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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, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26086
YARDVILLE NATIONAL BANCORP
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(Exact Name of Registrant as specified in its Charter)
New Jersey 22-2670267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Quakerbridge Road, Trenton, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
(609) 585-5100
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(Registrant's Telephone Number, Including Area Code)
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 19, 1998, in the
NASDAQ National Market System: $80,561,175.
Number of shares of common stock, no par value, outstanding as of March 19,
1998: 4,944,857.
(continued)
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DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
DOCUMENT which Document is Incorporated
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Annual Report to Stockholders for fiscal
year ended December 31, 1997 II
Definitive proxy statement for the 1997
Annual Meeting of Stockholders to be held on
April 28, 1998 III
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FORM 10-K
INDEX
PART I PAGE
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
Signatures 19
Index to Exhibits E-1
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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 "Bank 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, 1997, the
Company had consolidated total assets of approximately $614,686,000, deposits of
approximately $422,944,000 and stockholders' equity of approximately
$39,745,000.
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. In September 1997 the Bank opened its
new Telephone Help Center. The Telephone Help Center serves as a centralized
sales and information center for all of the banking offices.
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.
The Bank has four wholly-owned non-bank subsidiaries. Yardville
National Investment Corporation, which was incorporated in 1985, was formed to
separate a portion of the Bank's
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investment portfolio functions and responsibilities from its regular banking
operations and to increase the net yield of the investment portfolio. YNB Real
Estate Holding Company is utilized to hold Bank branch properties. Brendan, Inc.
and Nancy-Beth, Inc. are utilized for the control and disposal of other real
estate properties.
Yardville Capital Trust
Yardville Capital Trust, a wholly-owned subsidiary of the Company, was
formed on August 28, 1997 for the exclusive purposes of (i) issuing and selling
trust preferred securities, (ii) using the proceeds from the sale of the trust
preferred securities to acquire subordinated debentures issued by the Company
and (iii) engaging in only those other activities necessary, advisable or
incidental thereto.
Supervision and Regulation
General
Bank holding companies and banks are extensively regulated under both
Federal and state laws. 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.
The regulation and supervision of the Company and the Bank are designed
primarily for the protection of depositors and the FDIC, and not the Company or
its stockholders. 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. In addition, a bank holding company
is
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generally 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.
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
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"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. Under
applicable regulations, control is presumed to exist in certain circumstances,
including ownership of more than 10% of any class of voting shares of a public
company such as the Company. 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.
Supervision and Regulation of the Bank
The operations of the Bank are subject to Federal and state statutes
and regulations 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.
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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. Branching outside of New Jersey is also permitted under
certain circumstances. See "Interstate Banking." 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 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 application of a bank which is
ranked in any of the three "undercapitalized" categories established by FDICIA.
See -- "Prompt Corrective Action."
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
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which have an office within a specified geographic area, and restrict
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.
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. 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,
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and FRB regulations governing such matters as reserve requirements for deposits,
securities margin lending, collection of checks and other items and availability
of deposits for withdrawal by customers, security procedures, and prohibitions
of payment of interest on demand deposits. Under the Americans With Disabilities
Act ("ADA"), certain bank facilities are identified as "public accommodations"
and are subject to regulation to promote accessibility of their facilities for
disabled persons.
Capital Rules
Under risk-based capital requirements for bank holding companies, the
Company is required to maintain a minimum ratio of total capital to
risk-weighted assets (including certain off-balance-sheet activities, such as
standby letters of credit) of eight percent. At least half of the total capital
is to be composed of common equity, retained earnings and qualifying perpetual
preferred stock, less goodwill ("tier 1 capital" and together with tier 2
capital "total capital"). The remainder may consist of subordinated debt,
nonqualifying preferred stock and a limited amount of the loan loss allowance
("tier 2 capital"). At December 31, 1997, the Company's tier 1 capital and total
capital ratios were 12.24 percent and 13.49 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Company's leverage ratio at
December 31, 1997, was 8.93 percent. The requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the requirements indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Company of any specific minimum tier 1
leverage ratio applicable to it.
The Bank is subject to similar capital requirements adopted by the OCC. The
OCC has not advised the Bank of any specific minimum leverage ratios applicable
to it. The capital ratios of the Bank are set forth below under "Prompt
Corrective Action."
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Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital requirements.
Prompt Corrective Action
In addition to the required minimum capital levels described above, federal
law establishes a system of "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 following table sets forth the minimum capital ratios that a bank must
satisfy in order to be considered adequately capitalized or well capitalized
under the prompt corrective action regulations, and the Bank's capital ratios at
December 31, 1997:
Adequately Well Bank ratios at
Capitalized Capitalized December 31, 1997
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Total Risk-Based Capital Ratio 8.00% 10.00% 12.5%
Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 11.2%
Leverage Ratio 4.00% 5.00% 8.5%
The prompt corrective action 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
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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.
Deposit Assessments
Deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC
through the Savings Association Insurance Fund ("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 FDIC has adopted deposit insurance regulations under which
insured institutions are assigned to one of the following three capital groups
based on their capital levels: "well-capitalized," "adequately capitalized" and
"undercapitalized." Banks in each of these three groups are further classified
into three subgroups based upon the level of supervisory concern with respect to
each bank. The resulting matrix creates nine assessment risk classifications to
which are assigned deposit insurance premiums ranging from 0.00% for the best
capitalized, healthiest institutions, to 0.27% for undercapitalized institutions
with substantial supervisory concerns.
In addition, the Bank is subject to semi-annual assessments relating to
interest payments on Financing Corporation (FICO) bonds issued in connection
with the resolution of the thrift industry crisis. Currently, the FICO
assessments on BIF-insured deposits are made at one-fifth the rate currently
applicable to SAIF-insured deposits. It is expected that after December 31, 1999
(or when the last savings association ceases to exist, if earlier), all
assessable deposits at all institutions will be assessed at the same rates in
order to pay FICO bond interest.
Limitations on Payment of Dividends; Regulatory Agreement
Under applicable New Jersey law, the Company is not permitted to pay
dividends on its capital stock if, following the payment of the dividend, (i)
the corporation would be unable to
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pay its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than its total liabilities.
Determinations under clause (ii) above may be based upon (i) financial
statements prepared on the basis of generally accepted accounting principles,
(ii) financial statements prepared on the basis of other accounting principles
that are reasonable under the circumstances, or (iii) a fair valuation or other
method that is reasonable in the circumstances.
Since it has no significant independent sources of income, the ability of
the Company to pay dividends is dependent on its ability to receive dividends
from the Bank. 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
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Banking Act also purports to regulate certain aspects of bank business,
including small loans and certain deposit accounts. New Jersey law permits
interstate banking and branching, subject to certain limitations. See the
discussion under "Interstate Banking", below.
Interstate Banking
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), beginning on September 29, 1995, bank
holding companies are now permitted to acquire banks in any state without regard
to state law, except that state laws which require the acquiror to have been in
existence for a specified minimum period of time are preserved, 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. In addition, effective June 1, 1997, banks in different
states may be merged into a single bank with interstate branches, subject to any
necessary regulatory approvals and provided the banks are adequately
capitalized, unless the state in which such branches would be located has
enacted legislation prohibiting such transactions. 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. The establishment of de novo branches or
acquisition of one or more branches in another state without acquisition of the
entire bank are only permitted if the other state has enacted legislation
authorizing such branching in that state. On April 17, 1996, New Jersey enacted
legislation authorizing interstate mergers and acquisitions of branches. The New
Jersey legislation does not authorize de novo branching into the state. Because
of reciprocity rules adopted by other states (such as Pennsylvania) the lack of
authorization for de novo branching into New Jersey may also affect the ability
of the Bank to branch into other states. Bank management anticipates that the
Interstate Banking Act will increase competitive pressures in the Bank's market
by permitting entry of additional competitors.
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
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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 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 BIF on January 1, 1999, but
only if no 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
12
<PAGE>
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.
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.
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.
13
<PAGE>
Competition
The Bank faces significant competition both in generating loans and in
attracting deposits. The central New Jersey area is a highly competitive market.
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. The effect of liberalized
branching and acquisition laws 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. 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 and can often offer lower loan rates than
banks. Financial institutions are intensely competitive in the interest rates
they offer on deposits. In addition, the Bank faces competition for deposits
from non-bank institutions such as brokerage firms and insurance companies in
such instruments as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. 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, 1997, the Company employed 169 full-time employees and
10 part-time employees.
14
<PAGE>
Statistical Disclosure
Statistical disclosure information regarding the Company is included in
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," which is incorporated by reference to the Company's 1997
Annual Report to Stockholders.
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. The Bank also leases its
Telephone Help Center located in Hamilton Township. The lease provides for a
term of two years ending in August 31, 1999, renewable for a one year period and
provides for a base monthly rental of $3,250.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal actions as of December 31,
1997, 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.
15
<PAGE>
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, 1997, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Common Stock is traded in the NASDAQ National Market. The following
table shows the range of high and low closing bid prices of the Common Stock in
the NASDAQ National Market during 1996 and 1997. The prices below reflect the
two-for-one stock split declared December 23, 1997. 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, 1996:
- -----------------------------
First Quarter $ 8 1/2 $ 7 7/8
Second Quarter 8 3/8 7 3/4
Third Quarter 9 3/16 7 13/16
Fourth Quarter 10 1/2 9
Year Ended December 31, 1997:
- -----------------------------
First Quarter $11 13/16 $ 9 5/8
Second Quarter 13 9 7/8
Third Quarter 14 3/4 12 3/8
Fourth Quarter 17 13/16 13 5/8
Holders
As of December 31, 1997, the Company had approximately 581 holders of
record of the Common Stock.
16
<PAGE>
Dividends
In 1996, the Company paid cash dividends on the Common Stock in the
aggregate amount of $1,083,000. Dividends paid per share in 1996 totaled $0.225.
In 1997, the Company paid cash dividends on the Common Stock in the aggregate
amount of $1,233,000. Dividends paid per share in 1997 totaled $0.25. All
dividend information reflects the two-for-one stock split declared December 23,
1997. In the first quarter of 1998, the Company paid a cash dividend in the
amount of $.07 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, 1997, the net profits of the
Bank available for distribution to the Company as dividends without regulatory
approval were approximately $6,512,000. The Company expects to pay quarterly
cash dividends in 1998 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 1997
Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 1997
ANNUAL REPORT
CAPTION IN 1997 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 15-35
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS 36-52
INDEPENDENT AUDITORS' REPORT 53
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
1997 Annual Report to Stockholders.
17
<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 10 through 13 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 28, 1998. 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, FINANCIAL STATEMENT SCHEDULES, 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.
(b) Financial Statements
The following audited consolidated financial statements and the Company's
independent auditors' report thereon have been incorporated in this report by
reference to the Company's 1997 Annual Report to Stockholders:
1. Consolidated Statements of Condition
2. Consolidated Statements of Income
3. Consolidated Statements of Changes in Stockholders' Equity
4. Consolidated Statements of Cash Flows
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
(c) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1997.
18
<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 25, 1998.
YARDVILLE NATIONAL BANCORP
By: /s/ Patrick M. Ryan
--------------------------------
Patrick M. Ryan, President and
Chief Executive Officer
Signatures Title
---------- -----
/s/ Jay G. Destribats
- ------------------------- Chairman of the Board
Jay G. Destribats and Director
/s/ Patrick M. Ryan
- ------------------------- Director, President and
Patrick M. Ryan Chief Executive Officer
/s/ Stephen F. Carman
- ------------------------- Treasurer, Secretary,
Stephen F. Carman Principal Financial Officer
and Principal Accounting Officer
/s/ C. West Ayres
- ------------------------- Director
C. West Ayres
/s/ Elbert G. Basolis, Jr.
- ------------------------- Director
Elbert G. Basolis, Jr.
/s/ Lorraine Buklad
- ------------------------- Director
Lorraine Buklad
/s/ Anthony M. Giampetro
- ------------------------- Director
Anthony M. Giampetro
/s/ Sidney L. Hofing
- ------------------------- Director
Sidney L. Hofing
/s/ James J. Kelly
- ------------------------- Director
James J. Kelly
19
<PAGE>
Signatures Title
---------- -----
/s/ Gilbert W. Lugossy
- ------------------------- Director
Gilbert W. Lugossy
/s/ Louis R. Matlack
- ------------------------- Director
Louis R. Matlack
/s/ Weldon J. McDaniel, Jr
- ------------------------- Director
Weldon J. McDaniel, Jr.
/s/ F. Kevin Tylus
- ------------------------- Director
F. Kevin Tylus
20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C>
3.1 Restated Certificate of Incorporation of the Company, as amended by
the Certificate of Amendment thereto filed March 6, 1998 ................
**3.2 By-Laws of the Company...................................................
**4.1 Specimen Share of Common Stock...........................................
****10.1 Employment Contract between Registrant and Patrick M. Ryan...............
****10.2 Employment Contract between Registrant and Jay G. Destribats.............
10.3 Employment Contract between Registrant and Stephen F. Carman.............
10.4 Employment Contract between Registrant and James F. Doran................
10.5 Employment Contract between 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..............
****10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats............
+10.10 1988 Stock Option Plan...................................................
*10.11 1994 Stock Option Plan...................................................
*10.12 Directors' Deferred Compensation Plan....................................
**10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993...
*10.14 Lease between Richardson Realty Company and the Bank dated November 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
++10.18 1997 Stock Option Plan...................................................
10.19 Employment Contract between Registrant and Howard N. Hall................
10.20 Employment Contract between Registrant and Sarah J. Strout...............
10.21 Employment Contract between Registrant and Nina D. Melker................
10.22 Employment Contract between Registrant and Timothy J. Losch..............
10.23 Survivor Income Plan for the Benefit of Timothy J. Losch ................
(Continued)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.24 Lease Agreement between The Ibis Group and the Bank dated July, 1997.....
13.1 1997 Annual Report to Stockholders.......................................
21 List of Subsidiaries of the Registrant...................................
23.1 Consent of KPMG Peat Marwick LLP ........................................
27.1 Financial Data Schedules.................................................
</TABLE>
* Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1994, as amended by Form 10-KSB/A
filed on July 25, 1995.
** Incorporated by reference to the Registrant's 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.
**** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
+ Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997, as amended by Form 10-Q/A
filed on August 15, 1997.
++ Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-28193)
E-2
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
YARDVILLE NATIONAL BANCORP
To: The Secretary of State
State of New Jersey EIN #22-2670267
Pursuant to the provisions of Section 14A:9-2(2) and Section
14A:9-4(2), Corporations, General, of the New Jersey Statutes (the "Business
Corporation Act"), the undersigned corporation (hereinafter the "Corporation")
executes the following Certificate of Amendment to its Certificate of
Incorporation:
1. The name of the Corporation is Yardville National Bancorp.
2. Pursuant to Section 14A:7-15.1 of the Business Corporation
Act, the board of directors of the Corporation adopted a resolution on December
23, 1997, approving the issuance on January 20, 1998, to each holder of record
of the Common Stock, no par value, of the Corporation (the "Common Stock") on
January 5, 1998 (the "Record Date"), of a dividend payable in additional shares
of authorized but unissued shares of Common Stock at the rate of one share of
Common Stock for each share of Common Stock held of record by each holder on the
Record Date (the "Share Dividend"). The number of shares of Common Stock subject
to the Share Dividend was 2,479,049 and the number of shares of Common Stock
issued pursuant to the Share Dividend was 2,479,049.
3. In connection with the Share Dividend, pursuant to Section
14A:7-15.1 of the Business Corporation Act, the board of directors of the
Corporation adopted the following amendment to the Corporation's Certificate of
Incorporation(the "Certificate"):
RESOLVED, that the first sentence of Article III.A. of the
Certificate shall be amended and restated as follows:
"The total authorized capital stock of the Corporation shall
be 13,000,000 shares, consisting of 12,000,000 shares of Common Stock
and 1,000,000 shares of Preferred Stock which may be issued in one or
more classes or series."
<PAGE>
4. The foregoing amendment to the Certificate will not
adversely affect the rights or preferences of the holders of outstanding shares
of any class or series and will not result in the percentage of authorized
shares that remains unissued after the Share Dividend exceeding the percentage
of authorized shares that was unissued before the Share Dividend.
Date: February 27, 1998. YARDVILLE NATIONAL BANCORP
By: /s/ Patrick M. Ryan
-----------------------------
Patrick M. Ryan, President
and Chief Executive Officer
-2-
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
YARDVILLE NATIONAL BANCORP
Pursuant to the provisions of Section 14A:9-5, Corporations,
General of the New Jersey Statutes, the undersigned corporation (hereinafter the
"Corporation") hereby executes the following Restated Certificate of
Incorporation:
ARTICLE I
CORPORATION NAME
The name of the Corporation shall be Yardville National
Bancorp.
ARTICLE II
CORPORATE PURPOSE
The purpose for which the Corporation is organized is to
engage in any activities for which corporations may be organized under the New
Jersey Business Corporation Act, subject to any restrictions which may be
imposed from time to time by the laws of the United States or the State of New
Jersey with regard to the activities of a bank holding company.
ARTICLE III
CAPITAL STOCK
A. The total authorized capital stock of the corporation shall be
7,000,000 shares, consisting of 6,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock which may be issued in one or more classes or series.
The shares of Common Stock shall constitute a single class and shall be without
nominal or par value. The shares of Preferred Stock of each class or series
shall be without nominal or par value, except that the amendment authorizing the
initial issuance of any class or series, adopted by the Board of Directors of
the Corporation (hereinafter, the "Board") as provided herein, may provide that
shares of any class or series shall have a specified par value per share, in
which event all of the shares of such class or series shall have the par value
per share so specified.
B. The Board is expressly authorized from time to time to adopt and to
cause to be executed and filed without further
<PAGE>
approval of the shareholders amendments to this Restated Certificate of
Incorporation authorizing the issuance of one or more classes or series of
Preferred Stock for such consideration as the Board may fix. In an amendment
authorizing any class or series of Preferred Stock, the Board is expressly
authorized to determine:
(1) the distinctive designation of the class or series and the
number of shares which will constitute the class or series, which number may be
increased or decreased (but not below the number of shares then outstanding)
from time to time by action of the Board;
(2) the dividend rate on the shares of the class or series,
whether dividends will be cumulative, and, if so, from what date or dates;
(3) the price or prices at which, and the terms and conditions
on which, the shares of the class or series may be redeemed at the option of the
Corporation;
(4) whether or not the shares of the class or series will be
entitled to the benefit of a retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if so entitled, the amount of such
fund and the terms and provisions relating to the operation thereof;
(5) whether or not the shares of the class or series will be
convertible into, or exchangeable for, any other shares of stock of the
Corporation or other securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(6) the rights of the shares of the class or series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(7) whether or not the shares of the class or series will have
priority over, be on parity with, or be junior to the shares of any other class
or series in any respect, whether or not the shares of the class or series will
be entitled to the benefit of limitations restricting the issuance of shares of
any other class or series having priority over or on parity with the shares of
such class or series and whether or not the shares of the class or series are
entitled to restrictions on the payment of dividends on, the making of other
distributions in respect of, and the purchase or redemption of shares of any
other class or
-2-
<PAGE>
series of Preferred Stock or Common Stock ranking junior to the shares of the
class or series;
(8) whether the class or series will have voting rights, in
addition to any voting rights provided by law, and if so, the terms of such
voting rights; and
(9) any other preferences, qualifications, privileges, options
and other relative or special rights and limitations of that class or series.
ARTICLE IV
CURRENT REGISTERED OFFICE
AND CURRENT REGISTERED AGENT
The address of the Corporation's current registered office is
Woodland Falls Corporate Park, 200 Lake Drive East, Suite 206, Cherry Hill, New
Jersey 08002, and the name of its current registered agent at that address is
Stradley, Ronon, Stevens & Young, Attention: Joseph V. Del Raso, Esquire.
ARTICLE V
BOARD OF DIRECTORS
A. Number of Directors; Classification.
The number of directors of the Corporation shall be not less than 5 nor
more than 25 persons. The exact number of directors within such minimum and
maximum limitations shall be fixed from time to time by the Board pursuant to a
resolution adopted by a majority of the entire Board. The directors constituting
the Board shall be classified, with respect to the time for which they hold
office, into three classes, as nearly equal in number as possible. At the annual
meeting of shareholders held in 1986, one class will be elected for a term of
two years, and another class will be elected for a term of three years, each
class to hold office until its successors are elected and qualified. At each
annual meeting thereafter the successors of the class of directors whose term
expires in that year shall be elected to hold office for a term of three years
and thereafter until their successors are elected and qualified.
B. Newly Created Directorships and Vacancies.
-3-
<PAGE>
Newly created directorships resulting from any increase in the number
of directors may be filled by the Board and any vacancies on the Board resulting
from death, resignation, disqualification, retirement, removal or other cause
may be filled by the affirmative vote of a majority of the remaining directors
even though less than a quorum of the Board, or by a sole remaining director.
Any director chosen in accordance with the preceding sentence shall hold office
until the next succeeding annual meeting of shareholders and until his successor
shall have been elected and qualified. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
C. Removal.
Any director, or the entire Board, may be removed at any time by the
shareholders, with or without cause, but only by the affirmative vote of the
holders of at least 80% of the shares of the Corporation entitled to vote for
the election of directors. The Board may remove any director for cause by a
majority vote of the entire Board.
D. Amendment, Repeal, Etc.
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of at least 80% of the
shares of the Corporation entitled to vote thereon shall be required to amend or
repeal any provision in this Article V. Notwithstanding the foregoing, the
Corporation may issue Preferred Stock, and classes and series thereof, which
grant the holders of such Preferred Stock, or any class of series thereof, the
right to elect (annually or otherwise), and to remove, additional directors in
the event of dividend default or arrearage.
E. Current Directors.
The number of directors constituting the current Board of Directors is
twelve (12).
The name and address of each of the directors is as follows:
Jay G. Destribats Edward M. Hendrickson
4 Bernath Drive 625 Medford Leas
Trenton, NJ 08610 Medford, NJ 08055
Patrick M. Ryan Gilbert W. Lugossy
63 Corona Court 100 W. Park Avenue
Old Bridge, NJ 08610 Trenton, NJ 08610
-4-
<PAGE>
John C. Stewart Weldon J. McDaniel, Jr.
2238 Spruce Street 2238 Spruce Street
Trenton, NJ 08638 Trenton, NJ 08620
C. West Ayres Samuel E. Proctor
Route 130 & Jones Street 112 Mercer Street
Burlington, NJ 08016 Hamilton Square, NJ 08690
Lorraine Buklad William J. Steiner, Jr.
2141 South Board Street 107 Brighton Drive
Hamilton, NJ 08610 Mercerville, NJ 08619
Anthony M. Giampetro F. Kevin Tylus
643 North Ithan Avenue 4 Azalea Way
Rosemont, PA 19010 Hamilton Square, NJ 08690
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its officers, directors,
employees, and agents and formers officers, directors, employees and agents, and
any other person serving at the request of the Corporation as an officer,
director, employee or agent of another corporation, association, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees, judgments, fines, and amounts paid in settlement) incurred in
connection with any pending or threatened action, suit, or proceeding, whether
civil, criminal, administrative or investigative, with respect to which such
officer, director, employee, agent or other person is a party, or is threatened
to be made a party, to the full extent permitted by the New Jersey Business
Corporation Act. The indemnification provided herein shall not be deemed
exclusive of any other right to which any person seeking indemnification may be
entitled under any by-law, agreement, or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity, and shall inure to the benefit of the heirs,
executors, and the administrators of any such person. The Corporation shall have
the power to purchase and maintain insurance on behalf of any persons enumerated
above against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the Corporation
could have the power to indemnify him against such liability under the
provisions of this Article VI.
ARTICLE VII
-5-
<PAGE>
SHAREHOLDER ACTION; SPECIAL MEETINGS
Any action required or permitted to be taken by the shareholders of the
Corporation shall be effected at a duly called annual or special meeting of
shareholders of the Corporation and may not be effected by any consent in
writing by such shareholders unless all the shareholders entitled to vote
thereon consent thereto in writing. Special meetings of shareholders of the
Corporation may be called only by the Board pursuant to a resolution approved by
a majority of the entire Board, or by the Chairman of the Board, the President,
or the Executive Committee of the Board. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at 80% of the shares of the Corporation entitled to vote thereon
shall be required to amend or repeal this Article VII. Notwithstanding the
foregoing, the Corporation may issue Preferred Stock, and classes and series
thereof, which grant the holders of such Preferred Stock the right to call a
special meeting and to act by non-unanimous written consent.
ARTICLE VIII
BUSINESS COMBINATIONS
A. Vote Required for Certain Business Combinations.
In addition to any affirmative vote required by law or this Restated
Certificate of Incorporation and except as otherwise expressly provided in
paragraph B of this Article VIII,
(1) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as
hereinafter defined) or (b) any other corporation or other person (whether or
not itself an Interested Shareholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an Interested
Shareholder, or
(2) any plan of exchange for all the outstanding shares of the
Corporation or any Subsidiary or for any class of shares of either with (a) any
Interested Shareholder or (b) any other corporation or other person (whether or
not itself an Interested Shareholder) which is, or after such plan of exchange
would be, an Affiliate of an Interested Shareholder, or
(3) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions to or with any
Interested Shareholder or Affiliate of any Interested Shareholder of any assets
of the Corporation or any
-6-
<PAGE>
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $2,000,000 or more, or
(4) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate
of any Interested Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $2,000,000
or more, or
(5) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder, or
(6) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder (any transaction referred to in any one or more of
clauses (1) through (6) of this paragraph is hereinafter referred to as a
"Business Combination"),
shall require the affirmative vote of the holders of at least 80% of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together as
a single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law, by this Restated Certificate of Incorporation or otherwise.
B. When Higher Vote is not Required.
The provisions of paragraph A of this Article VIII shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law and any
other provision of this Restated Certificate of Incorporation, if the Business
Combination shall have been approved by a majority of the Continuing Directors
(as hereinafter defined) or all of the following conditions shall have been met:
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<PAGE>
(1) The aggregate of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest of the following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of Common Stock acquired
by it (i) within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date") or (ii) in the transaction in which it became an Interested Shareholder,
whichever is higher;
(b) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which the Interested Shareholder
became an Interested Shareholder (such latter date is referred to in this
Article VIII as the "Determination Date"), whichever is higher; and
(c) (if applicable) the price per share equal to
the Fair Market Value per share of Common Stock determined pursuant to paragraph
B(1)(b) above, multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of Common Stock acquired
by it within the two-year period immediately prior to the Announcement Date to
(ii) the Fair Market Value per share of Common Stock on the first day in such
two-year period upon which the Interested Shareholder acquired any shares of
Common Stock.
(2) The consideration to be received by the holders of a
particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Shareholder has previously paid
for shares of such class of Voting Stock. If the Interested Shareholder has paid
for shares of any class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(3) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination: (a)
except as approved by a majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding Preferred
Stock; (b)
-8-
<PAGE>
there shall have been (i) no reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any division of the Common
Stock), except as approved by a majority of the Continuing Directors, and (ii)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the Continuing Directors;
and (c) such Interested Shareholder shall have not become the beneficial owner
of any additional shares of Voting Stock except as part of the transaction which
results in such Interested Shareholder becoming an Interested Shareholder.
(4) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(5) A proxy or information statement describing the proposed
Business Combination, and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to public
shareholders of the Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
C. Certain Definitions and Interpretations.
For the purpose of this Article VIII:
(1) "Person" shall mean any individual, firm, corporation or
other entity.
(2) "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which
(a) is the beneficial owner, directly or
indirectly, of more than 10% of the outstanding Voting Stock, or
-9-
<PAGE>
(b) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the voting power
of the then outstanding Voting Stock, or
(c) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933. For the purpose of determining
whether a person is an Interested Shareholder, the number of shares of Voting
Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph C(3) of this Article VIII but shall not include any
other shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(3) A person shall be deemed the "beneficial owner" of any
Voting Stock (a) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly, or (b) which
such person or any of its Affiliates or Associates has (i) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or otherwise
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or (c) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(4) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12B-2 of the General Rules and
Regulations under the Securities and Exchange Act of 1934, as in effect on April
29, 1986.
(5) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph C(2) of this Article VIII, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Corporation.
-10-
<PAGE>
(6) "Continuing Director" means any member of the Board who
was on the Board on April 29, 1986, and any subsequent member of the Board who
is unaffiliated with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Continuing Director who is unaffiliated with
the Interested Shareholder and is recommended to succeed a Continuing Director
by a majority of Continuing Directors then on the Board.
(7) "Fair Market Value" means (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stock, or if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc.'s Automated
Quotation System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by the Board in good faith and (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined by the Board in good faith.
