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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to _____________
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2670267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Mercerville, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
(609) 585-5100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes(X) No( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1997
Common Stock, no par value 2,473,934
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Class Number of shares outstanding
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YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This financial review presents Management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated financial statements and the accompanying notes. The term
"Yardville" as used herein refers to the Company together with its sole
subsidiary, the Bank.
FINANCIAL CONDITION
Assets
Total consolidated assets at June 30, 1997 totaled $525,720,000 an increase of
$35,175,000 or 7.2%, compared to $490,545,000 at December 31, 1996. The growth
in Yardville's asset base during the first six months of 1997 was primarily due
to an increase in loans and securities. The increase in loans was the product of
a strategy to improve profitability of the organization through relationship
banking and the continued consolidation in Yardville's marketplace, which has
solidified Yardville's competitive position in the small and middle markets.
Yardville's asset base includes investments of approximately $57,100,000
purchased utilizing repurchase agreements and time deposits (Investment Growth
Strategy) at June 30, 1997, an increase of $6,000,000 compared to approximately
$51,000,000 at December 31, 1996. The primary goals of the growth strategy are
to improve return on equity and earnings per share.
Securities
Total securities increased by $10,140,000 or 8.1% to $135,107,000 as of June 30,
1997 compared to year end 1996. The growth in the securities portfolio in the
first half of 1997 was due to the purchase of short term treasuries and
government agency bonds to enhance short-term liquidity and the increase in the
investment growth strategy offset by principal paydowns on mortgage-backed
securities.
At June 30, 1997, the amortized cost of investment securities classified as held
to maturity was $29,105,000 compared to $31,296,000 at December 31, 1996, a
decrease of $2,191,000 or 7.0%.
Net unrealized losses as of June 30, 1997 in Yardville's available for sale
securities portfolio were $31,000. Net unrealized losses, net of tax effect of
$19,000, were reported as a reduction of stockholders' equity at June 30, 1997.
The available for sale portfolio, except those securities purchased utilizing
repurchase agreements, provides a secondary source of liquidity.
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Federal Funds
At June 30, 1997 Federal funds sold totaled $1,250,000, a decrease of $2,790,000
as compared to $4,040,000 at December 31, 1996. While management continues to
focus on maintaining adequate short term liquidity levels, federal funds will
fluctuate due to other liquidity demands.
Loans
Total loans, net of unearned discounts, increased by $21,704,000 or 6.6%, to
$352,941,000 at June 30, 1997 compared to $331,237,000 at year end 1996.
Yardville's loan portfolio represented 67.1% of assets at June 30, 1997 compared
to 67.5% of assets at December 31, 1996.
Yardville's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans and tenanted commercial real estate
loans. Yardville showed continued growth throughout its loan portfolio for the
six months ended June 30, 1997 as a result of management's emphasis on customer
relationships and opportunities associated with the continued consolidation of
the banking industry in Yardville's markets.
On a component basis, for the six month period ended June 30, 1997, commercial
loan balances increased $14,109,000 or 22.2%. Real estate-construction and real
estate-residential mortgage loan balances increased $4,189,000 and $1,280,000
respectively, or 16.1% and 1.5% respectively. Real estate-commercial mortgage
loan balances decreased $305,000 or 0.3% due to increased competition.
Liabilities
Yardville's deposit base is the principal source of funds supporting interest
earning assets. Total deposits amounted to $414,830,000 at June 30, 1997
compared to $364,445,000 at December 31, 1996, an increase of $50,385,000 or
13.8%. Yardville was successful in bidding for Mercer County Surrogate's
deposits which netted Yardville $15,000,000 in deposits in early January 1997.
Growth in Yardville's deposit base continues in higher yielding certificates of
deposit (CD's) and premium money market accounts, both higher cost funding
sources. Average interest bearing deposits including CD's of $100,000 or more,
increased $66,333,000 or 23.9% to total $343,303,000 for the six month period
ended June 30, 1997 as compared to $276,970,000 for the year ended December 31,
1996. Of the total increase, average time deposits grew $43,084,000 for the
comparable periods. Time deposits were competitively priced to reduce levels
of borrowed funds. Average non-interest bearing deposits have increased 9.2% for
the six month period ended June 30, 1997 compared to the year ended December 31,
1996. At June 30, 1997 interest bearing and non-interest bearing deposits
totaled $355,676,000 and $59,154,000, respectively.
