<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
For transition period from
Commission File Number: 0-26086
YARDVILLE NATIONAL BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2670267
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3111 Quakerbridge Road, Mercerville, New Jersey 08619
------------------------------------------------------
(Address of principal executive offices)
(609) 585-5100
------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 12, 1999
Common Stock, no par value 6,621,522
- -------------------------- ----------------------------
Class Number of shares outstanding
1
<PAGE>
INDEX
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES
PART 1 FINANCIAL INFORMATION PAGE NO.
- --------------------------------------------------------------------------------
Item 1. Financial Statements
Consolidated Statements of Condition
September 30, 1999 and December 31, 1998
Consolidated Statements of Income
Three months ended September 30, 1999 and 1998
Consolidated Statements of Income
Nine months ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
PART 2 OTHER INFORMATION
- -------------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 27.1 Financial Data Schedule
2
<PAGE>
Item 1. Financial Statements
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
- -----------------------------------------------------------------------------------------------------------
(in thousands, except for share data) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 16,476 $ 16,246
Federal funds sold 15,385 280
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents 31,861 16,526
- -----------------------------------------------------------------------------------------------------------
Interest bearing deposits with banks 806 733
Securities available for sale 279,580 185,577
Investment securities (market value of $105,906 in 1999 and
$36,203 in 1998) 111,190 36,111
Loans 599,839 491,649
Less: Allowance for loan losses (8,357) (6,768)
- -----------------------------------------------------------------------------------------------------------
Loans, net 591,482 484,881
Bank premises and equipment, net 8,197 6,251
Other real estate 4,696 4,957
Other assets 27,830 22,630
- -----------------------------------------------------------------------------------------------------------
Total Assets $1,055,642 $ 757,666
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits
Non-interest bearing $ 83,735 $ 75,426
Interest bearing 590,150 444,217
- -----------------------------------------------------------------------------------------------------------
Total Deposits 673,885 519,643
- -----------------------------------------------------------------------------------------------------------
Borrowed funds
Securities sold under agreements to repurchase 86,088 87,120
Federal Home Loan Bank advances 214,299 89,316
Obligation to Employee Stock Ownership Plan (ESOP) 1,700 --
Other 1,312 1,452
- -----------------------------------------------------------------------------------------------------------
Total Borrowed Funds 303,399 177,888
Company - obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trust holding solely junior
Subordinated Debentures of the Company 11,500 11,500
Other liabilities 8,455 7,879
- -----------------------------------------------------------------------------------------------------------
Total Liabilities $ 997,239 $ 716,910
- -----------------------------------------------------------------------------------------------------------
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 6,917,794 in 1999
and 5,138,474 shares in 1998 40,052 20,364
Surplus 2,205 2,205
Undivided profits 25,827 21,479
Treasury stock, at cost, 172,000 shares in 1999 and
170,300 shares in 1998 (3,030) (3,008)
Unallocated ESOP shares (1,700) --
Accumulated other comprehensive income (4,951) (284)
- -----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 58,403 40,756
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,055,642 $ 757,666
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except for share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 12,126 $ 9,922
Interest on deposits with banks 9 76
Interest on securities available for sale 4,359 2,791
Interest on investment securities:
Taxable 1,310 192
Exempt from Federal income tax 351 165
Interest on Federal funds sold 218 63
- --------------------------------------------------------------------------------------------------------------------
Total Interest Income 18,373 13,209
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings account deposits 1,286 1,320
Interest on certificates of deposit of $100,000 or more 671 352
Interest on other time deposits 4,387 3,146
Interest on borrowed funds 3,868 2,371
Interest on trust preferred securities 266 266
- --------------------------------------------------------------------------------------------------------------------
Total Interest Expense 10,478 7,455
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income 7,895 5,754
Less provision for loan losses 1,000 500
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 6,895 5,254
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 349 317
Gains on sales of mortgages, net 5 11
Securities gains, net -- 24
Other non-interest income 427 444
- --------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 781 796
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,602 2,120
Occupancy expense, net 333 286
Equipment expense 396 320
Other non-interest expense 1,263 1,186
- --------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 4,594 3,912
- --------------------------------------------------------------------------------------------------------------------
Income before income tax expense 3,082 2,138
Income tax expense 882 730
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 2,200 $ 1,408
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic $ 0.33 $ 0.28
Diluted $ 0.33 $ 0.28
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 6,621 4,970
Diluted 6,648 5,013
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except for share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 34,201 $ 28,064
Interest on deposits with banks 37 159
Interest on securities available for sale 10,830 7,845
Interest on investment securities:
Taxable 2,925 650
Exempt from Federal income tax 936 402
Interest on Federal funds sold 612 201
- --------------------------------------------------------------------------------------------------------------------
Total Interest Income 49,541 37,321
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings account deposits 3,568 3,822
Interest on certificates of deposit of $100,000 or more 1,785 992
Interest on other time deposits 12,426 8,750
Interest on borrowed funds 9,552 6,348
Interest on trust preferred securities 798 798
- --------------------------------------------------------------------------------------------------------------------
Total Interest Expense 28,129 20,710
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income 21,412 16,611
Less provision for loan losses 2,400 1,400
- --------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 19,012 15,211
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 974 937
Gains on sales of mortgages, net 35 36
Securities gains, net 18 70
Other non-interest income 1,237 1,173
- --------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 2,264 2,216
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 7,330 6,060
Occupancy expense, net 967 781
Equipment expense 1,125 938
Other non-interest expense 3,845 3,310
- --------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 13,267 11,089
- --------------------------------------------------------------------------------------------------------------------
Income before income tax expense 8,009 6,338
Income tax expense 2,265 2,214
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 5,744 $ 4,124
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic $ 0.99 $ 0.82
Diluted $ 0.98 $ 0.81
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 5,810 5,034
Diluted 5,837 5,077
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
Yardville National Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
- --------------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $5,744 $ 4,124
Adjustments:
Provision for loan losses 2,400 1,400
Depreciation 822 682
Amortization and accretion 444 645
Gains on sales of securities available for sale (18) (70)
Loss on sales of other real estate 1 5
Write down of other real estate 304 337
Increase in other assets (2,688) (4,572)
Increase in other liabilities 576 976
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 7,585 3,527
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest bearing deposits with banks (73) 859
Purchase of securities available for sale (138,075) (121,627)
Maturities, calls, and paydowns of securities available for sale 25,519 60,271
Proceeds from sales of securities available for sale 11,014 28,693
Proceeds from maturities and paydowns of investment
securities 2,664 7,361
Purchase of investment securities (77,810) (8,670)
Net increase in loans (109,952) (76,970)
Expenditures for bank premises and equipment (2,768) (1,601)
Proceeds from sale of other real estate 908 258
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (288,573) (111,426)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in non-interest bearing demand,
money market, and savings deposits 29,164 9,042
Net increase in certificates of deposit 125,078 55,585
Net increase in borrowed funds 125,511 44,555
Proceeds from issuance of common stock 19,688 330
Increase in unallocated ESOP shares (1,700) --
Treasury shares acquired (22) (3,008)
Dividends paid (1,396) (1,078)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 296,323 105,426
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 15,335 (2,473)
Cash and cash equivalents as of beginning of period 16,526 20,423
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents as of End of Period $31,861 $ 17,950
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest expense 27,227 19,704
Income taxes 2,938 2,604
- --------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Transfers to other real estate from loans, net of charge offs 951 2,513
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE>
Yardville National Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
Three and Nine Months Ended September 30, 1999
(Unaudited)
1. Summary of Significant Accounting Policies
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 as of the date of the balance sheet
and revenue 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 reserve of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and other
real estate, management obtains independent appraisals for significant
properties.