(8) In the event of any Business Combination in which the
Corporation survives, for purposes of paragraph B(1) and (2) of this Article
VIII the consideration to be received shall include the shares of Common Stock
and/or the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
(9) The directors of the Corporation shall have the power and
duty to determine for the purposes of this Article VIII, on the basis of
information known to them after reasonable inquiry, (a) whether a person is an
Interested Shareholder, (b) the number of shares of Voting Stock beneficially
owned by any person, (c) whether a person is an Affiliate or Associate of
another and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $2,000,000 or more.
D. No effect on Fiduciary Obligations of Interested Shareholders.
-11-
<PAGE>
Nothing contained in this Article VIII shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
E. Amendment, Repeal, Etc.
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Restated Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote of the
holders of 80% or more of the shares of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend or repeal this
Article VIII.
ARTICLE IX
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
A. A director or officer of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for breach of any duty
owed to the Corporation or its shareholders, except that such provision shall
not relieve a director or officer from liability for any breach of duty based
upon an act or omission (i) in breach of such person's duty of loyalty to the
Corporation or its shareholders, (ii) not in good faith or involving a knowing
violation of law, or (iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act is amended after
March 17, 1987, to authorize corporate action further eliminating or limiting
the personal liability of directors or officers, then the liability of a
director and/or officer of the Corporation shall be eliminated or limited to the
fullest extent permitted by the New Jersey Business Corporation Act as so
amended.
B. Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation or otherwise shall not adversely affect any
right or protection of a director or officer of the Corporation existing at the
time of such repeal or modification.
ARTICLE X
CONSIDERATIONS OF NON-ECONOMIC FACTORS
IN CONSIDERING A TAKEOVER BID
The Board, when evaluating any offer of another party to (i) purchase
or exchange any securities or property for any outstanding
-12-
<PAGE>
equity securities of the Corporation, (ii) merge or consolidate the Corporation
with another corporation, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation (each of the
foregoing, an "Acquisition Proposal") shall, in connection with the exercise of
its judgment in determining what is in the best interests of the Corporation and
its shareholders, give due consideration not only to the price or other
consideration being offered but also to all other relevant factors, including
without limitation the financial and managerial resources and future prospects
of the other party, the possible effects of the Acquisition Proposal on the
business of the Corporation and its subsidiaries and on the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, and
the effects of the Acquisition Proposal on the communities in which the
Corporation's facilities are located. In so evaluating any Acquisition Proposal,
the Board of Directors shall be deemed to be performing their duly authorized
duties and acting in good faith and in the best interests of the Corporation
within the meaning of the New Jersey Business Corporation Act, as it may be
amended from time to time.
YARDVILLE NATIONAL BANCORP
By:/s/ Patrick M. Ryan
----------------------
Name: Patrick M. Ryan
Title: President/CEO
-13-
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANCORP (the "Holding
Company"), a corporation organized under the laws of the State of New Jersey,
and Stephen F. Carman (the "Officer").
RECITALS
WHEREAS, the Holding Company desires to employ and retain the services
of the Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Executive Vice President and Chief Financial Officer of The Yardville
National Bank (the "Bank") reporting to the President of The Bank.
2. TERMS AND DUTIES
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998, 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 President/Chief Executive Officer and the Board of
Directors of the Yardville National 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Executive Vice President and Chief
Financial Officer of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes 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 Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the concert of
beneficial ownership of forty percent (40%) or more of any
class equity security of the Bank or the Bank's Holding
Company, or
(ii) the approval by the Board, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be
the occurrence of an event described in clause (i) or
(ii) above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $100,000.00, and an annual salary of not less
than $110,000.00 in the second year of the contract period; which salary shall
be paid in bi-weekly installments. 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 or 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, pension 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.
STOCK OPTIONS
(a) the Bank agrees to grant to the Executive the right, privilege, and
option to purchase 5,000 shares of its common stock of the bank Holding Company
(at the private placement price of $16.00 (subject to shares becoming available
through existing or additional approvals by shareholders) subject to the terms
and conditions of the Holding Company's 1988 Stock Option Plan (the "Plan"). It
is the intention of this Agreement that the Executive be granted options that
will not be subject to state or federal income taxes when they are exercised,
but rather only when the resultant stock is sold, assuming that such date of
sale is at least two years after the date such options were granted one year
after the date such stock was acquired by the executive. it is understood that
the Holding Company will receive no tax benefits or tax deduction in connection
with these options.
<PAGE>
(b) the options as to the 4,700 shares may be exercised by the
Executive at any time during a period commencing with the vesting date of such
options and ending three (3) years after the option grant date, except to the
extent that said time period may be decreased in accordance with the provisions
contained in Subsection 5(c), 5(f) and
The options shall vest in accordance with the following schedule:
Number of Options Vesting Date
----------------- ------------
1570 November 25, 1993
1570 November 25, 1994
1560 November 25, 1995
The rights to exercise shall be cumulative, and any option exercised in
a prior year may be exercised in a subsequent year throughout the ten year
option period.
(c) 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 in 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.
(d) 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-stock, or the like, the number of shares proportionately
adjusted. If the Holding Company is reorganized, consolidated or merged with
another corporation 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 all shares subject to the option
immediately after the 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.
(e) The options granted hereunder are transferable by the Executive.
<PAGE>
5. TERMINATION FOR CAUSE
(a) The Officer 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 the Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that the Officer
may be legally entitled to participate by virtue of COBRA or any other State or
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
two year's salary at the annual salary currently being paid, which payment shall
be made in lump sum promptly after the occurrence of such termination.
(b) The Officer will have the option within six (6) months after a
Change in Control (as herein defined), to elect to resign his position. If the
officer's voluntary departure is for other than death, disability or cause the
Executive shall be entitled to receive two (2) years salary at the annual salary
currently being paid, which payment shall be made in a lump sum promptly after
the occurrence of such voluntary resignation.
8. TERMINATION UPON DISABILITY
(a) in the event that the Officer experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the date of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Bank. If such Disability continues for a period of six (6)
consecutive months, the Bank at its option may thereafter, upon written notice
to the Officer or his personal representative, terminate the Officer's
employment with no further notice.
<PAGE>
9. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
10. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bancorp
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
Patrick M. Ryan
President/CEO
WITNESS
/s/ Stephen F. Carman
- ------------------------- ----------------------------------
Stephen F. Carman
Executive Vice President
Chief Financial officer
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and James F.
Doran (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as First Senior Vice President and Senior Lending Officer of The Yardville
National Bank (the "Bank") reporting to the President of The Bank.
2. TERMS AND DUTIES
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998, 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 President/Chief Executive Officer and the Board of
Directors of the Yardville National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the First Senior Vice President and
Senior Lending Officer of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the concert of
beneficial ownership of forty percent (40%) or more of any
class equity security of the Bank or the Bank's Holding
Company, or
(ii) the approval by the Board, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be
the occurrence of an event described in clause (i) or (ii) above.
(c) "Disability" means a mental or physical illness or condition rendering
the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $82,500.00, and an annual salary of not less than
$85,000.00 in the second year of the contract period; which salary shall be paid
in bi-weekly installments. 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 or said review shall be fixed by the Board from time to time.
(c) The officer shall be provided by the Bank with an automobile for
his individual use.
5. TERMINATION FOR CAUSE
(a) The Officer 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 the officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that the Officer
may be legally entitled to participate by virtue of COBRA or any other State or
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in lump sum promptly after the occurrence of such
termination.
8. TERMINATION UPON DISABILITY
(a) In the event that the Officer experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the date of the occurrence of such Disability, reduced by any
concurrent disability benefit
<PAGE>
payments provided under disability insurance maintained by the Bank. If such
Disability continues for a period of six (6) consecutive months, the Bank at its
option may thereafter, upon written notice to the Officer or his personal
representative, terminate the Officer's employment with no further notice.
9. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
10. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bancorp
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
President/CEO
WITNESS
/s/ Sarah J. Strout /s/ James F. Doran
- ------------------------- ----------------------------------
James F. Doran
First Senior Vice President
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Richard A.
Kauffman (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Senior Vice President & Chief Technology Officer of The Yardville National
Bank (the "Bank") reporting to the Executive Vice President and Chief Financial
Officer.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998 and shall continue for a period of twelve (12) 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 President/CEO, and the Board of Directors of Yardville
National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Senior Vice President and Chief
Technology Officer of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the 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, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the Bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would
be the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $78,795.00, which salary shall be paid in
bi-weekly installments. 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.
5. TERMINATION FOR CAUSE
(a) The Officer 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 Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that the Officer
may be legally entitled to participate by virtue of COBRA or any other State of
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in a lump sum promptly after the occurrence of such
termination.
8. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
<PAGE>
9. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bank
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
President/CEO
WITNESS
/s/ Kathleen A. Fone /s/ Richard A. Kauffman
- ------------------------- ----------------------------------
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of January,
1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a corporation
organized under the laws of the State of New Jersey, and Mary C. O'Donnell (the
"Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the Officer
for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve as
First Senior Vice President and Chief Credit Officer of The Yardville National
Bank (the "Bank") reporting to the President of The Bank.
2. TERMS AND DUTIES
(a) The period of the Officer's employment agreement shall commence as of
January 31, 1998, 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 President/Chief Executive Officer and the Board of
Directors of the Yardville National 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.
(b) During the period of employment, the Officer shall devote full time and
attention to such employment and shall perform such duties as are customarily
and appropriately vested in the First Senior Vice President and Chief Credit
Officer of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the concert
of beneficial ownership of forty percent (40%) or more of any
class equity security of the Bank or the Bank's Holding
Company, or
(ii) the approval by the Board, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be
the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $82,500.00, and an annual salary of not less than
$85,000 in the second year of the contract period; which salary shall be paid in
bi-weekly installments. 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 or said review shall be fixed by the Board from time to time.
5. TERMINATION FOR CAUSE
(a) The Officer 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 the Officer may be legally entitled to participate by virtue
of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer shall
not have the right to receive compensation or benefits as provided hereunder
after such date of termination, except to the extent that the Officer may be
legally entitled to participate by virtue of COBRA or any other State or Federal
Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) in the event that within three (3) years after a Change in Control (as
herein defined), the Officer's employment is terminated by the Bank, other than
for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in lump sum promptly after the occurrence of such
termination.
8. TERMINATION UPON DISABILITY
(a) In the event that the Officer experiences a Disability during the
period of her employment, her salary shall continue at the same rate as was in
effect on the date of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Bank. If such Disability continues for a period of six (6)
consecutive months, the Bank at its option may thereafter, upon written notice
to the Officer or her personal representative, terminate the Officer's
employment with no further notice.
<PAGE>
9. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
10. 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 hereto executed this Agreement on the
_______ 31st ____ day of ________ January __, 1998.
ATTEST: Yardville National Bank
- --------------------------- ----------------------------------------
President/CEO
WITNESS
- --------------------------- ----------------------------------------
Mary C. O'Donnell
First Senior Vice President
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Frank
Durand, III (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Senior Vice President and Bank Administrator of The Yardville National Bank
(the "Bank") reporting to the Chairman of the Board.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998 and shall continue for a period of twelve (12) 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 President/CEO, and the Board of Directors of Yardville
National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Senior Vice President and Bank
Administrator of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties
of the Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the 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, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the Bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would
be the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $62,500.00, which salary shall be paid in
bi-weekly installments. 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 Officer shall receive a monthly expense stipend of $250.00 for
associated expenses incurred for extensive travel and vehicle maintenance for
the performance of his duties as Bank Administrator.
5. TERMINATION FOR CAUSE
(a) The Officer 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 Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extend that the officer
may be legally entitled to participate by virtue of COBRA or any other State of
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in a lump sum promptly after the occurrence of such
termination.
<PAGE>
8. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
9. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bank
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
President/CEO
WITNESS
/s/ Kathleen A. Fone /s/ Frank Durand, III
- ------------------------- ----------------------------------
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Howard N.
Hall (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Senior Vice President and Controller of The Yardville National Bank (the
"Bank") reporting to the Executive Vice President and Chief Financial Officer.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998 and shall continue for a period of twelve (12) 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 President/CEO, and the Board of Directors of Yardville
National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Senior Vice President and Controller
of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the 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, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the Bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would
be the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $70,000.00, which salary shall be paid in
bi-weekly installments. 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.
5. TERMINATION FOR CAUSE
(a) The Officer 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 Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that the Officer
may be legally entitled to participate by virtue of COBRA or any other State of
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in a lump sum promptly after the occurrence of such
termination.
8. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
<PAGE>
9. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bank
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
President/CEO
WITNESS
/s/ Stephen F. Carman /s/ Howard N. Hall
- ------------------------- ----------------------------------
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Sarah J.
Strout (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Senior Vice President and Commercial Lending Team Leader of The Yardville
National Bank (the "Bank") reporting to the First Senior Vice President and
Senior Lending Officer.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998 and shall continue for a period of twelve (12) 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 President/CEO, and the Board of Directors of Yardville
National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Senior Vice President and Commercial
Lending Team Leader of a commercial bank.
7
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause means any of the following:
(i) the willful commission of an act that causes 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 Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the 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, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the Bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would
be the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $71,379.00, which salary shall be paid in
bi-weekly installments. 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 Officer shall receive a monthly expense stipend of $250.00 for
associated expenses incurred for extensive travel and vehicle maintenance for
the performance of her duties as Commercial Lending Team Leader.
5. TERMINATION FOR CAUSE
(a) The Officer 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 Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extent that the Officer
may be legally entitled to participate by virtue of COBRA or any other State of
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in a lump sum promptly after the occurrence of such
termination.
<PAGE>
8. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
9. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bank
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
xxxxxxxxxxxxxxx
President/CEO
WITNESS
/s/ James F. Dorn /s/ Sarah J. Strout
- ------------------------- ----------------------------------
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1998 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Nina D.
Melker (the "Officer").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
officer for the period provided in this Agreement; and
WHEREAS, Officer 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, the Officer shall serve
as Senior Vice President and Retail Administrator of The Yardville National Bank
(the "Bank") reporting to the Executive Vice President & Chief Operating
Officer.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as
of January 31, 1998 and shall continue for a period of twelve (12) 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 President/CEO, and the Board of Directors of Yardville
National Bank, 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.
(b) During the period of employment, the Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Senior Vice President and Retail
Administrator of a commercial bank.
<PAGE>
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause means any of the following:
(i) the willful commission of an act that causes 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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer's employment.
(b) "Change in Control" means any of the following:
(i) the acquisition by any person or group acting in the 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, and appropriate regulatory
authorities of the sale of all or substantially all of the
assets of the Bank or Holding Company, or
(iii) the approval by the Board and appropriate regulatory
authorities of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would
be the occurrence of an event described in clause (i) or (ii)
above.
(c) "Disability" means a mental or physical illness or condition
rendering the Officer 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.
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $54,678.00, which salary shall be paid in
bi-weekly installments. 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 Officer shall receive a monthly expense stipend of $250.00 for
associated expenses incurred for extensive travel and vehicle maintenance for
the performance of her duties as Retail Administrator.
5. TERMINATION FOR CAUSE
(a) The Officer 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 Officer may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
6. TERMINATION BY THE OFFICER
(a) In the event of the Officer's voluntary termination, the Officer
shall not have the right to receive compensation or benefits as provided
hereunder after such date of termination, except to the extend that the Officer
may be legally entitled to participate by virtue of COBRA or any other State of
Federal Law concerning employee rights to benefits upon termination.
7. CHANGE OF CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or cause, the Officer shall be entitled to receive
eighteen (18) months salary at the annual salary currently being paid, which
payment shall be made in a lump sum promptly after the occurrence of such
termination.
8. GOVERNING LAW
This Agreement and other obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
<PAGE>
9. 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 hereto executed this Agreement on
the 31st day of January, 1998.
ATTEST: Yardville National Bancorp
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
President/CEO
WITNESS
/s/ Kathleen A. Fone /s/ Nina D. Melker
- ------------------------- ----------------------------------
Individually
<PAGE>
1
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 2nd day of June, 1997 by and between
THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation organized
under the laws of the State of New Jersey, and Timothy J. Losch (the
"Executive").
RECITALS
WHEREAS, the Holding Company desires to employ and retain the services
of the Officer; and
WHEREAS, the Officer 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, the Officer shall serve
as Executive Vice President and Chief Operating Officer of the Yardville
National Bank (the "Bank") reporting to the President and Chief Executive
Officer.
2. TERMS AND DUTIES
(a) The period of the Officer's employment under this Agreement shall
commence as of June 2, 1997 and shall continue for a period of twenty (20) full
calendar months 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 President/CEO, and the Board of Directors of the Yardville
National Bancorp, at the conclusion of each contract period (conclusion for this
contract period will be January 31, 1999). 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.
<PAGE>
2
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 Officer shall devote full time
and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Executive Vice President and Chief
Operating Officer of a commercial bank.
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
Officer's duties; or
(iii) a continuing willful failure to perform the duties of the
Officer's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring the
termination of the Officer'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 Officer 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 Officer
an annual salary of not less than $105,000.00, in the 1997 period of this
agreement, and $115,000.00, in the second year (1998) of this agreement;
proceeds shall be paid in bi-weekly installments.
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 Officer 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 Officer under any such plan
or arrangement will be deemed to be in lieu of other compensation to which the
Officer is entitled under this Agreement.
(c) The Officer 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 Officer in performing his obligations
under this Agreement.
<PAGE>
4
5. STOCK OPTIONS
(a) the Bank agrees to grant to the Officer the right, privilege, and
option to purchase 5,000 shares of common stock of the Bank Holding Company at
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 Stock Option Plan (the
"Plan"). It is the intention of this Agreement that the Officer be granted
options that will not be subject to state or federal income taxes when they are
exercised, but rather only when the resultant stock is sold, assuming that such
date of sale is at least two years after the date such options were granted one
year after the date such stock was acquired by the Officer. It is understood
that the Holding Company will receive no tax benefits or tax deduction in
connection with these options.
(b) the options as to the 5,000 shares may be exercised by the Officer
at any time during a period commencing with the vesting date of such options and
ending three (3) years after the option grant date, except to the extent that
said time period may be decreased in accordance with the provisions contained in
Subsections 5(c), 5(f) and 7(d).
The options shall vest in accordance with the following schedule:
Number of Options Vesting Date
----------------- ------------
1750 June 2, 1998
1750 June 2, 1999
1500 June 2, 2000
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.
(c) 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 in 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 Officer.
(d) If and to the extent that the number of issued shares of common
stock of the Holding Company shall increased by 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.
<PAGE>
5
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 corporation 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 Officer additional benefits which he did not have
under the old option.
(e) The options granted hereunder are nontransferable by the Officer.
(f) Any additional Incentive Stock Options granted, outside of this
Agreement, will be periodically negotiated for the Officer under the terms and
conditions of the shareholder approved Employee Stock Option Plan.
6. TERMINATION FOR CAUSE
(a) The Officer 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 Officer 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 officer shall become
null and void effective upon the Officer's receipt of notice of termination for
Cause and shall not be exercisable by the Officer at any time subsequent to such
termination for Cause.
7. CHANGE IN CONTROL
(a) In the event that within three (3) years after a Change in Control
(as herein defined), the Officer's employment is terminated by the Bank, other
than for death, disability or Cause, the Officer shall be entitled to receive
two (2) 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.
<PAGE>
6
(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 two (2) years salary at the annual salary
currently being paid, which payment shall be made in a lump sum promptly after
the occurrence of such voluntary resignation.
8. TERMINATION UPON DISABILITY
(a) In the event that the Officer 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 Bank. If such Disability continues for a period of six (6)
consecutive months, the Bank at its option may thereafter, upon written notice
to the Officer or his personal representative, terminate the Officer's
employment with no further notice.
9. OTHER TERMINATION BY THE BANK
(a) In the event the Officer's employment is terminated by the Bank,
other than for disability, death or cause, and in the absence of occurrence of a
Change in Control, the Officer 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.
10. TERMINATION BY THE EXECUTIVE
(a) In the event of the Officer's voluntary termination, the Officer
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.
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>
7
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 Officer 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 2nd day of June, 1997, and as amended in 7(b) of this Agreement on the
31st day of January, 1998.
ATTEST: YARDVILLE NATIONAL BANCORP
/s/ Kathleen A. Fone /s/ Patrick M. Ryan
- -------------------------- ----------------------------------
Patrick M. Ryan
President/CEO
WITNESS
/s/ Kathleen A. Fone /s/ Timothy J. Losch
- ------------------------- ----------------------------------
Timothy J. Losch
Executive Vice President
Chief Operating Officer
<PAGE>
YARDVILLE NATIONAL BANK
SURVIVOR INCOME PLAN FOR THE
BENEFIT OF TIMOTRY J. LOSCH
This agreement is made and entered into effective as of the 1st day of
January, 1998, by and between YARDVILLE NATIONAL BANK, a corporation organized
and existing under the laws of the state of New Jersey (hereinafter called
"Company"), and TIMOTHY J. LOSCH hereinafter called "Executive").
WITNESSETH:
WHEREAS, the Executive is now serving the Company as Senior Vice
President and Chief Operating Officer; and
WHEREAS, the services of the Executive is considered by the Company to
be an invaluable contribution to the 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 Operating 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.
ARTICLE TWO
2.1 Pre-Termination Survivor Income Benefit. If the Executive dies
before otherwise terminating employment with the Company, the Company shall pay
to the Executive's designated beneficiary the survivor income benefit described
in Section 2.2.
<PAGE>
2.2 Form of Benefits. The survivor income benefit shall be equal to
SEVENTY-FIVE PERCENT (75%) of the Executive's final annual salary that was paid
to him at the time of his death and shall be paid to the Executive's beneficiary
in one hundred twenty (120) equal monthly installments payable on the first day
of each month commencing with the first day of the month following the
Executive's death until one hundred twenty (120) payments have been made.
2.3 Beneficiary Designations. The Executive shall designate a
beneficiary by filing a written designation with the Company. The Executive may
revoke or modify the designation at any time by filing a new designation.
However, designations will only be effective if signed by the Executive and
accepted by the Company during the Executive's lifetime. The Executive's
beneficiary designation shall be deemed automatically revoked if the beneficiary
predeceases the Executive, or if the Executive names a spouse as beneficiary and
the marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive's surviving
spouse, if any, and if none, to the Executive's surving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.
2.4 Facility of Payment. If a benefit is payable to a minor, to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property; the Company may pay such benefit to the
guardian, legal representative or person having the care or custody of such
minor, incompetent person or incapable person. The Company may require proof of
incompetency, minority or guardianship as it may deem appropriate prior to
distribution of the benefit. Such distribution shall completely discharge the
Company from all liability with respect to such benefit.
ARTICLE THREE
3.1 Claims Review. The Company shall notify the Executive's beneficiary
in writing, within ninety (90) days of his or her written application for
benefits, of his or her eligibility or ineligibility for benefits under the
Agreement. If the Company determines that the beneficiary is not eligible for
benefits or full benefits, the notice shall set forth (1) the specific reasons
for such denial, (2) a specific reference to the provisions of the Agreement on
which the denial is based, (3) a description of any additional information or
material necessary for the claimant to perfect his or her claim, and a
description of why it is needed,
2
<PAGE>
and (4) an explanation of the Agreement's claims review procedure and other
appropriate information as to the steps to be taken if the beneficiary wishes to
have the claim reviewed. If the Company determines that there are special
circumstances requiring additional time to make a decision, the Company shall
notify the beneficiary of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an additional
ninety-day period.
3.2 Review Procedure. If the beneficiary is determined by the
Company to not be eligible for benefits, or if the beneficiary believes that
he or she is entitled to greater or different benefits, the beneficiary shall
have the opportunity to have such claim reviewed by the Company by filing a
petition for review with the Company within sixty (60) days after the
receipt of the notice issued by the Company. Said Petition shall state the
specific reasons which the beneficiary believes entitle him or her to
benefits or to greater or different benefits. Within sixty (60) days after
receipt by the Company of the petition, the Company shall afford the
beneficiary an opportunity to present his or her position to the Company
orally or in writing, and the beneficiary shall have the right to
review the pertinent document. The Company shall notify the beneficiary of its
decision in writing within the sixty-day period stating specifically the
bases of its decision, written in a manner calculated to be understood by the
beneficiary and the specific provisions of the Agreement on which the decision
is based. If, because of the need for a hearing, the sixty-day period is not
sufficient, the decision may be deferred for up to another sixty-day period
at the election of the Company, but notice of this deferral shall be given to
the beneficiary.
ARTICLE FOUR
4.1 lnsurance. If the Company PIP elects 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, 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
3
<PAGE>
agrees to sign any papers that may be required for that purpose and to undergo
any medical examination or tests which may be necessary.
4.2 Rights of the Executive. This article shall not be construed as
giving the Executive or the Beneficiary any greater rights then those of any
other unsecured creditor of the Company. Any insurance on the Executive's life
is a general asset of the Company to which the Executive and designated
beneficiary have no preferred or secured claim.
ARTICLE FIVE
Amendment and Termination. This agreement may be amended at any time or
from time to time by written agreement of the parties. The Company may terminate
this Agreement at any time prior to the Executive's death by written notice to
the Executive.
ARTICLE SIX
Assignment. Neither the Executive, nor the Beneficiary, nor any other
person entitled to payment hereunder 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
operator of law in the event of bankruptcy, insolvency or otherwise.
ARTICLE SEVEN
7.1 Binding effect. This agreement shall be binding upon the parties,
their heirs, executors, administrators, successors and assigns. This agreement
is the entire agreement between the Company and the Executive, written or oral,
related to the Company's obligation to pay any survivor income benefits to the
Executive's beneficiaries or survivors. This agreement supersedes all prior
agreements, understandings and negotiations.
7.2 No Guaranty of Employment. This Agreement is not an employment
policy or contract and does not give the Executive the right to remain an
employee of the Company, nor does it interfere with the Company's right to
discharge the Executive. It also does not require the Executive to remain an
employer nor restrict the right of the Executive to terminate his employment at
any time.
4
<PAGE>
7.3 Tax Withholding. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
7.4 Applicable Law. The Agreement and all rights hereunder shall be
governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF the parties have executed this agreement this 20th day of
March, 1998.
/s/ Timothy J. Losch ______________________________
- ----------------------------- YARDVILLE NATIONAL BANK
Timothy J. Losch
By: /s/ Patrick M. Ryan
-----------------------------------
Patrick M. Ryan, President & CEO
ATTEST: Kathleen A. Fone
-----------------------------------
<PAGE>
LEASE
This lease ("Lease") is made and entered into by and between THE IBIS
GROUP, a New Jersey general partnership, having an office at 3535 Quaker Bridge
Road, Suite 105, Hamilton, New Jersey 08619 ("Landlord"), and YARDVILLE NATIONAL
BANK, whose address is 3111 Quaker Bridge Road, in the City of Mercerville,
County of Mercer, State of New Jersey ("Tenant").
I. DEFINITIONS
A. Specific Definitions. As used throughout this Lease, the following
terms have the following meanings:
I Landlord: THE IBIS GROUP, a New Jersey general partnership
2 Tenant: YARDVILLE NATIONAL BANK
3 Premises: IBIS PLAZA consists of two (2) buildings, IBIS PLAZA NORTH,
3535 Quaker Bridge Road (Block 1358, Lot 47), consisting of approximately 50,000
square feet and IBIS PLAZA SOUTH, 3525 Quaker Bridge Road (Block 1358, Lot 46),
consisting of approximately 68,000 square feet, both of which share common
parking, ingress, egress and landscaping. The Premises are a portion of the
building commonly known as IBIS PLAZA NORTH (hereinafter the "Building") located
on the land known as Block 1358, Lot 47, Hamilton Township, Mercer County, New
Jersey (hereinafter the "Land"), more particularly described as Suite
201 consisting of 3,000 Rentable Square Feet
4 Land: The real property on which the buildings are situated, commonly
known and designated as Block 1358, Lots 46 and 47 on the current tax and
assessment map of Hamilton Township, Mercer County, New Jersey.
5 Purpose: Office Use
6 a. Landlord's Address for Notices and All Payments:
IBIS Group
c/o George Geiger & Associates, Inc.
103 Carnegie Center, Suite # 319
Princeton, NJ 08540
b. Tenant's Address for Notices:
Yardville National Bank
P.O. Box 8487
Trenton, NJ 08650
7 Term: Two (2) years, commencing on September 1, 1997, and ending on
August 3 1, 1999. In the event this Lease is extended beyond this latter date,
"Term" means the end of any such extension period, unless the context indicates
otherwise.
8 Base Rental and Base Operating Expense: The "Base Rental" is $39,000
per annum (3,000 square feet times $13.00 per square foot) or $3,250.00 per
month, payable on the first (1st) day of
1
<PAGE>
each month. The "Base Operating Expense" of $3.55 per square foot per month is
included in and payable as part of the Base Rental.
