15,000 10,000 10,000 --
Other ........................................ 1,215 358 391 1,215
------- ------- ------- -------
Total ........................................ $75,270 $22,358 $65,221 $1,215
------- ------- ------- -------
Maximum amount outstanding at any month end .. $75,270 $22,358 $65,221 $7,264
Average interest rate on period end balance .. 5.53% 6.64% 6.01% 4.50%
Average amount outstanding during the period . $66,718 $11,288 $33,339 $2,248
Average interest rate for the period ......... 5.85% 6.13% 6.18% 4.23%
======= ======= ======= =======
</TABLE>
F-15
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
7. Borrowed Funds - (Continued)
The following is a summary of securities sold under agreements to
repurchase and their maturities as of March 31, 1996:
<TABLE>
<CAPTION>
(in thousands)
-------------
<S> <C>
Up to 30 days ............................................. $19,785
30 to 90 days ............................................. 13,470
Over 90 days .............................................. 25,800
-------------
Total ..................................................... $59,055
=============
</TABLE>
The Corporation, at March 31, 1996, had $15,000,000 outstanding in FHLB
advances all maturing within one year. Each advance totalling $5,000,000 will
mature on September 6, 1996, March 6, 1997 and March 29, 1997, respectively.
8. INCOME TAXES
Income taxes reflected in the consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statements of Income:
Federal:
Current .................. $ 543 $ 426 $1,881 $1,238 $ 726
Deferred ................. (95) (101) (400) (129) 88
State:
Current .................. $ 130 $ 10 $ 253 $ 34 $ 34
Deferred ................. (23) 37 88 (58) (115)
-------- ------- -------- --------- -------
Total tax expense .................. $ 555 $ 372 $1,822 $1,085 $ 733
-------- ------- -------- --------- -------
Statements of Condition:
Deferred tax on securities available for
sale ............................. $(220) $ 181 $ 798 $ (727) $ --
======== ======= ======== ========= =======
</TABLE>
The Corporation adopted SFAS No. 109 as of January 1, 1993 and the
cumulative effect of this change is reported in the 1993 Consolidated
Statement of Income. The favorable cumulative effect at January 1, 1993 was
$191,000.
F-16
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
8. Income Taxes - (Continued)
Deferred income taxes reflect the impact of "temporary differences"
between amounts of assets and liabilities for financial reporting purposes
and such amounts will change as measured by tax laws. These temporary
differences are determined in accordance with SFAS No. 109 and are more
inclusive in nature than "timing differences" as determined under previously
applicable accounting principles. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------
1996 1995 1994
----------- -------- -------
(in thousands)
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan fees .............................. $ 136 $ 119 $ 141
Allowance for loan losses ....................... 1,247 1,174 838
Writedown of basis of O.R.E. properties ......... 36 36 46
Deferred income ................................. 1 1 5
Nonaccrual loans ................................ 40 40 59
Net state operating loss carryforward ........... -- -- 124
Unrealized loss on securities available for sale . -- -- 727
Deferred compensation ........................... 194 183 --
Other ........................................... 26 26 93
----------- -------- -------
Total deferred tax assets ....................... 1,680 1,579 2,033
----------- -------- -------
Valuation allowance ............................. (78) (78) (78)
----------- -------- -------
Deferred tax liabilities:
Unrealized gain on securities available for sale . (71) (71) --
Unamortized discount accretion .................. (83) (76) (39)
Depreciation .................................... (222) (227) (304)
----------- -------- -------
Net deferred tax asset .......................... $1,226 $1,127 $1,612
=========== ======== =======
</TABLE>
The Corporation has established the valuation allowance against certain
temporary differences. The Corporation is not aware of any factors which
would generate significant differences between taxable income and pre-tax
accounting income in future years except for the effects of the reversal of
current or future net deductible temporary differences. Management believes,
based upon current information, that it is more likely than not that there
will be sufficient taxable income through carryback to prior years to realize
the net deferred tax asset. However, there can be no assurance regarding the
level of earnings in the future.
F-17
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
8. Income Taxes - (Continued)
A reconciliation of the tax expense computed by multiplying pre-tax
accounting income by the statutory Federal income tax rate of 34% is as
follows:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
---------------- -------------------------------
1996 1995 1995 1994 1993
------ ------ -------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Income tax expense at statutory rate ... $526 $384 $1,776 $1,227 $839
State income taxes, net of Federal benefit,
before change in valuation reserve .... 71 31 226 151 (53)
Changes in taxes resulting from:
Tax exempt interest ............... (29) (30) (117) (117) (57)
Tax exempt income ................. (23) (19) (93) -- --
Non-deductible expenses ........... 10 6 30 76 37
Other ............................. -- -- -- -- --
Change in Federal valuation reserve. -- -- -- (252) (33)
------ ------ -------- --------- -------
Total ............................. $555 $372 $1,822 $1,085 $733
====== ====== ======== ========= =======
</TABLE>
9. BENEFIT PLANS
RETIREMENT SAVINGS PLAN
The Corporation has a 401(K) plan which covers substantially all employees
with one or more years of service. The plan permits all eligible employees to
make basic contributions to the plan up to 12% of base compensation. Under
the plan, the Corporation provides a matching contribution of 25% up to 6% of
base compensation. Employer contributions to the plan amounted to $18,000 for
the three months ended March 31, 1996 and $36,000 in 1995, $31,000 in 1994,
and $56,000 in 1993. Effective January 1, 1996, the corporation will provide
a matching contribution of 50% up to 6% of base compensation.
POSTRETIREMENT BENEFITS
The Corporation provides additional postretirement benefits, namely life
and health insurance, to retired employees who have completed 15 years of
service, regardless of age, and retired employees over age 55 who have
completed 10 years of service. The plan calls for retirees to contribute a
portion of the cost of providing these benefits in relation to years of
service.
During the fourth quarter of 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (SFAS 106), retroactive to
January 1, 1993. SFAS 106 requires an employer to recognize the cost of
retiree health and life insurance benefits over the employees' period of
service. Prior to 1993, expense was recognized on a "pay as you go" basis.
The transition obligation is being amortized over a twenty year period.