The consolidated financial data as of and for the three and nine months ended
September 30, 1999 includes, in the opinion of management, all adjustments,
consisting of only normal recurring accruals necessary for a fair presentation
of such periods. The consolidated financial data for the interim periods
presented is not necessarily indicative of the result of operations that might
be expected for the entire year ending December 31, 1999.
Consolidation
The consolidated financial statements include the accounts of Yardville National
Bancorp (the "Holding Company") and its subsidiaries, Yardville Capital Trust
(the "Trust") and The Yardville National Bank (the "Bank"), and the Bank's
wholly owned subsidiaries, Yardville National Investment Corporation, Brendan,
Inc., Nancy Beth, Inc., Jim Mary, Inc., Yardville Real Estate Holding Co., Inc,
YNB Financial Services, Inc., YNB Realty Inc., and YNB Capital Development
(collectively, "YNB"). All significant inter-company accounts and transactions
have been eliminated. Brendan, Inc., Nancy Beth, Inc. and Jim Mary, Inc. are
utilized for the control and disposal of other real estate properties. Yardville
Real Estate Holding Co., Inc. is utilized to hold Bank branch properties, YNB
Financial Services, Inc., provides alternative investment services, and YNB
Realty, Inc., a real estate investment trust, is utilized to more effectively
manage a portion of the Bank's real estate related loans. YNB Capital
Development is utilized for nontraditional lending opportunities.
Allowance for Loan Losses
The provision for loan losses charged to operating expense is determined by
management and 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
7
<PAGE>
management's estimates, and actual losses may vary from these estimates. These
estimates are reviewed and adjustments, as they become necessary, are reported
in the periods in which they become known. Management believes that the
allowance for loan losses is adequate. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions, particularly in New
Jersey. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and the valuation of other real estate. Such agencies may require the Bank to
recognize additions to the allowance or adjustments to the carrying value of
other real estate based on their judgement about information available at the
time of their examination.
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, a statutory business trust and a
wholly owned subsidiary of the Holding Company, issued $11,500,000 of 9.25%
Trust Preferred Securities to the public and $356,000 of 9.25% Common Securities
to the Holding Company. 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 the Holding Company. The
Trust exists for the sole purpose of issuing Trust Preferred Securities and
investing the proceeds in Subordinated Debentures of the Holding Company. These
Subordinated Debentures constitute the sole assets of the Trust.
2. Earnings Per Share
Weighted average shares for the basic net income per share calculation for the
three months ended September 30, 1999 and 1998 were 6,621,000 and 4,970,000
respectively. For the diluted net income per share computation, potential common
stock of 27,000 and 43,000 are included for the three months ended September 30,
1999 and 1998, respectively.
Weighted average shares for the basic net income per share calculation for the
nine months ended September 30, 1999 and 1998 were 5,810,000 and 5,034,000
respectively. For the diluted net income per share computation, potential common
stock of 27,000 and 43,000 are included for the nine months ended September 30,
1999 and 1998, respectively.
8
<PAGE>
3. Comprehensive Income
Listed below is the statement of comprehensive income for three and nine months
ended September 30, 1999 and 1998.
Comprehensive Income Three Months Ended September 30,
-------------------------------------------------------------------------------
(in thousands) 1999 1998
- ------------------ -------------------------------------------------------------
Net Income $ 2,200 $ 1,408
-------------------------------------------------------------------------------
Other comprehensive income
Net change in unrealized (loss) gain
for the period, net of tax (1,106) 762
Reclassification of realized net gain
on sale of securities available
for sale, net of tax -- 16
-------------------------------------------------------------------------------
Holding (loss) gain arising during the
period, net of tax and reclassification (1,106) 778
-------------------------------------------------------------------------------
Reclassification adjustment for realized net
gain, net of tax -- (16)
-------------------------------------------------------------------------------
Other comprehensive income for the period,
net of tax (1,106) 762
-------------------------------------------------------------------------------
Total comprehensive income $ 1,094 $ 2,170
-------------------------------------------------------------------------------
Comprehensive Income Nine Months Ended September 30,
-------------------------------------------------------------------------------
(in thousands) 1999 1998
-------------------------------------------------------------------------------
Net Income $ 5,744 $ 4,124
-------------------------------------------------------------------------------
Other comprehensive income
Net change in unrealized (loss) gain
for the period, net of tax (4,667) 460
Reclassification of realized net gain on
sale of securities available for sale,
net of tax 12 46
-------------------------------------------------------------------------------
Holding (loss) gain arising during the
period, net of tax and reclassification (4,655) 506
-------------------------------------------------------------------------------
Reclassification adjustment for realized
net gain, net of tax (12) (46)
-------------------------------------------------------------------------------
Other comprehensive income for the period,
net of tax (4,667) 460
-------------------------------------------------------------------------------
Total comprehensive income $ 1,077 $ 4,584
-------------------------------------------------------------------------------
4. Employee Stock Ownership Plan
The Bank established an Employee Stock Ownership Plan and related trust ("ESOP")
for eligible employees. The ESOP is a tax-qualified plan subject to the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA).