9 Tenant's Pro Rata Share of Increase in Direct Expenses and Direct Tax
Expenses: The percentage obtained by dividing the Premises Area by the Building
Area which percentage is 2.54% multiplied by the particular expense item in
question.
10 Additional Rental: That portion by which Tenant's pro rata share of
the Direct Expenses (Operating Expenses) and Direct Tax Expenses, as these terms
are hereinafter defined, exceed the Base Operating Expenses and Direct Tax
Expenses of the buildings for each year of the Term and any renewal thereof.
11 Security Deposit: $6,500.00 to secure the faithful performance by
Tenant of all of the terms, covenants, and conditions of this Lease to be kept
and performed by Tenant during the Term.
12 Base Year: The calendar year in which the Term commences.
13 Base Year for Real Property Taxes: The Base Year.
14 Anniversary Date: The first (1st) day of September, one (1) year
after the date on which possession of the Premises is delivered to Tenant and
the first (1st) day of every year after that date.
15 Adjustment Dates: The first (1st) day of September of each of the
Term of this Lease commencing with the next succeeding January 1st after the
commencement of the Term.
16 Direct Expenses:
a. All direct costs of operation and maintenance of the Common
Area, including, but not limited to, the following costs: water and sewer
charges (other than individually metered utilities), property and liability
insurance premiums, utilities (other than individually metered utilities), snow
removal, landscaping, parking lot maintenance, parking lot lighting, labor, any
costs incurred in the management of the buildings including management fees and
professional accounting fees associated in the preparation of statements for the
buildings' Operating Expenses, utilities (electric, gas and water) for common
areas, waste removal, supplies, materials, equipment, tools, maintenance, costs,
and upkeep of all common areas, all determined in accordance with Generally
Accepted Accounting Principles.
b. All costs, amortized over such period as Landlord shall
determine, together with interest on such costs at the maximum legal rate on the
unamortized balance, of any capital improvement made to the Building by Landlord
after the Base Year which capital improvement acts in any manner to reduce any
Direct Expenses of the building but not more than the amount of any such actual
reduction. "Direct Expenses" shall not include depreciation on the Building of
which the Premises are part or on equipment in such Building, loan payments, or
real estate broker's commissions.
17 Direct Tax Expenses:
a. All real property taxes and annual installments of real
estate assessments on the Building and Land; personal property taxes on the
personal property Landlord used in the operation of the Building and Land; taxes
upon the gross or net rental income of Landlord derived from the Building and
Land, excluding, however, state and federal personal or corporate income taxes
measured by the
2
<PAGE>
income of Landlord from all sources, and the costs of contesting by appropriate
proceeding the amount or validity of any of such taxes.
b. The parties recognize that, during the Term of this Lease
or any extension of it, the present real property tax may be wholly or partly
replaced or supplemented by another form of tax. In such an event, there shall
be included within the definition of Direct Tax Expenses any such tax, levy, or
assessment (other than federal, state, or city and county net income taxes or
estate, gift or other similar taxes) that, now or in the future, and whether or
not now customary or within the contemplation of the parties, may be charged to
Landlord and is (i) levied upon, allocable to, or measured by the rental payable
under this Lease, (ii) levied upon the business of owning and operating rental
properties to the extent such tax is applicable to the Premises leased, (iii)
levied upon or with respect to the possession, leasing, operation, management,
or occupancy by Tenant of the Premises or any portion of it, or (iv) levied upon
or measured by the value of Tenant's personal property of leasehold
improvements.
18 Estimate: The projection by Landlord of the amount of Direct
Expenses and Direct Tax Expenses for the stated calendar year and the amount of
increase, if any, over the estimate for the preceding calendar year.
B. General Definitions. As used throughout this Lease, the following
words have the meanings set out after such words, unless the context in which
they appear clearly indicates otherwise.
1 Alteration. Any addition or change to, or modification of, the
Premises made by Tenant after any initial fixturing period, including, without
limitation, the installation of fixtures, Tenant's trade fixtures, and Tenant's
improvements as defined in this Lease.
2 Authorized Representative. Any officer, agent, employee, or
independent contractor retained or employed by either party, acting within the
authority given him or her by that party.
3 Damage. Death, injury, deterioration, or loss to a person or injury,
deterioration, or loss to property caused by another person's acts or omissions.
4 Damages. Monetary compensation or indemnity that can be recovered in
the courts by any person who has suffered damage to the person, property, or
rights of such person through another's act or omission.
5 Destruction. Any damage, as defined in this lease, to or
disfigurement of the Premises.
6 Encumbrance. Any deed of trust, mortgage, or other written security
device or agreement affecting the Premises, and the note or other obligation
secured by it.
7 Expiration. The coming to an end of the time specified in the Lease
as its duration, including any extension of the Term, if applicable.
8 Good condition. The good physical condition of the Premises and each
portion of the Premises, including, without limitation, signs, windows,
appurtenances, and Tenant's personal property as defined in this Lease. "In good
condition" means in the condition for buildings of the Building's class, neat,
broom clean, and is equivalent to similar phrases referring to physical adequacy
in appearance and for use.
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9 Hold harmless. To defend and indemnify from all liability, losses,
penalties, damages as defined in this Lease, costs, expenses, including, without
limitation, attorneys' fees, causes of action, claims, or judgments arising out
of or related to any damage, as defined in this Lease, to any person or
property.
10 Law. Any judicial decision, constitution, statute, ordinance,
resolution, regulation, rule, administrative order, or other requirement of any
municipal, county, state, federal, or other government agency or authority
having jurisdiction over the parties or the Premises, or both, in effect either
at the time of execution of the Lease or at any time during the Term, including,
without limitation, any regulation or order of a quasi-official entity or body
such as Board of Fire Examiners or public utilities.
11 Lender. Beneficiary, mortgagee, secured party, or other holder of an
encumbrance, as defined in this Lease.
12 Lien. Charge imposed on the Premises by someone other than Landlord
by which the Premises are made security for the performance of an act. Most of
the liens referred to in this Lease are mechanics' liens.
13 Maintenance. Repairs, replacement, repainting and cleaning.
14 Person. One or more human beings or legal entities or other
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations, and any combination of human beings and legal
entities.
15 Provision. Any term, agreement, covenant, condition, clause,
qualification, restriction, reservation, or other stipulation in the lease that
defines or otherwise controls, establishes, or limits the performance required
or permitted by either party.
16 Rent. Base Rental, Additional Rental, Prepaid Rent, security
deposit, and other similar charges payable by Tenant to Landlord.
17 Restoration. Reconstruction, rebuilding, rehabilitation, and repairs
that are necessary to return destroyed portions of the Premises and other
property to substantially the same physical condition as they were in
immediately before the destruction.
18 Successor. Any assignee, transferee, personal representative, heir,
or other person or entity succeeding lawfully, and pursuant to the provisions of
this Lease, to the rights or obligations of either party.
19 Tenant's improvements. Any addition to or modification of the
Premises made by Tenant before, at, or after commencement of the Term,
including, without limitation, fixtures, but not including Tenant's trade
fixtures, as defined in this Lease.
20 Tenant's personal property. Tenant's equipment, furniture,
merchandise, and movable property placed in the Premises by Tenant, including
Tenant's trade fixtures, as defined in this Lease.
21 Tenant's trade fixtures. Any property installed in or on the
Premises by Tenant for purposes of trade, manufacture, ornament, or related use.
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22 Termination. The ending of the Term for any reason before
expiration, as defined in this Lease.
II. LEASING AND PAYMENT OF BASE RENTAL
A. Landlord leases to Tenant and Tenant rents from Landlord the Premises
for the Term and for the Rent as defined in Specific Definitions. Tenant agrees
to pay to Landlord each installment of Base Rental, in advance on the first
(1st) day of each month of the Term with the Rent for the first (1st) month of
the Term to be paid upon the execution of this Lease.
B. The Rent shall be paid by Tenant to Landlord, without deduction or
offset, in lawful money of the United States of America to The IBIS Group, c/o
George Geiger & Associates, Inc. (Managing Agent), 103 Carnegie Center, Suite
319, Princeton, NJ, 08540 or at such other place as Landlord may from time to
time designate in writing.
C. No security or guaranty which may now or subsequently be furnished
Landlord for the payment of the Rent or for performance by Tenant of the other
covenants or conditions of this Lease shall in any way be a bar or defense to
any action in unlawful detainer, or for the recovery of the Premises, or to any
action which Landlord may at any time commence for a breach of any of the
covenants or conditions of this Lease.
III. ADDITIONAL RENTAL
Tenant shall pay to Landlord as Additional Rent its pro rata share of
increase in Direct Expenses and Direct Tax Expense. Landlord shall endeavor to
give to Tenant on or before the Adjustment Date a statement of any increase in
Additional Rental payable by Tenant under this Lease, but failure by Landlord to
give such a statement by such a date shall not constitute a waiver by Landlord
of its right to require an increase in Additional Rental. If Tenant's Additional
Rental payable under this Lease as shown on the Adjustment Date statement is
greater or less than the total amounts actually billed to and paid by Tenant
pursuant to the estimate during the year covered by such statement, a payment
shall be made by Landlord or Tenant, whichever the case may be, within thirty
(30) days.
Even though the Term has expired or terminated, and Tenant has vacated
the Premises when the final determination is made of Tenant's pro rata share of
increase in Direct Expenses and Direct Tax Expense for the year in which this
Lease expires or terminates, Tenant shall immediately pay any increase due over
the estimate, and, conversely, any overpayment made in the event such Expenses
decrease shall be immediately refunded by Landlord to Tenant.
IV. SECURITY
Tenant shall pay to Landlord upon the execution of this Lease the
Security Deposit required in Specific Definitions. Landlord shall not be
required to segregate the Security Deposit from its other funds and no interest
shall accrue or be payable with respect to it.
V. OCCUPANCY
A. The Premises shall be deemed ready for immediate occupancy in its
"as is" condition.
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B. In the event that the Premises are not ready for Tenant's occupancy
at the time of the commencement of the Term fixed by this Lease, this Lease
shall not be affected thereby, but in such event no rent shall be due hereunder
until Landlord shall have given notice of completion to the Tenant or Tenant
shall have in fact occupied the Premises unless the reason for the Premises not
being ready are due to acts of Tenant, in which case Rent shall be due as called
for under the terms of this Lease.
VI. WORK TO BE PERFORMED BY LANDLORD
Landlord shall not be required to perform any work upon the Premises of
any type or nature unless a special agreement to that effect is expressed in a
rider attached to and forming a part of this Lease, also known as the "Tenant
Work Letter" and then only to the extent such work is set forth in the Tenant
Work Letter.
VII. RELOCATION OF TENANT
Notwithstanding anything herein to the contrary, Landlord does hereby in
all cases retain the right and power to relocate Tenant within the Building or
in a building in which Landlord or the partners of the Landlord have an interest
in space which is comparable to the Premises and suited to the Tenant's use,
such right and power to be exercised reasonably and such relocation to be made
at Landlord's sole cost and expense. Landlord shall not be liable or responsible
for any claims, damages, or liabilities in connection with or occasioned by such
relocation. Landlord's reasonable exercise of such right and power shall
include, but shall in no way be limited to, a relocation to consolidate the
rentable area occupied in order to provide Landlord services more efficiently,
or a relocation to provide contiguous vacant space to a prospective tenant. If
such a relocation is deemed necessary, such relocation shall be limited to once
during the first initial two year term upon sixty (60) days notice to Tenant.
VIII. USE OF PREMISES
The leased Premises, or any part thereof, shall not be used by anyone
except the Tenant, its invitees, customers and employees and shall be used or
permitted to be used for no use other than the Use permitted in Specific
Definitions above.
Tenant acknowledges and agrees with Landlord that the Building should be
maintained and preserved as a prestigious and first class office Building and
that its special character arising from its location should be specifically
protected and preserved. Tenant therefore represents that it is not leasing the
Premises, and it will not use such Premises, for any purpose other than that
provided in this Lease. Tenant further agrees that Landlord may refuse to
consent to the assignment of this Lease or the subletting of the Premises for
any of the following prohibited uses: an educational facility of any type
including correspondence schools, employment agencies, model agencies, spas,
health, physical fitness or exercise salons, small loan offices, real estate
brokers, residential land development offices, dentist or other professions or
businesses that by their nature tend to generate excess customer traffic or any
other use which Landlord in good faith determines will or is likely to demean
the character of the Building or its environment, and such refusal shall not be
considered unreasonable.
Moreover, Tenant specifically agrees that Landlord's leasing of any
portion of the Building of which the Premises are a part for any of the
foregoing prohibited uses shall not constitute or be deemed to constitute a
waiver of Landlord's right to prohibit Tenant from assigning or subletting the
leased Premises or any part thereof for any such prohibited use.
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The Tenant will not, without the prior written consent of the Landlord,
permit the preparation, dispensing or serving of any beverages and/or foods
within the leased Premises, except that this shall not prohibit the consumption
of hot and cold beverages or the consumption of sandwiches.
Tenant shall not use the Premises so as to subject the Premises to the
provisions of the Industrial Site Recovery Act, N.J.S.A. 13: 1k-6 et seq.
("ISRA") nor shall Tenant permit any hazardous substances or hazardous waste as
defined in ISRA, the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. sec. 6901 et seq.),
the Comprehensive Environmental Response Compensation and Liability Act (422
U.S.C. sec. 9601 et seq.) or any other State or Federal environmental law or
regulation to be brought to the Premises or the property of Landlord on which
the Premises are located. Tenant agrees to execute such documents as are
reasonable required by Landlord in connection with compliance with ISRA and, if
by reason of the activities of the Tenant at the Premises the Landlord's
property is subjected to provisions of ISRA, Tenant agrees that it shall do all
that is necessary in order to comply with the Environmental Clean-Up
Responsibility Act including, at Landlord's option, (a) preparing and filing
affidavits with ISRA so as to determine that ISRA does not apply to the
premises, and/or (b) undertaking reasonable tests as are required from time to
time to prepare clean up plans and implementing same, and/or (c) submitting such
other and further information under oath so that Landlord may obtain a "negative
declaration", and/or (d) obtaining an approved Clean-Up Plan and implementing of
same so that Landlord may obtain an "negative declaration".
IX. PARKING
Landlord assigns to Tenant a number of parking spaces equal to three
point seven per thousand square foot (3.7/1,000 S.F.). The spaces that the
Tenant is entitled to shall be located in Landlord's outside parking lot (the
"Outside Parking Area"). These spaces will not be specifically designated for
the exclusive use of the Tenant, however, but rather shall be available to all
tenants of the Building. The use of parking spaces assigned to Tenant shall be
subject to such rules and regulations as may be established by Landlord,
including all signs and notices posted by Landlord in the Outside Parking Area,
or roadways leading thereto. Landlord reserves the right to designate all spaces
in the Outside Parking Area as reserved for the tenants of IBIS PLAZA NORTH and
SOUTH. Tenant agrees to comply with any law, regulation or ordinance regarding
"car pooling" of employees.
X. TENANT WORK LETTER
Tenant accepts the Premises in "as is" condition.
XI. ALTERATIONS, MECHANICS' LIENS
Tenant shall not make, directly or indirectly, any alterations without
first obtaining the written consent of Landlord. Any alteration shall become at
once a part of the realty and belong to Landlord subject, however, to Landlord's
right to require removal and restoration as provided in Surrender of Premises
of this Lease. Tenant shall keep the Premises and the Building free from any
liens arising out of any work performed, material furnished, or obligations
incurred by Tenant. Tenant agrees that if Tenant shall make any alterations of
the Premises, Tenant will not take such action until five (5) days after receipt
by Tenant of the written consent of Landlord required by this paragraph, in
order that Landlord may post appropriate notices to avoid any possible liability
with respect to mechanics' liens or other such claims. Tenant shall at all times
permit such notices to be posted and to remain posted until the completion and
acceptance of such work. Consent for such alterations shall not be unreasonably
withheld by Landlord.
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XII. COMPLIANCE WITH LAW
Tenant shall, at its sole cost and expense, comply with all laws
pertaining to Tenant's use of the Premises, and shall faithfully observe all
laws in the use of the Premises. The judgment of any court of competent
jurisdiction, or the admission of Tenant in any action or proceeding against
Tenant, whether Landlord be a party to it or not, that Tenant has violated any
law in the use of the Premises shall be conclusive of that fact as between
Landlord and Tenant. Without limiting the generality of the foregoing, the
duties of Tenant under this provision shall include the making of all such
alterations of the premises as may be required by law by reason of the
particular manner or mode of use of the premises by Tenant, or occasioned by
reason of the failure of Tenant to maintain or repair the premises as required
under this Lease.
XIII. REPAIR
By taking possession of the Premises leased under this Lease, Tenant
accepts the Premises as being in good sanitary order, condition, and repair.
Tenant's acceptance without written exception also constitutes a confirmation by
the Tenant that all Landlord's work has been done in conformance with the Work
Letter without defect. Tenant, at Tenant's sole cost and expense, shall keep the
Premises and every part of it in good condition and repair, damage to it by
fire, earthquake, act of God or the elements excepted. Tenant waives all rights
to make repairs at the expense of Landlord as provided in any law, statute, or
ordinance now or subsequently in effect. Upon the expiration or earlier
termination of the Term, Tenant shall surrender the Premises to Landlord in the
same condition as when received, ordinary wear and tear and damage by fire,
earthquake, act of God or the elements excepted. No representations respecting
the conditions of the Premises or the Building have been made by Landlord to
Tenant except as specifically stated in this Lease.
XIV. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and
regulations printed on or attached to this Lease and all reasonable
modifications of and additions to it from time to time put into effect by
Landlord. Landlord shall not be responsible to Tenant for the nonperformance by
any other tenant or occupant of the Building of any of such rules and
regulations.
XV. RESTRICTIONS ON USE
No use shall be made or permitted to be made of the Premises, nor acts
done, that will increase the existing rate of insurance upon the Building, or
cause a cancellation of any insurance policy covering such Building, or any part
of it, nor shall Tenant sell, or permit to be kept, used, or sold, in or about
the Premises any article that may be prohibited by the standard form of fire
insurance policies. Tenant shall, at Tenant's sole cost and expense, comply with
any and all requirements, pertaining to the Premises, of any insurance
organization or company necessary for the maintenance of reasonable fire and
public liability insurance covering such Building and appurtenances.
Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them, or use or allow
the Premises to be used for any immoral, unlawful, or objectionable purposes. No
loudspeakers or other similar device, system, or apparatus which can be heard
outside the Premises shall, without the prior written approval of Landlord, be
used in or at the Premises. Tenant shall not commit, or suffer to be
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committed, any waste upon the Premises, or any nuisance, public or private, or
other act or thing of any kind that may disturb the quiet enjoyment or cause
unreasonable annoyance of any other tenant in the Building.
XVI. INDEMNITY AND EXCULPATIONS; INSURANCE
A. Exculpation and Indemnity of Landlord. Landlord shall not be liable
to Tenant for any damage to Tenant or Tenant's property, and Tenant waives all
claims against Landlord for damage to person or property from any cause. Tenant
shall hold Landlord harmless from all damages arising directly or indirectly out
of any damage or injury to any person or property occurring in, on, or about the
premises and the buildings.
B. Public Liability and Property Damage Insurance. Tenant at its cost
shall maintain public liability and property damage insurance with liability
limits of not less than $2,000,000.00 per occurrence insuring against all
liability of Tenant and its authorized representatives arising out of and in
connection with Tenant's use or occupancy of the premises.
All public liability insurance and property damage insurance shall
insure performance by Tenant of the indemnity provisions of this section. Both
parties shall be named as additional insureds, the policy shall contain
cross-liability endorsements, and shall be primary insurance as far as Landlord
is concerned.
C. Increase in Amount of Public Liability and Property Damage
Insurance. Not more frequently than every three (3) years, if, in the opinion of
Landlord's lender, the amount of public liability and property damage insurance
coverage at that time is not adequate, Tenant shall increase the insurance
coverage as reasonably required by Landlord's lender.
D. Waiver of Subrogation. The parties release each other, and their
respective authorized representatives, from any claims for damage or injury to
any person, or to the Premises and the Building and other improvements in which
the Premises are located, and to the fixtures, personal property, Tenant's
improvements, and alterations of either Landlord or Tenant in or on the Premises
and the Building and other improvements in which the Premises are located that
are caused by or result from risks insured against under any fire and extended
coverage insurance policies carried by the parties and in force at the time of
any such damage. Tenant shall cause each insurance policy obtained by it to
provide that the insurance company waives all right of recovery by way of
subrogation against Landlord in connection with any damage covered by any
policy.
E. Other Insurance Matters. All the insurance required under this Lease
shall:
1 Be issued by insurance companies authorized to do business in the
State of New Jersey, with a financial rating of at least an A + 3A status as
rated in the most recent edition of Best's Insurance Reports.
2 Be issued as a primary policy.
3 Contain an endorsement requiring thirty (30) days written notice from
the insurance company to both parties and Landlord's lender before cancellation
or change in the coverage, scope, or amount of any policy.
4 Be renewed not less than twenty (20) days before expiration of the
term of the policy.
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Each policy, or a certificate of the policy, together with evidence of
payment of premiums, shall be deposited with Landlord at the commencement of the
Term and on each renewal of the policy.
XVII. UTILITIES
Landlord and Tenant hereby agree that all utilities (gas, electric,
water and sewer) supplied to the Premises are separately metered and Tenant
shall pay the cost of same. Landlord is obligated under this Lease to provide
all water, sewer, electric and HVAC systems and equipment as required for
general office purposes. Landlord shall not be liable for, and Tenant shall not
be entitled to, any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts, or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Landlord. Landlord shall not be liable under any
circumstances for loss of business or injury to property, however occurring,
through or in connection with, or incidental to, failure to furnish any of the
foregoing. Landlord is obligated to complete repairs within a reasonable period
of time and to take all steps possible not to interfere with Tenant's occupation
and quiet enjoyment of the property during said repairs. Wherever
heat-generating machines or equipment are used in the Premises by Tenant which
affect the temperature otherwise maintained by the building air-conditioning
system, Landlord shall have the right to install supplementary air-conditioning
units in the premises and its cost, including the cost of installation and the
cost of operation and maintenance, shall be paid by Tenant to Landlord forthwith
upon demand. Tenant shall pay for all services and utilities not furnished by
Landlord.
XVIII. PERSONAL PROPERTY TAXES
All property taxes assessed by any governmental body upon Tenant's
personal property and Tenant's improvements shall be paid by Tenant and, should
these taxes be applied in any manner to the real property taxes, Tenant, upon
demand, will pay such personal property taxes to Landlord, who in turn will pay
them to the proper tax collector.
XIX. SURRENDER OF PREMISES
Tenant agrees that prior to the expiration of the Term of the Lease, or
upon the earlier termination of the Lease, or upon Tenant's unlawful abandonment
of the Premises, whichever occurs first, Tenant will leave the Premises in the
same condition as when received, reasonable wear and tear, loss by fire or other
casualty, and acts of God excepted, and if Tenant made any alteration or
improvement of the Premises, with or without Landlord's consent as required by
the terms of this Lease, Tenant will in all cases restore the Premises
substantially to their original condition as of the inception of the term of the
Lease, wear and tear, loss by fire or other casualty, and acts of God excepted,
unless Landlord has expressly set forth in writing that a particular alteration
or improvement shall not be removed.
XX. SURRENDER OF LEASE
The voluntary or other surrender of this Lease by Tenant, accepted by
Landlord, or the mutual cancellation of this Lease, shall not work a merger and
shall, at the option of Landlord, terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
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XXI. ENTRY BY OWNER
Tenant shall permit Landlord and its authorized representatives to
enter the Premises at all reasonable times for purposes of inspection,
maintenance, or making repairs or additions to, or alterations of, any other
portion of the buildings, including the erection and maintenance of such
scaffolding, canopies, fences, and props as may be required, or for the purpose
of posting notices of non-liability for alterations or repairs, without any
liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises occasioned by such acts, and Tenant shall permit Landlord, at any time
within ninety (90) days prior to the expiration of this Lease, to list and show
such Premises during normal business hours or otherwise and advertise same for
rental within the Building or otherwise at sole option of Landlord. Landlord is
obligated to complete repairs within a reasonable amount of time and to take all
steps possible not to interfere with Tenant's occupation and quiet enjoyment of
the property during said repairs.
XXII. ESTOPPEL CERTIFICATES
Tenant shall at any time and from time to time, upon not less than
twenty (20) days prior written request by Landlord, execute, acknowledge, and
deliver to such party a statement in writing certifying that this Lease is
unmodified and in full force and effect, or if there has been any modification
of this Lease that it is in full force and effect as modified and stating the
modification or modifications, and that there are no defaults existing, or if
there is any claimed default stating its nature and extent, and stating the
dates to which the rent and other charges have been paid in advance. It is
expressly understood and agreed that any such statement delivered pursuant to
this section may be relied upon by any prospective purchaser of the estate of
Landlord, or any lender or prospective assignee of any lender on the security of
the Premises or the property of which it is a part, or any part of it, and by
any third person.
XXIII. ABANDONMENT OF PREMISES; TRADE FIXTURES
Tenant shall not vacate or abandon the Premises at any time during the
Term. If Tenant abandons, vacates, or surrenders the Premises, or is
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the Premises shall be deemed to be abandoned, and, at the
option of Landlord, such property may either be removed and stored in any public
warehouse or elsewhere at the cost of and for the account of Tenant.
XXIV. REMOVAL OF TRADE FIXTURES OF TENANT AT END OF TERM
If Tenant shall fully and faithfully perform all of Tenant's
obligations under this Lease, then Tenant may, and upon the request of Landlord
shall, remove all trade fixtures installed in the Premises by Tenant at the
expiration or termination of the Term of this Lease, or any renewal of this
Lease, provided that such removal may be effected without damage to the
Premises.
XXV. OPTION TO EXTEND
No option to extend this Lease exists under any circumstance unless a
written addendum executed by both Landlord and Tenant is attached hereto as an
exhibit whether at the time of execution or thereafter but always prior to the
termination, breach or expiration of the Lease Term.
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XXVI. HOLDING OVER
Any holding over after the expiration of the Term of this Lease without
the consent of Landlord shall be construed to be a tenancy from month to month
at a rent equal to TWICE (2 times) the rent payable as if this Lease were still
in force and effect.
XXVII. GRACE PERIOD
A. No default or breach of any of the covenants and conditions shall
exist on the part of Landlord or Tenant until the party claiming default or
breach shall serve upon the other a written notice, as provided in this Lease,
specifying with particularity the alleged default or breach, and the other party
shall fail to perform or observe such a covenant or condition, as the case may
be, within thirty (30) days after the serving of such notice on it ("Grace
Period").
B. In the event, however, that any damage be incurred or created, or
interest be charged by reason of lapse of time due to the failure or omission of
such party to have performed or observed such covenant or condition, then such
party shall bear and pay for such damage or discharge such interest as
additional rental under this Lease.
C. The foregoing Grace Period shall not apply to rent payments, other
payments required of Tenant under this Lease, the time of such payments being of
the essence of this Lease nor shall the Grace Period apply to breaches of Tenant
that affect the compliance with laws, restrictions on use, alterations,
insurance, Estoppel Certificate, insolvency, subletting and other "time
sensitive" breaches.
D. If either party shall be delayed or prevented from the performance
of any act required by this Lease by reason of acts of God, strikes, lockouts,
labor troubles, inability to procure materials, restrictive laws, or other
cause, without fault and beyond the reasonable control of the party obligated
(financial inability excepted), performance of such act shall be extended for a
period equivalent to the period of such delay, provided, however, that nothing
in this section shall excuse Tenant from the prompt payment of any rent or other
charge required of Tenant except as may be expressly provided elsewhere in this
Lease.
XXVIII. EVENTS OF DEFAULT
Each of the following events shall constitute a default of Tenant
hereunder:
A. If the Basic Rent or any part thereof or the Additional Rent or any
part thereof due hereunder shall be unpaid when due.
B. If the Leased Premises shall be vacated, deserted, or abandoned
during the term hereof for a period for three (3) consecutive months.
C. If Tenant, contrary to the provisions of this Lease, shall sell,
assign or mortgage this Lease, or let or underlet the Leased Premises or any
part thereof, or use or permit the same to be used for any purpose other than
herein permitted.
D. If Tenant shall make an agreement or composition or an assignment
for the benefit of creditors, or if a receiver is applied for or appointed for
Tenant, or if there be filed a petition in bankruptcy or insolvency or for an
arrangement or reorganization by or against Tenant, or consented to by Tenant,
or if Tenant is adjudicated a bankrupt or is adjudged to be insolvent or if
Tenant is advertised to be sold out by any sale under process of law, or if the
assets or property of Tenant in the Leased Premises shall be attached
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or levied upon, or if this Lease or the estate of Tenant shall pass to another
by virtue of court proceedings, writ of execution or operation of law.