The periodic postretirement benefit cost for 1995, 1994 and 1993 under
SFAS 106 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
(in thousands)
<S> <C> <C> <C>
Service cost ......................... $ 50 $ 46 $ 43
Interest cost ........................ 68 47 42
Amortization of transition obligation . 30 30 30
------ ------- ------
Net postretirement cost .............. $148 $123 $115
====== ======= ======
</TABLE>
F-18
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
9. Benefit Plans - (Continued)
The actuarial present value of benefit obligations were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees ..................................... $ 325 $ 143
Fully eligible active plan participants ...... 299 212
Other active plan participants ............... 582 274
------- -------
Accumulated postretirement benefit obligation . 1,206 629
Unrecognized transition obligation ........... (510) (540)
Unrecognized actuarial gain .................. (350) 137
------- -------
Accrued postretirement benefit obligation .... $ 346 $ 226
======= =======
</TABLE>
The assumed annual rate of future increases in per capita cost of health
care benefits was 11% for 1995 and 12% for 1994. The rate was assumed to
decline gradually to 5% in 2001 and remain at that level thereafter.
Increasing the health care cost trend by 1% in each year would increase the
accumulated postretirement benefit obligation by $300,000 and the service,
interest and amortization costs by $29,000. The weighted average discount
rate used in determining the accumulated benefit obligation was 8.5% in 1995
and 8% in 1994.
STOCK OPTION PLAN
In March 1988, the Stockholders approved an incentive stock option plan
for the purpose of assisting the Corporation in attracting and retaining
highly qualified persons as employees of the Corporation and to provide such
key employees with incentives to contribute to the growth and development of
the Corporation. In general, the plan allows the granting of up to 44,000
shares of the Corporation's common stock at an option price to be no less
than the fair market value of the stock on the date such options are granted.
The vesting schedule of the stock options is set by a committee appointed by
the Board of Directors. In April 1994, the stock option plan was amended and
approved by the Board of Directors to increase the maximum number of shares
subject to grant to 164,000.
F-19
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
9. Benefit Plans - (Continued)
The Board of Directors anticipates that the stock options will vest during
a period of up to ten years after the date of grant. The status of the plan
for the three-month period ended March 31, 1996 and the years ended December
31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
Price
Shares Per Share
--------- --------------
<S> <C> <C>
Balance, December 31, 1992 . 33,490 $3.10 - $16.31
--------- --------------
Options:
Granted .............. 11,000 $ 8.00
Exercised ............ 650 $ 3.10
Cancelled ............ 3,990 $16.31
--------- --------------
Balance, December 31, 1993 . 39,850 $3.10 - $8.00
--------- --------------
Options:
Granted .............. 122,480 $ 8.75
Exercised ............ 2,100 $ 3.10
--------- --------------
Balance, December 31, 1994 . 160,230 $3.10 - $ 8.75
--------- --------------
Options:
Granted .............. 3,520 $14.75
Exercised ............ 16,720 $3.10 - $14.75
Expired .............. 2,350 $8.00 - $ 8.75
--------- --------------
Balance, December 31, 1995 . 144,680 $8.00 - $14.75
--------- --------------
Options:
Exercised ............ 34,777 $8.75 - $14.75
Balance, March 31, 1996 ... 109,903 $8.00 - $14.75
======== ==============
</TABLE>
1994 STOCK OPTION PLAN
In April 1994, the Board of Directors approved a non-qualified stock
option plan for non-employee directors for the purpose of assisting the
Corporation in attracting and retaining highly qualified persons as non-
employee members of the Board of Directors and to provide such directors with
incentives to contribute to the growth and development of the business of the
Corporation. In general, the plan allows for the granting of up to 40,000
shares of the Corporation's common stock at an option price to be no less
than the fair market value of the stock on the date such options are granted.
The vesting schedule of the stock options are to be set by a committee
appointed by the Board of Directors.
The options granted in 1994, under this plan, vested immediately. The
status of the plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------
Price
Shares Per Share
-------- -----------
<S> <C> <C>
Balance, December 31, 1993 . -- --
-------- -----------
Options granted ........... 32,000 $8.75
-------- -----------
Balance, December 31, 1994 . 32,000 $8.75
-------- -----------
Options:
Exercised ............... 10,943 $8.75
Expired ................. 3,200 $8.75
-------- -----------
Balance, December 31, 1995 . 17,857 $8.75
-------- -----------
Options:
Exercised .............. 2,543 $8.75
Balance, March 31, 1996 ... 15,314 $8.75
-------- -----------
</TABLE>
F-20
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
10. COMMON STOCK
In connection with the 1993 private placement capital offering, the
Corporation issued 217,566 units consisting of one share of common stock and
one warrant to purchase one share of common stock for proceeds of $1,453,000,
net of offering expenses.
On September 23, 1994, the Corporation completed its Rights Offering. This
offering, available only to stockholders of record on August 8, 1994, raised
$2,901,000, net of offering expenses. In connection with the 1993 private
placement capital offering, the Corporation agreed, subject to limits on
total ownership of common stock, to offer up to 21,000 units to two
accredited private investors ("Additional Units Offering"). On October 11,
1994 each private investor purchased the additional units. The Corporation
issued 401,492 units, from the Rights Offering and the Additional Units
Offering, consisting of one share of common stock and one warrant to purchase
one share of common stock. The proceeds from these offerings were $3,186,000,
net of offering expenses.
The exercise period of the warrants commenced on June 14, 1995 and expired
on June 13, 1996. During 1995, 83,849 warrants were exercised with proceeds
of $1,283,000. During the first quarter of 1996, 8,259 warrants were
exercised with proceeds of $134,000.
On June 14, 1995, the Corporation completed an underwritten public
offering by issuing 690,000 shares of common stock. The proceeds from this
offering were $7,918,000, net of offering expenses.
11. OTHER NON-INTEREST EXPENSE
Other non-interest expense included the following:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year ended December 31,
---------------- ---------------------------------
(unaudited)
1996 1995 1995 1994 1993
------ ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C>
FDIC insurance premium . $ -- $137 $ 290 $ 464 $ 488
O.R.E. expenses ....... 8 36 166 306 386
Stationery and supplies. 101 87 300 229 208
Computer services ..... 116 70 285 270 295
Insurance (other) ..... 21 27 93 119 169
Marketing ............. 117 117 479 415 280
Other ................. 477 380 1,715 1,377 1,245
------ ------ -------- --------- ---------
Total ............... $840 $854 $3,328 $3,180 $3,071
====== ====== ======== ========= =========
</TABLE>
12. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation enters into a variety of financial instruments with
off-balance sheet risk in the normal course of business. These financial
instruments include commitments to extend credit and letters of credit, both
of which involve, to varying degrees, elements of risk in excess of the
amount recognized in the consolidated financial statements.
Credit risk, the risk that a counterparty of a particular financial
instrument will fail to perform, is the contract amount of the commitments to
extend credit and letters of credit. The credit risk associated with these
financial instruments is essentially the same as that involved in extending
loans to customers. Credit risk is managed by limiting the total amount of
arrangements outstanding and by applying normal credit policies to all
activities with credit risk. Collateral is obtained based on management's
credit assessment of the customer.
