<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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
--------------------------
(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[ ]
Aggregate market value of voting stock held by non-affiliates (computed by
using the average of the closing bid and asked prices on March 18, 1999, in the
NASDAQ National Market System: $52,881,716
Number of shares of common stock, no par value, outstanding as of March 18,
1999: 5,195,473
(Continued)
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K into
DOCUMENT which Document is Incorporated
-------- ------------------------------
Annual Report to Stockholders for fiscal
year ended December 31, 1998 II
Definitive proxy statement for the 1999
Annual Meeting of Stockholders to be held on
April 27, 1999 III
<PAGE>
FORM 10-K
INDEX
PART I PAGE
Item 1. Business 1
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 18
Signatures 19
Index to Exhibits E-1
<PAGE>
YARDVILLE NATIONAL BANCORP
FORM 10-K
PART I
ITEM 1. BUSINESS.
General
Yardville National Bancorp (the "Company") is a bank holding company
registered with the Board of Governors of the Federal Reserve System (the "FRB")
under the Bank Holding Company Act of 1956 (the "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, 1998, the
Company had total assets of approximately $757,666,000, deposits of
approximately $519,643,000 and stockholders' equity of approximately
$40,756,000.
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 ten full-service banking offices in Mercer
County, New Jersey, five in Hamilton Township, two in Ewing Township, one in
East Windsor Township, one in Hopewell Township and one in Trenton. In addition,
the Bank operates a Telephone Help Center which serves as a centralized sales
and information center for all of the banking offices. In the last quarter of
1998, the Bank began lease payments on its Newtown, Pennsylvania branch, which
is scheduled to open in late March, 1999. This is the Bank's first branch office
in Pennsylvania. In 1998, the Bank also signed a lease for a 45,000 square foot
building located in Hamilton Township. This location will serve as the
headquarters for the Company and the Bank and will include a full service bank
branch. Lease payments will not commence until the completion of the building,
which is projected to be in the third quarter of 1999.
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. In 1998, the Bank also began offering mutual funds
and annuity products.
<PAGE>
The Bank has seven wholly-owned non-bank subsidiaries. Yardville
National Investment Corporation, which was incorporated in 1985, was formed to
separate a portion of the Bank's investment portfolio functions and
responsibilities from its regular banking operations and to increase the net
yield of the investment portfolio. YNB Real Estate Holding Company is utilized
to hold Bank branch properties. YNB Realty, Inc. is utilized to more effectively
manage certain commercial mortgage loans originated by the Bank. Brendan, Inc.,
Nancy-Beth, Inc. and Jim Mary, Inc. are utilized for the control and disposal of
other real estate properties. YNB Financial, Inc. is engaged in the business of
selling investment products offered by insurance companies.
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.
<PAGE>
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 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
<PAGE>
other persons, may acquire "control" of any federally insured depository
institution unless the appropriate Federal banking agency has been given 60
days' prior written notice of the proposed acquisition and within that period
has not issued a notice disapproving of the proposed acquisition or has issued
written notice of its intent not to disapprove the action. For this purpose,
"control" is generally defined as the power, directly, or indirectly, to direct
the management or policies of an institution or to vote 25% or more of any class
of its voting securities. 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.
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
<PAGE>
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 enactment's have expanded the circumstances
under which officers or directors of a bank may be removed by the institution's
Federal supervisory agency, restricted and further regulated lending by a bank
to its executive officers, directors, principal stockholders or related
interests thereof and restricted management personnel of a bank from serving as
directors or in other management positions with certain depository institutions
whose assets exceed a specified amount or which have an office within a
specified geographic area, and restricts management personnel from borrowing
from another institution that has a correspondent relationship with their bank.
The Bank, as a member of the Federal Reserve System, is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or its subsidiaries, on investments in the stock or
other securities of the bank holding company or its subsidiaries and on taking
such stock or securities as collateral for loans. The Federal Reserve Act and
FRB regulations also place certain limitations and reporting requirements on
extensions of credit by the Bank to principal stockholders of its parent holding
company, among others, and to related interests of such principal stockholders.
Such legislation and regulations may affect the terms upon which any person
becoming a principal stockholder of a holding company may obtain credit from
banks with which the subsidiary bank maintains a correspondent relationship.
<PAGE>
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, 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, 1998, the Company's tier 1 capital and total
capital ratios were 9.9 percent and 11.2 percent, respectively.
<PAGE>
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, 1998, was 7.7 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 the discussion
of Prompt Corrective Action.
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, 1998:
<PAGE>
Adequately Well Bank ratios at
Capitalized Capitalized December 31, 1998
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Total Risk-Based Capital Ratio 8.00% 10.00% 10.8%
Tier 1 Risk-Based Capital Ratio 4.00% 6.00% 9.6%
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 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 Insurance Assessments
Deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC
through 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.
<PAGE>
In addition, the Bank is subject to quarterly assessments relating to
interest payments on Financing Corporation (FICO) bonds issued in connection
with the resolution of the thrift industry crisis. The FICO assessment rate is
adjusted quarterly to reflect changes in the assessment bases of the BIF and
SAIF. The FICO assessments on BIF-insured deposits are set at an annual rate of
0.0122% of assessable deposits. This is 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 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
<PAGE>
written notice to the FRBP. The Regulatory Agreement was terminated on October
18, 1993, and on December 21, 1994, the Board of Directors of the Company
rescinded its resolution with the permission of the FRBP, which was granted on
November 30, 1994.
New Jersey Banking Laws
Provisions of the New Jersey Banking Act of 1948 with supplements (the "New
Jersey Banking Act") may apply to national banking associations with their
principal offices in New Jersey, subject to pre-emption by applicable Federal
laws. The merger of a national bank into a state bank requires approval of the
New Jersey Commissioner of Banking; however, a state bank may merge into a
national bank without such prior approval. The New Jersey Banking Act also
purports to regulate certain aspects of bank business, including small loans and
certain deposit accounts. New Jersey 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.
<PAGE>
1996 Federal Banking Legislation
The Economic Growth And Regulatory Paperwork Reduction Act of 1996 (the
"1996 Banking Law"), enacted as Title II of the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 was signed into Law on September 30,
1996, implemented a wide range of regulatory relief provisions affecting federal
insured depository institutions. Among the supervisory provisions of the 1996
Banking Law which may affect the Bank, the 1996 Banking Law included the
following: per branch capital requirement for national banks were eliminated;
ATM's and other remote service units were excluded from the definition of
"branch" for purposes of certain branch approval requirements and geographic
restrictions; the law permits well-capitalized banks rated CAMEL 1 or 2 to
invest in bank premises in amounts up to 150 percent of the bank's capital and
surplus with only a 30-day after-the-fact notice and establishes expedited
procedures to permit certain bank holding companies to engage in permissible
nonbanking activities, except for acquisitions of thrifts; exempted from the
insider lending restrictions a bank's company-wide benefit or compensation plans
that are widely available to employees of the bank and that do not give
preference to any officer, director, or principal shareholder (or related
interests) over other employees of the bank; permits the Federal banking
agencies to raise the asset limit for an 18-month examination cycle from
$175,000,000 to $250,000,000 for banks with a CAMEL 2 rating; permits the OCC to
waive the State residency requirement for directors of national banks;
eliminates the independent auditor attestation requirement for compliance with
safety and soundness laws; authorizes the Federal banking agencies to permit a
bank's independent audit committee to include some inside directors if the bank
is unable to find competent outside directors, provided a majority of the
committee is still made up of outside directors; requires FRB and the U.S.
Department of Housing and Urban Development, within 6 months of enactment, to
simplify and improve RESPA and TILA disclosures and provide a single format for
such disclosures; makes a number of changes to RESPA's disclosure requirements;
generally provides that, if a bank or a third party self-tests for compliance
under the Equal Credit Opportunity Act and the Fair Housing Act, the test
results will not be used against the bank if the bank identifies possible
violations and is taking appropriate corrective actions, and if the bank is not
using the results in its defense; sunsets the Truth-in-Savings Act's civil
liability provision in five years; recapitalizes the Savings Association
Insurance Fund ("SAIF") as of October 1, 1996; requires banks after December 31,
1996 to pay 20% of the interest on the bonds that funded the initial
capitalization of SAIF ("FICO bonds") but banks would be required to pay a full
pro-rata share of the interest obligation beginning after the earlier of
December 31, 1999 or the date on which the last savings association ceases to
exist; merges SAIF and the Bank Insurance Fund ("BIF") on January 1, 1999, but
only if no 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
<PAGE>
a violation; and amends the Comprehensive Environmental Response, Compensation,
and Liability Act to clarify that a lender is not liable for environmental
cleanups of property securing a loan unless the lender, among other things,
participates in day-to-day decision making over the operations of the property
or has control over environmental compliance and provides that lenders that
foreclose on property may take certain post-foreclosure actions without
incurring liability for environmental cleanup if the lender did not participate
in management of the property prior to foreclosure and the lender seeks to
dispose of the property as soon as it is commercially reasonable.
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.
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
<PAGE>
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, 1998, the Company employed 188 full-time employees and
13 part-time employees.
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 1998
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
2004, renewable for two 5-year periods, and a base monthly rental of $2,520.00
<PAGE>
during the initial term. The Bank also leases its banking office in East Windsor
Township, New Jersey. In April 1998 the Bank renegotiated its lease at East
Windsor. The Bank now leases the entire space in this building. The lease
provides for a term of six years seven months ending in 2004, renewable for two
5-year periods and provides for a base monthly rental of $5,416.66 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 during the initial
term. The Bank intends to renew this lease in 1999 with a new base monthly rent
of $2,003.33. 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 six 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. In 1998 the Bank opened its tenth branch office in Pennington,
New Jersey. The Bank leases this office. The lease provides for a term of 5
years ending in 2003, renewable for three 5-year periods, and provides for a
base monthly rental of $1,730.33 during the initial term. In the last quarter of
1998, the Bank began lease payments on its Newtown, Pennsylvania branch
scheduled to open in the first quarter of 1999. The lease provides for a term of
5 years ending in 2003, renewable for three 5-year periods and provides for a
base monthly rental of $4,670.83. during the initial term. In 1998, the Company
also signed a lease for a 45,000 square foot corporate headquarters building.
This new location will include a full service bank branch. Lease payments will
not commence until the completion of the building, which is projected to be in
the third quarter of 1999. The lease provides for an initial term of 14 years
renewable for two 5-year periods. The obligation to pay rent shall commence 60
days after substantial completion or upon occupancy by the Company whichever is
earlier. The base monthly rent is estimated to be $68,300. The Company has a
continuing option to purchase the building after the end of the fifth year lease
equal to the then fair market value of the premises. 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. The Telephone Help Center will be relocating to the new corporate
headquarters building.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal actions as of December 31,
1998, arising out of the ordinary course of business. Management of the Company
does not deem any of the claims against the Company in such matters are material
in relation to the Company's financial condition, results of operations or
liquidity based on information currently available to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998, through the
solicitation of proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Common Stock is traded in the Nasdaq National Market System. The
following table shows the range of high and low closing bid prices of the Common
Stock in the Nasdaq National Market System during 1997 and 1998. The prices
below reflect the 2.5% stock dividend declared in March 1998 and the two-for-one
stock split effected in the form of a stock dividend declared in December 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, 1997:
- - -----------------------------
First Quarter $11.22 $ 9.39
Second Quarter 12.19 9.64
Third Quarter 13.84 11.95
Fourth Quarter 17.78 13.91
Year Ended December 31, 1998:
- - -----------------------------
First Quarter $19.03 $17.08
Second Quarter 19.75 16.38
Third Quarter 16.75 12.00
Fourth Quarter 14.25 12.00
Holders
As of December 31, 1998, the Company had approximately 580 holders of
record of the Common Stock.
Dividends
In 1997, the Company paid four quarterly cash dividends on the Common
Stock in the aggregate amount of $1,233,000. Dividends paid per share in 1997
totaled $0.24. In 1998, the Company paid four quarterly cash dividends on the
Common Stock in the aggregate amount of $1,449,000. Dividends paid per share in
1998 totaled $0.29. Cash dividends are generally paid quarerly or four times a
year. All dividend data has been restated to reflect the 2.5% stock dividend
<PAGE>
declared in March 1998 and the two-for-one stock split effected in the form of a
stock dividend declared in December 1997. In the first quarter of 1999, the
Company paid a cash dividend in the amount of $.08 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, 1998, the net profits of the Bank available for distribution to the
Company as dividends without regulatory approval were approximately $7,952,000.
The Company expects to pay quarterly cash dividends for the remaining three
quarters in 1999 to holders of Common Stock, subject to the Company's financial
condition.
ITEMS 6, 7, 7A AND 8
Information required by items 6, 7, 7A and 8 is provided in the Company's
1998 Annual Report to Stockholders under the captions and on the pages indicated
below, and is incorporated by reference:
PAGES IN 1998
ANNUAL REPORT
CAPTION IN 1998 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 13-36
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS 37-52
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
1998 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
<PAGE>
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 27, 1999. 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 and Financial Statement Schedules
1. Financial Statements
The following financial statements are incorporated herein by
reference to the Company's 1998 Annual Report to Stockholders:
o Consolidated Statements of Condition
o Consolidated Statements of Income
o Consolidated Statements of changes in Stockholder's Equity
o Consolidated Statement of Cash Flows
o Notes to Consolidated Financial Statements
o Independent Auditor's Report
2. Financial Statement Schedules
None
3. 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.
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1998.
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 24, 1999.
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
<PAGE>
Signatures Title
---------- -----
/s/ Sidney L. Hofing
- - ----------------------------- Director
Sidney L. Hofing
/s/ James J. Kelly
- - ----------------------------- Director
James J. Kelly
/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
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(H) 3.1 Restated Certificate of Incorporation of the Company, as amended by the Certificate of
Amendment thereto filed on March 6, 1998.
(B) 3.2 By-Laws of the Company
(B) 4.1 Specimen Share of Common Stock
(I) 4.2 See Exhibits 3.1 and 3.2 for the Registrant's Certificate of Incorporation and By-Laws, which
contain provisions defining the rights of stockholders of the Registrant.
(I) 4.3 Amended and Restated Trust Agreement dated October 16, 1997, among the Registrant, as
depositor, Wilmington Trust Company, as property trustee, and the Administrative Trustees of
Yardville Capital Trust.
(I) 4.4 Indenture dated October 16, 1997, between the Registrant and Wilmington Trust Company, as
trustee, relating to the Registrant's 9.25% Subordinated Debentures due 2027.
(I) 4.5 Preferred Securities Guarantee Agreement dated as of October 16, 1997, between the Registrant
and Wilmington Trust Company, as trustee, relating to the Preferred Securities of Yardville
Capital Trust.
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
</TABLE>
<PAGE>
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.7 Employment Contract between Registrant and Frank Durand III
(D) 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan
(D) 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats
(E) 10.10 1988 Stock Option Plan
10.11 Employment contract between Registrant and Thomas L. Nash
(A) 10.12 Directors' Deferred Compensation Plan
(B) 10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993
(A) 10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October,
1994
(C) 10.16 Survivor Income Plan for the Benefit of Stephen F. Carman
(C) 10.17 Lease Agreement between Devon Inc. and the Bank dated as of February 9, 1996
(F) 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
</TABLE>
<PAGE>
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.22 Employment contract between Registrant and Timothy J. Losch
(G) 10.23 Survivor Income Plan for the Benefit of Timothy J. Losch
(G) 10.24 Lease agreement between the Ibis Group and the Bank dated July 1997
(H) 10.25 Lease agreement between Hilton Realty Co. of Princeton and the bank dated March 31, 1998.
(H) 10.26 1994 Stock Option Plan.
(J) 10.27 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998
(J) 10.28 Lease between Carduners Property Partnership and the bank dated March 1998.
(K) 10.29 Yardville National Bank Employee Stock Ownership Plan
10.30 Lease agreement between Sycamore Street Associates and the Bank dated October 30, 1998
13.1 1998 Annual Report to Stockholders
21 List of Subsidiaries of the Registrant
23.1 Consent of KPMG, LLP
27.1 Financial Data Schedule
(A) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB/A filed on July
25, 1995
(B) Incorporated by reference to the Registrant's Registration Statement on Form SB-2
(Registration No. 33-78050)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(C) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for fiscal year ended
December 31, 1995
(D) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996
(E) 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
(F) Incorporated by reference to the Registrant's Registration Statement on Form S-8
(Registration No. 333-28193)
(G) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997
(H) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998, as amended by Form 10-Q/A filed June 9, 1998
(I) Incorporated by reference to the Registrant's Registration Statement on Form S-2
(Registration Nos. 333-35061 and 333-35061-01)
(J) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998.
(K) Incorporated by reference to the Registrant's Registration Statement on Form S-8
(Registration No. 333-71741).
</TABLE>
<PAGE>
DEVELOPING A SUPERCOMMUNITY BANK
[PICTURES]
1998 ANNUAL REPORT
YNB LOGO
Yardville National Bank
<PAGE>
TABLE OF CONTENTS
Financial Highlights 1
- - -----------------------------------------------------------------
Management Letter 3
- - -----------------------------------------------------------------
Building a Supercommunity Bank 7
- - -----------------------------------------------------------------
Selected Historical Consolidated Financial Data 11
- - -----------------------------------------------------------------
Management's Financial Discussion and Analysis 13
- - -----------------------------------------------------------------
Financial Statements 37
- - -----------------------------------------------------------------
Notes to Consolidated Financial Statements 41
- - -----------------------------------------------------------------
Independent Auditors' Report 53
- - -----------------------------------------------------------------
Officers 54
- - -----------------------------------------------------------------
Board of Directors 55
- - -----------------------------------------------------------------
Shareholder Information 56
- - -----------------------------------------------------------------
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES
Financial Highlights
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1998 1997 % Increase
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31
Net income $ 5,582 $ 5,006 11.5%
Earnings per share-- diluted 1.10 0.98 12.2
Cash dividends declared per common share 0.29 0.24 20.8
- - ---------------------------------------------------------------------------------------------
Balance Sheet Data as of December 31
Total assets $757,666 $614,686 23.3%
Total deposits 519,643 422,944 22.9
Total loans 491,649 385,751 27.5
Stockholders' equity 40,756 39,745 2.5
Book value per share 8.20 7.82 4.9
- - ---------------------------------------------------------------------------------------------
Consolidated Ratios
Return on average assets 0.82% 0.93%
Return on average stockholders' equity 13.96 13.32
Net interest margin 3.55 3.95
Total equity to total assets 5.38 6.47
Tier I capital to risk-weighted assets 9.91 12.24
Total capital to risk-weighted assets 11.17 13.49
Nonperforming assets to total assets 1.17 1.38
Net loan charge offs to average total loans 0.18 0.14
=============================================================================================
</TABLE>
Net Income
(Dollars in thousands)
6,000 800
5,582 758
5,006
5,000 700
4,026 615
4,000 600
3,403
3,000 500
2,523 491
403
2,000 400
1,000 300
281
0 __________________________________ 200
1994 1995 1996 1997 1998
100
0 _________________________________
1994 1995 1996 1997 1998
<PAGE>
[Photos of Men]
YNB SENIOR MANAGEMENT
Clockwise from upper left: Jay G. Destribats, Chairman; Patrick M. Ryan,
President and Chief Executive Officer; Timothy J. Losch, Executive Vice
President and Chief Operating Officer and Stephen F. Carman, Executive Vice
President and Chief Financial Officer.
<PAGE>
To Our Shareholders, Employees and Friends
Building means many things to different people. To some, it means an edifice,
constructed of bricks and mortar. Certainly, we have seen a lot of bricks and
mortar (and steel, and bulldozers) this year as we have watched our new
corporate headquarters near completion. But for us in YNB management, building
is a concept - a key word for our future. We are building YNB into an entity for
success far into the future - a supercommunity bank.
A supercommunity bank, for us, is one that brings the best of all worlds
together for the benefit of the customer. We can provide all the technological
support that banking for the new millennium requires. A full line of
state-of-the-art products and services, for both business and retail banking
customers, is available. At the same time, we work hard to retain the dedication
to our community, the attentive personal service, and the neighborhood feeling
that is so much a part of YNB.
Many institutions - large and small - call themselves community banks. At YNB,
the term means that our involvement goes far beyond business. We live and work
here. We are involved with activities from the scouts to the schools to the fire
companies and local development agencies. Our commitment is to know our
marketplace and to serve the businesses and individuals who form our community.
That community is constantly expanding. For us, today, it is a "supercommunity,"
covering a much wider geographic area than ever before, on both sides of the
Delaware River. In 1998, we opened a new branch in Pennington, and are following
this expansion in 1999 with three new offices - a corporate headquarters branch
in Hamilton to meet expanding market needs in our core market, our first banking
office in Burlington County in Bordentown, and our first foray into
Pennsylvania, in Newtown, Bucks County.
As we continue our development into a supercommunity institution, we have taken
the steps that will enable us to do so profitably, and with maximum benefit to
our shareholders. Our plans to expand into Pennsylvania have already been
realized with the opening of Newtown in March 1999. We are well on the way to
reaching the $1 billion mark in assets, considered a significant milestone for a
community bank. Our technology and infrastructure have been significantly
upgraded, and we are able to compete with the largest regional banks for
business.
Enhancing Technology to Better Serve Customers
We have worked hard to be sure that our technology is state-of-the-art, and
capable of supporting all the sophisticated services today's banking customer
desires. In the past year, we have continued to upgrade these systems, while we
mounted a comprehensive program to be sure our bank will be prepared for the
Year 2000. We have kept all our employees abreast of our Y2K progress, and have
a comprehensive communications plan in place.
Profitability.
As we continue our development into a supercommunity institution, we have taken
the steps that will enable us to do so profitably.
3
<PAGE>
Diversifying our earnings stream.
We have increased our non-lending services in 1998 to further diversify our
earnings stream.
We are also using our technology to assist in our sales efforts, as we are
better able to recognize individual customer relationships and to identify the
additional products and services that our existing customers may find useful.
All of our branch representatives have undergone sales training in the past
year, and we are making increased business a goal in each of our branch offices.
YNB Initiatives Yield Tangible Results
The culmination of all our building efforts can be seen in our strong financial
performance. In 1998, YNB's net income rose to $5,582,000, or $1.10 per share on
a diluted basis, compared to $5,006,000, or $0.98 per share on a diluted basis
for 1997. Net income and earnings per share grew 11.5 percent and 12.2 percent,
respectively, in 1998. Total assets at year end reached $757.7 million, an
increase of 23.3 percent when compared with the $614.7 million in total assets
at the end of 1997.
Earnings Per Share
Diluted
$1.2
$1.10
1.0
$0.98
$0.82 $0.82 $0.80
0.8
0.6
0.4
0.2
0.0 ______________________________________
1994 1995 1996 1997 1998
Commercial lending continues to be the most important factor in YNB's earnings
growth, as businesses of all sizes choose YNB for its top quality service and
products. We have established a niche for ourselves as the pre-eminent business
lender in our marketplace, and as a result, our commercial loan portfolio is a
primary component of our status as a supercommunity bank. YNB's total loan
outstandings at December 31, 1998 increased to $491.6 million, up 27.5 percent
over the total of $385.8 million recorded at the end of 1997.
YNB's strong efforts to maintain and improve credit quality as the portfolio
grows continued in 1998. Nonperforming assets increased minimally to $8,830,000
at December 31, 1998, from $8,486,000 at December 31, 1997, while the allowance
for loan losses now totals $6,768,000 or 1.38 percent of total loans, covering
174.7 percent of total nonperforming loans.
The deposit side of the ledger helps to support YNB's ongoing loan growth. Total
deposits at year end rose to $519.6 million, a 22.9 percent increase over total
deposits at December 31, 1997. Much of this growth comes both from new
depositors, who are attracted from other banks by YNB's competitive rates,
attentive customer service and convenient new product offerings, and from
expanded relationships with satisfied current customers.
In addition to deposit growth, we have also increased our non-lending services
to both business and retail banking clients in 1998 to further diversify our
earnings stream and increase non-interest income. For businesses, we added
several new business products and services to an already extensive list of
offerings. These now include lockbox and cash management, as well as business
savings accounts. Consumer banking customers can now purchase alternative
investments from a
4
<PAGE>
representative at a YNB office, widening their investment opportunities and
generating additional fee income for the bank. We also initiated Private Banking
in 1998, and are looking at other opportunities to make YNB the kind of
"one-stop," extended financial services institution that many customers seek
with today's fast-paced lifestyle.
Building Long-Term Shareholder Value
Creating long-term, sustainable shareholder value remains a primary focus for
YNB management. In 1998, cash dividends paid increased 20.8 percent over 1997,
and in January 1999, the Board of Directors again increased the quarterly cash
dividend to $0.08 per share, a 6.7 percent increase over the prior quarter.
This, of course, followed the 2.5 percent stock dividend declared in March 1998.
We will continue to make the types of business decisions that we have cited
above to increase our profitability in the belief that, over both the
intermediate and the long-term, the market will recognize the true value of our
shares and reward our shareholders accordingly.
Cash Dividend Per Share
$0.4
0.3 $0.29
$0.24
$0.22
0.2
$0.19
$0.14
0.1
0.0 ______________________________________
1994 1995 1996 1997 1998
To further support our growth, we worked diligently to ensure that YNB remained
well-capitalized in 1998. At December 31, 1998, the capital ratios for YNB
exceeded those required by regulatory authorities to consider an institution
well capitalized, with Tier I leverage, Tier I risk-based, and Total risk-based
capital ratios of 7.7, 9.9, and 11.2 percent, respectively.
Looking Toward a Bright Future
There has been much talk of the new millennium, and what it will bring for
businesses and for our society. We are confident that the steps we have outlined
in this letter and are continuing to put into place will serve YNB well as we
build a strong and secure future as an independent, supercommunity bank. As an
organization, we are grateful to our Board of Directors and to our Advisory
Board members for their unselfish service to this institution as we have grown.
We also appreciate the support of our shareholders and customers as we direct
our best efforts toward that future.
Building
a secure future.
We are confident the steps we have outlined will serve YNB well as we build a
strong and secure future.
Sincerely yours,
/s/ Jay G. Destribats /s/ Patrick M. Ryan
Jay G. Destribats Patrick M. Ryan
Chairman of the Board President and Chief Executive Officer
5
<PAGE>
YNB SERVES ALL SEGMENTS
OF OUR COMMUNITY
Whether providing commercial loans for area businesses to grow,
or offering the special services both mature adults and young families need, YNB
is there with the right financial products for every lifestyle and business
situation.
<PAGE>
Building a Supercommunity Bank
While the process of building a supercommunity bank is often thought of in
physical terms, we are ever-mindful of the continuing importance of putting the
customer first. In the locations we have selected, the technology we have
acquired, the products we offer, and the training of our staff, satisfying the
customer's needs is always considered the primary objective.
YNB Builds a Sense of Community
Convenient locations are an important factor in any bank's growth, and YNB has
taken advantage of this fact as we have moved to expand our reach into new
communities. Our move into Pennington this past year was warmly received, and
that branch has already become an integral part of the community. In 1999, our
growth will continue as we move into a new county, Burlington, with the opening
of our Bordentown office, and a new state, Pennsylvania, as we open our Newtown
office.
When YNB enters a new area, we immediately bring our sense of community
to bear. In Pennington, for example, we offered our "Neighbors First" package
which allowed new customers to have YNB make a donation to fund area sports
teams, computers for schools, or open space initiatives. YNB has also expanded
our generous scholarship program to include all the high schools in our new
neighborhoods. When we enter Newtown and Bordentown, we expect to demonstrate
our commitment to those communities in a comparable way.
The products we offer in all of our branch offices are those that consumers find
most useful in their busy daily lives. Efficiency as well as service is an
all-important issue, and YNB has worked hard to make our customers' lives easy.
That's one of the reasons our Telephone Help Center has been such an
overwhelming success. By just calling 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, customers can gain information about current accounts,
investment rates, available loan or mortgage programs, ATM locations - whatever
they may need to make banking with YNB even more convenient.
Convenience is also the reason that our Telebank Service has been a hit with our
customers - old and new. YNB's Telebank allows current customers to check
balances, transfer or verify funds, find out about
Helping busy
consumers.
The products we offer in all of our branch offices are those that consumers find
most useful in their busy daily lives.
7
<PAGE>
Business banking.
We have fostered a business banking environment that allows us to compete with
other financial institutions of all sizes.
recent transactions, order a mini-statement to be faxed, and complete other
banking transactions from the comfort of their home or office - 24 hours a day,
7 days a week. New customers who want to move their accounts to YNB are served
by Telebank, too, as they can check rates, inquire about products, and verify
office hours and locations right on the telephone.
New Technology and New Products
YNB has also enhanced customer convenience with the addition of new technology.
Of course, we have taken the necessary steps to make sure that our systems are
Y2K compatible so the turn of the century should occur with no disruption to YNB
customers. But more than that, we have taken this opportunity to upgrade our
computer equipment, with a new mainframe computer and reader sorter to improve
the information available to customers and the branch personnel who serve them.
On the product side, we have offered special CD promotions throughout the year
to bring our customers the best investment rates possible. These were quite
successful, as YNB brought in $80 million in new deposits during 1998, from
established and new customers alike. To stimulate consumer demand and remain
competitive, we also lowered the rate on our popular Home Equity Line of Credit.
An increasing proportion of our customers prefer to use their computers to
perform their banking functions, and we have responded to their needs as well.
The YNB website (http://www.yanb.com) provides extensive information on rates,
products, office locations, and financial planning, and permits customers to
e-mail YNB for additional information. This coming year, we will introduce "YNB
OnLine" - PC Banking to serve all YNB customers quickly and conveniently.
Commercial Banking Continues to Grow at YNB
Retail and commercial banking must be linked for a solid supercommunity bank to
thrive, and the growth of YNB's deposit base, as fostered by the activities
noted above, provides a solid source to support our increased commercial lending
activities. For the past five years, YNB has grown into a major business lender
in Central New Jersey. By combining accessibility to senior management with
responsive customer service, we have fostered a business banking environment
that allows us to compete with other financial institutions of all sizes. And
we've been doing so successfully, as we continue to gain business from our
competition in all our market areas.
YNB's growth in business banking has extended well beyond lending as we have
sought to diversify our earnings stream with additional
8
<PAGE>
business products and services. Our lockbox and cash management services have
both grown in 1998 and offer our business customers all the advantages of a
large commercial bank, accompanied by YNB's community bank focus on personal
service. Technologically advanced services like Cash Command let business
customers handle payroll deposits right from their offices, consolidate funds,
make tax payments, transfer among accounts, and even make overnight investment
sweeps. Our business customers also continue to enjoy the advantages of offering
Service Direct to their employees, gaining additional banking benefits for them
through Direct Deposit.
Emphasizing Two-Way Communication
As a bank grows into a supercommunity institution, a strong communications
network is essential to preserve the customer focus that distinguishes community
banks from those formed by mega-mergers. At YNB, we understand that it is
important that we communicate clearly and often with our customers. But it is
just as important that we listen when our customers give us feedback about what
they want. We are proud to say that several of the product innovations and
modifications we have made in the past year have been in direct response to
expressed consumer wishes. Customers told us they felt the minimum balance for
statement savings should be lowered. We did it. They wanted free checks as part
of their Silver Checking Package. Done. Our popular Chairman's Choice product
was only available with the bank safekeeping the checks, and our customers told
us they wanted to be able to have the checks returned to them monthly. We
arranged to do so.
We have also conducted an extensive customer satisfaction survey, and were
gratified to learn that our customers gave us high marks. More than 90% of the
survey respondents told us that they were waited on promptly and courteously,
and their transactions handled in a timely manner. Almost 80% rate our service
overall as excellent or very good. Most rewarding for us was to find that over
93% of the survey respondents - all present customers - said they would
recommend YNB to others. This type of individual personal endorsement is the
best possible advertising we could employ.