E. If Tenant fails to comply with any other provision of this Lease
which imposes an obligation upon the Tenant, or if Tenant otherwise violates any
provision or condition of this Lease.
XXIX. LANDLORD'S REMEDIES UPON DEFAULT
Landlord shall have the following remedies if Tenant commits a default.
These remedies are not exclusive but are in addition to any remedies now or
later allowed by law.
A. Landlord shall have the right either to terminate Tenant's right to
possession of the Premises and thereby terminate this Lease or to have this
Lease continue in full force and effect with Tenant at all times having the
right to possession of the premises. Should Landlord elect to terminate Tenant's
right to possession of the Premises and terminate this Lease, then Landlord
shall have the immediate right of entry and may remove all persons and property
from the Premises. Such property so removed may be stored in a public warehouse
or elsewhere at the cost and for the account of Tenant. The Landlord may relet
the premises for the purpose of mitigating damages suffered by Landlord because
of Tenant's failure to perform Tenant's obligations under this Lease.
B. Any proof of Tenant of the amount of rent loss that could be
reasonably avoided shall be made in the following manner: Landlord and Tenant
shall each select a licensed real estate broker in the business of renting
commercial property of the same type and use as the Premises, and in the same
geographic vicinity; such two (2) real estate brokers shall select a third (3rd)
licensed real estate broker; and the three (3) licensed real estate brokers so
selected shall determine the amount of rent loss that could be reasonably
avoided for the balance of the Term of this Lease after the time of award. The
decision of the majority of such licensed real estate brokers shall be final and
binding upon the parties to this Agreement.
C. Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, for so long as
Landlord does not terminate Tenant's right to possession of the Premises,
notwithstanding the fact that Tenant may have abandoned the Premises, then
Landlord, in addition to all other rights and remedies which Landlord may have
at law or in equity, shall have the right to enforce all of Landlord's rights
and remedies under this Lease. Notwithstanding any such election to have this
Lease remain in full force and effect, Landlord may at any time thereafter elect
to terminate Tenant's right to possession of the Premises and thereby terminate
this Lease for any previous breach or default which remains uncured, or for any
subsequent breach or default. For the purposes of Landlord's right to continue
this Lease in effect upon Tenant's breach or default, act of maintenance or
preservation, or efforts of Landlord to relet the property, or the appointment
of a receiver on initiative of Landlord to protect its interest under this
Lease, does not constitute a termination of Tenant's right to possession.
D. In the event Landlord elects, upon breach or default of this Lease
by Tenant, to keep this Lease in full force and effect, Landlord may, as
attorney-in-fact of Tenant, from time to time sublet the Premises or any part of
it for such term and at such rent and upon such other terms as Landlord in
Landlord's sole discretion may deem advisable, with the right to make
alterations, restoration, and maintenance to the Premises. Upon each such
subletting, (1) the Tenant shall be immediately liable to pay to Landlord, in
addition to indebtedness other than rent due under this Lease, the cost of such
subletting and of such alterations and repairs incurred by Landlord, and the
amount by which the rent under this Lease for the period of such subletting (to
the extent such period does not exceed the term of this Lease) exceeds the
amount agreed to be paid as rent for the Premises for such period of such
subletting, or (2) at the option of
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<PAGE>
Landlord, rents received from such subletting shall be applied: first, to
payment of indebtedness other than rent due under this Lease from Tenant to
Landlord; second, to the payment of costs of such subletting and of such
alterations and repairs; third, to payment of rent due and unpaid under this
Lease; and the residue, if any, shall be held by Landlord and applied in payment
of future rents as they become due under this Lease. If Tenant has been credited
with any rent to be received by such subletting under option (1) and such rent
shall not be promptly paid to Landlord by the subtenant, or if such rent
received from such subletting under option (2) during any month be less than
that to be paid during that month by Tenant under this Lease, Tenant shall pay
any such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No taking possession of the Premises by Landlord, as attorney-in-fact
for Tenant, shall be construed as an election on its part to terminate this
Lease unless a written notice of such intention be given to Tenant.
Notwithstanding any such subletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach. At
Landlord's option and application, a receiver for Tenant shall be appointed to
take possession of the Premises and to exercise Landlord's right to sublet the
premises as attorney-in-fact for Tenant and to apply any rent collected from the
premises as provided in this lease.
E. Nothing in this section affects the right of the Landlord to
indemnification for liability arising prior to the termination of the Lease for
personal injuries or property damage where the Lease provides for such
indemnification.
F. If Tenant shall be in default in the performance of any covenant to
be performed by it under this Lease, then, after notice and without waiving or
releasing Tenant from the performance of such covenant, Landlord may, but shall
not be obligated to, perform any such covenant, and in exercising any such right
pay necessary and incidental costs and expenses in connection with it. All sums
so paid by Landlord, together with interest on it at the maximum rate of
interest per year allowed by law, shall be deemed additional rental and shall be
payable to Landlord on the next rent-paying day.
G. Rent not paid when due shall bear interest at the maximum rate of
interest per year allowed by law from the date due until paid.
XXX. ATTORNEYS' FEES ON DEFAULT
If Landlord shall obtain legal counsel or bring an action against the
Tenant by reason of the breach of any covenant, warranty, or condition of this
Lease, or otherwise arising out of this Lease, Tenant, if unsuccessful shall pay
to the Landlord as the "prevailing party" reasonable attorneys' fees, which
shall be payable whether or not such action is prosecuted to judgment. The term
"prevailing party" shall mean the Landlord who obtains legal counsel or brings
an action against the Tenant by reason of the Tenant's breach or default and
obtains substantially the relief sought whether by compromise, settlement or
judgment.
XXXI. ASSIGNMENT OR SUBLETTING
A. Tenant shall not assign this Lease or any interest in it, and shall
not sublet the Premises or any part of it or any right or privilege appurtenant
to this Agreement or permit any other person, the agents and servants of Tenant
excepted, to occupy or use the Premises or any portion of it without first
receiving the written consent of Landlord. Landlord agrees not to unreasonably
withhold such consent but may, in lieu of granting such consent, terminate this
Lease. A consent to one assignment, subletting, or occupation and use by another
person shall not be deemed to be a consent to any other or further assignment,
subletting, or occupation, nor a waiver of the provisions of this section,
except as to the specific instance covered by it. Any such assignment,
subletting, or occupation without consent shall be void and shall at the option
of
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<PAGE>
Landlord terminate this Lease. This Lease and any interest in it shall not be
assignable as to the interest of Tenant by operation of law without the written
consent of Landlord.
B. Any transfer of shares by Tenant by reason of which the present
shareholders own less than fifty-one percent (51%) of the outstanding stock of
Tenant or a surviving corporation shall constitute an assignment of this Lease
subject to the provisions limiting assignment.
C. Except as otherwise expressly provided in this Lease, Tenant shall
remain fully liable on this Lease and shall not be released from performing any
of the terms, covenants, and conditions of this Lease unless Landlord consents.
D. Tenant immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this Lease, all rent from any subletting of all
or a part of the Premises as permitted by this Lease, and Landlord, as assignee
and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease, except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent.
E. In no event shall Tenant assign this Lease or sublet the Premises, or
any portion of it, to any then-existing or prospective Tenant of the buildings.
F. Tenant agrees to reimburse Landlord for all expenses and time,
including attorneys' fees, incurred by Landlord in connection with any requested
and permitted assignment or subleasing. This sum shall be in addition to the
attorneys' fees and costs allowed under this Lease.
XXXII. TRANSFER BY LANDLORD; RELEASE FROM LIABILITY
In the event Landlord shall sell or transfer the buildings or any part
of it, and as a part of such transaction shall assign its interest as Landlord
in and to this Lease, then from the effective date of such a sale, assignment,
or transfer Landlord shall have no further liability under this Lease to Tenant
except as to any matters of liability that have accrued and are unsatisfied and
of which the Landlord has been given written notice as of such a date, it being
intended that the covenants and obligations contained in this Lease on the part
of Landlord shall be binding upon Landlord and its successors and assigns only
during their respective periods of ownership of the fee or leasehold estate, as
the case may be and any undisclosed claims or causes of action of the Tenant are
waived and released.
XXXIII. DAMAGE TO OR DESTRUCTION OF PREMISES
In the event of a partial destruction of the Premises from any cause
covered by Landlord's standard fire and extended coverage insurance, Landlord
shall immediately repair such destruction, provided the cost of repair does not
exceed the insurance proceeds and such repairs can be made within ninety (90)
days, but such partial destruction shall in no way annul or void this Lease, and
Tenant shall not be entitled to a proportionate reduction of rent while such
repairs are being made. If such partial destruction was caused by any risk not
covered by Landlord's insurance, or if the cost of repair exceeds the insurance
proceeds payable, Landlord may, at its option, make such repairs, provided the
repairs can be made within ninety (90) days, and the Lease shall remain in full
force and effect. If the Landlord does not elect to make repairs it is not
obligated to make, or if such repairs cannot be made within ninety (90) days, or
if such repairs cannot be made under law, this Lease may be terminated at the
option of either party. In the event the building is destroyed to the extent of
not less than thirty-three and one-third percent (33 1/3%) of the replacement
cost
15
<PAGE>
of it, Landlord may elect to terminate this Lease, whether the Premises are
injured or not and without liability to Tenant. A total destruction of the
Premises, or of the building, shall terminate this Lease. In the event of any
dispute between Landlord and Tenant relative to the provisions of this section,
they shall submit their dispute to arbitration in accordance with the rules of
the American Arbitration Association. The arbitration shall take place in the
State of New Jersey. New Jersey law shall apply. A written decision is to be
required and requested from the Arbitrator by both parties. The arbitration
shall be final and binding upon both Landlord and Tenant. If the American
Arbitration Association and/or the Arbitrator refuses to provide the parties
with a written opinion then this clause requiring Arbitration shall be void and
of no force and effect. The cost of such arbitration shall be borne equally
between Landlord and Tenant.
XXXIV. EMINENT DOMAIN
If all or any part of the Premises shall be taken or appropriated by any
public or quasi-public authority under any power of eminent domain, either party
to this Agreement shall have the right, at its option, to terminate this Lease
upon notice given within ninety (90) days after the date of such taking or
appropriation. In such event, Landlord shall be entitled to, and Tenant upon
demand of Landlord shall assign to Landlord, any rights of Tenant to any and all
income, rent, award, or any interest which may be paid or made in connection
with such public or quasi-public use or purpose, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease.
XXXV. SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
This Lease shall be subject and subordinate at all times to the lien of
any mortgages now or hereafter placed on the land and buildings of which the
Leased Premises form a part and also to all renewals, modifications,
consolidations and replacements thereof. Although no instrument or act on the
part of the Tenant shall be necessary to effectuate such subordination, the
Tenant, nevertheless, covenants and agrees to execute and deliver upon demand
such further instrument or instruments subordinating this Lease to the lien of
any such mortgage or mortgages as shall be desired by any mortgagee or proposed
mortgagee. Tenant further acknowledges that the Landlord may be required by any
mortgagee or proposed mortgagee to assign this Lease as additional security for
any mortgage or proposed mortgages, and Tenant agrees that it will upon demand
join with Landlord in the execution of any such assignment or agreement, which
may be in form for recording, as any such mortgagee or proposed mortgagee may
reasonably require. Tenant's failure to comply on demand with the provisions
hereof shall constitute a default under this Lease. Tenant hereby appoints
Landlord attorney-in-fact, irrevocably, to execute any such instruments for
Tenant.
XXXVI. WAIVER
The waiver by Landlord of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver of such term,
covenant, or condition, or of any subsequent breach of such term, covenant, or
condition, or of any other term, covenant, or condition in this Lease. The
acceptance of rent under this Lease by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant, or condition of
this Lease other than Tenant's breach in failing to pay the particular rent so
accepted regardless of Landlord's knowledge of such additional preceding breach
at the time of the acceptance of such rent.
XXXVII. MISCELLANEOUS
A. Time is of the essence of this Lease and each and all of its
provisions.
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B. All notices to be given to Tenant may be given in writing personally
or by depositing such notices in the United States mail, certified mail, return
receipt requested, postage prepaid, and addressed: if to Tenant, at Tenant's
Address for Notices as set forth in Specific Definitions or at such other place
or places as Tenant may from time to time designate in writing; if to Landlord,
at the Landlord's Address for Notices as set forth in Specific Definitions, or
at such other place or places as Landlord may from time to time designate in
writing.
C. This Lease represents the entire agreement of the parties with
respect to the parties' rights and duties under this Lease. Tenant acknowledges
that neither Landlord nor any agent, servant, or representative of Landlord, or
any person purporting to act on Landlord's behalf, has made any representation,
warranty, or statement with respect to the amount of taxes that may or will be
assessed against the Premises or about the cost of any insurance required to be
secured by Tenant under this Lease or any other matter relating to this Lease
that is not expressly covered in this Lease. With respect to such matters,
Tenant is relying upon Tenant's own independent investigation and sources of
information, and Tenant expressly waives any right Tenant might otherwise have
under the law to rescind this Lease or to claim damages by reason of the fact
that such taxes or assessments or costs of insurance may be in excess of any sum
deemed reasonable by Tenant, or in excess of any amount Tenant anticipated
paying under this Lease.
D. This Lease contains all the agreements of the parties with respect to
the subject matter and cannot be amended or modified except by a written
agreement.
E. The Definitions contained at the beginning of and in the text of this
Lease shall be used to interpret this Lease.
F. Landlord shall not become or be deemed a partner or a joint venturer
with Tenant by reason of the provisions of this Lease.
G. The table of contents and headings of the sections of this Lease are
descriptive and for convenience only, are not a part of this Lease, and shall
have no effect on the construction or interpretation of this Lease.
H. All provisions, whether stated as covenants or conditions, on the
part of Tenant shall be deemed to be both covenants and conditions.
I. The terms, conditions, covenants and provisions of this Lease shall
be deemed to be severable. If any clause or provision herein contained shall be
adjudged to be invalid or unenforceable by a court of competent jurisdiction or
by operation of any applicable law, it shall not affect the validity of any
other clause or provision herein, but such other clauses or provisions shall
remain in full force and effect. In addition, the Landlord may pursue the relief
or remedy sought in any invalid clause, by conforming the said clause with the
provisions of the statutes or the regulations of any governmental agency in such
case made and provided as if the particular provisions of the applicable
statutes or regulations were set forth herein at length.
J. In all references herein to any parties, persons, entities or
corporations the use of any particular gender or the plural or singular number
is intended to include the appropriate gender or number as the test of the
within instrument may require. All the terms, covenants and conditions herein
contained shall be for and shall inure to the benefit of and shall bind the
respective parties hereto, and their heirs, executors, administrators, personal
or legal representatives, successors and assigns.
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K. The Tenant shall not erect, make or maintain on or attach or affix to
any part of the Leased Premises or the Building in which the same is located,
including the windows and doors of said Building, but excluding interior walls
within Leased Premises except those visible from the exterior, any sign,
fixture, other representation, advertisement, notice of any kind or any other
matter which is visible from any location outside of such Building or the Leased
Premises, or visible from the lobby of such Building, without the express
written consent of the Landlord obtained prior to commencement of the Lease. In
the event that such restriction is violated, the Landlord shall have the right
to remove same on twenty-four (24) hours notice or to pursue any other remedy
available to it at law or in equity, including but not by way of limitation, the
right to declare a default in the Lease.
L. The Tenant agrees to pay for the cost of all telephone equipment and
installation including telephone outlets throughout the Leased Premises unless a
telephone system communications company agrees to pay for same.
M. Tenant covenants and agrees that no diminution of light, air, or view
by any structure which may subsequently be erected, whether or not by Landlord,
shall entitle Tenant to any reduction of rent under this Lease, result in any
liability of Landlord to Tenant, or in any other way affect this Lease.
N. Tenant shall not use the name of the Building for any purpose other
than as the address of the business conducted by Tenant in the Premises without
the written consent of Landlord.
0. Common facilities for purposes of this Lease shall mean the
non-assigned parking areas, landscape, lobby, fire stairs, public hallways,
public lavatories, and all other general building facilities that service all
Building tenants; air conditioning room, fan room, janitor's closet, electrical
closet, telephone closet, boiler room, flues stacks, pipe shafts and vertical
ducts with their enclosing walls.
P. The Landlord will not provide any janitorial service but will provide
waste removal service by placing containers on the Premises for regular solid
waste, cardboard, glass and aluminum. This will not include any waste removal
for waste that requires special methods of disposal as prescribed by Federal,
State or local authorities.
Q. Tenant agrees not to conduct "Quitting Business", "Lost Our Lease",
"Bankruptcy", or other such types of sales on the Premises without Landlord's
written consent.
R. Any lettering, "logo" or design or artwork placed upon the entrance
doors to Tenant's Premises shall be subject to the reasonable approval of the
Landlord. If such signage requires permits from local authorities, the cost of
permits and approvals will be for the Tenant's account. Standard building
signage located next to entrance door of Premises will be Landlord's
responsibility.
S. Any reasonable rules and regulations with regard to the use and
occupancy of the Leased Premises and the Building of which they are a part by
the Tenant as attached hereto or as adopted at any time during the term of this
Lease and of which the Tenant is notified, shall in all things be observed and
performed by the Tenant, its servants, agents, and invitees, provided that such
rule shall not be inconsistent with the Tenant's rights or the Landlord's
obligations as herein expressed.
T. At least ninety (90) days before the last day of the Term, Tenant
shall give to Landlord a written notice of intention to surrender the Premises
on that date, but nothing contained in this Lease shall be construed as an
extension of the Term or as consent of Landlord to any holding over by Tenant.
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U. Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
V. The provisions of this Lease shall, subject to the provisions as to
assignment, apply to and bind the heirs, successors, administrators, and
executors, of the parties.
W. This Lease shall be construed and interpreted in accordance with the
laws of the State of New Jersey.
An Addendum one page in length describing the Renewal Option is
attached to this Lease and same is incorporated in this Lease and made a part
of it.
The parties have executed this Agreement this day of , 1997.
- ------------------------------- ------------------------------------
WITNESS: THE IBIS GROUP, BY: Partner
- ------------------------------- ------------------------------------
ATTEST, SECRETARY YARDVILLE NATIONAL BANK, BY:
Corporate Resolution authorizing the Tenant's leasing of the Premises and
execution of this Agreement is attached hereto and made a part hereof as Exhibit
"A".
CERTIFICATION BY TENANT
Tenant certifies that Tenant has carefully read and understood every
word in this Lease and by signing this Lease agrees to faithfully comply with
its provision
- ------------------------------- ------------------------------------
WITNESS: THE IBIS GROUP, BY: Partner
- ------------------------------- ------------------------------------
ATTEST, SECRETARY YARDVILLE NATIONAL BANK, BY:
<PAGE>
ADDENDUM
OPTION
Provided that Tenant shall not be in default of any terms, provisions,
conditions or covenants herein at the time of the exercise of this option and at
the time said option shall take effect, and provided further that Tenant is
substantially physically occupying the Leased Premises so as to enable Tenant to
carry out its business at the time of the exercise of the option and at the time
said option take effect, Tenant shall have the right to extend the term of this
Lease for one (1) additional period of one ( 1 ) year commencing on the date
following termination of the initial Term. Said option to extend the Term shall
be on the same terms, conditions, provisions and covenants as are set forth
herein, with the following exceptions:
A. The "Base Rental" during the option period shall be $45,000.00 per
annum (3,000 square feet times $15.00 per square foot) or $3,750.00 per month,
payable on the first (1st) day of each month. The "Base Operating Expense" of
$3.55 per square foot per month is included in and payable as part of the Base
Rental.
B. Nothing contained herein shall be construed to permit or grant any
option(s) or extension(s) of the Term beyond the option period set forth herein.
C. Notice: The option herein granted to extend the Term shall be
exercised by Tenant by the delivery of written notice thereof to Landlord, not
less than six (6) months prior to the expiration of the initial or first
extended Term as the case may be. In the event that Tenant shall fail to deliver
said notice within such time, it shall be conclusively deemed to mean that
Tenant has elected not to exercise said option, whereupon all options shall
cease and terminate and be of no further force and effect.
- ------------------------------- ------------------------------------
WITNESS THE IBIS GROUP, BY: Partner
- ------------------------------- ------------------------------------
ATTEST, SECRETARY TENANT, BY:
<PAGE>
YARDVILLE NATIONAL BANCORP
stability
progress
YNB
community
strength
1997 ANNUAL REPORT
<PAGE>
Table of
Contents
FINANCIAL HIGHLIGHTS____________________________________________________ 3
MANAGEMENT LETTER_______________________________________________________ 5
HONORING THE PAST, BUILDING FOR THE FUTURE______________________________ 9
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA_________________________ 13
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS__________________________ 15
FINANCIAL STATEMENTS____________________________________________________ 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS______________________________ 40
INDEPENDENT AUDITORS' REPORT____________________________________________ 53
OFFICERS________________________________________________________________ 54
BOARD OF DIRECTORS______________________________________________________ 55
STOCKHOLDER INFORMATION_________________________________________________ 56
ON THE COVER: THE FORMER U.S. POST OFFICE AT EAST STATE
AND MONTGOMERY STREETS IN TRENTON, BUILT IN 1910.
<PAGE>
new logo
modern headquarters
state-of-the-art technology
traditional banking
personal service
community commitment
<PAGE>
Moving Forward
AT YNB, WE PRESERVE THE OLD WHILE WE MOVE FORWARD TO NEW AND MODERN BANKING
CONCEPTS. WHEN OUR NEW CORPORATE HEADQUARTERS SHOWN HERE IS COMPLETED NEXT YEAR,
WE'LL GAIN EFFICIENCY OF OPERATIONS AND MUCH-NEEDED NEW SPACE IN ORDER TO GROW
AND SERVE OUR CUSTOMERS BETTER.
BUT AT BRANCHES LIKE OUR HISTORIC YARDVILLE MAIN OFFICE, AS WELL AS IN MODERN
OFFICES THROUGHOUT OUR BRANCH NETWORK, YNB PEOPLE WILL CONTINUE TO DELIVER THE
HIGH QUALITY PERSONAL ATTENTION THAT HAS BEEN OUR TRADEMARK FOR ALMOST
THREE-QUARTERS OF A CENTURY.
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES
Financial
Highlights
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1997 1996 Increase
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31
Net income $ 5,006 $ 4,026 24.3%
Cash dividends declared per common share* 0.25 0.225 11.1
- -------------------------------------------------------------------------------------
Balance Sheet Data as of December 31
Total assets $614,686 $490,545 25.3%
Total deposits 422,944 364,445 16.1
Total loans 385,751 331,237 16.5
Stockholders' equity 39,745 35,230 12.8
- -------------------------------------------------------------------------------------
Consolidated Ratios
Return on average assets 0.93% 0.90%
Return on average stockholders' equity 13.32 12.25
Total equity to total assets 6.47 7.18
Tier I capital to risk-weighted assets 12.24 10.17
Total capital to risk-weighted assets 13.49 11.43
Nonperforming loans to total assets 0.86 1.66
Nonperforming loans to year-end loans 1.38 2.46
- -------------------------------------------------------------------------------------
</TABLE>
* Adjusted for two-for-one stock split effected in the form of a stock dividend
declared December 23, 1997.
==================
INSERT CHARTS HERE
==================
3
<PAGE>
Long-Term Stability
MEMBERS OF YNB SENIOR MANAGEMENT DISCUSS THE BANK'S FUTURE IN THE HISTORIC KUSER
FARM MANSION IN HAMILTON TOWNSHIP. LEFT TO RIGHT: JAY G. DESTRIBATS, CHAIRMAN;
PATRICK M. RYAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER; STEPHEN F. CARMAN,
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER; AND TIMOTHY J. LOSCH,
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER HAMILTON TOWNSHIP.
THE EXTERIOR OF THE KUSER FARM MANSION, ORIGINALLY SUMMER HOME TO THE FRED KUSER
FAMILY. THE KUSERS OWNED THE MERCER MOTOR CAR COMPANY ALONG WITH THE ROEBLING
FAMILY AND WERE MAJOR FINANCIERS OF THE FOX FILM CORPORATION, WHICH LATER BECAME
20TH CENTURY FOX. THE HOUSE MUSEUM IS NOW A MAJOR TOURIST ATTRACTION OWNED BY
HAMILTON TOWNSHIP.
4
<PAGE>
"This past year, YNB has continued its
development into a bank well-positioned to
serve customers into the next century."
To Our Shareholders
Employees and Friends
AS WE MOVE WITH GREAT ENTHUSIASM INTO THE FUTURE OF BANKING, WE AT YARDVILLE
NATIONAL BANK WORK HARD TO RETAIN ALL THE POSITIVE ELEMENTS OF OUR PAST. THE
TRADITION OF ATTENTIVE PERSONAL SERVICE NEVER GROWS OLD. NEITHER DOES THE VALUE
OF COMMUNITY COMMITMENT AND MARKET KNOWLEDGE. IN THIS YEAR'S ANNUAL REPORT, WE
INTEND TO DEMONSTRATE HOW YNB BLENDS THE BEST OF BOTH THE PAST AND THE FUTURE,
HONORING OUR TRADITIONS WHILE OFFERING STATE-OF-THE-ART BANKING PRODUCTS AND
SERVICES.
This year, we also want to take special note of the important role you, as
stakeholders in this institution, play in our success. We identify ourselves as
a community bank. This means, of course, that we believe it is important to
serve as good neighbors to those around us. But we also embrace a broader sense
of communitythe people who, as a result of shared interests, form a broad and
deep support group for YNB. Many of our customers are shareholders. All of our
directors refer business to the bank. T hose to whom we lend build their
companies, employ our neighbors, and make this institution even stronger with
ever increasing circles of business. We are part of a total banking community,
and we thrive under this concept.
We are making our presence felt even more in our community this year, as we
have announced plans to occupy a new corporate headquarters during 1999. It will
serve as both a symbol of our ongoing dedication to the neighborhood banking
concept and as notice that we plan to maintain our position as an independent,
full service community bank.
In keeping with our movement toward the future, we have adopted a new
corporate logo, which you as stakeholders have the opportunity to see first on
the cover of this annual report. We are adopting the name that most of our
customers already useYNBwhile retaining the Yardville National Bank attitude,
history, and commitment. Nothing has changed, but everything has evolved. We
think that's the right way to grow.
This past year, YNB has continued its development into a bank
well-positioned to serve customers into the next century. We have broadened the
products and services
we offer both business and individual customers, and we have further
enhanced our technology to deliver them. We have continued to look beyond the
borders of Hamilton Township and, indeed, beyond Mercer County, as we make our
plans for expansion of our network in the years to come. But most important, we
constantly work to maintain the personal approach and high level of service that
our customers value.
The results of these efforts to you, as shareholders, can be seen in our
financial performance. We have gained many customers and relationships this year
as people and businesses have chosen to bank where personal attention and
quality service are valued. The community banking concept is alive and doing
very well at YNB.
Growth in All Dimensions
In 1997, net income rose 24.3% to $5,006,000, or $1.00 per share on a diluted
basis, compared with 1996 net income of $4,026,000, or $0.82 per share on a
diluted basis. Our year-end assets reached $614.7 million, compared with $490.5
million in 1996.
5
<PAGE>
"As we continue to evolve into the best combination
possible of high technology and a high level of
personal contact, we look to our past for inspiration
even as we build for the future."
Our commercial lending performance continues to fuel YNB's earnings growth, as
businesses of all sizes have come to realize that YNB can fulfill all of their
needs while offering the personal service that is not found elsewhere. YNB's
total loan outstandings reached $385.8 million at December 31, 1997, an increase
of 16.5% over the $331.2 million outstanding at December 31, 1996. The
portfolio, composed of both commercial and consumer loans, is diverse,
well-balanced and predominantly local.
We worked diligently in 1997 to maintain and improve credit quality as our
portfolio grew. Nonperforming assets decreased slightly to $8,486,000 at
December 31, 1997, compared to nonperforming assets of $8,535,000 at December
31, 1996. The allowance for loan losses now totals $5,570,000 or 1.44% of total
loans, covering 104.8% of total nonperforming loans.
The deposit side of the ledger helps to support this excellent loan growth.
Total deposits increased 16.1% in 1997 to $422.9 million at year end, compared
with $364.4 million at year-end 1996. YNB is fostering further growth in both
the deposit and consumer lending areas with a variety of new products and
services. These include our newest CD offerings at highly competitive interest
rates, our Home Equity Line of Credit at one of the lowest rates in the area,
and our Service Direct business package offering a company's employees numerous
benefits associated with direct deposit of their paychecks. For more information
on our product offerings, please see the section entitled "Honoring the Past,
Building for the Future" beginning on page nine.
