<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-26086
YARDVILLE NATIONAL BANCORP
--------------------------
(Exact Name of Registrant as specified in its Charter)
New Jersey 22-2670267
---------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
3111 Qakerbridge Road, Trenton, New Jersey 08619
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(609) 585-5100
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by checkmark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2)has been subject to such filing
requirements for the past 90 days. Yes x No
---- -----
Indicate by checkmark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-k[x]
Aggregate market value of voting stock held by non-affiliates (computed by
using the average of the closing bid and asked prices on march 12, 1997, in the
NASDAQ National Market System: $47,345,890.
Number of shares of common stock, no par value, outstanding as of march 12,
1997: 2,447,664.
(Continued)
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
Document which document is incorporated
-------- ------------------------------
Annual Report to Stockholders for Fiscal
year ended December 31, 1996 II
Definitive proxy statement for the 1996
Annual Meeting of Stockholders to be held
on April 24, 1997 III
<PAGE>
FORM 10-K
INDEX
PART I PAGE
Item 1. Business 1
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial
Condition or Plan of Operations 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits and Reports on Form 8-K 25
Signatures 26
Index to Exhibits E-1
<PAGE>
YARDVILLE NATIONAL BANCORP
FORM 10-K
PART I
ITEM 1. BUSINESS.
General
Yardville National Bancorp (the "Company") is a bank holding
company registered with the Board of Governors of the Federal Reserve System
(the "FRB") under the Bank Holding Company Act of 1956 (the "Holding Company
Act"). The Company's business is the ownership and management of The
Yardville National Bank, a national banking association and the Company's sole
banking subsidiary (the "Bank"). The Company was incorporated under the laws
of New Jersey and became the holding company of the Bank in 1985. At December
31, 1996, the Company had total assets of approximately $490,545,000,
deposits of approximately $364,445,000 and stockholders' equity of
approximately $35,230,000.
The Bank
The Bank received its charter from The Office of the Comptroller of
the Currency (the "OCC") in 1924 and commenced operations as a commercial
bank in 1925. The Bank currently operates nine full-service banking offices
in Mercer County, New Jersey, five in Hamilton Township, two in Ewing
Township, one in East Windsor Township and one in Trenton. The branch offices
in Ewing Township were established in 1994 and in the third quarter of 1996,
respectively. The branch office in East Windsor was established in the first
quarter of 1995, and the branch office in Trenton was established in the
second quarter of 1995. The bank opened its fifth branch office in Hamilton
Township in the second quarter of 1996.
The Bank's principal executive offices are located at 3111
Quakerbridge Road, Trenton, New Jersey.
The Bank conducts a general commercial and retail banking business.
The principal focus of the Bank has been to provide a full range of
traditional commercial and retail banking services, including savings and time
deposits, letters of credit, checking accounts and commercial, real estate and
consumer loans, for individuals and small and medium size businesses in each of
the local communities that it serves.
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The Bank has one wholly-owned non-bank subsidiary, Yardville National
Investment Corporation, which was incorporated in 1985. Yardville National
Investment Corporation was formed to separate a portion of the Bank's
investment portfolio functions and responsibilities from its regular banking
operations and to increase the net yield of the investment portfolio.
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 FRB, the OCC or the
Federal Deposit Insurance Corporation (the "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 by the agency or any written agreement with the agency. Because the
Company is a "bank holding company" under 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, 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 five percent (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 five
percent (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
2
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is prohibited from engaging in or acquiring direct or indirect control of
more than five percent (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. The FRB may also make examinations of the Company and any
or all of its subsidiaries. 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 any other
subsidiary of the bank holding company, 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, its bank holding company or
any other subsidiary of the 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.
3
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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. 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
anti-competitive 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.
4
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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 makes and
collateral it takes, 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
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.
5
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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, 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 restricts management
personnel from borrowing from another institution that has a correspondent
relationship with their bank.
The Bank, as a member of the Federal Reserve System, is
subject to certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the bank holding company or its subsidiaries, on
investments in the stock or other securities of the bank holding company or its
subsidiaries and on taking such stock or securities as collateral for loans.
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.
6
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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 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
("TILA"), 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 ("RESPA")), 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.
7
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Capital Rules
Federal banking agencies have issued "risk-based capital" guidelines,
which supplement other capital requirements. In addition, the OCC imposes
certain "leverage" requirements on national 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.
The risk-based capital rules also account for interest rate risk.
Institutions with interest rate risk exposure above a normal level are required
to hold extra capital in proportion to that risk. A bank's exposure to declines
in the economic value of its capital due to changes in interest rates is a
factor that the banking agencies will consider in evaluating a bank's capital
adequacy. The rule does not codify an explicit minimum capital charge for
interest rate risk. The Bank currently monitors and manages its assets and
liabilities for interest rate risk, and management believes that the interest
rate risk rules 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 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%, or higher at the discretion of the OCC, and is
required to be at a level commensurate with the nature of the riskiness of the
bank's condition and activities.
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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, 1996 and December 31, 1995 the required ratios and the Bank's
actual ratios are as follows:
<TABLE>
<CAPTION>
Bank Bank
Capital Required 12/31/96 12/31/95
Rule Ratio Ratio Ratio
------- ----- -------- -------
<S> <C> <C> <C>
Tier 1 Leverage Ratio 4.00% 7.8% 9.1%
Tier 1 Risk-Based Capital 4.00% 10.2% 12.0%
Total (Tiers 1 and 2)
Risk-Based Capital 8.00% 11.4% 13.2%
</TABLE>
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 assets of 6%. For this purpose, (1)
"primary capital" includes, among other items, common stock, contingency and
other capital reserves, and the allowance for loan and lease losses, (2)
"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, 1996 and December 31, 1995 the required ratios and the Company's actual
ratios are as follows:
Company Company
Capital Required 12/31/96 12/31/95
Rule Ratio Ratio Ratio
------- -------- -------- --------
Primary Capital 5.50% 8.2% 8.7%
Total Capital 6.00% 8.1% 8.7%
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1996 Federal Banking Legislation
The Economic Growth And Regulatory Paperwork Reduction Act of 1996
(the "1996 Banking Law"), enacted as Title II of the Omnibus
Consolidated Appropriations Act for Fiscal Year 1997 was signed into Law on
September 30, 1996, implemented a wide range of regulatory relief provisions
affecting federal insured depository institutions. Among the supervisory
provisions of the 1996 Banking Law which may affect the Bank, the 1996 Banking
Law included the following: per branch capital requirement for national banks
were eliminated; ATM's and other remote service units were excluded from the
definition of "branch" for purposes of certain branch approval requirements
and geographic restrictions; the law permits well-capitalized banks rated
CAMEL 1 or 2 to invest in bank premises in amounts up to 150 percent of the
bank's capital and surplus with only a 30-day after-the-fact notice and
establishes expedited procedures to permit certain bank holding companies to
engage in permissible nonbanking activities, except for acquisitions of thrifts;
exempted from the insider lending restrictions a bank's company-wide benefit or
compensation plans that are widely available to employees of the bank and that
do not give preference to any officer, director, or principal shareholder
(or related interests) over other employees of the bank; permits the Federal
banking agencies to raise the asset limit for an 18-month examination
cycle from $175,000,000 to $250,000,000 for banks with a CAMEL 2 rating;
permits the OCC to waive the State residency requirement for directors of
national banks; eliminates the independent auditor attestation requirement
for compliance with safety and soundness laws; authorizes the Federal banking
agencies to permit a bank's independent audit committee to include some inside
directors if the bank is unable to find competent outside directors, provided
a majority of the committee is still made up of outside directors; requires
FRB and the U.S. Department of Housing and Urban Development, within 6 months
of enactment, to simplify and improve RESPA and TILA disclosures and provide
a single format for such disclosures; makes a number of changes to RESPA's
disclosure requirements; generally provides that, if a bank or a third party
self-tests for compliance under the Equal Credit Opportunity Act and the
Fair Housing Act, the test results will not be used against the bank if
the bank identifies possible violations and is taking appropriate corrective
actions, and if the bank is not using the results in its defense; sunsets
the Truth-in-Savings Act's civil liability provision in five years;
recapitalizes the Savings Association Insurance Fund ("SAIF") as of
October 1, 1996; requires banks after December 31, 1996 to pay 20% of the
interest on the bonds that funded the initial capitalization of SAIF
("FICO bonds") but banks would be required to pay a full pro-rata share of the
interest obligation beginning after the earlier of December 31, 1999 or
the date on which the last savings association ceases to exist; merges SAIF
and the Bank Insurance Fund ("BIF") on January 1, 1999, but only if no
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insured depository institution is a savings association on that date; requires
the Department of Treasury to conduct a study by March 31, 1997 on the
development of a common charter for all insured depository institutions;
substantially amends the Fair Credit Reporting Act ("FCRA"); prohibits the
Federal banking agencies from examining for compliance with FCRA unless there
has been a complaint about a violation or the agency otherwise has knowledge of
a violation; and amends the Comprehensive Environmental Response, Compensation,
and Liability Act to clarify that a lender is not liable for environmental
cleanups of property securing a loan unless the lender, among other things,
participates in day-to-day decision making over the operations of the property
or has control over environmental compliance and provides that lenders that
foreclose on property may take certain post-foreclosure actions without
incurring liability for environmental cleanup if the lender did not participate
in management of the property prior to foreclosure and the lender seeks to
dispose of the property as soon as it is commercially reasonable.
Deposit Insurance Assessments
Deposits of the Bank are insured by the FDIC through BIF. Deposits of
certain savings associations are insured by the FDIC through SAIF. 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
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consist of financially sound institutions with only a few minor weaknesses.
Subgroup B will consist of institutions that demonstrate weaknesses which,
if not corrected, could result in significant deterioration of the institution
and increased risk of loss to 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 December 6, 1996, the FDIC continued in effect for the first six months
of 1997 the downward adjustment in deposit insurance assessment rates
applicable to BIF member institutions, but eliminated the statutory minimum
assessment of $1,000 due to the 1996 Banking Law, which repealed that minimum.
The following table sets forth the new schedule of BIF assessment
rates by capital group and supervisory risk subgroup for the semi-annual
assessment period beginning January 1, 1997 (with no minimum assessment amount):
Capital Group Supervisory subgroup
------------- ---------------------
A B C
1 0 3 17
2 3 10 24
3 10 24 27
On November 22, 1996, the Federal Financing Corporation ("FICO")
adopted a regulation pursuant to the 1996 Banking Law which obligates all
federally insured depository institutions to pay special assessments toward the
funding of interest payments on FICO bonds, which were issued in 1989 to fund
the savings and loan bailout. The special assessments, which are effective for
periods commencing January 1, 1997, will be calculated on a deposit-by-deposit
basis and differ depending upon whether a deposit is insured by SAIF or BIF.
For the period commencing January 1, 1997, the special assessment rates are
expected to be 6.4 basis points on all SAIF-assessable deposits and 20% of
that rate, or approximately 1.3 basis points, on all BIF-assessable
deposits---regardless of whether an institution is a "bank" or a "savings
association". After December 31, 1999 (or when the last savings
association ceases to exist, if earlier), all assessable
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deposits at all institutions will be assessed at the same rates in order to pay
FICO bond interest. These special assessments are in addition to the semi-
annual assessments for BIF member institutions or BIF assessable deposits.
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 rules,
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 rules 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
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 statute requires, with certain narrowly
limited exceptions, that the institution be placed in receivership.
13
<PAGE>
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 would 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 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 pre-emption by applicable Federal
laws. 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. New Jersey has opted into early interstate
banking and branching. See the discussion under "Interstate Banking", below.
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
14
<PAGE>
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.
Interstate Banking
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 U. S. 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 acquiree could have branched. States may enact laws
opting-out of interstate branching during periods before June 1, 1997, but if
so, domestic institutions will also be prohibited from branching interstate.
States may also enact laws permitting interstate merger transactions and
interstate de novo branching before June 1, 1997. On April 17, 1996, New
Jersey enacted legislation to opt-in with respect to earlier interstate
banking and branching and the entry into New Jersey of foreign country banks.
New Jersey did not authorize de novo branching into the state. 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
of the state's laws permit it. Unless expressly determined to be pre-empted,
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,
15
<PAGE>
as well as 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.
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.
Proposals to change the laws and regulations governing the operations and
taxation of banks, bank holding companies, and other financial institutions are
frequently made in Congress and before various bank regulatory agencies. No
prediction can be made as to the likelihood of any major changes or the impact
such changes might have on the Company and the Bank.
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 banks' deposits. It is not
possible to predict the nature and impact of future changes in monetary and
fiscal policies.
16
<PAGE>
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 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. 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
Interstate Banking Act will increase competitive pressures in the Bank's market
by permitting entry of additional competitors. 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 can 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.
Employees
At December 31, 1996, the Company employed 160 full-time employees and
11 part-time employees.
17
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
Statistical disclosure information regarding the distribution of assets,
liabilities and stockholders' equity, interest rates and interest differential
is included in the Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations, which is incorporated by
reference to the Company's Annual Report to Stockholders (see Part II, Item 6
below).
Investment Portfolio
Statistical disclosure information regarding securities is included in the
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, which is incorporated by reference to the Company's
Annual Report to Stockholders. Additional disclosure information follows.
The following table presents the amortized cost and market values of the
Company's securities available for sale portfolio as of December 31, 1996, 1995
and 1994.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
----------------------- ------------------------ ---------------------
(in thousands) Book Market Book Market Book Market
Value Value Value Value Value Value
----- ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other federal agencies $ 31,951 $ 31,942 $ 17,795 $ 17,823 $ 6,366 $ 6,150
Mortgage-backed securities 59,441 59,182 78,725 78,874 18,358 16,755
Federal Reserve Bank stock 572 572 512 512 173 173
Federal Home Loan Bank 1,975 1,975 1,260 1,260 1,074 1,074
stock ----------- ---------- ---------- ------------ ---------- -----------
Total $ 93,939 $ 93,671 $ 98,292 $ 98,469 $ 25,971 $ 24,152
=========== ========== ========== ============ ========== ===========
</TABLE>
All mortgage-backed securities are FHLMC, FNMA or GNMA agency named at
December 31, 1996.
18
<PAGE>
The following table presents the amortized cost and market values of the
Company's investment securities portfolio as of December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
----------------------- ------------------------- ---------------------
(in thousands) Book Market Book Market Book Market
Value Value Value Value Value Value
------ ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Obligations of state and
political subdivisions $ 9,070 $ 9,108 $ 8,630 $ 8,659 $ 8,392 $ 7,777
Mortgage-backed securities 22,226 21,770 26,754 26,378 30,691 27,972
-------- ---------- -------- --------- --------- ---------
Total $ 31,296 $ 30,878 $ 35,384 $ 35,037 $ 39,083 $ 35,749
======== ========== ======== ========= ========= =========
</TABLE>
All mortgage-backed securities are FHLMC, FNMA or GNMA agency named at
December 31, 1996.
Loan Portfolio
Statistical disclosure information regarding the loan portfolio is
included in the Management's Discussion and Analysis, which is incorporated by
reference to the Company's Annual Report to Stockholders. Additional
disclosure information follows.
The following table provides information concerning the maturity and
interest rate sensitivity of the Company's commercial, agricultural and real
estate-construction loan portfolio for the year presented.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------
After One After
Within But Within Five
(in thousands) One Year Five Years Years Total
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Maturities:
Commercial and agricultural $ 24,634 $ 30,244 $ 8,548 $ 63,426
Real estate - construction 17,575 5,365 3,018 25,958
----------- ------------ ------------ -----------
Total $ 42,209 $ 35,609 $ 11,566 $ 89,384
=========== =========== ============ ===========
Type:
Fixed rate loans $ 4,134 $ 17,990 $ 3,697 $ 25,821
Floating rate loans 38,075 17,619 7,869 63,563
----------- ----------- ----------- -----------
Total $ 42,209 $ 35,609 $ 11,566 $ 89,384
=========== =========== =========== ===========
</TABLE>
19
<PAGE>
Summary of Loan Loss Experience
Statistical disclosure information regarding the summary of loan loss
experience is included in the Management's Discussion and Analysis, which is
incorporated by reference to the Company's Annual Report to Stockholders.
Additional disclosure information follows.
The following tables describe the allocation for loan losses among various
categories of loans and certain other information as of the dates indicated.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
--------------------------------------- -----------------------------------
Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans
----------- ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 1,137 39.0 % 13.5% $ 933 34.5 % 13.1
Real estate - mortgage 1,152 39.6 70.4 1,415 52.3 72.5
Real estate - construction 398 13.7 7.9 237 8.8 7.2
Consumer 141 4.8 5.6 86 3.2 5.5
Other loans 84 2.9 2.6 32 1.2 1.7
-------------------------------------- ----------------------------------
Totals $ 2,912 100.0 % 100.0% $ 2,703 100.0 % 100.0
====================================== ==================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
---------------------------------------------
Percent of
Reserve Percent of Loans to
Amount Allowance Total Loans
<S> <C> <C> <C>
Commercial, financial and agricultural $ 1,002 34.1 % 14.1%
Real estate - mortgage 1,443 49.1 75.2
Real estate - construction 204 6.9 4.0
Consumer 73 2.5 6.0
Other loans 218 7.4 0.7
-------------------------------------------
Totals $ 2,940 100.0 % 100.0%
===========================================
</TABLE>
20
<PAGE>
Deposits
Statistical disclosure information regarding deposits is included in the
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, which is incorporated by reference to the Company's
Annual Report to Stockholders.
Return on Equity and Assets
Statistical disclosure information regarding deposits is included in the
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, which is incorporated by reference to the Company's
Annual Report to Stockholders.
Short-Term Borrowings
Statistical disclosure information regarding deposits is included in the
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, which is incorporated by reference to the Company's
Annual Report to Stockholders. Additional disclosure information follows.
December 31,
(in thousands) 1994
- -------------------------------------------------------------
Securities sold under
agreements to repurchase $ -
FHLB advances -
Other 1,215
-----------------------------------------------------------
Total $ 1,215
-----------------------------------------------------------
Maximum amount outstanding
at any month end $ 7,264
Average interest rate on
year end balance 4.50%
Average amount outstanding
during the year $ 2,248
Average interest rate for
the year 4.23%
------------------------------------------------------------
21
<PAGE>
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located at 3111
Quakerbridge Road, Trenton, New Jersey in a building owned by the Bank and the
management and staff of the Company utilize the facilities and equipment of the
Bank. The Bank owns its principal executive offices, where it also has a
banking office, in Yardville, New Jersey, and three additional banking offices
in Hamilton Township, New Jersey. The Bank leases its banking office in Ewing
Township, New Jersey. The lease provides for a term of five years ending in
1999, renewable for three 5- year periods, and a base monthly rental of
$2,333.34 during the initial term. The Bank also leases its banking office in
East Windsor Township, New Jersey. The lease provides for a term of five years
ending in 1999, renewable for three 5-year periods, and provides for a base
monthly rental of $2,457.92 during the initial term. The Bank also leases its
banking office in Trenton. The lease provides for a term of five years ending
in 1999, renewable for three 5-year periods, and provides for a base monthly
rental of $1,875.00. The Bank also leases its banking office in Hamilton
Square, New Jersey, which opened in the second quarter of 1996. The Bank
assumed a 20 year lease effective April 1, 1996. The lease commenced on
October 1, 1991 and ends on September 30, 2011 and is renewable for 5-year
periods, and provides for a base monthly rental of $5,573.53 during the
initial term. The Bank purchased a building and property in Ewing Township and
opened its ninth branch in the third quarter of 1996. Yardville National
Investment Corporation leases space from the Bank at the Bank's principal
executive offices.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal actions as of December 31,
1996, arising out of the ordinary course of business. Management of the Company
does not deem any of the claims against the Company in such matters are
material in relation to the Company's financial condition, results of
operations or liquidity based on information currently available to the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996, through the
solicitation of proxies or otherwise.