Training Our Bankers to be Effective Salespeople
But word-of-mouth recommendations alone are not sufficient in the competitive
world of community banking today. It is important for bankers to be salespeople,
too. Our branch representatives have all undergone thorough training in the past
year to enhance both their product knowledge and their selling skills. Because
information is so important in financial decision-making, we feel the training
our branch personnel have received will result in even better customer service
and stronger, long-term relationships.
Communication
is key.
At YNB, we understand that it is important that we communicate clearly and often
with our customers.
9
<PAGE>
Telemarketing is a growing sales technique, and we have an excellent opportunity
to increase our business each time a customer calls the Telephone Help Center.
By recommending products and services that may fit certain needs, we are
assisting our customers as well as building the bank's business. Our Telephone
Help Center representatives also take the initiative in communicating with
prospects, and have begun a new program of calling our customers to inform them
of special opportunities which may fit their financial needs, and also to call
non-customers and share information about YNB with them.
Finally, in a realignment of our branch management network, we have named
several officers to the position of Regional Manager, responsible for the
activities of several offices. This frees branch management up to conduct more
comprehensive business development efforts. We also have appointed several
full-time business development officers to help introduce YNB in new market
areas such as Pennington and Newtown.
Looking to the Future for YNB
In examining our evolution into a supercommunity bank, we believe we have been
successful because we have identified an important niche for YNB - to be an
independent bank that is large enough to serve the needs of every customer, but
small enough to give personal attention to each and every account holder. We
possess the expertise and the technology to perform the most sophisticated
banking functions, but we do so in a culture that values each individual
customer, business, organization, and community as a unique entity whose
business we must earn and work to retain every day.
As we approach the new millennium, it is with the excitement that comes from
setting a course and sticking by it - from knowing who we are and what we plan
to be - and most of all, knowing how to get there. With the attention to
individuals that has been a hallmark of banking at YNB since our formation
almost 75 years ago, we have defined the new world of the supercommunity bank.
Its name is YNB.
Growing relationships.
We have an excellent opportunity to increase our business each time a customer
calls the Telephone Help Center.
10
<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 2.5% stock dividend declared in
March 1998 and the two-for-one stock splits effected in the form of stock
dividends declared in December 1997 and November 1994.
<TABLE>
<CAPTION>
December 31,
- - ------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------
Statement of Income
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income $ 50,923 $ 40,768 $ 34,251 $ 27,336 $ 18,004
Interest expense 28,392 21,100 17,041 12,841 6,360
- - ------------------------------------------------------------------------------------------------------------------
Net interest income 22,531 19,668 17,210 14,495 11,644
Provision for loan losses 1,975 1,125 1,640 865 305
Securities gains (losses), net 151 24 (136) (91) (124)
Gains on sales of mortgages, net 62 30 21 19 92
Other non-interest income 2,789 2,490 2,228 1,927 1,586
Non-interest expense 15,337 13,341 11,479 10,260 9,285
- - ------------------------------------------------------------------------------------------------------------------
Income before income tax expense $ 8,221 7,746 6,204 5,225 3,608
Income tax expense 2,639 2,740 2,178 1,822 1,085
- - ------------------------------------------------------------------------------------------------------------------
Net income $ 5,582 $ 5,006 $ 4,026 $ 3,403 $ 2,523
- - ------------------------------------------------------------------------------------------------------------------
Balance Sheet
(in thousands, except per share data)
Assets $ 757,666 $ 614,686 $ 490,545 $ 403,115 $ 280,550
Loans, net of unearned income 491,649 385,751 331,237 245,054 196,910
Securities 221,688 186,636 124,967 133,853 63,235
Deposits 519,643 422,944 364,445 302,972 259,296
Borrowed funds 177,888 134,316 86,339 65,221 1,215
Stockholders' equity 40,756 39,745 35,230 31,717 18,451
Allowance for loan losses 6,768 5,570 4,957 3,677 2,912
Per Share Data
Net income-- basic $ 1.11 $ 0.99 $ 0.82 $ 0.85 $ 0.85
Net income-- diluted 1.10 0.98 0.80 0.82 0.82
Cash dividends 0.29 0.24 0.22 0.19 0.14
Stockholders' equity (book value) 8.20 7.82 7.07 6.58 5.81
Other Data
Average shares outstanding-- basic 5,017 5,052 4,938 4,026 2,974
Average shares outstanding-- diluted 5,059 5,117 5,040 4,151 3,093
==================================================================================================================
</TABLE>
11
<PAGE>
Selected Historical Consolidated Financial Data (cont.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
- - -----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Ratios
Return on average assets 0.82% 0.93% 0.90% 0.99% 1.04%
Return on average stockholders'
equity 13.96 13.32 12.25 13.84 15.89
Net interest margin (FTE) (1) 3.55 3.95 4.10 4.49 5.16
Efficiency ratio (2) 60.07 60.06 59.41 62.75 70.35
Average stockholders' equity to
average assets 5.84 7.00 7.33 7.14 6.57
Dividend payout ratio 25.96 24.63 26.90 21.69 15.06
Tier 1 leverage ratio (3) 7.68 9.53 7.80 9.07 7.84
Tier 1 capital as a percent of
risk-weighted assets 9.91 12.24 10.17 11.95 9.59
Total capital as a percent of
risk-weighted assets 11.17 13.49 11.43 13.20 10.84
Allowance for loan losses
to total loans (year end) 1.38 1.44 1.50 1.50 1.48
Net loan charge offs to average
total loans 0.18 0.14 0.13 0.05 0.06
Nonperforming loans (5) to total loans 0.79 1.38 2.46 1.15 1.05
Nonperforming assets (4) to
total loans and other real estate
owned (year end) 1.78 2.18 2.57 1.40 1.21
Allowance for loan losses
to nonperforming assets (4) (year end) 76.65 65.64 58.08 106.77 122.35
Allowance for loan losses
to nonperforming loans (5) (year end) 174.75% 104.80% 60.90% 130.44% 140.95%
===========================================================================================================
</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."
12
<PAGE>
Management's Discussion and Analysis
- - --------------------------------------------------------------------------------
of Consolidated Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report. Throughout the
following sections, the "Corporation" is defined as Yardville National Bancorp
and its wholly owned subsidiaries Yardville National Bank (the "Bank") and
Yardville Capital Trust, collectively referred to as "YNB". 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
YNB.
1998 Overview
In 1998 YNB was challenged by intense competition, changing customer demands and
increased pricing pressures. Traditional loan and deposit activities face
particularly challenging competitive pressures as both banks and non-banks
compete for customers with access to a broad array of products.
YNB's emphasis on relationship banking paid dividends again in 1998. YNB
posted increases in net income, loans, and deposits. Technology upgrades have
increased product diversity and enhanced customer service.
Net income amounted to $5,582,000, an 11.5% increase, compared to the
record results of $5,006,000 reported in 1997. Earnings were primarily enhanced
by commercial loan growth and, to a lesser extent, securities growth experienced
throughout the year. Earnings per share, on a diluted basis, adjusted for the
2.5% stock dividend declared March 25, 1998 increased from $0.98 in 1997 to
$1.10 in 1998.
Led by commercial loans, YNB's loan portfolio grew 27.5% in 1998 compared
to 1997. At December 31, 1998 total loan outstandings reached $491,649,000
compared to $385,751,000 recorded at the end of 1997. The allowance for loan
losses totaled $6,768,000 or 1.38% of total loans, covering 174.7% of total
nonperforming loans. YNB's deposit base increased 22.9% to total $519,643,000 at
December 31, 1998. CDs were competitively priced throughout the year to fund
loan growth. YNB's emphasis
Return on Average Assets
1.2%
1.04%
1.0
0.99%
0.93%
0.90% 0.82%
0.8
0.6
0.4
0.2
0.0
______________________________________
1994 1995 1996 1997 1998
<PAGE>
Return on Average Stockholders' Equity
20%
15.89%
15
13.84% 13.32% 13.96%
12.25%
10
5
0
______________________________________
1994 1995 1996 1997 1998
on relationship banking is reflected in the 13.3% increase in demand deposits
in 1998.
Two industry measures of the performance by a bank are its return on
average assets and return on average equity. Return on average assets decreased
to 0.82% in 1998 from 0.93% in 1997 due primarily to the growth in average
assets. Return on average equity is determined by dividing annual net income by
average stockholders' equity and indicates how effectively a company can
generate net income on the capital invested by its stockholders. For 1998 YNB's
return on average equity was 13.96% compared to 13.32% in 1997.
RESULTS OF OPERATIONS
YNB earned $5,582,000 or $1.10 per share (diluted) for the year ended December
31, 1998 compared to $5,006,000 or $0.98 per share (diluted) for the year ended
December 31, 1997. Net income and earnings per share grew 11.5% and 12.2%,
respectively, in 1998. YNB posted net income of $4,026,000 or $0.80 per share
(diluted) in 1996. The increase in earnings per share in 1998 is principally
attributed 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 88.2% of YNB's net revenues in 1998. Net interest income depends
upon the relative amounts of interest earning assets, 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 or rate for the
years ended December 31, 1998, 1997, 1996, 1995, and 1994. The yields and costs
are derived by dividing income and expense by the average balance of assets or
liabilities.
13
<PAGE>
Financial Summary Average Balances, Rates Paid and Yields
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
- - ----------------------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Time deposits with other banks $ 3,365 $ 175 5.20% $ 2,533 $ 107 4.22%
Federal funds sold 6,180 333 5.39 7,121 380 5.34
Securities 198,890 12,197 6.13 140,655 8,770 6.24
Loans, net of unearned income (1) 438,050 38,218 8.72 355,526 31,511 8.86
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 646,485 $ 50,923 7.88% $ 505,835 $ 40,768 8.06%
- - ----------------------------------------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and due from banks $ 15,398 $ 15,425
Allowance for loan losses (6,102) (5,254)
Premises and equipment, net 5,786 5,288
Other assets 22,599 15,337
- - ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest earning assets 37,681 30,796
- - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 684,166 $ 536,631
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets,
and interest bearing demand $ 165,534 $ 5,034 3.04% $ 159,720 $ 5,083 3.18%
Certificates of deposit of
$100,000 or more 25,550 1,386 5.42 23,357 1,273 5.45
Other time deposits 211,790 12,152 5.74 168,962 9,759 5.78
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 402,874 18,572 4.61 352,039 16,115 4.58
Borrowed funds 158,106 8,756 5.54 84,492 4,761 5.63
Trust preferred securities 11,500 1,064 9.25 2,422 224 9.25
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 572,480 28,392 4.96 438,953 21,100 4.81
- - ----------------------------------------------------------------------------------------------------------------------------------
Non-Interest Bearing Liabilities:
Demand deposits $ 66,857 $ 56,700
Other liabilities 4,857 3,404
Stockholders' equity 39,972 37,574
- - ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest bearing liabilities
and stockholders' equity $ 111,686 $ 97,678
- - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 684,166 $ 536,631
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread (2) 2.92% 3.25%
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin (3) $ 22,531 3.49% $ 19,668 3.89%
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin
(tax equivalent basis) (4) $ 22,950 3.55% $ 9,993 3.95%
==================================================================================================================================
</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 $419,000, $325,000, $222,000, $202,000, and
$194,000 for the years ended December 31, 1998, 1997, 1996, 1995, and 1994,
respectively.
14
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
- - --------------------------------------------------------------------------------------------------------
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>
$ 1,992 $ 98 4.92% $ 685 $ 36 5.26% $643 23 3.58%
4,265 228 5.35 7,838 464 5.92 1,200 52 4.33
132,036 8,194 6.21 97,456 5,756 5.91 70,045 3,761 5.37
287,289 25,731 8.96 221,232 21,080 9.53 157,411 14,168 9.00
- - --------------------------------------------------------------------------------------------------------
$ 425,582 $ 34,251 8.05% $ 27,211 $ 27,336 8.35% $229,299 18,004 7.85%
- - --------------------------------------------------------------------------------------------------------
$ 11,905 $ 8,778 $ 8,079
(4,190) (3,265) (2,736)
5,037 4,175 3,857
10,156 7,490 3,207
- - --------------------------------------------------------------------------------------------------------
22,908 17,178 12,407
- - --------------------------------------------------------------------------------------------------------
$ 448,490 $344,389 $241,706
- - --------------------------------------------------------------------------------------------------------
$ 133,450 $ 4,014 3.01% $123,029 $ 4,107 3.34% $113,239 $ 3,156 2.79%
18,188 922 5.07 15,521 883 5.69 7,083 299 4.22
125,332 7,138 5.70 103,637 5,792 5.59 66,020 2,810 4.26
- - --------------------------------------------------------------------------------------------------------
276,970 12,074 4.36 242,187 10,782 4.45 186,342 6,265 3.36
87,065 4,967 5.70 33,339 2,059 6.18 2,248 95 4.23
-- -- -- -- -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------
364,035 17,041 4.68 275,526 12,841 4.66 188,590 6,360 3.37
- - --------------------------------------------------------------------------------------------------------
$ 49,078 $ 42,321 $ 36,634
2,507 1,950 605
32,870 24,592 15,877
- - --------------------------------------------------------------------------------------------------------
$ 84,455 $ 68,863 $ 53,116
- - --------------------------------------------------------------------------------------------------------
$ 448,490 $344,389 $241,706
- - --------------------------------------------------------------------------------------------------------
3.37% 3.69% 4.48%
- - --------------------------------------------------------------------------------------------------------
$ 17,210 4.04% $ 14,495 4.43% $11,644 5.08%
- - --------------------------------------------------------------------------------------------------------
$ 17,432 4.10% $ 14,697 4.49% $ 11,838 5.16%
========================================================================================================
</TABLE>
15
<PAGE>
Changes in net interest income and margin result from the interaction between
the volume and composition of interest earning assets, interest bearing
liabilities, related yields, and associated funding costs. 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
1998 vs. 1997 1997 vs. 1996
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 $ 40 $ 28 $ 68 $ 24 $ (15) $ 9
Federal funds sold (51) 4 (47) 152 - 152
Securities 3,574 (147) 3,427 537 39 576
Loans, net of unearned income (1) 7,207 (500) 6,707 6,051 (271) 5,780
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest income 10,770 (615) 10,155 6,764 (247) 6,517
- - --------------------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
Deposits:
Savings, money markets,
and interest bearing demand 181 (230) (49) 826 243 1,069
Certificates of deposit of
$100,000 or more (6) 119 113 278 73 351
Other time deposits 2,458 (65) 2,393 2,519 102 2,621
- - --------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,633 (176) 2,457 3,623 418 4,041
Borrowed funds 4,078 (83) 3,995 (61) (145) (206)
Trust preferred securities 840 -- 840 224 -- 224
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,551 (259) 7,292 3,786 273 4,059
- - --------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 3,219 $ (356) $ 2,863 $ 2,978 $ (520) $ 2,458
================================================================================================================================
</TABLE>
(1)Loan origination fees are considered adjustments to interest income.
YNB's net interest income totaled $22,531,000 in 1998, an increase of 14.6%
from the $19,668,000 reported in 1997. The prior year's increase was 14.3% from
1996's net interest income of $17,210,000. The principal factor contributing to
the increase in net interest income in 1998 was an increase in interest income
of $10,155,000 resulting from increased loan and security volumes. This was
partially offset by decreases in loan and security yields and increased volumes
of other time deposits, borrowed funds and trust preferred securities and the
related interest expense.
Average interest earning assets increased by $140,650,000 or 27.8% for 1998
with increases of $82,524,000 in loans and $58,235,000 in securities. Led by
commercial loans, YNB's average loan portfolio grew by 23.2%, however, loan
yields averaged 8.72% in 1998 or 14 basis points lower than 1997. Commercial
loan yields moved lower as a result of prime rate reductions in the last quarter
of 1998 as well as declining market interest rates. Approximately 48% of YNB's
commercial, commercial mortgage, and real estate - construction loans have
floating interest rates. YNB's average securities portfolio grew by 41.4%,
however, the yield on that portfolio decreased 11 basis points when comparing
1998 to 1997, due to a flat treasury yield curve and increased prepayment speeds
on mortgage-backed securities. Overall, the yield on earning assets decreased 18
basis points to 7.88% in 1998 from 8.06% in 1997.
Interest expense was $28,392,000 for 1998, an increase of $7,292,000, or
34.6%, from $21,100,000 a year ago. The increase in interest expense for the
comparable time period is attributable to higher levels of time deposits,
borrowed funds, and the impact of trust preferred securities issued in October
1997. Time deposits were aggressively priced throughout 1998 to fund loan
growth. The cost on these deposits, however, dropped 4 basis points in 1998 from
1997. Average interest bearing liabilities rose 30.4% in 1998 compared to 1997.
The cost of total interest bearing liabilities rose 15 basis points to 4.96% in
1998 from 4.81% in 1997. Trust preferred securities accounted for approximately
40% of this increase.
16
<PAGE>
Net interest income was $19,668,000 in 1997, an increase of 14.3% from
$17,210,000 in 1996. The principal factor contributing to the improvement was an
increase in interest income due to a substantial increase in commercial loan
volume. This was partially offset by decreases in loan yields and increases in
deposits and trust preferred securities and the related interest expense.
The net interest margin (tax equivalent basis), which is net interest
income divided by average interest earning assets, was 3.55% in 1998 versus
3.95% in 1997 and 4.10% in 1996. The decrease in the net interest margin
resulted from the factors discussed previously. In addition, management has
continued to use an investment leverage strategy (Investment Growth Strategy)
which negatively impacts the margin.
The Investment Growth Strategy is designed to increase net interest income
by purchasing investments utilizing borrowed funds with a targeted spread of 75
basis points after tax. The primary goals of the strategy are to improve return
on average equity and earnings per share. Incrementally, any increase to net
interest income by this strategy will improve return on average equity and
earnings per share. The targeted spread on this strategy, however, will result
in a negative impact to the net interest margin and return on average assets.
For the period ended December 31, 1998 the Investment Growth Strategy averaged
approximately $132,900,000. The positive impact to return on average equity and
earnings per share was approximately 2.00% and $0.17, respectively. The negative
impact to the net interest margin and return on average assets was approximately
.69% and .04%, respectively. This strategy is proactively managed, analyzing
risk and reward relationships in different interest rate environments based on
the composition of investments in the strategy and YNB's overall interest rate
risk position.
Nonaccrual loans totaled $2,046,000 in 1998, a decrease of $1,309,000 from
the $3,355,000 reported in 1997. The decrease in nonaccrual loans was primarily
the result of these loans being transferred into other real estate owned. Had
such nonaccrual loans been paid in the manner and at the rate and time
contracted at the time the loans were made, YNB would have recognized additional
interest income of approximately $249,000 in 1998, $254,000 in 1997 and $351,000
in 1996.
Average non-interest bearing demand deposits increased 17.9% to $66,857,000
in 1998 from $56,700,000 in 1997. Throughout the comparative periods, increases
in average non-interest bearing deposits contributed to the increase in net
interest income.
<PAGE>
NON-INTEREST INCOME
Non-interest income amounted to $3,002,000 in 1998 compared to $2,544,000 the
prior year, an increase of $458,000 or 18.0%. Non-interest income in 1997
increased by $431,000, or 20.4% from 1996's posted total of $2,113,000.
Non-interest income represented 5.6% of total revenues in 1998. Part of
YNB's strategic plan is to improve non-interest income growth. In 1998, YNB's
Product Development and Management Committee re-introduced annuities and mutual
funds to our marketplace. YNB has broadened its product lines and is in the
process of analyzing several key strategic initiatives (e.g. insurance
products), designed to provide additional sources of fee income that complement
our established banking products and services.
The major components of non-interest income are presented in the following
table.
Year Ended December 31,
- - -------------------------------------------------------------
(in thousands) 1998 1997 1996
- - -------------------------------------------------------------
Service charges on
deposit accounts $ 1,246 $ 1,174 $ 1,153
Other service fees 611 593 438
Gains on sales of
mortgages, net 62 30 21
Securities gains
(losses), net 151 24 (136)
Earnings on bank owned
life insurance 708 541 419
Other non-interest income 224 182 218
- - -------------------------------------------------------------
Total $ 3,002 $ 2,544 $ 2,113
=============================================================
Service charges on deposit accounts represent the largest single source of
non-interest income. Service charge revenues in 1998 totaled $1,246,000, an
increase of 6.1%, compared to $1,174,000 in 1997. Service charge income totaled
$1,153,000 in 1996. This component of non-interest income represented 41.5%,
46.1% and 54.6% of the total non-interest income in 1998, 1997, and 1996,
respectively. Service charge income increased in 1998 principally due to an
increase in income from overdraft fees. Management has pursued a strategy of
requiring compensating balances from its commercial customers. Those who meet
balance requirements are not service charged.
YNB also generates non-interest income from a variety of fee-based
services. These include safe deposit rentals, lockbox services and Automated
Teller Machine fees on non-customers. Deposit and fee services are repriced
annually by the Product Development and Management Committee to reflect current
costs and competitive factors.
Gains on sales of mortgages, net, increased in 1998 to $62,000 from $30,000
in 1997. Gains on sales of mortgages, net, totaled $21,000 in 1996. While income
realized from sales of mortgages increased for the comparable time periods, YNB
has not been an active participant in the secondary mortgage market.
YNB recorded net securities gains of $151,000 and $24,000 in 1998 and 1997,
respectively. In 1996 YNB
17
<PAGE>
realized $136,000 in net securities losses. The net gains in 1998 were the
result of routine sales and repositioning transactions to take advantage of the
volatility in the treasury yield curve.
Income from Bank Owned Life Insurance (BOLI) totaled $708,000 in 1998, an
increase of $167,000 or 30.9% compared to 1997. Income from BOLI totaled
$419,000 in 1996. BOLI assets are utilized to offset the costs of executive
compensation plans and a deferred compensation plan for directors.
Other non-interest income is primarily composed of income derived from
mortgage servicing. Other non-interest income totaled $224,000 in 1998, an
increase of $42,000 or 23.1%, when compared to $182,000 in 1997. Other
non-interest income totaled $218,000 in 1996.
NON-INTEREST EXPENSE
Non-interest expense totaled $15,337,000 in 1998, an increase of $1,996,000 or
15.0%, compared to $13,341,000 in 1997. Non-inter est expense in 1997 increased
16.2% from $11,479,000 in 1996. The largest increase in non-interest expense in
1998 compared to 1997 was in salaries and employee benefits. To a lesser extent,
occupancy, equipment, and other non-interest expenses also increased for the
comparable periods.
Salaries and employee benefits, which represent the largest portion of
non-interest expense, increased $669,000 in 1998 or 9.0% over 1997. These
expenses in 1997 increased $817,000 or 12.3% over 1996. Contributing to this
increase was the additional staffing required with the opening of YNB's tenth
branch located in Pennington, as well as additional staffing due to YNB's
growth. Normal annual salary compensation increases also account for part of the
increase in this category. Employee benefits decreased 2.4% for the comparable
periods due primarily to reductions in expenses for postretirement benefits.
Full time equivalent employees increased to 187 at December 31, 1998 from 173 at
December 31, 1997. 1997's increase over 1996 primarily was the result of
additional staffing and related benefit expenses due to YNB's growth. In 1997
executive management was also strengthened and YNB opened its Telephone Help
Center, which both contributed to the increase of salaries and employee
benefits. Salaries and employee benefits as a percent of average assets was 1.2%
in 1998, 1.4% in 1997 and 1.5% in 1996, respectively.
During 1998 net occupancy expense increased $93,000 to $1,070,000 in 1998
from $977,000 reported in 1997. The increase in occupancy expenses in 1998
compared to 1997 was due primarily to new rental lease payments on YNB's
Pennington branch, additional space for the East Windsor branch, as well as
routine rent increases. In the last quarter of 1998 YNB began lease payments on
its Newtown, Pennsylvania branch scheduled to open in the first quarter of 1999.
In 1998, YNB also signed a lease for a 45,000 square foot corporate headquarters
<PAGE>
building. This new location will include a full service bank branch. Lease
payments will not commence until the completion of the building, which is
projected to be in the third quarter of 1999. The increase in occupancy expenses
in 1997 compared to 1996 was attributable to increased maintenance costs, and to
a lesser extent, rental and other expenses associated with the Telephone Help
Center which opened in September 1997. This component of non-interest expense
has remained constant as a percentage of average assets at 0.2% in 1998, 1997,
and 1996, respectively.
Equipment expenses increased $192,000, or 17.3%, to $1,299,000 in 1998 from
$1,107,000 in 1997. Throughout 1998 YNB upgraded its technology capacity to
increase productivity as well as resolve Year 2000 issues. More information on
YNB's Year 2000 plan can be found later in management's discussion of financial
condition. YNB's enhanced technology will allow management to further diversify
business and consumer product lines. The technology upgrades undertaken in 1998
have already improved efficiency and enhanced quality customer service. The
increase in equipment expenses in 1997 compared to 1996 was due to increased
depreciation costs on YNB's in-house computer system as well as hardware and
software upgrades designed to address Year 2000 issues.
Other non-interest expenses were $4,853,000, $3,811,000, and $3,235,000 in
1998, 1997, and 1996, respectively.
The accompanying table presents the major components of non-interest
expense for the years indicated:
Year Ended December 31,
- - --------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - --------------------------------------------------------------------
Salaries and
employee benefits $ 8,115 $ 7,446 $ 6,629
Occupancy expense, net 1,070 977 920
Equipment expense 1,299 1,107 695
Audit & examination fees 306 227 216
Attorneys' fees 379 373 153
O.R.E. expenses 573 378 163
Outside services and
processing 328 332 325
Stationery and supplies 403 347 388
Communication and
postage 434 373 354
FDIC insurance premium 53 47 1
Insurance (other) 101 127 102
Marketing 747 575 522
Amortization of trust
preferred expenses 160 27 --
Other 1,369 1,005 1,011
- - --------------------------------------------------------------------
Total $15,337 $13,341 $11,479
====================================================================
Other real estate (O.R.E.) expenses increased $195,000 to $573,000 in 1998
when compared to 1997. O.R.E. expenses increased 131.9% in 1997 to $378,000 from
18
<PAGE>
$163,000 in 1996. Legal fees and real estate taxes associated with the two real
estate-construction loans that were placed in nonaccrual in late 1996 account
for the increased O.R.E. expenses in 1998 and 1997. Both of these construction
projects are in the work-out process.
Communications and postage expense increased $61,000, or 16.4%, to $434,000
in 1998. This increase was attributable to higher telecommunication costs, as a
result of additional wiring and technology upgrades.
Marketing expenses increased by $172,000, or 29.9% in 1998 to $747,000,
compared to $575,000 in 1997. Marketing expenses totaled $522,000 in 1996. In
1998 the two primary focuses in the marketing division were: advertising to
generate deposits to fund loan growth and YNB's continued emphasis on
participation in community activities.
Other expenses, which include various professional fees, loan-related
expenses and other operating expenses, have increased primarily due to the
increasing size of the organization. In 1998 other expenses were $1,369,000, an
increase of $364,000 or 36.2% from $1,005,000 in 1997. Other expenses totaled
$1,011,000 in 1996. The increase in 1998 other expenses compared to 1997 is
primarily attributable to expenses related to loan growth, increased
professional fees, and other operating expenses associated with a larger
institution.
YNB's ratio of non-interest expense to average assets decreased to 2.2% for
1998 compared to 2.5% for 1997 and 2.6% for 1996.
An important industry productivity measure is the efficiency ratio. The
efficiency ratio is calculated 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 increased slightly in 1998 to 60.07% compared to 60.06%
in 1997, and 59.41% in 1996.
INCOME TAXES
The provision for income taxes, which is comprised of Federal and state income
taxes, was $2,639,000 in 1998 compared to $2,740,000 in 1997 and $2,178,000 in
1996. The decrease was primarily due to a state tax savings strategy initiated
in 1998. Those savings are anticipated to continue into 1999. Management has
also increased the size of its tax-free securities portfolio to reduce Federal
income tax expense. The provisions for income taxes for 1998, 1997, and 1996
represented effective tax rates of 32.1%, 35.4% and 35.1%, respectively. The
decrease in the effective tax rate for 1998 was the result of the factors
discussed above.
19
<PAGE>
Financial Condition Years ended December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
TOTAL ASSETS
YNB's assets were $757,666,000 at year-end 1998 versus $614,686,000 the previous
year, an increase of $142,980,000, or 23.3%. The growth in YNB's asset base
throughout 1998 was due primarily to an increase in loans and securities
available for sale. Average loans and securities grew 23.2% and 41.4%
respectively, in 1998. YNB over the last several years has established its niche
as one of the leading community banks in Mercer County specializing in
commercial lending. The increase in loans, particularly commercial loans, was
the product of YNB's relationship banking philosophy and the continued
consolidation in the marketplace, which has solidified YNB's competitive
position in the small and middle markets.
Average interest earning assets in 1998 were $646,485,000, a 27.8% increase
from $505,835,000 in 1997. YNB's ratio of average interest earning assets to
average assets increased slightly to 94.5% at December 31, 1998 compared to
94.3% at December 31, 1997.
SECURITIES
YNB's securities portfolio represented $221,688,000, or 29.3% of assets at
December 31, 1998 versus $186,636,000, or 30.4%, of assets at December 31, 1997.
The $35,052,000 or 18.8% increase for the comparable period was primarily due to
the increase in available for sale securities purchased as part of the
Investment Growth Strategy. On an average basis the securities portfolio
represented 30.8% of average interest earning assets for the year ended December
31, 1998 compared to 27.8% of average interest earning assets for the year ended
December 31, 1997.
Securities included in the Investment Growth Strategy totaled approximately
$142,200,000 at December 31, 1998 compared to approximately $108,200,000 at
December 31, 1997. The Investment Growth Strategy is diversified and consists of
fixed and floating rate mortgage-backed securities as well as agency callable
securities. Management utilizes asset and liability simulation models to analyze
risk and reward relationships and the degree of interest rate exposure
associated with this strategy. The purpose of this strategy is designed to
improve return on average equity and earnings per share.
The available for sale securities portfolio increased $25,853,000 to
$185,577,000 at December 31, 1998 from $159,724,000 at December 31, 1997. The
increase was primarily a result of securities purchased for the Investment
Growth Strategy. The available for sale portfolio principally consists of U.S.
Treasury, U.S. agency and agency mortgage-backed securities. Activity in this
portfolio is undertaken primarily to manage liquidity and interest rate risk and
to take advantage of market conditions that create more attractive returns on
these investments. As of December 31, 1998, available for sale securities
represented 83.7% of the entire portfolio. These securities are reported at fair
value, with unrealized gains and losses, net of tax, included as a separate
component of stockholders' equity.
In late 1998 YNB established a trading account policy. Trading securities
are purchased specifically for short-term appreciation with the intent of
selling in the near future. There were no trading securities outstanding at
December 31, 1998.
Investment securities classified as held to maturity totaled $36,111,000 at
December 31, 1998 compared to $26,912,000 at December 31, 1997. This portfolio
is principally comprised of mortgage-backed securities issued by Federal
agencies and state and municipal securities. The municipal bond portfolio grew
to $20,773,000 at December 31, 1998 from $8,819,000 at December 31, 1997.
Municipal bonds were purchased to reduce YNB's effective tax rate.