YNB's shareholders also did well in 1997, as a 100% stock dividend was
declared by the YNB Board of Directors on December 23, 1997. This two-for-one
stock split was payable to shareholders of record January 5, 1998. YNB's annual
dividend increased 11.1% in 1997 compared to 1996. Our share price has shown
strength and stability, as our listing on NASDAQ continues to provide additional
liquidity and flexibility for current shareholders as well as opening up the
market for new ones.
YNB also continues to have a strong capital structure. At December 31, 1997,
YNB's Tier 1 leverage, Tier 1 risk-based, and total risk-based capital ratios
were 9.5%, 12.2%, and 13.5%, respectively, exceeding all ratios required to be
considered well-capitalized under regulatory guidelines.
Our directors-both at the corporate and advisory board levelscontinue to be
a major component of our bank's growth, as they are an excellent source of new
business referrals. Their input and guidance as we move into the future are
greatly appreciated. We were sorry to note the passing of N. Gerald Sapnar, one
of our Advisory Board members, this past year, and we want to take this
opportunity to thank all of our directors for their valuable contributions to
the bank's growth.
As we continue to evolve into the best combination possible of high
technology and a high level of personal contact, we look to our past for
inspiration even as we build for the future. Our objectives are clear: we want
to be the best community bank in our marketplace, offering our customers what
they need and our shareholders the returns they deserve. We believe the past
year has shown concrete results of our efforts, and promise to keep our sights
set firmly on these objectives as we move toward the next millennium.
Sincerely yours,
Jay G. Destribats Patrick M. Ryan
Chairman of the Board President and Chief Executive Officer
6
<PAGE>
New Technologies
WHEN YNB'S FIRST BRANCH WAS OPENED IN 1925 IN "DOWNTOWN" YARDVILLE, CUSTOMERS
BANKED WITH TELLERS WHO RECORDED EACH TRANSACTION BY HAND FROM BEHIND CARVED
WOODEN TELLER WINDOWS.
TODAY, YNB CONTINUES TO BE KNOWN FOR ITS PERSONAL TOUCH, BUT CUSTOMERS CAN ALSO
USE ELECTRONIC PRODUCTS LIKE OUR SECOND CHECK DEBIT CARD TO MAKE PURCHASES OF
ALL KINDS AND HAVE THEM CONVENIENTLY DEDUCTED FROM THEIR YNB CHECKING ACCOUNTS.
7
<PAGE>
Customer Service
WHEN THE QUAKER MEETING HOUSE OF PRINCETON WAS USED FOR WEEKLY GATHERINGS,
TRANSACTIONS, WHETHER SOCIAL, RELIGIOUS, OR FINANCIAL, WERE HANDLED
FACE-TO-FACE.
WITH TODAY'S BUSY LIFESTYLE, INDIVIDUALS STILL MEET IN PERSON FOR SOCIAL AND
RELIGIOUS PURPOSES, BUT CONDUCT MUCH OF THEIR DAILY BUSINESS ON THE TELEPHONE.
THAT'S WHY PRODUCTS LIKE YNB'S TELEBANK SERVICE ARE SO ESSENTIAL, ALLOWING
INDIVIDUALS AND BUSINESSES TO CHECK BALANCES, TRANSFER OR VERIFY FUNDS, REVIEW
RECENT TRANSACTIONS, AND PERFORM OTHER BANKING FUNCTIONS WITH JUST A FEW TOUCHES
TO A PUSHBUTTON PHONE.
8
<PAGE>
"As the economy has strengthened in New Jersey,
more and more customers are interested in longer term
savings vehicles and investment products,
and YNB is right there with what they need."
Honoring the Past
Building for the Future
YNB ENJOYS A LONG AND DISTINGUISHED HISTORY. SINCE OUR FOUNDING IN 1925, WE HAVE
BEEN THERE FOR OUR COMMUNITY, FINANCING THE GROWTH OF MERCER COUNTY AS IT
EVOLVED FROM A FARMING AREA TO A COMMERCIAL CENTER AT THE CROSSROADS OF THE
STATE'S MAJOR HIGHWAYS. WE HAVE HELPED PEOPLE BUILD HOMES AND BUSINESSES HERE,
SENDING THEIR CHILDREN TO COLLEGE AND BUILDING THE DREAM OF A SECURE RETIREMENT.
OUR BANK'S FRANCHISE HAS BEEN BUILT ON OUR KNOWLEDGE OF OUR MARKETPLACE, OUR
ATTENTION TO EACH CUSTOMER, WHETHER LARGE OR SMALL, AND A REAL CONCERN FOR EACH
ONE'S INDIVIDUAL NEEDS.
We are proud of that history, but well aware that the key to our ongoing success
is taking our longstanding strengths and building upon them as we have evolved
into a bank for the 21st century. The key to our future, we believe, is
combining the two: keeping the most important parts of our tradition of
community service and adding all of the up-to-the-minute banking products
today's technology allows us to offer. We are gratified that YNB has become that
bank of the future for our customers.
Technology Transforms Retail Banking
It is in the area of electronic banking that the financial world has seen the
most change in the past ten years. We have moved far beyond the advent of
automated teller machines (ATMs) which can accept deposits and dispense cash to
an increasingly cashless society. Debit cards, which serve not only to provide
ATM access, but also take the place of checkbooks and cash, are gaining enormous
popularity as customers are able to make purchases of items from groceries to
swimming pools by automatically having the amount of the purchase deducted from
their checking accounts.
To fulfill this need, YNB introduced the Second Check(R) debit card early
in 1997, and its usage increased dramatically as the year went on. Second Check
can be used everywhere that VISA(R) is acceptedat more than 12 million
merchants. Customers avoid the delays sometimes involved in writing checks at an
unfamiliar location, while they also avoid the interest charges that can accrue
with credit card purchases.
Savings, Loan, and Investment Products Spark Interest
As the economy has strengthened in New Jersey, more and more customers are
interested in longer term savings vehicles and investment products, and YNB is
right there with what they need. YNB's competitive rates and a strong
advertising campaign made its CDs very popular in 1997, bringing in millions of
dollars in new deposits to our institution. The CD product lineup is being
further enhanced in 1998, with the same high rate offered for a variety of
terms, up to 60 months.
9
<PAGE>
Saving the Business Comunity
THE GRAND LODGE OF NEW JERSEY, FREE & ACCEPTED MASONS, MADE THE MASONIC TEMPLE
ON BARRACKS STREET ITS HEADQUARTERS UNTIL THE LATE 1970S. SEVERAL LODGES OF THE
MASONS, WHO HAVE ALWAYS INCLUDED MANY BUSINESS AND PROFESSIONAL LEADERS OF THE
COMMUNITY, STILL MEET THERE TODAY.
BUSINESS LEADERS AND THEIR EMPLOYEES COME TO YNB, TOO, FOR OFFERINGS LIKE
SERVICE DIRECT, A GROUPING OF SPECIAL ACCOUNTS AND RATES AVAILABLE TO THE
EMPLOYEES OF ANY COMPANY WHICH MAKES DIRECT DEPOSIT OF PAYCHECKS TO A YNB
ACCOUNT.
10
<PAGE>
"For several years, YNB has been
a lender of choice for many, thanks to
our high level of personal srvice ans the
market understanding we bring to each relationship."
Honoring the Past
Building for the Future
For those customers who are looking for higher returns and are willing to forego
FDIC insurance and take a greater risk, YNB will be introducing the sale of
mutual funds and annuities in 1998. Licensed sales representatives can explain
the variety of choices to customers, and investments in these alternative
vehicles can be made right in a YNB branch.
We also instituted a very competitive interest rate on our home equity line
of credit in 1998, as YNB customers who meet certain requirements can take
advantage of a rate that is indexed below prime. It's an excellent offer, and
one that we believe many consumers will want to use to refinance their
mortgages, make home improvements, pay tuition costs, or even take a special
trip or vacation.
Adding Convenience for Busy Consumers
More families have become two-earner households, and it seems we have more and
more tasks to accomplish in a day and far less time to do them. That's where the
ability to perform routine banking transactions by telephone or by computer has
gained popularity in the late 90s. Accordingly, we've added even more
convenience for YNB customers with our Telebank Service, allowing customers to
check balances, transfer or verify funds, find out about recent transactions,
order a mini statement to be faxed, and complete other banking transactionsright
on the phone.
The telephone has become an even greater resource for YNB customers with
the opening of our new Telephone Help Center this past September. Staffed by a
hand-picked group of "Customer Satisfaction Ambassadors," the Telephone Help
Center offers information about current accounts, investment rates, available
loan or mortgage programs, ATM locationswhatever our customers may need to make
banking with YNB even more convenient than it already is. Customers can call the
Telephone Help Center at 1-8884-HELPLINE Monday through Friday from 8:30 AM to
7:00 PM, and on Saturdays from 9:00 AM to 12:00 PM. In its first five months of
operation, the center fielded over 4,000 calls, and continues to serve as a
centralized sales, information, and communication center for all of YNB.
Reaching Out Geographically
For some time, we have discussed our intention to expand beyond the reaches of
Hamilton Township and even Mercer County. Plans are well underway for the
opening of new branches in 1998, including one in Hopewell Township in the
thriving Pennington area. We continue to examine potential locations both in New
Jersey and right across the river in Bucks County, Pennsylvania, too. Many of
YNB's customers, both consumer and commercial, are already doing business or
living in those areas, and the expansion of our branch network to include these
areas is a logical extension of our marketplace.
"Stand-alone" ATMs are another area of future expansion for YNB, and plans
are on the drawing board for the first of these in Washington Township for 1998
completion. ATMs without a branch attached are cost effective for the bank to
install and maintain, while enhancing our delivery network and increasing
convenience for customers.
11
<PAGE>
"YNB - steped in tradition, devoted to our community -
is poised and ready to move into the future of banking."
Honoring the Past
Building for the Future
Gaining the Business of Larger Business
As YNB has expanded its offerings, we have also expanded the services we offer
to businesses in our marketplace. For several years, YNB has been a lender of
choice for many, thanks to our high level of personal service and the market
understanding we bring to each relationship. With the upgrade of our
technological capabilities in the past two years, however, we've been able to
offer an even broader range of state-of-the-art business services.
In 1997, for example, we added a menu of electronic cash management services
for business customers called Cash Command. Using sophisticated automated
clearing house (ACH) services, YNB's Cash Command allows customers to make
direct deposit of payroll right from their offices, consolidate funds, make tax
payments, transfer among accounts, and even make overnight investment sweeps,
increasing efficiency and convenience for all businesses.
We also added lockbox services in the past year, to assist both businesses
and non-profit organizations who collect recurring payments from a number of
people. YNB provides a central location for those checks to be mailed, handles
the bookkeeping, makes sure the money is credited to the customer's account, and
provides detailed reports as often as the customer wishes.
Keeping client accounts in good order is something YNB has been doing for a
long time with MATS (Multiple Account Trust Services)an attorney trust
sub-accounting system. This allows lawyers to handle multiple escrow accounts
safely and efficiently. Most gratifying, we're finding more and more area law
firms are using YNB's MATS because they get all the professionalism they need,
along with the personal attention that only a hometown bank can deliver.
Professionalism and service also count when companies want to offer their
employees special benefits. Service Direct is a new service combining business
and consumer banking, which is helping to cement our relationships with many
area companies of all sizes and their employees. Whenever a business uses direct
deposit for employee payroll, those employees are offered this special package
of money-saving services.
Service Direct checking accounts offer unlimited check writing with no per
check fees and no monthly maintenance fees. These customers can also access
their funds without ever writing a check with the YNB Second Check debit card we
discussed earlier. Statement savings accounts can be linked to a Service Direct
account, too, while customers can also qualify for YNB's special Service Direct
consumer loans, including home equities and residential mortgages. Indeed, the
whole range of YNB servicesincluding the Premier Plus Money Market Account and
Community Plus linked accountsis right at the customer's fingertips.
So from sophisticated cash management to direct deposit, loans to lockbox
and custodial accounts, YNB has all the business services a firm or institution
of any size could wantaccompanied by the personal service that only a bank like
YNB can deliver. Coupled with the wide range of offerings our consumer banking
clients can receive, the combination is unbeatable. YNBsteeped in tradition,
devoted to our communityis poised and ready to continue meeting all the
challenges we know the future will bring.
12
<PAGE>
Selected Historical
Consolidated Financial Data
The following table sets forth certain historical financial data with respect to
Yardville National Bancorp and subsidiaries 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 share and per
share data has been restated to reflect the two-for-one stock split effected in
the form of a stock dividend in December 1997 and November 1994.
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income
(in thousands)
Interest income $40,768 $ 34,251 $ 27,336 $ 18,004 $ 14,055
Interest expense 21,100 17,041 12,841 6,360 5,355
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 19,668 17,210 14,495 11,644 8,700
Provision for loan losses 1,125 1,640 865 305
Securities gains (losses), net 24 (136) (91) (124) 294
Gains on sales of mortgages, net 30 21 19 92 354
Other non-interest income 2,490 2,228 1,927 1,586 1,542
Non-interest expense 13,341 11,479 10,260 9,285 8,423
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of the
change in accounting principle 7,746 6,204 5,225 3,608 2,467
Income tax expense 2,740 2,178 1,822 1,085 733
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative
effect of the change in
accounting principle 5,006 4,026 3,403 2,523 1,734
Cumulative effect of the change
in accounting principle 191
- ---------------------------------------------------------------------------------------------------------------------------
Net income $5,006 $ 4,026 $ 3,403 $ 2,523 $ 1,925
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet
(in thousands, except per share data)
Assets$ 614,686 $ 490,545 $ 403,115 $ 280,550 $223,438
Deposits 422,944 364,445 302,972 259,296 206,688
Loans, net of unearned income 385,751 331,237 245,054 196,910 134,983
Stockholders' equity 39,745 35,230 31,717 18,451 14,208
Allowance for loan losses 5,570 4,957 3,677 2,912 2,703
Per Share Data
Net income basic* $ 1.02 $ 0.84 $ 0.87 $ 0.87 $ 0.94
Net income diluted* 1.00 0.82 0.84 0.84 0.93
Cash dividends 0.25 0.22 50.19 0.14
Stockholders' equity (book value) 8.02 7.25 6.75 5.96 6.21
Other Data
Average shares outstanding diluted 4,994,000 4,919,000 4,053,000 3,021,000 2,075,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Income per share has been retroactively adjusted to implement the
provisions of Statement on Financial Accounting Standards No. 128,
"Earnings Per Share."
13
<PAGE>
Selected Historical
Consolidated Financial Data
continued
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Ratios
Return on average assets 0.93% 0.90% 0.99% 1.04% 0.92%
Return on average stockholders'
equity 13.32 12.25 13.84 15.89 15.81
Net interest margin (FTE) (1) 3.95 4.10 4.49 5.16 4.51
Efficiency ratio (2) 60.06 59.41 62.75 70.35 77.35
Average stockholders' equity to
average assets 7.00 7.33 7.14 6.57 5.79
Dividend payout ratio 24.63 26.90 21.69 15.06
Tier 1 leverage ratio (3) 9.53 7.80 9.07 7.84 7.60
Tier 1 capital as a percent of
risk-weighted assets 12.24 10.17 11.95 9.59 9.38
Total capital as a percent of
risk-weighted assets 13.49 11.43 13.20 10.84 10.64
Allowance for loan losses
to total loans (year end) 1.44 1.50 1.50 1.48 2.00
Net loan charge offs to average
total loans 0.14 0.13 0.05 0.06 0.20
Nonperforming loans (5) to total loans 1.38 2.46 1.15 1.05 1.83
Nonperforming assets (4) to
total loans and other real estate
owned (year end) 2.18 2.57 1.40 1.21 2.83
Allowance for loan losses
to nonperforming assets (4) (year end) 65.64 58.08 106.77 122.35 69.92
Allowance for loan losses
to nonperforming loans (5) (year end) 104.80% 60.90% 130.44% 140.95% 109.30%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax equivalent based on a 34% Federal tax rate for all periods presented
(FTE = Federal tax equivalent basis).
(2) Efficiency ratio is equal to non-interest expense divided by the sum of the
net interest income and non-interest income.
(3) Tier 1 leverage ratio is Tier 1 capital to average 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."
14
<PAGE>
Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations
The purpose of this discussion and analysis is to assist in the understanding
and evaluation of the financial condition, changes in financial condition and
results of operations of Yardville National Bancorp (the "Parent Company") and
its wholly-owned subsidiaries Yardville National Bank (the "Bank"), and
Yardville Capital Trust, collectively referred to as "YNB". This discussion
should be read in conjunction with the consolidated financial statements and
supplemental financial information appearing elsewhere in this report.
1997 OVERVIEW
YNB's continued emphasis on establishing and building relationships helped
achieve successful results in 1997. YNB recorded increases in net income, loans,
and deposits in a competitive marketplace. The significant upgrade to our
operational systems in 1996 has yielded positive results in 1997. Quality
customer service has continued and product diversity has increased.
Net income amounted to $5,006,000, a 24.3% increase, compared to the record
results of $4,026,000 reported in 1996. Earnings were primarily enhanced by
commercial loan growth experienced throughout the year. Earnings per share, on a
diluted basis, adjusted for the two-for-one stock split declared December 23,
1997, increased from $0.82 in 1996 to $1.00 in 1997.
The loan portfolio grew 16.5% in 1997 compared to 1996. At December 31, 1997
total loan outstandings were $385,751,000 compared to $331,237,000 recorded at
the end of 1996. The allowance for loan losses now totals $5,570,000 or 1.44% of
total loans, covering 104.8% of total nonperforming loans. YNB's deposit base
increased 16.1%, to total $422,944,000, at December 31, 1997. Growth in YNB's
deposit base in 1997 primarily occurred in higher yielding certificates of
deposit, a higher costing funding source, and interest bearing demand deposits.
Two industry measures of the performance of a bank are its return on average
assets and return on average equity. Return on average assets increased to 0.93%
in 1997 from 0.90% in 1996. The 1997 return on average stockholders' equity
increased to 13.32% compared to 12.25% in 1996.
RESULTS OF OPERATIONS
YNB earned $5,006,000 or $1.00 per share (diluted) for the year ended December
31, 1997 compared to $4,026,000 or $0.82 per share (diluted) for the year ended
December 31, 1996. YNB reported net income of $3,403,000 or $0.84 per share
(diluted) in 1995. The increase in earnings per share in 1997 is principally
attributable to increased earnings.
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. This component
represented 88.5% of YNB's net revenues in 1997. Net interest income also
depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
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, 1997, 1996, 1995, 1994, and 1993.
15
<PAGE>
Financial Summary
Average Balances, Rates Paid and Yields
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Average
Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
Interest Earning Assets:
Time deposits with other banks $ 2,533 $ 107 4.22% $ 1,992 $984.92
Federal funds sold 7,121 380 5.34 4,265 228 5.35
Securities 140,655 8,770 6.24 132,036 8,194 6.21
Loans, net of unearned income (1) 355,526 31,511 8.86 287,289 25,731 8.96
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 505,835 $ 40,768 8.06% $ 425,582 $34,251 8.05%
- ----------------------------------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and due from banks $ 15,425 $ 11,905
Allowance for loan losses (5,254) (4,190)
Premises and equipment, net 5,288 5,037
Other assets 15,337 10,156
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 30,796 22,908
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 536,631 $448,490
- ----------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets,
and interest bearing demand $ 159,720 $ 5,083 3.18% $ 133,450 $ 4,014 3.01
Certificates of deposit of
$100,000 or more 23,357 1,273 5.45 18,188 922 5.07
Other time deposits 168,962 9,759 5.78 125,332 7,138 5.70
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 352,039 16,115 4.58 276,970 12,074 4.36
Borrowed funds 84,492 4,761 5.63 87,065 4,967 5.70
Trust preferred securities 2,422 224 9.25
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 438,953 21,100 4.81 364,035 17,041 4.68
- ----------------------------------------------------------------------------------------------------------------------------
Non-Interest Bearing Liabilities:
Demand deposits $ 56,700 $ 49,078
Other liabilities 3,404 2,507
Stockholders' equity 37,574 32,870
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest bearing liabilities
and stockholders' equity $ 97,678 $ 84,455
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 536,631 $448,490
- ----------------------------------------------------------------------------------------------------------------------------
Interest rate spread (2) 3.25% 3.37%
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (3) $ 19,668 3.89% $ 17,210 4.04%
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax equivalent basis) (4) $ 19,993 3.95% $ 17,432 4.10%
============================================================================================================================
</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 $325,000, $222,000, $202,000, $194,000, and
$105,000 for the years ended December 31, 1997, 1996, 1995, 1994, and 1993,
respectively.
16
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1995 December 31, 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 685 $ 36 5.26% $ 643 $ 23 3.58% $ 1,266 $ 34 2.69%
7,838 464 5.92 1,200 52 4.33 3,211 97 3.02
97,456 5,756 5.91 70,045 3,761 5.37 72,928 3,939 5.40
221,232 21,080 9.53 157,411 14,168 9.00 117,671 9,985 8.49
- ----------------------------------------------------------------------------------------------------------------------------
$327,211 $27,336 8.35% $229,299 $18,004 7.85% $195,076 $14,055 7.20%
- ----------------------------------------------------------------------------------------------------------------------------
$ 8,778 $ 8,079 $ 9,449
(3,265) (2,736) (2,860)
4,175 3,857 3,812
7,490 3,207 4,699
- ----------------------------------------------------------------------------------------------------------------------------
17,178 12,407 15,100
- ----------------------------------------------------------------------------------------------------------------------------
$344,389 $241,706 $210,176
- ----------------------------------------------------------------------------------------------------------------------------
$123,029 $ 4,107 3.34% $113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69%
15,521 883 5.69 7,083 299 4.22 4,202 168 4.00
103,637 5,792 5.59 66,020 2,810 4.26 55,827 2,338 4.19
- ----------------------------------------------------------------------------------------------------------------------------
242,187 10,782 4.45 186,342 6,265 3.36 165,207 5,338 3.23
33,339 2,059 6.18 2,248 95 4.23 747 17 2.28
-- -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
275,526 12,841 4.66 188,590 6,360 3.37 165,954 5,355 3.23
- ----------------------------------------------------------------------------------------------------------------------------
$ 42,321 $ 36,634 $ 31,082
1,950 605 967
24,592 15,877 12,173
- ----------------------------------------------------------------------------------------------------------------------------
$ 68,863 $ 53,116 $ 44,222
- ----------------------------------------------------------------------------------------------------------------------------
$344,389 $ 241,706 $210,176
- ----------------------------------------------------------------------------------------------------------------------------
3.69% 4.48% 3.97%
- ----------------------------------------------------------------------------------------------------------------------------
$14,495 4.43% $11,644 5.08% $ 8,700 4.46%
- ----------------------------------------------------------------------------------------------------------------------------
$14,697 4.49% $11,838 5.16% $ 8,805 4.51%
============================================================================================================================
</TABLE>
17
<PAGE>
Net interest income also may be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table
demonstrates the impact on net interest income of changes in the volume of
interest earning assets and interest bearing liabilities and changes in interest
rates earned and paid.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Yardville National Bancorp and Subsidiaries
Rate/Volume Analysis
1997 vs. 1996 1996 vs. 1995
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 $ 24 $ (15) $ 9 $ 64 $ (2) $ 62
Federal funds sold 152 -- 152 (195) (41) (236)
Securities 537 39 576 2,133 305 2,438
Loans, net of unearned income (1) 6,051 (271) 5,780 5,980
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 6,764 (247) 6,517 7,982 (1,067) 6,915
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets,
and interest bearing demand 826 243 1,069 332 (425) (93)
Certificates of deposit of
$100,000 or more 278 73 351 142 (103) 39
Other time deposits 2,519 102 2,621 1,234 112 1,346
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 3,623 418 4,041 1,708 (416) 1,292
Borrowed funds (61) (145) (206) 3,076 (168) 2,908
Trust preferred securities 224 -- 224 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 3,786 273 4,059 4,784 (584) 4,200
Net interest income $ 2,978 $ (520) $ 2,458 $ 3,198 $ (483) $ 2,715
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan origination fees are considered adjustments to interest income.
YNB's net interest income totaled $19,668,000 in 1997, an increase of 14.3%
from the $17,210,000 reported in 1996. The prior year's increase was 18.7% from
1995's net interest income of $14,495,000. The primary factor contributing to
the increase in net interest income in 1997 was an increase in interest income
of $6,517,000 due to a substantial increase in loan volume, specifically
commercial, offset by decreases in loan yields and increases in deposits and
trust preferred securities and the related interest expense. Average interest
earning assets increased by $80,253,000 or 18.9% for 1997 with increases of
$68,237,000 in loans, net of unearned income, and $8,619,000 in securities. From
December 31, 1996 to December 31, 1997, YNB's average loan portfolio increased
by 23.8%, however, loan yields averaged 8.86%, or 10 basis points lower,
reflecting declining market interest rates in a competitive market. Conversely,
the yield on YNB's securities portfolio increased 3 basis points when comparing
1997 to 1996. Overall, the yield on earning assets increased 1 basis point to
8.06% in 1997 from 8.05% in 1996.
Interest expense was $21,100,000 for 1997, an increase of $4,059,000, or
23.8%, from $17,041,000 a year ago. The increase in interest expense for the
comparable time periods was principally the result of a larger deposit base,
specifically time deposits. The increase in time deposits in 1997 continues the
trend established over the last several years. With competition for deposits
strong, time deposits have been aggressively priced to fund loan growth. Average
interest bearing liabilities increased 20.6% in 1997 compared to 1996. The cost
of total interest bearing liabilities rose 13 basis points to 4.81% in 1997 from
4.68% in 1996.
Net interest income was $17,210,000 in 1996, an increase of 18.7% from
$14,495,000 in 1995. The principal factor contributing to the improvement was an
increase in interest income due to a substantial increase in commercial loan
volume offset by decreases in loan yields and increases in deposits and borrowed
funds and the related interest expense. Average loans increased by 29.9% from
1995 to 1996.
The net interest margin (tax equivalent basis), which is the difference
between yields on average interest earning assets and costs of average funding
sources, was 3.95% in 1997 versus 4.10% in 1996 and 4.49% in 1995. The decrease
in the net interest margin in 1997 was
18
<PAGE>
principally due to two factors. Increased loan and deposit competition resulted
in lower loan yields and higher deposit costs which negatively impacted the
margin. Management also employs an investment leverage strategy (Investment
Growth Strategy) that also had a negative impact on the margin.
The Investment Growth Strategy's specific goal is to increase interest
income by purchasing investments utilizing repurchase agreements or other
funding sources. 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 period ended December
31, 1997 the Investment Growth Strategy averaged approximately $61,100,000. The
positive impact to return on equity and earnings per share was approximately
1.40% and $0.10, respectively. The negative impact to the net interest margin
and return on assets was approximat ely .35% and .02%, respectively. This
strategy continues to be 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
$66,882,000 in 1997, $61,547,000 in 1996, and $51,685,000 in 1995. The ratio of
average interest bearing liabilities to average interest earning assets
increased from 85.5% in 1996 to 86.8% in 1997. Average non-interest bearing
demand deposits increased 15.5% to $56,700,000 in 1997 from $49,078,000 in 1996.
Throughout the comparative periods, increases in average non-interest bearing
deposits contributed to the increase in net interest income.
Nonaccrual loans totaled $3,355,000 in 1997, a decrease of $3,728,000 from
the $7,083,000 reported in 1996. The decrease in nonaccrual loans is the result
of nonaccrual loans being transferred into other real estate owned. Had such
nonaccrual loans been paid in the manner and at the rate and term contracted at
the time the loans were made, YNB would have recognized additional interest
income of approximately $254,000 in 1997, $351,000 in 1996, and $143,000 in
1995. Moreover, YNB's net interest margin would have been .05% higher in 1997,
.08% higher in 1996 and .05% higher in 1995.
NON-INTEREST INCOME
Non-interest income continues to be an important source of revenue for YNB. YNB,
through its Product Development and Management Committee, is introducing other
non-interest income generating products which include annuities and mutual
funds. The prudent growth in non-interest income is one of YNB's long-term
strategies.
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) fee income which are ATM fees on non-customers. These fees were
instituted in October 1996.
The major components of non-interest income are presented in the following
table.
Year Ended December 31,
- -------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Service charges on
deposit accounts $1,174 $ 1,153 $ 1,069
Other service fees 593 438 381
Gains on sales of
mortgages, net 302 1 19
Securities gains
(losses), net 24 (136) (91)
Other non-interest income 723 637 477
- -------------------------------------------------------------------------
Total $2,544 $ 2,113 $ 1,855
=========================================================================
For 1997, non-interest income totaled $2,544,000, an increase of $431,000 or
20.4%, from non-interest income of $2,113,000 for 1996. Non-interest income in
1996 increased by $258,000, or 13.9% from 1995's reported total of $1,855,000.