The contract amounts of off-balance sheet financial instruments for
commitments to extend credit and standby letters of credit were $59,074,000
and $5,361,000, respectively, as of March 31, 1996, and $63,531,000 and
$6,720,000 respectively, as of December 31, 1995.
F-21
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
12. Other Commitments and Contingent Liabilities - (Continued)
Many such commitments to extend credit may expire without being drawn
upon, and therefore, the total commitment amounts do not necessarily
represent future cash flow requirements.
The Corporation maintains lines of credit with the FHLB and two of its
correspondent banks. There were approximately $22,000,000 in lines of credit
available as of December 31, 1995. At March 31, 1996 there were approximately
$25,000,000 in lines of credit available with no outstanding balances. At
March 31, 1996, there were $15,000,000 in outstanding borrowings with the
FHLB and no outstanding borrowings from the Corporation's Correspondents.
The Corporation leases its banking offices in Ewing Township, East Windsor
Township and Trenton. Total lease rental expense was $26,950, $103,002 and
$42,678 for the three months ended March 31, 1996, and the years ended
December 31, 1995 and 1994, respectively. Minimum rentals under the terms of
these leases for years 1996 through 2000 are $106,367, $106,518, $106,518,
$108,198, and $108,758, respectively.
The Corporation and the Bank are party, in the ordinary course of
business, to litigation involving collection matters, contract claims and
other miscellaneous causes of action arising from their business. Management
does not consider that any such proceedings depart from usual routine
litigation, and in its judgment, the Corporation's consolidated financial
position will not be affected materially by the final outcome of any pending
legal proceedings.
13. REGULATORY MATTERS
In January 1989, the Federal Reserve Board issued risk-based capital
guidelines applicable to member banks and bank holding companies and in March
1989 the FDIC issued comparable guidelines applicable to state nonmember
banks. The guidelines, which establish a risk-adjusted ratio relating capital
to different categories of assets and off-balance sheet exposures, require a
minimum total risk-based capital ratio of 8% with at least half of the total
capital in the form of Tier 1 capital.
The Federal Reserve Board and FDIC have also adopted leverage or core
capital requirements specifying the minimum acceptable ratios of Tier 1
capital to total assets. Under these requirements, banks are required to
maintain minimum leverage ratios of at least 4% or 5%, depending on the
condition of the institution.
As of March 31, 1996 and December 31, 1995, the Corporation is in
compliance with all regulatory capital requirements.
Permission from the Comptroller of the Currency is required if the total
of dividends declared in a calendar year exceeds the total of the Bank's net
profits, as defined by the Comptroller, for that year, combined with its
retained net profits of the two preceding years. The retained net profits of
the Bank available for dividends are approximately $5,323,000 as of March 31,
1996 and $4,586,000 as of December 31, 1995.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Improvement Act") became law. While the
FDIC Improvement Act primarily addresses additional sources of funding for
the Bank Insurance Fund, which insures the deposits of commercial banks and
saving banks, it also imposes a number of new mandatory supervisory measures
on savings associations and banks.
The FDIC Improvement Act requires financial institutions to take certain
actions relating to their internal operations, including: providing annual
reports on financial condition and management to the appropriate federal
banking regulators, having an annual independent audit of financial
statements performed by an independent public accountant and establishing an
independent audit committee composed solely of outside directors. The FDIC
Improvement Act also imposes certain operational and managerial standards on
financial institutions relating to internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits.
F-22
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value estimates, methods and assumptions were used to
measure the fair value of each class of financial instruments for which it is
practical to estimate that value:
CASH AND CASH EQUIVALENTS:
For such short-term investments, the carrying amount was considered to be
a reasonable estimate of fair value.
SECURITIES AND MORTGAGE-BACKED SECURITIES:
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated
credit concerns. The fair value of longer-term investments and mortgage-
backed securities, except certain state and municipal securities, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state
and municipal securities is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted
market prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
LOANS:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage and other consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans, except residential mortgage loans, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest
rate risk inherent in the loan. The estimate of maturity is based on the
Corporation's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for prepayment estimates using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
DEPOSIT LIABILITIES:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, and NOW accounts, and money market and
checking accounts, is equal to the amount payable on demand as of December
31, 1995 and 1994. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
BORROWED FUNDS:
For securities sold under agreements to repurchase, fair value was based
on rates currently available to the Corporation for agreements with similar
terms and remaining maturities. For other borrowed funds, the carrying amount
was considered to be a reasonable estimate of fair values.
F-23
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
14. Fair Value of Financial Instruments - (Continued)
The estimated fair values of the Corporation's financial instruments as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
Carrying Fair
Value Value
---------- ---------
(in thousands)
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 12,835 $ 12,835
Interest bearing deposits 1,033 1,033
Securities available for
sale ................. 98,469 98,469
Investment securities .. 35,384 35,037
Loans .................. 241,377 249,848
Financial Liabilities:
Deposits ............... 302,972 304,039
Borrowed funds ......... 65,221 64,333
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
Carrying Fair
Value Value
---------- ---------
(in thousands)
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 11,100 $ 11,100
Interest bearing deposits 1,094 1,094
Securities available for
sale ................. 24,152 24,152
Investment securities .. 39,083 35,749
Loans .................. 193,998 198,466
Financial Liabilities:
Deposits ............... 259,296 258,480
Borrowed funds ......... 1,215 1,215
</TABLE>
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, and as the fair value for
these financial instruments was not material, these disclosures are not
included above.
LIMITATIONS:
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Corporation's financial instruments, fair value estimates are
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. Significant assets and liabilities that are
not considered financial assets or liabili-
F-24
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
14. Fair Value of Financial Instruments - (Continued)
ties include the deferred tax assets, bank premises and equipment. In
addition, the tax ramifications 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.