The following tables present the amortized cost and market values of YNB's
securities portfolios as of December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE SECURITIES
December 31,
- - -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
(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 $ 55,051 $ 55,039 $ 62,465 $ 62,540 $ 31,951 $ 31,942
Mortgage-backed securities 120,410 119,986 91,193 91,316 59,441 59,182
Corporate obligations 2,867 2,867 3,297 3,306 -- --
Federal Reserve Bank Stock 812 812 587 587 572 572
Federal Home Loan Bank Stock 6,873 6,873 1,975 1,975 1,975 1,975
- - -------------------------------------------------------------------------------------------------------------------------------
Total $ 186,013 $ 185,577 $ 159,517 $ 159,724 $ 93,939 $ 93,671
===============================================================================================================================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
December 31,
- - -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
(in thousands) Amortized Cos Market Value Amortized Cost Market Value Amortized Cost Market Value
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Obligations of other U.S.
government agencies $ 4,994 $ 4,935 $ -- $ -- $ -- $ --
Obligations of state and
political subdivisions 20,773 20,982 8,819 8,957 9,070 9,108
Mortgage-backed securities 10,344 10,286 18,093 17,891 22,226 21,770
- - -------------------------------------------------------------------------------------------------------------------------------
Total $36,111 $36,203 $26,912 $26,848 $31,296 $30,878
===============================================================================================================================
</TABLE>
The expected maturities and average weighted yields for YNB's securities
portfolio as of December 31, 1998 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, 1998
- - ---------------------------------------------------------------------------------------------------------------------------------
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 $ 2,999 $ 8,953 $ 35,000 $ 8,099 $ 55,051
Mortgage-backed securities -- 2,778 3,349 114,283 120,410
Corporate obligations -- -- -- 2,867 2,867
Federal Reserve Bank Stock -- -- -- 812 812
Federal Home Loan Bank Stock -- -- -- 6,873 6,873
- - ----------------------------------------------------------------------------------------------------------------------------------
Total $ 2,999 $ 11,731 $ 38,349 $132,934 $186,013
- - ----------------------------------------------------------------------------------------------------------------------------------
Weighted average yield, computed on a
tax equivalent basis 6.26% 5.51% 6.58% 6.53% 6.47%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
Investment Securities
December 31, 1998
- - ---------------------------------------------------------------------------------------------------------
After one After five
but within but within After
(in thousands) five years ten years ten years Total
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of other U.S.
government agencies $ -- $ 1,998 $ 2,996 $ 4,994
Obligations of state and political
subdivisions 3,812 2,678 14,283 20,773
Mortgage-backed securities 6,076 2,843 1,425 10,344
- - ---------------------------------------------------------------------------------------------------------
Total $ 9,888 $ 7,519 $18,704 $36,111
- - ---------------------------------------------------------------------------------------------------------
Weighted average yield, computed on a
tax equivalent basis 6.19% 6.64% 6.95% 6.67%
=========================================================================================================
</TABLE>
Investments in mortgage-backed securities involve prepayment and interest rate
risk. At December 31, 1998 and 1997, YNB had mortgage-backed securities totaling
$130,754,000 and $109,286,000, respectively. At December 31, 1998 and 1997,
there were $96,654,000 and $73,565,000 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 mortgage-backed securities tends to decrease because of
lower prepayments on the underlying mortgages, and conversely, as interest rates
fall, prepayments on such securities tend to rise. In 1998 YNB realized
$46,041,000 in principal cash flows from mortgage-
21
<PAGE>
backed securities, compared to $16,900,000 in 1997. The increased cash flows are
the result of lower interest rates and a larger mortgage-backed security
portfolio.
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. In 1998 management sold higher coupon
fixed-rate mortgage-backed securities to mitigate the impact of prepayments.
Securities with lower coupons were then purchased with the goal of more
consistent cash flows. The yield on YNB's mortgage-backed security portfolio was
impacted negatively in 1998 due to higher prepayment speeds.
Collateralized mortgage obligations (CMOs) totaled approximately $9,836,000
at December 31, 1998. A CMO is a mortgage-backed security that is comprised of
classes of bonds created by prioritizing the cash flows from the underlying
mortgage pool in order to meet different objectives of investors. The CMOs in
the investment portfolio are agency named and were generally originally
purchased with average lives of two to four years. At December 31, 1998, 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, 1998 were held in the
available for sale category.
LOAN PORTFOLIO
The loan portfolio represents YNB's largest earning asset class and is a
significant source of interest income. YNB's lending strategy stresses quality
growth and portfolio diversification.
During 1998, total loans increased $105,898,000, or 27.5% to $491,649,000
at December 31, 1998 from $385,751,000 at December 31, 1997. YNB's strength as a
commercial business lender was reflected in the 1998 results. The principal
areas of loan growth in 1998 were commercial and industrial loans and commercial
real estate loans which grew 51.0% and 24.0%, respectively. YNB's loan portfolio
represented 64.9% of assets at December 31, 1998 versus 62.8% at the prior year
end.
The following table sets forth the components of YNB's loan portfolio at the
dates indicated.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
Loan Portfolio Composition
December 31,
- - ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------
(in thousands) Amount % Amount % Amount % Amount % Amount %
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Commercial $166,725 33.9% $134,499 34.9% $112,914 34.1% $ 73,164 29.8% $ 49,186 25.0%
Residential 93,540 19.0 85,754 22.2 83,183 25.1 73,076 29.8 60,156 30.5
Home equity 23,474 4.8 23,805 6.2 23,457 7.1 26,951 11.0 29,388 14.9
Commercial and
industrial 133,263 27.1 88,228 22.9 63,426 19.2 33,218 13.6 26,626 13.5
Real estate--
construction 38,386 7.8 28,182 7.3 25,958 7.8 19,353 7.9 15,560 7.9
Consumer 24,531 5.0 18,519 4.8 15,034 4.5 12,386 5.1 10,934 5.6
Other loans 11,730 2.4 6,764 1.7 7,265 2.2 6,906 2.8 5,060 2.6
- - ---------------------------------------------------------------------------------------------------------------------------
Total loans $491,649 100.0% $385,751 100.0% $331,237 100.0% $245,054 100.0% $196,910 100.0%
===========================================================================================================================
</TABLE>
22
<PAGE>
YNB's lending focus continues to be principally 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 - commercial loans increased by $32,226,000, or 24.0% in 1998
to $166,725,000 from $134,499,000 at December 31, 1997. 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.
Real estate - residential loans are primarily comprised of residential
mortgage loans, fixed-rate home equity loans, and business loans secured by
residential real estate. This portion of the portfolio totaled $93,540,000 at
December 31, 1998, up $7,786,000, or 9.1% from the prior year. Residential
mortgage loans represented $53,360,000, or 57.0% of the total. YNB's residential
mortgage loans are secured by first liens on the underlying real property. At
December 31, 1998, approximately 48% of the residential mortgage loan portfolio
had fixed interest rates and 52% had adjustable interest rates.
The home equity credit line portfolio totaled $23,474,000 or 4.8% of YNB's
loan portfolio at December 31, 1998. This compares to $23,805,000, or 6.2% of
the total loan portfolio at December 31, 1997. Aggressive competition for home
equity loans in YNB's markets continued in 1998. In an effort to solidify
outstandings in this area, YNB lowered its rate on home equity credit lines in
the first quarter of 1998 to make the product more competitive in the
marketplace. The home equity credit line portfolio has provided consistent
operating income to YNB with controllable delinquencies and minimal losses.
The largest area of loan growth in 1998 was in commercial and industrial
loans. Commercial and industrial loans increased $45,035,000, or 51.0% at
December 31, 1998 to $133,263,000 from $88,228,000 at December 31, 1997.
Commercial and industrial 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. YNB diversifies risk within this
portfolio by monitoring industry concentration. Diversification is intended to
limit the risk of loss from any single unexpected event or trend.
<PAGE>
The following table sets forth the components of commercial and industrial
loans, by industry classification, at December 31, 1998.
- - -------------------------------------------------------------------
YEAR-END COMMERCIAL and industrial LOANS
(dollars in thousands)
- - -------------------------------------------------------------------
Percent Number
Industry Classification Balance of balance of loans
- - -------------------------------------------------------------------
Services $ 32,587 24.5% 227
Real estate related 22,426 16.8 82
Retail trade 19,836 14.9 114
Manufacturing 17,754 13.3 61
Wholesale trade 10,121 7.6 44
Construction 9,929 7.5 60
Individuals 7,749 5.8 56
Transportation and
public utilities 6,449 4.8 49
Trade contractors 4,001 3.0 27
Other 2,411 1.8 24
- - -------------------------------------------------------------------
Total $ 133,263 100.0% 744
===================================================================
Real estate - construction loans increased $10,204,000 to $38,386,000 at
December 31, 1998 compared to $28,182,000 at December 31, 1997. These loans
represented 7.8% of the total loan portfolio at December 31, 1998. 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 $24,531,000 at December 31, 1998 compared to
$18,519,000 at December 31, 1997.
Other loans include loans to individuals and businesses for investment
purposes, mortgage warehouse loans, and loans to non-profit organizations. These
loans are generally secured. Other loans increased to $11,730,000 at December
31, 1998 compared to $6,764,000 at December 31, 1997.
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 economic environment and real
estate market.
Total Loan Portfolio
(Dollars in millions)
500
492
400
386
331
300
245
200
197
100
0 ______________________________________
1994 1995 1996 1997 1998
<PAGE>
The following table provides information concerning the maturity and
interest rate sensitivity of YNB's commercial and industrial and real
estate--construction loan portfolios at December 31, 1998.
<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 industrial $ 58,062 $ 56,742 $ 18,459 $ 133,263
Real estate-- construction 16,405 8,310 13,671 38,386
- - ------------------------------------------------------------------------------------------------------
Total $ 74,467 $ 65,052 $ 32,130 $ 171,649
- - ------------------------------------------------------------------------------------------------------
Type:
Floating Rate Loans $ 66,019 $ 35,462 $ 15,627 $ 117,108
Fixed Rate Loans 8,448 29,590 16,503 54,541
- - ------------------------------------------------------------------------------------------------------
Total $ 74,467 $ 65,052 $ 32,130 $ 171,649
======================================================================================================
</TABLE>
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 these loans 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 120 days past due.
Mortgage loans are not generally placed on a nonaccrual status 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 $3,873,000 at December 31, 1998, a decrease of
$1,442,000 from the $5,315,000 reported at December 31, 1997. The decrease in
nonperforming loans was primarily the result of nonaccrual loans being
transferred into other real estate owned.
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) 1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial and industrial $ 232 $ 515 $ 961 $ -- $ --
Real estate-- mortgage 570 384 1,451 1,395 1,203
Real estate-- construction 684 2,106 4,659 142 521
Consumer 31 38 12 30 --
Other 529 312 -- -- --
- - --------------------------------------------------------------------------------------------------
Total 2,046 3,355 7,083 1,567 1,724
- - --------------------------------------------------------------------------------------------------
Restructured loans 634 969 -- 612 --
- - --------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Real estate-- mortgage 1,093 886 1,014 588 326
Consumer 100 105 43 52 16
- - --------------------------------------------------------------------------------------------------
Total 1,193 991 1,057 640 342
- - --------------------------------------------------------------------------------------------------
Total nonperforming loans 3,873 5,315 8,140 2,819 2,066
- - --------------------------------------------------------------------------------------------------
Other real estate 4,957 3,171 395 625 314
- - --------------------------------------------------------------------------------------------------
Total nonperforming assets $ 8,830 $ 8,486 $ 8,535 $ 3,444 $ 2,380
==================================================================================================
</TABLE>
24
<PAGE>
Nonperforming assets increased $344,000, to $8,830,000 at December 31, 1998
compared to $8,486,000 at December 31, 1997. YNB continues to aggressively
manage nonperforming assets with the goal of reducing these assets in relation
to the entire portfolio. Nonperforming assets represented 1.17% of total assets
at December 31, 1998 versus 1.38% at December 31, 1997. Nonperforming assets as
a percentage of total loans and other real estate were 1.78% at December 31,
1998, compared to 2.18% at December 31, 1997. The improvement in these ratios is
due to strong asset and loan growth rates, offset by a modest increase in
nonperforming assets.
Nonaccrual loans were $2,046,000, or 0.4% of total loans, at December 31,
1998, a decrease of $1,309,000 from December 31, 1997.
Restructured loans totaled $634,000 at December 31, 1998 and $969,000 at
December 31, 1997. These restructured loans are in compliance with restructured
terms and conditions. No income is being accrued on these loans.
At December 31, 1998, loans that were 90 days or more past due but still
accruing interest income totaled $1,193,000, or 0.2% of total loans compared to
$991,000, or 0.3% of total loans at December 31, 1997. 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 $4,957,000 at December 31, 1998 and
$3,171,000 at December 31, 1997. O.R.E. represented 1.0% of total loans at
December 31, 1998. Management uses an active strategy to liquidate these assets
and re-deploy the proceeds in YNB's loan portfolio. At December 31, 1998, O.R.E.
balances included two real estate construction loans originally placed into
nonaccrual in late 1996. One of these loans totaling approximately $2,000,000 is
under a contract of sale. Both properties are in the process of being resolved.
Nonperforming Assets
As a Percent of Total Assets
2.5%
2.0
1.74%
1.5
1.38%
1.17%
1.0
0.85% 0.85%
0.5
0.0 ______________________________________
1994 1995 1996 1997 1998
<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 assets and closely monitors
all 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.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Year Ended December 31,
- - --------------------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance, beginning of year $ 5,570 $ 4,957 $ 3,677 $ 2,912 $ 2,703
Charge offs:
Commercial and industrial (547) (212) -- -- (47)
Real estate-- mortgage -- (161) (72) (26) (51)
Real estate-- construction -- -- (75) (30) (25)
Consumer (296) (201) (252) (153) (83)
- - --------------------------------------------------------------------------------------------------------------------
Total charge offs (843) (574) (399) (209) (206)
- - --------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial and industrial 6 7 -- -- 20
Real estate-- mortgage 4 -- -- 64 43
Consumer 56 55 39 45 47
- - --------------------------------------------------------------------------------------------------------------------
Total recoveries 66 62 39 109 110
- - --------------------------------------------------------------------------------------------------------------------
Net charge offs (777) (512) (360) (100) (96)
Provision charged to operations 1,975 1,125 1,640 865 305
- - --------------------------------------------------------------------------------------------------------------------
Allowance balance, end of year $ 6,768 $ 5,570 $ 4,957 $ 3,677 $ 2,912
- - --------------------------------------------------------------------------------------------------------------------
Loans, end of year $ 491,649 $ 385,751 $ 331,237 $ 245,054 $ 196,910
Average loans outstanding $ 438,050 $ 355,526 $ 287,289 $ 221,232 $ 157,411
Allowance for loan losses
to total loans, end of year 1.38% 1.44% 1.50% 1.50% 1.48%
Net charge offs to average
loans outstanding 0.18 0.14 0.13 0.05 0.06
Nonperforming loans to total loans 0.79 1.38 2.46 1.15 1.05
Nonperforming assets to total assets 1.17 1.38 1.74 0.85 0.85
Nonperforming assets to total loans
and other real estate owned, end of year 1.78 2.18 2.57 1.40 1.21
Allowance for loan losses
to nonperforming assets, end of year 76.65 65.64 58.08 106.77 122.35
Allowance for loan losses
to nonperforming loans, end of year 174.75% 104.80% 60.90% 130.44% 140.95%
====================================================================================================================
</TABLE>
26
<PAGE>
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 1998 was $1,975,000, reflective of the continued substantial
growth in the loan portfolio. This compares to a provision for loan losses of
$1,125,000 in 1997 and $1,640,000 in 1996. It is management's assessment that
the allowance for loan losses is adequate in relation to credit risk exposure
levels.
At December 31, 1998, the allowance for loan losses totaled $6,768,000, an
increase of $1,198,000 or 21.5%, from $5,570,000 at December 31, 1997, which
compares to $4,957,000 at December 31, 1996. The ratio of the allowance for loan
losses to total loans was 1.38%, 1.44%, and 1.50% at December 31, 1998, 1997,
and 1996, respectively. Another measure of the adequacy of the allowance for
loan losses is the ratio of the allowance to total nonperforming loans. At
December 31, 1998 this ratio was 174.7% versus 104.8% at December 31, 1997.
YNB's gross charge offs in 1998 totaled $843,000, compared with $574,000 in
1997 and $399,000 in 1996. 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 $66,000 in 1998 compared
to $62,000 in 1997 and $39,000 in 1996. 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 taken the necessary steps to identify potential credit
problems in its loan portfolio by strengthening lending policies and 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 "minimal, modest,
better than average, average, acceptable, 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 risk classifications.
<PAGE>
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,
- - ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
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 and
industrial $1,741 25.7% 27.1% $1,627 29.2% 22.9% $1,704 34.4% 19.2%
Real estate-- mortgage 2,993 44.2 57.7 1,740 31.2 63.3 2,064 41.7 66.3
Real estate-- construction 1,292 19.1 7.8 1,775 31.9 7.3 938 18.9 7.8
Consumer 358 5.3 5.0 283 5.1 4.8 175 3.5 4.5
Other loans 384 5.7 2.4 145 2.6 1.7 76 1.5 2.2
- - ----------------------------------------------------------------------------------------------------------------------------------
Total $6,768 100.0% 100.0% $5,570 100.0% 100.0% $4,957 100.0% 100.0%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
- - ------------------------------------------------------------------------------------------------------------------
1995 1994
- - ------------------------------------------------------------------------------------------------------------------
Percent of Percent of
Reserve Percent of Loans to Reserve Percent of Loans to
(in thousands) Amount Allowance Total Loans Amount Allowance Total Loans
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
industrial $ 983 26.7% 13.6% $1,137 39.0% 13.5%
Real estate-- mortgage 1,816 49.4 70.6 1,152 39.6 70.4
Real estate-- construction 664 18.1 7.9 398 13.7 7.9
Consumer 132 3.6 5.1 141 4.8 5.6
Other loans 82 2.2 2.8 84 2.9 2.6
- - ------------------------------------------------------------------------------------------------------------------
Total $3,677 100.0% 100.0% $2,912 100.0% 100.0%
==================================================================================================================
</TABLE>
27
<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
- - ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
% of % of % of
(in thousands) Balance Rate Total Balance Rate Total Balance Rate Total
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 66,857 --% 14.2% $ 56,700 --% 13.9% $ 49,078 --% 15.1%
Interest bearing
demand deposits 47,709 3.41 10.2 44,024 3.46 10.8 23,554 2.50 7.2
Savings and money
market deposits 117,825 2.89 25.1 115,696 3.08 28.3 109,896 3.12 33.7
Time deposits 237,340 5.70 50.5 192,319 5.74 47.0 143,520 5.62 44.0
- - ---------------------------------------------------------------------------------------------------------------------------------
Total $469,731 3.95% 100.0% $408,739 3.94% 100.0% $326,048 3.70% 100.0%
=================================================================================================================================
</TABLE>
YNB's deposit base is the principal source of funds supporting interest earning
assets. YNB offers a wide 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 deposit base, which, in turn,
presents opportunities for YNB to cross-sell its services.
Total deposits amounted to $519,643,000 at year-end 1998 compared to
$422,944,000 at the end of 1997, an increase of 22.9%. Average total deposits
during 1998 totaled $469,731,000 compared to $408,739,000 during 1997, an
increase of 14.9%.
The growth in YNB's deposit base in 1998 was primarily the result of
aggressive pricing of certificates of deposit (CDs) to fund loan growth. The
continuing trend of increased balances in higher costing time deposits is
indicative of the highly competitive Mercer County deposit marketplace.
In March of 1998, YNB purchased a software program which allowed YNB to
market its certificates of deposit nationwide. This program has become a part of
management's strategy to fund loan growth as well as bolstering liquidity. At
December 31, 1998, YNB had raised approximately $24,400,000 utilizing this
software.
The average balance of non-interest bearing demand deposits was $66,857,000
during 1998, an increase of $10,157,000, or 17.9% from $56,700,000 during 1997.
Non-interest bearing demand deposits represent a stable, interest free source of
funds. The increase in demand deposits is a contributing factor in the growth of
net interest income.
Average interest bearing demand, savings, and time deposits increased 8.4%,
1.8% and 23.4%, respectively, from 1997 to 1998.
Total average time deposits, which consist of certificates of deposit and
individual retirement accounts, increased $45,021,000 to $237,340,000 from
$192,319,000 in 1997. Time deposits averaged over 50% of total average deposits
as of December 31, 1998. Depositors in 1998 continued to place their funds in
higher yielding CDs.
In the second quarter of 1998, management initiated a program to reduce
reserve levels required to be maintained with the Federal Reserve. The result of
this program was a substantial reduction in required reserve levels. These funds
were then deployed into earning assets.
The average rate paid on YNB's deposit balances in 1998 was 3.95%, a 0.3%
decrease from the 3.94% average rate for 1997.
28
<PAGE>
The following table details amounts and maturities for certificates of
deposit of $100,000 or more for the years indicated:
December 31,
- - --------------------------------------------------------
(in thousands) 1998 1997
- - --------------------------------------------------------
Maturity range:
Within three months $ 6,702 $ 5,742
After three but within
six months 9,112 5,232
After six but within
twelve months 8,753 7,979
After twelve months 4,958 2,603
- - --------------------------------------------------------
Total $29,525 $ 21,556
========================================================
Certificates of deposit of $100,000 or more totaled $29,525,000, or 5.7% of
deposits, at December 31, 1998 compared to $21,556,000, or 5.1% of deposits, at
December 31, 1997.
Management anticipates that the branching projected for 1999 in the new
markets of Burlington County and Bucks County, Pennsylvania will have positive
results to YNB's deposit base. Management will also continue to explore other
funding options, including brokered deposits.
Total Deposits
(Dollars in millions)
600
520
500
423
400
364
303
300
259
200
100
0 ______________________________________
1994 1995 1996 1997 1998
BORROWED FUNDS
Borrowed funds consist of securities sold under agreements to repurchase,
Federal Home Loan Bank of New York (FHLB) advances, Federal funds purchased,
treasury tax and loan deposits and other forms of short-term borrowings.
Management utilizes, from time to time, unsecured Federal funds lines of credit
with four of its correspondent banks for daily funding needs.
Borrowed funds totaled $177,888,000 at December 31, 1998 compared to
$134,316,000 at December 31, 1997. FHLB advances with a maturity greater than
one year, with callable options, were utilized for funding growth strategy
securities and loan growth in 1998. These advances lowered borrowing costs.
Repurchase agreements totaling approximately $87,120,000 at year-end 1998 were
used as part of the Investment Growth Strategy.
<PAGE>
Borrowed funds averaged $158,106,000 in 1998, an increase of $73,614,000
from the average reported in 1997 of $84,492,000. The average cost of borrowed
funds declined 9 basis points during the year to 5.54% compared with 5.63% in
1997. At year-end 1998 there was $89,316,000 in outstanding borrowings with the
FHLB and no outstanding borrowings 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
$100,000 and over. Short-term borrowings are also used as supplemental funding
sources when growth in the core deposit base does not keep pace with that of
earning assets.
At December 31, 1998, liquid assets (excluding securities purchased
utilizing borrowed funds) amounted to $56,303,000, as compared to $74,322,000 at
December 31, 1997. This represents 9.8% and 15.9% of earning assets, and 9.1%
and 14.7% of total assets at December 31, 1998 and 1997, respectively.
YNB has the availability to borrow up to $32,700,000 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 four of its correspondent banks.
29
<PAGE>
Strong earning asset growth in 1998 negatively impacted the liquidity
profile of YNB. Management has outlined specific steps to address this issue in
1999. A plan is in place, designed to effectively manage liquidity due to
changes in interest rates, credit markets, or other external risks.
INTEREST RATE SENSITIVITY
The objectives of interest rate risk management are to 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, 1998 was a positive 1.7%. Generally, a financial institution with a
positive gap position will most likely experience an increase in net interest
income during periods of rising rates and decreases in net interest income
during periods of lower interest rates.
The positive gap was brought about in the last year primarily through
increases in convertible advance borrowings in connection with the Investment
Growth Strategy and as a replacement for short-term borrowings. These
liabilities have an expected repricing date beyond the one-year gap interval.
This effect was offset to some degree by increases in fixed rate investments
associated with the strategy, although accelerated prepayments on
mortgage-backed securities effectively shortened the overall investment
duration. 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 some
assets and liabilities, balance sheet options, and other competitive pressures.
YNB reports its callable agency securities ($47. 0 million at December 31,
1998) at their Option Adjusted Spread ("OAS") modified duration date, as opposed
to the call or maturity
<PAGE>
date. In management's opinion, using modified duration dates on callable agency
securities provided a better estimate of the option exercise date at December
31, 1998. 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 maturity 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. Similarly,
convertible advance borrowings and repurchase agreements with options have
expected repricing dates between the option date and the final maturity date,
based on the debt instrument's interest rate and current market rate levels for
the same type of debt.
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 changes (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, 1998 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 a 12 month period (base case sensitivity). Given recent
simulations, YNB is presently positioned to benefit from a rising rate
environment, with lower income levels calculated with declining rate
environments of 300 basis points. However, YNB assigns a low probability to this
rate scenario. Much of the risk to lower rates is due to core deposit funding
whose rates can be moved only marginally lower relative to a rapidly declining
interest rate market. The Bank is initiating strategies to address this minor
imbalance in income (less than a 10% variance) in the early part of 1999.
Management analyzes a number of different simulation scenarios to determine
the impact to net interest income in various interest rate environments.
Management assigns a higher probability of interest rates changing plus or minus
150 basis points over a 12 month period. Like the base case sensitivity, net
interest income will be lower in a declining rate environment as discussed
above. YNB would presently benefit in gradually increasing interest rates over a
12 month period. The impact, positive or negative, is within a 5% variance in
this scenario.
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.
30
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS AND LIABILITIES
December 31, 1998
- - ---------------------------------------------------------------------------------------------------------------------------------
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
Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ -- $ -- $ -- $ -- $ -- $ 16,246 $ 16,246
Federal funds sold and interest
bearing deposits 1,013 -- -- -- -- -- 1,013
Available for sale securities 30,850 17,845 32,471 60,350 18,816 25,245 185,577
Investment securities 1,645 1,376 5,225 10,172 6,626 11,067 36,111
Loans, net of unearned income 235,211 34,214 36,581 130,728 34,410 20,505 491,649
Other assets, net -- 13,787 -- -- -- 13,283 27,070
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 268,719 $ 67,222 $ 74,277 $ 201,250 $ 59,852 $ 86,346 $ 757,666
- - ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Non-interest bearing demand $ -- -- $ -- $ -- $ -- $ 75,426 $ 75,426
Savings and interest bearing demand 71,957 -- 15,339 41,913 -- -- 129,209
Money markets 35,695 2,185 -- 6,781 -- -- 44,661
Certificates of deposit of $100,000
or more 15,814 8,753 3,785 1,173 -- -- 29,525
Other time deposits 98,220 67,472 51,917 23,213 -- -- 240,822
- - ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 221,686 78,410 71,041 73,080 -- 75,426 519,643
Borrowed funds 18,177 4,906 16,513 111,792 26,500 -- 177,888
Trust preferred securities -- -- -- -- -- 11,500 11,500
Other liabilities -- -- -- -- -- 7,879 7,879
Stockholders' equity -- -- -- -- -- 40,756 40,756
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $ 239,863 $ 83,316 $ 87,554 $ 184,872 $ 26,500 $ 135,561 $ 757,666
- - ---------------------------------------------------------------------------------------------------------------------------------
Gap 28,856 (16,094) (13,277) 16,378 33,352 (49,215)
Cumulative gap 28,856 12,762 (515) 15,863 49,215 --
Cumulative gap to total assets 3.8% 1.7% -0.1% 2.1% 6.5% --
=================================================================================================================================
</TABLE>
31
<PAGE>
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, 1998. 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 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.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
expected repricing of financial instruments
- - -----------------------------------------------------------------------------------------------------------------------------------
Beyond Fair
(in thousands) 1999 2000 2001 2002-2003 2004-2008 10 Years Totals Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ -- $ -- $ -- $ -- $ -- $ 16,246 $ 16,246 $ 16,246
Average rate -- -- -- -- -- -- --
Federal funds sold and interest
bearing deposits 1,013 -- -- -- -- -- 1,013 1,013
Average rate 4.75% -- -- -- -- -- 4.75%
Available for sale securities 48,695 32,471 19,538 40,812 18,816 25,245 185,577 185,577
Average rate 6.09% 6.06% 6.57% 6.45% 6.51% 6.60% 6.33%
Investment securities 3,021 5,225 3,281 6,891 6,626 11,067 36,111 36,203
Average rate 5.62% 5.29% 5.55% 5.49% 5.02% 4.85% 5.20%
Loans, net of unearned income 269,425 36,581 54,955 75,773 34,410 20,505 491,649 492,712
Average rate 8.46% 8.57% 8.41% 8.26% 7.72% 6.61% 8.30%
- - -----------------------------------------------------------------------------------------------------------------------------------
Financial Liabilities
Non-interest demand deposits $ -- $ -- $ -- $ -- $ -- $ 75,426 $ 75,426 $ 75,426
Average rate -- -- -- -- -- -- --
Savings 51,974 -- 2,607 22,956 -- -- 77,537 77,537
Average rate 2.51% -- 3.00% 2.09% -- -- 2.40%
Interest bearing demand 19,983 15,339 -- 16,350 -- -- 51,672 51,944
Average rate 2.25% 5.38% -- 2.25% -- -- 3.18%
Money markets 37,880 -- 6,781 -- -- -- 44,661 44,661
Average rate 3.25% -- 2.58% -- -- -- 3.15%
CDs of $100,000 or more 24,567 3,785 858 315 -- -- 29,525 29,693
Average rate 5.21% 5.55% 5.73% 5.59% -- -- 5.27%
Other time deposits 165,692 51,917 9,079 14,134 -- -- 240,822 242,160
Average rate 5.46% 5.69% 5.71% 5.76% -- -- 5.54%
Borrowed funds 23,083 16,513 41,760 70,032 26,500 -- 177,888 181,711
Average rate 5.58% 4.96% 5.20% 4.86% 5.77% -- 5.18%
Trust preferred securities -- -- -- -- -- 11,500 11,500 12,219
Average rate -- -- -- -- -- 9.25% 9.25%
===================================================================================================================================
</TABLE>
32
<PAGE>
Deposits, other than time deposits and non-interest demand, are shown with
a "rate sensitive" component due in 1999 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 is
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 an 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
The management of capital in a regulated bank environment requires a balance
between maximizing leverage and return on average equity to stockholders while
maintaining sufficient capital levels and related ratios to satisfy regulatory
requirements.
Stockholders' equity at December 31, 1998 totaled $40,756,000 compared to
$39,745,000 at December 31, 1997. This represents an increase of $1,011,000 or
2.5%. This increase resulted from (i) earnings of $5,582,000 (less dividend
payments of $1,449,000) and a negative equity adjustment of $408,000 for the
unrealized loss on securities available for sale, (ii) proceeds of $294,000 from
exercised options, and (iii) treasury stock purchased, at cost, of $3,008,000.
In 1998, as part of YNB's Capital Management Plan, 170,300 shares were
repurchased at a cost of $3,008,000.
As of January 1, 1999, YNB adopted an Employee Stock Ownership Plan (ESOP)
to permit eligible employees of YNB to share in the growth of YNB through stock
ownership. On February 3, 1999, Yardville National Bancorp sold 155,340 shares
to the ESOP for $2,000,000. The ESOP financed the stock purchase with a
nonaffiliated financial institution. The financing is for a term of five years
with an interest rate of 7.00%. The full balance of the loan will be repaid in
equal installments over the term of the loan. The shares purchased by the ESOP
were used as collateral for the loan. Yardville National Bancorp guarantees the
repayment of the loan. The estimated minimum annual expenses associated with the
ESOP are $540,000 per year for the next five years.
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 1998, 3,139,000 shares were traded. There
were 4,968,174 shares of common stock outstanding at December 31, 1998. All
share and dividend information reflects the 2.5% common stock dividend paid
April 21, 1998 to shareholders of record April 7, 1998.
Dividends paid per share in 1998 totaled $0.29. As a result of YNB's
performance during 1998, the common stock dividend was increased from $0.07 per
share to $0.075 per share in the last two quarters of 1998. Dividends increased
20.8% in 1998 compared to 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 Improve-ment Act of 1991 (FDICIA)
established five capital level designations ranging from "well capitalized" to
"critically undercapitalized." A bank is considered "well capitalized" if it has
minimum Tier 1 and total risk-based capital ratios of 6% and 10%, respectively,
and a minimum Tier 1 leverage ratio of 5%.