Service charges on deposit accounts have historically represented the
largest single source of non-interest income. This continued to be the case in
1997, as such revenues totaled $1,174,000, an increase of 1.8%, compared to
$1,153,000 in 1996. Service charge income totaled $1,069,000 in 1995. This
component of non-interest income represented 46.1%, 54.6%, and 57.6% of the
total non-interest income in 1997, 1996, and 1995, respectively. YNB's Product
Development and Management Committee reviews established deposit products 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 1997 to $30,000 from $21,000
in 1996. Gains on sales of mortgages, net, totaled $19,000 in 1995. Over the
last few years YNB has been less active in the secondary mortgage market.
YNB recorded net securities gains of $24,000 in 1997 and net securities
losses of $136,000 and $91,000 in 1996 and 1995, respectively. In 1997 proceeds
from securities sold were utilized to fund higher yielding commercial loan
assets. Net securities losses realized during
19
<PAGE>
1996 and 1995 were the result of management's decision to reposition funds in
the portfolio to improve Investment Growth Strategy spreads and provide funds
for loan growth.
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 $723,000 in 1997, an increase of $86,000, or 13.5%
when compared to $637,000 in 1996. Other non-interest income totaled $477,000 in
1995. YNB has purchased life insurance assets throughout the comparable periods
to fund executive compensation plans and a deferred compensation plan for
directors. Other non-interest income from the life insurance assets totaled
$541,000, increasing $122,000, or 29.1%, when comparing 1997 to 1996.
NON-INTEREST EXPENSE
Non-interest expense totaled $13,341,000 in 1997, an increase of $1,862,000 or
16.2%, compared to $11,479,000 in 1996. Non-interest expense in 1996 increased
11.9% from $10,260,000 in 1995. The increase in non-interest expense in 1997
compared to 1996 was primarily the result of increases in salaries and employee
benefits, equipment expenses and expenses associated with nonperforming assets.
Salaries and employee benefits, which represent the largest portion of
non-interest expense, increased $817,000 in 1997 or 12.3% over 1996. Salaries
and employee benefits in 1996 increased $936,000, or 16.4% over 1995. The
increase in 1997 resulted from additional staffing required as YNB has grown for
the comparable periods and normal annual salary compensation and benefit
increases. Full time equivalent employees increased to 173 at December 31, 1997
from 163 at December 31, 1996. Staffing enhancements have continued throughout
the bank. In 1997 executive management was strengthened with the hiring of a
chief operating officer. Additional staffing was also required with the opening
of the Bank's Telephone Help Center in September. Employee benefits also
increased 8.7% for the comparable time periods. 1996's increase over 1995
primarily was the result of the additional staffing required due to growth and
normal salary increases. A management trainee program was also instituted in key
strategic areas in 1996. Salaries and employee benefits as a percent of average
assets were 1.4% in 1997, 1.5% in 1996 and 1.7% in 1995, respectively.
Net occupancy expense increased $57,000 to $977,000 in 1997 from $920,000
reported in 1996. The increase in occupancy expenses in 1997 compared to 1996
was due to increased maintenance costs, and to a lesser extent, rental and other
expenses associated with the Telephone Help Center opened in September. These
increases were offset by decreases in snow removal costs for the comparative
periods. The total number of bank facilities, including the operations building,
is now 11. This component of non-interest expense has remained constant as a
percentage of average assets at 0.2% in 1997, 1996, and 1995, respectively.
Equipment expenses increased $412,000, or 59.3%, to $1,107,000 in 1997 from
$695,000 in 1996. In 1996 equipment expenses increased 35.5% from 1995.
The increase in equipment expenses in 1997 was, in part, attributable to the
full-year depreciation expense of YNB's in-house computer system implemented in
1996. Conversely, computer servicer expenses were eliminated in the first
quarter of 1996. Hardware and software upgrades also took place in 1997 designed
to address Year 2000 issues. Management continues to proactively resolve Year
2000 issues which will result in higher equipment expenses. The increase in
equipment expenses in 1996 compared to 1995 was attributable to in creased
depreciation costs of YNB's new in-house computer system, and to a lesser
extent, additional equipment, furniture and fixtures in YNB's expanding retail
network and the related depreciation expense.
The accompanying table presents the major components of non-interest expense
for the years indicated.
Year Ended December 31,
- ------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Salaries and
employee benefits $7,446 $ 6,629 $ 5,693
Occupancy expense, net 977 920 726
Equipment 1,107 695 513
Attorney's fees 373 153 162
O.R.E. expenses 378 163 166
Outside services and
processing 332 325 289
Stationery and supplies 347 388 300
Communication and
postage 373 354 322
FDIC insurance premium 47 1 290
Marketing 575 522 479
Other 1,386 1,329 1,320
- ------------------------------------------------------------------------------
Total $13,341 $11,479 $ 10,260
==============================================================================
Expenses associated with the work-out of nonperforming assets increased in
1997. Attorney's fees increased $220,000 to $373,000 in 1997 from $153,000 in
1996. The increase in these expenses is primarily due to the increase in
nonperforming assets in the last quarter of 1996. Attorney's fees totaled
$162,000 in 1995.
Other real estate (O.R.E.) expenses increased $215,000 to $378,000 in
1997 when compared to 1996. O.R.E. expenses decreased 1.8% in 1996 to
$163,000 from $166,000 in 1995. The increase in O.R.E. properties in 1997 and
associated expenses, which include taxes, clean-up and maintenance costs, are
reflected when comparing 1997 to 1996.
20
<PAGE>
Outside services and processing expenses are composed of consulting fees and
the processing costs by an outside vendor of YNB's mortgages. These expenses
increased $7,000 or 2.2% in 1997 to $332,000. Outside service and processing
expenses totaled $325,000 in 1996, an increase of $36,000, or 12.5%, from
$289,000 in 1995.
Marketing expenses increased by $53,000, or 10.2%, in 1997 to $575,000,
compared to $522,000 in 1996. Marketing expenses totaled $479,000 in 1995. The
primary increase in marketing expenses for the comparable periods relate to
increased advertising to attract deposits to fund loan growth as well as YNB's
emphasis on participation in community activities. To a lesser extent, marketing
expenses increased due to additional promotional costs in connection with branch
or facility openings.
Other expenses, which include various professional fees, loan-related
expenses and other operating expenses, were $1,386,000 in 1997, an increase of
$57,000 or 4.3% from $1,329,000 in 1996. Other expenses totaled $1,320,000 in
1995. The increase in 1997 other expenses compared to 1996, in part, is
attributable to loan related expenses due to the growth in the loan portfolio,
increased professional fees and other operating expenses associated with a
growing institution.
YNB's ratio of non-interest expense to average assets decreased to 2.5% for
1997 compared to 2.6% for 1996 and 3.0% for 1995.
The efficiency ratio is computed by dividing total operating expenses by net
interest income and other income. An increase in the efficiency ratio indicates
that more resources are being utilized to generate the same or greater volume of
income while a decrease would indicate a more efficient allocation of resources.
YNB's efficiency ratio for 1997 was 60.06%, compared to 59.41% in 1996 and
62.75% in 1995. YNB's efficiency ratio compares favorably with banks in its peer
group.
INCOME TAXES
The provision for income taxes, which is comprised of Federal and state income
taxes, was $2,740,000 in 1997 compared to $2,178,000 in 1996 and $1,822,000 in
1995. The increase was primarily the result of higher pre-tax income. The
provisions for income taxes for 1997, 1996, and 1995 were at effective tax rates
of 35.4%, 35.1% and 34.9%, respectively. The slight increase in the effective
tax rate for 1997 was the result of increased pre-tax earnings with a relatively
constant level of tax-free income.
21
<PAGE>
Financial Condition
As of December 31, 1997 and 1996
TOTAL ASSETS
YNB's assets were $614,686,000 at year-end 1997 versus $490,545,000 the previous
year, an increase of $124,141,000, or 25.3%. The growth in YNB's asset base
throughout 1997 was due primarily to an increase in loans and securities
available for sale. The increase in loans was the product of an ongoing
consistent strategy to improve the profitability of the organization through
relationship banking. The continued consolidation in YNB's marketplace 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 94.3% at December 31, 1997 compared to 94.9% at December 31, 1996.
YNB's ratio of average interest bearing liabilities to average assets increased
from 81.2% at December 31, 1996 to 81.8% at December 31, 1997.
SECURITIES
YNB's securities portfolio represented $186,636,000, or 30.4% of assets at
December 31, 1997 versus $124,967,000, or 25.5%, of assets at December 31, 1996.
The $61,669,000 or 49.3% increase for the comparable periods were in securities
available for sale. On an average basis, the securities portfolio represented
27.8% of average interest earning assets for the year ended Decemb er 31, 1997
compared to 31.0% of average interest earning assets for the year ended December
31, 1996.
Investments included in the Investment Growth Strategy totaled approximately
$108,200,000 at December 31, 1997 compared to approximately $51,000,000 at
December 31, 1996. All securities purchased in this strategy are held in the
available for sale portfolio. The purpose of this strategy is to improve return
on equity and earnings per share. After completion of YNB's trust preferred
securities offering on October 16, 1997, Investment Growth Strategy securities
were purchased to offset interest costs associated with the offering as well as
generate additional interest income. In the last quarter of 1997 approximately
$55,000,000 in securities were purchased to achieve the goals listed above.
Management has built a diversified Investment Growth Strategy portfolio
consisting of agency callable securities and fixed and floating rate
mortgage-backed securities.
The available for sale securities portfolio increased $66,053,000 to
$159,724,000 at December 31, 1997 from $93,671,000 at December 31, 1996. The
increase is primarily the result of securities purchased for the Investment
Growth Strategy. Short-term treasuries and government agency bonds were
purchased during 1997 to enhance liquidity. During 1997, 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 and as part of YNB's
asset/liability management strategy. As of December 31, 1997 available for sale
securities represented 85.6% of the entire portfolio. This portfolio is
principally comprised of mortgage-backed securities issued by Federal agencies,
U.S. Treasury and other agency securities. The available for sale portfolio,
except securities purchased using repurchase agreements, provide a secondary
source of liquidity for YNB. There are no securities designated for trading.
Investment securities classified as held to maturity totaled $26,912,000 at
December 31, 1997 compared to $31,296,000 at December 31, 1996. This portfolio
is comprised of mortgage-backed securities and state and municipal securities.
The following tables present the amortized cost and market values of YNB's
securities portfolios as of December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE SECURITIES
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amortized Cost Market Value Amortized Cost Market Value Amortized Cost Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of other
U.S. government agencies $ 62,465 $ 62,540 $ 31,951 $ 31,942 $ 17,795 $ 17,823
Mortgage-backed securities 91,193 91,316 59,441 59,182 78,725 78,874
Corporate obligations 3,297 3,306
Federal Reserve Bank Stock 587 587 572 572 512 512
Federal Home Loan Bank Stock 1,975 1,975 1,975 1,975 1,260 1,260
- ------------------------------------------------------------------------------------------------------------------------------------
Total $159,517 $159,724 $ 93,939 $ 93,671 $ 98,292 $ 98,469
====================================================================================================================================
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amortized Cost Market Value Amortized Cost Market Value Amortized Cost Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Obligations of state and
political subdivisions $ 8,819 $ 8,957 $ 9,070 $ 9,108 $ 8,630 $ 8,659
Mortgage-backed securities 18,093 17,891 22,226 21,770 26,754 26,378
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 26,912 $26,848 $31,296 $ 30,878 $35,384 $ 35,037
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expected maturities and average weighted yields for YNB's securities
portfolio as of December 31, 1997 are shown below. Yields for tax-exempt
securities are presented on a fully-taxable equivalent basis assuming a 34% tax
rate.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Security Maturities and Average Weighted Yields
Available for Sale Securities
December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 U.S. government agencies $ 8,482 $ 16,983 $ 12,000 $ 25,000 $ 62,465
Mortgage-backed securities 648 6,156 2,393 81,996 91,193
Corporate obligations -- -- -- 3,297 3,297
Federal Reserve Bank Stock -- -- -- 587 587
Federal Home Loan Bank Stock -- -- -- 1,975 1,975
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 9,130 $ 23,139 $ 14,393 $112,855 $159,517
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average yield, computed on a
tax equivalent basis 5.89% 6.34% 6.92% 7.20% 6.97%
====================================================================================================================================
Investment Securities
December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After
(in thousands) one year five years ten years ten years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of state and political
subdivisions $ 302 $ 4,387 $ 3,397 $ 733 $ 8,819
Mortgage-backed securities 5,484 6,352 -- 6,257 18,093
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 5,786 $ 10,739 $ 3,397 $ 6,990 $ 26,912
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average yield, computed on a
tax equivalent basis 5.03% 5.96% 6.98% 6.66% 6.07%
====================================================================================================================================
</TABLE>
Investments in mortgage-backed securities involve prepayment and interest
rate risk. At December 31, 1997 and 1996 YNB had mortgage-backed securities
totaling $109,286,000 and $81,667,000, respectively. At December 31, 1997 and
1996 there were $73,565,000 and $59,078,000 in fixed-rate mortgage-backed
securities outstanding, respectively. The risk to 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.
In 1997 YNB realized $16,900,000 in cash flows from repayments of
mortgage-backed securities compared to $19,300,000 in 1996. Cash flows have been
consistent due to stable interest rates.
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 $24,500,000
at December 31, 1997. A CMO is a mortgage-backed security that is comprised of
classes of bonds created by prioritizing the cash flows
23
<PAGE>
from the underlying mortgage pool in order to meet different objectives of
investors. Floating rate agency named CMOs were purchased totaling $18,516,000
in the last quarter as part of the Investment Growth Strategy. The remaining
fixed rate CMOs in the investment portfolio are agency named and were generally
originally purchased with short average lives of two to four years. Fixed rate
CMOs totaled $6,000,000 at December 31, 1997. At December 31, 1997 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, 1997 were held in the
available for sale portfolio.
LOAN PORTFOLIO
During 1997, total loans increased $54,514,000, or 16.5% to $385,751,000 at
December 31, 1997 from $331,237,000 at December 31, 1996. The principal areas of
loan growth in 1997 were commercial real estate mortgage loans and commercial
and agricultural loans which grew 19.1% and 39.1%, respectively. Agricultural
loans represent less than 1% of total commercial and agricultural loans. YNB's
loan portfolio represented 62.8% of assets at December 31, 1997 versus 67.5% the
prior year end.
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 substantial majority of
commercial loans are also secured by real estate, business assets and
guarantees. YNB makes commercial loans primarily to small to medium-sized
businesses and professionals.
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 $85,754,000 at December 31, 1997, up
$2,571,000, or 3.1% from the prior year. Residential mortgage loans represented
$52,115,000, or 60.8%, of the total. YNB's residential mortgage loans are
secured by first liens on the underlying real property. At December 31, 1997,
approximately 35% of the residential mortgage loan portfoli o had fixed interest
rates and 65% had adjustable interest rates.
The home equity portfolio totaled $23,805,000 or 6.2% of YNB's loan
portfolio at December 31, 1997. This compares to $23,457,000, or 7.1% of the
total loan portfolio at December 31, 1996. Aggressive competition for home
equity loans in YNB's markets continued throughout 1997. The home equity
portfolio has provided consistent operating income to YNB with controllable
delinquencies and minimal losses.
Real estate - commercial loans increased by $21,585,000, or 19.1%, in 1997
to $134,499,000 from $112,914,000 at December 31, 1996. 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 or
are part of a broader commercial lending relationship.
Commercial and agricultural loans increased $24,802,000, or 39.1%, at
December 31, 1997 to $88,228,000 from $63,426,000 at December 31, 1996.
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.
The following table sets forth the components of YNB's loan portfolio at the
dates indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Portfolio Composition
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential $ 85,754 22.2% $ 83,183 25.1% $ 73,076 29.8% $ 60,156 30.5% $ 35,283 26.1%
Commercial 134,499 34.9 112,914 34.1 73,164 29.8 49,186 25.03 2,517 24.1
Home equity 23,805 6.2 23,457 7.1 26,951 11.0 29,388 14.9 30,107 22.3
Commercial and
agricultural 88,228 22.9 63,426 19.2 33,218 13.6 26,626 13.5 17,642 13.1
Real estate
construction 28,182 7.3 25,958 7.8 19,353 7.9 15,560 7.9 9,742 7.2
Consumer 18,519 4.8 15,034 4.5 12,386 5.1 10,934 5.6 7,440 5.5
Other loans 6,764 1.7 7,265 2.2 6,906 2.8 5,060 2.6 2,252 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $385,751 100.0% $331,237 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0%
====================================================================================================================================
</TABLE>
24
<PAGE>
Real estate-construction loans increased $2,224,000 to $28,182,000 at
December 31, 1997 compared to $25,958,000 at December 31, 1996. These loans
represented 7.3% of the total loan portfolio at December 31, 1997. Generally,
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 $18,519,000 at December 31, 1997 compared to
$15,034,000 at December 31, 1996.
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.
The following table provides information concerning the maturity and interest
rate sensitivity of YNB's commercial and agricultural and real
estateconstruction loan portfolios at December 31, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
After one After
Within but within five
(in thousands) one year five years years Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturities:
Commercial and agricultural $31,895 $44,927 $11,406 $ 88,228
Real estate construction 21,787 3,382 3,013 28,182
- --------------------------------------------------------------------------------------------------------------------------
Total $53,682 $48,309 $14,419 $116,410
- --------------------------------------------------------------------------------------------------------------------------
Type:
Fixed Rate Loans $ 3,181 $27,075 $ 9,727 $ 39,983
Floating Rate Loans 50,501 21,234 4,692 76,427
- --------------------------------------------------------------------------------------------------------------------------
Total $53,682 $48,309 $14,419 $116,410
==========================================================================================================================
</TABLE>
25
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans and other real estate owned.
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 $5,315,000 at December 31, 1997, a decrease of
$2,825,000 from the $8,140,000 amount reported at December 31, 1996. The
decrease in nonperforming loans is primarily the result of nonaccrual loans
being transferred into other real estate owned.
Nonperforming assets decreased $49,000, to $8,486,000 at December 31, 1997
compared to $8,535,000 at December 31, 1996. YNB continues to actively manage
nonperforming assets with the goal of reducing these assets in relation to the
entire portfolio. Where possible, existing loan relationships are being
restructured in an effort to return these loans to performing status.
Nonperforming assets represented 1.38% of total assets at December 31, 1997 and
1.74% at December 31, 1996.
Nonaccrual loans were $3,355,000, or 0.9% of total loans, at December 31,
1997, a decrease of $3,728,000 from December 31, 1996.
Restructured loans totaled $969,000 at December 31, 1997. These loans are in
compliance with restructured terms and conditions. There were no restructured
loans in 1996.
The following table sets forth nonperforming assets and risk elements in YNB's
loan portfolio by type for the years indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
December 31,
- -------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial and agricultural $ 515 $ 961 $ -- $ -- $ --
Real estate mortgage 384 1,451 1,395 1,203 1,764
Real estate construction 2,106 4,659 142 521 480
Consumer 38 12 30 -- 17
Other 312 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total 3,355 7,083 1,567 1,724 2,261
- -------------------------------------------------------------------------------------------------------------------
Restructured loans 969 -- 612 -- --
- -------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Real estate mortgage 886 1,014 588 326 209
Consumer 105 43 52 16 3
- -------------------------------------------------------------------------------------------------------------------
Total 991 1,057 640 342 212
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 5,315 8,140 2,819 2,066 2,473
- -------------------------------------------------------------------------------------------------------------------
Other real estate 3,171 395 625 314 1,393
- -------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $8,486 $8,535 $3,444 $2,380 $3,866
====================================================================================================================
</TABLE>
26
<PAGE>
At December 31, 1997, loans that were 90 days or more past due but still
accruing interest income totaled $991,000, or 0.3% of total loans compared to
$1,057,000, or 0.3% of total loans at December 31, 1996. 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 $3,171,000 at December 31, 1997 and
$395,000 at December 31, 1996. O.R.E. represented 0.8% of total loans at
December 31, 1997. Management uses an active strategy to liquidate these
assets and re-deploy the proceeds in YNB's loan portfolio.
27
<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 indicated, an analysis of the allowance
for loan losses and other related data.
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 1997 was $1,125,000. This compares to a provision for loan
losses of $1,640,000 in 1996 and $865,000 in 1995. It is management's assessment
that the allowance for loan losses is adequate in relation to credit risk
exposure levels.
At December 31, 1997, the allowance for loan losses totaled $5,570,000, an
increase of $613,000 or 12.4%, from $4,957,000 at December 31, 1996, which
compares to $3,677,000 at December 31, 1995. The ratio of allowance for loan
losses to total loans was 1.44% at
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance, beginning of year $ 4,957 $ 3,677 $ 2,912 $ 2,703 $ 2,940
Charge offs:
Commercial, financial, and agricultural (212) (47)
Real estate mortgage (161) (72) (26) (51) (222)
Real estate construction (75) (30) (25) (45)
Consumer (201) (252) (153) (83) (84)
- ------------------------------------------------------------------------------------------------------------------------------------
Total charge offs (574) (399) (209) (206) (351)
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 7 20 21
Real estate mortgage 6443 37
Consumer 5539 45 47 56
- ------------------------------------------------------------------------------------------------------------------------------------
Total recoveries 6239 109 110 114
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge offs (512) (360) (100) (96) (237)
Provision charged to operations 1,125 1,640 865 305 --
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance balance, end of year $ 5,570 $ 4,957 $ 3,677 $ 2,912 $ 2,703
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, end of year $ 385,751 $ 331,237 $ 245,054 $ 196,910 $ 134,983
Average loans outstanding $ 355,526 $ 287,289 $ 221,232 $ 157,411 $ 117,671
Ratio of allowance for loan
losses to total loans, end of year 1.44% 1.50% 1.50% 1.48% 2.00%
Ratio of net charge offs to average
loans outstanding 0.14% 0.13% 0.05% 0.06% 0.20%
Nonperforming loans to total loans 1.38% 2.46% 1.15% 1.05% 1.83%
Nonperforming assets to total loans
and other real estate owned, end of year 2.18% 2.57% 1.40% 1.21% 2.83%
Ratio of allowance for loan losses
to nonperforming assets, end of year 65.64% 58.08% 106.77% 122.35% 69.92%
Ratio of allowance for loan losses
to nonperforming loans, end of year 104.80% 60.90% 130.44% 140.95% 109.30%
====================================================================================================================================
</TABLE>
28
<PAGE>
December 31, 1997 and 1.50% at December 31, 1996 and 1995, respectively. Another
measure of the allowance for loan losses is the ratio of the allowance to total
nonperforming loans. At December 31, 1997 this ratio was 104.8% versus 60.9% at
December 31, 1996.
YNB's gross charge offs in 1997 totaled $574,000, compared with $399,000 in
1996 and $209,000 in 1995. 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 $62,000 in 1997 compared
to $39,000 in 1996 and $109,000 in 1995 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.
Management has established the necessary steps to identify potential credit
problems in its loan portfolio by strengthening lending policies and quality
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. A formal loan review function, independent of loan origination,
is used to identify and monitor problem loans.
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,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
& agricultural $1,627 29.2% 22.9% $1,704 34.4% 19.2% $ 983 26.7% 13.6%
Real estate mortgage 1,740 31.2 63.3 2,064 41.7 66.3 1,816 49.4 70.6
Real estate construction 1,775 31.9 7.39 38 18.9 7.8 664 18.1 7.9
Consumer 283 5.1 4.8 175 3.5 4.5 132 3.6 5.1
Other loans 145 2.6 1.7 761.5 2.2 822.2 2.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total $5,570 100.0% 100.0% $4,957 100.0% 100.0% $3,677 100.0% 100.0%
====================================================================================================================================
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1994 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
& 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
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,912 100.0% 100.0$ 2,703 100.0% 100.0%
====================================================================================================================================
</TABLE>
29
<PAGE>
DEPOSITS
The following table provides information concerning average rates and average
balances of deposits for the years indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE DEPOSIT BALANCES AND RATES
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
% of % of % of
(in thousands) Balance Rate Total Balance Rate Total Balance Rate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 56,700 --% 13.87% $ 49,078 --% 15.05% $ 42,321 --% 14.88%
Interest bearing
demand deposits 44,024 3.46 10.77 23,554 2.50 7.22 21,236 2.77 7.46
Savings and money
market deposits 115,696 3.08 28.31 109,896 3.12 33.71 101,793 3.46 35.78
Time deposits 192,319 5.74 47.05 143,520 5.62 44.02 119,158 5.60 41.88
- ------------------------------------------------------------------------------------------------------------------------------
Total $408,739 3.94% 100.00% $326,048 3.70% 100.00% $284,508 3.79% 100.00%
===============================================================================================================================
</TABLE>
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.
YNB's overall philosophy of building and maintaining long-term customer
relationships is the key to further expanding the core deposit base, which, in
turn, presents opportunities for YNB to cross-sell its services.
Total deposits amounted to $422,944,000 at year-end 1997 compared to
$364,445,000 at the end of 1996, an increase of 16.1%. Average total deposits
during 1997 totaled $408,739,000 compared to $326,048,000 during 1996, an
increase of 25.4%. In 1997 YNB's deposit base grew primarily due to the
successful bidding for municipal deposits and competitive pricing of
certificates of deposit (CDs). Time deposits were competitively priced to reduce
levels of borrowed funds and to help fund loan growth throughout the year.
The nine and fifteen month CD products introduced in the second half of 1996
were the featured CD products in 1997. In 1997, competition for deposits was
strong in YNB's marketplace from other commercial banks and savings institutions
as well as non-bank financial institutions.
The average balance of non-interest bearing demand deposits was $56,700,000
during 1997, an increase of $7,622,000, or 15.5% from $49,078,000 during 1996.
Non-interest bearing demand deposits represent a stable, interes t 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 86.9%,
5.3% and 34.0%, respectively, from 1996 to 1997. Growth in interest bearing
demand deposits resulted from successful bidding for municipal deposit s. Total
average time deposits, which consist of certificates of deposit and individual
retirement accounts, increased $48,799,000 to $192,319,000 from $143,520,000 in
1996. In 1997, 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.
The average rate paid on YNB's deposit balances in 1997 was 3.94%, a 6.5%
increase from the 3.70% average rate for 1996.
The following table details amounts and maturities for certificates of
deposit of $100,000 or more for the years indicated:
December 31,
- ------------------------------------------------------------
(in thousands) 1997 1996
- ------------------------------------------------------------
Maturity range:
Within three months $5,742 $ 3,273
After three but within
six months 5,232 3,955
After six but within
twelve months 7,979 9,291
After twelve months 2,603 5,643
- ------------------------------------------------------------
Total $21,556 $ 22,162
============================================================
Certificates of deposit of $100,000 or more totaled $21,556,000, or 5.1% of
deposits, at December 31, 1997 compared to $22,162,000, or 6.1% of deposits, at
December 31, 1996.
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 to support growth.
30
<PAGE>
BORROWED FUNDS
Borrowed funds consist of securities sold under agreement 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, unsecured Federal funds lines of credit with two of
its correspondent banks for daily funding needs.
Borrowed funds totaled $134,316,000 at December 31, 1997 compared to
$86,339,000 at December 31, 1996. Short-term and long-term funding needs
increased in 1997 primarily due to the increase in the Investment Growth
Strategy and the faster rate of growth in the loan portfolio compared with the
growth rate of core deposits. Repurchase agreements totaling approximately
$100,050,000 at year-end 1997 were used as part of the Investment Growth
Strategy.
Borrowed funds averaged $84,492,000 in 1997, a decrease of $2,573,000 from
the average reported in 1996 of $87,065,000. At year-end 1997 there was
$29,338,000 in outstanding borrowings with the FHLB and $4,000,000 outstanding
with 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 repayments as well as 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, 1997, liquid assets (excluding securities purchased
utilizing repurchase agreements) amounted to $74,322,000, as compared to
$62,574,000 at December 31, 1996. This represents 15.9% and 15.2% of earning
assets, and 14.7% and 14.2% of total assets at December 31, 1997 and 1996,
respectively.
YNB has the availability to borrow up to $24,500,000 from the FHLB through
its line of credit program, subject to collateral requirements. 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.
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. Interest rate risk is derived from timing differences in the
repricing of assets and liabilities, loan prepayments, deposit withdrawals, and
differences in lending and funding rates. YNB's ALCO actively seeks to monitor
and control the mix of interest rate-sensitive assets and interest
rate-sensitive liabilities.