Borrowed funds totaled $68,139,000 at June 30, 1997 compared to $86,339,000 at
December 31, 1996. The decrease of $18,200,000 or 21.1% in the first six months
of 1997 was principally due to the repayment of repurchase agreements.
Securities sold under agreements to repurchase .decreased $14,165,000 or 22.1%
to $50,020,000 compared to $64,185,000 at December 31, 1996. Federal Home Loan
Bank advances are being utilized to strengthen short-term liquidity and support
core deposits in funding balance sheet growth. At June 30, 1997 Yardville has
$15,000,000 outstanding in FHLB advances. $10,000,000 of these advances will
mature on July 30, 1997 and the remaining $5,000,000 will mature in November of
1998.
Yardville has the availability to borrow up to $24,500,000 from the FHLB through
its line of credit program. In addition, the bank is eligible to borrow up to
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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. Borrowed funds will be utilized to meet short
term liquidity needs and as an additional source of funding for the loan and
investment portfolios.
Capital
Total stockholders' equity of $37,629,000 at June 30, 1997 increased $2,399,000
or 6.8% from $35,230,000 at December 31, 1996. This increase resulted from the
following factors during the six months ended June 30, 1997 (i) earnings of
$2,467,000 (less dividend payments of $589,000) and a decrease of $142,000 in
the unrealized loss on securities available for sale, net of income tax effect.
(ii) proceeds of $379,000 from exercised options.
Yardville's leverage ratio was 7.3% at June 30, 1997 compared to 7.8% at
December 31, 1996. At June 30, 1997 tier I and total tier I and II capital to
risk weighted assets were 10.1% and 11.4%, respectively. The risk based capital
levels at year end 1996 were 10.2% and 11.4% for tier I and total risk based
capital, respectively.
The minimum regulatory requirements require financial institutions to have a
tier I leverage ratio of 4.0%, a tier I risk-based ratio of 4.0% and a total
tier I and tier II ratio of 8.0%. A bank is considered "well capitalized" if it
has a minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
Credit risk
At June 30, 1997, nonperforming loans, consisting of loans 90 days or more past
due, and nonaccruing loans totaled $7,630,000 compared to $8,140,000 at December
31, 1996. Other real estate owned at June 30, 1997 totaled $873,000 compared to
$395,000 at December 31, 1996.
Total nonperforming assets decreased $32,000 or 0.4% to $8,503,000 at June 30,
1997 compared to $8,535,000 at year end 1996. Nonperforming assets as a
percentage of total assets were 1.62% at June 30, 1997. Yardville continues to
actively manage nonperforming assets with the goal of reducing these assets in
relation to the entire portfolio. Where possible, existing loan relationships
are being restructured in an effort to return these loans to a performing
status.
The allowance for loan losses increased to $5,284,000 and remained at 1.50% of
total loans at June 30, 1997 compared to $4,957,000, or 1.50% of total loans, at
year end 1996. The provision for loan losses through June 30, 1997 was $575,000.
Yardville had net loan charge-offs of $248,000 for the six months ended June 30,
1997. At June 30, 1997 the allowance for loan losses covered 69.3% of
nonperforming loans and 62.1% of nonperforming assets. The allowance for loan
losses, in management's judgment, is adequate to provide for potential losses.
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RESULTS OF OPERATIONS
Net Income
Yardville reported net income of $2,467,000 for the six months ended June 30,
1997, an increase of $484,000 or 24.4%, from net income of $1,983,000 reported
for the same time period in 1996. The increase in net income for the comparable
periods is attributable to an increase in net interest income, and to a lesser
extent, non-interest income, partially offset by an increase in non-interest
expenses. On a per share basis, the net income was $0.99 for the first six
months of 1997 compared to $0.81 for the first six months of 1996. The increase
in earnings per share is due primarily to the increase in net income during the
first six months of 1997 compared to the same time period in 1996.
On a quarterly basis, the income for the second quarter of 1997 was $1,255,000
or $0.50 per share, compared with $991,000 or $0.41 per share for the same
quarter a year ago. The increase in net income and net income per share for the
quarterly comparison are for the same reasons discussed above.
Net Interest Income
Yardville's net interest income for the six months ended June 30, 1997 was
$9,546,000, an increase of $1,166,000 or 13.9% over the $8,380,000 for the
comparable 1996 period. The principal factors contributing to the increase in
net interest income for the six months ended June 30, 1997 was an increase in
interest income of $3,327,000 resulting principally from an increase in
commercial loan volume, offset by an increase in interest expense of $2,161,000
due to increases in the volume of interest bearing deposits.