At December 31, 1998 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,
- - -------------------------------------------------------------------------------
1998 1997 1996
- - -------------------------------------------------------------------------------
Tier 1 leverage ratio 7.7% 9.5% 7.8%
Tier 1 risk-based 9.9% 12.2% 10.2%
Total risk-based 11.2% 13.5% 11.4%
===============================================================================
<PAGE>
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 and $356,000 of 9.25% Common
Securities to Yardville National Bancorp. Proceeds from the issuance of the
Trust Preferred Securities were immediately used by the Trust to purchase
$11,856,000 of 9.25% Subordinated Debentures maturing November 1, 2027 from
Yardville National Bancorp. The Trust exists for the sole purpose of issuing
Trust Preferred Securities and investing the proceeds into Subordinated
Debentures of Yardville National Bancorp. These Subordinated Debentures
constitute the sole assets of the Trust. These 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 the 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 obligations to pay amounts when due on the Trust Preferred
Securities.
33
<PAGE>
YEAR 2000 (Y2K)
General
Issues surrounding Y2K arise out of the fact that many existing computer
programs use only two digits to identify a year in the date field. Additionally,
Y2K is not just a computer issue, but involves communication, building and
environmental systems as well as office equipment. Y2K readiness can be affected
to the extent that other entities such as loan customers and key vendors are
unsuccessful in addressing this issue. Y2K issues affect virtually all aspects
of YNB's organization. YNB began taking a proactive approach to this issue in
1997. YNB's approach includes a written compliance plan. Management believes
that the level of resources committed to the project is adequate and the
oversight provided by senior management and the Board of Directors is
appropriate. YNB is on schedule with its Y2K compliance plan.
State of Readiness
YNB has identified six distinct areas for its Y2K compliance efforts. The
Technology committee, which consists of four directors and all of the executive
management team, and the System and Operations committee are the primary groups
coordinating YNB's Y2K efforts. The Board of Directors receives monthly
reporting on the progress of YNB's Y2K compliance efforts. In addition, YNB
receives guidance from the Federal Financial Institutions Examination Council,
the formal interagency group responsible for uniform principles, standards, and
procedures for the examination of financial institutions by the Federal
regulatory agencies, and participates in scheduled Federal Year 2000
examinations. These examinations are being conducted to assess each financial
institution's Year 2000 efforts.
Core Computer Systems: YNB utilizes Information Technology System's (ITI)
software for processing all deposits, commercial and consumer loans in addition
to its general ledger activity. In June 1998, YNB completed preliminary testing
of these loan and deposit functions at a remote disaster recovery site using Y2K
testing software purchased from ITI. Results of the preliminary testing were
satisfactory.
Due to recent hardware upgrades, YNB plans to retest deposit and loan
functions as well as complete testing on the general ledger in the first quarter
of 1999. Management does not anticipate any major Y2K compliance problems with
the ITI system.
Significant Alliances: YNB depends on many outside vendors and suppliers to
function efficiently. However, management has identified three systems that have
significant Y2K compliance issues due to their reliance on computer hardware and
software. These systems are the Federal Reserve Bank's Fed Line wire system, the
MAC(R) network which supports YNB's automated teller machines (ATM), and
Automated Clearing House (ACH) which YNB uses to process direct deposit
activities including payrolls. The timing of Y2K testing on these outside
alliances is dependent upon when such testing schedules become accessible to
YNB. YNB is also dependent on these outside entities to make required Y2K
changes. YNB requires vendors and suppliers to provide representations that
their systems are Y2K compliant and has a system in place to track vendors' Y2K
compliance efforts. Testing of the Fed Line wire system as well as outgoing ACH
transactions was successfully completed during November of 1998. Testing of the
MAC network and incoming ACH transactions will be incorporated into the system
testing to be performed during the first quarter of 1999 to ensure the
integrated components of the system will function properly together.
<PAGE>
YNB has also identified our provider of mortgage servicing, Wendover
Financial Services Corporation, as a significant alliance. Wendover is a
subsidiary of Electronic Data Systems, which is one of the largest service
providers of data processing applications in the United States. Wendover
utilizes software provided by ALLTEL Incorporated. YNB has been provided
detailed plans and strategies from both companies regarding Year 2000
compliance. ALLTEL has advised YNB that their systems are Year 2000 compliant at
December 31, 1998. ALLTEL is currently facilitating a client-managed task force
that will conduct Year 2000 testing which will be completed by the end of the
first quarter of 1999. Management does not anticipate any major Y2K compliance
problems with either Wendover Financial Services or ALLTEL.
End User Computing: YNB's plan to ensure compliance of desktop computers
throughout the Corporation includes the replacement of non-compliant computers
and related software. All mission critical personal computers are Y2K compliant.
Technical Infrastructure: The most critical part of YNB's technical
infrastructure is the communication network hardware and software that links all
of YNB's departments and branches to the ITI system and allows them to process
deposit, loan and general ledger activities. To ensure Y2K compliance the
network components were tested from each location. To date, all but one location
has been tested with favorable results. Management does not anticipate any
significant Y2K compliance issues with its network. Testing of the final branch
location will occur by the end of the first quarter of 1999. Any additional
branches opened during 1999 will be tested before opening for customer business.
Physical Property and Infrastructures: YNB's physical properties and
infrastructures include energy and security systems as well as date sensitive
equipment. Y2K upgrades to equipment such as ATMs were completed in October of
1998. Testing in this area is nearing completion and management does not
anticipate any significant Y2K issues resulting from this area. Commercial Loan
Relationships: YNB has identified its commercial loan customers as a potential
area of YNB's Y2K exposure. To the extent that a borrower's financial position
is weakened as a result of Y2K issues, credit quality could be adversely
affected. Management has reviewed the commercial loan portfolio to identify loan
types that have significant Y2K exposure. Loan calling officers are in the
process of contacting loan customers and assessing their Y2K exposure and
compliance efforts. All significant new commercial loan applications include an
assessment of the Y2K exposure and compliance efforts of the customer. While YNB
continues to closely monitor its commercial loan customers, management cannot
predict whether its customers will be successful in becoming Y2K compliant.
34
<PAGE>
Y2K Program Status at December 31, 1998
Core Computer Systems:
Plan: 100% compliant by 3/31/99.
Status: 90% completed.
Significant Alliances:
Plan: 100% ready* by 3/31/99.
Status: 85% completed.
End User Computing:
Plan: 100% compliant by 12/31/98.
Status: 95% completed; completion by end of first quarter of 1999.
Technical Infrastructure:
Plan: 100% compliant by 12/31/98.
Status: 90% completed; completion by end of first quarter of 1999.
Physical Properties and Infrastructure:
Plan: 100% compliant by 3/31/99.
Status: 95% completed.
Commercial Loan Relationships:
Plan: 100% ready* by 3/31/99.
Status: 85% completed.
*Ready means having a comprehensive Y2K program in place and a plan that will
achieve compliance before January 1, 2000.
Y2K Costs
YNB's Y2K related costs for 1998 were approximately $810,000. This includes
approximately $615,000 in equipment related purchases that will be depreciated
over five years. The remaining expense includes additional compensation expense
and costs related to the testing and upgrading of systems. Management
anticipates 1999 expenditures to decline significantly as most of the
significant hardware and software purchases have been completed. Total Y2K costs
are projected to be between $50,000 and $100,000 in 1999. This level could rise
in the event that ongoing testing uncovers unanticipated Y2K compliance issues.
Y2K Contingency Plans
YNB has established written Y2K contingency plans as part of its overall
disaster recovery plan. These plans identify all mission critical systems and
include strategies to overcome Y2K related problems. These plans continue to be
reviewed and will be modified from time to time based on the results of the
ongoing Y2K compliance efforts. Management believes that the contingency plans
should allow YNB to continue to operate in the event of Y2K related problems
with a minimum of disruption and moderate increased costs.
Y2K Risks
The most reasonable worst case scenario for YNB with respect to the Y2K problem
is an adverse effect on the credit quality of its commercial loan portfolio.
This could be caused by the inability of customers to service their bank debt
due to their own Y2K problems or that of their key customers or suppliers. This
could result in lower interest income and higher loan charge offs should the Y2K
problem become very serious. Management cannot predict the number of customers
that will experience Y2K related problems or the amount of revenue that could be
lost due to them. In addition, without electrical power and telephone
communications it would be very difficult for YNB to effectively operate.
RECENT ACCOUNTING
PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities," established accounting
reporting standards for derivative instruments, and for hedging activities. SFAS
133 supersedes the disclosure requirements in Statements No. 80, 105, and 119.
This statement is effective for periods beginning after June 15, 1999. The
adoption of SFAS 133 is not expected to have a material impact on the financial
position or results of operations of the Corporation.
Statement of Financial Accounting Standards No. 134 (SFAS No. 134),
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise," amends FASB No.
65, "Accounting for Certain Mortgage Banking Activities," to require that after
the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interest based on its ability and intent to sell or hold those
investments. SFAS 134 is effective January 1, 1999. The adoption of this
statement is not expected to have a material impact on the financial position of
the Corporation.
35
<PAGE>
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.
36
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
- - --------------------------------------------------------------------------------------------------
(in thousands, except share data) 1998 1997
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 16, 246 $ 18,923
Federal funds sold 280 1,500
- - --------------------------------------------------------------------------------------------------
Cash and Cash Equivalents 16,526 20,423
- - --------------------------------------------------------------------------------------------------
Interest bearing deposits with banks 733 2,219
Securities available for sale 185,577 159,724
Investment securities (market value of $36,203 in 1998
and $26,848 in 1997) 36,111 26,912
Loans 491,649 385,751
Less: Allowance for loan losses (6,768) (5,570)
- - --------------------------------------------------------------------------------------------------
Loans, net 484,881 380,181
Bank premises and equipment, net 6,251 5,192
Other real estate 4,957 3,171
Other assets 22,630 16,864
- - --------------------------------------------------------------------------------------------------
Total Assets $ 757,666 $ 614,686
- - --------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing $ 75,426 $ 66,560
Interest bearing 444,217 356,384
- - --------------------------------------------------------------------------------------------------
Total Deposits 519,643 422,944
- - --------------------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase 87,120 100,050
Federal Home Loan Bank advances 89,316 29,338
Other 1,452 4,928
- - --------------------------------------------------------------------------------------------------
Total Borrowed Funds 177,888 134,316
Company - obligated Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trust holding solely
junior Subordinated Debentures of the Company 11,500 11,500
Other liabilities 7,879 6,181
- - --------------------------------------------------------------------------------------------------
Total Liabilities $ 716,910 $ 574,941
- - --------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
Stockholders' equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common stock: no par value
Authorized 12,000,000 shares
Issued 5,138,474 shares in 1998
and 5,082,050 shares in 1997 20,364 17,703
Surplus 2,205 2,205
Undivided profits 21,479 19,713
Treasury stock, at cost, 170,300 shares (3,008) --
Accumulated other comprehensive income (284) 124
- - --------------------------------------------------------------------------------------------------
Total Stockholders' Equity 40,756 39,745
- - --------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 757,666 $ 614,686
==================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- - ----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 38,218 $ 31,511 $ 25,731
Interest on deposits with banks 175 107 98
Interest on securities available for sale 10,788 7,093 6,262
Interest on investment securities:
Taxable 783 1,277 1,536
Exempt from Federal income tax 626 400 396
Interest on Federal funds sold 333 380 228
- - ----------------------------------------------------------------------------------------------------------
Total Interest Income 50,923 40,768 34,251
- - ----------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on savings account deposits 5,034 5,083 4,014
Interest on certificates of deposit of $100,000 or more 1,386 1,273 922
Interest on other time deposits 12,152 9,759 7,138
Interest on borrowed funds 8,756 4,761 4,967
Interest on trust preferred securities 1,064 224 --
- - ----------------------------------------------------------------------------------------------------------
Total Interest Expense 28,392 21,100 17,041
- - ----------------------------------------------------------------------------------------------------------
Net Interest Income 22,531 19,668 17,210
Less provision for loan losses 1,975 1,125 1,640
- - ----------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 20,556 18,543 15,570
- - ----------------------------------------------------------------------------------------------------------
Non-Interest Income:
Service charges on deposit accounts 1,246 1,174 1,153
Gains on sales of mortgages, net 62 30 21
Securities gains (losses), net 151 24 (136)
Other non-interest income 1,543 1,316 1,075
- - ----------------------------------------------------------------------------------------------------------
Total Non-Interest Income 3,002 2,544 2,113
- - ----------------------------------------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits 8,115 7,446 6,629
Occupancy expense, net 1,070 977 920
Equipment expense 1,299 1,107 695
Other non-interest expense 4,853 3,811 3,235
- - ----------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 15,337 13,341 11,479
- - ----------------------------------------------------------------------------------------------------------
Income before income tax expense 8,221 7,746 6,204
Income tax expense 2,639 2,740 2,178
- - ----------------------------------------------------------------------------------------------------------
Net Income $ 5,582 $ 5,006 $ 4,026
- - ----------------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic $ 1.11 $ 0.99 $ 0.82
Diluted $ 1.10 $ 0.98 $ 0.80
==========================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
38
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1998, 1997 and 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common Common Undivided Treasury comprehensive
(in thousands, except share amounts) shares stock Surplus profits stock income Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 4,816,663 $ 16,409 $ 2,205 $ 12,997 $ 106 $ 31,717
Net income 4,026 4,026
Unrealized loss - securities available
for sale, net of tax of $107,000 (267) (267)
Total comprehensive income 3,759
Cash dividends (1,083) (1,083)
Common stock issued:
Exercise of stock options 130,958 562 562
Exercise of warrants 34,727 275 275
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 4,982,348 $ 17,246 $ 2,205 $ 15,940 $ (161) $ 35,230
Net income 5,006 5,006
Unrealized gain - securities available
for sale, net of tax of $83,000 285 285
Total comprehensive income 5,291
Cash dividends (1,233) (1,233)
Common stock issued:
Exercise of stock options 99,702 457 457
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 5,082,050 $ 17,703 $ 2,205 $ 19,713 $ 124 $ 39,745
Net income 5,582 5,582
Unrealized loss - securities available
for sale, net of tax of $152,000 (408) (408)
Total comprehensive income 5,174
Cash dividends (1,449) (1,449)
Common stock issued:
Exercise of stock options 56,424 294 294
2.5% stock dividend 2,367 (2,367)
Treasury shares acquired (170,300) (3,008) (3,008)
- - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 4,968,174 $ 20,364 $ 2,205 $ 21,479 $ (3,008) $(284) $ 40,756
==================================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
39
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- - -----------------------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,582 $ 5,006 $ 4,026
Adjustments:
Provision for loan losses 1,975 1,125 1,640
Depreciation 942 832 666
Amortization and accretion 943 467 555
(Gain) loss on sales of securities available for sale (151) (24) 136
Writedown of other real estate 463 532 69
Loss on sale of other real estate 7 -- --
Increase in other assets (5,532) (2,076) (5,434)
Increase in other liabilities 1,698 1,650 1,326
- - -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 5,927 7,512 2,984
- - -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net decrease (increase) in interest bearing deposits with banks 1,486 (862) (324)
Purchase of securities available for sale (168,202) (123,534) (65,492)
Maturities, calls and paydowns of securities available for sale 93,346 45,928 23,475
Proceeds from sales of securities available for sale 47,725 11,740 45,864
Proceeds from maturities and paydowns of investment securities 11,081 4,757 4,355
Purchase of investment securities (20,436) (528) (452)
Net increase in loans (109,188) (57,984) (86,915)
Expenditures for bank premises and equipment (2,001) (606) (2,058)
Proceeds from sale of other real estate 257 -- 533
Capital improvements to other real estate -- (350) --
- - -----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (145,932) (121,439) (81,014)
- - -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing
demand, money market, and savings deposits 23,232 36,188 15,704
Net increase in certificates of deposit 73,467 22,311 45,769
Net increase in borrowed funds 43,572 47,977 21,118
Proceeds from issuance of common stock 294 457 837
Treasury shares acquired (3,008) -- --
Proceeds from issuance of trust preferred securities -- 11,500 --
Dividends paid (1,449) (1,233) (1,083)
- - -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 136,108 117,200 82,345
- - -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,897) 3,273 4,315
Cash and cash equivalents as of beginning of year 20,423 17,150 12,835
- - -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Year $ 16,526 $ 20,423 $ 17,150
- - -----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 25,714 $ 19,239 $ 16,338
Income taxes 3,140 3,642 2,324
=======================================================================================================================
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
The Corporation transferred from loans to other real estate, net of charge offs,
$2,513, $2,958, and $372 in 1998, 1997, and 1996, respectively.
See Accompanying Notes to Consolidated Financial Statements.
40
<PAGE>
Notes to Consolidated Financial Statements Years ended December 31, 1998, 1997,
and 1996
- - --------------------------------------------------------------------------------
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 and contiguous counties. 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, Jim Mary, Yardville Real Estate Corporation,
and YNB Realty Inc. (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.
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.
<PAGE>
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.
Trading securities are purchased specifically for short-term appreciation
with the intent of selling in the near future. Trading securities are carried at
fair value with realized and unrealized gains and losses reported in
non-interest income.
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 120 days past due.
Mortgage loans are not generally placed on a nonaccrual status 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 allow-ance may be necessary based on
changes in economic conditions, particularly in New Jersey. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses and the
valuation of other real estate. Such agencies may require the Corporation to
recognize additions to the allowance or adjustments to the carrying value of
other real estate based on their judgments about information available to them
at the time of their examination.
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 income.
41
<PAGE>
F. Bank Premises and Equipment. Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on straight-line and
accelerated methods over the estimated useful lives of the assets (buildings 25
to 50 years, furniture and fixtures 7 to 10 years). Charges for maintenance and
repairs are expensed as they are incurred.
G. Other Real Estate (O.R.E.). O.R.E. comprises real properties acquired through
foreclosure or deed in lieu of foreclosure in partial or total satisfaction of
problem loans. The properties are recorded at the lower of cost or fair value
less estimated disposal costs at the date acquired. When a property is acquired,
the excess of the loan balance over the fair value is charged to the allowance
for loan losses. Any subsequent writedowns that may be required to the carrying
value of the property are included in other non-interest expense. Gains realized
from the sales of other real estate are included in other non-interest income,
while losses are included in non-interest expense.
H. Federal Income Taxes. 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 applies 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, "Accounting for
Stock Based Compensation," have been included for awards granted after January
1, 1995 (see note 10).
J. Earnings Per Share. On March 25, 1998, the Board of Directors of the
Corporation approved a 2.5% stock dividend payable on April 21, 1998 to
shareholders of record April 7, 1998. 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 adjusted to reflect these two actions.
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, 1998, 1997, and 1996 were 5,017,000, 5,052,000, and
4,938,000, respectively. For the diluted net income per share computation common
stock equivalents of 42,000, 65,000, and 102,000 are included for the years
ended December 31, 1998, 1997, and 1996, respectively.
K. Comprehensive Income. On January 1, 1998, the Corporation adopted Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and net unrealized gains (losses) on
securities and is presented in the consolidated statements of stockholders'
equity. SFAS No. 130 requires only additional disclosures in the consolidated
financial statements; it does not affect the Corporation's financial postition
or results of operations. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130. The unrealized holding gains
(losses) that arise during a year are equal to the net unrealized gains (losses)
on securities available for sale included in total comprehensive income in the
consolidated statements of changes in stockholders' equity plus a
reclassification adjustment for gains (losses) realized in income. This
reclassification adjustment is equal to the security gains (losses) included in
the consolidated statements of income for all years presented.
2. Cash and Due From Banks
The Corporation maintains various deposits with other banks. As of December 31,
1998 and 1997, the Corporation maintained sufficient cash on hand to satisfy
Federal regulatory requirements.
42
<PAGE>
3. Securities
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
December 31,
- - ---------------------------------------------------------------------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------------
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 $ 55,051 $ 149 $ (161) $ 55,039 $ 62,465 $117 $ (42) $ 62,540
Mortgage-backed securities 120,410 157 (581) 119,986 91,193 329 (206) 91,316
Corporate obligations 2,867 8 (8) 2,867 3,297 15 (6) 3,306
Federal Reserve Bank Stock 812 -- -- 812 587 -- -- 587
Federal Home Loan Bank Stock 6,873 -- -- 6,873 1,975 -- -- 1,975
- - ---------------------------------------------------------------------------------------------------------------------------------
Total $ 186,013 $ 314 $ (750) $ 185,577 $ 159,517 $ 461 (254) $ 159,724
=================================================================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities are as
follows:
<TABLE>
<CAPTION>
December 31,
- - --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- - --------------------------------------------------------------------------------------------------------------------------------
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 other U.S.
government agencies $ 4,994 $ -- $ (59) $ 4,935 $ -- $ -- $ -- $ --
Obligations of state and
political subdivisions 20,773 302 (93) 20,982 8,819 138 -- 8,957
Mortgage-backed securities 10,344 -- (58) 10,286 18,093 -- (202) 17,891
- - --------------------------------------------------------------------------------------------------------------------------------
Total $ 36,111 $ 302 $ (210) $ 36,203 $ 26,912 $ 138 (202) $ 26,848
================================================================================================================================
</TABLE>
The amortized cost and estimated market value of securities available for sale
and investment securities as of December 31, 1998 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 $ 2,999 $ 3,010
Due after 1 year
through 5 years 8,953 8,995
Due after 5 years
through 10 years 35,000 34,972
Due after 10 years 18,651 18,614
- - --------------------------------------------------------------------------------
Subtotal 65,603 65,591
Mortgage-backed securities 120,410 119,986
- - --------------------------------------------------------------------------------
Total $ 186,013 $185,577
================================================================================
<PAGE>
- - --------------------------------------------------------------------------------
Investment securities
Estimated
Amortized Market
(in thousands) Cost Value
- - --------------------------------------------------------------------------------
Due after 1 year
through 5 years $ 3,812 $ 3,888
Due after 5 years
through 10 years 4,676 4,761
Due after 10 years 17,279 17,268
- - --------------------------------------------------------------------------------
Subtotal 25,767 25,917
Mortgage-backed securities 10,344 10,286
- - --------------------------------------------------------------------------------
Total $ 36,111 $ 36,203
================================================================================
Proceeds from sale of available for sale securities during 1998, 1997, and 1996
were $47,725,000, $11,740,000 and $45,864,000, respectively. Gross gains of
$242,000, $24,000 and $43,000 were realized on those sales in 1998, 1997, and
1996, respectively. Gross losses of $91,000 and $179,000 were realized on those
sales in 1998 and 1996, respectively. There were no losses in 1997.
43
<PAGE>
Securities with a carrying value of approximately $164,358,000 as of
December 31, 1998 were pledged to secure public deposits and for other purposes
as required or permitted by law. As of December 31, 1998, Federal Home Loan Bank
(FHLB) stock with a carrying value of $6,873,000 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) 1998 1997
- - --------------------------------------------------------------------------------
Commercial and
industrial loans $ 133,263 $ 88,228
Real estate loans-- mortgage 283,739 244,058
Real estate loans-- construction 38,386 28,182
Consumer loans 24,531 18,519
Other loans 11,730 6,764
- - --------------------------------------------------------------------------------
Total loans $ 491,649 $ 385,751
================================================================================
Residential mortgage loans held for sale amounted to $3,084,000 and
$2,773,000 as of December 31, 1998 and 1997, 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, 1998 and 1997, loans serviced for Freddie Mac were $33,476,000 and
$39,025,000, respectively. Loans serviced for FNMA were $10,503,000 and
$5,114,000, respectively, as of December 31, 1998 and 1997.
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) 1998 1997
- - --------------------------------------------------------------------------------
Balance as of beginning of year $ 6,387 $ 3,330
Additions 3,347 5,399
Repayments and resignations 4,029 2,342
- - --------------------------------------------------------------------------------
Balance as of end of year $ 5,705 $ 6,387
================================================================================
<PAGE>
The majority of the Corporation's business is with customers located within
Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount of
real estate are subject to changes in the region's economic environment and 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.
<TABLE>
<CAPTION>
Changes in the allowance for loan losses are as follows:
Year Ended December 31,
- - ----------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of beginning
of year $ 5,570 $ 4,957 $ 3,677
Loans charged off (843) (574) (399)
Recoveries of loans
charged off 66 62 39
- - ----------------------------------------------------------------------------------------------
Net charge offs (777) (512) (360)
Provision charged
to operations 1,975 1,125 1,640
- - ----------------------------------------------------------------------------------------------
Balance as of
end of year $ 6,768 $ 5,570 $ 4,957
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
The detail of loans charged off is as follows:
Year Ended December 31,
- - ----------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and
industrial $ 547 $ 212 $ --
Real estate loans
-- mortgage -- 161 72
Real estate loans
-- construction -- -- 75
Consumer loans 296 201 252
- - ----------------------------------------------------------------------------------------------
Total $ 843 $ 574 $ 399
==============================================================================================
</TABLE>
Nonperforming assets include nonperforming loans and other real estate. The
nonperforming loan category includes loans on which accrual of interest has been
discontinued with subsequent interest payments credited to income as received
and loans 90 days past due or greater on which interest is still accruing.
Nonperforming loans as a percentage of total loans were 0.79% as of December 31,
1998 and 1.38% as of December 31, 1997.
44
<PAGE>
A summary of nonperforming assets follows:
December 31,
- - ----------------------------------------------------------
(in thousands) 1998 1997
- - ----------------------------------------------------------
Nonaccruing loans:
Commercial and
industrial loans $ 232 $ 515
Real estate loans
-- mortgage 570 384
Real estate loans
-- construction 684 2,106
Consumer loans 31 38
Other loans 529 312
- - ----------------------------------------------------------
Total nonaccruing loans $2,046 $3,355
- - ----------------------------------------------------------
Restructured loans $ 634 $ 969
- - ----------------------------------------------------------
Past due 90 days or more:
Real estate loans
-- mortgage $1,093 $ 886
Consumer loans 100 105
- - ----------------------------------------------------------
Total past due 90 days
or more 1,193 991
- - ----------------------------------------------------------
Total nonperforming loans 3,873 5,315
Other real estate 4,957 3,171
- - ----------------------------------------------------------
Total nonperforming assets $8,830 $8,486
==========================================================
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, 1998 and 1997 was $2,438,000 and $4,213,000,
respectively. The related allowance for loan losses on these loans as of
December 31, 1998 and 1997 was $519,000 and $716,000, respectively. The average
recorded investment in impaired loans during 1998 and 1997 was $3,252,000 and
$5,485,000, respectively. There was no interest income recognized on impaired
loans in 1998 or 1997.
Additional income before income taxes amounting to approximately $249,000
in 1998, $254,000 in 1997, and $351,000 in 1996 would have been recognized if
interest on all loans had been recorded based upon original contract terms.
There were two restructured loans to one borrower as of December 31, 1998
and 1997.
<PAGE>
5. Bank Premises and Equipment
The following table represents comparative information for premises and
equipment:
December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
- - --------------------------------------------------------------------------------
Land and improvements $ 773 $ 528
Buildings and improvements 4,413 4,308
Furniture and equipment 7,373 5,722
- - --------------------------------------------------------------------------------
Total 12,559 10,558
Less accumulated depreciation 6,308 5,366
- - --------------------------------------------------------------------------------
Bank premises
and equipment, net $ 6,251 $ 5,192
================================================================================
6. Deposits
Total deposits consist of the following:
December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
- - --------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 75,426 $ 66,560
Interest bearing
demand deposits 51,672 44,520
Money market deposits 44,661 39,937
Savings deposits 77,537 75,047
Certificates of deposit
of $100,000 and over 29,525 21,556
Other time deposits 240,822 175,324
- - --------------------------------------------------------------------------------
Total $ 519,643 $422,944
================================================================================
A summary of certificates of deposit by maturity is as follows:
December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
- - --------------------------------------------------------------------------------
Within one year $ 190,259 $ 141,183
One to two years 55,702 34,522
Two to three years 9,935 13,327
Three to four years 9,340 5,366
Four to five years 5,111 2,482
- - --------------------------------------------------------------------------------
Total $ 270,347 $ 196,880
================================================================================
7. BORROWED FUNDS
Borrowed funds include securities sold under agreements to repurchase and
Federal Home Loan Bank (FHLB) advances. Other borrowed
funds consist of Federal funds purchased and Treasury tax and loan deposits.
45
<PAGE>
The following table presents comparative data related to borrowed funds of the
Corporation as of and for the years ended December 31, 1998, 1997, and 1996.
December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------
Securities sold
under agreements
to repurchase $ 87,120 $100,050 $ 64,185
FHLB advances 89,316 29,338 20,813
Other 1,452 4,928 1,341
- - --------------------------------------------------------------------------------
Total $177,888 $134,316 $ 86,339
- - --------------------------------------------------------------------------------
Maximum amount
outstanding at
any month end $182,354 $134,316 $105,577
Average interest rate
on year end balance 5.25% 5.94% 5.72%
Average amount
outstanding
during the year $158,106 $ 84,492 $ 87,065
Average interest rate
for the year 5.54% 5.63% 5.70%
================================================================================
The following is a summary of securities sold under agreements to repurchase and
their expected maturities as of December 31, 1998:
- - --------------------------------------------------------------------------------
(in thousands)
- - --------------------------------------------------------------------------------
Up to 30 days $ 6,320
30 to 90 days 9,400
Over 90 days 71,400
- - --------------------------------------------------------------------------------
Total $ 87,120
================================================================================
The outstanding amount includes $61,500,000 in callable repurchase agreements
with maturities ranging from five to ten years and call dates of one to two
years. Due to the call provisions, expected maturities could differ from
contractual maturities.
The FHLB advances as of December 31, 1998 mature as follows:
- - --------------------------------------------------------------------------------
(in thousands)
- - --------------------------------------------------------------------------------
Within one year $ 1,000
Over two to three years 784
Over three to four years 32
Over five years 87,500
- - --------------------------------------------------------------------------------
Total $ 89,316
================================================================================
<PAGE>
The outstanding amount includes $83,500,000 in callable advances with ten year
maturities and call dates of one to five years. Due to the call provisions,
expected maturities could differ from contractual maturities.
Interest expense on borrowed funds is comprised of the following:
Year Ended December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------
Securities sold under
agreements to
repurchase $5,851 $3,627 $3,792
FHLB advances 2,816 1,081 1,116
Other 89 53 59
- - --------------------------------------------------------------------------------
Total $8,756 $4,761 $4,967
================================================================================
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% Trust Preferred Securities and $356,000 of 9.25% Common
Securities to Yardville National Bancorp. Proceeds from the issuance of the
Trust Preferred Securities were immediately used by the Trust to purchase
$11,856,000 of 9.25% Subordinated Debentures maturing November 1, 2027 from
Yardville National Bancorp. The Trust exists for the sole purpose of issuing
Trust Preferred Securities and investing the proceeds into Subordinated
Debentures of Yardville National Bancorp. These Subordinated Debentures
constitute the sole assets of the Trust. These Subordinated Debentures are
redeemable in whole or 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 the 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
obligations to pay amounts when due on the Trust Preferred Securities.