15. PARENT CORPORATION INFORMATION
The condensed financial statements of the parent company only are
presented below:
YARDVILLE NATIONAL BANCORP
(PARENT CORPORATION)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1996 1995 1994
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Assets:
Cash ................................. $ 798 $ 342 $ 595
Investment in subsidiary ............. 31,524 31,336 17,854
Other assets ......................... 41 39 3
----------- ---------- ----------
Total Assets ....................... $32,363 $ 31,717 $18,452
=========== ========== ==========
Liabilities and Stockholders' Equity:
Other liabilities .................... $ -- $ -- $ 1
Stockholders' equity ................. 32,363 31,717 18,451
----------- ---------- ----------
Total Liabilities and Stockholders'
Equity ........................ $32,363 $ 31,717 $ 18,452
=========== ========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
---------------- -------------------------------
1996 1995 1995 1994 1993
------ ------ -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating Income:
Dividends from subsidiary .............. $258 $139 $ 843 $ 580 $ 48
----- ------ -------- -------- --------
Total Operating Income ............... 258 139 843 580 48
----- ------ -------- -------- --------
Operating Expense:
Other expense .......................... 5 2 115 11 10
----- ------ -------- -------- --------
Total Operating Expense .............. 5 2 115 11 10
- ----- ------ -------- -------- --------
Income before income taxes and equity in
undistributed income of subsidiary ........ 253 137 728 569 38
Federal income tax expense (benefit) ........ (2) (1) (41) (3) 3
------ ------ -------- -------- --------
Income before equity in undistributed income
of subsidiary ............................. 255 138 769 572 35
------ ------ -------- -------- --------
Equity in undistributed income of subsidiary . 737 618 2,634 1,951 1,890
------ ------ -------- -------- --------
Net Income .............................. $992 $756 $3,403 $2,523 $1,925
====== ====== ======== ======== ========
</TABLE>
F-25
<PAGE>
Yardville National Bancorp and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
(Information as of March 31, 1996 and for the three months ended
March 31, 1996 and March 31, 1995 is unaudited)
15. Parent Corporation Information - (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ---------------------------------
1996 1995 1995 1994 1993
------- ------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income .................................. $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925
Adjustments:
Decrease (increase) in other assets .... (2) -- (36) 96 (99)
Equity in undistributed income of subsidiary (737) (618) (2,634) (1,951) (1,890)
Increase (decrease) in other liabilities . -- (1) (1) (5) (12)
------- ------- --------- --------- ---------
Net Cash (used in) provided by Operating Activities 253 137 732 663 (76)
------- ------- --------- --------- ---------
Cash flows from investing activities:
Investing in subsidiary ................ -- (500) (9,650) (2,902) (1,362)
------- ------- --------- --------- ---------
Net Cash used by Investing Activities ....... -- (500) (9,650) (2,902) (1,362)
------- ------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from shares issued ................. 461 8 9,403 3,192 1,454
Dividends paid .............................. (258) (139) (738) (380) --
------- ------- --------- --------- ---------
Net Cash provided by (used in) Financing Activities (203) (131) 8,665 2,812 1,454
------- ------- --------- --------- ---------
Net increase in cash and cash equivalents ... 456 (494) (253) 573 16
Cash and cash equivalents as of beginning of period 342 595 595 22 6
------- ------- --------- --------- ---------
Cash and cash equivalents as of end of period . $ 798 $ 101 $ 342 $ 595 $ 22
======= ======= ========= ========= =========
</TABLE>
F-26
<PAGE>
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained herein is correct as of any date subsequent to the date hereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Available Information ......................... 2
Prospectus Summary ............................ 3
Summary Financial Data ........................ 5
Investment Considerations ..................... 6
The Company ................................... 7
The Offering .................................. 9
Market for Common Stock and Related
Stockholder Matters .......................... 11
Selected Historical Consolidated Financial Data 13
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations ........................ 15
Management .................................... 40
Security Ownership of Principal Beneficial
Owners and Management ........................ 46
Supervision and Regulation .................... 48
Description of Securities ..................... 56
Legal Matters ................................. 58
Experts ....................................... 58
Index to Consolidated Financial Statements .... F-1
</TABLE>
=============================================================================
=============================================================================
206,566 SHARES
LOGO
COMMON STOCK
------
PROSPECTUS
------
August 2, 1996
=============================================================================
<PAGE>
YARDVILLE NATIONAL BANCORP
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Statutory Indemnification. Reference is made to Section 14A:3-5 of the
New Jersey Business Corporation Act, as amended, which sets forth the
extent to which a corporation may indemnify its directors, officers and
employees. More specifically, such law empowers a corporation to indemnify
a corporate agent against his or her expenses and liabilities incurred in
connection with any proceeding (other than a derivative law suit)
involving the corporate agent by reason of his or her being or having been
a corporate agent if (a) the corporate agent acted in good faith or in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and (b) with respect to any criminal
proceeding, the corporate agent had no reasonable cause to believe his or
her conduct was unlawful. For purposes of such law the term "corporate
agent" includes any present or former director, officer, employee or agent
of the corporation, and a person serving as a "corporate agent" at the
request of the corporation for any other enterprise, or the legal
representative of any such director, officer, trustee, employee or agent.
For purposes of this section, "proceeding" means any pending, threatened
or completed civil, criminal, administrative or arbitrative action, suit,
or proceeding, and any appeal therein and any inquiry or investigation
which could lead to such action, suit or proceeding.
With respect to any derivative action, the corporation is empowered to
indemnify a corporate agent against his or her expenses (but not his or
her liabilities) incurred in connection with any proceeding involving the
corporate agent by reason of his or her being or having been a corporate
agent if the agent acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation. However, only a court can empower a corporation to indemnify
a corporate agent against expenses with respect to any claim, issue or
matter as to which the agent was adjudged liable to the corporation.
The corporation may indemnify a corporate agent in a specific case if a
determination is made by any of the following that the applicable standard
of conduct was met: (i) the Board of Directors, or a committee thereof,
acting by a majority vote of a quorum consisting of disinterested
directors; (ii) by independent legal counsel, if there is not a quorum of
disinterested directors or if the disinterested quorum empowers counsel to
make the determination; or (iii) by the stockholders.
A corporate agent is entitled to mandatory indemnification to the
extent that the agent is successful on the merits or otherwise in any
proceeding, or in defense of any claim, issue or matter in the proceeding.
If a corporation fails or refuses to indemnify a corporate agent, whether
the indemnification is permissive or mandatory, the agent may apply to a
court to grant him or her the requested indemnification. In advance of the
final disposition of a proceeding, the Board of Directors may direct the
corporation to pay an agent's expenses if the agent agrees to repay the
expenses in the event that it is ultimately determined that he is not
entitled to indemnification.