Employees with twelve months of employment with the Bank and who have worked at
least 1,000 hours are eligible to participate. The ESOP borrowed $2,000,000 from
an unaffiliated financial institution and purchased 155,340
9
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shares of common shares, no par value, of the Holding Company. Shares purchased
by the ESOP are held in a suspense account pending allocation among participants
as the loan is repaid.
Compensation expense is recognized based on the fair value of the stock when it
is committed to be released. Compensation expense amounted to $87,000 for the
three months and $262,000 for the nine months ended September 30, 1999. The fair
value of unearned shares at September 30, 1999 is $1,777,000.
Unallocated shares are deducted from common shares outstanding for earnings per
share purposes with shares which are committed to be released during the year
added back into weighted average shares outstanding.
10
<PAGE>
YARDVILLE NATIONAL BANCORP AND SUBSIDIARIES (YNB)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This financial review presents management's discussion and analysis of the
financial condition and results of operations. It should be read in conjunction
with the 1998 Annual Report to stockholders and Form 10-K for the fiscal year
ended December 31, 1998 as well as with the unaudited consolidated financial
statements and the accompanying notes in this Form 10-Q.
This Form 10-Q 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, and financial and other
goals. Actual results may differ materially from those expected 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 U.S. Securities and Exchange
Commission.
Financial Condition
Assets
Total consolidated assets at September 30, 1999 were $1,055,642,000, an increase
of $297,976,000 or 39.3% compared to $757,666,000 at December 31, 1998. The
growth in YNB's asset base, during the nine months of 1999, was primarily due to
increases in loans (primarily commercial loans), available for sale securities,
and investment securities. The increase in the loan portfolio was the product of
an ongoing consistent strategy to improve the profitability of the organization
through relationship banking and of consolidation in YNB's market place.
Management anticipates continued loan opportunities due to this consolidation.
YNB's asset base includes US agency securities of approximately $236,800,000
purchased utilizing primarily repurchase agreements and Federal Home Loan Bank
advances (Investment Growth Strategy). The Investment Growth Strategy at
September 30, 1999 increased $94,600,000 or 66.5% from the reported total of
$142,200,000 at December 31, 1998. The primary goals of the Investment Growth
Strategy, improving return on equity and earnings per share, continue to be
achieved.
11
<PAGE>
Federal funds sold
At September 30, 1999 Federal funds sold totaled $15,385,000 compared to
$280,000 at December 31, 1998. Average Federal funds sold for the nine months of
1999 was $16,793,000 compared to $4,826,000 for the same period in 1998. The
higher amount of Federal funds sold at September 30, 1999 was due to increased
certificate of deposit (CD) balances raised to fund loan growth and effectively
manage liquidity. Management remains focused on maintaining adequate liquidity
to fund loan growth and to improve the liquidity profile of YNB.
Securities
The following tables present the amortized cost and market value of YNB's
securities portfolios as of September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
Available For Sale Securities September 30, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agency securities 120,499 116,652 $ 55,051 $ 55,039
Mortgage-backed securities 146,531 141,888 120,410 119,986
Corporate obligations 2,717 2,590 2,867 2,867
All other securities 17,450 17,450 7,685 7,685
- -------------------------------------------------------------------------------------------------------------------
Total $ 287,197 279,580 $ 186,013 $ 185,577
- -------------------------------------------------------------------------------------------------------------------
Investment Securities September 30, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government
Agencies 73,184 69,808 $ 4,994 $ 4,935
Obligations of state and
political subdivisions 30,370 28,647 20,773 20,982
Mortgage-backed securities 7,636 7,451 10,344 10,286
- -------------------------------------------------------------------------------------------------------------------
Total $ 111,190 105,906 $ 36,111 $ 36,203
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities represented 36.9% of total assets at September 30, 1999 and 29.3% at
December 31, 1998. Total securities increased $169,082,000 or 76.3% at September
30, 1999 to $390,770,000, compared to $221,688,000 at year-end 1998. The
available for sale portfolio represents 71.5% of the total security holdings of
YNB at September 30, 1999, compared to 83.7% at year-end 1998.
The net unrealized loss on available for sale securities as of September 30,
1999 was $8,617,000 compared to a net unrealized loss of $436,000 at December
31, 1998. Net unrealized loss, net of tax effect, totaling $4,951,000 was
reported in Accumulated Other Comprehensive Income in Stockholders' Equity at
September 30, 1999, compared to a net unrealized loss of $284,000 reported at
December 31, 1998. The increase in the unrealized loss on available for sale
12
<PAGE>
securities is primarily due to the rise in interest rates from December 31, 1998
to September 30, 1999 and the increased size of the available for sale
securities portfolio.
Securities available for sale increased $94,003,000 or 50.7% at September 30,
1999 when compared to the December 31, 1998 balance of $185,577,000. The largest
area of increase was in U.S. Treasury and U.S. agency bonds, which increased
$61,613,000 and was the major factor for the increase in securities available
for sale. This increase was primarily comprised of an increase of $8,522,000 in
US treasury bonds and a $43,542,000 increase in shorter-term callable agency
bonds purchased to improve the liquidity profile of YNB. The callable agency
bonds have maturity terms of 5 years or less. Another category of significant
growth was in mortgage backed securities which increased $21,902,000 net of
paydowns. This growth was almost entirely related to the Investment Growth
Strategy and includes $30,912,000 in floating rate US agency collaterlized
mortgage obligations. All other securities increased $9,765,000 or 127.1% and
were the result of required purchases of Federal Home Loan Bank stock related to
borrowings.