46
<PAGE>
9. Income Taxes
Income taxes reflected in the consolidated financial statements for 1998, 1997,
and 1996 are as follows:
Year Ended December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------
Statements of Income:
Federal:
Current $ 2,625 $ 2,440 $ 2,281
Deferred (358) (294) (521)
State:
Current 512 675 560
Deferred (140) (81) (142)
- - --------------------------------------------------------------------------------
Total tax expense $ 2,639 $ 2,740 $ 2,178
- - --------------------------------------------------------------------------------
Statements of Condition:
Deferred tax on securities
available for sale $ (236) $ 190 $ (178)
================================================================================
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 1998 and 1997 are
as follows:
December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
- - --------------------------------------------------------------------------------
Deferred tax assets:
Deferred loan fees $ 58 $ 38
Allowance for
loan losses 2,462 1,965
Writedown of basis
of O.R.E. properties 118 22
Deferred income 16 2
Nonaccrual loans -- 40
Net state operating
loss carryforwards 52 --
Unrealized loss on
securities available
for sale 152 --
Deferred compensation 474 458
- - --------------------------------------------------------------------------------
Total deferred tax assets $ 3,332 $ 2,525
- - --------------------------------------------------------------------------------
Valuation allowance (78) (78)
Deferred tax liabilities:
Unrealized gain on
securities available
for sale -- (83)
Deferred income (168) --
Unamortized discount
accretion (75) (71)
Depreciation (166) (195)
Other (13) --
- - --------------------------------------------------------------------------------
Net deferred tax assets $ 2,832 $ 2,098
================================================================================
<PAGE>
The Corporation has established the valuation allowance against certain
temporary differences. The Corporation is not aware of any factors which would
generate significant differences between taxable income and pre-tax accounting
income in future years except for the effects of the reversal of current or
future net deductible temporary differences. Management believes, based upon
current information, that it is more likely than not that there will be
sufficient taxable income through carryback to prior years to realize the net
deferred tax asset. However, there can be no assurance regarding the level of
earnings in the future.
A reconciliation of the tax expense computed by multiplying pre-tax
accounting income by the statutory Federal income tax rate of 34% is as follows:
Year Ended December 31,
- - --------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - --------------------------------------------------------------------------------
Income tax expense
at statutory rate $ 2,795 $ 2,634 $ 2,105
State income taxes, net
of Federal benefit 245 392 276
Changes in taxes
resulting from:
Tax exempt interest (239) (155) (122)
Tax exempt income (227) (184) (142)
Non-deductible
expenses 65 53 61
- - --------------------------------------------------------------------------------
Total $ 2,639 $ 2,740 $ 2,178
================================================================================
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 1998, 1997, and 1996 up to 6% of base compensation. Employer
contributions to the plan amounted to $107,000 in 1998, $93,000 in 1997, and
$83,000 in 1996.
Postretirement Benefits. In 1997, the Corporation modified its postretirement
benefits plan. 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. There were no periodic postretirement benefit
costs under SFAS 106 in 1998. Those costs were $64,000 and $205,000 in 1997 and
1996, respectively. The actuarial present value of benefit obligations was
$604,000 in 1998, and $568,000 in 1997.
47
<PAGE>
Stock Option Plans. The Corporation maintains stock option plans for both
officers and directors. The purpose of these plans is to assist the Corporation
in attracting and retaining highly qualified officers and directors and to
provide such with incentive to contribute to the growth and development of the
Corporation.
These options are intended to be either incentive or non-qualified stock
options. Options have been granted to purchase common stock at the fair value of
the stock at the date of grant. A committee appointed by the Board of Directors
sets the vesting schedule and terms of stock options.
- - --------------------------------------------------------------------------------
Weighted average
Shares exercise price
- - --------------------------------------------------------------------------------
Balance,
December 31, 1995 333,202 $ 4.26
- - --------------------------------------------------------------------------------
Shares:
Granted 6,560 7.68
Exercised 130,958 4.30
Expired 7,403 5.00
- - --------------------------------------------------------------------------------
Balance,
December 31, 1996 201,401 $ 4.32
- - --------------------------------------------------------------------------------
Shares:
Granted 29,930 10.64
Exercised 99,702 4.64
Expired 1,322 4.95
- - --------------------------------------------------------------------------------
Balance,
December 31, 1997 130,307 $ 5.52
- - --------------------------------------------------------------------------------
Shares:
Granted 419,288 17.20
Exercised 57,575 5.03
Expired 1,529 8.43
- - --------------------------------------------------------------------------------
Balance,
December 31, 1998 490,491 $ 15.55
- - --------------------------------------------------------------------------------
Shares exercisable as of
December 31, 1998 64,862 $ 5.38
================================================================================
The fair value of options granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997, and 1996, respectively: (1) an
expected annual dividend rate of $0.32, $0.28, and $0.23. (2) risk free rate of
5.6%, 5.5%, and 5.2%. (3) expected life of approximately 5 years in 1998, and 1
year for 1997 and 1996.
The Corporation applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for stock options in the
consolidated financial statements.
<PAGE>
Had the Corporation determined compensation cost based on the fair value at
the grant date for its stock options under SFAS 123, the Corporation's 1998,
1997, and 1996 net income would have been reduced to the pro forma amounts
indicated below:
- - -------------------------------------------------------------
(in thousands) 1998 1997 1996
- - -------------------------------------------------------------
Net income:
As reported $ 5,582 $ 5,006 $ 4,026
Pro forma 3,567 4,976 4,021
- - -------------------------------------------------------------
Earnings per share:
Basic:
As reported $ 1.11 $ 0.99 $ 0.82
Pro forma 0.71 0.99 0.81
Diluted:
As reported $ 1.10 $ 0.98 $ 0.80
Pro forma 0.71 0.97 0.80
=============================================================
Benefit Plans. The Corporation has a salary continuation plan for key executives
and a director deferred compensation plan for its 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, 1998
and 1997 is approximately $493,000 and $342,000, respectively, and is included
in other liabilities in the accompanying consolidated statements of condition.
Compensation expense of approximately $138,000, $120,000, and $120,000 is
included in the accompanying consolidated statements of income for the years
ended December 31, 1998, 1997, and 1996, respectively.
In connection with the benefit plans, the Corporation has purchased life
insurance policies on the lives of the executives and directors. The Corporation
is the owner and beneficiary of the policies. The cash surrender values of the
policies are approximately $9,595,000 and $5,797,000 as of December 31, 1998 and
1997, respectively, and are included in other assets in the accompanying
consolidated statements of condition.
The Corporation implemented an officer group term replacement plan for
divisional officers in 1996. This plan replaces group term life insurance for
these officers. 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 $4,192,000 and $3,441,000 as of December 31, 1998 and 1997, and is
included in other assets in the accompanying consolidated statements of
condition.
48
<PAGE>
11. COMMON STOCK
On October 28, 1997, the Corporation's Board of Directors authorized the
repurchase of up to 172,000 shares in aggregate of the Corporation's common
stock. There were no shares repurchased in 1997. At various times in 1998, the
Corporation repurchased shares totaling 170,300 at an average price of $17.67.
12. OTHER NON-INTEREST EXPENSE
Other non-interest expense included the following:
Year Ended December 31,
- - ----------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - ----------------------------------------------------------------------
Audit and examination fees $ 306 $ 227 $ 216
Attorneys' fees 379 373 153
O.R.E. expenses 573 378 163
Outside services and processing 328 332 325
Stationery and supplies 403 347 388
Communication and postage 434 373 354
FDIC insurance premium 53 47 1
Insurance (other) 101 127 102
Marketing 747 575 522
Amortization of trust preferred
expenses 160 27 --
Other 1,369 1,005 1,011
- - ----------------------------------------------------------------------
Total $4,853 $3,811 $3,235
======================================================================
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, 1998 and 1997 for commitments to extend credit were $114,077,000
and $77,943,000, respectively. For standby letters of credit, the contract
amounts were $8,208,000 and $6,501,000, 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.
<PAGE>
The Corporation maintains lines of credit with the FHLB and four of its
correspondent banks. There were approximately $28,700,000 in lines of credit
available as of December 31, 1998. The Corporation maintains repurchase
agreement lines of credit with two brokerage firms. There were approximately
$108,230,000 in lines available at December 31, 1998.
The Corporation leases its banking offices in Ewing Township, East Windsor
Township, Trenton, Hamilton Square, Pennington, and its Telephone Help Center.
In 1998, the Corporation began paying rent on a future branch site in Newtown
Township, Pennsylvania. In addition, the Corporation signed a lease for a new
corporate headquarters building to be located in Hamilton Township. It is
anticipated that rental payments will begin in the third quarter of 1999. Total
lease rental expense was $298,234, $236,912 and $186,305 for the years ended
December 31, 1998, 1997, and 1996, respectively. Minimum rentals under the terms
of these leases are approximately $621,000 in 1999, $1,100,000 in 2000, and
$1,200,000 for years 2001 through 2003.
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.
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 I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
49
<PAGE>
<TABLE>
<CAPTION>
The following table presents the Corporation's and Bank's actual capital amounts and ratios:
- - --------------------------------------------------------------------------------------------------------------------------------
REGULATORY MATTERS
Per Regulatory Guidelines
- - --------------------------------------------------------------------------------------------------------------------------------
Actual Minimum "Well Capitalized"
- - --------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Corporation
Total capital (to risk-weighted assets) $59,151 11.2% $42,394 8.0% $52,993 10.0%
Tier I capital (to risk-weighted assets) 52,531 9.9 21,197 4.0 31,796 6.0
Tier I capital (to average assets) 52,531 7.7 27,367 4.0 34,208 5.0
Bank
Total capital (to risk-weighted assets) $57,590 10.8% $42,500 8.0% $53,125 10.0%
Tier I capital (to risk-weighted assets) 50,948 9.6 21,250 4.0 31,875 6.0
Tier I capital (to average assets) 50,948 8.5 27,251 4.0 34,064 5.0
As of December 31, 1997:
Corporation
Total capital (to risk-weighted assets) $56,341 13.5% $33,414 8.0% $41,767 10.0%
Tier I capital (to risk-weighted assets) 51,116 12.2 16,707 4.0 25,060 6.0
Tier I capital (to average assets) 51,116 9.5 21,465 4.0 26,832 5.0
Bank
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 I capital (to average assets) 46,496 8.7 21,279 4.0 26,598 5.0
================================================================================================================================
</TABLE>
As of December 31, 1998, 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.
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 $7,952,000 as of December 31,
1998.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Improve-ment 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.
<PAGE>
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:
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 fair value of 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.
50
<PAGE>
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, interest bearing demand deposits, money
market, and savings deposits, 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 and FHLB
advances, 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, 1998
- - -------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- - -------------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $ 16,526 $ 16,526
Interest bearing
deposits with banks 733 733
Securities available for
sale 185,577 185,577
Investment securities 36,311 36,203
Loans, net 484,881 485,944
Financial Liabilities:
Deposits 519,643 521,421
Borrowed funds 177,888 181,711
Trust preferred securities 11,500 12,219
===============================================================================
<PAGE>
December 31, 1997
- - -------------------------------------------------------------------------------
Carrying Fair
(in thousands) Value Value
- - -------------------------------------------------------------------------------
Financial Assets:
Cash and cash
equivalents $ 20,423 $ 20,423
Interest bearing
deposits with banks 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
===============================================================================
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) 1998 1997
- - ------------------------------------------------------------------------------
Assets:
Cash $ 200 $ 815
Securities available for sale 105 3,297
Investment in subsidiaries 51,020 46,971
Other assets 1,296 527
- - ------------------------------------------------------------------------------
Total Assets $52,621 $51,610
- - ------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity:
Other liabilities $ 9 $ 9
Subordinated debentures 11,856 11,856
Stockholders' equity 40,756 39,745
- - ------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $52,621 $51,610
==============================================================================
Condensed Statements of Income
Year Ended December 31,
- - -------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - -------------------------------------------------------------------------------
Operating Income:
Dividends from subsidiary $1,982 $1,765 $1,083
Interest income 42 -- --
Other income 63 -- --
- - -------------------------------------------------------------------------------
Total Operating Income 2,087 1,765 1,083
- - -------------------------------------------------------------------------------
Operating Expense:
Interest expense 1,064 224 --
Other expense 340 144 114
- - -------------------------------------------------------------------------------
Total Operating Expense 1,404 368 114
- - -------------------------------------------------------------------------------
Income before income
taxes and equity in
undistributed income
of subsidiaries 683 1,397 969
Federal income tax benefit (441) (114) (40)
- - -------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 1,124 1,511 1,009
Equity in undistributed
income of subsidiaries 4,458 3,495 3,017
- - -------------------------------------------------------------------------------
Net Income $5,582 $5,006 $4,026
===============================================================================
<PAGE>
Condensed Statements of Cash Flows
Year Ended December 31,
- - -------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- - -------------------------------------------------------------------------------
Cash Flows from
Operating Activities:
Net Income $ 5,582 $ 5,006 $ 4,026
Adjustments:
Increase in
other assets (769) (448) (40)
Equity in undistributed
income of subsidiaries (4,458) (3,495) (3,017)
Increase in
other liabilities -- 9 --
- - -------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 355 1,072 969
- - -------------------------------------------------------------------------------
Cash Flows from Investing
Activities:
Purchases of securities
available for sale -- (3,297) --
Proceeds from sales of
securities available for sale 3,192 -- --
Investing in subsidiaries 1 (8,356) (749)
- - -------------------------------------------------------------------------------
Net Cash Provided (Used) by
Investing Activities 3,193 (11,653) (749)
- - -------------------------------------------------------------------------------
Cash Flows from Financing
Activities:
Proceeds from issuance
of subordinated debentures -- 11,856 --
Proceeds from shares issued 294 457 837
Purchase of treasury shares (3,008) -- --
Dividends paid (1,449) (1,233) (1,083)
- - -------------------------------------------------------------------------------
Net Cash (Used) Provided by
Financing Activities (4,163) 11,080 (246)
- - -------------------------------------------------------------------------------
Net (decrease) increase in cash (615) 499 (26)
Cash as of beginning of year 815 316 342
- - -------------------------------------------------------------------------------
Cash as of end of year $ 200 $ 815 $ 316
===============================================================================
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, 1998 and 1997,
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, 1998. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Yardville
National Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Princeton, New Jersey
January 22, 1999
53
<PAGE>
OFFICERS
<TABLE>
<S> <C> <C>
YARDVILLE NATIONAL BANK Thomas A. McBain Assistant Cashiers
Audit Sharon L. Bokma
President/Chief Executive Officer Retail Administration
Patrick M. Ryan Debra L. Mincarelli
Retail Administration Barbara A. Brehaut
Executive Vice Presidents Retail Administration
Stephen F. Carman Tina H. Orben
Cashier/Chief Financial Officer Private Banking Valerie Dromboski
Residential Mortgage
Timothy J. Losch Diane H. Polyak
Chief Operating Officer Financial Services John T. Gaffney
Alternative Investments
First Senior Vice Presidents Leslie Rita
James F. Doran Credit Administration Barbara A. Kaminsky
Senior Lending Officer Operations
Joseph H. Robotin
Mary C. O'Donnell Residential Mortgage Kathleen M. Kirkham
Chief Credit Officer Retail Administration
Christine A. Secrist
Senior Vice Presidents Retail Administration Gabriella Kovacs
Frank Durand III Retail Administration
Bank Administrator Joan M. Tarr
Retail Administration Patricia D. Majeski
Howard N. Hall Retail Administration
Controller Jane M. Trout
Marketing Jeffrey S. Millington
Richard A. Kauffman Audit
Chief Technology Officer Susan M. Valentino
Retail Administration Barbara A. Morgan
Nina D. Melker Commercial Lending
Retail Administration Assistant Vice Presidents
Scott W. Civil Michael J. Pelosci
Thomas L. Nash Commercial Lending Alternative Investments
Commercial Mortgage
Nancy J. Collar Elizabeth A. Salvatore
Sarah J. Strout Consumer Lending Consumer Lending
Commercial Lending
Barbara A. Cromwell Flora B. Shiarappa
Vice Presidents Retail Administration Deposit Operations
James T. Brotherton
Lending Business Development Doreen A. Goch YARDVILLE NATIONAL BANCORP
Commercial Mortgage
Carol A. Budd President/Chief Executive Officer
Commercial Lending Fay Horrocks Patrick M. Ryan
Human Resources
Shawn Chase-Merritt Secretary/Treasurer
Retail Administration Peggy A. Iucolino Stephen F. Carman
Purchasing
Vincent P. Ditta Assistant Secretary and Treasurer
Commercial Lending Linda A. Kelly Diane H. Polyak
Data Services
Kathleen A. Fone
Human Resources Anne S. Marsilio
Residential Mortgage
Nancy C. German
Deposit Operations William B. McDowell
Small Business Lending
Sandra A. Gray
Commercial Mortgage Dawn L. Melker
Retail Administration
Dale K. Inman
Consumer Lending William V. Radlinsky
Loan Review
</TABLE>
54
<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, M.D., F.C.C.P. Anthony M. Giampetro, 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
David West Ayres George S. Martin
James E. Bartolomei, CPA William J. Matisa, Jr.
Vincent Civale, CPA Robert E. Mule
Nancy S. Ellis Daniel J. O' Donnell, Esq.
William G. Engel *Jeffrey F. Perlman, CPCU
Gary Dean Gray Joyce H. Rainear
Daniel J. Graziano, Esq. Marvin A. Rosen
John J. Klein III Armand L. Ruderman, M.D., F.A.A.F.P.
Richard J. Klockner Ronald K. Vernon
Nancy J. Knight Robert L. Workman
Eugene P. Marfuggi Harold N. Zeltt
*as of February 24, 1999
55
<PAGE>
- - ------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Corporate Headquarters Registrar and Stock
Yardville National Bancorp Transfer Agent
3111 Quakerbridge Road First City Transfer Company
Mercerville, NJ 08619 P.O. Box 170
(609) 585-5100 Iselin, NJ 08830-0170
(732) 906-9227
Annual Meeting
Shareholders are invited to Financial Information
attend the Annual Meeting of Investors, security
Shareholders at: La Villa analysts and others
Ristorante 2275 Kuser Road desiring financial
Hamilton, NJ 08690 Tuesday, information should
April 27, 1999 Doors open 9:00 contact:
a.m. Meeting begins at 10:00 a.m. Diane H. Polyak
Assistant Secretary/
Common Stock Prices/ Assistant Treasurer
Dividends Declared or
The table below sets forth by Stephen F. Carman
quarter the high and low bid Secretary/Treasurer
price for YNB common stock and
the cash dividends declared Form 10-K Availability
per common share. Copies of Yardville National
Bancorp's Form 10-K filed with
Cash the Securities and Exchange
Dividend Commission are available upon
1998 Quarter High Low Declared written request to the
- - ----------------------------------------- Company.
First $19.03 $17.08 $0.070
Second 19.75 16.38 0.070
Third 16.75 12.00 0.075
Fourth 14.25 12.00 0.075
------
Total $0.290
=========================================
1997 Quarter
- - -----------------------------------------
First $11.22 $ 9.39 $0.060
Second 12.19 9.64 0.060
Third 13.84 11.95 0.060
Fourth 17.78 13.91 0.060
------
Total $0.240
=========================================
Subsidiary Bank is a Member of the FDIC.
56
<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 Whitehourse-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
Pennington Office Newtown Office
The Pennington Shopping Center 295 North Sycamore Street
Route 31 North Newtown, Pennsylvania 18940
Pennington, New Jersey 08534
YNB HELP CENTER: 1-8884-HELPLINE
YNB ON THE WEB: http//www.yanb.com
YNB LOGO
Your Neighborhood Bank(R)
=========================
YARDVILLE NATIONAL BANK
<PAGE>
1
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 31st day of January, 1999 by and
between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation
organized under the laws of the State of New Jersey, and Patrick M. Ryan (the
"Executive").
RECITALS
WHEREAS, the Bank desires to employ and retain the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on
a full-time basis for said period;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive shall serve as
President and Chief Executive Officer of the Yardville National Bank (the
"Bank") reporting to the Board of Directors of the Bank and as Chief Executive
Officer of the Holding Company reporting to the Board of Directors of the
Holding Company (collectively, the "Board"). During said period, Executive shall
also serve as a director of the Bank and as a director of the Holding Company.
Failure to re-elect Executive as President and Chief Executive Officer of the
Bank or the Holding Company or failure to re-elect Executive as a member of the
Board of Directors of the Bank or of the Holding Company shall constitute a
Breach of this Agreement.
2. TERMS AND DUTIES
(A) The period of the Executive's employment under this Agreement shall
commence as of January 31, 1999 and shall continue for a period of twenty-four
(24) full calendar months thereafter, unless terminated by the Bank on account
of death, disability or cause (as herein defined). This Agreement is subject to
approval, for continuation, by the Board of Directors of the Yardville National
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
<PAGE>
2
compensation and benefits as may hereafter be agreed upon between the parties
hereto from time to time. This Agreement shall be deemed to continue for an
additional twelve (12) months from each succeeding anniversary date of the
Agreement, it being the intention of the parties that, unless notice is given to
the contrary by either party, the Agreement shall be extended for an additional
one year period so that there be a full twelve month term remaining.
(B) During the period of employment, the Executive shall devote full
time and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the President and Chief Executive
Officer of a commercial bank and from time to time may be perceived by the
Board.
3. DEFINITIONS
For purposes of the Agreement,
(A) "Cause" means any of the following:
(i) the willful commission of an act that causes or that
probably will cause substantial economic damage to the bank
Bank or substantial injury to the Bank's business reputation;
or,
(ii) the commission of an act of fraud in the performance of
the Executive's duties; or
(iii) a continuing willful failure to perform the duties of
the Executive's position with the Bank; or
(iv) the order of a bank regulatory agency or court requiring
the termination of the Executive's employment.
(B) "Change in Control": means any of the following:
(i) the acquisition by any person or group acting in concert
of beneficial ownership of forty percent (40%) or more of any
class of equity security of the Bank or the Bank's Holding
Company, or,
(ii) the approval by the Board of the sale of all or
substantially all of the assets of the Bank or Holding
Company; or,
<PAGE>
3
(iii) the approval by the Board of any merger, consolidation,
issuance of securities or purchase of assets, the result of
which would be the occurrence of any event described in clause
(i) or (ii) above.
(C) "Disability" means a mental or physical illness or condition
rendering the Executive incapable of performing his normal duties for the Bank.
(D) "Willfulness" means an act or failure to act done not in good faith
and without reasonable belief that the action or omission was in the best
interest of the Bank.
4. COMPENSATION AND REIMBURSEMENT
(A) During the period of employment, the Bank shall pay to the
Executive an annual salary of not less than $225,000.00 shall be paid in either
bi-weekly or monthly installments as the Executive prefers.
Such salary shall be reviewed by the Board or a duly appointed committee thereof
at least annually and any adjustments in the amount of salary on said review
shall be fixed by the Board from time to time.
(B) The Executive shall be entitled to participate in or receive
benefits under any retirement plan, salary continuation plan, pension plan,
profit-sharing plan, stock plan, group term replacement plan,
health-and-accident plan, medical coverage or any other employee benefit plan or
prerequisite arrangement currently available or which may hereafter be adopted
by the Bank for its senior executives and key management employees, subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation to which
the Executive is entitled under this Agreement.
(C) The Executive shall be provided by the Bank with an automobile for
his individual use.
(D) In addition to the salary provided for under Section 4:
(i) The Bank shall pay for all reasonable travel and other
reasonable expenses incurred by the Executive in performing
his obligations under this Agreement.
<PAGE>
4
(ii) The Executive shall be eligible for an annual cash bonus,
based upon the Bank's performance during the fiscal year.
The cash bonus allowance will be set at 2% of profits, after
taxes and prior to shareholder dividend payments, if earnings,
in the fiscal year, exceed $5,000,000.00
All cash bonuses, for the Executive, are subject to the
recommendation and approval of the Directors' Organization and
Compensation Committee and all bonus provisions will be
reviewed annually for appropriate revisions.
5. TERMINATION FOR CAUSE
(A) The Executive shall not have the right to receive compensation or
other benefits provided hereunder for any period after termination for Cause,
except to the extent that Executive may be legally entitled to participate by
virtue of COBRA or any other State or Federal Law concerning employee rights to
benefits upon termination.
(B) Any unexercised stock option granted to the Executive shall become
null and void effective upon the Executive's receipt of notice of termination
for Cause and shall not be exercisable by the Executive at any time subsequent
to such termination for Cause.
(C) The Executive shall not be deemed to have been terminated for Cause
unless and until there is delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the full Board at a
meeting of such Board called and held for the purpose (after the Executive,
together with counsel, has been given the opportunity to be heard before the
Board), finding the Executive guilty of conduct set forth above in the
definition of "Cause" in Subsection 3(A) and specifying the particulars thereof
in detail.
6. CHANGE IN CONTROL
(A) In the event that within three (3) years after a Change in Control
(as herein defined), the Executive's employment is terminated by the Bank, other
than for death, disability or Cause, the Executive shall be entitled to receive
<PAGE>
5
three (3) years' salary at the annual salary currently being paid, which payment
shall be made in a lump sum promptly after the occurrence of such termination.
(B) The Executive will have the option within six (6) months after a
Change in Control (as herein defined), to elect to resign his position. If the
Executive's voluntary departure is for other than death, disability or cause the
Executive shall be entitled to receive three (3) years' salary at an annual
salary currently being paid, which payment shall be made in a lump sum promptly
after the occurrence of such voluntary resignation.
(C) Under the provisions of Section 7 the Executive is entitled to
receive a lump sum payment of three (3) years salary at the annual salary
currently being paid at the time of the event. The Holding Company's independent
accountants will determine if an excess payment (as defined in Section 4999 of
the Internal Revenue Code of 1954, as amended (the "Code") exists after
reductions permitted pursuant to Section 280G(b) (4) of the Code (such excess
parachute payment after taking into account such reductions, if any, being
hereafter referred to as the "Excess Parachute Payment"). As soon as practicable
after the Excess Parachute Payment, if any, has been so determined, the Holding
Company will pay to the Executive, subject to applicable withholding
requirements under state or federal law
(i) twenty (20%) percent of the Excess Parachute Payment, and
(ii) such additional amount, if any (including Federal and State
income and excise taxes applicable thereto) as may be
necessary to compensate the Executive for the payment of state
and federal income and excise taxes on the aforesaid payment,
as outlined in Section C.
7. TERMINATION UPON DISABILITY
(A) In the event that the Executive experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the day of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Holding Company. If such Disability continues for a period of
six (6) consecutive months, the Holding Company
<PAGE>
6
at its option may thereafter, upon written notice to the Executive or his
personal representative, terminate the Executive's employment with no further
notice.
8. OTHER TERMINATION BY THE HOLDING COMPANY
(A) In the event the Executive's employment is terminated by the
Holding Company, other than for disability, death or Cause, and in the absence
of occurrence of a Change in Control, the Executive will be entitled to payment
of the remaining term of this agreement, at the annual salary currently being
paid with said payment to be a lump sum payment upon termination.
(B) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination, but only to the extent exercisable by him on the date of such
termination and in no event later than the expiration date of his option.
9. TERMINATION BY THE EXECUTIVE
(A) In the event of the Executive's voluntary termination, the
Executive shall not have the right to receive compensation or benefits as
provided hereunder after such date of termination, except to the extent that
Executive may be legally entitled to participate by virtue of COBRA or any other
State or Federal Law concerning employee rights to benefits upon termination.
(B) Vested stock options granted to the Executive shall be exercisable
by the Executive at any time within three (3) months from the effective date of
termination by the Executive, but only to the extent exercisable by him on the
date of such termination and in no event later than the expiration of his
options.
10. 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.
11. MODIFICATION AND WAIVER
This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
<PAGE>
7
12. NOTICES
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and if sent by registered mail to his residence in
the case of the Executive or to its principal place of business in the case of
the Bank.
13. 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.
14. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties. It may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
on the 31st day of January, 1999.
ATTEST: YARDVILLE NATIONAL BANCORP
- - ------------------------------ -----------------------------
Jay G. Destribats
Chairman of the Board
- - ------------------------------ -----------------------------
F. Kevin Tylus, Chairman
Directors' Organization &
Compensation Committee
WITNESS
- - ------------------------------ -----------------------------
Patrick M. Ryan
the Executive
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 31st day of January, 1999 by and
between THE YARDVILLE NATIONAL BANCORP (the "Holding Company"), a corporation
organized under the laws of the State of New Jersey, and Jay G. Destribats (the
"Executive").
RECITALS
WHEREAS, the Holding Company desires to employ and retain the services of
the Executive for the period provided in this Agreement; and
WHEREAS, Jay G. Destribats is willing to serve as an Executive; in the
employ of the Holding Company, devoting a substantial amount of time to such
employment duties as are customarily and appropriately vested in the Chairman of
the Board.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereto
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive shall serve as
Chairman of the Board of Directors of Yardville National Bank (the "Bank")
reporting to the Board of Directors of the Bank and Yardville National Bancorp
reporting to the Board of Directors of the Holding Company (collectively, the
"Board"). During said period, it is anticipated the Executive will devote a
substantial amount of time to such duties as are customarily and appropriately
vested in the Chairman of the Board. Failure to re-elect Executive as a member
of the Board of Directors of the Bank or of the Holding Company shall constitute
a Breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of the Executive's employment under this Agreement shall
commence as of January 31, 1999 and shall continue for a period of twenty-four
(24) full calendar months thereafter, unless terminated by the Bank and/or
Holding Company on account of death, disability or cause (as herein defined).
This Agreement shall be deemed to continue for an additional twelve (12) months
from each succeeding anniversary date of the Agreement, it being the intention
of the parties that, unless notice is given to the contrary by either party, the
Agreement shall be extended for an additional one year period so that there be a
full twelve month term remaining.
<PAGE>
2
(b) This agreement is subject to approval for continuation, by 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.
(c) During the period of employment, the Executive shall devote substantial
time and attention to such employment and shall perform such duties as are
customarily and appropriately vested in the Chairman of the Board of Directors
of the Holding Company and Bank and from time to time may be perceived by the
Board.
3. DEFINITIONS
For purposes of the Agreement,
(a) "Cause" means any of the following:
(i) the willful commission of an act that causes or that probably will
cause substantial economic damage to the Bank or substantial injury to
the Bank's business reputation; or,
(ii) the commission of an act of fraud in the performance of the
Executive's duties; or
(iii) a continuing willful failure to perform the duties of the
Executive's position with the Bank; or,
(iv) the order of a bank regulatory agency or court requiring the
termination of the Executive's employment.
(b) "Change in Control: means any of the following:
(i) the acquisition by any person or group acting in concert of
beneficial ownership of forty percent (40%) or more of any class of
equity security of the Holding Company, or,
(ii) the approval by the Board of the sale of all or substantially all of
the assets of the Bank or Holding Company; or,
<PAGE>
3
(iii) the approval by the Board of any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be the
occurrence of any event described in clause (i) or (ii) above.
(c) "Disability" means a mental or physical illness or condition rendering
the Executive incapable of performing his normal duties for the Bank.
(d) "Willfulness" means an act or failure to act done not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank.
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment, the Bank, at the direction of the
Holding Company, shall pay to the Executive an annual salary of not less than
$180,000.00. Proceeds shall be paid in either bi-weekly or monthly installments
as the Executive prefers.
(b) The Executive shall be entitled to participate in or receive benefits
under any retirement plan, pension plan, profit-sharing plan, stock 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 Holding Company 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 Holding Company with an automobile
for his individual use.
(d) In addition to the salary provided for under Section 4:
(a) The Bank, at the direction of the Holding Company, shall pay for all
reasonable travel and other reasonable expenses incurred by the Executive
in performing his obligations under this Agreement.
6. TERMINATION FOR CAUSE
(a) The Executive shall not have the right to receive compensation or other
benefits provided hereunder for any period after termination for Cause, except
to the extent that Executive may be legally entitled to participate by virtue of
COBRA or any other State or Federal Law concerning employee rights to benefits
upon termination.
<PAGE>
4
(c) The Executive shall not be deemed to have been terminated for Cause
unless and until there is delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the full Board at a
meeting of such Board called and held for the purpose (after the Executive,
together with counsel, has been given the opportunity to be heard before the
Board), finding the Executive guilty of conduct set forth above in the
definition of "Cause" in Subsection 3(a) and specifying the particulars thereof
in detail.
7. CHANGE IN CONTROL
(a) In the event that within three (3) years after a Change in Control (as
herein defined), the Executive's employment is terminated by the Holding
Company, other than for death, disability or Cause, the Executive shall be
entitled to receive three year's salary at the annual salary currently being
paid, which payment shall be made in a lump sum promptly after the occurrence of
such termination.