Indemnification Pursuant to Restated Certificate of Incorporation of
the Registrant. In accordance with the foregoing statutory provision,
Article VI of the Registrant's Restated Certificate of Incorporation
provides as follows:
"The Corporation shall indemnify its officers, directors, employees,
and agents and former officers, directors, employees and agents, and any
other persons serving at the request of the Corporation as an officer,
director, employee or agent of another corporation, association,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees, judgements, fines, and amounts paid in
settlement) incurred in connection with any pending or threatened action,
suit, or proceeding, whether civil, criminal, administrative or
investigative, with respect to which such officer, director, employee,
agent or other person is a party, or is threatened to be made a party, to
the full extent permitted by the New Jersey Business Corporation Act. The
indemnification provided herein shall not be deemed exclusive of any other
II-1
<PAGE>
right to which any person seeking indemnification may be entitled under
any by-law, agreement, or vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action
in another capacity, and shall inure to the benefit of the heirs,
executors, and the administrators of any such person. The Corporation
shall have the power to purchase and maintain insurance on behalf of any
persons enumerated above against any liability asserted against him and
incurred by him in any such capacity, arising out of his status as such,
whether or not the corporation would have the power to indemnify him
against such liability under the provisions under this Article."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth costs and expenses payable by the
Registrant in connection with the sale and distribution of securities
registered hereunder. All amounts are estimated. The Company shall not pay
any fees and expenses incident to sales by security holders pursuant to this
Registration Statement, other than the fees and expenses incident to the
preparation and filing of this Registration Statement.
<TABLE>
<CAPTION>
<S> <C>
Legal Fees and Expenses $10,000
Accounting Fees and Expenses 5,000
Printing Expenses 16,000
Miscellaneous 1,500
---------
Total Offering Expenses $32,500*
=========
</TABLE>
- - ------
* Does not include expenses incurred and paid by the Registrant in connection
with the Registration Statement on Form SB-2 (Registration No. 33-78050)
(the "Registration Statement") filed by the Registrant with the Commission
on August 3, 1994 and the offering of Units by the Company pursuant thereto
and the registration of shares of Common Stock held by certain selling
security holders named therein nor the expenses incurred and paid by the
Registrant in connection with Post-Effective Amendment No. 1 to the
Registration Statement filed with the Commission on July 28, 1995.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On August 31, 1993, the Registrant closed an offering of Units (as
hereinafter defined) to "accredited investors" (as defined in Regulation D
under the Securities Act of 1933). The offer and sale of Units was exempt
from registration under the Securities Act of 1933 under Section 4(2) thereof
and Regulation D thereunder. The offering was conducted by the Registrant
without any underwriter or broker. In the offering, the Registrant sold
108,783 Units (each unit consisting of one share of the Registrant's Common
Stock, no par value, and one Class A Warrant to purchase one share of the
Registrant's Common Stock, no par value) and received $1,740,528 in proceeds,
before offering expenses.
From January 1, 1992, through July 14, 1995, the Registrant issued and
sold from time to time an aggregate of 15,248 shares of Common Stock to
directors of the Registrant upon exercise by them of stock options granted
pursuant to the Registrant's stock option plans. The aggregate consideration
received by the Registrant from such sales is $112,686.25. The offers and
sales of shares of Common Stock were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen of Share of Common Stock.
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP
10.1 Employment Contract between Registrant and Patrick M. Ryan.
10.2 Employment Contract between Registrant and Jay G. Destribats.
10.3 Employment Contract between Registrant and Stephen F. Carman.
10.4 Employment Contract between Registrant and James F. Doran.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.5 Employment Contract between the Bank and Richard A. Kauffman.
10.6 Employment Contract between the Bank and Mary C. O'Donnell.
10.7 Employment Contract between the Bank and Frank Durand III.
10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan.
10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats.
10.10 1988 Stock Option Plan.
10.11 1994 Stock Option Plan.
10.12 Directors' Deferred Compensation Plan.
10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993.
10.14 Lease between Richardson Realty Company and the Bank dated November 14, 1994.
10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October, 1994.
10.16 Survivor Income Plan for the Benefit of Stephen F. Carman.
10.17 Lease Agreement between Dean, Inc. and the Bank dated April 1, 1996.
11.1 Statements re Computation of Per Share Earnings.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor).
23.2 Consent of Stradley, Ronon, Stevens & Young, LLP (included in Exhibit 5.1).
</TABLE>
ITEM 28. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to
(i) Include any prospectus required by Section 10(A)(3) of the
Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed information on the plan of
distribution.
(b) That, for the purpose of determining liability under the Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and that the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
2. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a diretor, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amendment
to its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Trenton, State of New Jersey on
August 6, 1996.
YARDVILLE NATIONAL BANCORP
By: /s/ PATRICK M. RYAN
------------------------------
Patrick M. Ryan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities stated on August 6, 1996.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ JAY G. DESTRIBATS Chairman of the Board and Director
-----------------------------
Jay G. Destribats
/s/ PATRICK M. RYAN Director, President and
----------------------------- Chief Executive Officer
Patrick M. Ryan
/s/ STEPHEN F. CARMAN Treasurer, Secretary, Principal Financial
----------------------------- Officer and Principal Accounting Officer
Stephen F. Carman
/s/ C. WEST AYRES Director
-----------------------------
C. West Ayres
/s/ ELBERT G. BASOLIS, JR. Director
-----------------------------
Elbert G. Basolis, Jr.
/s/ LORRAINE BUKLAD Director
-----------------------------
Lorraine Buklad
Director
-----------------------------
Anthony M. Giampetro
/s/ GILBERT W. LUGOSSY Director
-----------------------------
Gilbert W. Lugossy
/s/ WELDON J. MCDANIEL, JR. Director
-----------------------------
Weldon J. McDaniel, Jr.
/s/ WILLIAM J. STEINER, JR. Director
-----------------------------
William J. Steiner, Jr.
/s/ JOHN C. STEWART Director
-----------------------------
John C. Stewart
/s/ F. KEVIN TYLUS Director
-----------------------------
F. Kevin Tylus
Director
-----------------------------
Edward M. Hendrickson
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
No. Exhibits
--- --------
<S> <C>
++3.1 Restated Certificate of Incorporation of the Registrant
+3.2 By-Laws of the Registrant
+4.1 Specimen of Share of Common Stock
+4.2 Form of Class A Warrant
+5.1 Opinion of Stradley, Ronon, Stevens & Young
++10.1 Employment Contract between Registrant and Patrick M. Ryan
++10.2 Employment Contract between Registrant and Jay G. Destribats
++10.3 Employment Contract between Registrant and Stephen F. Carman
++10.4 Employment Contract between Registrant and James F. Doran
++10.5 Employment Contract between the Bank and Richard A. Kauffman
++10.6 Employment Contract between the Bank and Mary C. O'Donnell
++10.7 Employment Contract between the Bank and Frank Durand III
10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan
10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats
++10.10 1988 Stock Option Plan
++10.11 1994 Stock Option Plan
++10.12 Directors' Deferred Compensation Plan
+10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993
++10.14 Lease between Richardson Realty Company and the Bank dated November 14, 1994
++10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October, 1994
+++10.16 Survivor Income Plan for the Benefit of Stephen F. Carman
+++10.17 Lease Agreement between Devon, Inc. and the Bank dated February 9, 1996
11.1 Statements re Computation of Per Share Earnings
+21.1 List of Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor)
+23.2 Consent of Stradley, Ronon, Stevens & Young LLP (included in Exhibit 5)
</TABLE>
- - ------
+ Previously filed.
++ Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the Fiscal Year Ended December 31, 1994, as amended by Form
10-KSB/A filed on July 25, 1995.
+++ Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the Fiscal Year Ended December 31, 1995.
<PAGE>
YARDVILLE NATIONAL BANK
SALARY CONTINUATION PLAN FOR THE
BENEFIT OF JAY DESTRIBATS
This agreement is made and entered into effective the 31st day of
December, 1994, by and between YARDVILLE NATIONAL BANK, a corporation organized
and existing under the laws of the state of New Jersey hereinafter called
"Company", and JAY DESTRIBATS, hereinafter called "Executive."
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Company for one
(1) year and is now serving the Company as Chairman of the Board; and
WHEREAS, the services of the Executive have been an invaluable
contribution to the prior success of the Company; and
WHEREAS, the Company wishes to retain the services of the Executive to
insure the continued success and future growth of the Company; and
WHEREAS, the Executive is willing to continue in the employ of the
Company provided the Company agrees to provide certain benefits in accordance
with the terms and conditions hereinafter set forth:
NOW THEREFORE the parties agree as follows:
ARTICLE ONE
Employment. The Company will employ the Executive as Chairman of the Board of
Directors or in such other positions as may be determined from time to time by
the Company and at such rate of compensation as may be so determined. The
Executive will devote his full energy, skill and best efforts to the affairs of
the Company on a substantially full-time basis. It is contemplated that such
employment will continue until the Executive's normal retirement date upon the
attainment of age 70 which date is March 27, 2005.
ARTICLE TWO
Retirement. If the Executive shall continue in the employment of the Company
until his normal retirement date he may retire on his normal retirement date.
If he shall become disabled (as defined under Article Three) prior to his
normal retirement date, and if such disability continues to his normal
retirement date, he will be considered to have retired on his normal retirement
date. In such
<PAGE>
event, commencing with the first month following his normal retirement date, the
Company will pay the Executive fifty percent (50%) of his final annual salary
on a monthly basis for a period of at least 180 months or for his life, if
longer.
If the Executive so retires, but dies before receiving 180 monthly payments, the
Company shall continue to make such payments to such individual or individuals
as the Executive may have designated in writing and filed with the Company until
180 payments have been made. In the absence of any effective designation by the
Executive, any amounts becoming due and payable upon the death of the Executive
shall be paid to his executor or administrator.
ARTICLE THREE
Disability. If, while employed by the Company, the Executive becomes totally
disabled and his employment terminates, the Company will continue to pay the
Executive for six months. Thereafter, if the Executive remains disabled, the
Company will continue to pay the Executive's final salary to the Executive in
equal monthly installments until the Executive attains age seventy (70). Any
amount paid by the Company pursuant to the preceding sentence will be reduced on
a dollar-for-dollar basis by any payment received by the Executive under the
Company's long term disability insurance policies. Upon attaining his normal
retirement date, the Company will pay to the Executive an amount equal to the
retirement benefit that would have been paid under the terms of this Plan had
the Executive continued his employment until his retirement at his then current
salary. For purposes of this Agreement, "disability" shall mean the inability
of the Executive to engage in his position with the Company, as it exists at the
date that this Agreement becomes effective, for a period of at least six (6)
months, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or be of long continued and indefinite
duration.
ARTICLE FOUR
Termination of Employment and Change of Control. (a) (1) Subject to subparagraph
(2) of this paragraph (a), if the Executive terminates his employment with the
Company or if the Company terminates the Executive's employment for any reason
other than disability or prior to the Executive's normal retirement date, the
Company will pay the Executive monthly, commencing with the first month after
the Executive's normal retirement date and continuing for 180 months thereafter,
an amount calculated by multiplying the amount payable at normal retirement
specified in Article Two by a fraction the numerator of which is the number of
full years between the date of this agreement and the date of termination of the
Executive's employment and the denominator of which is the number of full years
between the date of this agreement and the Executive's normal retirement date.
2
<PAGE>
(2) If the Company terminates the Executive's employment because the
Executive has committed an act which exposes the Company to economic harm or
damages the reputation or good will of the Company, then any payment otherwise
due to the Executive under this Agreement shall be forfeited.
(b) In the event that a change in control of the Company has occurred
(which shall be deemed to have occurred if a company or individual that is not
currently a shareholder acquires at least forty percent [40%] of the Company),
and if the Executive either resigns his position with the Company or if his
employment is terminated for any reason, which termination shall be deemed to
have occurred if the Executive's responsibilities are diminished or assumed by
another individual, then the Executive shall be entitled to receive the amount
payable at normal retirement as provided for under Article Two without reduction
for the period of employment that ended prior to his normal retirement date.
ARTICLE FIVE
Death. If the Executive dies before his normal retirement date, (but either
before or after his termination of employment), commencing with the first month
following death and continuing for 180 months thereafter, the Company shall pay
the Executive's named beneficiary (designated in Article Seven of this agreement
and hereinafter referred to as the Beneficiary) a monthly amount equal to the
amount the Company would have paid the Executive had he lived to his normal
retirement date, which, in the case of death during employment or after
termination resulting from disability, shall be the amount specified in Article
Two and, which in the case of death after termination of employment for reasons
other than disability, shall be the amount determined pursuant to Article Five.
ARTICLE SIX
Small amounts. In the event the amount of any monthly payments provided herein
shall be less than $100.00, the Company in its sole discretion may, in lieu
thereof, pay the commuted value of such payments to the person entitled to
receive such payments.
ARTICLE SEVEN
Beneficiary. The Beneficiary of any payments to be made after the Executive's
death, shall be the spouse of JAY DESTRIBATS or such other person or persons as
JAY DESTRIBATS shall designate in writing to the Company. If no beneficiary
shall survive the Executive, any such payments shall be made to the Executive's
estate.
3
<PAGE>
ARTICLE EIGHT
Source of payments. The Executive, the Beneficiary and any other person or
persons having or claiming a right to payments hereunder or to any interest in
this Agreement shall rely solely on the unsecured promise of the Company set
forth herein, and nothing in this agreement shall be construed to give the
Executive, the Beneficiary or any other person or persons any right, title,
interest or claim in or to any specific asset, fund, reserve account or property
of any kind whatsoever owned by the company or in which it may have any right,
title or interest now or in the future. The Executive or his Beneficiary or
successor shall have the right to enforce his claim against the Company in the
same manner as any unsecured creditor.