22
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Common Stock began trading on the NASDAQ National Market on June
9, 1995. 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 in the NASDAQ National
Market commencing with the second quarter of 1995 and as reported by the
National Quotation Bureau for the periods prior to the second quarter of
1995. The price quotations reflect inter-dealer quotations without adjustment
for retail markup, markdown or commission, and may not represent actual
transactions.
Bid Price
High Low
Year Ended December 31, 1995:
First Quarter $12 1/4 $11 3/4
Second Quarter 15 14 1/4
Third Quarter 17 1/2 17
Fourth Quarter 16 1/2 15 3/4
Year Ended December 31, 1996:
First Quarter $16 1/8 $ 16
Second Quarter 16 1/4 15 7/8
Third Quarter 18 1/4 18
Fourth Quarter 19 3/4 19 1/4
Holders
As of December 31, 1996, the Company had approximately 552 holders of
record of the Common Stock.
23
<PAGE>
Dividends
In 1995, the Company paid cash dividends on the Common Stock in the
aggregate amount of $738,000. In 1996, the Company paid cash dividends on the
Common Stock in the aggregate amount of $1,083,000. In the first quarter of
1997, the Company paid a cash dividend in the amount of $.12 per share on the
Common Stock. 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 December 31, 1996, the net profits of the Bank available for distribution
to the Company as dividends without regulatory approval were approximately
$5,651,000. The Company expects to pay quarterly cash dividends in 1997 to
holders of Common Stock, subject to the Company's financial condition.
ITEMS 6, 7 AND 8
Information required by items 6, 7 and 8 is provided in the Company's 1996
Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 1996
ANNUAL REPORT
CAPTION IN 1996 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 11-29
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS 30-45
INDEPENDENT AUDITORS' REPORT 46
The Company is not required to provide selected quarterly financial
data in response to Item 8 and, therefore, such data has been omitted from the
1996 Annual Report to Stockholders.
24
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEMS 10 THROUGH 13
Information required by Items 9 through 12 is provided in the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with its annual meeting of stockholders
to be held April 24, 1997. Such information is incorporated by reference. The
information contained in the Company's definitive proxy statement under
the caption "Organization and Compensation Committee Report" shall not be
deemed to be incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits filed or incorporated by reference as a part of this
report are listed in the Index to Exhibits which appears at page E-1 and are
incorporated by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1996.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has caused this annual report to be signed
on its behalf by the undersigned thereunto duly authorized on march 27, 1997.
YARDVILLE NATIONAL BANCORP
By: Patrick M. Ryan
----------------------------------
Patrick M. Ryan, President and
Chief Executive Officer
Signatures Title
Jay G. Destribats
- ------------------------- Chairman of the Board
Jay G. Destribats and director
Patrick M. Ryan
- ------------------------- Director, President and
Patrick M. Ryan Chief Executive Officer
Stephen F. Carman
- ------------------------- Treasurer, Secretary,
Stephen F. Carman Principal Financial Officer
and Principal Accounting Officer
C. West Ayres
- ------------------------- Director
C. West Ayres
Elbert G. Basolis, Jr.
- ------------------------- Director
Elbert G. Basolis, Jr.
Lorraine Buklad
- ------------------------- Director
Lorraine Buklad
Anthony M. Giampetro
- ------------------------- Director
Anthony M. Giampetro
Sidney L. Hofing
- ------------------------- Director
Sidney L. Hofing
James J. Kelly
- ------------------------- Director
James J. Kelly
26
<PAGE>
SIGNATURES TITLE
Gilbert W. Lugossy
- ------------------------- Director
Gilbert W. Lugossy
Louis R. Matlack
- ------------------------- Director
Louis R. Matlack
Weldon J. McDaniel, Jr.
- ------------------------- Director
Weldon J. McDaniel, Jr.
F. Kevin Tylus
- ------------------------- Director
F. Kevin Yylus
27
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description PAGE
* 3.1 Restated Certificate of Incorporation of the Company ..........
** 3.2 By-Laws of the Company.........................................
** 4.1 Specimen Share of Common Stock.................................
** 4.2 Form of Class A Warrant........................................
10.1 Employment Contract Between Registrant and Patrick M. Ryan..... E-3
10.2 employment contract Between Registrant and Jay G. Destribats... e-11
*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 Registrant and Richard A. Kauffman.
*10.6 Employment Contract Between Registrant and Mary C. O'Donnell...
*10.7 Employment Contract Between Registrant and Frank Durand III....
10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan.... e-18
10.9 salary continuation plan for the benefit of Jay G. Destribats.. e-23
*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 18, 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 as of
February 9, 1996
11 Statement Re Computation of Per Share Earnings................. E-28
13.1 1996 Annual Report to Stockholders............................. E-30
**21 List of Subsidiaries of the Registrant.........................
23.1 Consent of KPMG Peat Marwick LLP .............................. E-82
27.1 Financial Data Schedules....................................... E-83
(continued)
E-1
<PAGE>
* Incorporated by reference to the Registrant's Annual Report on Rorm 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 Registration Statement on
Form SB-2 (Registration No. 33-78050)
*** Incorporated by Reference to the Registrant's Annual Report on Form 10-KSB
for the Fiscal year ended December 31, 1995.
<PAGE>
1
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 31st day of January, 1997 by and
between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation
organized under the laws of the State of New Jersey, and Patrick M. Ryan
(the "Executive").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on
a full-time basis for said period;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall serve as
President and Chief Executive Officer of the Yardville National Bank (the
"Bank") reporting to the Board of Directors of the Bank and as Chief Executive
Officer of the Holding Company reporting to the Board of Directors of the
Holding Company (collectively, the "Board"). During said period, Executive
shall also serve as a director of the Bank and as a director of the Holding
Company. Failure to re-elect Executive as President and Chief Executive Officer
of the Bank or the Holding Company or failure to re-elect Executive as a member
of the Board of Directors of the Bank or of the Holding Company shall
constitute a Breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of the Executive's employment under this Agreement shall
commence as of January 31, 1997 and shall continue for a period of twenty-four
(24) full calendar months thereafter, unless terminated by the Bank on account
of death, disability or cause (as herein defined). This Agreement is subject to
approval, for continuation, by the Board of Directors of the Yardville National
<PAGE>
2
Bancorp, at the conclusion of each contract period. Renewals shall be on the
same terms and conditions as set forth herein, except for such modification of
compensation and benefits as may hereafter be agreed upon between the parties
hereto from time to time. This Agreement shall be deemed to continue for an
additional twelve (12) months from each succeeding anniversary date of the
Agreement, it being the intention of the parties that, unless notice is given
to the contrary by either party, the Agreement shall be extended for an
additional one year period so that there be a full twelve month term remaining.
(b) During the period of employment, the Executive shall devote full
time and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the President and Chief Executive
Officer of a commercial bank and from time to time may be perceived by the
Board.
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes or that probably
will cause substantial economic damage to the Bank or substantial
injury to the Bank's business reputation; or,
(ii) the commission of an act of fraud in the performance of the
Executive's duties; or
(iii) a continuing willful failure to perform the duties of the
Executive's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Executive's employment.
(b) "Change in Control: means any of the following:
(i) the acquisition by any person or group acting in concert of
beneficial ownership of forty percent (40%) or more of any class of
equity security of the Bank or the Bank's Holding Company, or,
(ii) the approval by the Board of the sale of all or substantially
all of the assets of the Bank or Holding Company; or,
(iii) the approval by the Board 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.
<PAGE>
3
(c) "Disability" means a mental or physical illness or condition
rendering the Executive incapable of performing his normal duties for the Bank.
(d) "Willfulness" means an act or failure to act done not in good faith
and without reasonable belief that the action or omission was in the best
interest of the Bank.
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment, the Bank shall pay to the Executive
an annual salary of not less than $200,000.00 shall be paid in either bi-weekly
or monthly installments as the Executive prefers.
Such salary shall be reviewed by the Board or a duly appointed committee
thereof at least annually and any adjustments in the amount of salary on said
review shall be fixed by the Board from time to time.
(b) The Executive shall be entitled to participate in or receive
benefits under any retirement plan, salary continuation plan, pension plan,
profit-sharing plan, stock plan, group term replacement plan,
health-and-accident plan, medical coverage or any other employee benefit plan or
prerequisite arrangement currently available or which may hereafter be adopted
by the Bank for its senior executives and key management employees, subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation to which
the Executive is entitled under this Agreement.
(c) The Executive shall be provided by the Bank with an automobile for
his individual use.
(d) In addition to the salary provided for under Section 4:
(a) The Bank shall pay for all reasonable travel and other
reasonable expenses incurred by the Executive in performing his
obligations under this Agreement.
(c) The Executive shall be eligible for an annual cash bonus, based
upon the Bank's performance during the fiscal year.
The cash bonus allowance will be set at 2% of profits, after
taxes and prior to shareholder dividend payments, if earnings,
in the fiscal year, exceed $3,999,999.99.
<PAGE>
4
All cash bonuses, for the Executive, are subject to the
recommendation and approval of the Director' Organization and
Compensation Committee and all bonus provisions will be reviewed
annually for appropriate revisions.
5. STOCK OPTIONS
Incentive Stock Options will be periodically negotiated for the
Executive under the terms and conditions of the shareholder approved Employee
Stock Option Plan.
Stock options previously granted to the Executive are reaffirmed for the
contract periods of November 7, 1991 and October 28, 1992 as follows:
(a) On November 7, 1991 the Bank granted to the Executive the option
to purchase 5,000 shares of its common stock of the Bank Holding
Company at a share price of Six dollars and Fifty cents ($6.50)
per share (the fair market value of said stock as of
the date of the Agreement) subject to the terms and conditions
of the Holding Company's 1988 Stock Option Plan (the "Plan").
Number of Options Vesting Date
1750 November 7, 1991
1750 November 7, 1992
1500 November 7, 1993
(b) On October 28, 1992, the Bank granted to the Executive the
option to purchase 5,000 shares of its common stock of the Bank
Holding Company at a price of Sixteen dollars ($16.00) per share
(the fair market value of said stock as of the date of the
Agreement) subject to the terms and conditions of the Holding
Company's 1988 Stock Option Plan (the "Plan").
Number of Options Vesting Date
5000 October 28, 1993
The rights to exercise shall be cumulative, and any option not exercised
in a prior year may be exercised in a subsequent year throughout the ten year
option period.
<PAGE>
5
In connection with any proposed sale or conveyance of all or
substantially all of the assets of the Bank or Holding Company or recently
accomplished Change of Control of the Holding Company, the vesting schedule of
all options granted hereunder to the Executive shall accelerate and 100% of all
options shall immediately vest to the Executive.
If and to the extent that the number of issued shares of common stock of
the Holding Company shall be increased or reduced by any change in the par
value, split-up, reclassification, distribution of a dividend payable in stock
or the like, the number of shares proportionately adjusted. If the Holding
Company is reorganized, consolidated or merged with another corporation, the
Executive shall be entitled to receive options covering shares of such
reorganized, consolidated or merged corportion in the same proportion and at an
equivalent price and subject to the same conditions. For the purposes of the
preceding sentence, the excess of the aggregate fair market value of the shares
subject to the option immediately after the reorganization, consolidation or
merger over the aggregate option price of such shares shall not be more than the
excess of the aggregate fair market value of all shares subject to the option
immediately before such reorganization, consolidation or merger over the
aggregate option price of such shares, and a new option or assumption of the old
option shall not give the Executive additional benefits which he did not have
under the old option.
6. TERMINATION FOR CAUSE
(a) The Executive shall not have the right to receive compensation or
other benefits provided hereunder for any period after termination for Cause,
except to the extent that Executive may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
(b) Any unexercised stock option granted to the Executive shall become
null and void effective upon the Executive's receipt of notice of termination
for Cause and shall not be exercisable by the Executive at any time subsequent
to such termination for Cause.
(c) The Executive shall not be deemed to have been terminated for Cause
unless and until there is delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the full Board at a
meeting of such Board called and held for the purpose (after the Executive,
<PAGE>
6
together with counsel, has been given the opportunity to be heard before the
Board), finding the Executive guilty of conduct set forth above in the
definition of "Cause" in Subsection 3(a) and specifying the particulars thereof
in detail.
7. CHANGE IN CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Executive's employment is terminated by the Bank, other
than for death, disability or Cause, the Executive shall be entitled to receive
three (3) years' salary at the annual salary currently being paid, which payment
shall be made in a lump sum promptly after the occurrence of such termination.
(b) The Executive will have the option within six (6) months after a
Change in Control (as herein defined), to elect to resign his position. If the
Executive's voluntary departure is for other than death, disability or cause the
Executive shall be entitled to receive three (3) years' salary at an annual
salary currently being paid, which payment shall be made in a lump sum promptly
after the occurrence of such voluntary resignation.
(c) Under the provisions of Section 7 the Executive is entitled to
receive a lump sum payment of three (3) years salary at the annual salary
currently being paid at the time of the event. The Holding Company's independent
accountants will determine if an excess payment (as defined in Section 4999 of
the Internal Revenue Code of 1954, as amended (the "Code") exists after
reductions permitted pursuant to Section 28OG(b)(4) of the Code (such excess
parachute payment after taking into account such reductions, if any, being
hereafter referred to as the "Excess Parachute Payment"). As soon as practicable
after the Excess Parachute Payment, if any, has been so determined, the Holding
Company will pay to the Executive, subject to applicable withholding
requirements under state or federal law
(i) twenty (20%) percent of the Excess Parachute Payment, and
(ii) such additional amount, if any (including Federal and State
income and exercise taxes applicable thereto) as may be
necessary to compensate the Executive for the payment of state
and federal income and excise taxes on the aforesaid payment,
as outlined in Section C.
<PAGE>
7
8. TERMINATION UPON DISABILITY
(a) In the event that the Executive experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the day of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Holding Company. If such Disability continues for a period of
six (6) consecutive months, the Holding Company at its option may thereafter,
upon written notice to the Executive or his personal representative, terminate
the Executive's employment with no further notice.
9. OTHER TERMINATION BY THE HOLDING COMPANY
(a) In the event the Executive's employment is terminated by the Holding
Company, other than for disability, death or Cause, and in the absence of
occurrence of a Change in Control, the Executive will be entitled to payment of
the remaining term of this agreement, at the annual salary currently being paid
with said payment to be a lump sum payment upon termination.
(b) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination, but only to the extent exercisable by him on the date of such
termination and in no event later than the expiration date of his option.
10. TERMINATION BY THE EXECUTIVE
(a) In the event of the Executive's voluntary termination, the Executive
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that Executive
may be legally entitled to participate by virtue of COBRA or any other State or
Federal Law concerning employee rights to benefits upon termination.
(b) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination by the Executive, but only to the extent exercisable by him on the
date of such termination and in no event later than the expiration date of his
options.
11. SOURCE OF PAYMENTS
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank, as
the case may be.
<PAGE>
8
12. MODIFICATION AND WAIVER
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
13. NOTICES
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and if sent by registered mail to his residence in
the case of the Executive or to its principal place of business in the case of
the Bank.
14. GOVERNING LAW
This Agreement and the obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
15. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties. It may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on
the 31st day of January, 1997.
ATTEST: YARDVILLE NATIONAL BANCORP
- --------------------------- -----------------------------------------
Jay G. Destribats
Chairman of the Board
- --------------------------- -----------------------------------------
F. Kevin Tylus, Chairman
Directors' Organization
& Compensation Committee
WITNESS
- ---------------------------- ----------------------------------------
Patrick M. Ryan,
the Executive
<PAGE>
1
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 31st day of January, 1997 by and
between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation
organized under the laws of the State of New Jersey, and Jay G. Destribats (the
"Executive").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Executive; and
WHEREAS, the Executive is willing to serve in the employ of the Bank;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall serve as
Chairman of the Board of Directors of Yardville National Bank (the "Bank")
reporting to the Board of Directors of the Bank and as Chairman of the Board of
Directors of the Holding Company reporting to the Board of Directors of the
Holding Company (collectively, the "Board"). Failure to reelect the Executive as
Chairman of the Board of the Bank or the Holding Company or failure to reelect
Executive as a member of the Board of Directors of the Bank or of the Holding
Company shall constitute a Breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of the Executive's employment under this Agreement shall
commence as of January 31, 1997 and shall continue for a period of twenty-four
(24) full calendar months thereafter, unless terminated by the Bank on account
of death, disability or cause (as herein defined). This Agreement is subject to
approval, for continuation, by the Board of Directors of the Yardville National
<PAGE>
2
Bancorp, at the conclusion of each contract period. Renewals shall be on the
same terms and conditions as set forth herein, except for such modification of
compensation and benefits as may hereafter be agreed upon between the parties
hereto from time to time. This Agreement shall be deemed to continue for an
additional twelve months from each succeeding anniversary date of the Agreement,
it being the intention of the parties that, unless notice is given to the
contrary by either party, the Agreement shall be extended for an additional one
year period so that there be a full twelve month term remaining.
(b) During the period of employment, the Executive shall devote full
time and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Chairman of the Board of Directors
of a commercial bank and from time to time may be perceived by the Board.
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes or that probably
will cause substantial economic damage to the Bank or substantial
injury to the Bank's business reputation; or,
(ii) the commission of an act of fraud in the performance of the
Executive's duties; or
(iii) a continuing willful failure to perform the duties of the
Executive's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Executive's employment.
(b) "Change in Control: means any of the following:
(i) the acquisition by any person or group acting in concert of
beneficial ownership of forty percent (40%) or more of any class of
equity security of the Bank or the Bank's Holding Company, or,
(ii) the approval by the Board of the sale of all or substantially
all of the assets of the Bank or Holding Company; or,
<PAGE>
3
(iii) the approval by the Board 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.
(c) "Disability" means a mental or physical illness or condition
rendering the Executive incapable of performing his normal duties for the Bank.
(d) "Willfulness" means an act or failure to act done not in good faith
and without reasonable belief that the action or omission was in the best
interest of the Bank.
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment, the Bank shall pay to the Executive
an annual salary of not less than $160,000.00 shall be paid in either bi-weekly
or monthly installments as the Executive prefers.
Such salary shall be reviewed by the Board or a duly appointed committee thereof
at least annually and any adjustments in the amount of salary on said review
shall be fixed by the Board from time to time.
(b) The Executive shall be entitled to participate in or receive
benefits under any retirement plan, salary continuation plan, pension plan,
profit-sharing plan, stock plan, executive group term replacement plan,
health-and-accident plan, medical coverage or any other employee benefit plan or
prerequisite arrangement currently available or which may hereafter be adopted
by the Bank for its senior executives and key management employees, subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation to which
the Executive is entitled under this Agreement.