Investment securities increased $75,079,000 or 207.9% to $111,190,000 at
September 30, 1999 from $36,111,000 at December 31, 1998. The increase was due
to a $68,190,000 increase in U.S. agency callable bonds primarily related to the
Investment Growth Strategy and a $9,597,000 increase in tax free municipal
bonds. Offsetting these increases was a $2,708,000 reduction in mortgage-backed
securities reflecting paydowns.
The Investment Growth Strategy increased $94,600,000 over the year-end 1998
level. The largest increase was in US agency callable bonds, which increased
$70,190,000 and accounted for 74.2% of the total increase. The next largest
growth was in floating rate US agency collateralized mortgage obligations that
increased $29,450,000. Modest growth was also recorded in fixed rate mortgage
backed securities, up $1,819,000 net of paydowns. Offsetting these increases,
was a $6,878,000 decrease in adjustable rate mortgage backed securities. At
September 30, 1999, the Investment Growth Strategy portfolio was comprised of
78.1% of fixed rate securities and 21.9% of adjustable or floating rate
securities compared to 79.4% fixed rate securities and 20.6% adjustable rate
securities at year end 1998.
Loans
Total loans, net of unearned income, increased $108,190,000 or 22.0% at
September 30, 1999 to $599,839,000 from $491,649,000 at December 31, 1998. This
growth reflects favorably when compared to the $73,716,000 in loan growth for
the same period of 1998. YNB's loan portfolio represented 56.8% of total assets
at September 30, 1999 compared to 64.9% at December 31, 1998. YNB's lending
focus continues to be on commercial and industrial loans, and commercial real
estate loans. The consolidation in YNB's market place and management's
philosophy of relationship banking are key factors in continued strong loan
growth. Strong competition from both bank and nonbank competitors could result
in comparatively lower yields on new and established lending relationships. In
addition, borrowers' concerns over the economy, real estate prices and interest
rates could all be factors in future loan growth levels. Management anticipates
continued loan growth for the fourth quarter of 1999. Continued profitable loan
13
<PAGE>
growth is a key factor in meeting earnings growth goals. In May 1999, the
Holding Company sold 1,610,000 shares of its common stock in a public offering,
raising $17,620,000, net of expenses. This capital offering has resulted in an
increase in the legal lending limit of the Bank and will allow for increased
lending to existing customers as well as the ability to compete for larger loan
relationships.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(in thousands) 9/30/99 12/31/98 Change % change
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate $ 217,771 $ 166,725 $ 51,046 30.6%
Real estate - mortgage
Residential 105,505 93,540 11,965 12.8
Home equity 23,264 23,474 (210) (0.9)
Commercial and industrial 149,753 133,263 16,490 12.4
Real Estate - construction 69,719 38,386 31,333 81.6
Consumer 25,567 24,531 1,036 4.2
Other loans 8,260 11,730 (3,470) (29.6)
- ---------------------------------------------------------------------------------------------
Total loans $ 599,839 $ 491,649 $ 108,190 22.0%
=============================================================================================
</TABLE>
The table above lists the loan growth by type for the period of December 31,
1998 to September 30, 1999. Commercial real estate loans had the greatest
growth, increasing $51,046,000 or 30.6%, and accounted for 47.2% of the increase
in total loans. Real estate construction loans increased $31,333,000 or 81.6%
and accounted for 29.0% of the increase in total loans. All other loan
categories increased with the exception of home equity lines and other loans,
which decreased $210,000 and $3,470,000 respectively. YNB continues to generate
significant strong loan growth, particularly commercial loans, due to several
reasons. First, management's focus on commercial lending has resulted in YNB's
growing reputation as a business lender in our market place. This growing
reputation, combined with the consolidation in the market place, has offered YNB
the opportunity to generate new and larger loan relationships than have been
available in the past. Second, YNB continues to offer competitive rates on both
fixed and floating rate loans.
Liabilities
The following table provides information concerning YNB's deposit base at
September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(in thousands) 9/30/99 12/31/98 Change % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand
deposits $ 83,735 $ 75,426 $ 8,309 11.0%
Interest bearing demand deposits 61,486 51,672 9,814 19.0
Money market deposits 50,794 44,661 6,133 13.7
Savings deposits 82,445 77,537 4,908 6.3
Certificates of deposit of $100,000
or over 62,865 29,525 33,340 112.9
Other time deposits 332,560 240,822 91,738 38.1
- ------------------------------------------------------------------------------------------
Total $ 673,885 $ 519,643 $ 154,242 29.7%
==========================================================================================
</TABLE>
YNB's deposit base is the principal source of funds supporting interest-earning
assets. Total deposits increased $154,242,000 or 29.7% to $673,885,000 at
14
<PAGE>
September 30, 1999 compared to $519,643,000 at December 31, 1998. Certificates
of deposit were competitively priced throughout the nine months of 1999 to fund
new loan growth and improve liquidity. Growth in YNB's deposit base in 1999
continued to be principally in certificates of deposit. Certificates of deposit
of $100,000 or over increased $33,340,000 or 112.9% to $62,865,000 from
$29,525,000 and accounted for 21.6% of the total deposit growth for the period.
Other time deposits increased $91,738,000 or 38.1% to $332,560,000 from
$240,822,000 at December 31, 1998. Growth in certificates of deposit accounted
for 81.1% of the total increase in deposits for the nine months of 1999. This
growth rate has resulted in certificates of deposit increasing to 58.7% of total
deposits at September 30, 1999 from 52.0% at year-end 1998. In March of 1998,
YNB began to market its certificates of deposit through a nationwide computer
based service. This service allows YNB to have access to a wider market to raise
needed funding. At September 30, 1999, YNB had $75,380,000 in outstanding
certificates of deposit raised through this service. This includes $50,980,000
raised in the nine months of 1999. Management anticipates that this market will
continue to play an important role in funding future asset growth.