(b) The Executive will have the option within six (6) months after a Change
in Control (as herein defined), to elect to resign his position. If the
Executive's voluntary departure is for other than death, disability or cause the
Executive shall be entitled to receive three year's salary at an annual salary
currently being paid, which payment shall be made in a lump sum promptly after
the occurrence of such voluntary resignation.
8. TERMINATION UPON DISABILITY
(a) In the event that the Executive experiences a Disability during the
period of his employment, his salary shall continue at the same rate as was in
effect on the date of the occurrence of such Disability, reduced by any
concurrent disability benefit payments provided under disability insurance
maintained by the Holding Company. If such Disability continues for a period of
six (6) consecutive months, the Holding company at its option may thereafter,
upon written notice to the Executive or his personal representative, terminate
the Executive's employment with no further notice.
<PAGE>
5
9. OTHER TERMINATION BY THE HOLDING COMPANY
(a) In the event the Executive's employment is terminated by the Holding
Company, other than for disability, death or Cause, and in the absence of
occurrence of a Change in Control, the Executive will be entitled to payment of
the remaining term of this agreement, at the annual salary currently being paid
with said payment to be a lump sum payment upon termination.
10. TERMINATION BY THE EXECUTIVE
(a) In the event of the Executive's voluntary termination, and in the
absence of a change of a Change of Control, the Executive shall not have the
right to receive compensation or benefits as provided hereunder after such date
of termination, except to the extent that Executive may be legally entitled to
participate by virtue of COBRA or any other State or Federal Law concerning
employee rights to benefits upon termination.
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, at
the direction of the Holding Company, as the case may be.
12. MODIFICATION AND WAIVER
This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
13. NOTICES
Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing and if sent by registered mail to his residence in the
case of the Executive or to its principal place of business in the case of the
Holding Company.
14. GOVERNING LAW
This Agreement and the obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the laws of the State of
New Jersey.
<PAGE>
6
15. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties. It may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on the
31st day of January, 1999.
ATTEST: YARDVILLE NATIONAL BANCORP
__________________________ __________________________
Patrick M. Ryan,
President & CEO
__________________________ __________________________
F. Kevin Tylus, Chairman
Directors' Organization &
Compensation Committee
WITNESS:
__________________________ __________________________
Jay G. Destribats,
Chairman of the Board
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of January, 1999
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 & CEO of The Bank.
2. TERMS AND DUTIES
(a) The period of the Officer's employment agreement shall commence as of
January 31, 1999, 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 $120,000.00, and an annual salary of not less
than $125,000.00 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.
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.
<PAGE>
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.
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.
<PAGE>
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___, 1999.
ATTEST: Yardville National Bancorp
- - ------------------- ---------------------------
Patrick M. Ryan
President/CEO
WITNESS
- - ------------------ ---------------------------
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.
(b) 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 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 Bank
- - ------------------- ---------------------------
President/CEO
WITNESS
- - ------------------ ---------------------------
James F. Doran
First Senior Vice President
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1999 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, 1999 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 $81,159.00, 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 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______,1999.
ATTEST: Yardville National Bank
- - ------------------------- ----------------------------------
President/CEO
WITNESS
- - -------------------------- -----------------------------------
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,
1999 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 President/CEO.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as of
January 31, 1999 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 $65,000.00, 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.
(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______,1999.
ATTEST: Yardville National Bank
_______________________ _______________________
President/CEO
WITNESS
_______________________ _______________________
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1999 by and between THE YARDVILLE NATIONAL BANK (the "Bank"), a
corporation organized under the laws of the State of New Jersey, and Thomas Nash
(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 Mortgage Division Manager of The Yardville
National Bank (the "Bank") reporting to the First Senior Vice President & Senior
Lending Officer.
2. TERMS AND DUTIES.
(a) The period of the Officer's employment agreement shall commence as of
January 31, 1999 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 Mortgage
Division Manager 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 $73,785.00, 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______,1999.
ATTEST: Yardville National Bank
_______________________ _______________________
President/CEO
WITNESS
_______________________ _______________________
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of January,
1999 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, 1999 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.
-1-
<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.
-2-
<PAGE>
4. COMPENSATION AND REIMBURSEMENT
(a) During the period of employment the Bank shall pay the Officer an
annual salary of not less than $73,500.00, 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.
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 twelve
(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.
-3-
<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______,1999.
ATTEST: Yardville National Bank
- - ------------------------- ----------------------------------
President/CEO
WITNESS
- - -------------------------- -----------------------------------
Individually
-4-
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of January,
1999 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, 1999 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.
<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 $75,000.00, 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.
(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 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______,1999.
ATTEST: Yardville National Bank
_______________________ _______________________
President/CEO
WITNESS
_______________________ _______________________
Individually
<PAGE>
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this thirty-first day of
January, 1999 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, 1999 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 $63,000.00, 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.
(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______,1999.
ATTEST: Yardville National Bank
- - ------------------------- ----------------------------------
President/CEO
WITNESS
- - -------------------------- -----------------------------------
Individually
<PAGE>
1
EMPLOYMENT CONTRACT
This AGREEMENT is made effective as of this 31ST day of January, 1999 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 Operations 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 January 31, 1999 and shall continue for a period of twenty-four
(24) 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. 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 $120,000.00, in the first year of this agreement,
and $125,000.00, 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 31st day of January, 1999.
ATTEST: YARDVILLE NATIONAL BANCORP
__________________________ __________________________
Patrick M. Ryan
President/CEO
WITNESS
__________________________ __________________________
Timothy J. Losch
Executive Vice President
& Chief Operating Officer
<PAGE>
LEASE AGREEMENT
THIS INDENTURE OF LEASE, made on this 30th day of October 1998, by Allan H.
Smith, Real Estate Ltd. (hereinafter called "Agent"), Agent for SYCAMORE STREET
ASSOCIATES, a Pennsylvania Partnership with Offices at 301 South State Street,
Newtown, Pennsylvania (hereinafter called "Landlord") and YARDVILLE NATIONAL
BANK or a subsidiary thereof (hereinafter called "Tenant"),
WITNESSETH:
LEASED PREMISES : Landlord hereby leases to Tenant and Tenant hereby rents from
Landlord that portion of the building premises (hereinafter called the
"premises", "leased premises" or "demised premises") more fully described as
that building having the address of 295 North Sycamore Street, Newtown Township,
Pennsylvania (which is a part of a larger commercial/residential complex
containing approximately two acres) with the right to the non exclusive use, in
common with others entitled to use same, of all such automobile parking areas,
driveways, malls courts, corridors and footways, loading facilities and other
facilities as may be designated by Landlord, subject however to the terms and
conditions of this Indenture of Lease and the General Lease Provisions attached
hereto and made a part hereof (hereinafter collectively referred to as "Lease"),
and to reasonable rules and regulations for the use thereof prescribed from time
to time by the Landlord. Premises are to be delivered to Tenant in the condition
they were in when first inspected by Tenant with the exception that the
southeast corner of the building where the previous tenant housed their "ATM"
machine shall be restored so as to appear as if the "ATM" machine was ever
located there. Landlord will have the exterior of the premises professionally
cleaned and painted within sixty (60) days after this lease is executed however
in the event Tenant elects to cancel this lease as set forth under the paragraph
below headed, "Termination
I
<PAGE>
Option," Tenant shall reimburse Landlord for the cost of said cleaning and
painting within thirty days of said termination.
LENGTH OF TERM : This lease shall commence on the date of possession and expire
five ( 5) years from the Rental Commencement Date set forth below or, provided
that the Rental Commencement Date falls on a day other than the first day of a
month, five (5) years plus that period between the odd day on which the third
year anniversary of the Rental Commencement Date falls and the first day of the
following month.
RENEWAL OPTION : Provided the tenant has complied with all the terms and
conditions contained herein, this lease shall automatically renew for three (3)
successive five (5) year periods unless Tenant provides Landlord written notice
of its intention not to renew said lease at least six (6) months prior to the
expiration date of the original term of this lease or six (6) months prior to
the commencement date of any renewal option.
POSSESSION : Tenant will take possession of the Premises on November 1, 1998 or
the date Landlord provides Tenant unlimited access to the premises evidenced by
Landlord's providing Tenant a key to the premises.
RENTAL COMMENCEMENT DATE : Minimum Rent and the Tenant's Share of Taxes
Insurance and Operating Costs, as set forth below, will become due and payable
on November 1, 1998, said date being referred to herein as the "Rental
Commencement Date".
TERMINATION OPTION : From the period commencing November 1, 1998 and ending May
31, 1999 Tenant shall have the option of terminating this lease should the
Pennsylvania Department of Banking and/or the Office of the Comptroller of
Currency fail to grant to tenant the necessary approvals for Tenants' use of the
Premises provided Tenant has made its best efforts to obtain said approvals. In
the event Tenant exercises this option and terminates this lease during the
aforementioned period, any rent that has been paid to Landlord regardless of
whether the lease has commenced will be forfeited. In addition, at the
Landlord's sole option Tenant will either restore the premises to the condition
they were in at the commencement of this lease or, in the alternative, accept
the premises with any improvements made by Tenant. In the event Tenant does not
exercise this option during the aforementioned time
II
<PAGE>
period, then in such case this lease agreement will continue as if this
paragraph had never existed.
MINIMUM RENT : The fixed minimum rent for each year of the term of this lease
shall be FIFTY SIX THOUSAND AND FIFTY DOLLARS ($56,050.00) payable in twelve
(12) equal monthly installments (the first of which is due at the time of the
Tenant's execution of this lease) due on or before the first day of each month,
in advance, at the office of the Landlord or at such other place as may be
designated by Landlord from time to time, without any prior demand therefore and
without any deduction or setoff whatsoever. In the event that the term of this
lease shall commence on a day other than the first day of a month, Tenant shall
pay fixed minimum rent in advance for the fractional month on a per diem basis
calculated on the basis of a thirty (30) day month.
INCREASES IN MINIMUM RENT : During each and every year of this lease and any
renewal periods, the Tenant's minimum annual rent shall be increased on the
anniversary date of the lease by two percent of the preceding years rent. In the
event the Tenant elects to renew its lease as provided for in this lease, the
rent for the first year of any renewal period shall be arrived at by multiplying
the previous years Minimum Rent by any increase in the United States Urban Wage
Earners Consumer Price Index ("CPI") for the preceding five years less ten
percent(1) In the event the United States Urban Wage Earners Consumer Price
Index is replaced by agencies of the United States Government with a new index,
then the new index shall be used. In the event no such index is in use by the
United States Government than annual increases in rent shall be determined by an
index jointly agreed upon by Landlord and Tenant.
- - -----------
(1) By way of example if in the first year of the lease the annual rent is
$56,050.00 then in the second year the rent would be $57,171.00, for year three
$58,314.42, for year four $59,480.71 and year five $60,670.32. Then if the lease
was renewed and assuming the CPI had increased by a total of twenty percent over
the preceding five years the rent for year six would be arrived at by adding to
years five rent of $60,670.32 the twenty percent increase in CPI less the ten
percent (two percent each year) the rent had already risen over the past five
years. Hence years six rent would be $66,737.35 ($60,670.32 *1.10). For years
seven through ten the rent would increase annually by two percent as before and
then if the tenant elected to renew the lease again the same adjustment would be
made reflecting the actual increase in CPI for that time period.
III
<PAGE>
TENANT'S MINIMUM SHARE OF TAXES, INSURANCE AND OPERATING COSTS : During each
year of this lease, or part thereof, Tenant shall pay to Landlord as a minimum,
that amount of the Landlord's property taxes, insurance and operating costs as
described in Section 4.02 of the attached General Lease Provisions. Tenant's
share of said taxes, insurance and operating costs will be calculated by
multiplying the total of said operating costs by the percentage arrived at by
dividing the gross square footage of the leased premises by the total first
floor square footage of the complex. During the first year of occupancy it is
estimated that this calculation will result in an expense equal to EIGHTEEN
THOUSAND TWO HUNDRED AND NINETY DOLLARS ($18,290.00) which shall be payable by
Tenant in equal monthly installments together with Tenant's Minimum Rent. Tenant
reserves the right to audit any expenses for taxes, insurance and operating
costs and all said expenses should be reasonable and customary.
INSPECTIONS: Tenant, at its sole expense may have the premises inspected to
assure the structural, mechanical, plumbing, heating and electrical components
of the premises are all in good working order and that there is no insect
infestation nor any environmental hazards. In the event said inspection(s)
produce written report(s) which reveal that repairs or maintenance are
necessary, the Tenant shall have the option of canceling this lease unless the
Landlord agrees to address all of the defects discovered by said inspections and
for which action is requested by Tenant within sixty days of Tenant's written
request to Landlord itemizing the said defects for which repair is sought.
USE OF PREMISES : Tenant shall use the leased premises, subject to the
provisions of the Lease Agreement attached hereto, solely as a financial
services institution. Tenant will be responsible for obtaining all occupancy,
use, and other like approvals necessitated by Tenant's use of the Premises.
SOLE BANK USE: Landlord warrants that during the term of this lease it will not
lease any other portion of the complex for a retail banking facility.
LEASE DOCUMENTS : In addition to this Lease Agreement, this Lease shall for all
purposes be deemed to include as though set out in full within this Lease
Agreement the following attached document: General Lease Provisions consisting
of thirty (30) pages.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have hereunto set their hands and seals the day and year first above written.
ALLAN H. SMITH REAL ESTATE LTD.
By_______________________
TENANT
YARDVILLE NATIONAL BANK
WITNESS ____________________ By____________________________
WITNESS ____________________ Attest________________________
SYCAMORE STREET ASSOCIATES
BY____________________________
Attest________________________
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INDEX TO GENERAL LEASE PROVISIONS
ARTICLE I
POSSESSION
SECTION 1.01. Prior Access to Premises 1
SECTION 1.02. Failure of Tenant to Open and Remain Open 1
SECTION 1.03. Tenant's Work 1
SECTION 1.04. Violations 1
SECTION 1.05. Acceptance 2
ARTICLE II
CONDUCT OF BUSINESS BY TENANT
SECTION 2.01. Use of Premises 1
SECTION 2.02 Covenants regarding Environmental Compliance 2
SECTION 2.03. Injurious Acts 4
SECTION 2.04. Licenses, Permits, Etc. 4
ARTICLE III
RENT
SECTION 3.01. Minimum Rental; Late Charges 5
SECTION 3.02. Place of Payment 5
SECTION 3.03. No Accord and Satisfaction 5
ARTICLE IV
COMMON USE AREAS, FACILITIES & SERVICES
SECTION 4.01. Control of Common Use Areas and Services 5
SECTION 4.02. Tenant's Share of Costs of Common Facilities
and Services 6
ARTICLE V
UTILITY CHARGES
SECTION 5.01. Utility Charges 6
ARTICLE VI
REPAIRS AND ALTERATIONS
SECTION 6.01. Responsibility for Repairs 7
SECTION 6.02. Tenant's Right to Make Alterations 7
SECTION 6.03. Contractors and Labor 8
ARTICLE VII
MECHANICS LIENS
SECTION 7.01. Tenant Shall Discharge All Liens 8
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ARTICLE VIII
AFFIRMATIVE COVENANTS OF TENANTS
SECTION 8.01. Compliance with Laws 8
SECTION 8.02. Notice of Accident, Etc. 8
SECTION 8.03. Loading and Unloading 8
SECTION 8.04. Refuse, Etc. 9
SECTION 8.05. Heat 9
SECTION 8.06. Parking 9
SECTION 8.07. Rules and Regulations 9
SECTION 8.08. Payment of Rent 9
SECTION 8.09. Surrender of Premises 9
ARTICLE IX
NEGATIVE COVENANTS OF TENANT
SECTION 9.01. Machinery, Loud Speakers, Etc. 9
SECTION 9.02. Acts Injurious to Insurance 10
SECTION 9.03. Awnings, Etc. 10
SECTION 9.04. Auctions, Etc. 10
ARTICLE X
SIGNS
SECTION 10.01. Landlord's Approval 10
SECTION 10.02. Permits 10
SECTION 10.03. Maintenance 10
ARTICLE XI
INSPECTION OF PREMISES AND ACCESS THERETO
SECTION 11.01. Inspection of Premises; Repairs 11
SECTION 11.02. Displaying "For Sale" or "For Rent" Signs 11
SECTION 11.03. Installation of Equipment, Etc. 11
SECTION 11.04. No Implied Eviction 11
ARTICLE XII
INDEMNIFICATION
SECTION 12.01. Indemnification 11
SECTION 12.02. Occupancy at Tenant's Risk 12
SECTION 12.03. Release of Liability 12
SECTION 12.04. Notice of Fire or Accident 12
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SECTION 12.05. Litigation Involving Landlord 12
SECTION 12.06. Limit of Landlord's Liability - Non Recourse 12
ARTICLE XIII
INSURANCE
SECTION 13.01. Required Coverages 13
SECTION 13.02. Additional Coverages 13
SECTION 13.03. Designated Insureds; Endorsements; Evidence
of Insurance 14
SECTION 13.04. No Injurious Acts 14
SECTION 13.05. Failure to Maintain Required Coverage 14
ARTICLE XIV
TRADE FIXTURES
SECTION 14 01. Title to Property and Removal 15
SECTION 14.02. Failure to Remove 15
ARTICLE XV
ASSIGNING, MORTGAGING, SUBLETTING
SECTION 15.01. Landlord's Consent 15
SECTION 15.02 Costs of Assignment or Subletting; Agency 15
ARTICLE XVI
SUBORDINATION
SECTION 16.01. Mortgages, Etc. 16
SECTION 16.02. Utility Easements, Etc. 16
SECTION 16.03. Execution of Documents 16
ARTICLE XVII
TENANT'S DEFAULT
SECTION 17.01. Insolvency, Etc. 17
SECTION 17.02. Failure to Pay Rent or Perform Other Obligation 17
SECTION 17.03. Scope 18
ARTICLE XVIII
REMEDIES OF LANDLORD UPON TENANT'S DEFAULT
SECTION 18.01. Right to Relet; Damages for Breach 18
SECTION 18.02. Right to Terminate 19
SECTION 18.03. Damages Upon Termination or Re-Entry 19
SECTION 18.04. Waiver of jury Trial 20
SECTION 18.05. Recovery of Legal Expenses 20
SECTION 18.06. Acceleration of Rent 20
SECTION 18.07. Default Prior to Possession 20
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SECTION 18.08 All Remedies Cumulative; Injunctive Relief 21
SECTION 18.09 Joint and Several Liability 21
SECTION 18.10. No Designation of Credits 21
ARTICLE XIX
WAIVERS AND MODIFICATIONS
SECTION 19.01. Failure to Enforce No Waiver 21
SECTION 19.02. Executory Agreements to be in Writing 21
SECTION 19.03. Surrender to be in Writing 22
SECTION 19.04. Acceptance of Rents No Waiver of Breach 22
SECTION 19.05. Financing Requirements 22
ARTICLE XX
FINANCING AGREEMENT
SECTION 20.01. Execution Prohibited 22
ARTICLE XXI
CUSTOM AND USAGE
SECTION 21.01. Not Created by Failure to Enforce 22
ARTICLE XXII
SURRENDER AND HOLDOVER
SECTION 22.01. Damages Upon Failure to Surrender 23
SECTION 22.02. Consensual Holdover 23
SECTION 22.03. Tenant's Liability for Resulting Damages 23
ARTICLE XXIII
ADDITONAL CONSTRUCTION
SECTION 23.01. Rights Reserved to Landlord 23
ARTICLE XXIV
DAMAGE OR DESTRUCT10N OF PREMISES
SECTION 24.01. Total or Partial Destruction 24
SECTION 24.02. Partial Destruction of Complex 24
ARTICLE XXV
EMINENT DOMAIN
SECTION 25.01. Total Condemnation 24
SECTION 25.02 Total Parking Area 25
SECTION 25.03 Partial Condemnation 25
SECTION 25 04. Partial Condemnation of Parking Area 25
SECTION 25.05. Landlord's Damages 26
SECTION 25.06. Tenant's Damages 26
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ARTICLE XXVI
NO OFFER OR OPTION
SECTION 26.01. No Offer or Option 26
SECTION 26.02. Execution and Delivery 26
ARTICLE XXVII
AGENCY
SECTION 27.01. No Liability of Agent 26
ARTICLE XXVIII
SUCCESSORS AND ASSIGNS
SECTION 28.01. Binding Effect 27
ARTICLE XXIX
FORCE MAJEURE
SECTION 29.01. Delay or Non-Performance Excused 27
ARTICLE XXX
OFFSET STATEMENT
SECTION 30.01. Duty of Tenant to Furnish 27
SECTION 30.02. Attornment 28
ARTICLE XXXI
SECTION 31.01. Manner and Place of Service 28
ARTICLE XXXII
INTERPRETATION
SECTION 32.01. Entire Agreement 28
SECTION 32.02. Amendment 29
SECTION 32.03. Captions 29
SECTION 32.04. Controlling Law 29
SECTION 32.05. Venue 29
SECTION 32.06 Negation to Personal Liability 29
ARTICLE XXXIII
BROKERAGE COMMISSIONS
SECTION 33.01. Tenant's Warranty 29
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GENERAL LEASE PROVISIONS
ARTICLE I
POSSESSION
SECTION 1.01. Prior Access to Premises. At any time prior to the
delivery of possession of the demised premises as aforesaid, Tenant, its
agents, servants and contractors shall have the right, after receiving approval
from Landlord, to enter upon the demised premises for the purpose of taking
measurements therein, and for making mechanical, structural, environmental and
insect infestation inspections but for no other purpose.
SECTION 1.02. Failure of Tenant to Open and Remain Open. Tenant agrees
that upon receiving possession of the demised premises from Landlord it will
with due diligence proceed to install such fixtures and equipment and to perform
such other work as shall be necessary or appropriate in order to prepare the
demised premises for the opening of business. In the event that Tenant does not
open the demised premises for the conduct of its business fully fixtured,
stocked and staffed within one hundred and eighty (180) days after receiving
possession of the demised premises from Landlord, Landlord, in addition to all
other remedies hereunder, shall have the option of terminating this Lease by
giving Tenant written notice of such termination whereupon this Lease shall be
terminated. Tenant further agrees that once the demised premises are open for
business, Tenant agrees to continuously occupy and remain open for business
during the entire term of this Lease. Should Tenant close its business at the
leased premises for reasons other than those beyond the Tenant's control for
more than forty five (45) consecutive days, Tenant shall be in default of this
Lease.
SECTION 1.03. Tenant's Work. Tenant has inspected the Premises and is
accepting them in the condition they were in as of the date of this lease. At
the expiration of this lease Landlord shall have the option of requiring Tenant
to either return the Premises to the condition they were in on the date of the
execution of this lease or accept the Premises with Landlords improvements. No
other changes may be made by Tenant to the Premises without the advance written
permission of Landlord.
SECTION 1.04. Violations. Landlord agrees that upon the date of
delivery of possession to the Tenant, the demised premises shall be reasonably
free of all violations, orders, or notices of violations of all public
authorities.
SECTION 1.05. Acceptance. By occupying the leased premises as a Tenant,
or by installing fixtures, facilities or equipment, or by performing finishing
work, Tenant shall be deemed to have accepted the demised premises and to have
acknowledged that the premises are in the condition required by this Lease.
ARTICLE II
CONDUCT OF BUSINESS BY TENANT
SECTION 2.01. Use of Premises. Tenant shall use and occupy the demised
premises solely for the conduct of the business herein elsewhere set forth.
Tenant will not use or permit
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or suffer the use of the leased premises for any other business or purpose. The
authorization of the use of the premises for the business purpose set forth
herein shall not constitute a representation by Landlord that such use of the
premises is now or will continue to be permitted or lawful under applicable laws
or regulations.
SECTION 2.02 Covenants Regarding Environmental Compliance.
2.02(a) Tenant will not use, generate, manufacture, produce, store,
release, discharge, or dispose of on, under or about the premises or the Complex
any Hazardous Substance (as defined below) or allow any other person or entity
to do so except in minor amounts under conditions permitted by applicable laws.
2.02(b) Tenant shall keep and maintain the premises in compliance with,
and shall not cause or permit the premises to be in violation of any
Environmental Law, as defined below.
2.02(c) Tenant shall give prompt written notice to Landlord of:
(1) any proceeding or inquiry by any governmental authority
with respect to the presence of any Hazardous Substance on the premises or the
migration thereof from or to other property;
(2) all claims made or threatened by any third party against
Tenant or as the result of Tenant's activities, relating to any loss of injury
resulting from any Hazardous Substance; and
(3) Tenants discovery of any occurrence or condition on any
real property adjoining or in the vicinity of the premises that could cause the
premises or any part thereof to be subject to the restrictions on the ownership,
occupancy, transferability or use of the premises under any Environmental Law.
2.02(d) Tenant shall protect, indemnify and hold harmless Landlord, its
directors, officers, employees, agents, successors and assignees from and
against any and all loss, damage, cost, expense or liability (including
reasonable attorney fees and costs) directly or indirectly arising out of or
attributable to the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal, or presence of a Hazardous Substances
as the result of Tenant's occupancy of the premises on, under or about the
premises, including without limitation (i) all foreseeable consequential damages
and (ii) the costs of any required or necessary repair, cleanup or
detoxification of the premises and the preparation and implementation of any
closure, remedial or other required plans. The foregoing environmental indemnity
shall survive the expiration or termination of this Lease and/or any transfer of
all or any portion of the premises, or of any interest in this Lease, and shall
be governed by the laws of the state in which the premises are located.
2.02(e) In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature (the "Remedial Work") is reasonable, necessary or desirable as the
result of Tenant's activities under any applicable local, state or federal law
or regulation, any judicial order, or by any governmental or
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non-governmental entity or person because of or in connection with, the current
or future presence, suspected presence, release or suspected release of a
Hazardous Substance in or into the air, soil, ground, water, surface water or
soil vapor at, or about, under or within the premises or any portion thereof, as
the result of Tenant's activities on the premises, Tenant shall within thirty
(30) days after written demand for performance thereof by Landlord (or such
shorter period of time as may be required under any applicable law, regulation,
order or agreement), commence and thereafter diligently prosecute to completion,
all such Remedial Work. All Remedial Work shall be performed by contractors
approved in advance by Landlord, and under the supervision of a consulting
engineer approved by Landlord. All costs and expenses of such Remedial Work
shall be paid by Tenant including, without limitation, Landlord's reasonably
attorney fees and costs incurred in connection with monitoring or review of such
Remedial Work. In the event Tenant shall fail to timely commence, or cause to be
commenced, or fail to diligently prosecute to completion, such Remedial Work,
Landlord may, but shall not be required to, cause such Remedial Work to be
performed and all costs and expenses thereof, or incurred in connection
therewith, shall become immediately due and payable as additional rent to the
Landlord from the Tenant.
2.02(f) Representations and Warranties relating to Environmental
Matters
(1) Tenant represents and warrants to Landlord that:
(a) The Tenant is not in violation of or subject to
any existing, pending or threatened investigation by any governmental authority
under any Environmental Law.
(b) Tenant has not and is not required by any
Environmental Law to obtain any permits or license to construct or use any
improvements, fixtures or equipment forming a part of the premises.
(c) Tenant's intended use of the premises will not
result in the disposal or release of any Hazardous Substance on or to the
Property.
(2) Landlord represents and warrants to Tenant that:
(a) The Landlord is not in violation of or subject to
any existing, pending or threatened investigation by any governmental authority
under any Environmental Law.
(b) That Landlord is not aware of the presence of any
Hazardous Substance at the Complex.
(c) That Landlord shall indemnify and hold harmless
Tenant from and against any and all claims, losses, liabilities, damages, costs,
and expense, including, without limitations, attorneys' fees and costs, arising
out of or in any way connected with the use, manufacture, storage, or disposal
of Hazardous Substances by any other of Landlord's tenant; the Landlord; and/or
the predecessors in title to the premises and if there is found to be
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Hazardous Substances or material on, under, or about the premises, including,
without limitation, the cost of any required or necessary repair, clean-up, or
detoxification, and the preparation of any closure or other required plans in
connection therewith. The indemnity obligations of Landlord under this clause
shall survive any termination of the Lease. Any expense incurred by Landlord
attributable to the Hazardous Substances referred to in this subparagraph shall
not be passed on to the Tenant as a part of Tenant's minimum rent and Tenant's
share of costs of taxes, operating expenses, insurance, common facilities and
services.
2.02(g) Definitions
(1) "Environmental Law" means any federal, state or local law,
statute, ordinance, or regulation pertaining to health, industrial hygiene, or
the environmental conditions on, under or about the Complex, including without
limitation the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA") as amended, 42 U.S.C. Sections 9601 et seq., and the
Resource Conservation and Recovery Act of 1976 ("RCRA")., 42 U.S.C. Sections
6901 et seq.
(2) The Term "Hazardous Substance(s)" includes without
limitation:
(a) Those substances included within the definitions
of "hazardous substances," or "solid waste" in CERCLA, RCRA, and the Hazardous
Materials Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(b) those substances listed in the United States
Department of Transportation Table (49 CFR 172.101 and amendments thereto) or
by the Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(c) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law, or the
United States government, or which are classified as hazardous or toxic under
federal, state or local laws or regulations; and
(d) any materials, waste or substance which is (i)
asbestos, (ii) polycholorinated biphenyls, (iii) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections
1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the
Clean Water Act (33 U.S.C. Section 1317); (iv) explosives or (v) radioactive.
SECTION 2.03. Injurious Acts. Tenant shall not perform any acts or
carry on any practices which may injure the building or be a nuisance or menace
to other tenants and business invitees of Tenant and the general public in the
complex.
SECTION 2.04. Licenses, Permits, Etc. Tenant shall be solely
responsible for obtaining all licenses, permits, or certificates of occupancy
which may be required by any governmental agency or authority, which Tenant
shall obtain at its sole cost and expense.
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ARTICLE III
RENT
SECTION 3.01. Minimum Rental; Late Charges. Tenant covenants and agrees
to pay to Landlord the minimum annual rental hereinbefore reserved, payable in
advance in equal monthly installments without deduction or set-off, on the first
day of each calendar month during the term hereof, commencing upon the rental
commencement date hereinbefore set forth. In addition to all other rights which
Landlord may have pursuant to this Lease, Landlord shall have the right to
demand and receive from Tenant in addition to the rent hereinbefore reserved, an
additional sum of five percent (5%) of each monthly installment of rent not paid
within ten (10) days after the due date thereof as and for a late charge.
SECTION 3.02. Place of Payment. Tenant will promptly pay all rentals,
additional rentals and other charges by cash or check made payable to: Sycamore
Street Associates in care of Allan H. Smith, Real Estate, Ltd. and shall be made
at its offices located at The Stocking Works, 301 South State Street, Newtown,
PA 18940, or at such other place as Landlord shall designate in writing.
SECTION 3.03. No Accord and Satisfaction. No acceptance by Landlord of
a lesser sum that the Minimum Rent, Percentage Rent, additional rent or any
other charge then due shall be deemed to be other than on account of the
earliest installment of such rent or charge due, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
or other charge be deemed an accord and satisfaction, and Landlord may accept
such check or payment as rent without prejudice to Landlord's right to recover
the balance of such installment or pursue any other remedy in this Lease
provided.
ARTICLE IV
COMMON USE AREAS, FACILITIES AND SERVICES
SECTION 4.01. Control of Common Use Areas and Services. All facilities
and services furnished by Landlord in the Complex and designated for the general
use, in common, of occupants of the Complex, including Tenant hereunder, their
officers, agents, employees and customers, including, but not limited to,
parking areas, streets, sidewalks, canopies, roadways, loading platforms,
washrooms, shelters, ramps, landscaped areas and other similar facilities, shall
at all times be subject to the exclusive control and management of Landlord and
Landlord or its agent shall have the right from time to time to change the area,
level, location and arrangement of such parking areas and other facilities above
referred to; to restrict parking by tenants and their employees to employee
parking areas; and to make all rules and regulations pertaining to and necessary
for the proper operation and maintenance of the common facilities and services.