(c) The Executive shall be provided by the Bank with an automobile for
his individual use.
(d) In addition to the salary provided for under Section 4:
(a) The Bank shall pay for all reasonable travel and other
reasonable expenses incurred by the Executive in performing his
obligations under this Agreement.
<PAGE>
4
5. STOCK OPTIONS
Incentive Stock Options will be periodically negotiated for the
Executive under the terms and conditions of the shareholder approved Employee
Stock Option Plan.
6. TERMINATION FOR CAUSE
(a) The Executive shall not have the right to receive compensation or
other benefits provided hereunder for any period after termination for Cause,
except to the extent that Executive may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
(b) Any unexercised stock option granted to the Executive shall become
null and void effective upon the Executive's receipt of notice of termination
for Cause and shall not be exercisable by the Executive at any time subsequent
to such termination for Cause.
(c) The Executive shall not be deemed to have been terminated for Cause
unless and until there is delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the full Board at a
meeting of such Board called and held for the purpose (after the Executive,
together with counsel, has been given the opportunity to be heard before the
Board), finding the Executive guilty of conduct set forth above in the
definition of "Cause" in Subsection 3(a) and specifying the particulars thereof
in detail.
7. CHANGE IN CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Executive's employment is terminated by the Bank, other
than for death, disability or Cause, the Executive shall be entitled to receive
three (3) years' salary at the annual salary currently being paid, which payment
shall be made in a lump sum promptly after the occurrence of such termination.
(b) The Executive will have the option within six (6) months after a
Change in Control (as herein defined), to elect to resign his position. If the
Executive's voluntary departure is for other than death, disability or cause the
Executive shall be entitled to receive three (3) years' salary at an annual
salary currently being paid, which payment shall be made in a lump sum promptly
after the occurrence of such voluntary resignation.
<PAGE>
5
(c) Under the provisions of Section 7 the Executive is entitled to
receive a lump sum payment of three (3) years salary at the annual salary
currently being paid at the time of the event. The Holding Company's independent
accountants will determine if an excess payment (as defined in Section 4999 of
the Internal Revenue Code of 1954, as amended (the "Code") exists after
reductions permitted pursuant to Section 28OG(b)(4) of the Code (such excess
parachute payment after taking into account such reductions, if any, being
hereafter referred to as the "Excess Parachute Payment"). As soon as practicable
after the Excess Parachute Payment, if any, has been so determined, the Holding
Company will pay to the Executive, subject to applicable withholding
requirements under state or federal law
(i) twenty (20%) percent of the Excess Parachute Payment, and
(ii) such additional amount, if any (including Federal and State
income and exercise taxes applicable thereto) as may be
necessary to compensate the Executive for the payment of state
and federal income and excise taxes on the aforesaid payment,
as outlined in Section C.
8. TERMINATION UPON DISABILITY
(a) In the event that the Executive experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the day of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Holding Company. If such Disability continues for a period of
six (6) consecutive months, the Holding Company at its option may thereafter,
upon written notice to the Executive or his personal representative, terminate
the Executive's employment with no further notice.
9. OTHER TERMINATION BY THE HOLDING COMPANY
(a) In the event the Executive's employment is terminated by the Holding
Company, other than for disability, death or Cause, and in the absence of
occurrence of a Change in Control, the Executive will be entitled to payment of
the remaining term of this agreement, at the annual salary currently being paid
with said payment to be a lump sum payment upon termination.
<PAGE>
6
(b) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination, but only to the extent exercisable by him on the date of such
termination and in no event later than the expiration date of his option.
10. TERMINATION BY THE EXECUTIVE
(a) In the event of the Executive's voluntary termination, the Executive
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that Executive
may be legally entitled to participate by virtue of COBRA or any other State or
Federal Law concerning employee rights to benefits upon termination.
(b) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination by the Executive, but only to the extent exercisable by him on the
date of such termination and in no event later than the expiration date of his
options.
11. SOURCE OF PAYMENTS
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank, as
the case may be.
12. MODIFICATION AND WAIVER
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
13. NOTICES
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and if sent by registered mail to his residence in
the case of the Executive or to its principal place of business in the case of
the Bank.
14. GOVERNING LAW
This Agreement and the obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
<PAGE>
7
15. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties. It may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on
the 31st day of January, 1997.
ATTEST: YARDVILLE NATIONAL BANCORP
- -------------------------- -----------------------------------
F. Kevin Tylus, Chairman
Directors' Organization &
Compensation Committee
WITNESS
- -------------------------- -------------------------------------
Jay G. Destribats
Chairman of the Board
<PAGE>
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 (50%) of his final annual salary on
a monthly basis for a period of at least 180 months or for his life, if longer.
<PAGE>
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 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 he 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 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 /s/ Ingrid Jesibonowski
------------------------------
5
<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) years 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 /s/ Patrick M. Ryan Pres/CEO
- ------------------------ -----------------------------
JAY DESTRIBATS YARDVILLE NATIONAL BANK
By
---------------------------
Attest /s/
---------------------------
<PAGE>
Exhibit 11
Yardville National Bancorp and Subsidiary
Computation of Earnings Per share
Years ended December 31, 1995 and 1994*
<TABLE>
<CAPTION>
Primary Earnings Per Share
--------------------------
(in thousands, except per share amounts) 1995 1994
---------------------------------------- ---- ----
<S> <C> <C>
Reconciliation of net income, per consolidated statements of
income to amount used in primary earnings per share
computation:
Net income $ 3,403 $ 2,523
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 120 247
--------------------
Net income, as adjusted $ 3,523 $ 2,770
Reconciliation of weighted average number of
shares outstanding to amount used in primary
earnings per share computation:
Weighted average number of shares outstanding 1,964 1,255
Add: Equivalent shares issuable from assumed
exercise of options and warrants in excess
of 20% limitation 228 502
Equivalent shares issuable from assumed
exercise of dilutive options - -
--------------------
Weighted average number of shares outstanding, as adjusted 2,192 1,757
--------------------
Primary earnings per share $ 1.61 1.58
--------------------
</TABLE>
* 1995 and 1994 earnings per share amounts were calculated utilizing the
modified treasury stock method. The expiration of the warrants in June 1996
resulted in a change in the computation method of earnings per share to the
treasury stock method in 1996. The computation of earnings per share for
1996 can be clearly determined from the material contained in the 1996
Annual Report to Stockholders filed with the 1996 10K.
<PAGE>
Exhibit 11, cont.
Yardiville National Bancorp and Subsidiary
Computation of Earnings Per Share
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Fully Dilluted Earnings Per Share
- ---------------------------------
(in thousands, except per share amounts) 1995 1994
- ---------------------------------------- ---- ----
<S> <C> <C>
Reconciliation of net income, per consolidated statements
of income to amount used in fully diluted earnings per
share computation:
Net income $ 3,403 $ 2,523
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 101 223
------------------------
Net income, as adjusted 3,504 2,746
------------------------
Reconciliation of weighted average number of shares
outstanding to amount used in fully
diluted earnings per share computation:
Weighted average number of shares outstanding 1,964 1,255
Add: Equivalent shares issuable from assumed
exercise of options and warrants in excess
of 20% limitation 228 502
Equivalent shares issuable from assumed
exercise of dilutive options - -
------------------------
Weighted average number of shares outstanding, as adjusted 2,192 1,757
------------------------
Fully diluted earnings per share $ 1.60 $ 1.56
------------------------
</TABLE>
<PAGE>
YNB
Yardville National Bankcorp
[LOGO]
1996
Annual
Report
<PAGE>
TABLE OF CONTENT
- -----------------------------------------
Financial Highlights ........................................ 1
Letter to Stockholders ...................................... 2
Expansion for the Future..................................... 4
Salute to Directors Emeritus ................................ 8
Selected Historical Consolidated Financial Data ............. 9
Management's Financial Discussion and Analysis............... 11
Financial Statements......................................... 30
Notes to Consolidated Financial Statements .................. 34
Independent Auditors' Report ................................ 46
Officers .................................................... 47
Board of Directors .......................................... 48
Stockholder Information ...........................Inside Back Cover
<PAGE>
STOCKHOLDER INFORMATION
-------------------------------------
Corporate Headquarters Financial Information
Yardville National Bancorp Investors, security analysts
3111 Quakerbridge Road and others desiring financial
Mercerville, New Jersey 08619 information should contact:
(609) 585-5100 Diane H. Polyak
Assistant Secretary/Assistant
Annual Meeting Treasurer
The Annual Meeting of Stockholders or
will be held at La Villa Ristorante Stephen F. Carman
2275 Kuser Road, Hamilton, SecretarylTreasurer
New Jersey 08690
Thursday, April 24, 1997
Doors open 9:00 a.m. Form 10-KSB Availability
Meeting begins 10:00 a.m. Copies of Yardville National
Bancorp's Forms 10-KSB
Registrar and Stock Transfer Agent and 10-QSB filed with the
First City Transfer Company Securities and Exchange
111 Wood Avenue South, Suite 206 Commission are available
Iselin, New Jersey 08830 to stockholders upon written
(908) 205-4517 request to the Company.
Subsidiary Bank is a Member of the FDIC.
<PAGE>
OFFICES
- --------------------
The Yardville National Bank Ewing Office
P.O. Box 8487 1450 Parkside Avenue
Trenton, New Jersey 08650 Ewing Township, New Jersey 08638
Yardville Office East Windsor Office
4556 South Broad Street 18 Princeton-Hightstown Road
Yardville, New Jersey 08620 East Windsor, New Jersey 08520
Center City Office Trenton Office
1099 Whitehorse-Mercerville Road 410 Lalor Plaza
Trenton, New Jersey 08610 Trenton, New Jersey 08611
Broad Street Park Office Nottingham Pointe Office
2025 South Broad Street 4631 Nottingham Way
Trenton, New Jersey 08610 Hamilton Square, New Jersey 08690
Quakerbridge Off Ice West Trenton Office
3111 Quakerbridge Road 40 Scotch Road
Mercerville, New Jersey 08619 West Trenton, New Jersey 08628
[LOGO]
<PAGE>
Yardville National Bancorp and Subsidiary
FINANCIAL HIGHLIGHTS
------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 Increase
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31
Net income $ 4,026 $ 3,403 18.3%
Cash dividends declared per common share 0.45 0.38 18.4
- ---------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AS OF DECEMBER 31
Total assets $490,545 $403,115 21.7%
Total deposits 364,445 302,972 20.3
Total loans 331,237 245,054 35.2
Stockholders' equity 35,230 31,717 11.1
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED RATIOS
Return on average assets 0.90% 0.99%
Return on average stockholders' equity 12.25 13.84
Total equity to total assets 7.18 7.87
Tier I capital to risk-weighted assets 10.17 11.95
Total capital to risk-weighted assets 11.43 13.20
Nonper1orming loans to total assets 1.66 0.70
Nonperforming loans to year-end loans 2.46 1.15
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Net Income
(dollars in thousands)
5,000--------------------------------------------------------------------------
4,026
4,000--------------------------------------------------------------------------
3,403
3,000--------------------------------------------------------------------------
2,523
2,000----------------1,925-----------------------------------------------------
1,000--------------------------------------------------------------------------
568
0--------------------------------------------------------------------------
1992 1993 1994 1995 1996
Total Assets
(dollars in thousands)
490,545
500,000------------------------------------------------------------------------
400,000-----------------------------------------------403,115------------------
300,000------------------------------------------------------------------------
280,550
205,494 223,438
200,000------------------------------------------------------------------------
100,000------------------------------------------------------------------------
0------------------------------------------------------------------------
1992 1993 1994 1995 1996
<PAGE>
Letter to stockholders
To our stockholders, employees, and friends:
From an organization focused solely on Hamilton Township, YNB has
broadened its market to encompass all of Mercer County. Now, as we move
energetically into the future of financial services, YNB plans to bring its
special kind of community banking to contiguous markets, looking to Burlington,
Bucks and Middlesex counties for our future growth.
Yet even as we grow and expand, one aspect remains constant: YNB's
commitment to its communities and our knowledge of our market area. In this,
we distinguish ourselves clearly from the large superregional and money
center banks in our state, and the non-bank financial services companies with
no roots in our community. We live among our customers. We understand what
they want, appreciate their business, and make our decisions accordingly.
YNB has positioned itself for success in the future with a winning
combination of personal service, banking experience, technological support,
and innovative, customer-centered product offerings. Our products are
up-to-date and responsive to customer wants and desires. New offerings like
Second Check, our new debit card, and the Chairman's Choice account, among
others, give customers what they need. And we have added the technology to
support new products and to greatly enhance customer convenience. As a result
of our long-term vision, earnings have continued to climb, our horizons have
widened considerably, and our future looks bright.
Growth in All Dimensions
In 1996, net income rose 18.3% to $4,026,000, or $1.64 per share on a
fully diluted basis, compared with 1995 net income of $3,403,000, or $1.60
per share on a fully diluted basis. Our year-end assets reached $490,545,000,
compared with $403,115,000 just a year ago, and we plan on continued growth
as we approach the year 2000.
Our earnings growth has been fueled by an active commitment to
increase quality loan assets of all types. By expanding our presence in the
commercial, residential mortgage, and consumer lending markets, YNB has grown
our loan portfolio over the past year, with total outstandings reaching
$331,237,000 at December 31, 1996. This represents an increase of 35.2% over
the total of $245,054,000 at the same date of the prior year. Our portfolio
is diverse and well-balanced, reflecting the healthy consumer and business
sectors in the market area we serve.
There will, however, be rough spots at times. Nonperforming assets
totaled $8,535,000 at December 31, 1996, compared to $3,444,000 at December
31, 1995. The increase in nonperforming assets is due to two loans backed by
real estate collateral which management is diligently striving to resolve.
The allowance for loan losses now totals $4,957,000 or 1.50% of total loans,
covering 58.1% of total nonperforming assets.
On the deposit side, YNB continues to experience excellent growth.
Total deposits increased 20.3% in 1996 to $364,445,000 at year end, compared
with $302,972,000 at year-end 1995. This increase can be attributed to the
variety of new and convenient products we offer and the expansion of our
retail banking network to meet the needs of today's banking customers. For a
discussion of our many new products, please see "Ongoing Expansion for the
Future" beginning on page four.
YNB has positioned itself for Success in the Future
We are also extremely gratified to report that we were able to
maintain our record of sharing growth with our stockholders in 1996. The
Board voted to raise the quarterly dividend again this past year in October
1996 to $0.12 per share, for an annualized dividend of $0.45. Our share price
continued to show strength and stability, and our listing on NASDAQ continues
to provide additional liquidity and flexibility for current stockholders as
well as opening up the market for new stockholders who want to participate in
our future.
YNB's capital remains strong as well. Our equity to assets ratio for
the period ended December 31, 1996 was 7.18%, comfortably meeting regulatory
requirements. Total risk-based capital at year-end 1996 was 11.43%, also
comparing favorably with the Federally-mandated minimum ratio.
<PAGE>
YNB Expands its Horizons to Move into the Future
We completed a major technology upgrade at YNB this past year,
enabling us to offer an enhanced product and service line and improved
customer convenience. State-of-the-art technology is essential for YNB's
growth, and we have made this investment because we are convinced it will
both serve customers now and produce long-term benefits for the future. But
it is our commitment to high quality personal customer service that will
continue to differentiate YNB from other, larger institutions.
Leading YNB into the future are (l. to r.) Jay G. Destribats, Chairman of the
Board; Patrick M. Ryan, President and CEO; and Stephen F. Carman, Executive
Vice President and CFO.
Moving YNB Forward
We view our employees and managers as a most precious resource. To
underscore their importance to YNB's future, we have featured them in this
year's report as they go about their daily tasks in moving YNB forward.
Our directors, also, play a significant role as our best link to the
community. In this report, we pay tribute to three of them who have served
YNB long and well: John C. Stewart, the late William J. Steiner, Jr., and the
late Edward M. Hendrickson. Mr. Hendrickson became a Director Emeritus on
November 26, 1996, and Messrs. Stewart and Steiner moved to Director Emeritus
in March 1997. We thank all of our directors for their tireless work on the
bank's behalf.
Finally, we want you, our stockholders, to know how much we value
your loyalty and confidence in us. As we move into new markets with our
long-term vision of success as an independent community bank, we pledge you
our best efforts to grow profitably, with rewards for customers and
stockholders alike.
Sincerely yours,
Patrick M. Ryan
---------------
Patrick M. Ryan
President and Chief Executive Officer
Jay G. Destribats
Chairman of the Board
<PAGE>
Ongoing Expansion
for the Future
- -----------------
Banking continues to be a fast moving business. We clearly recognize
that in order to serve our customers well, stay competitive, and position
ourselves for ongoing expansion in the future, YNB must use our strengths -
particularly our experienced staff with their high energy level - to maintain
and enhance our position in the marketplace.
It is by offering our customers the best of both worlds - the friendly,
attentive service of a community bank accompanied by the technical
sophistication and diverse product line equal to that of a major regional bank -
that YNB can achieve its goals.
In 1996, this is just what we've done.
Responding to Customers
We accelerated the technology upgrade which began in 1995 with the
addition of a sophisticated computer system that has greatly improved
convenience for our customers. We made our debut on the Internet in 1996, and
continue to add features to our home page that make obtaining information
about YNB accounts, rates, and investment opportunities quick and easy to
access.
Even with our advances in technology, however, we work very hard to
retain the personal service and interest in each customer that YNB was built
upon. Our branch managers are key to this effort. They know their customers -
and they understand and respond to their specific needs.
For example, we opened two new branches in 1996: on Scotch Road in
West Trenton, and at Nottingham Pointe at the eastern boundary of Hamilton
Township. Both areas are dynamic, growing locations for consumer and
commercial business. Demonstrating the flexibility and responsiveness of a
community bank, we have extended our evening hours at these and our seven
other branches. All nine YNB bank offices are now open until 6 PM both
Thursday and Friday.
Branch managers
offer Personal attention
and serve Community
Needs
YNB also introduced new products and banking services in the past
year to offer our customers a wide range of options. To serve customers who
need a low minimum balance account, and to reward those who can maintain
higher balances, we introduced Chairman's Choice in 1996. This
interest-earning account offers customers two rates of interest. A higher
rate is paid on larger balances, while interest can still be earned on lower
ones.
In the second half of 1996, we issued our new Second Check debit card
to all YNB MAC card holders - at no annual fee. Combining the convenience of
an ATM card with the flexibility of a purchase card, Second Check deducts the
amount of the customer's purchase immediately from a checking account. Quick,
easy, and safe, it helps consumers avoid high interest credit card debt
without the
-4-
<PAGE>
identification issues of check cashing. Reaction from our customers to this new
offering has been extremely positive.
Rounding out our innovations to increase retail customer convenience,
we've introduced the YNB Money Phone this year. Customers just dial the YNB
Money Phone 800 number,
Consumer education
is an important focus
at YNB
Educating
Customers on Choices
and using the Second Check card, can transfer funds, check balances, and hear
investment rates - 7 days a week, 24 hours a day.
1996 was a year to introduce new products, and continue to offer some
old favorites as well. Primary among these was YNB's Always Win CD - the most
popular CD product we have ever offered. Starting out with a highly
competitive rate, Always Win automatically reviews the customer's CD rate at
the halfway point to maturity. If the current rate is higher than when the CD
was issued, the customer's rate increases. If rates have gone down, the
initial rate remains. The Always Win CD is just that - a win/win situation
for all.