One measure of interest rate risk is the gap ratio, which is defined as the
difference between the dollar volume of interest-earning assets and
interest-bearing liabilities maturing or repricing within a specified period of
time as a percentage of total assets. A positive gap results when the volume of
interest rate-sensitive assets exceeds that of interest rate-sensitive
liabilities within comparable time periods. A negative gap results when the
volume of interest rate-sensitive liabilities exceeds that of interest
rate-sensitive assets within comparable time periods.
As indicated in the accompanying table, YNB's one year gap position at
December 31, 1997 was a negative 13.2%. Generally, a financial institution with
a negative gap position will most likely experience decreases in net interest
income during periods of rising rates and increases in net interest income
during periods of falling interest rates.
The negative gap was brought about, in part, due to customer preferences for
short-term certificate of deposit products which caused interest-rate sensitive
liabilities to exceed interest-rate sensitive assets during the earlier time
periods presented. The gap was also negatively impacted by the increase in the
size of the Investment Growth Strategy. While gap analysis represents a useful
asset/liability management tool, it does not necessarily indicate the effect of
general interest rate movements on YNB's net interest income, due to
discretionary repricing of assets and liabilities, and other competitive
pressures.
YNB reports its callable agency securities ($52.5 million at December 31,
1997) at their Option Adjusted Spread ("OAS") modified duration date, as opposed
to
31
<PAGE>
the call or maturity date. In management's opinion, using modified duration
dates on callable agency securities provides a better estimate of the option
exercise date at December 31, 1997. The OAS methodology is an approach whereby
the likelihood of option exercise takes into account the coupon on the security,
the distance to the call date, the ma turity date and the current interest rate
volatility. In addition, prepayment assumptions derived from historical data
have been applied to mortgage-related securities, which are included in
investments.
Included in the analysis of YNB's gap position are certain savings deposit
and interest checking accounts which are less sensitive to fluctuations in
interest rates than other interest-bearing sources of funds. In determining the
sensitivity of such deposits, management reviews the movement of its deposit
rates for the past five years relative to market rates. Using regression
analysis, management's ALCO committee has estimated that these deposits are
approximately 50-65% sensitive to interest rate change s (i.e., if short term
rates were to increase 100 basis points, the interest rate on such deposits
would increase 50-65 basis points).
The table sets forth certain information at December 31, 1997 relating to
YNB's assets and liabilities by scheduled repricing for adjustable assets and
liabilities, or by contractual maturity for fixed-rate assets and liabilities.
In addition to the utilization of gap for interest rate risk management, the
ALCO utilizes simulation analysis whereby the model estimates the variance in
net interest income with a change of interest rates of plus and minus 300 basis
points over 12 and 24 month periods. Given
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
More than More than More than More than
Under Six months one year two years five years ten years
six through through through through and not
(in thousands) months one year two years five years ten years repricing Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ -- $ -- $-- $-- $-- $ 18,923 $ 18,923
Federal funds sold and interest
bearing deposits 3,719 -- -- -- -- -- 3,719
Available for sale securities 37,923 21,042 27,355 44,998 22,340 6,066 159,724
Investment securities 1,465 6,152 2,701 9,687 6,174 733 26,912
Loans, net of unearned income 174,059 15,286 36,150 113,498 23,009 23,749 385,751
Other assets, net -- 9,448 -- -- -- 10,209 19,657
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 217,166 $ 51,928 $ 66,206 $168,183 $51,523 $ 59,680 $614,686
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Non-interest bearing demand $ -- $ -- $-- $-- $-- $ 66,560 $ 66,560
Savings and interest bearing demand 66,529 -- 15,291 37,747 -- -- 119,567
Money market 34,090 -- -- 5,847 -- -- 39,937
Certificates of deposit of $100,000
or more 10,974 7,979 2,261 342 -- -- 21,556
Other time deposits 80,896 41,334 32,261 20,833 -- -- 175,324
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 192,4894 9,313 49,813 64,769 66,560 422,944
Borrowed funds 80,004 28,587 14,914 811 10,000 134,316
Trust preferred securities -- -- -- -- -- 11,500 11,500
Other liabilities -- -- -- -- -- 6,181 6,181
Stockholders' equity -- -- -- -- -- 39,745 39,745
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $ 272,493 $ 77,900 $ 64,727 $ 65,580 $10,000 $ 123,986 $614,686
- ------------------------------------------------------------------------------------------------------------------------------------
Gap (55,327) (25,972) 1,479 102,603 41,523 (64,306)
Cumulative gap (55,327) (81,299) (79,820) 22,783 64,306
Cumulative gap to total assets -9.0% -13.2% -13.0% 3.7% 10.5% --
====================================================================================================================================
</TABLE>
32
<PAGE>
recent simulations, YNB is presently positioned to benefit from the current
stable rate environment, with only minor negative variances with higher or lower
rates over the next 12 months. These variances are well within the Bank's
internal policy guidelines.
Lastly, YNB measures longer term risks through the Economic Value of
Portfolio Equity ("EVPE"). The present value of asset and liability cash flows
are subjected to rate shocks of plus and minus 200 basis points. The variance in
the residual, or economic value of equity, is measured as a percentage of total
assets. This variance is managed within a negative 3% boundary.
MARKET RISK
For YNB, market risk is defined as the potential loss in the value of financial
instruments due to adverse changes in interest rates. This is different than
accounting losses that may occur over the next one to two years due to maturity
mismatches or spread changes between assets and liabilities, which are measured
through simulation analysis.
As a financial intermediary, YNB assumes market risk by holding both
financial assets (primarily loans, securities, and Fed funds sold) and financial
liabilities (deposits and borrowings) on the balance sheet. Rising rates have a
negative impact on the value of fixed rate assets and a positive impact on the
value of fixed rate and non-maturity deposits, as well as fixed rate borrowings.
Deposits or borrowings acquired at today's market rate levels are more valuable
to YNB as interest rates rise in the future, resulting in an economic gain. This
occurs at the same time fixed rate asset values are declining.
The table below shows the expected repricing of YNB's financial instruments
subject to market risks, the weighted average interest rate, and fair value of
the instruments as of December 31, 1997. The expected repricings take into
account amortization and expected prepayments on mortgage-related securities and
probable call dates on U.S. Agency notes and debentures represented by the
option adjusted spread modified
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXPECTED REPRICING OF FINANCIAL INSTRUMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
Beyond Fair
(in thousands) 1998 1999 2000 2001-2002 2003-2007 10 Years Totals Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ -- $ -- $ -- $ -- $ -- $ 18,923 $ 18,923 $ 18,923
Average rate -- -- -- -- -- -- --
Federal Funds sold and interest
bearing deposits 3,719 -- -- -- -- -- 3,719 3,719
Average rate 5.15% -- -- -- -- -- 5.15%
Available for sale securities 58,965 27,355 27,166 17,832 22,340 6,066 159,724 159,724
Average rate 6.32% 6.57% 7.28 6.84 6.93% 8.01% 6.73%
Investment securities 7,617 2,701 6,282 3,405 6,174 733 26,912 26,848
Average rate 5.10% 5.25% 5.57 5.16 5.34% 5.18% 5.29%
Loans, net of unearned income 189,345 36,150 43,009 70,489 23,009 23,749 385,751 388,770
Average rate 9.46% 8.86% 8.59 8.60 8.20% 6.87% 8.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Liabilities
Non-interest demand deposits $ -- $ -- $ -- $ -- $ -- $ 66,560 $ 66,560 $ 66,560
Average rate -- -- -- -- -- -- --
Savings 47,531 -- -- 27,516 -- -- 75,047 75,047
Average rate 3.18% -- -- 2.77% -- -- 3.03%
Interest bearing demand 18,998 15,291 -- 10,231 -- -- 44,520 44,520
Average rate 2.15% 5.85% -- 2.15% -- -- 3.42%
Money market 34,090 -- 5,847 -- -- -- 39,937 39,937
Average rate 3.68% -- 3.18% -- -- -- 3.61%
CDs of $100,000 or more 18,953 2,261 209 133 -- -- 21,556 21,522
Average rate 5.39% 5.77% 5.74 5.45% -- -- 5.43%
Other time deposits 122,230 32,261 13,118 7,715 -- -- 175,324
175,496
Average rate 5.61% 5.90% 6.27 5.88% -- -- 5.72%
Borrowed funds 108,591 14,914 15 796 10,000 -- 134,316
134,248
Average rate 5.86% 5.70% 6.47 6.21 5.75% -- 5.84%
Trust preferred securities -- -- -- -- -- 11,500 11,500 12,075
Average rate -- -- -- -- -- 9.25% 9.25%
====================================================================================================================================
</TABLE>
33
<PAGE>
duration. The table does not include prepayments on loans, as they are less
predictable than securities with homogenous coupons and maturity dates. Loan
repricings are therefore likely to be shorter than what is indicated in this
table, as some prepayments can be expected.
Deposits, other than time deposits and non-interest demand, are shown with a
"rate sensitive" component due in 1998 and a "non-rate sensitive" component due
in subsequent periods. Although these deposits are "payable on demand", YNB does
not anticipate a situation where all of the deposits mature simultaneously.
Therefore, rate sensitivity of non-contractual interest bearing deposits are
measured through a historical regression analysis, which correlates the changes
in the rates paid on these deposits to an external market rate (Fed Funds).
Since the regression is based on a historical relationship, it may not be
indicative of how YNB will price these products in the future, but does provide
some basis to determine the market risk of these liabilities.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Stockholders' equity at December 31, 1997 totaled $39,745,000 compared to
$35,230,000 at December 31, 1996. This represents an increase of $4,515,000 or
12.8%. This increase resulted from (i) earnings of $5,006,000 (less dividend
payments of $1,233,000) and a positive equity adjustment of $285,000 for the
unrealized gain on securities available for sale, (ii) proceeds of $457,000 from
exercised options.
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 1997, 3,559,912 shares were traded. There were
4,958,098 shares of common stock outstanding at December 31, 1997. All share and
dividend information reflects the two-for-one stock split declared December 23,
1997.
Dividends paid per share in 1997 totaled $0.25. As a result of YNB's
performance during 1997, the common stock dividend was increased from $0.06 per
share to $0.065 per share in the last two quarters of 1997.
Yardville National Bancorp and its banking subsidiary are 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 4.0%.
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
a minimum Tier 1 and total risk-based capital ratios of 6% and 10%,
respectively, and a minimum Tier 1 leverage ratio of 5%.
At December 31, 1997 the capital ratios for YNB exceeded the above ratios
required to be well capitalized. The table below summarizes YNB's capital ratios
for the years indicated:
December 31,
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
Tier 1 leverage ratio 9.5% 7.8% 9.1%
Tier 1 risk-based 12.2% 10.2% 12.0%
Total risk-based 13.5% 11.4% 13.2%
==============================================================================
COMPANY - OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY
(Trust Preferred Securities)
On October 16, 1997, Yardville Capital Trust (the Trust), a statutory business
trust, and a wholly owned subsidiary of Yardville National Bancorp issued
$11,500,000 of 9.25% Trust Preferred Securities maturing on November 1, 2027 to
investors. Proceeds from the issuance of the Trust Preferred Securities were
immediately used by the Trust to purchase $11,500,000 of 9.25% Subordinated
Debentures due November 1, 2027, of Yardville National Bancorp. In conjunction
with its formation the Trust purchased $356,000 in Subordinated Debentures from
Yardville National Bancorp. These Subordinated Debentures constitute the sole
assets of the Trust. The Subordinated Debentures are redeemable in whole or in
part prior to maturity after November 1, 2002. The Trust is obligated to
distribute all proceeds of a redemption, whether voluntary or upon maturity, to
holders of Trust Preferred Securities. Yardville National Bancorp's obligations
with respect to the Trust Preferred Securities and the Subordinated Debentures,
when taken together, provide a full and unconditional guarantee on a
subordinated basis by Yardville National Bancorp of the Trust's obligations to
pay amounts when due on the Trust Preferred Securities. In the last quarter of
1997 investments were purchased to leverage YNB's capital and $7,500,000 was
contributed to the Bank to fund its operations.
YEAR 2000
Issues surrounding the year 2000 arise out of the fact that many existing
computer programs use only two digits to identify a year in the date field.
Additionally, the year 2000 is not just a computer issue, but involves
communication, building, and environmental systems as well as office equipment.
Year 2000 readiness can be affected to the extent that other entities such as
bank
34
<PAGE>
customers and key vendors are unsuccessful in addressing this issue. The year
2000 issue affects virtually all aspects of YNB's organization. YNB, through its
Technology and Systems and Operations committees, began taking a proactive
response to this issue in 1997. YNB's response includes a written plan and the
adoption of a reporting system that provides information to both senior
management and the Board of Directors on the progress of the year 2000 efforts.
The first step taken by YNB was an organization-wide effort to educate the
Board of Directors, senior management and all employees concerning the year 2000
issue. This included education seminars, questionnaires, and presentations to
the Board of Directors. Corporate-wide communication is critical to the success
of YNB's effort and will continue through the entire process.
Management is currently in the process of assessing all critical in-house
systems and evaluating key outside vendors. YNB will determine which systems are
year 2000 compliant and which require upgrade or replacement. This process has
included the use of outside consultants and discussion with outside vendors.
Management anticipates that all assessments of critical systems and vendors will
be completed in the second quarter of 1998.
Replacement, renovation and upgrade of systems not year 2000 compliant will
begin in the second quarter of 1998. This process includes the testing of
systems and ongoing monitoring of the compliance efforts of key outside vendors.
Management will also test systems believed to be year 2000 compliant throughout
1998. During this period, YNB will further refine contingency plans to deal with
key outside vendors who are either not year 2000 compliant or where there is a
reasonable chance that the vendor will not be year 2000 compliant in a timely
manner.
Management is currently on schedule with its plan and expects to have all
system and application changes completed by the first quarter of 1999. At the
same time, YNB anticipates having contingency plans in place to minimize the
risk of key vendors not being year 2000 compliant. Management believes the level
of resources committed to the project is adequate and the oversight provided by
senior management and the Board of Directors is appropriate.
The cost of the year 2000 conversion is estimated to be $500,000. This
estimate included internal and external personnel costs for all aspects of the
program as well as the replacement of certain hardware and software that is not
year 2000 compliant.
The cost of the project and the expected completion dates are based on
management's best estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure." SFAS 129 lists required
disclosures about capital structure that have been included in a number of
separate statements and opinions. This statement is effective for financial
statements for periods ending after December 15, 1997. The adoption of the
Statement should not have a material effect on the consolidated financial
statements of YNB.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements. This
statement is effective for financial statements for fiscal years beginning after
December 15, 1997. The adoption of this statement should not have a material
effect on the consolidated financial statements of YNB.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement standardizes
the disclosure requirements for pensions and other postretirement benefits by
requiring additional information that will facilitate financial analysis, and
eliminating certain disclosures that are considered no longer useful. SFAS 132
supersedes the disclosure requirements in FASB statements No. 87, 88, and 106.
This statement is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is readily available.
FORWARD-LOOKING STATEMENTS
This annual report contains express and implied statements relating to the
future financial condition, results of operations, plans, objectives,
performance and business of YNB, which are considered forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These include statements that relate to, among other things, profitability,
liquidity, loan loss reserve adequacy, plans for growth, interest rate
sensitivity, market risk and year 2000 issues. Actual results may differ
materially from those expressed or implied as a result of certain risks and
uncertainties, including, but not limited to, changes in economic conditions,
interest rate fluctuations, continued levels of loan quality and origination
volume, successful implementation of year 2000 technology changes by YNB, its
vendors and suppliers, competitive product and pricing pressures within YNB's
markets, continued relationships with major customers including sources for
loans and deposits, personal and corporate customers' bankruptcies, legal and
regulatory barriers and structure, inflation, and technological changes, as well
as other risks and uncertainties detailed from time to time in the filings of
YNB with the Securities and Exchange Commission
35
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks (Note 2) $ 18,923 $ 13,110
Federal funds sold 1,500 4,040
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents 20,423 17,150
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits 2,219 1,357
Securities available for sale (Note 3) 159,724 93,671
Investment securities (market value of $26,848 in 1997
and $30,878 in 1996) (Note 3) 26,912 31,296
Loans 385,751 331,237
Less: Allowance for loan losses (5,570) (4,957)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net (Note 4) 380,181 326,280
Bank premises and equipment, net (Note 5) 5,192 5,418
Other real estate 3,171 395
Other assets (Note 9) 16,864 14,978
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 614,686 $ 490,545
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing $ 66,560 $ 55,519
Interest bearing 356,384 308,926
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits (Note 6) 422,944 364,445
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase 100,050 64,185
Other 34,266 22,154
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds (Note 7) 134,316 86,339
Company - obligated Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trust holding solely
junior Subordinated Debentures of the Company (Note 8) 11,500 --
Other liabilities 6,181 4,531
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 574,941 $ 455,315
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 10 and 13)
Stockholders' equity (Notes 10 and 11)
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 12,000,000 shares
Issued and outstanding 4,958,098 shares in 1997
and 4,860,828 shares in 1996 17,703 17,246
Surplus 2,205 2,205
Undivided profits (Note 14) 19,713 15,940
Unrealized gain (loss) - securities available for sale 124 (161)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 39,745 35,230
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 614,686 $ 490,545
====================================================================================================================================
</TABLE>
Shares and related amounts adjusted for two-for-one stock split declared
December 23, 1997.
See Accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans (Note 4) $ 31,511 $ 25,731 $ 21,080
Interest on deposits with banks 107 98 36
Interest on securities available for sale 7,093 6,262 3,592
Interest on investment securities:
Taxable 1,277 1,536 1,792
Exempt from Federal income tax 400 396 372
Interest on Federal funds sold 380 228 464
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 40,768 34,251 27,336
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on savings account deposits 5,083 4,014 4,107
Interest on certificates of deposit of $100,000 or more 1,273 922 883
Interest on other time deposits 9,759 7,138 5,792
Interest on borrowed funds (Note 7) 4,761 4,967 2,059
Interest on trust preferred securities (Note 8) 224
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 21,100 17,041 12,841
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 19,668 17,210 14,495
Less provision for loan losses (Note 4) 1,125 1,640 865
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 18,543 15,570 13,630
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income:
Service charges on deposit accounts 1,174 1,153 1,069
Gains on sales of mortgages, net 30 21 19
Security gains (losses), net 24 (136) (91)
Other non-interest income 1,316 1,075 858
- ------------------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 2,544 2,113 1,855
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits (Note 10) 7,446 6,629 5,693
Occupancy expense, net (Notes 5 and 13) 977 920 726
Equipment (Note 5) 1,107 695 513
Other non-interest expense (Note 12) 3,811 3,235 3,328
- ------------------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 13,341 11,479 10,260
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 7,746 6,204 5,225
Income tax expense (Note 9) 2,740 2,178 1,822
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,006 $ 4,026 $ 3,403
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic $ 1.02 $ 0.84 $ 0.87
Diluted $ 1.00 $ 0.82 $ 0.84
===================================================================================================================================
</TABLE>
Shares and related amounts adjusted for two-for-one stock split declared
December 23, 1997.
See Accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Changes in
Stockholders' Equity
<TABLE>
<CAPTION>
Year Ended December 31, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
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, 1994 3,096,160 $ 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 55,326 202 202
Exercise of warrants 167,698 1,283 1,283
Proceeds from issuance of
common stock, net of
related expense 1,380,000 7,918 7,918
Unrealized gain - securities available
for sale, net of tax 1,198 1,198
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 4,699,184 $ 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 127,764 562 562
Exercise of warrants 33,880 275 275
Unrealized loss - securities available
for sale, net of tax (267) (267)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 4,860,828 $ 17,246 $ 2,205 $ 15,940 $ (161) $ 35,230
Net income 5,006 5,006
Cash dividends (1,233) (1,233)
Common stock issued:
Exercise of stock options 97,270 457 457
Unrealized gain - securities available
for sale, net of tax 285 285
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 4,958,098 $ 17,703 $ 2,205 $ 19,713 $ 124 $ 39,745
====================================================================================================================================
</TABLE>
Shares and related amounts adjusted for two-for-one stock split declared
December 23, 1997. See Accompanying Notes to Consolidated Financial Statements.
38
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,006 $ 4,026 $ 3,403
Adjustments:
Provision for loan losses 1,125 1,640 865
Depreciation 832 666 474
Amortization and accretion 467 555 368
(Gain) Loss on sales of securities available for sale (24) 136 91
Writedown of other real estate 532 69 66
Increase in other assets (2,076) (5,434) (3,289)
Increase in other liabilities 1,650 1,326 1,617
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,512 2,984 3,595
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (increase) decrease in interest bearing deposits (862) (324) 61
Purchase of securities available for sale (123,534) (65,492) (100,065)
Maturities, calls and paydowns of securities available for sale 45,928 23,475 17,000
Proceeds from sales of securities available for sale 11,740 45,864 10,481
Proceeds from maturities and paydowns of investment securities 4,757 4,355 4,148
Purchase of investment securities (528) (452) (646)
Net increase in loans (57,984) (86,915) (48,962)
Expenditures for bank premises and equipment (606) (2,058) (565)
Proceeds from sale of other real estate - 533 353
Capital improvements to other real estate (350) - (12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (121,439) (81,014) (118,207)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing
demand, money market, and savings deposits 36,188 15,704 19,044
Net increase in certificates of deposit 22,311 45,769 24,632
Net increase in borrowed funds 47,977 21,118 64,006
Proceeds from issuance of common stock 457 837 9,403
Proceeds from issuance of trust preferred securities 11,500
Dividends paid (1,233) (1,083) (738)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 117,200 82,345 116,347
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,273 4,315 1,735
Cash and cash equivalents as of beginning of year 17,150 12,835 11,100
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Year $ 20,423 $ 17,150 $ 12,835
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 19,239 $ 16,338 $ 11,432
Income taxes 3,642 2,324 1,908
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-cash Investing and Financing Activities:
The Corporation transferred from loans to other real estate, net of charge offs, $2,958, $372, and $454 in 1997, 1996, and 1995,
respectively.
====================================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
39
<PAGE>
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996, and 1995
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 subsidiaries, Yardville Capital Trust and the
Bank and the Bank's wholly owned subsidiaries, the Yardville National Investment
Corporation, Brendan, Nancy Beth and Yardville Real Estate 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
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. Allowance for Loan Losses. 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
40
<PAGE>
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.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or fair value of the collateral. Impairment losses are included in
the allowance for loan losses through provisions charged to operations.
F. Bank Premises and Equipment. Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on straight-line and
accelerated methods over the estimated useful lives of the assets (buildings 25
to 50 years, furniture and fixtures 7 to 10 years). Charges for maintenance and
repairs are expensed as they are incurred.
G. Other Real Estate (O.R.E.). O.R.E. comprises real properties acquired through
foreclosure or deed in lieu of foreclosure in partial or total satisfaction of
problem loans. The properties are recorded at the lower of cost or fair value
less estimated disposal costs at the date acquired. When a property is acquired,
the excess of the loan balance over the fair value is charged to the allowance
for loan losses. Any subsequent writedowns that may be required to the carrying
value of the property are included in other non-interest expense. Gains realized
from the sales of other real estate are i ncluded in other non-interest income,
while losses are included in non-interest expense.
H. 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.
I. 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 10).
J. Earnings Per Share. On December 23, 1997, the Board of Directors of the
Corporation approved a two-for-one stock split effected in the form of a stock
dividend payable on January 20, 1998 to shareholders of record January 5, 1998.
All share data has been retroactively adjusted to reflect the common stock
split.
The Corporation adopted SFAS No. 128, "Earnings Per Share" on
December 31, 1997. SFAS No. 128 establishes the new standard for computation
and presentation of net income per share. Under the new requirements both
basic and diluted net income per share are presented. All prior period net
income per common share data has been restated.
Basic net income per common share is calculated by dividing net income,
less the dividends on preferred stock, if any, by the weighted average common
shares outstanding during the period.
Diluted net income per common share is computed similar to that of basic
net income per common share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all
potentially dilutive common shares, principally stock options, were issued
during the reporting period.
Weighted average shares for the basic net income per share computation
for the year ended December 31, 1997, 1996, and 1995 were 4,929,000, 4,817,000,
and 3,928,000, respectively. For the diluted net income per share computation
common stock equivalents of 65,000, 102,000, and 125,000 are included for the
year ended December 31, 1997, 1996, and 1995, respectively.
2. Cash and Due From Banks
The Corporation maintains various deposits with other banks. As of December 31,
1997 and 1996, the Corporation maintained sufficient cash on hand to satisfy
Federal regulatory requirements.
41
<PAGE>
3. Securities
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 62,465 $ 117 $ (42) $ 62,540 $ 31,951 $ 27 $ (36) $ 31,942
Mortgage-backed securities 91,193 329 (206) 91,316 59,441 339 (598) 59,182
Corporate obligations 3,297 15 (6) 3,306 -- -- -- --
Federal Reserve Bank Stock 587 -- -- 587 572 -- -- 572
Federal Home Loan Bank Stock 1,975 -- -- 1,975 1,975 -- -- 1,975
- ------------------------------------------------------------------------------------------------------------------------------------
Total $159,517 $ 461 $ (254) $159,724 $ 93,939 $ 366 $ (634) $ 93,671
====================================================================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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>
Obligations of state and
political subdivisions $ 8,819 $ 138 $ -- $ 8,957 $ 9,070 $ 62 $ (24) $ 9,108
Mortgage-backed securities 18,093 -- (202) 17,891 22,226 -- (456) 21,770
- ------------------------------------------------------------------------------------------------------------------------------------
Total $26,912 $ 138 $ (202) $26,848 $31,296 $ 62 $ (480) $30,878
====================================================================================================================================
</TABLE>
<PAGE>
The amortized cost and estimated market value of securities available for sale
and investment securities as of December 31, 1997 by contractual maturity are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $ 8,482 $ 8,502
Due after 1 year
through 5 years 16,983 17,005
Due after 5 years
through 10 years 12,000 12,019
Due after 10 years 30,859 30,882
- --------------------------------------------------------------------------------
Subtotal 68,324 68,408
Mortgage-backed securities 91,193 91,316
- --------------------------------------------------------------------------------
Total $159,517 $159,724
================================================================================
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Due in 1 year or less $ 302 $ 303
Due after 1 year
through 5 years 4,387 4,413
Due after 5 years
through 10 years 3,397 3,488
Due after 10 years 733 753
- --------------------------------------------------------------------------------
Subtotal 8,819 8,957
Mortgage-backed securities 18,093 17,891
- --------------------------------------------------------------------------------
Total $26,912 $26,848
================================================================================
Proceeds from sales of securities available for sale during 1997, 1996, and 1995
were $11,740,000, $45,864,000 and $10,481,000 respectively. Gross gains of
$24,000, $43,000 and $27,000 were realized on those sales in 1997, 1996, and
1995, respectively. There were no losses in 1997. Gross losses of $179,000 and
$118,000 were realized on those sales in 1996 and 1995, respectively.
42
<PAGE>
Securities with a carrying value of approximately $111,898,000 as of
December 31, 1997 were pledged to secure public deposits and for other purposes
as required or permitted by law. As of December 31, 1997, 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) 1997 1996
- --------------------------------------------------------------------------------
Commercial and
agricultural loans $ 88,228 $ 63,426
Real estate loans mortgage 244,058 219,554
Real estate loans construction28,182 25,958
Consumer loans 18,519 15,034
Other loans 6,764 7,265
- --------------------------------------------------------------------------------
Total loans $385,751 $331,237
================================================================================
Residential mortgage loans held for sale amounted to $2,773,000 and
$2,921,000 as of December 31, 1997 and 1996, 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, 1997 and 1996, loans serviced for Freddie Mac were $39,025,000 and
$44,637,000, respectively. Loans serviced for FNMA were $5,114,000 and
$2,682,000, respectively, as of December 31, 1997 and 1996.
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) 1997 1996
- --------------------------------------------------------------------------------
Balance at beginning of year $3,330 $3,581
Additions 5,399 752
Repayments and resignations 2,342 1,003
- --------------------------------------------------------------------------------
Balance as of end of year $6,387 $3,330
================================================================================
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) 1997 1996 1995
- --------------------------------------------------------------------------------
Balance as of beginning
of year $ 4,957 $ 3,677 $ 2,912
Loans charged off (574) (399) (209)
Recoveries of loans
charged off 62 39 109
- --------------------------------------------------------------------------------
Net charge offs (512) (360) (100)
Provision charged
to operations 1,125 1,640 865
- --------------------------------------------------------------------------------
Balance as of
end of year $ 5,570 $ 4,957 $ 3,677
================================================================================
<PAGE>
The detail of loans charged off is as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Commercial and
agricultural $212 $-- $--
Real estate loans
mortgage 161 72 26
Real estate loans
construction -- 75 30
Consumer loans 201 252 153
- --------------------------------------------------------------------------------
Total $574 $399 $209
================================================================================
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 1.38% as of
December 31, 1997 and 2.46% as of December 31, 1996.