The net interest margin (tax equivalent basis) between yields on average
interest earning assets and costs of average funding sources was 3.99% at June
30, 1997 compared to 4.22% at June 30, 1996. The principal reason for the
decrease in the net interest margin was higher costs on interest bearing
liabilities.
The management strategy continuing through 1997 is to increase net interest
income by purchasing investments using repurchase agreements or other funding
sources. At June 30, 1997 approximately $57,100,000 was being utilized for this
purpose. The targeted spread on this strategy is 75 basis points after tax. This
strategy, while successful in increasing net interest income, has had a negative
impact on the net interest margin. Increased loan pricing competition and the
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subsequent decrease in loan yields also accounted, in part, for the reduction in
the net interest margin of 23 basis points for the comparable periods.
On a quarterly comparison, net interest income was $4,928,000 for the second
quarter of 1997, an increase of $668,000 or 15.7% from net interest income of
$4,260,000 for the second quarter of 1996. The 1997 increase was the result of
an increase in average earning assets of $73,967,000 combined with a decrease of
$19,066,000 in average borrowed funds offset by an increase of $87,606,000 in
average interest bearing deposits compared to the second quarter of 1996.
Interest Income
For the six month period ended June 30, 1997 total interest income of
$19,566,000 increased $3,327,000 or 20.5% as compared to $16,239,000 reported
for the same period a year earlier. On a quarterly comparison, the second
quarter of 1997 experienced an increase of $1,676,000 or 20.1% in total interest
income compared to the same period a year earlier. The increase in interest
income is due primarily to the higher volume of average loan assets. Average
loans increased $76,972,000 or 29.0% for the six months ended June 30, 1997
compared to the same 1996 period. The average yield on the loan portfolio
decreased 28 basis points for the comparable period in a lower rate competitive
marketplace.
Interest income on securities increased $193,000 or 4.8%, for the first six
months of 1997, due to a 22 basis point increase in average yield and an
increase of $1,464,000 in average balances for the six months ended June 30,
1997 as compared to the same period a year earlier. On a quarterly comparison
interest on securities increased 4.2% primarily as a result of a 27 basis point
increase in average yield. Interest on Federal Funds sold increased $150,000 for
the six month period ended June 30, 1997 due to increases in average balances of
$5,803,000 combined with a decrease in the average yields of 12 basis points.
Overall, the yield on Yardville's interest earning assets decreased 1 basis
point to 8.06% for the period ended June 30, 1997 from 8.07% for the period
ended June 30, 1996 for the combined reasons discussed above.
Interest Expense
Total interest expense increased $2,161,000 or 27.5% to $10,020,000 for the six
months ended June 30, 1997 compared to $7,859,000 reported for the six months
ended June 30, 1996. The increase in interest expense for the comparable time
periods is the result of a larger deposit base, and higher market interest
rates. Deposit products continue 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 $420,437,000 for the six months
ended June 30, 1997 compared to $341,499,000 for the six months ended June 30,
1996. The average rate paid on interest bearing liabilities increased 17 basis
points for the time period discussed. Increases in deposit account relationships
are attributable in part to increased commercial loan activity, community
presence, ongoing consolidation within the banking industry and the impact of
new branches opened during 1996 that now have established deposit relationships
with the bank. Average time deposits, a higher cost funding source, increased
$55,741,000 or 42.6% for the first six months of 1997 compared to the first six
months of 1996.
For the second quarter of 1997, total interest expense increased $1,008,000 or
24.6% as compared to the second quarter of a year earlier. The increase in
interest expense for the comparable quarters is due primarily to higher levels
of average time deposits.
Interest expense on borrowed funds decreased during both the quarterly and
year-to-date periods when comparing 1997 to 1996. For the year-to-date
comparison interest expense decreased $40,000. For the three months ended June
30, 1997 interest on borrowed funds decreased $222,000 or 17.3% primarily as a
result of lower average balances. Repurchase agreements were repaid during the
period to reduce borrowed funds.
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Provision For Loan Losses
Yardville provides for possible loan losses by a charge to current operations.
The provision for loan losses for the six months and three months ended June 30,
1997 was $575,000 and $300,000, respectively compared to $715,000 and $450,000,
respectively for the six months and three months ended June 30, 1996. The
year-to-date and quarterly 1997 provisions reflect management's continuing
analysis of the loan portfolio and non-performing assets. Management believes
that the allowance for loan losses is adequate in relation to credit risk
exposure levels.