-5-
<PAGE>
Ongoing Expansion
for the Future
- -----------------
Innovation is not limited to the consumer banking area by any means.
Our new technology has been put to work for commercial customers, too, as we
introduced YNB's Cash Command, automated clearing house services for the
business customer. Cash Command helps businesses eliminate paperwork through
direct deposits of payroll, consolidate cash from multiple locations to
maximize available balances, and manage internal transfer of funds between
various accounts - right from the customer's own office. In addition, our
Gemini product allows customers to choose the additional services they want,
including sweeps of excess funds, maintenance of minimum deposits, and
overdraft protection.
Our People Make the Difference
More than anything else, it is the knowledge and experience of our
business bankers, coupled with their quick response to customers, that
distinguishes YNB. Our commercial lenders are intimately familiar with
business conditions in our market area. They know the details of their
customers' financial situations. And they are able to offer creative
solutions to their business challenges.
Encompassing both our commercial and consumer banking efforts is our
dedication to community service. YNB is well known in our market area for
both our financial support and the service of our officers on numerous
community boards and organizations. Their participation in the life of our
community goes far beyond that of most banks our size, and we salute and
support their efforts.
Another facet of our community service is education. We believe that
well-informed consumers make better banking customers, and
YNB's Quick response
to Commercial customers
sets us Apart
so YNB conducts numerous seminars on credit, mortgage alternatives, and small
business management, among others.
Finally, in order to be able to serve all these constituencies well,
YNB takes great care in the financial management of the corporation. Assets
and liabilities must be carefully matched, expenditures monitored, and
branches properly planned and secured. Our support staff are the less
visible, but essential backbone of YNB's growth, and their skill and
diligence continue to serve us well.
YNB is dedicated to staying at the forefront of banking innovation.
As we look to the future, we plan to keep current with industry improvements
by offering enhanced PC-based products for our customers. We will also offer
expanded financial services such
-6-
<PAGE>
as brokerage and mutual funds so that our customers can continue to receive all
the financial services they need and want from their community bank - YNB.
Looking forward, we are also aware of the need to enhance our
efficiency. Accordingly, we are examining the benefits of establishing a new
corporate headquarters, still in Hamilton Township, to
Careful
financial management
is essential
to YNB's growth
Enhancing
Efficiency and Service
bring all of our management team together under one roof. This will increase
productivity, facilitate rapid interchange of ideas, and benefit stockholders
and customers alike.
We believe the niche occupied by community banks will continue to be
a profitable one. Smaller banks like YNB are growing because we offer what
our customers want - top flight service backed by modern technology, a
complete range of products and services, and people who care about them and
value their business. In the new age of community banking, YNB has been able
to move ahead by adapting to changing market conditions while retaining our
unique personality and business philosophy. With this strategy, we believe we
will maintain our leadership position in the central New Jersey marketplace.
-7-
<PAGE>
Salute to Directors Emeritus
As we look to the future, it is also important to honor our past. And nowhere
is our tradition of service to the community better represented than in our
directors. While many of them have served YNB with distinction for numerous
years, we would like to salute our three Directors Emeritus in this annual
report: John C. Stewart, the late William J. Steiner, Jr., and the late Edward
M. Hendrickson, together representing 79 years of service on YNB's Board of
Directors.
John C. Stewart, who became Director Emeritus this year, has a unique
history with Yardville the bank and the community. He made his mark in Yardville
when he developed the land behind Yardville School for almost 100 single family
homes. He converted the old school house in the center of Yardville to
apartments, and built the structure that now serves as YNB's operations center.
If anyone can hold the title of "Mr. Yardville," it is John Stewart.
After helping to develop the town, Mr. Stewart joined the Board of
Yardville National Bank in 1966, and has served actively and faithfully ever
since. He became the Board's second vice chairman in July 1990, and vice
chairman in April 1993, a post he has held until this year. A well-known
figure in all the bank offices, Mr. Stewart can be seen during the day and at
many times on the weekends at the Yardville office, making the rounds to "be
sure the bank is running well."
William J. Steiner, Jr., who passed away March 9, 1997, may have had
less years of seniority on our Board than Mr. Stewart, but served YNB just as
enthusiastically. A longtime resident of Mercerville, Bill joined the Board in
1985, just as banking was evolving into the complex financial services business
it is today. He helped guide the bank as a member of the audit, stock option,
and asset/liability committees, and as chair of the bank's investment committee.
A former fire commissioner of the Mercerville Fire Company as well as
a retired educator and local business owner, Bill was active in many facets
of our community's life. We will miss his valuable advice.
Edward M. Hendrickson was almost as much of an institution as the bank
itself, and we will miss his fellowship and counsel. One of the original
depositors of the bank at its founding in 1925, Mr. Hendrickson saw and
participated in the world of change that the bank has experienced. From watching
his deposits handwritten in a journal 72 years ago to using a YNB ATM recently,
Ed was there.
Ed Hendrickson was an active member of the YNB Board of Directors
from 1961 until his death on March 5, 1997. During his tenure on the Board,
Ed participated in most of the decisions that have brought YNB to its present
leadership role in the community banking world. But he was also instrumental
in bringing services of another kind to the community. As a founding member
of the Mercer Street Friends, Ed worked tirelessly for 40 years to assist the
urban poor from the Greater Trenton area by providing a center for
neighborhood children and senior citizens. His life was truly a demonstration
of what one person can do to serve his fellow individuals, and we are
fortunate to have his example to follow.
If a financial institution can only be as strong as the hands and minds guiding
it, we are extremely grateful to have had the resources of these three
individuals to draw upon. We look forward to John Stewart's continued service
as Director Emeritus as YNB moves briskly into the future.
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data with respect to
Yardville National Bancorp and subsidiary on a consolidated basis. This table
should be read in conjunction with Yardville National Bancorp's historical
consolidated financial statements and related notes thereto. All per share data
has been restated to reflect the two-for-one stock split effected in the form of
a stock dividend in November 1994.
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
(in thousands)
Interest income $ 34,251 $ 27,336 $ 18,004 $ 14,055 $ 13,990
Interest expense 17,041 12,841 6,360 5,355 6,660
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 17,210 14,495 11,644 8,700 7,330
Provision for loan losses 1,640 865 305 - 50
Securities (losses) gains, net (136) (91) (124) 294 153
Gains on sales of mortgages, net 21 19 92 354 351
Other non-interest income 2,228 1,927 1,586 1,542 1,499
Non-interest expense 11,479 10,260 9,285 8,423 8,325
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of the
change in accounting principle 6,204 5,225 3,608 2,467 958
Income tax expense 2,178 1,822 1,085 733 390
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative
effect of the change in
accounting principle 4,026 3,403 2,523 1,734 568
Cumulative effect of the change
in accounting principle - - - 191 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,026 $ 3,403 $ 2,523 $ 1,925 $ 568
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
(in thousands)
Assets $490,545 $403,115 $280,550 $ 223,438 $205,494
Deposits $364,445 $302,972 $259,296 $ 206,688 $192,223
Loans, net of unearned income $331,237 $245,054 $196,910 $ 134,983 $106,993
Stockholders' equity $ 35,230 $ 31,717 $ 18,451 $ 14,208 $ 10,829
Allowance for loan losses $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940
PER SHARE DATA
Net income - fully diluted $ 1.64 $ 1.60* $ 1.56* $ 1.86 $ 0.61
Cash dividends $ 0.45 $ 0.38 $ 0.28 $ - $ -
Stock dividends - - - - 5.00%
Stockholders' equity (book value) $ 14.50 $ 13.50 $ 11.92 $ 12.42 $ 11.69
OTHER DATA
Average shares outstanding 2,462,000 2,192,000 1,757,000 1,036,000 926,000
</TABLE>
* 1995 and 1994 earnings per share amounts were calculated utilizing the
modified treasury stock method, while remaining 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. The expiration of warrants in June 1996 resulted in
a change in the computation method of earnings per share from the modified
treasury stock method in 1994 and 1995 to the treasury stock method in 1996.
<PAGE>
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS
Return on average assets 0.90% 0.99% 1.04% 0.92% 0.29%
Return on average stockholders'
equity 12.25 13.84 15.89 15.81 5.44
Net interest margin (FTE) (1) 4.10 4.49 5.16 4.51 3.99
Expense ratio (2) 2.17 2.55 3.36 3.53 3.68
Average stockholders' equity to
average assets 7.33 7.14 6.57 5.79 5.24
Dividend payout ratio 26.90 21.69 15.06 - -
Leverage ratio (3) 7.21 7.84 6.97 6.36 5.27
Tier 1 capital as a percent of
risk-weighted assets 10.17 11.95 9.59 9.38 8.81
Total capital as a percent of
risk-weighted assets 11.43 13.20 10.84 10.64 10.07
Allowance for loan losses
to total loans (year end) 1.50 1.50 1.48 2.00 2.75
Net loan charge offs to average
total loans 0.13 0.05 0.06 0.20 0.45
Nonperforming loans to total loans 2.46 1.15 1.05 1.83 4.32
Nonperforming assets (4) to
total loans and other real estate
owned (year end) 2.57 1.40 1.21 2.83 5.30
Allowance for loan losses
to nonperforming assets (year end) 58.08 106.77 122.35 69.92 51.34
Allowance for loan losses
to nonperforming loans (5) (year end) 60.90% 130.44% 140.95% 109.30% 63.65%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax equivalent based on a 34% Federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(2) Non-interest expense minus non-interest income before asset sales to average
earning assets.
(3) Leverage ratio is Tier 1 capital to year-end total assets.
(4) 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."
(5) Nonperforming loans include nonaccrual loans, restructured loans, and loans
90 days past due or greater and still accruing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Planned strategic growth continued for Yardville National Bancorp and
subsidiary (YNB) in 1996. In 1996, YNB achieved continued growth in
earnings. YNB increased its branch network to nine, opening branches in
Hamilton Square and West Trenton. YNB's emphasis on establishing and
building relationships both in the commercial and consumer banking areas has
resulted in a substantial increase in loans and deposits. Also, in 1996, YNB
completed a significant upgrade in computer systems, both in the branch and
back office. This system upgrade is designed to increase product diversity
and to continue quality customer service.
Net income amounted to $4,026,000, an 18.3% increase, compared to the
record results of $3,403,000 reported in 1995. Earnings were primarily
enhanced by the substantial loan growth experienced throughout the year. The
loan portfolio, primarily commercial, grew 35.2% in 1996 compared to 1995. At
December 31, 1996 total loans outstanding were $331,237,000 compared to
$245,054,000 recorded at the end of 1995. The allowance for loan losses now
totals $4,957,000 or 1.50% of total loans, covering 58.1% of total
nonperforming assets.
YNB's deposit base increased 20.3%, to total $364,445,000 at December
31, 1996. Certificates of deposit were competitively priced in the
marketplace in 1996 to fund loan growth.
Return on average assets decreased to 0.90% in 1996 from 0.99% in
1995. The 1996 return on average stockholders' equity decreased to 12.25%
compared to 13.84% in 1995. The decline in these performance measures is
discussed in management's results of operations and financial condition
analysis that follows.
RESULTS OF OPERATIONS
YNB earned $4,026,000 or $1.64 per share for the year ended December
31, 1996 compared to $3,403,000 or $1.60 per share for the year ended
December 31, 1995. YNB reported net income of $2,523,000 or $1.56 per share
in 1994. The increase in earnings per share in 1996 is attributable to
increased earnings and the expiration of warrants in June 1996 which resulted
in a change in the computation method of earnings per share from the modified
treasury stock method in 1995 to the treasury stock method in 1996. The
increase in earnings per share from 1994 to 1995 is attributable to increased
earnings. Both years are computed under the modified treasury stock method.
net interest income
Return on Average Assets
1.04%
1.0%------------------------------------------------.99%-----------------------
.92% .90%
0.8 ---------------------------------------------------------------------------
0.6 ---------------------------------------------------------------------------
0.4 ---------------------------------------------------------------------------
.29%
0.2 ---------------------------------------------------------------------------
0.0 ---------------------------------------------------------------------------
1992 1993 1994 1995 1996
Return on Average Stockholders' Equity
20%----------------------------------------------------------------------------
15.81% 15.89%
15 ----------------------------------------------------------------------------
13.84%
12.25%
10 ----------------------------------------------------------------------------
5.44%
5 ----------------------------------------------------------------------------
0 ----------------------------------------------------------------------------
1992 1993 1994 1995 1996
<PAGE>
FINANCIAL SUMMARY
Average Balances, Rates Paid and Yields
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Time deposits with other banks $ 1,992 $ 98 4.92% $ 685 $ 36 5.26%
Federal funds sold 4,265 228 5.35 7,838 464 5.92
Securities 132,036 8,194 6.21 97,456 5,756 5.91
Loans, net of unearned income (1) 287,289 25,731 8.96 221,232 21,080 9.53
- -------------------------------------------------------------------------------------------------------------------
Total interest earning assets $425,582 $34,251 8.05% $327,211 $27,336 8.35%
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST EARNING ASSETS:
Cash and due from banks $ 11,905 $ 8,778
Allowance for loan losses (4,190) (3,265)
Premises and equipment, net 5,037 4,175
Other assets 10,156 7,490
- -------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 22,908 17,178
- -------------------------------------------------------------------------------------------------------------------
Total assets $448,490 $344,389
- -------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking $133,450 $ 4,014 3.01% $123,029 $4,107 3.34%
Certificates of deposit of
$100,000 or more 18,188 922 5.07 15,521 883 5.69
Other time deposits 125,332 7,138 5.70 103,637 5,792 5.59
- -------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 276,970 12,074 4.36 242,187 10,782 4.45
Borrowed funds 87,065 4,967 5.70 33,339 2,059 6.18
- -------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 364,035 17,041 4.68 275,526 12,841 4.66
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST BEARING LIABILITIES:
Demand deposits $ 49,078 $ 42,321
Other liabilities 2,507 1,950
Stockholders' equity 32,870 24,592
- -------------------------------------------------------------------------------------------------------------------
Total non-interest bearing
liabilities and stockholders'
equity $ 84,455 $ 68,863
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $448,490 $344,389
- -------------------------------------------------------------------------------------------------------------------
Interest rate spread (2) 3.37% 3.69%
- -------------------------------------------------------------------------------------------------------------------
Net interest income and margin (3) $17,210 4.04% $14,495 4.43%
- -------------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax equivalent basis) (4) $17,432 4.10% $14,697 4.49%
- -------------------------------------------------------------------------------------------------------------------
</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 pre-tax 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 by $222,000, $202,000,
$194,000, $105,000, and $64,000 for the years ended December 31, 1996,
1995, 1994, 1993, and 1992, respectively.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993 December 31, 1992
- -------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 643 $ 23 3.58% $ 1,266 $ 34 2.69% $ 1,776 $ 48 2.70%
1,200 52 4.33 3,211 97 3.02 5,058 181 3.58
70,045 3,761 5.37 72,928 3,939 5.40 85,383 5,300 6.21
157,411 14,168 9.00 117,671 9,985 8.49 93,245 8,461 9.07
- -------------------------------------------------------------------------------------------------------------------
$229,299 $18,004 7.85% $195,076 $14,055 7.20% $185,462 $13,990 7.54%
- -------------------------------------------------------------------------------------------------------------------
$ 8,079 $ 9,449 $ 8,089
(2,736) (2,860) (3,217)
3,857 3,812 3,746
3,207 4,699 5,050
- -------------------------------------------------------------------------------------------------------------------
12,407 15,100 13,668
- -------------------------------------------------------------------------------------------------------------------
$241,706 $210,176 $199,130
- -------------------------------------------------------------------------------------------------------------------
$113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69% $ 97,018 $ 3,350 3.45%
7,083 299 4.22 4,202 168 4.00 3,495 183 5.24
66,020 2,810 4.26 55,827 2,338 4.19 59,573 3,101 5.21
- -------------------------------------------------------------------------------------------------------------------
186,342 6,265 3.36 165,207 5,338 3.23 160,086 6,634 4.14
2,248 95 4.23 747 17 2.28 915 26 2.84
- -------------------------------------------------------------------------------------------------------------------
188,590 6,360 3.37 165,954 5,355 3.23 161,001 6,660 4.14
- -------------------------------------------------------------------------------------------------------------------
$ 36,634 $ 31,082 $ 26,546
605 967 1,148
15,877 12,173 10,435
- -------------------------------------------------------------------------------------------------------------------
$ 53,116 $ 44,222 $ 38,129
- -------------------------------------------------------------------------------------------------------------------
$241,706 $210,176 $199,130
- -------------------------------------------------------------------------------------------------------------------
4.48% 3.97% 3.40%
- -------------------------------------------------------------------------------------------------------------------
$11,644 5.08% $ 8,700 4.46% $ 7,330 3.95%
- -------------------------------------------------------------------------------------------------------------------
$11,838 5.16% $ 8,805 4.51% $ 7,394 3.99%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NET INTEREST INCOME
Net interest income, YNB'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 and
liabilities, level of rates earned on those assets, and the cost of interest
bearing liabilities. Changes in nonperforming assets, together with interest
lost and recovered on those assets, also impact comparisons of net interest
income.
The following tables set forth YNB's consolidated average balances of
assets, liabilities, and stockholders' equity as well as the amount of
interest income and expense on related items, and YNB's average yield/rate
for the years ended December 31, 1996, 1995, 1994, 1993, and 1992.
<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.
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Due to changes in: Due to changes in:
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Time deposits with other banks $ 64 $ (2) $ 62 $ 2 $ 11 $ 13
Federal Funds sold (195) (41) (236) 386 26 412
Securities 2,133 305 2,438 1,589 406 1,995
Loans, net of unearned income (1) 5,980 (1,329) 4,651 6,039 873 6,912
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 7,982 (1,067) 6,915 8,016 1,316 9,332
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits:
Savings and interest checking 332 (425) (93) 289 662 951
Certificates of deposit of
$100,000 or more 142 (103) 39 452 132 584
Other time deposits 1,234 112 1,346 1,925 1,057 2,982
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,708 (416) 1,292 2,666 1,851 4,517
Borrowed funds 3,076 (168) 2,908 1,901 63 1,964
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,784 (584) 4,200 4,567 1,914 6,481
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $3,198 $ (483) $2,715 $3,449 $ (598) $2,851
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan origination fees are considered adjustments to interest income.
YNB's net interest income totaled $17,210,000 in 1996, an increase of
18.7% from the $14,495,000 reported in 1995. The prior year's increase was
24.5% from 1994's net interest income of $11,644,000. The primary factor
contributing to the increase in net interest income in 1996 was an increase
in interest income of $6,915,000 due to a substantial increase in loan
volume, specifically commercial, offset by decreases in loan yields and
increases in deposits and borrowed funds and the related interest expense.
From 1995 to 1996, YNB's average loan portfolio increased by 29.9%. Loan
yields averaged 8.96%, or 57 basis points lower, reflecting declining market
interest rates in a very competitive market. Conversely, the yield on YNB's
investment portfolio increased 30 basis points when comparing 1996 to 1995.
The average investment portfolio increased from $97,456,000 in 1995 to
$132,036,000 in 1996, an increase of 35.5%. Overall, the yield on earning
assets decreased 30 basis points to 8.05% in 1996 from 8.35% in 1995.