None of the aforementioned actions however, shall reduce the amount of available
parking presently serving the complex. Landlord shall also be responsible for
maintaining adequate lighting in the parking area to allow for the safety of
tenant's employees and customers.
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SECTION 4.02. Tenant's Share of Cost of Taxes, Insurance, Common
Facilities and Services. In each lease year Tenant will pay to Landlord as
additional rent hereunder such proportion of Landlord's taxes, insurance, and
operating cost of common facilities and services as the gross floor area of the
demised premises bears to the gross rentable first floor area available to be
leased of all the buildings of Landlord in the Complex, subject to the minimum
sum payable in respect of such common facilities and services hereinbefore
reserved. For the purpose of this paragraph the word "taxes" shall include all
taxes attributable to improvements now or hereinafter made to the complex or any
part thereof or attributable to the present or future installation in the
complex or any part thereof, of fixtures, machinery or equipment, all real
estate taxes, assessments, water and sewer fees, rents or charges, and other
governmental impositions and charges of every kind and nature whatsoever,
nonrecurring as well as recurring, special or extraordinary as well as ordinary,
foreseen and unforeseen and each and every installment thereof, which shall or
may during the term of this lease be levied, assessed or imposed, or become due
and payable or become liens upon, or arise in connections with the use,
occupancy or possession of, or any interest in, the Complex or any part thereof,
or any land, buildings or other improvements therein. In addition, for the
purpose of this paragraph, insurance, operating costs and expenses shall include
those expenses or costs incurred by Landlord in operating, managing, equipping,
lighting, repairing, and maintaining said facilities and services, including,
without limitation, landscaping, water, sewer, electric, gas, sanitary control,
cleaning, lighting, snow removal, resurfacing, painting, fire protection, public
liability and property damage insurance, fire insurance, extended coverage,
difference in conditions, boiler and machinery vandalism and malicious mischief
insurance, rent insurance, repairs and policing, including the cost of personnel
to implement such services and maintain such facilities, plus fifteen percent
(15%) of all the foregoing costs to cover administrative and overhead costs. The
annual charge shall be computed on the basis of twelve (12) consecutive calendar
months as designated by Landlord, and shall be paid by Tenant in equal monthly
or semi-annual installments at Landlord's option in advance upon demand by
Landlord. Tenant shall be permitted to review the records of said operating
costs at Landlord's offices during regular business hours. In the event, at the
end of the aforementioned twelve (12) consecutive calendar month period, it is
determined Tenant's payments to Landlord for said operating, costs were less
than the Tenant's actual share of said operating costs thereby creating a
shortfall, then, in such case, Tenant agrees to reimburse Landlord for said
shortfall within thirty (30) days after Tenant's receives notice of such
shortfall from the Landlord or Landlord's agent. In the event that the aforesaid
sums payable as additional rent shall not be paid by Tenant within ten (10) days
after demand therefore by Landlord, then Tenant shall pay, in addition to all
such charges, an additional late charge of ten percent (10%) of the amount of
additional rent due.
ARTICLE V
UTIOLITY CHARGES
SECTION 5.01. Utility Charges. In addition to all rentals herein
specified (including common area utility charges as described in Section 4.02),
Tenant shall pay for all utilities used or consumed in or upon the demised
premises which are separately metered, including all water and sewer charges, as
and when the charges therefore shall become due and payable.
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ARTICLE VI
REPAIRS AND ALTERATIONS
SECTION 6.01. Responsibility for Repairs. During the term of this lease
Landlord will keep the roof, the exterior walls and the structural integrity of
the premises, excepting any work done by Tenant and any glass or doors, in
proper repair, provided that in each case Tenant shall have given Landlord prior
written notice of the necessity of such repairs. After the first year's
anniversary of this lease, Tenant will keep the interior of the demised
premises, which includes but is not limited to, all electrical, plumbing,
heating, air conditioning and other mechanical installations therein, all doors,
and all plate glass and door and window glass, whether or not the same were
initially furnished and installed by landlord, in good order, accomplishing any
and all repairs, alterations, replacements and modifications at its own expense
and using materials and labor of kind and quality equal to the original work,
and will surrender the demised premises at the expiration or earlier termination
of this lease in as good condition as when received, excepting only
deterioration cause by ordinary wear and tear and damage by fire or other
casualty of the kind insured against in standard policies of fire insurance with
extended coverage. During the first year of this lease Landlord will be
responsible for the aforementioned maintenance and repairs. Except as
hereinabove provided, after the first year's anniversary of this lease, Landlord
shall have no obligation to repair, maintain, alter, replace or modify the
demised premises or any part thereof, or any plumbing, heating, electrical, air
conditioning or other mechanical installation therein. Landlord reserves the
right to have all mechanical equipment within the premises serving Tenant
routinely maintained, such cost for said maintenance to be borne solely by the
Tenant. Under no circumstances shall Landlord be obligated to repair, replace or
maintain any plate glass or door or window glass.
SECTION 6.02. Tenant's Right to Make Alterations. Tenant covenants and
agrees it will not make any alterations, improvements or additions to the
demised premises during the term of this lease or any extension thereof without
first obtaining the written consent of Landlord. Tenant will not cut or drill
into, or secure any fixture, apparatus or equipment of any kind to any part of
the demised premises without first obtaining the written consent of Landlord.
All alterations, improvements and additions made by Tenant as aforesaid shall
remain upon the premises at the expiration or earlier termination of this lease
and shall become the property of Landlord unless Landlord shall, prior to or
after the termination of this lease, have given written notice to Tenant to
remove same, in which event Tenant shall remove such alterations, improvements
and additions and restore the premises to the same good order and condition in
which it was at the commencement of this lease. Should Tenant fail so to do,
Landlord may do so, collecting at Landlord's option the cost and expense thereof
from Tenant as additional rent. All of such alterations, improvements or
additions shall be made solely at the expense of the Tenant; and the Tenant
agrees to protect, indemnify and save harmless the Landlord on account of any
injury to third persons or property, by reason of any such changes, additions or
alterations, and to protect, indemnify and save harmless Landlord from the
payment of any claim of any kind or character on account of bills for labor or
materials furnished or claimed to have been furnished in connection therewith.
Tenant agrees to procure all necessary permits before undertaking such work and
to do all such work in a good and
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workmanlike manner employing materials of first quality and complying with all
applicable governmental requirements. Notwithstanding the above, Landlord agrees
that the Tenant may remove all ATM systems and drive-in systems that they
installed upon the termination of this lease.
SECTION 6.03. Contractors and Labor. To the end that there shall be no
labor dispute which would interfere with the construction, completion or
operation of the whole Complex or with any other work being carried on therein,
in connection with any construction, alteration, fixturing or other work to be
done upon the demised premises, Tenant shall engage the services of only such
contractors and subcontractors as will work in harmony with each other, with
those of landlord and with any others then working in the whole Complex and
Tenant shall employ and shall require its contractors and subcontractors to
employ only such laborers as will work in harmony with all other laborers then
working in the Complex.
ARTICLE VII
MECHANICS LIENS
SECTION 7.01. Tenant Shall Discharge All Liens. Tenant shall promptly
pay all contractors and materialmen so as to minimize the possibility of a
mechanic's or materialman's lien attaching to the leased premises. Should any
such lien be made or filed, Tenant shall bond against or discharge the same
within thirty (30) days after Tenant receives notice of entry of the lien, and
in the event that Tenant shall fail to do so, Landlord may discharge the lien by
payment of the amount secured thereby, and any amount so paid by Landlord, along
with any attorney's fees or other costs relating to the discharge of such lien,
shall be deemed additional rent and shall be immediately payable by Tenant to
Landlord.
ARTICLE VIII
AFFIRMATIVE COVENANTS OF TENANTS
SECTION 8.01. Compliance with Laws. Tenant agrees to comply with any
and all requirements of any of the constituted public authorities, and with the
terms of any State or Federal statute or local ordinance or regulation
applicable to Tenant or its use of the demised premises, and save Landlord
harmless from penalties, fines, costs, expenses or damages resulting from
failure to do so.
SECTION 8.02. Notice of Accident, Etc. Tenant agrees to give to
Landlord prompt written notice of any accident, fire or damage occurring on or
to the demised premises within twenty-four (24) hours of any such occurrence.
SECTION 8.03. Loading and Unloading. Tenant agrees that all loading and
unloading of goods shall be done only at such times in the areas and through
such entrances as may be designated for such purposes by Landlord. Trailers or
trucks shall not be permitted to remain parked overnight, in any area of
Complex, whether loaded or unloaded.
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SECTION 8.04. Refuse, Etc. Tenant agrees to keep all garbage and refuse
in the kind of container specified by Landlord and to place the same outside of
the premises prepared for collection in the manner and at the times and places
specified by Landlord, and in accordance with municipal regulations; to keep the
outside areas immediately adjoining the premises clean and free from ice and
snow and not to burn, place or permit any rubbish, obstructions or merchandise
in such areas; and to keep the demised premises clean, orderly, sanity and free
from objectionable odors and from insects, vermin and other pests.
SECTION 8.05. Heat. Tenant agrees to keep the demised premises
sufficiently heated to prevent freezing of water in pipes and fixtures.
SECTION 8.06. Parking. Tenant agrees for itself and its employees to
park their cars only in those portions of the parking area as may be designated
for that purpose by Landlord.
SECTION 8.07. Rules and Regulations. Tenant agrees to comply with all
reasonable rules and regulations of Landlord in effect at the time of the
execution of this lease or at any time or times, and from time to time,
promulgated by Landlord, which Landlord in its sole discretion shall deem
necessary in connection with the demised premises, the building of which the
demised premises are a part, or the Complex, including the installation of such
fire extinguishers, smoke alarms and other safety equipment as Landlord may
reasonably require.
SECTION 8.08. Payment of Rent. Tenant agrees to pay all rent and all
other charges payable as rent immediately when due, and to comply with all other
terms and conditions of the within lease.
SECTION 8.09. Surrender of Premises. At the expiration or sooner termination of
the tenancy hereby created, Tenant shall surrender the leased premises in the
same condition as the leased premises were in upon delivery of possession
thereto under this lease, reasonable wear and tear excepted, and damage by
unavoidable casualty excepted, and shall surrender all keys for the leased
premises to Landlord or its Agent at the place then fixed for the payment of
rent and shall inform Landlord or its Agent of all combinations on locks, safes
and vaults, if any, in the leased premises. Tenant shall remove all its trade
fixtures before surrendering the premises as aforesaid and shall repair any
damage to the leased premises caused thereby. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of this lease.
ARTICLE IX
NEGATIVE COVENANTS OF TENANT
SECTION 9.01. Machinery, Loud Speakers, Etc. Tenant agrees that it will
not, without the prior consent in writing of Landlord, use or operate any
machinery which, in Landlord's opinion, is harmful to the building or disturbing
to other tenants in the building of which the demised premises is a part; nor
shall Tenant use any loud speakers, televisions, phonographs, radios or other
devices in a manner so as to be heard or seen outside of the
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demised premises, nor display merchandise on the exterior of the demised
premises nor on the walkways or sidewalks appurtenant thereto either for sale or
for promotion purposes.
SECTION 9.02. Acts Injurious to Insurance. Tenant agrees that it will
not do or suffer to be done, any act, matter or thing objectionable to the fire
insurance companies whereby the fire insurance or any other insurance now in
force or hereafter to be placed on the demised premises or any part thereof, or
on the building of which the demised premises may be a part, shall become void
or suspended, or whereby the same shall be rated as a more hazardous risk than
at the date when Tenant receives possession hereunder. In case of a breach of
this covenant, in addition to all other remedies of Landlord hereunder, Tenant
agrees to pay to Landlord as additional rent any and all increase or increases
of premiums on insurance carried by Landlord on the demised premises, or any
part thereof, or on the building of which the demised premises may be a part,
caused in any way by the occupancy of Tenant.
SECTION 9.03. Awnings, Etc. Tenant agrees that it will not, without the
prior consent in writing of Landlord not to be unreasonably withheld, attach any
awning, canopy, antenna or other projection to the roof or the outside walls of
the demised premises or the building of which the demised premises are a part.
SECTION 9.04. Auctions, Etc. Tenant agrees that it will not, without
the prior consent in writing of Landlord, conduct any auction, fire, bankruptcy,
or selling-out sale on or about the demised premises.
ARTICLE X
SIGNS
SECTION 10.01. Landlord's Approval. Tenant will not exhibit, inscribe,
paint, or affix any sign, advertisement, notice or other lettering on any part
of the outside of the demised premises or of the building the demised premises
is a part, or inside the demised premises if visible from the outside, without
first submitting to Landlord a plan or sketch of the proposed sign or signs and
without first obtaining Landlord's written approval thereof said approval not to
be unreasonably witheld.
SECTION 10.02. Permits. Tenant shall obtain at its sole cost and
expense, all permits required in connection with such signs, and shall comply
with all laws, orders, rules and regulations of governmental authorities
relative to the erection, maintenance and repair of such signs. Landlord shall,
if requested, cooperate with tenant to the extent required under such laws,
orders, rules and regulations, provided, however, that Tenant shall reimburse
Landlord for any expense incurred by Landlord in connection therewith.
SECTION 10.03. Maintenance. Tenant further agrees to maintain such
sign, lettering, etc., as maybe approved in good condition and repair at all
times.
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ARTICLE XI
INSPECTION OF PREMISES AND ACCESS THERETO
SECTION 11.01. Inspection of Premises; Repairs. Landlord reserves the
right at all reasonable times and with prior notice to the tenant (with the
exception of emergencies), by itself or its duly authorized agents to go upon
and inspect the demised premises and every part thereof, and at its option to
make repairs, alterations and additions to the demised premises or the building
of which the demised premises are a part, provided, however, that nothing herein
contained shall be deemed or construed as an obligation of Landlord to undertake
or effect any such repairs, alterations or additions other than as
hereinelsewhere specifically set forth.
SECTION 11.02. Displaying "For Rent" Signs. Landlord reserves the
right, after notice from either party of intention to terminate this lease, or
at any time within six (6) months prior to the expiration of this lease, to post
a "For Rent" sign, and said sign shall be placed upon that part of the demised
premises as Landlord or its Agent shall require, except on door or doors leading
into the demised premises or in such places that would interfere with Tenant's
business. Prospective tenants authorized by Landlord or its Agent may inspect
the premises at reasonable hours at any time.
SECTION 11.03. Installation of Equipment, Etc. Landlord with Tenant's
approval not to be unreasonably withheld, reserves the right to install or place
upon, or affix to, the roof and exterior walls of the demised premises
equipment, signs, displays, antennae, and any other object or structure of any
kind, provided the same shall not materially impair the structural integrity of
the building or interfere with Tenant's occupancy of the demised premises.
SECTION 11.04. No Implied Eviction. Notwithstanding any inference to
the contrary herein contained, it is understood that the exercise by Landlord of
any of its rights hereunder shall never be deemed an eviction (constructive or
otherwise) of tenant, or a disturbance of its use of the demised premises, and
shall in no event render Landlord liable to Tenant or any other person, so long
as such exercise of rights is in accordance with the foregoing terms and
conditions.
ARTICLE XII
INDEMNIFICATION
SECTION 12.01. Indemnification. Tenant at all times, except for those
occasions where the Landlord, its employees, agents or contractors has exercised
negligence, shall indemnify Landlord and its agents, and save them harmless from
suits, actions, damages, liability and expenses (including court costs and
reasonable attorneys' fees) in connection with loss of life, bodily or personal
injury or property damage arising from or out of any occurrence in, upon or at
the demised premises or the occupancy or use by Tenant of said premises or any
part thereof, or occasioned wholly or in part by any act or omission of Tenant,
its agents, contractors, employees, servants, invitees, licensees or
concessionaires, either within the demised premises or upon the sidewalks and
common areas of the Complex.
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SECTION 12.02. Occupancy at Tenant's Risk. Tenant shall store its
property in, and shall occupy the demised premises and all other portions of the
Complex at its own risk, and hereby releases Landlord and Landlord's agents from
all claims of every kind resulting in loss of life, personal or bodily injury or
property damage. Landlord and its agents shall not be responsible or liable at
any time for any loss or damage to tenant's merchandise, equipment, fixtures or
other personal property of Tenant or to Tenant's business. Landlord and its
agents shall not be responsible or liable to Tenant or to those claiming by,
through or under Tenant for any loss or damage to either the person or property
of Tenant that may be occasioned by or through the acts or omissions of persons
occupying adjacent, connecting or adjoining premises. Landlord and its agents
shall not be responsible or liable for any defect, latent or otherwise, in the
demised premises or in any other building in the Complex or any of the
equipment, machinery, utilities, appliances or apparatus therein, except as
herein before stated.
SECTION 12.03. Release of Liability. Except for cases of the negligence
of Landlord, its employees, agents or contractors, Landlord's agents,employees
and contractors shall not be liable for, and Tenant waives all claims for, loss
or damage to Tenant's business or damage to person or property sustained by
Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the demised premises, the building or buildings of which
it is a part, or any other part of the Complex, including, but not limited to,
claims for damage resulting from: (i) any equipment or appurtenances becoming
out of repair; (ii) any defect in or failure of plumbing, heating or air
conditioning equipment, electric wiring or the install thereof, gas, water and
steam pipes, stairs, porches, railings or walks; (iii) broken glass; (iv) the
backing up of any sewer pipe or downspout; (v) the bursting, leaking or running
of any tank, tub, washstand, water closet, waste pipe, drain or any other pipe
or tank in, upon or about the demised premises, or any other building or
buildings in the Complex; (vi) the escape of steam or hot water; (vii) water,
snow, or ice being upon or coming through the roof, skylight, trap door, stairs,
doorways, show windows, walks or any other place upon or near the demised
premises, or any other building or buildings in the Complex, or otherwise;
(viii) the falling of any fixture, plaster, tile or stucco; and (ix) any act,
omission or negligence of other tenants, licensees or of any other persons or
occupants of any building in the Complex or of adjoining or contiguous
buildings, or of owners of adjacent or contiguous property. Notwithstanding the
above, the language in Section 6.01 shall govern the first year if the Lease
Agreement.
SECTION 12.04. Notice of Fire or Accident. Tenant shall give notice to
Landlord in case of fire or accident in the demised premises or in the building
of which the demised premises are a part or of defects therein or in any
fixtures or equipment, such notice to be given within twenty-four (24) hours
after any such event or as soon thereafter as is reasonably practicable.
SECTION 12.05. Litigation Involving Landlord. In the event that
Landlord shall without fault on its part be made a party to any litigation
commenced by or against Tenant, and based upon a claim which is not covered by
Landlord's insurance, then, and to such extent Tenant shall protect and hold
Landlord and Agent harmless from and against any liability arising therefrom,
and shall pay all costs, expenses and reasonable attorneys' fees.
SECTION 12.06. Limit of Landlord's Liability - Non Recourse.
Notwithstanding anything contained herein to the contrary, Tenant agrees that
Landlord and its partners shall
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have no personal liability with respect to any of the provisions of this lease
and Tenant shall look solely to the estate and property of Landlord in the land
and buildings comprising the property of which the leased premises forms a part
for the satisfaction of Tenant's remedies, including without limitation, the
collection of any judgement or the enforcement of any judicial process requiring
the payment or expenditure of money by Landlord or its partners in the event of
any default or breach by Landlord with respect to any of the terms and
provisions of this Lease to be observed and/or performed by Landlord, subject,
however, to the prior rights of any holder of any mortgage covering all or part
of the property and no other assets of Landlord or any principal or partner of
Landlord shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim and in the event Tenant obtains a judgement
against Landlord, and/or its partners, the judgement docket shall be so noted.
This section shall inure to the benefit of Landlord's successors and assigns and
their respective partners and/or principals.
ARTICLE XIII
INSURANCE
SECTION 13.01. Required Coverages. Tenant, at its own cost and expense
shall obtain and maintain in full force and effect during the original term of
this lease, and any renewals or extensions thereof, policies of insurance
covering the following risks:
(i) Fire and extended coverage, vandalism and malicious
mischief insurance covering all of Tenant's stock in trade, fixtures,
furniture, furnishings, removable floor coverings, trade equipment, signs, and
all other decorations placed by Tenant in or upon the demised premises, to the
extent of 100% of their full insurable value and replacement cost without
deduction for depreciation, but in any event in an amount sufficient to prevent
Tenant from becoming a coinsurer under the provisions of applicable policies;
(ii) Comprehensive General Public Liability Insurance on an
occurrence basis with minimum limits of liability in an amount of not less than
$1,000,000.00 for bodily, personal injury or death to any one person and to the
limit of not less than $2,000,000.00 for bodily, personal injury or death to
more than one person and in an amount of not less than $250,000.00 with respect
to damage to property including water damage and sprinkler leakage legal
liability.
(iii) Rent insurance payable in case of loss caused by a peril
against which insurance is required to be maintained under (i) above, in an
amount not less than the minimum rent becoming due under this lease, together
with all other charges payable as rent hereunder, and the taxes levied, imposed
or assessed with respect to, the twelve-month period following any such loss,
damage or destruction.
(iv) Business interruption insurance in amounts sufficient to
prevent Tenant from becoming a co-insurer thereof, and to assure the continuance
of the operating income and profit of Tenant's business during any period in
which Tenant is unable to conduct such business in the demised premises, or any
part thereof, by reason of loss or damage due to fire or other casualty, the
elements, civil commotion or riot, or any other cause, whether insured or
uninsured.
SECTION 13.02. Additional Coverages. Whenever in Landlord's reasonable
judgment, good business practice and changing conditions indicate a need for
additional or different types
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of insurance coverage, Tenant shall, upon request from Landlord, obtain such
coverage, provided such coverages are reasonable, at Tenant's sole expense.
SECTION 13.03. Designated Insureds; Endorsements; Evidence of Insurance.
All policies of insurance to be obtained and furnished by Tenant hereunder shall
be issued and carried in the name of Landlord and Tenant, as their respective
interests may appear, together with such other party or parties as may be
designated by Landlord as their interests may appear. All such policies of
insurance shall be issued by a financially responsible company or companies,
authorized to issue such policy or policies, and licensed to do business in
Pennsylvania, and shall contain endorsements providing as follows: (a) that any
such insurance shall not be subject to cancellation, termination or change
except after ten (10) days' prior written notice by registered or certified
mail to Landlord by the insurance company; and (b) that Landlord shall not be
liable for any damage by fire or other casualty covered by such insurance, no
matter how caused, it being understood that Tenant shall look solely to its
insurer or insurers for reimbursement. Landlord and Tenant waive their right to
recover damages against each other for any reason whatsoever to the extent the
damaged party recovers indemnity from its insurance carrier. Any insurance
policy procured by Tenant which does not name the Landlord as an additional
insured shall contain an express waiver of any ri& of subrogation by the
insurance company against Landlord. All public liability and property damage
policies shall contain an endorsement that Landlord, although named as an
insured, shall nevertheless be entitled to recover under said policies for any
loss or damage occasioned to it, its servants, agents and employees by reason of
the negligence of Tenant. All policies of fire and/or extended coverage or other
insurance covering the demised premises or its contents shall contain a clause
or endorsement providing in substance that the insurance shall not be prejudiced
if the assureds have waived right of recovery from any person or persons prior
to the date and time of loss or damage, if any. The original policy or policies,
or duly executed certificates, for the same, together with satisfactory evidence
or payment of the premium thereof shall be delivered to Landlord on or before
the commencement of any Tenant work under this lease, and upon renewals of such
policies, not less than fifteen (15) days prior to the expiration of the term of
any such coverage.
SECTION 13.04. No Injurious Acts. Tenant shall not do, suffer to be
done, or keep, or suffer to be kept anything in, upon or about the demised
premises which will contravene Landlord's policies insuring against loss or
damage by fire or other hazards, including, but not limited to, public liability
or which will prevent Landlord from procuring such policies in companies
acceptable to Landlord. If anything be done, omitted to be done or suffered to
be done by Tenant or kept or suffered by tenant to be kept in, upon or about the
premises that shall cause the rate of fire or other insurance on the premises or
other property of Landlord in companies acceptable to Landlord to be increased
beyond the minimum rate from time to time applicable to the demised premises for
use for the purpose permitted under this lease, or such other property for the
use or uses made thereof, Tenant will pay the amount of such increase promptly
upon Landlord's demand as additional rent.
SECTION 13.05. Failure to Maintain Required Coverage. In the event that
the Tenant at any time or times shall fail to obtain or maintain in full force
and effect any or all of the insurance policies and coverages required of it
hereunder, the Landlord, at its election after
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ten (10) days' written notice to the Tenant, and as agent for the Tenant, may
obtain such insurance or coverage, or additional insurance or coverage as the
case may be, pay the premiums thereon, or take such other steps as may be
necessary to meet the requirements of this Article and upon demand, obtain
reimbursement of the costs so expended (including service charges in the amount
of 1 1/2% per month upon all such costs paid by Landlord) from the Tenant as
additional rent, or Landlord may, at its sole option, terminate this lease upon
thirty (30) days' written notice.
ARTICLE XIV
TRADE FIXTURES
SECTION 14.01. Title to Property and Removal. All trade fixtures and
lighting fixtures installed by tenant in the leased premises shall remain the
property of Tenant and shall be removable at the expiration or earlier
termination of this lease or any renewal or extension thereof, provided Tenant
shall not at such time be in default under any covenant or agreement contained
in this lease; and provided further, that in the event of such removal, having
repaired the damage caused by such removal, Tenant shall promptly restore the
premises to its original order and condition including reinstalling the original
light fixtures which Teriant must store at a place of its choosing at Tenant's
expense. Any such trade fixture not removed at or prior to such termination
shall be and become the property of Landlord. Air conditioning equipment,
whether or not installed by Tenant, shall not be removable at the expiration or
earlier termination of this lease or at the expiration or any renewal or
extension thereof, and shall become the property of Landlord.
SECTION 14.02. Failure to Remove. Should, at the expiration or earlier
termination of this lease or any renewal or extension thereof, Tenant fail to
remove any trade fixtures installed by Tenant, then Landlord may remove such
fixtures and recover all costs incidental to such removal from the Tenant as
additional rent, and Landlord may dispose of such fixtures in any manner he
deems fit without the necessity of accounting to Tenant for the proceeds of
same.
ARTICLE XV
ASSIGNING, MORTGAGING, SUBLETTING
SECTION 15.01. Landlord's Consent. Tenant agrees not to assign,
mortgage, pledge or encumber this lease, in whole or in part, or sublet the
whole or any part of the demised premises to any licensee or concessionaire,
without first obtaining the written consent of Landlord said consent not to be
unreasonably withheld. Tenant agrees that, in the event of any such assignment,
subletting, licensing or granting of a concession, made with the written consent
of the Landlord as aforesaid, it will nevertheless, remain liable for the
performance of all the terms, conditions and covenants of this lease, and in no
event shall Tenant be entitled to receive any excess rents over the sums payable
by Tenant to Landlord hereunder. The sale of the stock of the tenant shall not
be considered an assignment for the purposes of this paragraph and Tenant shall
not be obligated to obtain the consent of the Landlord for said sale.
SECTION 15.02. Costs of Assignment or Subletting; Agency. In addition
to all other obligations imposed upon Tenant hereunder, Tenant shall reimburse
Landlord, upon
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demand, for all costs incurred by Landlord in connection with any assignment or
subletting of the demised premises, including without limitation the cost of
making inquiries and investigations as to the acceptability of the proposed
assignee or subtenant and the legal costs incurred, if any, in connection
therewith.
ARTICLE XVI
SUBORDINATION
SECTION 16.01. Mortgages, Etc. At the option of Landlord or Landlord's
permanent lender, or both of them, this lease and the Tenant's interest
hereunder shall be subject and subordinate at all times to any mortgage or
mortgages, deed or deeds of trust, or such other security instrument or
instruments, including all renewals, extensions, consolidations, assignments and
refinances of the same, as well as all advances made upon the security thereof,
which now or hereafter become liens upon the Landlord's fee and/or leasehold
interest in the demised premises, and/or any and all of the buildings now or
hereafter erected or to be erected at the Complex, and/or any and all of the
land comprising the Complex; provided, however, that in each such case, the
holder of such other security or the trustee of such deed of trust or holder of
such other security instrument shall agree that this lease shall not be divested
or in any way affected by foreclosure or other default proceedings under said
mortgage, deed of trust, or other instrument or other obligations secured
thereby, so long as the Tenant shall not be in default under the terms of this
lease; and Tenant agrees that this lease shall remain in full force and effect
notwithstanding any such default proceedings.
SECTION 16.02. Utility Easements, Etc. At the option of Landlord and/or
Landlord's permanent lender, this lease and the Tenant's interest hereunder
shall be subject and subordinate to any and all utility easements or grants,
mutual parking easement agreements or Development and Operating agreements which
may now or hereafter affect the Complex or any portion or portions thereof.
SECTION 16.03. Execution of Documents. The Tenant agrees to execute such
other document or documents as may be required by any mortgagee, trustee under
any deed of trust, or holder of a similar security interest, or any party to the
types of documents enumerated herein for the purpose of subordinating this lease
in accordance with the foregoing. To effectuate the intention of the parties
with respect to this section it is agreed and understood that should Tenant fail
or otherwise refuse to execute such other document or documents as Landlord may
request, and such failure or refusal shall continue for a period of ten (10)
days after a formal written request shall have been forwarded to Tenant by
Landlord, then and upon such event, Tenant shall be deemed to have appointed
Landlord and Landlord shall thereupon be regarded as the irrevocable
attorney-in-fact of the Tenant, duly authorized to execute and deliver the
required document or documents for and on behalf of Tenant.
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ARTICLE XVII
TENANT'S DEFAULT
SECTION 17.01. Insolvency, Etc. This lease and the term and estate
hereby granted are subject, inter alia, to the limitation that whenever Tenant
or any guarantor of Tenant under this lease shall make an assignment for the
benefit of creditors; or shall file a voluntary petition under any bankruptcy or
insolvency law; or an involuntary petition alleging an act of bankruptcy or
insolvency is filed against Tenant; or whenever a petition shall be filed by or
against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
any future state or federal bankruptcy act or any other present or future
applicable federal, state or other statute or law; or whenever Tenant shall seek
or consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of all or any substantial part of its properties; or
whenever a permanent or temporary receiver of Tenant or of or for the property
of Tenant shall be appointed; or whenever Tenant shall plead bankruptcy or
insolvency as a defense in any action or proceeding; or an order, judgment or
decree shall be entered by any court of competent jurisdiction on the
application of a creditor adjudicating the Tenant a bankrupt or insolvent, or
approving a petition seeking reorganization of the Tenant, or its guarantor; or
appointment of a receiver, trustee or liquidator of the Tenant or its guarantor,
or of all or substantially all of either of their respective assets; or any
department of the state or the federal government, or any officer thereof, duly
authorized, shall take possession of the business or property of the Tenant by
reason of insolvency or alleged insolvency of the Tenant; or whenever the Tenant
shall permit or otherwise suffer this lease to be taken under any writ of
execution; or if this lease shall pass to or devolve upon, by law or otherwise,
to one other than Tenant, then and in any one or more of such events, the
Landlord (a) at any time after receipt of notice of the occurrence of any such
event, or (b) if such event occurs without the acquiescence of Tenant, at any
time after the event continues for sixty (60) days, may give Tenant a notice of
intention to end the term of this lease at the expiration of five (5) days from
the service of such notice of intention, and upon the expiration of said five
(5) day period this lease and the term and estate hereby granted, whether or not
the term shall theretofore have commenced, shall terminate with the same effect
as if that day were the Expiration Date, but Tenant shall remain liable for
damages as hereinelsewhere provided.