ARTICLE NINE
Insurance. If the Company shall elect to purchase a life insurance contract to
provide the Company with funds to make payments hereunder, the Company shall at
all times be the sole and complete owner and beneficiary of such contract and
shall have the unrestricted right to use all amounts and exercise all options
and privileges thereunder without the knowledge or consent of the Executive or
the Beneficiary or any other person, it being expressly agreed that neither the
Executive nor the Beneficiary nor any other person shall have any right, title
or interest whatsoever in or to any such contract. If the Company purchases a
life insurance contract on the life of the Executive, the Executive agrees to
sign any papers that may be required for that purpose and to undergo any medical
examination or tests which may be necessary.
This article shall not be construed as giving the Executive or the Beneficiary
any greater rights than those of any other unsecured creditor of the Company.
ARTICLE TEN
Amendment. This agreement may be amended at any time or from time to time by
written agreement of the parties.
ARTICLE ELEVEN
Assignment. Neither the Executive, nor the Beneficiary, nor any other person
entitled to payment hereunder shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber in advance any of such payments, nor
shall such payments be subject to seizure for the payment of public or private
debts, judgments, alimony or separate maintenance; or be transferable by
operation of law in the event of bankruptcy, insolvency or otherwise.
4
<PAGE>
ARTICLE TWELVE
Binding effect. This agreement shall be binding upon the parties, their heirs,
executors, administrators, successors and assigns. The Company agrees that it
will not be a party to any merger, consolidation or reorganization, unless and
until its obligations hereunder shall be expressly assumed by its successor or
successors.
This agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the right of
the Company to discharge the Executive or restrict the right of the Executive to
terminate his employment.
IN WITNESS WHEREOF the parties have executed this agreement this 31st day of
December, 1994
/s/ Jay Destribats Patrick M. Ryan
- - -------------------------- ---------------------------------------
JAY DESTRIBATS YARDVILLE NATIONAL BANK
Pres./CEO
By_____________________________________
Attest Ingrid Jawonowski
--------------------------------
5
<PAGE>
Exhibit 10.9
YARDVILLE NATIONAL BANK
SALARY CONTINUATION PLAN FOR THE
BENEFIT OF PATRICK M. RYAN
This agreement is made and entered into effective the 28th day of
October, 1994, by and between YARDVILLE NATIONAL BANK, a corporation organized
and existing under the laws of the state of New Jersey hereinafter called
"Company", and PATRICK M. RYAN, hereinafter called "Executive."
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Company for four
(4) years and is now serving the Company as Chief Executive officer; and
WHEREAS, the services of the Executive have been an invaluable
contribution to the prior success of the Company; and
WHEREAS, the Company wishes to retain the services of the Executive to
insure the continued success and future growth of the Company; and
WHEREAS, the Executive is willing to continue in the employ of the
Company provided the Company agrees to provide certain benefits in accordance
with the terms and conditions hereinafter set forth:
NOW THEREFORE the parties agree as follows:
ARTICLE ONE
Employment. The Company will employ the Executive as Chief Executive Officer or
in such other positions as may be determined from time to time by the Company
and at such rate of compensation as may be so determined. The Executive will
devote his full energy, skill and best efforts to the affairs of the Company on
a substantially full-time basis. It is contemplated that such employment will
continue until the Executive's normal retirement date upon the attainment of age
65 which date is June 21, 2009.
ARTICLE TWO
Retirement. If the Executive shall continue in the employment of the Company
until his normal retirement date he may retire on his normal retirement date. If
he shall become disabled (as defined under Article Three) prior to his normal
retirement date, and if such disability continues to his normal retirement date,
he will be considered to have retired on his normal retirement date. In either
event, commencing with the first month following his normal retirement date, the
Company will pay the Executive fifty percent
<PAGE>
(50%) of his final annual salary on a monthly basis for a period of at least 180
months or for his life, if longer.
If the Executive so retires, but dies before receiving 180 monthly payments, the
Company shall continue to make such payments to such individual or individuals
as the Executive may have designated in writing and filed with the Company until
180 payments have been made. In the absence of any effective designation by the
Executive, any amounts becoming due and payable upon the death of the Executive
shall be paid to his executor or administrator.
ARTICLE THREE
Disability. If, while employed by the Company, the Executive becomes totally
disabled and his employment terminates, the Company will continue to pay the
Executive for six months. Thereafter, if the Executive remains disabled, the
Company will continue to pay the Executive's final salary to the Executive in
equal monthly installments until the Executive attains age sixty-five (65). Any
amount paid by the Company pursuant to the preceding sentence will be reduced on
a dollar-for-dollar basis by any payment received by the Executive under the
Company's long term disability insurance policies. Upon attaining his normal
retirement date, the Company will pay to the Executive an amount equal to the
retirement benefit that would have been paid under the terms of this Plan had
the Executive continued his employment until his retirement at his then current
salary. For purposes of this Agreement, "disability" shall mean the inability of
the Executive to engage in his position with the Company, as it exists at the
date that this Agreement becomes effective, for a period of at least six (6)
months, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or be of long continued and indefinite
duration.
ARTICLE FOUR
Termination of Employment and Change of Control. (a)(1) Subject to subparagraph
(2) of this paragraph (a), if the Executive terminates his employment with the
Company or if the Company terminates the Executive's employment for any reason
other than disability or prior to the Executive's normal retirement date, the
Company will pay the Executive monthly, commencing with the first month after
the Executive's normal retirement date and continuing for 180 months thereafter,
an amount calculated by multiplying the amount payable at normal retirement
specified in Article Two by a fraction the numerator of which is the number of
full years between the date of this agreement and the date of termination of the
Executive's employment and the denominator of which is the number of full years
between the date of this agreement and the Executive's normal retirement date.
2
<PAGE>
(2) If the Company terminates the Executive's employment because the
Executive has committed an act which exposes the Company to economic harm or
damages the reputation or good will of the Company, then any payment otherwise
due to the Executive under this Agreement shall be forfeited.
(b) In the event that a change in control of the Company has occurred
(which shall be deemed to have occurred if a company or individual that is not
currently a shareholder acquires at least forty percent [40%] of the Company),
and if the Executive either resigns his position with the Company or if his
employment is terminated for any reason, which termination shall be deemed to
have occurred if the Executive's responsibilities are diminished or assumed by
another individual, then the Executive shall be entitled to receive the amount
payable at normal retirement as provided for under Article Two without reduction
for the period of employment that ended prior to his normal retirement date.