Interest expense was $17,041,000 for 1996, an increase of $4,200,000,
or 32.7%, from $12,841,000 a year ago. The increase in interest expense for
the comparable time periods was the result of a larger deposit base and
greater levels of borrowed funds. Average interest bearing liabilities
increased 32.1% in 1996 compared to 1995. The cost of total interest bearing
liabilities rose just 2 basis points to 4.68% in 1996 from 4.66% in 1995.
Deposit products, particularly time deposits, were competitively priced
throughout 1996 to fund commercial loan growth.
Net interest income was $14,495,000 in 1995, an increase of 24.5%
from $11,644,000 in 1994. The principal factor contributing to the
improvement was an increase in interest income due to a substantial increase
in commercial loan volume offset by increases in deposits, borrowed funds,
and the related interest expense. Average loans increased by 40.5% from 1994
to 1995.
The net interest margin (tax equivalent basis) between yields on
average interest earning assets and costs of average funding sources was
4.10% in 1996 versus 4.49% in 1995 and 5.16% in 1994. The decrease in the
net interest margin in 1996 was principally due to two factors. In the
second half of 1995 and continuing through 1996, management instituted a
strategy to increase net interest income by purchasing investments using
repurchase agreements. Increased competition and the subsequent decrease in
loan yields also accounted, in part, for the reduction in the net interest
margin.
The strategy to increase net interest income by purchasing
investments has specific goals. The targeted spread on this strategy is 75
basis points after tax. The primary goals of the strategy are to improve
return on equity and earnings per share. Incrementally, any increase to net
interest income by this strategy will improve return on equity and earnings
per share. Conversely, because of the targeted spread on this strategy there
will be a negative impact to the net interest margin and return on assets.
For the year ended December 31, 1996 investments purchased with repurchase
<PAGE>
agreements averaged approximately $57,300,000. The positive impact to return
on equity and earnings per share was approximately 1.0% and $0.15,
respectively. The negative impact to the net interest margin and return on
assets was approximately .45% and .03%, respectively. This strategy is
proactively managed through the asset and liability simulation model
analyzing risk and reward relationships in different interest rate
environments based on the composition of investments in the strategy.
Average interest earning assets exceeded interest bearing liabilities
by $61,547,000 in 1996, $51,685,000 in 1995, and $40,709,000 in 1994. The
ratio of average interest bearing liabilities to average interest earning
assets increased from 84.2% in 1995 to 85.5% in 1996. Average non-interest
bearing demand deposits increased 16.0% to $49,078,000 in 1996 from
$42,321,000 in 1995. Throughout the comparative periods, increases in
average non-interest bearing deposits contributed to the increase in net
interest income.
Nonaccrual loans totaled $7,083,000 at December 31, 1996, an increase
of $5,516,000 from the $1,567,000 reported at December 31, 1995. In the last
quarter of 1996 two loans totaling approximately $4,600,000, backed by real
estate collateral, were put into nonaccrual status. Had total nonaccrual
loans been paid in the manner and at the rate and time contracted at the time
the loans were made, YNB would have recognized additional interest income of
approximately $351,000 in 1996, $143,000 in 1995, and $183,000 in 1994.
Moreover, YNB's net interest margin would have been .08% higher in 1996, .05%
higher in 1995, and .08% higher in 1994.
NON-INTEREST INCOME
Non-interest income continues to be an important source of revenue
for YNB. Through its Product Development and Management Committee, YNB is
studying other non-interest income opportunities. The prudent growth in
non-interest income is one of YNB's long-term strategies. The major
components of non-interest income are presented in the accompanying table.
Year ended December 31,
-------------------------------------------------------------
(in thousands) 1996 1995 1994
-------------------------------------------------------------
Service charges on
deposit accounts $1,153 $1,069 $ 932
Other service fees 438 381 370
Gains on sales of
mortgages, net 21 19 92
Securities losses, net (136) (91) (124)
Other non-interest income 637 477 284
-------------------------------------------------------------
Total $2,113 $1,855 $ 1,554
Non-interest income consists of service charges on deposit accounts,
gains on sales of mortgages, and securities gains or losses. YNB also
generates non-interest income from a variety of fee-based services. These
include mortgage servicing fees, safe deposit box rentals, check fee income,
and Automated Teller Machine (ATM) fees. Responding to recent legislation,
on October 2, 1996, management instituted ATM fees on non-customers. These
fees account primarily for the increase in other service fee income when
comparing 1996 to 1995.
For 1996, non-interest income totaled $2,113,000, an increase of
$258,000, or 13.9%, from non-interest income of $1,855,000 for 1995.
Non-interest income in 1995 increased by $301,000, or 19.4%, from 1994's
reported total of $1,554,000.
Service charges on deposit accounts have historically represented the
largest single source of non-interest income. This continued to be the case
in 1996, as such revenues totaled $1,153,000, an increase of 7.9%, compared
to $1,069,000 in 1995. Service charge income totaled $932,000 in 1994.
Service charge income increased in 1996 as the result of a larger account
base and the fee income associated with it. This component of non-interest
income represented 54.6%, 57.6%, and 60.0% of the total non-interest income
in 1996, 1995, and 1994, respectively. YNB's Product Development and
Management Committee reviews established and develops new deposit products
and the service charges associated with them. Deposit services are repriced
annually to reflect current costs and competitive factors.
Gains on sales of mortgages, net, increased in 1996 to $21,000 from
$19,000 in 1995. Gains on sales of mortgages, net, totaled $92,000 in 1994.
Over the last two years YNB has been less active in this area. This, in
part, is due to a more stable interest rate environment which translates to
reduced refinancing activity.
YNB recorded net securities losses of $136,000, $91,000, and $124,000
in 1996, 1995, and 1994, respectively. In 1996, proceeds from securities
sold were utilized to fund higher yielding commercial loan assets.
Management also sold longer term fixed rate securities purchased using
repurchase agreements to reduce future interest rate risk exposure. 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. CMOs were sold in 1995 to reduce
outstandings in this illiquid portion of the portfolio providing funds for
higher yielding loan assets.
<PAGE>
Other non-interest income is primarily composed of income derived
from life insurance assets, and to a lesser extent, mortgage servicing
income. Other non-interest income totaled $637,000 in 1996, an increase of
$160,000, or 33.5% when compared to 1995. Other non-interest income totaled
$284,000 in 1994. YNB has purchased life insurance assets in 1996 and 1995
to fund executive compensation plans and a deferred compensation plan for
directors. Other non-interest income from the life insurance assets totaled
$419,000, increasing $144,000, or 52.2%, when comparing 1996 to 1995.
NON-INTEREST EXPENSE
Non-interest expense totaled $11,479,000 in 1996, an increase of
$1,219,000, or 11.9%, compared to $10,260,000 in 1995. Non-interest expense
in 1995 increased 10.5% from $9,285,000 in 1994. The increase in
non-interest expense, for the comparative periods, is primarily the result of
increases in salaries and employee benefits and to a lesser extent, occupancy
and equipment expense.
Salaries and employee benefits, which represent the largest portion
of non-interest expense, increased $936,000 in 1996 or 16.4% over 1995.
Salaries and employee benefits in 1995 increased $665,000, or 13.2%, over
1994. The increase in 1996 expense over 1995 is the effect of additional
staffing required as the result of YNB's growth and normal annual salary
increases. Full time equivalent employees increased to 163 at December 31,
1996 from 147 at December 31, 1995. Staffing enhancements were made in loan
and credit administration as well as in the commercial loan production area
to take advantage of opportunities in new market areas. A management trainee
program was also instituted in key strategic areas, such as financial
services. Employee benefits also increased 23.7% for the comparable time
periods. 1995's increase over 1994 was primarily the result of increased
staffing associated with YNB's retail growth, hiring of experienced lending
professionals, expansion of the financial services division, and normal
annual salary increases. Salaries and employee benefits as a percent of
average assets was 1.5% in 1996, 1.7% in 1995, and 2.1% in 1994,
respectively.
Net occupancy expense increased $194,000 to $920,000 in 1996 from
$726,000 reported in 1995. The increase in occupancy expenses in 1996
compared to 1995 was due to increased maintenance costs, specifically snow
removal, and the additional occupancy costs associated with new branch
offices. The total number of bank facilities, including the operations
building, is now 10. This component of non-interest expense has remained
constant as a percentage of average assets at 0.2% in 1996 and 1995 and 0.3%
in 1994. Equipment expenses increased $182,000, or 35.5%, to $695,000 in 1996
from $513,000 in 1995. In 1995 equipment expenses increased 10.1% from 1994.
The increase in equipment expenses in 1996 was primarily attributable to the
depreciation expense related to the investment in hardware and software
totaling approximately $1,200,000 for YNB's in-house computer system.
Conversely, computer service expenses were eliminated in the first quarter of
1996. To a lesser extent, equipment expense rose in 1996 due to equipment,
furniture and fixture needs in YNB's expanding retail network and its related
depreciation expense. The increase in equipment expenses in 1995 compared to
1994 was attributable to increased depreciation costs associated with new
furniture and fixtures and computer equipment in YNB's branches. Other
computer equipment was also purchased in 1995, throughout the bank, in
preparation for the new computer system in 1996.
OTHER NON-INTEREST EXPENSE
Other non-interest expense was $3,235,000, $3,328,000, and $3,180,000
in 1996, 1995, and 1994, respectively.
The following table sets forth the components of other non-interest
expense for the years indicated:
Year ended December 31,
--------------------------------------------------------
(in thousands) 1996 1995 1994
--------------------------------------------------------
FDIC insurance premium $ 1 $ 290 $ 464
O.R.E. expenses 163 166 306
Stationery and supplies 388 300 229
Computer services 83 285 270
Insurance (other) 102 93 119
Marketing 522 479 415
Other 1,976 1,715 1,377
--------------------------------------------------------
Total $3,235 $3,328 $3,180
--------------------------------------------------------
FDIC premiums were basically eliminated in 1996, except for a minimum
assessment payment which totaled only $1,000. FDIC insurance premiums
decreased by $289,000 in 1996 to $1,000 from $290,000 in 1995. FDIC
insurance premiums totaled $464,000 in 1994. 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 YNB on September 15, 1995. YNB'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, YNB is a well capitalized
institution and under new FDIC guidelines 1996 premiums were eliminated.
Other real estate (O.R.E.) expense decreased by $3,000, or 1.8%, in
1996 to $163,000 from $166,000 in 1995. O.R.E. expenses declined by 45.8% in
1995 compared to 1994. 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 services expense decreased $202,000, or 70.9%, in 1996 to
$83,000. These expenses were $285,000 in 1995, an increase of $15,000, or
5.6%, from $270,000 in 1994. Effective late February 1996 management
terminated its agreement with its outside computer servicer as the result of
implementing a new in-house computer system. The decrease in computer
expenses in 1996 compared to 1995 is a result of service expenses for only
two months, including conversion costs, compared to a full year's expense in
1995. The increase in computer expenses in 1995 compared to 1994 resulted
from increased volume processing due to growth.
<PAGE>
Marketing expenses increased by $43,000, or 9.0%, in 1996 to
$522,000, compared to $479,000 in 1995. Marketing expenses totaled $415,000
in 1994. The primary increase in marketing expenses in 1996 over 1995
relates to increased advertising to attract deposits to fund loan growth in a
very competitive marketplace. The increase in marketing expenses for the
comparative periods reflects YNB's emphasis on participation in community
activities and additional promotional costs in connection with branch openings.
Other expenses, which include various professional fees,
communication expense, postage expense, and various loan related expenses,
were $1,976,000 in 1996, an increase of $261,000, or 15.2%, from $1,715,000
in 1995. Other expenses totaled $1,377,000 in 1994. The increase in other
expenses in 1996 compared to 1995, in part, is attributable to loan related
expenses due to the substantial growth in the loan portfolio, attorney fees,
and a full year's processing costs by an outside vendor of YNB's mortgages to
improve service quality and management flexibility.
YNB's ratio of non-interest expense to average assets decreased to
2.6% for 1996 compared to 3.0% for 1995 and 3.8% for 1994.
INCOME TAXES
The provision for income taxes, which is comprised of Federal and
state income taxes, was $2,178,000 in 1996 compared to $1,822,000 in 1995 and
$1,085,000 in 1994. The increase was primarily the result of higher pre-tax
income. The provision for income taxes for 1996, 1995, and 1994 was at
effective tax rates of 35.1%, 34.9%, and 30.1%, respectively. The slight
increase in the effective tax rate for 1996 was the result of increased
pre-tax earnings with a relatively constant level of tax-free income.
<PAGE>
FINANCIAL CONDITION
- -------------------
As of December 31, 1996 and 1995
TOTAL ASSETS
YNB's assets were $490,545,000 at year-end 1996 versus $403,115,000
the previous year, an increase of $87,430,000, or 21.7%. The growth in YNB's
asset base throughout 1996 was due primarily to an increase in loans. The
increase in loans was the product of a strategy to improve the profitability
of the organization through relationship banking and the continued
consolidation in YNB's marketplace, which has solidified YNB's competitive
position in the small and middle markets.
YNB's ratio of average interest earning assets to average assets
decreased slightly to 94.9% for the year ended December 31, 1996 compared to
95.0% for 1995. YNB's ratio of average interest bearing liabilities to
average assets increased from 80.0% for the year ended December 31, 1995 to
81.2% for 1996.
SECURITIES
YNB's securities portfolio represented $124,967,000 or 25.5% of
assets at December 31, 1996 versus $133,853,000 or 33.2% of assets at
December 31, 1995. On an average basis, the securities portfolio represented
31.0% of average interest earning assets for the year ended December 31, 1996
compared to 29.8% of average interest earning assets for the year ended
December 31, 1995.
The investment growth strategy, purchasing investments using
repurchase agreements, peaked at approximately $68,000,000 at the end of June
1996 and stands at approximately $51,000,000 at December 31, 1996. All
securities in this strategy are held in the available for sale portfolio.
The purpose of this strategy is designed to improve return on equity and
earnings per share. This strategy is considered by management to be
temporary until loan growth can generate sufficient net interest income to
improve performance measurements. Throughout the year loan demand has
continued to be strong in YNB's marketplace. In July 1996, management decided
to begin to gradually reduce assets purchased with repurchase agreements to
reduce interest rate risk exposure.
The securities available for sale portfolio decreased to $93,671,000
at December 31, 1996 from $98,469,000 at December 31, 1995. The decrease is a
result of YNB's downsizing of the investment growth strategy coupled with
principal paydowns from mortgage backed securities, called U.S. agency
securities, and maturities and sales of U.S. Treasury securities, offset by
short term security purchases to strengthen liquidity. During 1996, the only
securities purchased not held in the available for sale portfolio were
municipal bonds. 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 YNB's asset/liability management strategy. As of
December 31, 1996 available for sale securities represented 75.0% of the
entire portfolio. This portfolio is principally comprised of mortgage-backed
securities issued by Federal agencies, U.S. Treasury, and other agency
securities. The available for sale portfolio, except securities purchased
using repurchase agreements, provides a secondary source of liquidity for
YNB. There are no securities designated for trading.
Investment securities classified as held to maturity totaled
$31,296,000 at December 31, 1996 compared to $35,384,000 at December 31,
1995. This portfolio is comprised of mortgage-backed securities and state
and municipal securities.
The following table shows the maturities, at amortized cost, and
average weighted yields for the securities available for sale at December 31,
1996.
SECURITY MATURITIES AND AVERAGE WEIGHTED YIELDS
<TABLE>
<CAPTION>
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of other government agencies $6,005 $15,946 $ - $10,000 $31,951
Mortgage-backed securities 365 2,690 6,863 49,523 59,441
Federal Reserve Bank Stock - - - 572 572
Federal Home Loan Bank Stock - - - 1,975 1,975
- -----------------------------------------------------------------------------------------------------------------------------------
Total $6,370 $18,636 $6,863 $62,070 $93,939
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average yield 5.61% 6.09% 6.98% 7.38% 6.98%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Investments in mortgage-backed securities involve prepayment and
interest rate risk. At December 31, 1996 and 1995 YNB had mortgage-backed
securities totaling $81,667,000 and $105,479,000, respectively. At December
31, 1996 and 1995 there were $59,078,000 and $56,682,000 in fixed-rate
mortgage-backed securities outstanding, respectively. The risk associated
with fixed-rate mortgage-backed securities is similar to fixed-rate loans. In
rising interest rate environments, the rate of prepayment on fixed-rate,
pass-through mortgage-backed securities tends to decrease because of lower
repayments on the underlying mortgages and, conversely, as interest rates
fall, repayments on such securities tend to rise.
YNB 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
$5,300,000 at December 31, 1996. A CMO is a mortgage-backed security that is
comprised of classes of bonds created by prioritizing the cash flows from the
underlying mortgage pool in order to meet different objectives of investors.
The CMOs in the investment portfolio are agency named and were generally
originally purchased with short average lives of two to four years. At
December 31, 1996 YNB held no private labeled or corporate CMOs. Stress tests
are performed at least semi-annually to assess prepayment speeds and their
impact to the average lives and yields on those securities. All CMOs at
December 31, 1996 were held in the available for sale category.
The maturities and average weighted yields for investment securities
were as follows:
<TABLE>
<CAPTION>
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Obligations of state and political
subdivisions $760 $ 3,091 $5,004 $ 215 $ 9,070
Mortgage-backed securities - 14,691 - 7,535 22,226
- -----------------------------------------------------------------------------------------------------------------------------------
Total $760 $17,782 $5,004 $7,750 $31,296
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average yield 3.49% 5.25% 4.78% 6.58% 5.46%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LOAN PORTFOLIO
The continued consolidation in YNB's marketplace and management's
emphasis on establishing relationships has solidified YNB's competitive
position in the small and middle markets.
During 1996, total loans increased $86,183,000, or 35.2%, to
$331,237,000 at December 31, 1996 from $245,054,000 at December 31, 1995.
YNB's loan portfolio represented 67.5% of assets at December 31, 1996 versus
60.8% at the prior year end.
The following table sets forth the components of YNB's loan portfolio
at the dates indicated.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential $ 83,183 25.1% $ 73,076 29.8% $ 60,156 30.5% $ 35,283 26.1% $37,632 35.2%
Commercial 112,914 34.1 73,164 29.8 49,186 25.0 32,517 24.1 13,559 12.7
Home equity 23,457 7.1 26,951 11.0 29,388 14.9 30,107 22.3 28,648 26.8
Commercial and
agricultural 63,426 19.2 33,218 13.6 26,626 13.5 17,642 13.1 14,822 13.8
Real estate -
construction 25,958 7.8 19,353 7.9 15,560 7.9 9,742 7.2 5,250 4.9
Consumer 15,034 4.5 12,386 5.1 10,934 5.6 7,440 5.5 6,287 5.9
Other loans 7,265 2.2 6,906 2.8 5,060 2.6 2,252 1.7 795 0.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans $331,237 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0% $106,993 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YNB's lending focus continues to be centered on commercial loans,
owner-occupied commercial mortgage loans, and tenanted commercial real estate
loans. In underwriting such loans, YNB first evaluates the cash flow
capability of the borrower to repay the loan. In addition, a majority of
commercial loans are secured by real estate, business assets, and guarantees.