SECTION 17.02. Failure to Pay Rent or Perform Other Obligation. This
lease and the term and estate hereby granted are subject to the further
limitation that:
(i) Whenever Tenant shall default in the payment of any
installment of minimum rent, on any day upon which the same shall be due and
payable, or
(ii) Whenever Tenant shall default in the payment of any
installment of percentage rent, real estate taxes, Tenant's proportionate share
of common area and other charges, Tenants' Association dues and assessments,
promotion and advertising expenses, or any other charge or payment due or
payable by Tenant under this lease for any reason whatsoever, on any day upon
which the same shall be due and payable, or
(iii) Whenever Tenant shall default in the performance of any
other obligation, covenant or agreement by it to be performed or observed under
this lease, and such default shall continue and shall not be remedied by Tenant
within five (5) days after Landlord shall have given to Tenant a notice
specifying the same, or, in the case of a happening or default which
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cannot with due diligence be cured within a period of five (5) days and the
continuance of which for the period required for cure will not subject Landlord
to the risk of criminal liability or termination of any superior lease or
foreclosure of any superior mortgage, if Tenant shall not duly institute within
such five (5) day period and promptly and diligently prosecute to completion all
steps necessary to remedy the same, or
(iv) If Tenant shall fail for any reason to assume occupancy
of the demised premises pursuant to the provisions of this lease (provided that
all of the conditions therein set forth shall have occurred), or
(v) Whenever Tenant shall abandon the demised premises, or a
substantial portion of the demised premises shall remain vacant for a period of
thirty (30) consecutive days, unless such vacancy arises as a result of a
casualty including, but not limited to, fire explosion or similar events.
Then at any time after the occurrence of any one or more of such events
and should Tenant fail to cure such event within ten days after receiving
written notice from Landlord of said event, Landlord may give to Tenant a notice
of intention to end the term of this lease at the expiration of five (5) days
from the date of the service of such notice of intention, and upon the
expiration of said five (5) days this lease and the term and estate hereby
granted, whether or not the term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for damages as hereinelsewhere provided.
SECTION 17.03. Scope. This Article XVII shall apply to all extensions,
expansions, or renewals of the term of this Lease, and in the event that prior
to the date fixed for the commencement of any extension or renewal term the
Tenant shall be in default of any of the obligations to be observed and
performed by it hereunder, the Landlord shall have the right, exercisable upon
two (2) days' written notice to Tenant to cancel said extension or renewal term.
ARTICLE XVIII
REMEDIES OF LANDLORD UPON TENANT'S DEFAULT
SECTION 18.01. Right to Relet; Damages for Breach. Should Landlord elect
to re-enter the demised premises as provided in this lease, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this lease or it may from time to time without
terminating this lease make such alterations and repairs as may be necessary in
order to relet the premises and relet said premises or any part thereof for such
term or terms (which may be for a term extending beyond the term of this lease)
and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable; upon each such reletting all
rentals received by the Landlord from such reletting shall be applied, first, to
the payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs and expenses of such reletting,
including brokerage fees payable by Landlord to its agent under both the
existing letting hereunder and the reletting and attorneys' fees and of costs of
such alterations and repairs; third, to the payment of rent due and unpaid
hereunder and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. If such
rentals received from such reletting during any
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month be less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be calculated
and paid monthly. No such re-entry or taking possession of said premises by
Landlord shall be construed as an election on its part to terminate this lease
unless a written notice of such intention be given to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this lease for such previous breach.
SECTION 18.02. Right to Terminate. Tenant further agrees and it is
hereby made a condition of this lease, or any extension thereof, that if Tenant
shall commit any of the breaches enumerated in Article XVII hereof then
Landlord, in the event of any such breach or breaches, will have the option of
giving Tenant a notice of intention to end the term of this lease at the
expiration of ten (10) days from the service of such notice of intention, and
provided said breech or breeches are not cured within ten (10) days from the
date of service of said notice this lease and the term and estate hereby granted
(whether or not the term shall theretofore have commenced) as well as all of the
right, title and interest of the Tenant hereunder, shall wholly cease and expire
and become void in the same manner and with the same force and effect (except as
to Tenant's liability) as if the date fixed in such notice were the date herein
originally specified for the expiration of the term herein demised; and tenant
shall then immediately quit and surrender to Landlord the demised premises,
including any and all buildings and improvements thereon, and Landlord may
enter into and repossess the demised premises by summary proceedings, detainer,
ejectment or otherwise and remove all occupants thereof and, at Landlord's
option, any property thereon without being liable to indictment, prosecution or
damage therefor.
SECTION 18.03. Damages Upon Termination or Re-Entry. Should Landlord at
any time terminate this lease for any breach hereof or exercise its right of
re-entry hereunder, then, in addition to any other remedies it may have,
Landlord may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the leased premises, reasonable
attorneys' fees and the amount of rent and charges equivalent to rent reserved
in this lease for the remainder of the stated term, all of which amounts shall
be immediately due and payable from Tenant to Landlord, and Landlord shall
thereafter pay to Tenant, at such time or times as Landlord shall be in receipt
of the same, the rent for the leased premises for the remainder of the stated
term collected from tenants thereafter using the premises, up to the amount of
the rent reserved which has theretofore been collected from Tenant, less costs
of reletting, including brokerage commissions, attorneys' fees, costs incurred
in making repairs, replacements or decorations in the demised premises,
advertising expenses and all other costs and expenses incidental or consequent
to such reletting. In determining the rent payable by Tenant hereunder
subsequent to default, the annual rent for each year of the unexpired term shall
be equal to the aggregate of the fixed minimum rent reserved for the balance of
the term remaining after default, plus the number of years remaining in the
balance of the term multiplied by the annual average of the percentage rent, if
any, and all other additional rent theretofore paid or payable by the Tenant for
the three (3) lease years last preceding such default or, if three (3) lease
years have not elapsed, the annual average of the percentage rent, if any, and
all other additional rent theretofore paid or payable by Tenant. It is hereby
further understood that any such reletting may be for a period shorter or longer
than the remaining term of this
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lease, but in no event shall Tenant be entitled to receive any excess of such
net rents over the sums payable by Tenant to Landlord hereunder, nor shall
Tenant be entitled to credit in respect of any net rents from such a reletting
(except to the extent that such net rents are actually received by Landlord).
Landlord shall in no event be responsible or liable for any failure to relet the
demised premises or any part thereof, nor for failure to collect the rental
therefor under such reletting.
SECTION 18.04. Waiver of Jury Trial. The Tenant does waive trial by jury
in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in any way
connected with this lease, the relationship of Landlord and Tenant, Tenant's use
and occupancy of the leased premised and/or any claim of injury or damage.
SECTION 18.05. Recovery of Legal Expenses. If either party brings a
legal action against the other as a result of an infraction of the terms of this
lease, the party that is found not to be in violation of the terms of this lease
shall be entitled to recover its reasonable legal fees from the violating party.
SECTION 18.06. Acceleration of Rent. In the event of any default
hereunder, Tenant agrees that thereupon and in such event the whole rent
reserved for the balance of the term and all other sums payable hereunder as
rent for the balance of the term or any part thereof shall immediately become
due and payable as if by the terms of this lease it were payable in advance, and
Landlord may immediately proceed to distrain, collect, confess judgment or bring
action for the said whole rent or such part thereof as aforesaid, as rent being
in arrears, or may enter judgment therefor in an amicable action as
hereinelsewhere provided for in case of rent in arrears, or may file a proof of
claim in any bankruptcy or insolvency proceedings for such rent, or Landlord may
institute any other proceedings, whether similar to the foregoing or not, to
enforce payment thereof.
For the purposes of this lease, the rent reserved for the balance of the
term as used herein shall be deemed to be aggregate of the fixed minimum rent
reserved for the balance of the term remaining after such default or breach by
the Tenant, plus the number of years remaining in the balance of the term
multiplied by the annual average of the percentage rent, if any, and all other
additional rent theretofore paid or payable by the Tenant for the three (3)
years last preceding such breach or default or, if three (3) lease years have
not then elapsed, the annual average of the percentage rent, if any, and all
other additional rent theretofore paid or payable by the Tenant.
SECTION 18.07. Default Prior to Possession. In the event Tenant breaches
or threatens to breach this lease prior to possession, in addition to any other
rights accruing to Landlord by operation of law or equity, by or under any legal
proceedings or by the provisions of this lease, Landlord may cancel this lease
by giving Tenant five (5) days written notice of its intent to do so whereupon
all security deposits will be retained by Landlord as liquidated damages and
Landlord, at its option, may proceed to relet the demised premises with no
liability or obligation to Tenant whatsoever. This section shall be
self-operative and no further instrument of cancellation shall be required of
Tenant and Landlord.
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SECTION 18.08. All Remedies Cumulative; Injunctive Relief. It is further
agreed that in the event of a breach or threatened breach by Tenant of any of
the agreements, conditions, covenants or terms hereof, Landlord shall have the
right to injunctive relief to restrain the Tenant and the right to invoke any
remedy allowed by law or in equity whether or not other remedies, indemnity or
reimbursements are, herein provided. It is further agreed that each and every
right and remedy of Landlord provided for in this lease shall be cumulative and
shall be in addition to every other right or remedy provided for in this lease
or now or hereafter existing at law or in equity or by statute or otherwise,
and the exercise or beginning of the exercise by Landlord of any one or more of
the rights or remedies provided for in this lease or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all other rights or
remedies provided for in this lease or now or hereafter existing at law or in
equity or by statute or otherwise.
SECTION 18.09. Joint and Several Liability. If two or more individuals,
corporations, partnerships, unincorporated associates or other entities (or any
combination of two or more thereof) shall execute this lease as Tenant, the
liability of each such individual, corporation, partnership, unincorporated
association or other entity to pay rent and perform all other obligations
hereunder shall be deemed to be joint and several. In like manner, if the Tenant
named herein shall be a partnership or other business association the members of
which are, by virtue of statute or common law, subject to personal liability,
then the liability of each such member shall be joint and several.
SECTION 18.10. No Designation of Credits. In the event that Tenant is
in arrears in payment of minimum rent, percentage rent and/or additional rent,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by Tenant are to be credited, and Tenant agrees that Landlord may
apply any payments made by Tenant to any items it sees fit, irrespective of and
notwithstanding any designation or request by Tenant as to the items against
which any such payments shall be credited.
ARTICLE XIX
WAIVERS AND MODIFICATIONS
SECTION 19.01. Failure to Enforce No Waiver. The failure of either party
to insist in any one or more instances upon the strict performance of any one or
more of the agreements, terms, covenants, conditions or obligations of this
lease, or to exercise any right, remedy or election herein contained, shall not
be construed as a waiver or relinquishment for the future of the performance of
such one or more obligations of this lease or of the right to exercise such
right, remedy or election, but the same shall continue and remain in full force
and effect with respect to any subsequent breach, act or omissions. The manner
of enforcement or the failure of Landlord to enforce any of the Rules and
Regulations set forth herein, or hereafter adopted, against the Tenant and/or
any other tenant in the Complex shall not be deemed a waiver of any such Rules
and Regulations.
SECTION 19.02. Executory Agreements to be in Writing. No executory
agreement hereafter made between Landlord and Tenant shall be effective to
change, modify, waive,
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release, discharge, terminate or effect an abandonment of this lease, in whole
or in part, unless such executory agreement is in writing, refers expressly to
this lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge or termination or effectuation of the
abandonment is sought
SECTION 19.03. Surrender to be in Writing. No agreement to accept a
surrender of all or any part of the demised premises shall be valid unless in
writing and signed by Landlord. The delivery of keys to an employee of Landlord
shall not operate as a termination of this lease or an acceptance of a surrender
of the demised premises. If Tenant shall at any time request Landlord to sublet
the demised premises for Tenant's account, Landlord or its agent is authorized
to receive said keys for such purposes without releasing Tenant from any of its
obligations under this lease, and Tenant hereby releases Landlord from any
liability for loss or damage to any of Tenant's property in connection with such
subletting.
SECTION 19.04. Acceptance of Rents No Waiver of Breach. The receipt or
acceptance by Landlord of rents with knowledge of breach by Tenant of any term,
agreement, covenant, condition or obligation of this lease shall not be deemed a
waiver of such breach.
SECTION 19.05. Financing Requirements. If, in connection with obtaining,
continuing or renewing financing for which the Complex or any portion or
portions thereof, or the fee or the leasehold or any interest therein represents
collateral in whole or in part, a banking, insurance or other lender shall
request reasonable modifications of this lease as a condition of such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or adversely affect to a material degree the Tenant's leasehold
interest hereby created.
ARTICLE XX
FINANCING AGREEMENT
SECTION 20.01. Execution Prohibited. Tenant agrees not to enter into,
execute or deliver any financing agreement that can be considered as a priority
to any mortgage, deed of trust or security interest in the tenant's chattels
located in and/or pertaining to the demised premises and, in the event Tenant
does so execute or deliver such financing agreement, such action on the part of
Tenant shall be considered a breach of the terms and conditions of this lease
entitling Landlord to such remedies as are provided for herein, including, but
not limited to, termination of this lease.
ARTICLE
CUSTOM AND USAGE
SECTION 21.01. Not Created by Failure to Enforce. It is hereby
covenanted and agreed, any law, usage or custom to the contrary notwithstanding,
that Landlord shall have the right at all times to enforce the covenants and
conditions of this lease in strict accordance with the terms hereof,
notwithstanding any conduct or custom on the part of the Landlord in refraining
from so doing at any time or times; and further, that the failure of Landlord at
any
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time or times to enforce its right under said covenants and provisions strictly
in accordance with the same shall not be construed as having created a custom in
any way or manner contrary to the specific terms, provisions and covenants of
this lease or as having in any way or manner modified or waived the same.
ARTICLE XXII
SURRENDER AND HOLDOVER
SECTION 22.01. Damages Upon Failure to Surrender. Tenant, upon
expiration or earlier termination of this lease, or any renewal or extension
hereof, either by lapse of time or otherwise, agrees peaceably to surrender to
Landlord the premises in broom-clean condition and in good repair as required by
Articles VII and IX hereof. In the event that Tenant shall fail to surrender the
premises Landlord, in addition to all other remedies available to it hereunder,
shall have the right to receive, as liquidated damages for all the time Tenant
shall so retain possession of the premises or any part thereof, an amount equal
to one and one half the minimum rent, if applicable, specified in Articles III
and IV of this Lease, as applied to such period. Provided, however, that nothing
contained in this section shall be deemed or construed as conferring upon Tenant
a right to remain in possession of the demised premises beyodd the expiration or
termination of this lease or any extension or renewal hereof.
SECTION 22.02. Consensual Holdover. In the event Tenant shall remain in
possession of the demised premises with Landlord's consent but without having
executed a new lease or an extension or renewal of the within lease, then Tenant
shall be deemed to be in occupancy and possession of the demised premises as a
Tenant from month to month, subject to all the other terms, conditions,
provisions and obligations of this lease insofar as the same are applicable to a
month to month tenancy. In the event that there occurs such consensual holdover
as aforesaid, and if either party thereafter desires to terminate said occupancy
at the end of any one month period following the expiration date of the term of
this lease, the parties so desiring to terminate the same shall give the other
party at least thirty (30) days' written notice to that effect.
SECTION 22.03. Tenant's Liability for Resulting Damages. If the said
Tenant fails to surrender the demised premises upon the termination of this
lease, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall indemnify and hold Landlord harmless from loss or liability
resulting from such failure including, without limiting the generality of the
foregoing, any claims made by any succeeding tenant founded on such failure.
ARTICLE XXIII
ADDITIONAL CONSTRUCTION
SECTION 23.0 1. Rights Reserved to Landlord. Landlord hereby reserves
the right at any time and from time to time to make alterations or additions to,
and to build additional stories on, the building in which the premises are
contained, and to build adjoining the same provided such changes do not intefere
with tenant's business. Landlord also reserves the right to construct other or
add to other buildings or improvements in the Complex, and to permit others to
do so, from time to time.
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ARTICLE XXIV
DAMAGE OR DESTRUCTION OF PREMISES
SECTION 24.01. Total or Partial Destruction. If the leased premises
shall be damaged by fire or other casualty covered by policies of fire and broad
form extended coverage insurance but are not thereby rendered untenantable in
whole or in part, Landlord shall at its own expense cause such damage to be
repaired, and the rent shall not be abated. If by reason of such occurrence,
the premises shall be rendered untenantable in whole or in part and provided the
necessary repairs to make the space tenantable can be performed within ninety
days of the occurrence of said casulaty, Landlord shall at its own expense cause
the damage to be repaired and the fixed minimum rent meanwhile shall be abated
proportionately until Landlord has restored the premises as to the portion of
the premises rendered untenantable. If the leased premises shall be damaged or
destroyed by a fire or casualty not covered by Landlord's policies of fire and
broad form extended coverage insurance and the Landlord decides not to repair
and restore the premises, Landlord shall have the right, to be exercised by
notice in writing delivered to Tenant within ninety (90) days from and after the
occurrence of such damage or destruction, to elect to cancel and terminate this
lease. Either party shall have the right, to be exercised by notice in writing,
delivered to the other within sixty (60) days from and after any occurrence
which renders the premises wholly untenantable to cancel this lease, said
cancellation to take effect sixty (60) days from and after the receipt of such
notice by the other party, and in such event this lease and the tenancy hereby
created shall cease as of the aforesaid cancellation date, the rent to be
adjusted as of such date; provided. In no event shall Landlord be obligated to
expend for any repairs or reconstruction pursuant to this section an amount in
excess of the insurance proceeds recovered by it and allocable to the damage to
the leased premises after deduction therefrom of any amounts required to be paid
to Landlord's mortgagee. (Landlord shall not be liable for delays occasioned by
adjustment of losses with insurance carriers or by any other cause so long as
Landlord shall proceed in good faith.)
SECTION 24.02. Partial Destruction of Complex. In the event that fifty
percent (50%) or more of the gross leasable area of the Complex shall be damaged
or destroyed by fire or other cause notwithstanding that the leased premises may
be unaffected by such fire or other cause, Landlord shall have the right, to be
exercised by notice in writing delivered to the Tenant within sixty (60) days
from and after said occurrence, to cancel and terminate this lease. Upon the
giving of such notice, the term of this lease shall expire by lapse of time upon
the ninetieth (90th) day after such notice is given and Tenant shall vacate the
leased premises and surrender the same to Landlord.
ARTICLE XXV
EMINENT DOMAIN
SECTION 25.01. Total Condemnation. If the whole of the leased premises
shall be acquired or condemned by eminent domain for any public or quasi-public
use or purpose, then the term of this lease shall cease and terminate as of the
date on which possession of the demised premises is required to be surrendered
to the condemning authority, and all rentals
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shall be paid up to that date and Tenant shall have no claim against Landlord or
the condemning authority for the value of any unexpired term of this lease.
SECTION 25.02. Total Parking Area. If the whole of the common parking
areas in the Complex shall be acquired or condemned by eminent domain for any
public or quasi-public use or purpose, then the term of this lease shall cease
and terminate as of the date on which possession of the parking area is required
to be surrendered to the condemning authority, unless Landlord shall prior to
such date notify Tenant of its intention to provide other parking facilities of
similar size and location to the original parking which shall not violate the
requirements of the applicable zoning or similar law (or any permitted variance
thereof or exception thereto) regulating the size, layout and location of
parking facilities at the Complex, and shall thereafter provide such facilities
within six (6) months after such date. In the event that Landlord shall provide
such other parking facilities, then this lease shall continue in full force and
effect without any reduction or abatement of rent. In any event, Tenant shall
have no claim against Landlord or the condemning authority for the value of any
unexpired term of this lease.
SECTION 25.03. Partial Condemnation. If any part of the leased
premises shall be acquired or condemned by eminent domain for any public or
quasi-public use or purpose, and in the event that such partial taking or
condemnation shall render the leased premises unsuitable for the business of the
Tenant, then the term of this lease shall cease and terminate as of the date on
which possession of the demised premises is required to be surrendered to the
condemning authority and Tenant shall have no claim against Landlord or the
condemning authority for the value of any unexpired term of this lease. In the
event of a partial taking or condemnation which is not extensive enough to
render the premises unsuitable for the business of Tenant, then Landlord shall
promptly restore the leased premises to the extent of condemnation proceeds
available for such purpose to a condition comparable to their condition at the
time of such condemnation less the portion lost in the taking, and this lease
shall continue in full force and effect. In such event, the fixed minimum rent
shall abate proportionately, but the percentage rent, if any, shall not abate;
however, the "volume allowance" shall abate proportionately to the minimum rent.
For purposes of determining the amount of funds available for restoration of the
leased premises from the condemnation award said amount will be deemed to be
that part of the award which remains after payment of Landlord's reasonable
expenses, including Agents commissions, incurred in recovering same and any
amounts due to any mortgagee of Landlord, and which represents a portion of the
total sum so available (excluding any award or other compensation for land)
which is equitably allocable to the leased premises.
SECTION 25.04. Partial Condemnation of Parking Area. If any part of the
parking area in the Complex shall be acquired or condemned by eminent domain for
any public or quasi-public use or purpose and if, as the result of such partial
taking, the size, layout or location of the remaining parking facilities will
violate the requirements of the applicable zoning or similar law (or any
permitted variance thereof or exception thereto) regulating same, then the
Landlord shall have the right and power to declare the term of this lease at an
end as of the date on which possession of the condemned property is required to
be surrendered to the condemning authority, unless the Landlord shall take
immediate steps toward eliminating such violation, in
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which event this lease shall be unaffected and remain in full force and effect
as between the parties. In any event, Tenant shall have no claim against
Landlord or the condemning authority for the value of any unexpired term of this
lease.
SECTION 25.05. Landlord's Damages. In the event of any condemnation or
taking as hereinbefore provided, whether whole or partial, the Tenant shall not
be entitled to any part of the award, as damages or otherwise, for such
condemnation and the Landlord and any mortgagee of Landlord are to receive the
full amount of such award as their respective interests may appear, the Tenant
hereby expressly waiving any right or claim to any part thereof and assigning to
Landlord any such right or claim to which it might become entitled.
SECTION 25.06. Tenant's Damages. Although all damages in the event of
any condemnation are to belong to the Landlord and any mortgagee of Landlord as
aforesaid, unless such damages are awarded as full compensation for diminution
in value of the leasehold or to the fee of the leased premises, Tenant shall
have the right to the extent that same shall not diminish the Landlords or such
mortgagee's award to claim and recover from the condemning authority, but not
from Landlord or such mortgagee, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right for or on account of, and limited
solely to, any cost to which Tenant might be put in removing Tenant's
merchandise, furniture, fixtures, leasehold improvements and equipment.
ARTICLE XXVI
NO OFFER OR OPTION
SECTION 26.01. No Offer or Option. The submission of this lease for
examination by Tenant does not constitute an offer or an option to leased the
demised premises, nor is it intended as a reservation of the demised premises
for the benefit of Tenant.
SECTION 26.02. Execution and Delivery. It is expressly understood and
agreed that this "formal written lease agreement" shall not be effective or
binding upon the parties until it is fully and properly executed by Tenant and
Landlord.
ARTICLE XXVII
AGENCY
SECTION 27.01. No Liability of Agent. It is expressly understood and
agreed between the parties hereto that Allan H. Smith, Real Estate Ltd. its
salesmen and employees, are acting in the representative capacity of agent only
and will in no case whatsoever be held liable in any manner to either party for
the performance of any term or covenant of this agreement or for damages for the
non-performance thereof
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ARTICLE XXVIII
SUCCESSORS AND ASSIGNS
SECTION 28.01. Binding Effect. All rights, obligations and liabilities
herein given to, or imposed upon, the respective parties hereto shall extend to
and bind the several and respective heirs, executors, administrators,
successors, sublessees and assigns of said parties, subject to the provisions of
Article XVI hereof, and if there shall be more than one Tenant, they shall all
be bound jointly and severally by the terms, covenants, and agreements herein
and the word "Tenant" shall be deemed and taken to mean each and every person or
party mentioned as a Tenant herein, be the same one or more; and if there shall
be more than one Tenant, any notice required or permitted by the terms of this
lease may be given by or to anyone thereof. No rights, however, shall inure to
the benefit of any assignee of Tenant unless the assignment to such assignee has
been approved by Landlord in writing as aforesaid.
ARTICLE XXEX
FORCE MAJEURE
SECTION 29.01. Delay or Non-Performance Excused. In the event that
Landlord shall be delayed, or hindered, or prevented from the performance of any
act required hereunder, by reason of governmental restrictions, scarcity of
labor or materials, or for other reasons beyond its control, the performance of
such act shall be excused for the period of delay, and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay.
ARTICLE XXX
OFFSET STATEMENT
SECTION 30.01. Duty of Tenant to Furnish. Within ten (10) days after
request therefor by Landlord, or in the event that upon any sale, assignment or
hypothecation of the leased premises and/or the land thereunder and/or any
interest therein of Landlord or any person or entity through which Landlord's
interest is derived, a statement shall be required from Tenant, Tenant agrees to
execute and deliver to any proposed mortgagee or purchaser or Landlord,
(provided mortgagee, purchaser or Landlord provides Tenant a non disturbance
agreement for the balance of tenant's lease) a certificate in recordable form
satisfactory to the requesting party, signed by a duty authorized officer of
Tenant, certifying (if such be the case) that this lease is in full force and
effect and that there are no defenses or offsets thereto or modifications
thereof, or stating those claimed by Tenant, and providing also such additional
information concerning the status or conditions of this lease and the rental
payments hereunder and agreements regarding notification of lease cancellation
or other matters as may reasonably be requested by Landlord or such mortgagee or
purchaser. Any failure of Tenant to comply within such ten (10) day period shall
be deemed a material breach of this lease, and it is intended that any statement
delivered hereunder may be relied upon by any prospective purchaser of the
leased premises or interest therein, or any holder or prospective holder of a
mortgage of the fee title of the premises or premises of which they are a part
or interest therein, or any assignee of any such mortgage or any landlord in any
sale-leaseback of the Complex or part thereof or interest therein.
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SECTION 30.02. Attornment. Tenant shall, if requested at any time, by a
first mortgagee of the premises, or by Landlord's landlord or other party
through whom Landlord's rights in the premises are derived in the event of the
termination of Landlord's estate in the premises, or in the event any
proceedings are brought for the foreclosure of, or in the event of exercise of
the power of sale under, any mortgage made by the Landlord covering the leased
premises, attorn to the purchaser upon any such foreclosure or sale or to such
other party and recognize such purchase or other party as the Landlord under
this lease.
ARTICLE XXXI
NOTICES
SECTION 31.01. Manner and Place of Service. Wherever in this lease it
shall be required or permitted that notice or demand be given or served by
either party to this lease to or on the other, such notice or demand shall not
be deemed to have been duly given or served unless in writing and either
personally delivered or forwarded by registered or certified mail, postage
prepaid, addressed to:
the Landlord, Sycamore Street Associates,
c/o Allan H. Smith, Real Estate Ltd.
P.O. Box 529
301 South State Street
Newtown, Pa. 18940
with a copy to Craig A. Smith, Esq.
P.O. Box 39
Newtown, Pennsylvania 18940
and addressed to the Tenant at said Tenant's address set forth on the first page
of this lease with a copy to:
Daniel J. O'Donnell, Esq.,
Destribats, Campbell, DeSantis, Magee & O'Donnell
247 White Horse Avenue
Trenton, New Jersey 08610
ARTICLE XXXII
INTERPRETATION
SECTION 32.01. Entire Agreement. This lease, and the exhibits, riders,
schedules or addenda, if any, attached hereto, constitute the entire agreement
between the parties, and any prior conversations or writings are deemed merged
herein and thereby extinguished and of no further force and effect, and there
are no covenants, promises, agreements, conditions or understandings either oral
or written, between the parties to this lease other than those herein set forth.
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SECTION 32.02. Amendment. Except as herein may be otherwise provided, no
subsequent alteration, amendment, change or addition to this lease shall be
binding upon Landlord or Tenant unless reduced to writing and signed by them.
SECTION 32.03. Captions. The captions, headings, article and section
numbers, and index appearing in this lease have been inserted only for
convenience of reference and are not intended in any way to define, limit,
construe, or circumscribe the scope or intent of the sections or articles
designated thereby nor in any way to affect this lease.
SECTION 32.04. Controlling Law. This lease, and the exhibits, riders,
schedules or addenda, if any, attached hereto, are to be interpreted and
construed according to the laws and statutes of the Commonwealth of
Pennsylvania.
SECTION 32.05 Venue. The parties agree that for any cause of action
brought by virtue of or arising under the terms of this lease, either equitable
or at law, venue shall be only in the Court of Common Pleas of Bucks County,
Pennsylvania.
SECTION 32.06. Negation to Personal Liability. Notwithstanding anything
contained herein to the contrary, Tenant agrees that Landlord and its partners
shall have no personal liability with respect to any of the provisions of this
lease and Tenant shall look solely to the estate and property of Landlord in the
land and buildings comprising the Complex of which the demised premises forms a
part for the satisfaction of Tenant's remedies, including without limitation,
the collection of any judgment or the enforcement of any other judicial process
requiring the payment or expenditure of money by Landlord or its partners in the
event of any default or breach by Landlord with respect to any of the terms and
provisions of this lease to be observed and/or performed by Landlord, subject,
however, to the prior rights of any holder of any Mortgage covering all or part
of the Complex, and no other assets of Landlord or any principal or partner of
Landlord shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim and in the event Tenant obtains a judgment
against Landlord, and/or its partners the judgment docket shall be so noted.
This Section shall inure to the benefit of Landlord's successors and assigns and
their respective partners and/or principals.
ARTICLE XXXIII
BROKERAGE COMMISSIONS
SECTION 33.01. Tenant's Warranty. Tenant warrants and represents to
Landlord that Tenant has dealt with no brokers in connection with this lease and
that the premises being leased hereunder was not called to Tenant's attention
by any broker, other than Allan H. Smith Real Estate Ltd.,whose commission will
be paid by Landlord. Tenant agrees to be responsible for and to indemnify and
save Landlord harmless from and against any claim for a commission or other
compensation by any broker claiming to have negotiated with tenant with respect
to the premises leased hereunder or to have called the said premises to Tenants
attention.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals the day and year first above
written.
29
<PAGE>
(TENANT) YARDVILLE NATIONAL BANK
By:_____________________________
Patrick M. Ryan, Pre/CEO
Attest:
(CORPORATE SEAL (if applicable)]
SYCAMORE STREET ASSOCIATES:
By:_____________________________
30
<PAGE>
Yardville National Bancorp Subsidiaries Exhibit 21
- - --------------------------------------------------------------------------------
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)
- - --------------------------------------------------------------------------------
5 Brendan, Inc.
(wholly-owned subsidiary of Bank)
- - --------------------------------------------------------------------------------
6 YNB Financial, Inc.
(wholly-owned subsidiary of Bank)
- - --------------------------------------------------------------------------------
7 Nancy-Beth, Inc.
(wholly-owned subsidiary of Bank)
- - --------------------------------------------------------------------------------
8 YNB Realty, Inc.
(wholly-owned subsidiary of Bank)
- - --------------------------------------------------------------------------------
9 Jim Mary, Inc.
(wholly-owned subsidiary of Bank)
- - --------------------------------------------------------------------------------
<PAGE>
Independent Auditors' Consent
The Board of Directors
Yardville National Bancorp:
We consent to incorporation by reference in the registration statements (No.
33-98076, No. 333-28193 and No. 333-71741) on Form S-8 of Yardville National
Bankcorp of our report dated January 22, 1999, relating to the consolidated
statements of condition of Yardville National Bancorp and subsidiaries as of
December 31, 1998 and 1997, 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, 1998, which report is incorporated by reference in the
December 31, 1998 annual report on Form 10-K of Yardville National Bancorp.
KPMG LLP
Princeton, New Jersey
March 29, 1999
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