ARTICLE FIVE
Death. If the Executive dies before his normal retirement date, (but either
before or after his termination of employment), commencing with the first month
following death and continuing for 180 months thereafter, the Company shall pay
the Executive's named beneficiary (designated in Article Seven of this agreement
and hereinafter referred to as the Beneficiary) a monthly amount equal to the
amount the Company would have paid the Executive had he lived to his normal
retirement date, which, in the case of death during employment or after
termination resulting from disability, shall be the amount specifed in Article
Two and, which in the case of death after termination of employment for reasons
other than disability, shall be the amount determined pursuant to Article Four.
ARTICLE SIX
Small amounts. In the event the amount of any monthly payments provided herein
shall be less than $100.00, the Company in its sole discretion may, in lieu
thereof, pay the commuted value of such payments to the person entitled to
receive such payments.
ARTICLE SEVEN
Beneficiary. The Beneficiary of any payments to be made after the Executive's
death, shall be the spouse of PATRICK M. RYAN or such other person or persons as
the Executive shall designate in writing to the Company. If no beneficiary shall
survive the Executive, any such payments shall be made to the Executive's
estate.
3
<PAGE>
ARTICLE EIGHT
Source of payments. The Executive, the Beneficiary and any other person or
persons having or claiming a right to payments hereunder or to any interest in
this Agreement shall rely solely on the unsecured promise of the Company set
forth herein, and nothing in this agreement shall be construed to give the
Executive, the Beneficiary or any other person or persons any right, title,
interest or claim in or to any specific asset, fund, reserve, account or
property of any kind whatsoever owned by the company or in which it may have any
right, title or interest now or in the future. The Executive or his Beneficiary
or successor shall have the right to enforce his claim against the Company in
the same manner as any unsecured creditor.
ARTICLE NINE
Insurance. If the Company shall elect to purchase a life insurance contract to
provide the Company with funds to make payments hereunder, the Company shall at
all times be the sole and complete owner and beneficiary of such contract and
shall have the unrestricted right to use all amounts and exercise all options
and privileges thereunder without the knowledge or consent of the Executive or
the Beneficiary or any other person, it being expressly agreed that neither the
Executive nor the Beneficiary nor any other person shall have any right, title
or interest whatsoever in or to any such contract. If the Company purchases a
life insurance contract on the life of the Executive, the Executive agrees to
sign any papers that may be required for that purpose and to undergo any medical
examination or tests which may be necessary.
This article shall not be construed as giving the Executive or the Beneficiary
any greater rights than those of any other unsecured creditor of the Company.
ARTICLE TEN
Amendment. This agreement may be amended at any time or from time to time by
written agreement of the parties.
ARTICLE ELEVEN
Assignment. Neither the Executive, nor the Beneficiary, nor any other person
entitled to payment hereunder shall have the power to transfer, assign,
anticipate, mortgage or otherwise encumber in advance any of such payments, nor
shall such payments be subject to seizure for the payment of public or private
debts, judgments, alimony or separate maintenance; or be transferable by
operation of law in the event of bankruptcy, insolvency or otherwise.
4
<PAGE>
ARTICLE TWELVE
Binding effect. This agreement shall be binding upon the parties, their heirs,
executors, administrators, successors and assigns. The Company agrees that it
will not be a party to any merger, consolidation or reorganization, unless and
until its obligations hereunder shall be expressly assumed by its successor or
successors.
This agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the right of
the Company to discharge the Executive or restrict the right of the Executive to
terminate his employment.
IN WITNESS WHEREOF the parties have executed this agreement as of the 28th day
of October, 1994.
/s/ Patrick M. Ryan
- - --------------------------- -----------------------------------
PATRICK M. RYAN YARDVILLE NATIONAL BANK
By /s/ Jay Destribats
--------------------------
Attest Ingrid Jawonowski
--------------------------------
5
<PAGE>
EXHIBIT 11.1
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
March 31,
1996 1995 1994 1993
----------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Primary Earnings Per Share
(in thousands, except per share amounts)
Reconciliation of net income, per consolidated
statements of income to amount used in primary
earnings per share computation:
Net income ........................................ $ 992 $3,403 $2,523 $1,925
Add: Interest on long-term debt and interest on
investment securities, net of income tax effect,
on application of assumed proceeds from exercise
of options and warrantsin excess of 20% limitation 19 120 247 --
------ ------ ------ ------
Net income, as adjusted ........................... $1,011 $3,523 $2,770 $1,925
------ ------ ------ ------
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings
per share computation:
Weighted average number of shares outstanding ..... 2,357 1,964 1,255 1,020
Add: Equivalent shares issuable from assumed exercise
of options and warrants in excess of 20% limitation 173 228 502 --
Equivalent shares issuable from assumed exercise of
dilutive options ................................. -- -- -- 16
------ ------ ------ ------
Weighted average number of shares outstanding,
as adjusted ...................................... 2,530 2,192 1,757 1,036
------ ------ ------ ------
Primary earnings per share ........................ $ .40 $ 1.61 $ 1.58 $ 1.86
------ ------ ------ ------
</TABLE>
<PAGE>
EXHIBIT 11.1, CONT.
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
March 31,
1996 1995 1994 1993
----------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Fully Diluted Earnings Per Share
(in thousands, except per share amounts)
Reconciliation of net income, per consolidated
statements of income to amount used in fully
diluted earnings per share computation:
Net income ....................................... $ 992 $3,403 $2,523 $1,925
Add: Interest on long-term debt and interest on
investment securities, net of income tax effect,
on application of assumed proceeds from exercise
of options and warrants in excess of 20% limitation 18 101 223 --
------ ------ ------ ------
Net income, as adjusted .......................... $1,010 $3,504 $2,746 $1,925
------ ------ ------ ------
Reconciliation of weighted average number of shares
outstanding to amount used in fully diluted earnings
per share computation:
Weighted average number of shares outstanding .... 2,357 1,964 1,255 1,020
Add: Equivalent shares issuable from assumed exercise
of options and warrants in excess of 20% limitation 173 228 502 --
Equivalent shares issuable from assumed exercise of
dilutive options ................................ -- -- -- 16
------ ------ ------ ------
Weighted average number of shares outstanding, as
adjusted ........................................ 2,530 2,192 1,757 1,036
------ ------ ------ ------
Fully diluted earnings per share ................. $ .40 $ 1.60 $ 1.56 $ 1.86
------ ------ ------ ------
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Yardville National Bancorp:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus. Such report refers to
a change in the method of accounting for certain debt and equity securities
in 1994 and a change in the method of accounting for income taxes and
postretirement benefits other than pensions in 1993.
KPMG Peat Marwick LLP
Princeton, New Jersey
August 2, 1996