YNB makes commercial loans primarily to small to medium-sized businesses and
professionals.
<PAGE>
Real estate - residential loans are primarily comprised of
residential mortgage loans and business loans secured by residential real
estate. This portion of the portfolio totaled $83,183,000 at December 31,
1996, up $10,107,000, or 13.8%, from the prior year. Residential mortgage
loans represented $52,817,000, or 63.5% of the total. YNB's residential
mortgage loans are secured by first liens on the underlying real property.
At December 31, 1996 approximately 34% of the residential mortgage loan portfo
lio had fixed interest rates and 66% had adjustable interest rates.
The home equity portfolio totaled $23,457,000 or 7.1% of YNB's loan
portfolio at December 31, 1996. This compares to $26,951,000, or 11.0% of
the total loan portfolio at December 31, 1995. Aggressive competition for
home equity loans in YNB's market accounted for the decline in outstanding
balances. The home equity portfolio has provided consistent operating income
to YNB with controllable delinquencies and minimal losses.
Total Loan Portfolio
(dollars in thousands)
350,000------------------------------------------------------------------------
331,237
300,000------------------------------------------------------------------------
250,000---------------------------------------------245,054--------------------
200,000-----------------------------196,910------------------------------------
150,000------------------------------------------------------------------------
134,983
106,993
100,000------------------------------------------------------------------------
50,000------------------------------------------------------------------------
0------------------------------------------------------------------------
1992 1993 1994 1995 1996
Real estate - commercial loans increased by $39,750,000, or 54.3% in
1996 to $112,914,000 from $73,164,000 at December 31, 1995. YNB'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 $30,208,000, or 90.9%, at
December 31, 1996 to $63,426,000 from $33,218,000 at December 31, 1995.
Commercial and agricultural loans are made to small to middle market
businesses for inventory, working capital, and equipment needs. These loans
are generally secured by business assets of the borrower. Agricultural loans
represent less than 1% of the total.
Real estate - construction loans increased $6,605,000 to $25,958,000
at December 31, 1996 compared to $19,353,000 at December 31, 1995. These
loans represented 7.8% of the total loan portfolio at December 31, 1996. YNB
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 rates of interest.
These loans are closely monitored with advances made only after work is
completed and independently inspected and verified by qualified
professionals.
YNB makes automobile, motorcycle, personal, and other loans to
consumers. Consumer loans increased to $15,034,000 at December 31, 1996
compared to $12,386,000 at December 31, 1995.
The majority of YNB'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 and economy.
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real
estate owned. In accordance with SFAS No. 114, insubstance foreclosures have
been reclassified as 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.
YNB'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 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.
Nonperforming loans totaled $8,140,000 at December 31, 1996, an
increase of $5,321,000 from the $2,819,000 amount reported at December 31,
1995. The increase in nonperforming loans is principally the result of two
real estate - construction loans, totaling approximately $4,600,000, going
into nonaccrual status in the last quarter of 1996. Management is diligently
striving to resolve both loans.
<PAGE>
The following table sets forth nonperforming assets and risk elements
in YNB's loan portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial and agricultural $ 961 $ - $ - $ - $ 34
Real estate - mortgage 1,451 1,395 1,203 1,764 2,651
Real estate - construction 4,659 142 521 480 1,514
Consumer 12 30 - 17 17
- -----------------------------------------------------------------------------------------------------------------------------------
Total 7,083 1,567 1,724 2,261 4,216
- -----------------------------------------------------------------------------------------------------------------------------------
Restructured loan - 612 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Commercial and agricultural - - - - 1
Real estate - mortgage 1,014 588 326 209 388
Consumer 43 52 16 3 14
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,057 640 342 212 403
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 8,140 2,819 2,066 2,473 4,619
- -----------------------------------------------------------------------------------------------------------------------------------
Other real estate 395 625 314 1,393 1,107
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $8,535 $3,444 $2,380 $3,866 $5,726
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets increased $5,091,000 to $8,535,000, at December
31, 1996 compared to $3,444,000 at December 31, 1995. The increase in
nonperforming assets is primarily attributable to the two loans going into
nonaccrual status in the fourth quarter of 1996, as previously discussed.
Nonperforming assets represented 1.74% of total assets at December 31, 1996
and 0.85% at December 31, 1995.
Nonaccrual loans were $7,083,000, or 2.1% of total loans, at December
31, 1996, and $1,567,000, or 0.6% of total loans, at December 31, 1995.
The one restructured loan totaled $612,000 at December 31, 1995.
This loan is in full compliance with the restructured terms and conditions
and, accordingly, has been returned to performing status at December 31,
1996.
At December 31, 1996, loans that were 90 days or more past due but
still accruing interest income totaled $1,057,000, or 0.3% of total loans,
compared to $640,000, or 0.3% of total loans, at December 31, 1995.
Management's decision to accrue income on these loans was based on the level
of collateral and the status of collection efforts.
Other real estate (O.R.E.) totaled $395,000 at December 31, 1996 and
$625,000 at December 31, 1995. O.R.E. represented 0.1% of total loans at
December 31, 1996 and is reflective of an active strategy to liquidate these
assets and re-employ the proceeds in YNB's loan portfolio.
Total Nonperforming Assets
(dollars in thousands)
10,000-------------------------------------------------------------------------
8,535
8,000-------------------------------------------------------------------------
6,000-5,726-------------------------------------------------------------------
4,000-----------------3,866---------------------------------------------------
3,444
2,380
2,000-------------------------------------------------------------------------
0-------------------------------------------------------------------------
1992 1993 1994 1995 1996
<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 mortgages 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 years indicted, an analysis
of the allowance for loan losses and other related data.
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance, beginning of year $ 3,677 $ 2,912 $ 2,703 $ 2,940 $ 3,310
Charge offs:
Commercial, financial, and agricultural - - (47) - (291)
Real estate - mortgage (72) (26) (51) (222) (42)
Real estate - construction (75) (30) (25) (45) (270)
Consumer (252) (153) (83) (84) (101)
- -----------------------------------------------------------------------------------------------------------------------------------
Total charge offs (399) (209) (206) (351) (704)
- -----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural - - 20 21 135
Real estate - mortgage - 64 43 37 20
Consumer 39 45 47 56 129
- -----------------------------------------------------------------------------------------------------------------------------------
Total recoveries 39 109 110 114 284
- -----------------------------------------------------------------------------------------------------------------------------------
Net charge offs (360) (100) (96) (237) (420)
Provision charged to operations 1,640 865 305 - 50
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance balance, end of year $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, end of year $331,237 $245,054 $196,910 $134,983 $106,993
Average loans outstanding $287,289 $221,232 $157,411 $117,671 $ 93,245
Ratio of allowance for loan
losses to total loans, end of year 1.50% 1.50% 1.48% 2.00% 2.75%
Ratio of net charge offs to average
loans outstanding 0.13% 0.05% 0.06% 0.20% 0.45%
Nonperforming loans to total loans 2.46% 1.15% 1.05% 1.83% 4.32%
Nonperforming assets to total loans
and other real estate owned, end of year 2.57% 1.40% 1.21% 2.83% 5.30%
Ratio of allowance for loan losses
to nonperforming assets, end of year 58.08% 106.77% 122.35% 69.92% 51.34%
Ratio of allowance for loan losses
to nonperforming loans, end of year 60.90% 130.44% 140.95% 109.30% 63.65%
</TABLE>
YNB 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 1996 was $1,640,000,
reflective of the continued substantial growth in the loan portfolio and
increased nonperforming asset levels experienced in the last quarter. This
compares to a provision for loan losses of $865,000 in 1995 and $305,000 in
1994. It is management's assessment that the allowance for loan losses is
adequate in relation to credit risk exposure levels.
At December 31, 1996, the allowance for loan losses totaled
$4,957,000, an increase of $1,280,000 or 34.8%, from $3,677,000 at December
31, 1995, which compares to $2,912,000 at December 31, 1994. The ratio of
allowance for loan losses to total loans was 1.50%, 1.50%, and 1.48% at
December 31, 1996, 1995, and 1994, respectively. Another measure of the
allowance for loan losses is the ratio of the allowance to total
nonperforming loans. At December 31, 1996 this ratio was 60.9% versus 130.4%
at December 31, 1995.
YNB's gross charge offs in 1996 totaled $399,000, compared with
$209,000 in 1995, and $206,000 in 1994. 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. YNB's gross recoveries
totaled $39,000 in 1996 compared to $109,000 in 1995 and $110,000 in 1994 as
a result of collection efforts. The balance of the allowance for 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.
<PAGE>
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
YNB's internal loan review officer.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
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>
December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $1,704 34.4% 19.2% $ 983 26.7% 13.6%
Real estate - mortgage 2,064 41.7 66.3 1,816 49.4 70.6
Real estate - construction 938 18.9 7.8 664 18.1 7.9
Consumer 175 3.5 4.5 132 3.6 5.1
Other loans 76 1.5 2.2 82 2.2 2.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total $4,957 100.0% 100.0% $3,677 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
YNB's deposit base is the principal source of funds supporting
interest earning assets. YNB offers a full range of deposit products,
including demand deposits, savings deposits, insured money market accounts,
and certificates of deposit (CDs). YNB's overall philosophy of building and
maintaining long-term customer relationships is the key to further expanding
the deposit base, which, in turn, presents opportunities for YNB to
cross-sell its services.
Total deposits amounted to $364,445,000 at year-end 1996 compared to
$302,972,000 at the end of 1995, an increase of 20.3%. Average total
deposits during 1996 totaled $326,048,000 compared to $284,508,000 during
1995, an increase of 14.6%.
In 1996, YNB's deposit base grew due to several factors. YNB opened
two new branches bringing YNB's total branch network to nine. The Always Win
CD, introduced in 1995, was complemented by the introduction of the nine and
fifteen month CD in the second half of 1996. These featured CD products were
competitively priced to help fund loan growth. In 1996, depositors continued
to place their funds in higher yielding CDs which is reflected in the growing
percentage of average time deposits to average total deposits. With the
investment in computer systems and technology in 1996, YNB's objective is to
develop and deliver products and services that anticipate and meet the needs
of YNB's diverse customer base while maintaining quality customer service.
<PAGE>
The following table provides information concerning average rates and
average balances of deposits for the years indicated:
<TABLE>
<CAPTION>
AVERAGE DEPOSIT BALANCES AND RATES
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
% of % of % of
(in thousands) Balance Rate Total Balance Rate Total Balance Rate Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 49,078 -% 15.05% $ 42,321 -% 14,88% $ 36,634 -% 16.43%
Interest bearing
demand deposits 23,554 2.50 7.22 21,236 2.77 7.46 16,346 2.01 7.33
Savings deposits 109,896 3.12 33.71 101,793 3.46 35.78 96,893 2.92 43.45
Time deposits 143,520 5.62 44.02 119,158 5.60 41.88 73,103 4.25 32.79
- -----------------------------------------------------------------------------------------------------------------------------------
Total $326,048 3.70% 100.00% $284,508 3.79% 100.00% $222.976 2.81% 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The average balance of non-interest bearing demand deposits was
$49,078,000 during 1996, an increase of $6,757,000, or 16.0%, from
$42,321,000 during 1995. 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
10.9%, 8.0%, and 20.4%, respectively, from 1995 to 1996. Total average time
deposits, which consist of certificates of deposit and individual retirement
accounts, increased $24,362,000 to $143,520,000 during 1996 from $119,158,000
in 1995.
The average rate paid on YNB's deposit balances in 1996 was 3.70%, a
2.4% decrease from the 3.79% average rate for 1995.
The table at right details amounts and maturities for certificates of
deposit of $100,000 or more at the date indicated.
December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995
- ---------------------------------------------------------------
Maturity Range:
Within three months $ 3,273 $ 3,095
After three but within
six months 3,955 3,323
After six but within
twelve months 9,291 5,890
After twelve months 5,643 2,713
- ---------------------------------------------------------------
Total $22,162 $15,021
- ---------------------------------------------------------------
Certificates of deposit of $100,000 or more totaled $22,162,000, or
6.1% of deposits, at December 31, 1996 compared to $15,021,000, or 5.0% of
deposits, at December 31, 1995.
YNB does not depend on historically less stable funding sources. YNB
has not purchased deposits through wholesale deposit brokers, preferring to
rely on more stable core deposits and borrowings to support growth.
Total Deposits at Year End
(dollars in thousands)
400,000------------------------------------------------------------------------
364,445
350,000------------------------------------------------------------------------
302,972
300,000------------------------------------------------------------------------
259,296
250,000------------------------------------------------------------------------
206,688
200,000-192,223----------------------------------------------------------------
150,000------------------------------------------------------------------------
100,000------------------------------------------------------------------------
50,000------------------------------------------------------------------------
0------------------------------------------------------------------------
1992 1993 1994 1995 1996
<PAGE>
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 $86,339,000 at December 31, 1996 compared to
$65,221,000 at December 31, 1995. YNB used FHLB advances in 1996 in order to
meet particularly strong commercial loan demand. Repurchase agreements
totaling approximately $51,000,000 at year-end 1996 were used as part of a
strategy to increase net interest income by purchasing investments.
Borrowed funds averaged $87,065,000 in 1996, an increase of
$53,726,000 from the average reported in 1995 of $33,339,000. At year-end
1996 there was $20,813,000 in outstanding borrowings with the FHLB and no
outstanding borrowings from YNB'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
Liquidity measures the ability to satisfy current and future cash
flow needs as they become due. YNB has an Asset/Liability Committee (ALCO)
whose function is to monitor and coordinate all activities relating to
maintaining adequate liquidity and protection of net interest income from
fluctuations in market interest rates.
Liquidity management refers to YNB'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. On the asset side, liquid funds
are maintained in the form of cash and cash equivalents, Federal funds sold,
investment securities held to maturity maturing within one year, securities
available for sale and loans held for sale. Additional asset based liquidity
is derived from scheduled loan and investment repayments of principal and
interest from mortgage-backed securities. On the liability side, the primary
source of liquidity is the ability to generate core deposits, which generally
excludes CDs over $100,000. Short term borrowings are used as supplemental
funding sources when growth in the core deposit base does not keep pace with
that of earning assets.
At December 31, 1996, liquid assets (excluding securities purchased
utilizing repurchase agreements) amounted to $62,574,000, as compared to
$60,162,000 at December 31, 1995. This represents 15.2% and 18.3% of earning
assets, and 14.2% and 17.2% of total assets at December 31, 1996 and 1995,
respectively.
YNB has the availability to borrow up to $20,000,000 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. YNB also has the ability to borrow
at the Federal Reserve discount window along with agreements to borrow from
two of its correspondent banks.
<PAGE>
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. ALCO manages the interest rate
sensitivity or repricing characteristics of YNB's assets and liabilities.
ALCO has established strategies and procedures to protect net
interest income against significant changes in interest rates. Generally,
these strategies are designed to achieve an acceptable level of net interest
income based upon management's projections of future changes in interest
rates.
A traditional form of asset/liability management is the static gap
report. The static gap report categorizes interest bearing assets and
liabilities by repricing maturity characteristics. These static measurements
do not reflect the results of any projected activity. On a cumulative basis,
as of December 31, 1996, more of YNB's liabilities than assets repriced in
the three month, six month and one year periods.
As shown below, interest rate sensitivity to interest rate
fluctuations is measured in a number of time frames. The following table
sets forth rate sensitive assets and liabilities.
<TABLE>
<CAPTION>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARY
RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
After three After six After
Within months but months one year
three within six but within but within After five Non-interest
(in thousands) months months one year five years years sensitive (1) Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold and interest
bearing deposits $ 5,397 $ - $ - $ - $ - $ - $ 5,397
Available for sale securities (2) 21,437 4,117 3,404 18,637 43,797 2,547 93,939
Investment securities - 325 435 17,782 12,754 - 31,296
Loans, net of unearned income 126,852 4,271 14,631 137,103 41,023 7,357 331,237
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $153,686 $ 8,713 $18,470 $173,522 $97,574 $ 9,904 $461,869
- -----------------------------------------------------------------------------------------------------------------------------------
FUNDING SOURCES:
Portion of non-interest bearing
funding sources used to fund
earning assets - 66,604 66,604
Savings and interest checking 134,357 - - - - - 134,357
Certificates of deposit of
$100,000 or more 3,273 3,955 9,291 5,643 - - 22,162
Other time deposits 21,481 23,010 23,990 83,926 - - 152,407
Borrowed funds 52,696 19,500 8,330 5,813 - - 86,339
- -----------------------------------------------------------------------------------------------------------------------------------
Total funding sources $211,807 $ 46,465 $41,611 $ 95,382 $ - $66,604 $461,869
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap (58,121) (37,752) (23,141) 78,140 97,574 (56,700)
Ratio of rate sensitive assets to
rate sensitive liabilities 0.73 0.19 0.44 1.82 - 0.15
Cumulative interest rate
sensitive gap (58,121) (95,873) (119,014) (40,874) 56,700 -
Ratio of cumulative rate
sensitive assets
to rate sensitive liabilities 0.73 0.63 0.60 0.90 1.14 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 of loans or mortgage-backed securities
in the amounts included above. Mortgage-backed securities are shown by
their maturity date as opposed to contractual principal amortization.
<PAGE>
At December 31, 1996, YNB's twelve month cumulative gap position was
negative $119,014,000. Over the next twelve months, $119,014,000 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, YNB'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 Federal funds rates, which to a large
degree affect earning asset yields. Therefore, management believes the
static 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 12 and 24 month period. Management has established guidelines to
limit the amount that net interest income can vary within these rate ranges.
The use of simulation models assists management in its continuing
effort to develop strategies to produce consistent earnings growth in
changing interest rate environments. YNB is in the process of developing
longer-term measures of interest rate sensitivity including duration of
equity and equity at risk. Such models are designed to estimate the impact
on the value of equity resulting from changes in interest rates and
supplement the simulation model and gap analysis.
<PAGE>
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Stockholders' equity at December 31, 1996 totaled $35,230,000
compared to $31,717,000 at December 31, 1995. This represents an increase of
$3,513,000 or 11.1%. This increase resulted from (i) earnings of $4,026,000
(less dividend payments of $1,083,000) and offset by a negative equity
adjustment of $267,000 for the unrealized loss on securities available for
sale, (ii) proceeds of $562,000 from exercised options, and (iii) proceeds of
$275,000 from warrants exercised that were issued in connection with YNB's
1993 Private Placement Capital Offering and 1994 Stockholders' Rights
Offering.
In 1996, 16,940 warrants were exercised yielding additional capital
of $275,000. On June 13, 1996, all outstanding warrants from prior capital
offerings expired.
YNB trades on the NASDAQ National Market System under the symbol
"YANB." The listing on the NASDAQ National Market System has provided
increased liquidity for YNB stockholders. During 1996, 1,775,965 shares were
traded. There were 2,430,414 shares of common stock outstanding at December
31, 1996.
Dividends paid per share in 1996 totaled $0.45. As a result of YNB's
performance during 1996, the common stock dividend was increased from $0.11
per share to $0.12 per share in the last quarter of 1996.
Yardville National Bancorp and subsidiary 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 I plus
Tier II). In addition, the current minimum regulatory guideline for the Tier
1 leverage ratio is 4%.
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 I and total risk-based capital ratios of
6% and 10%, respectively, and a minimum Tier I leverage ratio of 5%.