Noninterest bearing demand deposits increased $8,309,000 or 11.0% to $83,735,000
as of September 30, 1999 when compared to $75,426,000 at December 31, 1998. This
increase is partially due to the normal fluctuations in demand deposit balances
but also reflects management's ongoing efforts to capture the deposit
relationships of both new and existing customers.
Interest bearing demand deposits increased $9,814,000 or 19.0% to $61,486,000 at
September 30, 1999 from $51,672,000 at year-end 1998. This growth resulted from
management's effort to attract lower cost deposits to fund earning asset growth.
This includes marketing efforts with bonus certificates of deposit rates for
customers who open new interest bearing demand accounts and increased efforts on
cross selling lower cost deposit accounts to certificate of deposit customers.
This effort to attract lower cost deposits is also reflected in the $4,908,000
or 6.3% increase in savings deposits, which totaled $82,445,000 at September 30,
1999, compared to $77,537,000 at year-end and in the $6,133,000 or 13.7%
increase in money market balances to $50,794,000 at September 30, 1999 from
$44,661,000 at December 31, 1998.
While it is management's desire to fund earning asset growth with the lowest
cost deposits, core deposit growth levels, excluding certificates of deposit,
are not adequate to meet current or projected loan demand. YNB's ability to
generate lower cost deposits is critical to achieving earnings targets and the
increasing relevance on higher cost certificates of deposit to fund asset growth
is a major factor in the continued pressure on YNB's net interest margin.
YNB continues to seek lower cost funding sources. One source is opening new
branches to serve a wider market area. In April 1999, YNB opened its 11th
branch, which is located in Newtown, Bucks County, Pennsylvania. This branch
opens a new market for YNB. Bucks County, Pennsylvania is located directly
across the Delaware River from Mercer County, New Jersey, where all of YNB's
other branches are currently located. In addition, a second new branch will open
15
<PAGE>
in November 1999. This branch will be located in the YNB Corporate headquarters
building. The headquarters building is to be located in Hamilton Township,
Mercer County New Jersey. There are also plans to open a branch in Burlington
County, New Jersey which is located directly south of Mercer County in the first
quarter of the year 2000. We expect these new branches will improve YNB's
ability to generate lower cost deposits and create additional lending
opportunities. With the consolidation in YNB's market place, additional
opportunities for new branches in both Pennsylvania and New Jersey are possible
and management will evaluate these opportunities for new branches if they become
available.
Borrowed Funds
Borrowed funds totaled $303,399,000 at September 30, 1999, an increase of
$125,511,000 or 70.6% when compared to $177,888,000 at December 31, 1998. The
majority of this funding has been in callable FHLB advances utilized to extend
funding duration and reduce YNB's exposure to rising interest rates.
Approximately $236,088,000 or 77.8% of borrowed funds at September 30, 1999 are
related to the Investment Growth Strategy. The majority of the increase was in
Federal Home Loan Bank advances used to fund the purchase of Investment Growth
Strategy assets. Management continues to closely monitor the mix of funding used
to support the Investment Growth Strategy. As Investment Growth Strategy funding
matures or is called, management will replace it with funding that will reduce
the overall interest rate risk profile of YNB. This will be accomplished by
using callable FHLB advances with longer lockout terms, which have the benefit
of improving performance in a rising interest rate environment. Management
anticipates that funding costs associated with borrowed funds will increase as
shorter term repurchase agreement mature and callable funding at below market
rates are called. At September 30, 1999 $211,500,000 or 89.6% of the Investment
Growth Strategy funding was in callable funding compared to $76,500,000 or 81.2%
at December 31, 1998.
Securities sold under agreements to repurchase totaled $86,088,000 at September
30, 1999 compared to $87,120,000 at December 31, 1998. $61,500,000 or 71.4% of
the repurchase agreements outstanding at September 30, 1999 were callable
compared to $61,500,000 or 70.6% at December 31, 1998. Callable repurchase
agreements have terms of five to ten years and call dates of one year. There are
$31,500,000 in callable repurchase agreements that have passed their lockout
dates and these can be called every ninety days. With the recent rise in
interest rates, management anticipates that repurchase agreement costs will rise
as shorter-term repurchase agreements mature and below market rate callable
repurchase agreements are called and are replaced at higher market rates.
YNB had Federal Home Loan Bank of New York (FHLB) advances outstanding of
$214,299,000 at September 30, 1999 an increase of $124,983,000 or 139.9% when
compared to $89,316,000 at December 31, 1998. YNB continues to utilize callable
FHLB advances to fund both Investment Growth Strategy purchases as well as other
earning assets. During 1999, management has shifted Investment Growth Strategy
funding from shorter-term repurchase agreements into FHLB callable advances in
order to increase the duration of the funding. At September 30, 1999 callable
advances totaled $209,500,000 or 97.8% of advances outstanding compared to
$83,500,000 or 93.4% at December 31, 1998. Callable FHLB advances have terms of
ten years and are callable after periods ranging from one to five years. There
are $31,000,000
16
<PAGE>
in callable advances with call dates in 1999 which have passed their initial
lockout period and can be called every 90 days. Management anticipates that, if
rates continue to rise, some or all of these advances will be called and will
have to be replaced with higher costing advances.
The callable FHLB Advances and repurchase agreements have allowed YNB to lower
its borrowing costs, while at the same time extending the maturity of
borrowings. In the event that rates rise, the callable borrowings will be called
and will have to be replaced with higher costing funds. In the event of falling
interest rates, callable borrowings will not be called and could remain
outstanding until maturity.
Borrowed funds included $1,700,000 related to the ESOP. The ESOP purchased
155,340 shares of common stock of the Holding Company with a loan from a
nonaffiliated financial institution. The financing is for a term of five years
with an interest rate of 7.00% and a maturity date in 2004. The interest rate is
fixed for the period of the loan and the loan will be repaid in equal monthly
installments over the term of the loan. The shares purchased by the ESOP were
used as collateral for the loan. The Holding Company guarantees the repayment of
the loan.