43
<PAGE>
A summary of nonperforming assets follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Nonaccruing loans:
Commercial and
agricultural loans $ 515 $ 961
Real estate loans
- mortgage 384 1,451
Real estate loans
- construction 2,106 4,659
Consumer loans 38 12
Other loans 312 --
- --------------------------------------------------------------------------------
Total nonaccruing loans $3,355 $7,083
- --------------------------------------------------------------------------------
Restructured loans $ 969 $ --
- --------------------------------------------------------------------------------
Past due 90 days or more:
Real estate loans
- mortgage $ 886 $1,014
Consumer loans 105 43
- --------------------------------------------------------------------------------
Total past due 90 days
or more 991 1,057
- --------------------------------------------------------------------------------
Total nonperforming loans 5,315 8,140
Other real estate 3,171 395
- --------------------------------------------------------------------------------
Total nonperforming assets $8,486 $8,535
================================================================================
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, 1997 and 1996 was $4,213,000 and $6,827,000,
respectively. The related allowance for loan losses on these loans as of
December 31, 1997 and 1996 was $716,000 and $861,000, respectively. The average
recorded investment in impaired loans during 1997 and 1996 was $5,485,000 and
$2,548,000, respectively. There was no interest income recognized on impaired
loans in 1997 or 1996.
Additional income before income taxes amounting to approximately
$254,000 in 1997, $351,000 in 1996, and $143,000 in 1995 would have been
recognized if interest on all loans had been recorded based upon original
contract terms.
There were two restructured loans as of December 31, 1997 totaling
$969,000. There were no restructured loans at December 31, 1996.
5. BANK PREMISES AND EQUIPMENT
The following table represents comparative information for premises and
equipment:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Land and improvements $ 528 $ 528
Buildings and improvements 4,308 4,296
Furniture and equipment 5,722 5,128
- --------------------------------------------------------------------------------
Total 10,558 9,952
Less accumulated depreciation 5,366 4,534
- --------------------------------------------------------------------------------
Bank premises
and equipment, net $ 5,192 $ 5,418
================================================================================
<PAGE>
6. DEPOSITS
Total deposits consist of the following:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 66,560 $ 55,519
Interest bearing
demand deposits 44,520 24,435
Money market deposits 39,937 38,348
Savings deposits 75,047 71,574
Certificates of deposit
of $100,000 and over 21,556 22,162
Other time deposits 175,324 152,407
- --------------------------------------------------------------------------------
Total $422,944 $364,445
================================================================================
A summary of certificates of deposit by maturity is as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Within one year $141,183 $ 84,529
One to two years 34,522 50,357
Two to three years 13,327 27,731
Three to four years 5,366 9,942
Four to five years 2,482 2,010
- --------------------------------------------------------------------------------
Total $196,880 $174,569
================================================================================
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.
44
<PAGE>
The following table presents comparative data related to borrowed funds of the
Corporation at and for the years ended December 31, 1997, 1996, and 1995.
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Securities sold
under agreements
to repurchase $100,050 $ 64,185 $ 54,830
FHLB advances 29,338 20,813 10,000
Other 4,928 1,341 391
- --------------------------------------------------------------------------------
Total $134,316 $ 86,339 $ 65,221
- --------------------------------------------------------------------------------
Maximum amount
outstanding at
any month end $134,316 $105,577 $ 65,221
Average interest rate
on year end balance 5.94% 5.72% 6.01%
Average amount
outstanding
during the year $ 84,492 $ 87,065 $ 33,339
Average interest rate
for the year 5.63% 5.70% 6.18%
================================================================================
The following is a summary of securities sold under agreements to repurchase and
their maturities as of December 31, 1997:
- -----------------------------------------------------
(in thousands)
- -----------------------------------------------------
Up to 30 days $ 12,340
30 to 90 days 44,530
Over 90 days 43,180
- -----------------------------------------------------
Total $100,050
=====================================================
The FHLB advances as of December 31, 1997, mature as follows:
- -----------------------------------------------------
(in thousands)
- -----------------------------------------------------
Within one year $18,500
Over three to four years 799
Over four to five years 39
Over five years 10,000
- -----------------------------------------------------
Total $29,338
=====================================================
Expected maturities of FHLB Advances could differ from contractual maturities
because FHLB has the right to call obligations.
Interest expense on borrowed funds is comprised of the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Securities sold under
agreements to
repurchase $3,627 $3,792 $1,429
FHLBadvances 1,081 1,116 576
Other 53 59 54
- --------------------------------------------------------------------------------
Total $4,761 $4,967 $2,059
================================================================================
<PAGE>
8. COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE
COMPANY (TRUST PREFERRED SECURITIES)
On October 16, 1997, Yardville Capital Trust (the Trust) a statutory business
trust, and a wholly owned subsidiary of Yardville National Bancorp, issued
$11,500,000 of 9.25% Company Obligated Mandatorily
Redeemable Trust Preferred Securities (Trust Preferred Securities) to investors
maturing on November 1, 2027. Proceeds from the issuance of the Trust Preferred
Securities were immediately used by the Trust to purchase $11,500,000 of 9.25%
Subordinated Debentures due November 1, 2027, of Yardville National Bancorp,
said Subordinated Debentures constituting the sole assets of the Trust. The
Subordinated Debentures are redeemable in whole or part prior to maturity after
November 1, 2002 at par. The Subordinated Debentures are also redeemable in
whole in the event that the tax or capital treatment of the issue changes from
the treatment at time of issuance and in the event that the Trust were to be
considered an investment company under the Investment Company Act of 1940, as
amended. The Trust is obligated to distribute all proceeds of a redemption,
whether voluntary or upon maturity, to the holders of Trust Preferred
Securities. Yardville National Bancorp's obligation with respect to the Trust
Preferred Securities and the Subordinated Debentures, when taken together,
provide a full and unconditional guarantee on a subordinated basis by Yardville
National Bancorp of the Trust's obligation to pay amounts when due on the Trust
Preferred Securities.
9. INCOME TAXES
Income taxes reflected in the consolidated financial statements for 1997, 1996,
and 1995 are as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Statements of Income:
Federal:
Current $ 2,440 $ 2,281 $ 1,881
Deferred (294) (521) (400)
State:
Current 675 $ 560 $ 253
Deferred (81) (142) 88
- --------------------------------------------------------------------------------
Total tax expense $ 2,740 $ 2,178 $ 1,822
- --------------------------------------------------------------------------------
Statements of Condition:
Deferred tax on securities
available for sale $ 190 $ (178) $ 798
================================================================================
45
<PAGE>
Deferred income taxes 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 1997 and 1996 are
as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Deferred loan fees $ 38 $ 170
Allowance for
loan losses 1,965 1,686
Writedown of basis
of O.R.E. properties 22 36
Deferred income 21
Nonaccrual loans 40 40
Unrealized loss on
securities available
for sale 107
Deferred compensation 458 223
- --------------------------------------------------------------------------------
Total deferred tax assets$ 2,525 $ 2,263
- --------------------------------------------------------------------------------
Valuation allowance (78) (78)
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on
securities available
for sale (83)
Unamortized discount
accretion (71) (94)
Depreciation (195) (207)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 2,098 $ 1,884
================================================================================
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) 1997 1996 1995
- -------------------------------------------------------------------------------
Income tax expense
at statutory rate $ 2,634 $ 2,105 $ 1,776
State income taxes, net
of Federal benefit,
before change in
valuation reserve 392 276 226
Changes in taxes resulting from:
Tax exempt interest (155) (122) (117)
Tax exempt income(184) (142) (93)
Non-deductible
expenses 53 61 30
- -------------------------------------------------------------------------------
Total $ 2,740 $ 2,178 $ 1,822
================================================================================
10. 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 1997 and 1996 and 25% in 1995, up to 6% of base compensation. Employer
contributions to the plan amounted to $93,000 in 1997, $83,000 in 1996, and
$36,000 in 1995.
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.
The cost of retiree health and life insurance benefits is recognized
over the employees' period of service.
46
<PAGE>
The periodic postretirement benefit cost under SFAS 106 was as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost $ 32 $ 79 $ 50
Interest cost 34 83 68
Amortization of
transition obligation - 30 30
Amortization of
actuarial loss - 13 -
Amortization of
prior service cost (2) - -
- --------------------------------------------------------------------------------
Net postretirement cost $ 64 $205 $148
================================================================================
The actuarial present value of benefit obligations was as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees $ 178 $ 316
Fully eligible active plan
participants 79 320
Other active plan
participants 281 701
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation 538 1,337
Unrecognized transition
obligation -- (480)
Unrecognized actuarial
loss (3) (337)
Unrecognized prior
service cost 33 --
- --------------------------------------------------------------------------------
Accrued postretirement
benefit obligation $ 568 $ 520
================================================================================
The assumed annual rate of future increases in per capita cost of health care
benefits was 9% for 1997 and 10% for 1996. 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 $100,000 and $349,000 and the service,
interest and amortization costs by $15,000 and $49,000 in 1997 and 1996,
respectively. The weighted average discount rate used in determining the
accumulated benefit obligation was 7% in 1997 and 1996.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement standardizes
the disclosure requirements for pensions and other postretirement benefits by
requiring additional information that will facilitate financial analysis, and
eliminating certain disclosures that are considered no longer useful. SFAS 132
supersedes the disclosure requirements in FASB Statements No. 87, 88 and 106.
This Statement is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is readily available.
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 88,000 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 328,000. In April 1997 the stockholders
amended the 1988 plan. The amendment extended from six months to twelve months
the time in which legal representative, designated beneficiary or executor can
exercise options granted under the plan in the event that an option holder
becomes permanently disabled or dies while in the employ of the Corporation or
the Bank.
After February 28, 1998 no incentive stock options may be granted under
the 1988 plan.
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, 1997, 1996, and
1995 is as follows:
- -----------------------------------------------------------------------
Options Outstanding: Price
Shares Per Share
- -----------------------------------------------------------------------
Balance,
December 31, 1994 320,460 $1.550 - $4.375
- -----------------------------------------------------------------------
Shares:
Granted 7,040 $ 7.375
Exercised 33,440 $1.550 - $7.375
Expired 4,700 $4.00 - $4.375
- -----------------------------------------------------------------------
Balance,
December 31, 1995 289,360 $4.00 - $7.375
- -----------------------------------------------------------------------
Shares:
Exercised 114,678 $4.375 - $7.375
Expired 5,622 $4.375 - $7.375
- -----------------------------------------------------------------------
Balance,
December 31, 1996 169,060 $4.00 - $7.375
- -----------------------------------------------------------------------
Shares:
Exercised 76,242 $4.00 - $7.375
Expired 1,290 $4.375 - $7.375
- -----------------------------------------------------------------------
Balance,
December 31, 1997 91,528 $4.00 - $7.375
- -----------------------------------------------------------------------
Shares exercisable as of
December 31, 1997 91,528 $4.00 - $7.375
=======================================================================
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 Directors and to
provide such directors with incentives to contribute to the growth and
development of
47
<PAGE>
the business of the Corporation. In general, the plan allows for the granting of
up to 80,000 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, 1997, 1996, and 1995 is as
follows:
- --------------------------------------------------------------------------------
Options Outstanding: Price
Shares Per Share
- --------------------------------------------------------------------------------
Balance,
December 31, 1995 35,714 $ 4.375
- --------------------------------------------------------------------------------
Shares:
Granted 6,400 $ 7.875
Exercised 13,086 $ 4.375
Expired 1,600 $ 4.375
- --------------------------------------------------------------------------------
Balance,
December 31, 1996 27,428 $ 4.375 - $ 7.875
- --------------------------------------------------------------------------------
Shares:
Granted 19,200 $10.313 - $10.750
Exercised 21,028 $ 4.375 - $ 7.875
- --------------------------------------------------------------------------------
Balance,
December 31, 1997 25,600 $ 4.375 - $10.750
- --------------------------------------------------------------------------------
Shares exercisable as of
December 31, 1997 25,600 $ 4.375 - $10.750
================================================================================
As of December 31, 1997, there were 5,812 additional shares available
for grant under the employee plan and no shares available for grant under the
director plan.
1997 Stock Option Plan. In April 1997 the stockholders approved the 1997 Stock
Option Plan (The 1997 Plan). The 1997 Plan is designed to assist the Corporation
in attracting and retaining highly qualified persons as employees of the
Corporation and its Subsidiaries and to provide such key employees with
incentives to contribute to the growth and development of the business and the
Corporation. In general, the plan allows for the granting of up to 400,000
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. There were 10,000 options granted at $11.50 under this plan
in 1997. No options were exercisable under this plan in 1997.
As discussed above, there were 19,200 options granted under the director
plan in 1997 and there were no grants under the employee plan in 1996. The per
share weighted average fair value of stock options granted during 1997 and 1996
was $1.61 and $1.23, respectively, on the date of grant using the Black Scholes
option pricing model with the following weighted average assumptions in 1997 and
1996: (1)an expected annual dividend of $0.28 and $0.225, respectively, (2)risk
free interest rate of 5.5% and 5.2%, respectively, and expected life of
approximately one year.
The Corporation applies APBOpinion No. 25 in accounting for its plans
and, accordingly, no compensation cost has been recognized for stock options
in the consolidated financial statements.
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 1997
and 1996 net income would have been reduced to the pro forma amounts indicated
below:
<PAGE>
- --------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------
Net income:
As reported $5,006 $4,026 $3,403
Pro forma 4,976 4,021 3,398
- --------------------------------------------------------------------
Earnings per share:
Basic:
As reported $ 1.02 $ 0.84 $ 0.87
Pro forma 1.01 0.84 0.87
Diluted:
As reported $ 1.00 $ 0.82 $ 0.84
Pro forma 1.00 0.82 0.84
=====================================================================
Benefit Plans. The Corporation has a salary continuation plan for key executives
and a director deferred compensation plan for 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, 1997 and 1996
is approximately $342,000 and $226,000, respectively, and is included in other
liabilities in the accompanying consolidated statements of condition.
Compensation expense of approximately $120,000 is included in the accompanying
consolidated statements of income for each of the years ended December 31, 1997
and 1996.
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 $5,797,000 and $5,560,000 as of December 31, 1997 and
1996, 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 $3,441,000 and $2,990,000 as of December 31, 1997 and
48
<PAGE>
1996, and is included in other assets in the accompanying consolidated
statements of condition.
11. COMMON STOCK
During 1996, warrants associated with prior capital offerings totaling 33,880
were exercised with proceeds of $275,000. On June 13, 1996 all outstanding
warrants expired.
On June 14, 1995 the Corporation completed its underwritten public
offering by issuing 1,380,000 shares of common stock. The proceeds from this
offering were $7,918,000, net of offering expenses.
12. OTHER NON-INTEREST EXPENSE
Other non-interest expense included the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Audit & Examination Fees $ 227 $ 216 $ 176
Attorney's Fees 373 153 162
Outside Services & Processing332 325 289
O.R.E. expenses 378 163 166
Stationery and supplies 347 388 300
Communication & Postage 373 354 322
Insurance (other) 127 102 93
Marketing 575 522 479
Other 1,079 1,012 1,341
- --------------------------------------------------------------------------------
Total $3,811 $3,235 $3,328
================================================================================
13. 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, 1997 and 1996 for commitments to extend credit were $77,943,000 and
$56,071,000, respectively. For standby letters of credit, the contract amounts
were $6,501,000 and $6,831,000, respectively.
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 $31,500,000 in lines of credit
available as of December 31, 1997. The Corporation maintains repurchase
agreement lines of credit with two brokerage firms. There was approximately
$104,850,000 in lines available at December 31, 1997.
The Corporation leases its banking offices in Ewing Township, East
Windsor Township, Trenton, Hamilton Square, and its Telephone Help Center. Total
lease rental expense was $236,912, $186,305, and $103,002 for the years ended
December 31, 1997, 1996, and 1995, respectively. Minimum rentals under the terms
of these leases for years 1998 through 2002 are $263,301, $264,981, $252,541,
$241,965, and $241,965, 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.
<PAGE>
14. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the Federal banking 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 Icapital (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, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, 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.
49
<PAGE>
The Bank's actual capital amounts and ratios are presented in this table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
REGULATORY MATTERS 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, 1997:
Total capital (to risk-weighted assets) $51,675 12.5% $33,114 8.0% $41,393 10.0%
Tier I capital (to risk-weighted assets) 46,496 11.2 16,557 4.0 24,836 6.0
Tier Icapital (to average assets) 46,496 8.7 21,279 4.0 26,598 5.0
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 Icapital (to average assets) 34,996 7.8 17,940 4.0 22,425 5.0
===================================================================================================================================
</TABLE>
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 $6,512,000 as of December 31,
1997.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Improvement Act") became law. While the FDIC
Improvement Act primarily addresses additional sources of funding for the Bank
Insurance Fund, which insures the deposits of commercial banks and saving banks,
it also imposes a number of new mandatory supervisory measures on savings
associations and banks.
The FDIC Improvement Act requires financial institutions to take certain
actions relating to their internal operations, including: providing annual
reports on financial condition and management to the appropriate federal banking
regulators, having an annual independent audit of financial statements performed
by an independent public accountant and establishing an independent audit
committee composed solely of outside directors. The FDIC Improvement Act also
imposes certain operational and managerial standards on financial institutions
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits.
15. 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:
<PAGE>
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
50
<PAGE>
checking accounts, is 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, 1997
- --------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- --------------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $ 20,423 $ 20,423
Interest bearing
deposits 2,219 2,219
Securities available for
sale 159,724 159,724
Investment securities 26,912 26,848
Loans, net 380,181 383,200
Financial Liabilities:
Deposits 422,944 423,082
Borrowed funds 134,316 134,248
Trust preferred securities 11,500 12,075
================================================================================
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, net 326,280 333,502
Financial Liabilities:
Deposits 364,445 365,976
Borrowed funds 86,339 86,042
================================================================================
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, and as the fair value
for these financial instruments was not material, these disclosures are not
included above.
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets 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.
51
<PAGE>
16. 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) 1997 1996
- --------------------------------------------------------------------------------
Assets:
Cash $ 815 $ 316
Securities available for sale 3,297
Investment in subsidiaries 46,971 34,835
Other assets 527 79
- --------------------------------------------------------------------------------
Total Assets $51,610 $35,230
- --------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity:
Other liabilities $ 9 $ --
Subordinated debentures 11,856 --
Stockholders' equity 39,745 35,230
- --------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $51,610 $35,230
================================================================================
Condensed Statements of Income
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Operating Income:
Dividends from subsidiary$ 1,765 $ 1,083 $ 843
- --------------------------------------------------------------------------------
Total Operating Income 1,765 1,083 843
- --------------------------------------------------------------------------------
Operating Expense:
Interest expense 224 -- --
Other expense 144 114 115
- --------------------------------------------------------------------------------
Total Operating Expense 368 114 115
- --------------------------------------------------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiaries 1,397 969 728
Federal income tax benefit (114) (40) (41)
- --------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 1,511 1,009 769
Equity in undistributed
income of subsidiaries 3,495 3,017 2,634
- --------------------------------------------------------------------------------
Net Income $ 5,006 $ 4,026 $ 3,403
================================================================================
<PAGE>
Condensed Statements of Cash Flows
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Cash Flows from
Operating Activities:
Net Income $ 5,006 $ 4,026 $ 3,403
Adjustments:
Increase in
other assets (448) (40) (36)
Equity in undistributed
income of subsidiaries (3,495) (3,017) (2,634)
Increase (decrease)
in other liabilities 9 -- (1)
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 1,072 969 732
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities
available for sale (3,297)
Investing in subsidiaries (8,356) (749) (9,650)
- --------------------------------------------------------------------------------
Net Cash Used by
Investing Activities (11,653) (749) (9,650)
- --------------------------------------------------------------------------------
Cash flows from financing
activities:
Proceeds from issuance
of subordinated debentures 11,856 -- --
Proceeds from shares issued 457 837 9,403
Dividends paid (1,233) (1,083) (738)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities 11,080 (246) 8,665
- --------------------------------------------------------------------------------
Net increase (decrease) in cash 499 (26) (253)
Cash as of beginning of year 316 342 595
- --------------------------------------------------------------------------------
Cash as of end of year $ 815 $ 316 $ 342
================================================================================
52
<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 subsidiaries as of December 31, 1997 and 1996,
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, 1997. 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 overal l 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 subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
insert signature PMS 315
Princeton, New Jersey
January 30, 1998
53
<PAGE>
Officers
<TABLE>
<CAPTION>
<S> <C> <C>
YARDVILLE NATIONAL BANK YARDVILLE NATIONAL BANCORP
President/Chief Executive Officer Assistant Vice Presidents President/Chief Executive Officer
Patrick M. Ryan Shawn Chase-Merritt Patrick M. Ryan
Retail Administration
Executive Vice Presidents Secretary/Treasurer
Stephen F. Carman Scott W. Civil Stephen F. Carman
Cashier/Chief Financial Officer Commercial Lending
Assistant Secretary and Treasurer
Timothy J. Losch Nancy J. Collar Diane H. Polyak
Chief Operating Officer Consumer Lending
First Senior Vice Presidents Sandra A. Gray
James F. Doran Commercial Lending
Senior Lending Officer
Peggy A. Iucolino
Mary C. O'Donnell Purchasing
Chief Credit Officer
Linda A. Kelly
Senior Vice Presidents Data Services
Frank Durand III
Bank Administrator Anne S. Marsilio
Residential Mortgages
Howard N. Hall
Controller William V. Radlinsky
Loan Review Officer
Richard A. Kauffman
Chief Technology Officer Joseph H. Robotin
Residential Mortgages
Nina D. Melker
Retail Administration Christine A. Secrist
Retail Business Development
Sarah J. Strout
Commercial Lending Joan M. Tarr
Retail Administration
Vice Presidents
James T. Brotherton Assistant Cashiers
Lending Business Development Sharon L. Bokma
Retail Business Development
Carol A. Budd
Commercial Lending Barbara A. Brehaut
Retail Administration
Vincent P. Ditta
Commercial Lending Andre Caldini
Lending Business Development
Kathleen A. Fone
Human Resources Doreen A. Favata
Commercial Mortgages
Nancy C. German
Deposit Operations John T. Gaffney
Alternative Investments
Dale K. Inman
Consumer Lending Fay Horrocks
Human Resources
Thomas A. McBain
Audit Kathleen M. Kirkham
Retail Administration
Debra L. Mincarelli
Help Center Patricia D. Majeski
Retail Administration
Thomas L. Nash
Commercial Mortgages Dawn L. Melker
Retail Administration
Diane H. Polyak
Financial Services Barbara Morgan
Commercial Lending
Leslie Rita
Credit Administration Michael J. Pelosci
Retail Administration
Jane M. Trout
Marketing Elizabeth A. Salvatore
Consumer Lending
Susan M. Valentino
Retail Administration Flora B. Shiarappa
Deposit Operations
54
</TABLE>
<PAGE>
Board of Directors
YARDVILLE NATIONAL BANK YARDVILLE NATIONAL BANCORP
Jay G. Destribats, Jay G. Destribats,
Chairman of the Board Chairman of the Board
Weldon J. McDaniel, Jr., Weldon J. McDaniel, Jr.,
Vice Chairman Vice Chairman
Patrick M. Ryan, Patrick M. Ryan,
President and C.E.O. President and C.E.O.
C. West Ayres C. West Ayres
Elbert G. Basolis, Jr. Elbert G. Basolis, Jr.
Lorraine Buklad Lorraine Buklad
Anthony M. Giampetro, Anthony M. Giampetro,
M.D., F.C.C.P. M.D., F.C.C.P.
Sidney L. Hofing Sidney L. Hofing
James J. Kelly James J. Kelly
Gilbert W. Lugossy Gilbert W. Lugossy
Louis R. Matlack, Ph.D. Louis R. Matlack, Ph.D.
F. Kevin Tylus F. Kevin Tylus
John C. Stewart, John C. Stewart,
Director Emeritus Director Emeritus
Advisory Board
W. Michael Bryant William J. Matisa, Jr.
Nancy S. Ellis Robert E. Mule
William G. Engel Joyce H. Rainear
Gary Dean Gray Marvin A. Rosen
Daniel J. Graziano, Esq. N. Gerald Sapnar+
John J. Klein III Ronald K. Vernon
Richard J. Klockner Robert L. Workman
Nancy J. Knight Harold N. Zeltt
Eugene P. Marfuggi
George S. Martin + Deceased as of
December 26, 1997
55
<PAGE>
Stockholder Information
Corporate Headquarters Financial Information
Yardville National Bancorp Investors, security
3111 Quakerbridge Road analysts and others
Mercerville, NJ 08619 desiring financial
(609) 585-5100 information should
contact:
Annual Meeting Diane H. Polyak
The Annual Meeting Assistant Secretary/
of Stockholders will Assistant Treasurer
be held at: or
La Villa Ristorante Stephen F. Carman
2275 Kuser Road, Secretary/Treasurer
Hamilton, NJ 08690
Tuesday, April 28, 1998 Form 10-K Availability
Doors open 9:00 a.m. Copies of Yardville
Meeting begins National Bancorp's Forms
at 10:00 a.m. 10-K and 10-Q filed
with the Securities and
Registrar and Stock Exchange Commission
Transfer Agent are available to stockholders
First City Transfer Company upon written request
P.O. Box 170 to the Company.
Iselin, NJ 08830-0170
(732) 906-9227
Subsidiary Bank is a Member of the FDIC.
- --------------------------------------------------------------------------------
56
<PAGE>
Design and production: Photo of Kuser Mansion
The SOSCOMM Group, exterior (p.4) courtesy of
Allentown, NJ Kuser Family Mansion,
Hamilton, NJ
Management photograph and
product photography: Large photos pages 8, 10:
(pgs. 4, 7, 8, 10) (C)Photo/Cliff Moore
Allan Hunter Shoemake
Large photos pages 2, 7:
Cover and Page 1 photograph Yardville National Bank
courtesy of the Trentoniana: Archives
Local History and Genealogy
Collection, Trenton Free Public
Library
<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 Office West Trenton Office
3111 Quakerbridge Road 40 Scotch Road
Mercerville, New Jersey 08619 West Trenton, New Jersey 08628
YNB Help Center: 2-8884-HELPLINE
YNB
Your Neighborhood Bank(R)
- ---------------------------
YARDVILLE NATIONAL BANK
<PAGE>
Exhibit 21
Yardville National Bancorp Subsidiaries
1. Yardville National Bank
2. Yardville Capital Trust
3. Yardville National Investment Corporation
(wholly-owned subsidiary of Bank)
4. YNB Real Estate Holding Company
(wholly-owned subsidiary of Bank)
S. Brendan, Inc.
(wholly-owned subsidiary of Bank)
6. Nancy-Beth, Inc.
(wholly-owned subsidiary of Bank)
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Yardville National Bancorp:
We consent to incorporation by reference in the registration statements (Nos.
33-98076 and 333-28193) on Form S-8 of Yardville National Bancorp of our report
dated January 30, 1998 relating to the consolidated statements of condition of
Yardville National Bancorp and subsidiaries as of December 31, 1997 and 1996,
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,
1997, which report is incorporated by reference in the December 31, 1997 annual
report on Form 10-K of Yardville National Bancorp.
/s/ KPMG Peat Marwick LLP
-------------------------------
KPMG Peat Marwick LLP
Princeton, New Jersey
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,923
<INT-BEARING-DEPOSITS> 2,219
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,724
<INVESTMENTS-CARRYING> 26,912
<INVESTMENTS-MARKET> 26,848
<LOANS> 385,751
<ALLOWANCE> 5,570
<TOTAL-ASSETS> 614,686
<DEPOSITS> 422,944
<SHORT-TERM> 134,316
<LIABILITIES-OTHER> 6,181
<LONG-TERM> 11,500
0
0
<COMMON> 17,703
<OTHER-SE> 22,042
<TOTAL-LIABILITIES-AND-EQUITY> 614,686
<INTEREST-LOAN> 31,511
<INTEREST-INVEST> 8,770
<INTEREST-OTHER> 487
<INTEREST-TOTAL> 40,768
<INTEREST-DEPOSIT> 16,115
<INTEREST-EXPENSE> 21,100
<INTEREST-INCOME-NET> 19,668
<LOAN-LOSSES> 1,125
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 13,341
<INCOME-PRETAX> 7,746
<INCOME-PRE-EXTRAORDINARY> 7,746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,026
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 8.06
<LOANS-NON> 3,355
<LOANS-PAST> 991
<LOANS-TROUBLED> 969
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,957
<CHARGE-OFFS> 574
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 5,570
<ALLOWANCE-DOMESTIC> 5,570
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