At December 31, 1996, the capital ratios for YNB exceeded the above
ratios required to be well capitalized. The table to the right summarizes
YNB's capital ratios at the dates indicated:
December 31,
- --------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------
Tier 1 leverage ratio 7.8% 9.1% 7.8%
Tier 1 risk-based 10.2% 12.0% 9.6%
Total risk-based 11.4% 13.2% 10.8%
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 125 (SFAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was issued by the Financial Accounting
Standards Board (FASB) in June 1996. SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. Management
believes the implementation of SFAS 125 will not have a material impact on
the consolidated financial statements of the Corporation.
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 recoverability, the Corporation
should estimate the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. The Corporation adopted
this standard during 1996. The adoption of this standard did 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. The adoption of SFAS 122 did not have a material
effect on the 1996 financial statements.
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 instruments 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 No. 25, Accounting for Stock Issued to
Employees. The Corporation elected to remain with the accounting of Opinion
25 for the employee and director stock option plans and has provided the pro
forma disclosures required by SFAS 123.
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands, except share data) 1996 1995
- -----------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks (Note 2) $ 13,110 $ 10,040
Federal funds sold 4,040 2,795
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents 17,150 12,835
- -----------------------------------------------------------------------------------------------------------
Interest bearing deposits 1,357 1,033
Securities available for sale (Note 3) 93,671 98,469
Investment securities (market value of $30,878 in 1996
and $35,037 in 1995) (Note 3) 31,296 35,384
Loans 331,237 245,054
Less: Allowance for loan losses (4,957) (3,677)
- -----------------------------------------------------------------------------------------------------------
Loans, net (Note 4) 326,280 241,377
Bank premises and equipment, net (Note 5) 5,418 4,026
Other real estate 395 625
Other assets (Note 8) 14,978 9,366
- -----------------------------------------------------------------------------------------------------------
Total Assets $490,545 $403,115
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits
Non-interest bearing $ 55,519 $ 46,682
Interest bearing 308,926 256,290
- -----------------------------------------------------------------------------------------------------------
Total Deposits (Note 6) 364,445 302,972
Borrowed funds
Securities sold under agreements to repurchase 64,185 54,830
Other 22,154 10,391
- -----------------------------------------------------------------------------------------------------------
Total Borrowed Funds (Note 7) 86,339 65,221
Other liabilities 4,531 3,205
- -----------------------------------------------------------------------------------------------------------
Total Liabilities $455,315 $371,398
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 2,430,414 shares in 1996
and 2,349,592 shares in 1995 17,246 16,409
Surplus 2,205 2,205
Undivided profits (Note 13) 15,940 12,997
Unrealized (loss) gain - securities available for sale (161) 106
- -----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 35,230 31,717
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $490,545 $403,115
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans (Note 4) $25,731 $21,080 $14,168
Interest on deposits with banks 98 36 23
interest on securities available for sale 6,262 3,592 1,347
Interest on investment securities:
Taxable 1,536 1,792 2,079
Exempt from Federal income tax 396 372 335
Interest on Federal funds sold 228 464 52
- ----------------------------------------------------------------------------------------------------
Total Interest Income 34,251 27,336 18,004
- ----------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings account deposits 4,014 4,107 3,156
Interest on certificates of deposit of $100,000 or more 922 883 299
Interest on other time deposits 7,138 5,792 2,810
Interest on borrowed funds (Note 7) 4,967 2,059 95
- ----------------------------------------------------------------------------------------------------
Total Interest Expense 17,041 12,841 6,360
- ----------------------------------------------------------------------------------------------------
Net Interest Income 17,210 14,495 11,644
Less provision for loan losses (Note 4) 1,640 865 305
- ----------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 15,570 13,630 11,339
- ----------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 1,153 1,069 932
Gains on sales of mortgages, net 21 19 92
Security losses, net (136) (91) (124)
Other non-interest income 1,075 858 654
- ----------------------------------------------------------------------------------------------------
Total Non-Interest Income 2,113 1,855 1,554
- ----------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits (Note 9) 6,629 5,693 5,028
Occupancy expense, net (Note 5) 920 726 611
Equipment (Note 5) 695 513 466
Other non-interest expense (Note 11) 3,235 3,328 3,180
- ----------------------------------------------------------------------------------------------------
Total Non-Interest Expense 11,479 10,260 9,285
- ----------------------------------------------------------------------------------------------------
Income before income tax expense 6,204 5,225 3,608
Income tax expense (Note 8) 2,178 1,822 1,085
- ----------------------------------------------------------------------------------------------------
Net Income $ 4,026 $ 3,403 $ 2,523
- ----------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Primary $ 1.64 $ 1.61 $ 1.58
Fully Diluted $ 1.64 $ 1.60 $ 1.56
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized gain
Common Common Undivided (loss) - securities
(in thousands, except share amounts) shares stock Surplus profits available for sale Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,144,488 $ 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 6 6
Proceeds from issuance of
common stock, net of
related expense 401,492 3,186 3,186
Unrealized loss - securities available
for sale, net of tax (1,092) (1,092)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 1,548,080 $ 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 27,663 202 202
Exercise of warrants 83,849 1,283 1,283
Proceeds from issuance of
common stock, net of
related expense 690,000 7,918 7,918
Unrealized gain - securities available
for sale, net of tax 1,198 1,198
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 2,349,592 $16,409 $ 2,205 $12,997 $106 $31,717
Net income 4,026 4,026
Cash dividends (1,083) (1,083)
Common stock issued:
Exercise of stock options 63,882 562 562
Exercise of warrants 16,940 275 275
Unrealized loss - securities available
for sale, net of tax (267) (267)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 2,430,414 $17,246 $ 2,205 $15,940 $ (161) $35,230
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Yardville National Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 4,026 $ 3,403 $ 2,523
Adjustments:
Provision for loan losses 1,640 865 305
Depreciation 666 474 411
Amortization and accretion 555 368 320
Losses on sales of securities available for sale 136 91 124
Writedown of other real estate 69 66 182
Increase in other assets (5,434) (3,289) (4,017)
Increase in other liabilities 1,326 1,617 344
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,984 3,595 192
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits ( 324) 61 328
Purchase of securities available for sale (65,492) (100,065) (15,408)
Maturities, calls and paydowns of securities available for sale 23,475 17,000 5,450
Proceeds from sales of securities available for sale 45,864 10,481 9,380
Proceeds from maturities and paydowns of investment securities 4,355 4,148 4,859
Purchase of investment securities (452) (646) (1,109)
Net increase in loans (86,915) (48,962) (62,353)
Expenditures for bank premises and equipment (2,058) (565) (497)
Proceeds from sale of other real estate 533 353 1,301
Capital improvements to other real estate - (12) (74)
- -------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (81,014) (118,207) (58,123)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing
demand, money market, and savings deposits 15,704 19,044 12,128
Net increase in certificates of deposit 45,769 24,632 40,480
Net increase (decrease) in borrowed funds 21,118 64,006 (83)
Proceeds from issuance of common stock 837 9,403 3,192
Dividends paid (1,083) (738) (380)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 82,345 116,347 55,337
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,315 1,735 (2,594)
Cash and cash equivalents as of beginning of year 12,835 11,100 13,694
- -------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Year $17,150 $12,835 $11,100
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $16,338 $11,432 $ 5,979
Income taxes 2,324 1,908 1,744
- -------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Corporation transferred $372 in 1996, $454 in 1995, and $220 in
1994, net of charge offs, from loans to other real estate.
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Years ended December 31, 1996, 1995 and 1994
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 inter-company accounts and
transactions have been eliminated.
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 - The Corporation's securities portfolio is 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
<PAGE>
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 based upon the principal amount
outstanding. Loans are stated at face value, less unearned income and net
deferred fees. 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 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. Loan origination and commitment fees
less certain costs are deferred and the net amount amortized as an adjustment to
the related loan's yield. Loans held for sale are recorded at the lower of
aggregate cost or market.
E. Mortgage Servicing Rights - Effective January 1, 1996, the Corporation
adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights and Excess
Servicing Receivables and for Securitization of Mortgage Loans" (SFAS 122). This
standard prospectively requires the Corporation, which services mortgage loans
for others in return for a servicing fee, to recognize these servicing rights as
assets, regardless of how such assets were acquired. Additionally, the
Corporation is required to assess the fair value of these assets at each
reporting date to determine impairment. The adoption of SFAS 122 did not have a
material effect on the 1996 financial statements.
The mortgage servicing rights (included in other assets) are amortized against
loan servicing fee income on an accelerated basis in proportion to, and over the
period of, estimated net future loan servicing fee income, which periods
initially do not exceed seven years. Service fee income is recognized when the
related loan payments are collected.
34
<PAGE>
F. 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 a 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, 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 al l 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 are classified as nonperforming loans for all periods presented.
G. 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.
<PAGE>
H. 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.
I. Federal Income Taxes - 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. 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.
J. Stock Based Compensation - The Corporation adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," for transactions entered into
after December 15, 1995. The Corporation elected to continue to apply Accounting
Principles Board (APB) Opinion 25 in accounting for its plans and, accordingly,
no compensation cost has been recognized for its stock options in the
consolidated financial statements. Pro forma disclosures, as required by SFAS
123, have been included for awards granted after January 1, 1995 (see note 9).
K. Earnings Per Share - Earnings per share are based on the weighted average
number of shares outstanding including common stock equivalents (2,462,000
shares in 1996, 2,192,000 shares in 1995 and 1,757,000 shares in 1994) utilizing
the treasury stock method in 1996 and the modified treasury stock method in 1995
and 1994. The modified treasury stock method includes the potential dilutive
effect of options and warrants not included in the treasury stock method.
2. Cash and Due From Banks
The Corporation maintains various deposits with other banks. As of December 31,
1996 and 1995, the Corporation maintained sufficient cash on hand to satisfy
Federal regulatory requirements.
35
<PAGE>
3. SECURITIES
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(in Thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
other U.S. government
agencies and corporations $31,951 $ 27 $ (36) $31,942 $17,795 $ 63 $ (35) $17,823
Mortgage-backed securities 59,441 339 (598) 59,182 78,725 320 (171) 78,874
Federal Reserve Bank Stock 572 - - 572 512 - - 512
Federal Home Loan Bank Stock 1,975 - - 1,975 1,260 - - 1,260
- -----------------------------------------------------------------------------------------------------------------------------------
Total $93,939 $366 $(634) $93,671 $98,292 $383 $(206) $98,469
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amoritized Unrealized Unrealized Market Amoritized Unrealized Unrealized Market
(in Thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of state and
political subdivisions $ 9,070 $ 62 $ (24) $ 9,108 $ 8,630 $ 56 $ (27) $ 8,659
Mortgage-backed securities 22,226 - (456) 21,770 26,754 - (376) 26,378
- -----------------------------------------------------------------------------------------------------------------------------------
Total $31,296 $ 62 $(480) $30,878 $35,384 $ 56 $(403) $35,037
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of securities available for
sale and investment securities as of December 31, 1996 by contractual maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalities
Securities available for sale:
Estimated
Amortized Market
(in thousands) Cost Value
--------------------------------------------------------------
Due in 1 year or less $ 6,005 $ 5,998
Due after 1 year
through 5 years 15,946 15,944
Due after 10 years 12,547 12,547
--------------------------------------------------------------
Subtotal 34,498 34,489
Mortgage-backed securities 59,441 59,182
--------------------------------------------------------------
Total $93,939 $93,671
--------------------------------------------------------------
Investment securities:
Estimated
Amortized Market
(in thousands) Cost Value
--------------------------------------------------------------
Due in 1 year or less $ 760 $ 760
Due after 1 year
through 5 years 3,091 3,084
Due after 5 years
through 10 years 5,004 5,039
Due after 10 years 215 225
--------------------------------------------------------------
Subtotal 9,070 9,108
Mortgage-backed securities 22,226 21,770
--------------------------------------------------------------
Total $31,296 $30,878
--------------------------------------------------------------
Proceeds from sales of securities available for sale during 1996, 1995, and
1994 were $45,864,000, $10,481,000 and $9,380,000, respectively. Gross gains of
$43,000, $27,000, and $23,000 and gross losses of $179,000, $118,000, and
$147,000, respectively, were realized on those sales.
<PAGE>
Securities with a carrying value of approximately $74,953,000 as of
December 31, 1996 were pledged to secure public deposits and for other
purposes as required or permitted by law. As of December 31, 1996, Federal
Home Loan Bank (FHLB) stock with a carrying value of $1,975,000 was held by
the Corporation as required by the FHLB.
4. Loans and Allowance for Loan Losses
The following table shows comparative year-end detail of the loan portfolio:
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Commercial and
agricultural loans $ 63,426 $ 33,218
Real estate loans -- mortgage 219,554 173,191
Real estate loans -- construction 25,958 19,353
Consumer loans 15,034 12,386
Other loans 7,265 6,906
- -------------------------------------------------------
Total loans $331,237 $245,054
- -------------------------------------------------------
Residential mortgage loans held for sale amounted to $2,921,000, and
$2,979,000 as of December 31, 1996 and 1995, respectively. These loans are
accounted for at the lower of aggregate cost or market value and are included
in the table above.
The Corporation originates and sells mortgage loans to Freddie Mac
and FNMA. Generally, servicing on such loans is retained by the Corporation.
As of December 31, 1996 and 1995, loans serviced for Freddie Mac were
$44,637,000, and $49,097,000, respectively. Loans serviced for FNMA were
$2,682,000 and $1,503,000, respectively, as of December 31, 1996 and 1995.
In accordance with the provisions of SFAS 122, the Corporation has
capitalized $29,000 of originated servicing rights as of December 31, 1996.
These rights are included in other assets in the consolidated balance sheet.
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:
Year Ended December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Balance as of beginning of year $3,581 $2,633
Additions 752 1,400
Repayments and resignations 1,003 452
- -------------------------------------------------------
Balance as of end of year $3,330 $3,581
- -------------------------------------------------------
<PAGE>
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 are as follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Balance as of beginning
of year $3,677 $2,912 $2,703
Loans charged off (399) (209) (206)
Recoveries of loans
charged off 39 109 110
- ----------------------------------------------------------------
Net charge offs (360) (100) (96)
Provision charged
to operations 1,640 865 305
- ----------------------------------------------------------------
Balance as of
end of year $4,957 $3,677 $2,912
- ----------------------------------------------------------------
The detail of loans charged off is as follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Commercial and
agricultural $ -- $ -- $ 47
Real estate loans
- mortgage 72 26 51
Real estate loans
- construction 75 30 25
Consumer loans 252 153 83
- ---------------------------------------------------------------
Total $399 $209 $206
- ---------------------------------------------------------------
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 2.46%
as of December 31, 1996 and 1.15% as of December 31, 1995.
-37-
<PAGE>
A summary of nonperforming assets is as follows:
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Nonaccruing loans:
Commercial and
agricultural loans $ 961 $ --
Real estate loans
-- mortgage 1,451 1,395
Real estate loans
-- construction 4,659 142
Consumer loans 12 30
- -------------------------------------------------------
Total nonaccruing loans $7,083 $1,567
- -------------------------------------------------------
Restructured loan $ -- $ 612
- -------------------------------------------------------
Past due 90 days or more:
Real estate loans
-- mortgage $1,014 $ 588
Consumer loans 43 52
- -------------------------------------------------------
Total past due 90 days or more 1,057 640
- -------------------------------------------------------
Total nonperforming loans 8,140 2,819
Other real estate 395 625
- -------------------------------------------------------
Total nonperforming assets $8,535 $3,444
- -------------------------------------------------------
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 as of December 31, 1996 and 1995 was $6,827,000 and
$1,291,000, respectively. The related allowance for loan losses on these
loans as of December 31, 1996 and 1995 was $861,000 and $184,000,
respectively. The average recorded investment in impaired loans during 1996
and 1995 was $2,548,000 and $1,322,000, respectively. There was no interest
income recognized on impaired loans in 1996 or 1995.
Additional income before income taxes amounting to approximately
$351,000 in 1996, $143,000 in 1995, and $183,000 in 1994 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 are no restructured loans as of December 31, 1996.
<PAGE>
5. Bank Premises and Equipment
The following table represents comparative information for premises and
equipment:
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Land and improvements $ 528 $ 524
Buildings and improvements 4,296 3,874
Furniture and equipment 5,128 3,496
- -------------------------------------------------------
Total 9,952 7,894
Less accumulated depreciation 4,534 3,868
- -------------------------------------------------------
Bank premises
and equipment, net $5,418 $4,026
- -------------------------------------------------------
6. Deposits
Total deposits consist of the following:
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Non-interest bearing
demand deposits $55,519 $ 46,682
Money market deposits 62,783 56,759
Savings deposits 71,574 70,731
Certificates of deposit
of $100,000 and over 22,162 15,021
Other time deposits 152,407 113,779
- -------------------------------------------------------
Total $364,445 $302,972
- -------------------------------------------------------
A summary of certificates of deposit by maturity is as follows:
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Within one year $84,529 $73,602
One to two years 50,357 20,579
Two to three years 27,731 13,500
Three to four years 9,942 12,408
Four to five years 2,010 8,711
- -------------------------------------------------------
Total $174,569 $128,800
- -------------------------------------------------------
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.
-38-
<PAGE>
The following table presents comparative data related to borrowed
funds of the Corporation at and for the years ended December 31, 1996 and
1995.
December 31,
- --------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------
Securities sold under
agreements to repurchase $ 64,185 $54,830
FHLB advances 20,813 10,000
Other 1,341 391
- --------------------------------------------------------
Total $ 86,339 $65,221
- --------------------------------------------------------
Maximum amount outstanding
at any month end $105,577 $65,221
Average interest rate
on year end balance 5.72% 6.01%
Average amount outstanding
during the year $87,065 $33,339
Average interest rate
for the year 5.70% 6.18%
- --------------------------------------------------------
The following is a summary of securities sold under agreements to
repurchase and their maturities as of December 31, 1996:
(in thousands)
- -------------------------------------------------------
30 to 90 days $41,355
Over 90 days 22,830
- -------------------------------------------------------
Total $64,185
- -------------------------------------------------------
The FHLB advances as of December 31, 1996, mature as follows:
(in thousands)
- -------------------------------------------------------
Less than three months $10,000
Three to six months 5,000
Over one year 5,813
- -------------------------------------------------------
Total $20,813
Interest expense on borrowed funds is comprised of the following:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Securities sold under
agreements to
repurchase $3,792 $1,429 $--
FHLB advances 1,116 576 --
Other 59 54 95
- ---------------------------------------------------------------
Total $4,967 $2,059 $95
- ---------------------------------------------------------------
<PAGE>
8. Income Taxes
Income taxes reflected in the consolidated financial statements for 1996,
1995, and 1994 are as follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Statements of Income:
Federal:
Current $2,281 $1,881 $1,238
Deferred (521) (400) (129)
State:
Current $ 560 $ 253 $ 34
Deferred (142) 88 (58)
- ---------------------------------------------------------------
Total tax expense $2,178 $1,822 $1,085
- ---------------------------------------------------------------
Statements of Condition:
Deferred tax on securities
available for sale $ (178) $ 798 $ (727)
- ---------------------------------------------------------------
Deferred income taxes for 1996, 1995, and 1994 reflect the impact of
"temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws.