YNB has the ability to borrow up to $37,845,000 from the FHLB through its line
of credit program, subject to collateral requirements. In addition, YNB is
eligible to borrow up to 30% of assets under the FHLB advance program subject to
FHLB stock requirements, collateral requirements and other restrictions. YNB
also maintains unsecured federal funds lines with four commercial banks totaling
$25,000,000 for daily funding needs. YNB's funding strategy is to rely on
deposits to fund new loan growth whenever possible and to rely on borrowed funds
as a secondary funding source for loans.
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, the holding company through the Trust, completed the sale
of $11,500,000, 9.25%, Trust Preferred Securities to the public. For regulatory
capital purposes the entire amount of the issue is treated as Tier 1 capital at
the Holding Company level.
Capital
On May 18, 1999, the Holding Company completed the sale of 1,610,000 shares of
its common stock in an underwritten public offering. The common stock was
offered at a price of $12.00 per share and generated gross proceeds of
$19,320,000. Net proceeds after the underwriting discount and other offering
costs was approximately $17,620,000. Of the net proceeds, $17,501,000 was
contributed to the Bank to support future asset growth.
Stockholders' equity at September 30, 1999 totaled $58,403,000, an increase of
$17,647,000 or 43.3% compared to $40,756,000 at December 31, 1998. This net
increase resulted from the following factors:
(i) Net income of $5,744,000 less cash dividend payments of $1,396,000.
17
<PAGE>
(ii) The unrealized loss on available for sale securities was $284,000 at
December 31, 1998 compared to an unrealized loss of $4,951,000 at
September 30, 1999. This shift resulted in a $4,667,000 reduction in
stockholders' equity.
(iii) Proceeds of $68,000 from exercised options, $2,000,000 from the
issuance of common shares to the ESOP and approximately $17,620,000
from the capital offering.
(iv) Repurchase of 1,700 shares of common shares for $22,000, which
increased treasury shares to 172,000 and the cost of total stock
repurchases to $3,030,000.
(v) Commitment to ESOP of $1,700,000, representing the balance of the
$2,000,000 loan used to finance the purchase of common stock by the
ESOP.
The improvement in the capital ratios from December 31, 1998 to September 30,
1999 was primarily due to the capital offering completed in May offset by the
strong asset growth in 1999. Management remains committed to keeping YNB a
well-capitalized institution under the prompt corrective action rules.
The following table sets forth regulatory capital ratios for the Holding Company
and the Bank as of September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
Amount Ratios
- ------------------------------------------------------------------------------------------
dollars in thousands 09/30/99 12/31/98 09/30/99 12/31/98
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-based capital:
Tier 1:
Holding Company $ 74,843 $ 52,531 11.1% 9.9%
Bank 74,697 50,948 11.1 9.6
- ------------------------------------------------------------------------------------------
Total:
Holding Company 83,200 59,151 12.3 11.2
Bank 83,055 57,590 12.3 10.8
- ------------------------------------------------------------------------------------------
Tier 1 leverage:
Holding Company 74,843 52,531 8.1 7.7
Bank $ 74,697 $ 50,948 8.0% 8.5%
- ------------------------------------------------------------------------------------------
</TABLE>
The minimum regulatory capital requirements for financial institutions require
institutions to have a Tier 1 leverage ratio of 4.0%; a Tier 1 risk-based asset
capital ratio of 4.0% and a total risked based capital ratio of 8.0%. To be
considered "well capitalized" an institution must have a minimum Tier 1 capital
and total risk-based capital ratio of 6.0% and 10.0%, respectively, and a
minimum Tier 1 leverage ratio of 5.0%. At September 30, 1999, the ratios of the
Holding Company and the Bank exceeded the ratios required to be considered well
capitalized.
On October 28, 1997, the Holding Company's Board of Directors authorized
management to repurchase up to 172,000 shares of the Holding Company's common
stock in the open market in compliance with Rule 10b-18 under the Securities
Exchange Act of 1934. As of September 30, 1999, as part of an overall capital
plan, 172,000 shares had been repurchased at an average price of $17.62.
18
<PAGE>
Credit Quality
The following table sets forth nonperforming assets and risk elements in YNB's
loan portfolio by type as of September 30, 1999 and December 31, 1998.
Nonperforming Assets
- ---------------------------------------------------------------------
(in thousands) 09/30/99 12/31/98
- ---------------------------------------------------------------------
Nonaccrual loans:
Commercial and industrial $ 656 $ 232
Real estate - mortgage 1,090 570
Real estate - construction -- 684
Consumer 15 31
Other 312 529
- ---------------------------------------------------------------------
Total 2,073 2,046
- ---------------------------------------------------------------------
Restructured loans 598 634
- ---------------------------------------------------------------------
Loans 90 days or more past due:
Commercial and industrial 62 --
Real estate - mortgage 384 1,093
Real estate - construction 26 --
Consumer 98 100
- ---------------------------------------------------------------------
Total 570 1,193
- ---------------------------------------------------------------------
Total nonperforming loans 3,241 3,873
- ---------------------------------------------------------------------
Other real estate 4,696 4,957
- ---------------------------------------------------------------------
Total nonperforming assets $ 7,937 $ 8,830
=====================================================================
At September 30, 1999, nonperforming loans, consisting of loans 90 days and more
past due, restructured loans and nonaccrual loans, totaled $3,241,000, a
$632,000 or 16.3% decrease from the $3,873,000 at December 31, 1998.
Nonperforming loans as a percentage of total loans were 0.54% compared to 0.79%
at year-end. This decline was caused by both a decrease in nonperforming loans
and an increase in loans outstanding.
Other real estate (O.R.E.) at September 30, 1999 totaled $4,696,000, a $261,000
or 5.3% decrease when compared to $4,957,000 at December 31, 1998. Management
uses an active strategy to liquidate these assets and re-deploy the proceeds
into earning assets. One other real estate property totaling $1,800,000 is under
contract of sale.
Nonperforming assets at September 30, 1999 totaled $7,937,000; a $893,000 or
10.1% decrease from the $8,830,000 level at December 31, 1998. Total
nonperforming assets as a percentage of total assets were 0.75% at September 30,
1999 compared to 1.17% at December 31, 1998. This decrease was due to a drop in
both nonperforming loans and other real estate as well as an increase in assets.