Non-Interest Income
Total non-interest income was $1,240,000 for the first six months of 1997
compared to $1,035,000 for the same period in 1996. The increase of $205,000 or
19.8% is primarily attributable to an increase in other non-interest income
principally due to additional fee income derived from life insurance assets and
other fee income.
Service charges on deposit accounts decreased $14,000 or 2.4% for the first six
months of 1997 as compared to the same period a year earlier. The decrease in
service charge income resulted from a reduction in insufficient fund fees offset
by an increase in service charges on deposit accounts. Yardville realized $7,000
in gains on the sale of securities, net, in the first six months of 1997 versus
a loss of $46,000 on the sale of securities, net, in the first six months of
1996. Other non-interest income increased $157,000 or 31.6% in the first six
months of 1997 versus the first six months of 1996 for the reasons discussed
above.
For the second quarter comparison, the results were similar. Total non-interest
income for the second quarter of 1997 increased 20.8% over the same period a
year earlier. Service charges on deposit accounts decreased 2.4% for the
comparable quarters. Conversely, the increase experienced during the second
quarter of 1997 was in gains on the sale of securities of $7,000 net, compared
to a loss of $25,000 on the sale of securities net, for the three months ended
June 30, 1996. Other non-interest income increased $75,000 or 29.3% for the
three months ended June 30, 1997 compared to the three months ended June 30,
1996 due primarily to increased income derived from life insurance assets and
fee assessments for "others on us" Automated Teller Machine (ATM) card usage.
Offsetting these two increases was the elimination of the annual ATM fee for
Yardville National Bank cardholders in January 1997.
Non-Interest Expense
Total non-interest expense increased $794,000 or 14.1% to $6,409,000 for the
first six months of 1997 compared to $5,615,000 for the first six months of
1996. The increase in non-interest expense is primarily the result of increases
in salaries and employee benefits, equipment expenses and other non-interest
expenses.
Salaries and employee benefits were $3,669,000 for the first six months of 1997,
an increase of $469,000 or 14.7% compared to the same six month period of 1996.
The increase resulted from additional staffing required as Yardville has grown
for the comparable time periods and normal annual salary compensation and
benefit increases. Full time equivalent staff increased to 168 at June 30, 1997
from 152 at June 30, 1996.
Net occupancy increased $30,000 or 6.7% for the first six months of 1997 as
compared to the same period in 1996, This increase is primarily the result of
additional occupancy costs associated with new branch offices offset by
decreases in snow removal costs due to a milder winter.
Equipment expense increased $171,000 or 47.9% for the same period primarily due
to increased depreciation costs associated with new furniture and fixtures in
Yardville's new branches and in-house computer system as well as related
expenses of additional computer hardware and software upgrades required for the
implementation of a Windows 95 based computer system.
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Other non-interest expenses totaled $1,737,000 for the six months ended June 30,
1997, an increase of $124,000 or 7.7%, from the comparable 1996 period. The
increase in other non-interest expense is primarily the result of increased
professional fees, marketing costs and expenses incurred in working out troubled
loans and other real estate. Other real estate expenses totaled $127,000 for the
six months ended June 30, 1997 compared to $44,000 for the six months ended
June 30, 1996. The increase in other non-interest expenses was offset partially
by the elimination of computer service fees in late February 1996 with
Yardville's conversion to an in-house computer system.
When comparing the second quarter of 1997 with the second quarter of 1996, the
explanations for the fluctuations are similar to those presented above for the
six month period ended June 30. Non-interest expenses increased $533,000 or
19.1% versus the same period a year earlier. Salary and employee benefits
increased $233,000 or 14.4%. Net occupancy and equipment expenses increased 7.1%
and 54.4%, respectively. Other non-interest expenses increased 24.1% in the
second quarter of 1997 compared to the same period in 1996. The quarterly
comparison increase is due primarily to the same factors discussed in the year-
to-date review above.
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share." SFAS 128 supersedes AFB opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. This statement is effective for financial statements for periods
ending after December 15, 1997. The adoption of this statement should not have
a material effect on the consolidated financial statements of Yardville.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure." SFAS 129 lists required
disclosures about capital structure that have been included in a number of
separate statements and opinions. This statement is effective for financial
statements for periods ending after December 15, 1997. The adoption of the
Statement should not have a material effect on the consolidated financial
statements of Yardville.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YARDVILLE NATIONAL BANCORP
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(Registrant)
Date: August 15, 1997 By: /s/ Stephen F. Carman
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Stephen F. Carman
Executive Vice President
and Chief Financial Officer