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities for 1996, 1995, and 1994 are as follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Deferred tax assets:
Deferred loan fees $ 170 $ 119 $141
Allowance for
loan losses 1,686 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 107 -- 727
Deferred compensation 223 183 --
Other -- 26 93
- ---------------------------------------------------------------
Total deferred tax assets $2,263 $1,579 $2,033
- ---------------------------------------------------------------
Valuation allowance (78) (78) (78)
- ---------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on
securities available
for sale -- (71) --
Unamortized discount
accretion (94) (76) (39)
Depreciation (207) (227) (304)
- ---------------------------------------------------------------
Net deferred tax assets $1,884 $1,127 $1,612
- ---------------------------------------------------------------
-39-
<PAGE>
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.
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:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Income tax expense
at statutory rate $2,105 $1,776 $1,227
State income taxes, net
of Federal benefit,
before change in
valuation reserve 276 226 151
Changes in taxes
resulting from:
Tax exempt interest (122) (117) (117)
Tax exempt income (142) (93) --
Non-deductible
expenses 61 30 76
Change in Federal
valuation reserve -- -- (252)
- ---------------------------------------------------------------
Total $2,178 $1,822 $1,085
- ---------------------------------------------------------------
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 provided a matching contribution of 50% in 1996 and
25% in 1995 and 1994, up to 6% of base compensation. Employer contributions
to the plan amounted to $83,000 in 1996, $36,000 in 1995, and $31,000 in
1994.
Postretirement Benefits
The Corporation provides additional postretirement benefits, namely life and
health insurance, to retired employees over the age of 62 who have completed
15 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.
<PAGE>
SFAS 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions," requires an employer to recognize the cost of retiree health
and life insurance benefits over the employees' period of service. The
transition obligation is being amortized over a twenty year period.
The periodic postretirement benefit cost under SFAS 106 was as
follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Service cost $ 79 $ 50 $ 46
Interest cost 83 68 47
Amortization of transition
obligation 30 30 30
Amortization of
actuarial loss 13 -- --
- ---------------------------------------------------------------
Net postretirement cost $205 $148 $123
- ---------------------------------------------------------------
The actuarial present value of benefit obligations was as follows:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Actuarial present value of
benefit obligations:
Retirees $ 316 $ 325 $143
Fully eligible active plan
participants 320 299 212
Other active plan
participants 701 582 274
- ---------------------------------------------------------------
Accumulated postretirement
benefit obligation 1,337 1,206 629
Unrecognized transition
obligation (480) (510) (540)
Unrecognized actuarial
(loss) gain (337) (350) 137
- ---------------------------------------------------------------
Accrued postretirement
benefit obligation $ 520 $ 346 $226
- ---------------------------------------------------------------
The assumed annual rate of future increases in per capita cost of
health care benefits was 10% for 1996 and 11% for 1995. 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 $349,000 and $300,000 and
the service, interest and amortization costs by $49,000 and $29,000 in 1996
and 1995, respectively. The weighted average discount rate used in
determining the accumulated benefit obligation was 7% in 1996 and 8.5% in
1995.
-40-
<PAGE>
Stock Option Plan
In March 1988, the Stockholders approved an incentive stock option plan
(employee 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.
Stock options vest during a period of up to five years after the date
of grant. The status of the plan for the years ended December 31, 1996, 1995,
and 1994 is as follows:
Options Outstanding
- ---------------------------------------------------------------
Price
Shares Per Share
- ---------------------------------------------------------------
Balance,
December 31, 1993 39,850 $3.10 - $8.00
- ---------------------------------------------------------------
Shares:
Granted 122,480 $8.75
Exercised 2,100 $3.10
- ---------------------------------------------------------------
Balance,
December 31, 1994 160,230 $3.10 - $ 8.75
- ---------------------------------------------------------------
Shares:
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
- ---------------------------------------------------------------
Shares:
Exercised 57,339 $8.75 - $14.75
Expired 2,811 $8.75 - $14.75
- ---------------------------------------------------------------
Balance,
December 31, 1996 84,530 $8.00 - $14.75
- ---------------------------------------------------------------
Shares exercisable as of
December 31, 1996 84,530 $8.00 - $14.75
- ---------------------------------------------------------------
1994 Stock Option Plan
In April 1994, the Board of Directors approved a non-qualified stock option
plan (director 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
<PAGE>
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 is set
by a committee appointed by the Board of Directors.
The shares granted in 1994 under this plan, vested immediately. The
status of the plan for the years ended December 31, 1996, 1995, and 1994 is
as follows:
Options Outstanding
- ---------------------------------------------------------------
Price
Shares Per Share
- ---------------------------------------------------------------
Balance,
December 31, 1994 32,000 $ 8.75
- ---------------------------------------------------------------
Shares:
Exercised 10,943 $ 8.75
Expired 3,200 $ 8.75
- ---------------------------------------------------------------
Balance,
December 31, 1995 17,857 $ 8.75
- ---------------------------------------------------------------
Shares:
Granted 3,200 $15.75
Exercised 6,543 $ 8.75
Expired 800 $ 8.75
- ---------------------------------------------------------------
Balance,
December 31, 1996 13,714 $8.75 - $15.75
- ---------------------------------------------------------------
Shares exercisable as of
December 31, 1996 13,714 $8.75 - $15.75
- ---------------------------------------------------------------
As of December 31, 1996, there were 2,261 and 8,800 additional shares
available for grant under the employee and director plans, respectively.
As presented in the tables above, there were 3,200 options granted
under the director plan in 1996 and 3,520 options granted under the employee
plan in 1995. The per share weighted average fair value of stock options
granted during 1996 and 1995 was $2.46 and $2.00, respectively, on the date
of grant using the Black Scholes option pricing model with the following
weighted average assumptions in 1996 and 1995: (1) an expected annual
dividend of $0.45 and $0.38, respectively, (2) risk free interest rate of
5.2% and 5.1%, respectively, and expected life of approximately 1 year.
The Corporation adopted the provisions of SFAS 123 for transactions
entered into after December 15, 1995. Pro forma disclosures for options
granted in 1996 and 1995 are required. The Corporation applies APB Opinion
No. 25 in accounting for its plans and, accordingly, no compensation cost has
been recognized for stock options in the consolidated financial statements.
-41-
<PAGE>
Had the Corporation determined compensation cost based on the fair value at
the grant date for its stock options under SFAS 123, the Corporation's 1996
and 1995 net income would have been reduced to the pro forma amounts
indicated below:
(in thousands) 1996 1995
- --------------------------------------------------------
Net income:
As reported $4,026 $3,403
Pro forma 4,019 3,395
- --------------------------------------------------------
Earnings per share:
Primary:
As reported $ 1.64 $ 1.61
Pro forma 1.64 1.61
Fully diluted:
As reported $ 1.64 $ 1.60
Pro forma 1.64 1.60
- --------------------------------------------------------
Benefit Plans
The Corporation has a salary continuation plan for three key
executives and a director deferred compensation plan for five board members.
The plans provide for yearly retirement benefits to be paid over a specified
period. The present value of the benefits accrued under these plans as of
December 31, 1996 and 1995 is approximately $226,000 and $110,000,
respectively, and is included in other liabilities in the accompanying
consolidated statements of condition. Compensation expense of approximately
$120,000 and $100,000 is included in the accompanying consolidated statements
of income for the years ended December 31, 1996 and 1995, respectively.
In connection with the benefit plans, the Corporation has purchased
life insurance policies on the lives of the executives and directors. The
Corporation is the owner and beneficiary of the policies. The cash surrender
values of the policies are approximately $5,560,000 and $5,020,000 as of
December 31, 1996 and 1995, respectively, and are included in other assets in
the accompanying consolidated statements of condition.
The Corporation implemented an officer group term replacement plan
for certain executives in 1996. This plan replaces group term life insurance
for these executives. This plan is funded through life insurance policies
purchased by the Corporation. This plan is a split dollar plan; therefore,
the policy interests are divided between the bank and the employee. The death
benefits over and above the cash surrender of the life insurance policy, if
any, are endorsed to the beneficiary of the executive. The cash surrender
value of the policies is approximately $2,990,000 as of December 31, 1996 and
is included in other assets in the accompanying consolidated statements of
condition.
10. Common Stock
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
<PAGE>
Corporation agreed, subject to limits on total ownership of common stock, to
offer up to 21,000 shares to two accredited private investors ("Additional Units
Offering"). On October 11, 1994 each private investor purchased the additional
shares. 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.
During 1996 and 1995, warrants totaling 16,940 and 83,849,
respectively, were exercised with proceeds of $275,000 and $1,283,000,
respectively. On June 13, 1996, all outstanding warrants from prior capital
offerings expired.
On June 14, 1995 the Corporation completed its 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:
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
FDIC insurance premium $ 1 $ 290 $ 464
O.R.E. expenses 163 166 306
Stationery and supplies 388 300 229
Computer services 83 285 270
Insurance (other) 102 93 119
Marketing 522 479 415
Other 1,976 1,715 1,377
- ---------------------------------------------------------------
Total $3,235 $3,328 $3,180
- ---------------------------------------------------------------
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 as of
December 31, 1996 and 1995 for commitments to extend credit were $56,071,000
and $63,531,000, respectively. For standby letters of credit, the contract
amounts were $6,831,000 and $6,720,000, respectively.
-42-
<PAGE>
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 $27,000,000 in lines of
credit available as of December 31, 1996.
The Corporation leases its banking offices in Ewing Township, East
Windsor Township, Trenton and Hamilton Square. Total lease rental expense was
$186,305, $103,002, and $42,678 for the years ended December 31, 1996, 1995,
and 1994, respectively. Minimum rentals under the terms of these leases for
years 1997 through 2001 are $222,922, $222,922, $224,602, $225,162, and
$229,017, 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 or results of operations will not be affected materially by the
final outcome of any pending legal proceedings.
13. Regulatory Matters
The Bank is subject to various regulatory capital requirements administered
by the Federal banking
<PAGE>
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by regulators that,
if undertaken, could have a direct material effect on the Bank's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
<PAGE>
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provision
- --------------------------------------------------------------------------------------------------
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk-weighted assets) $39,304 11.4% $27,521 8.0% $34,401 10.0%
Tier I capital (to risk-weighted assets) 34,996 10.2 13,761 4.0 20,641 6.0
Tier I capital (to average assets) 34,996 7.8 17,940 4.0 22,425 5.0
As of December 31, 1995:
Total capital (to risk-weighted assets) 34,498 13.2 20,914 8.0 26,142 10.0
Tier I capital (to risk-weighted assets) 31,230 12.0 10,457 4.0 15,685 6.0
Tier I capital (to average assets) 31,230 9.1 13,776 4.0 17,219 5.0
</TABLE>
<PAGE>
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 $5,651,000 as
of December 31, 1996.
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.
<PAGE>
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.
-43-
<PAGE>
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
<PAGE>
considered to be equal to the amount payable on demand. 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.
The estimated fair values of the Corporation's financial instruments
are as follows:
December 31, 1996
- ---------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- ---------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $ 17,150 $ 17,150
Interest bearing
deposits 1,357 1,357
Securities available for
sale 93,671 93,671
Investment securities 31,296 30,878
Loans 326,280 333,502
Financial Liabilities:
Deposits 364,445 365,976
Borrowed funds 86,339 86,042
- ---------------------------------------------------------------
December 31, 1996
- ---------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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
-44-
<PAGE>
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.
<PAGE>
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 that are not considered
financial assets include the deferred tax assets and 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 Statements of Condition
December 31,
- -------------------------------------------------------
(in thousands) 1996 1995
- -------------------------------------------------------
Assets:
Cash $ 316 $ 342
Investment in subsidiary 34,835 31,336
Other assets 79 39
- -------------------------------------------------------
Total Assets $35,230 $31,717
- -------------------------------------------------------
Stockholders' Equity $35,230 $31,717
- -------------------------------------------------------
Condensed Statements of Income
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Operating Income:
Dividends from
subsidiary $1,083 $ 843 $ 580
- ---------------------------------------------------------------
Total Operating
Income 1,083 843 580
- ---------------------------------------------------------------
Operating Expense:
Other expense 114 115 11
- ---------------------------------------------------------------
Total Operating Expense 114 115 11
- ---------------------------------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiary 969 728 569
Federal income tax
benefit (40) (41) (3)
- ---------------------------------------------------------------
Income before equity in
undistributed income
of subsidiary 1,009 769 572
Equity in undistributed
income of subsidiary 3,017 2,634 1,951
- ---------------------------------------------------------------
Net Income $4,026 $3,403 $2,523
- ---------------------------------------------------------------
<PAGE>
Condensed Statements of Cash Flows
Year Ended December 31,
- ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Cash Flows from
Operating Activities:
Net Income $4,026 $3,403 $2,523
Adjustments:
(Decrease) increase
in other assets (40) (36) 96
Equity in undistributed
income of subsidiary (3,017) (2,634) (1,951)
Decrease in
other liabilities -- (1) (5)
- ---------------------------------------------------------------
Net Cash Provided by
Operating Activities 969 732 663
- ---------------------------------------------------------------
Cash flows from investing
activities:
Investing in subsidiary (749) (9,650) (2,902)
- ---------------------------------------------------------------
Net Cash Used by
Investing Activities (749) (9,650) (2,902)
- ---------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from shares
issued 837 9,403 3,192
Dividends paid (1,083) (738) (380)
- ---------------------------------------------------------------
Net Cash (Used) Provided by
Financing Activities (246) 8,665 2,812
- ---------------------------------------------------------------
Net (decrease) increase
in cash (26) (253) 573
Cash as of beginning of year 342 595 22
- ---------------------------------------------------------------
Cash as of End of Year $ 316 $ 342 $ 595
- ---------------------------------------------------------------
-45-
<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, 1996 and
1995, 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, 1996. 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Princeton, New Jersey
January 31, 1997
<PAGE>
OFFICERS
------------
Yardville National Bancorp
President and Chief Executive Officer
Patrick M. Ryan
Secretary and Treasurer
Stephen F. Carman
Assistant Secretary and Treasurer
Diane H. Polyak
Yardville National Bank
President and Chief Executive Officer
Patrick M. Ryan
Executive Vice President,
Chief Financial Officer and Cashier
Stephen F. Carman
First Senior Vice President/Senior Loan Officer
James F. Doran
First Senior Vice President/Credit Administration
Mary C. O'Donnell
Senior Vice President and Controller
Richard A. Kauffman
Senior Vice President and Bank Administrator
Frank Durand III
Senior Vice President/Commercial Loans
Sarah J. Strout
Vice Presidents
Maida H. Bell
James T. Brotherton
Vincent P. Ditta
Elmer C. Fawcett
Kathleen A. Fone
Nancy C. German
Maurice F. Lippincott
Sandra R. Malanga
Thomas A. McBain
<PAGE>
Nina D. Melker
Thomas L. Nash
Diane H. Polyak
Jane M. Trout
Susan M. Valentino
Assistant Vice Presidents
Shawn Chase-Merritt
Scott W. Civil
Nancy J. Collar
Sandra A. Gray
Dale K. Inman
Anne S. Marsilio
Debra L. Mincarelli
Leslie Rita
Christine A. Secrist
Joan M. Tarr
Assistant Cashiers
Sharon E. Bokma
June A. Haney
Fay Horrocks
Peggy A. Iucolino
Linda A. Kelly
Kathleen M. Kirkham
Patricia D. Majeski
Dawn L. Melker
Barbara G. Morgan
Michael J. Pelosci
Joseph H. Robotin
Elizabeth A. Salvatore
Flora B. Shiarappa
<PAGE>
BOARD OF DIRECTORS
Yardville National Bancorp
Jay G. Destribats, Chairman of the Board
John C. Stewart, Vice Chairman*
Patrick M. Ryan, President and C.E.O.
C. West Ayres
Elbert G. Basolis, Jr.
Lorraine Buklad
Anthony M. Giampetro, M.D., F.C.C.P.
Gilbert W. Lugossy
Weldon J. McDaniel, Jr.
William J. Steiner, Jr.*+
F. Kevin Tylus
Edward M. Hendrickson, Director Emeritus+
* Director Emeritus as of March 1997
+ Deceased as of March 1997
Yardville National Bank
Jay G. Destribats, Chairman of the Board
John C. Stewart, Vice Chairman*
Patrick M. Ryan, President and C.E.O.
C. West Ayres
Elbert G. Basolis, Jr.
Lorraine Buklad
Anthony M. Giampetro, M.D., F.C.C.P.
Gilbert W. Lugossy
Weldon J. McDaniel, Jr.
William J. Steiner, Jr.*+
F. Kevin Tylus
Edward M. Hendrickson, Director Emeritus+
* Director Emeritus as of March 1997
+ Deceased as of March 1997
ADVISORY BOARD
William C. Broderick
W. Michael Bryant
Nancy S. Ellis
William G. Engel
Daniel J. Graziano, Esq.
Sidney L. Hofing++
James J. Kelly++
John J. Klein III
Richard J. Klockner
Nancy J. Knight
Eugene P. Marfuggi
George S. Martin
Louis R. Matlack, Ph.D. ++
Robert E. Mule
Joyce H. Rainear
Marvin A. Rosen
N. Gerald Sapnar
Ronald K. Vernon
Robert L. Workman
Harold N. Zeltt
++On the proxy ballot for anomination to Director
<PAGE>
Independent Auditors' Consent
The Board of Directors
Yardville National Bancorp:
We consent to incorporation by reference in the registration statement (No.
33-98076) on Form S-8 of Yardville National Bancorp of our report dated January
31, 1997 relating to the consolidated statements of condition of Yardville
National Bancorp and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report is incorporated by reference in the December 31, 1996 annual report on
Form 10-K of Yardville National Bancorp.
/s/ KPMG Peat Marwick LLP
---------------------
KPMG Peat Marwick LLP
Princeton, New Jersey
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,110
<INT-BEARING-DEPOSITS> 1,357
<FED-FUNDS-SOLD> 4,040
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,939
<INVESTMENTS-CARRYING> 93,939
<INVESTMENTS-MARKET> 93,671
<LOANS> 331,237
<ALLOWANCE> 4,957
<TOTAL-ASSETS> 490,545
<DEPOSITS> 364,445
<SHORT-TERM> 86,339
<LIABILITIES-OTHER> 4,531
<LONG-TERM> 0
0
0
<COMMON> 17,246
<OTHER-SE> 17,984
<TOTAL-LIABILITIES-AND-EQUITY> 490,545
<INTEREST-LOAN> 25,731
<INTEREST-INVEST> 8,194
<INTEREST-OTHER> 326
<INTEREST-TOTAL> 34,251
<INTEREST-DEPOSIT> 12,074
<INTEREST-EXPENSE> 17,041
<INTEREST-INCOME-NET> 17,210
<LOAN-LOSSES> 1,640
<SECURITIES-GAINS> (136)
<EXPENSE-OTHER> 11,479
<INCOME-PRETAX> 6,204
<INCOME-PRE-EXTRAORDINARY> 6,204
<EXTRAORDINARY> 2,178
<CHANGES> 0
<NET-INCOME> 4,026
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 8.05
<LOANS-NON> 7,083
<LOANS-PAST> 1,057
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,677
<CHARGE-OFFS> 399
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 4,957
<ALLOWANCE-DOMESTIC> 4,957
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