YNB continues to actively manage nonperforming assets with the goal of reducing
these assets in relationship to the total loan portfolio. Whenever possible,
existing nonperforming loan relationships are being restructured in an effort to
return these loans to performing status.
19
<PAGE>
Allowance for Loan Losses
The allowance for loan losses totaled $8,357,000 at September 30, 1999, an
increase of $1,589,000 from the $6,768,000 at year-end 1998. The provision for
loan losses for the nine months of 1999 was $2,400,000 compared to $1,400,000
for the same period of 1998. Gross chargeoffs were $879,000 for the nine months
of 1999 compared to $794,000 for the same period in 1998. Gross recoveries were
$68,000 for the nine months of 1999 compared to $43,000 for the same period in
1998. Annualized net chargeoffs as a percentage of average loans were 0.19% for
the nine months ended September 30, 1999 compared to 0.18% for the year ended
December 31, 1999.
Management maintains the allowance for loan losses at a level determined in
accordance with management's documented allowance adequacy methodology. It is
management's assessment, based on management's estimates, that the allowance is
adequate in relation to the credit risk exposure levels. One measure of the
adequacy of the allowance for loan losses is the ratio of allowance for loan
losses to total loans. This ratio was 1.39% at September 30, 1999 compared to
1.38% at December 31, 1998. Another measure of the adequacy of the allowance for
loan losses is the ratio of the allowance for loan losses to total nonperforming
loans. This ratio was 257.9% at September 30, 1999 compared to 174.7% at
December 31, 1998
Results of Operations
Net Income
YNB reported net income of $5,744,000 for the nine months ended September 30,
1999, an increase of $1,620,000 or 39.3% over the same period in 1998. The
increase in net income for the nine months ended September 30, 1999, compared to
the same period in 1998, is primarily attributed to higher net interest income,
offset by a higher provision for loan losses and increased non-interest expense.
Basic earnings per share for the nine months ended September 30, 1999 increased
$0.17 or 20.7% to $0.99 from $0.82 for the same period in 1998. Diluted earnings
per share increased $0.17 or 21.0% to $0.98 for the nine months ended September
30, 1999 from $0.81 for same period in 1998.
On a quarterly basis, net income for the third quarter of 1999 was $2,200,000,
an increase of $792,000 or 56.3% over the net income for the same period of
1998. On a per share basis, basic and diluted earnings per share for the third
quarter of 1999 were $0.33 an increase of $0.05 or 17.9% when compared to the
second quarter of 1998. The slower growth in earnings per share as compared to
net income is due to the higher average shares outstanding due to the recently
completed capital offering. The increase in net income and earnings per share
for the quarter is due to the reasons discussed above.
Net Interest Income
YNB's net interest income for the nine months of 1999 was $21,412,000, an
increase of $4,801,000 or 28.9% from the same period in 1998. The principal
factor contributing to this increase was an increase in interest income of
$12,220,000 resulting from increased loan and securities balances offset by an
20
<PAGE>
increase of $7,419,000 in interest expense. This increase in interest expense
was primarily due to higher volume of time deposits and borrowed funds.
The net interest margin (tax equivalent basis) which is net income divided by
average earning assets, for the nine months ended September 30, 1999, was 3.30%
a 31 basis point or 8.6% decline compared to 3.61% for the same period in 1998.
The principal factors causing the narrowing of the net interest margin were
lower yields on and increased levels of securities and loans, and higher volumes
of certificates of deposit and borrowed funds.
The net interest margin for the 1999 and 1998 comparative periods was also
negatively impacted by the Investment Growth Strategy. The targeted spread on
this strategy is 75 basis points after tax. Because of the targeted spread on
this strategy, there will be a negative impact to the net interest margin and
return on assets. The balance outstanding in the Investment Growth Strategy at
September 30, 1999, was approximately $236,800,000 compared to $153,293,000 at
September 30, 1998. Conversely, this strategy increases both return on average
equity and earnings per share, the primary goals of the strategy.
On a quarterly basis, net interest income was $7,895,000, an increase of
$2,141,000 or 37.2% when compared to the third quarter of 1998. The net interest
margin (tax equivalent basis) for the three months ended September 30, 1999 was
3.31%, a 22 basis point or 6.2% decrease from the same period in 1998. The
reasons for the decline are the same as discussed above.
Interest Income
For the nine months ended September 30, 1999 total interest income was
$49,541,000, an increase of $12,220,000 or 32.7% when compared to interest
income of $37,321,000 for the same period in 1998. This increase is due to
higher average balances in both loans and securities, which is partially offset
by lower yields on both earning asset types. Average loans increased
$120,646,000 or 28.4% while the yield declined 44 basis points to 8.35% from
8.79%. The decline in loan yields reflects strong competition for loans in YNB's
market as well as the overall lower interest rates in 1999 when compared to
1998. Interest and fees on loans for the nine months ended September 30, 1999
increased $6,137,000 or 21.9% to $34,201,000 from $28,064,000 for the same
period in 1998. Average securities outstanding for the nine months ended
September 30, 1999 increased $129,825,000 or 68.0% to $320,877,000 when compared
to the $191,052,000 for the same period of 1998. Over the same period, the yield
on the securities portfolio decreased 11 basis points to 6.10% from 6.21%. These
factors resulted in interest on securities increasing $5,794,000 or 65.1% to
$14,691,000 for the nine months ended September 30, 1999 compared to $8,897,000
for the same period in 1998. Overall, the yield on YNB's interest earning asset
portfolio decreased 49 basis points to 7.47% for the nine months ended September
30, 1999 from the 7.96% for the same period in 1998.
For the third quarter of 1999, total interest income was $18,373,000, an
increase of $5,164,000 or 39.1% when compared to the $13,209,000 for the third
quarter of 1998. The increase was due to higher average balances of both loans
and securities offset by lower yields on both asset types. The overall yield on
earning assets for the third quarter of 1999 was 7.52% a 40 basis point drop
from the 7.92% reported for the same period of 1998. The decline in yield was
21
<PAGE>
primarily due to the lower average prime rate of interest in 1999 when compared
to 1998 and the increased level of lower yielding securities.
Interest Expense
Total interest expense increased $7,419,000 or 35.8% to $28,129,000 for the
first nine months of 1999 compared to $20,710,000 for the same period in 1998.
The increase in interest expense for the comparable time periods resulted from a
larger deposit base, led by higher costing time deposits, and an increase in
borrowed funds. Offsetting these higher balances were lower rates on deposits
and borrowed funds. The average rate paid on interest bearing liabilities for
the nine months ended September 30, 1999 decreased 24 basis points to 4.75% from
4.99% for the same period of 1998.
Interest on other time deposits under $100,000 increased $3,676,000 to
$12,426,000 for the nine months ended September 30, 1999 from $8,750,000 for the
same period in 1998. This increase was caused by an increase in the average
outstanding balance of $103,250,000 to $306,118,000 for the nine months ended
September 30, 1999, when compared to the outstanding average balance of
$202,868,000 for the nine months ended September 30, 1998. Partially offsetting
this increase was a 34 basis point drop in the cost of time deposits under
$100,000 to 5.41% for the first nine months of 1999 from 5.75% for the same
period of 1998. Interest expense on certificates of deposit under $100,000
accounted for 44.2% of total interest expense for the period and 49.5% of the
total increase in interest expense for the nine months ended September 30, 1999
when compared to the same period in 1998. During the first nine months of 1999,
YNB offered attractive rates on CDs locally and nationwide to fund loan growth
and improve the liquidity profile of YNB.
Interest on certificates of deposit of $100,000 or more increased $793,000 to
$1,785,000 for the nine months ended September 30, 1999 from $992,000 for the
same period in 1998. This increase was caused by an increase in the average
outstanding balance of $21,999,000 to $46,416,000 for the nine months ended
September 30, 1999 when compared to the outstanding average balance of
$24,417,000 for the nine months ended September 30, 1998. Partially offsetting
this increase was a 29 basis point drop in the cost of time deposits of $100,000
or more to 5.13% for the nine months ended September 30, 1999 from the 5.42% for
the same period in 1998. YNB anticipates that certificates of deposit of
$100,000 or more will continue to play an important part in funding future
earning asset growth.
Interest expense on borrowed funds increased $3,204,000 to $9,552,000 for the
first nine months of 1999 when compared to $6,348,000 for the same period in
1998. The increase was caused by a $92,978,000 increase in the average balance
outstanding for the nine months ended September 30, 1999 when compared to the
same period in 1998. The rate paid on borrowed funds declined 38 basis points
for the nine months ended September 30, 1999 to 5.22% from the 5.60% for the
same period last year. The primary cause for the increase in interest expense on
borrowed funds is the higher level of borrowings used to fund the Investment
Growth Strategy. The shifting of borrowed funds out of fixed term products into
convertible products at lower interest rates and, to a lesser extent, lower
yields on term repurchase agreements, caused the overall decrease in rate.
22
<PAGE>
Total interest expense for the third quarter of 1999 increased $3,023,000 or
40.5% to $10,478,000 from $7,455,000 for the same period in 1998. The overall
cost of interest bearing liabilities decreased 22 basis points to 4.82% from
5.04% for the third quarter of 1998. The reasons for the increase in interest
expense for the third quarter are the same as discussed above.
While YNB seeks to fund asset growth with lower cost savings, money market,
interest bearing checking and non-interest bearing demand deposits, this is not
always possible, as asset growth rates continue to exceed the growth rate in
these deposit types. To meet the required funding needs, YNB anticipates
continued reliance on higher cost retail CDs and, to a lesser extent, borrowed
funds. The ability of YNB to continue to lower the cost of interest bearing
liabilities is dependent on market conditions. If interest rates should continue
to rise, YNB's interest expense will also increase.
Provision for Loan Losses
YNB provides for possible loan losses by a charge to current operations. The
provision for loan losses for the nine months ended September 30, 1999 was
$2,400,000, a 71.4% increase over the $1,400,000 provision recorded for the same
period of 1998. For the three months ended September 30, 1999 the provision for
possible loan losses was $1,000,000, a $500,000 or 100.0% increase from the
third quarter of 1998. The increase in the provision for both the quarter and
year to date comparisons was primarily due to the strong loan growth. Management
believes that the reserve for loan losses is adequate in relation to the credit
risk exposure levels.
Non-interest Income
Total non-interest income for the first nine months of 1999 was $2,264,000, an
increase of $48,000 or 2.2% over non-interest income of $2,216,000 for the same
period in 1998. The increase was primarily due to growth in other non-interest
income, offset by a decrease in the gains on sale of securities.
Other non-interest income increased $64,000 or 5.5% for the first nine months of
1999 compared to the same period in 1998. The increase is principally due to
additional income derived from bank owned life insurance assets, which totaled
$573,000 and represented a $49,000 or 9.4% increase over the $524,000 for the
same period last year and accounted for 76.6% of the increase in other
non-interest income. The increase is due to higher average balances of life
insurance assets offset by a lower yield. The income earned on these assets is
used to offset expenses on deferred compensation programs. Other categories of
non-interest income reflect modest growth due to the increased size of YNB.
For the three months ended September 30, 1999 total non-interest income
decreased $15,000 or 1.9%. Of particular importance was the drop in gains on
sale of securities, which decreased $24,000 or 100.0%. Excluding the impact of
this decline, the increase in total non-interest income would have been $9,000
or 1.2%.
23
<PAGE>
The ability of YNB to generate higher levels of non-interest income remains a
critical factor in increasing net income. Management continues to closely
evaluate both traditional and non-traditional sources of new non-interest income
as part of a longer-term strategy to increase earnings.
Non-interest Expense
Total non-interest expense increased $2,178,000 or 19.6% to $13,267,000 for the
first nine months 1999 compared to $11,089,000 for the same period in 1998. The
increase in non-interest expenses was due to increases in salary and employee
benefits, equipment expense, occupancy expense and other non-interest expense.
Total non-interest expenses, on an annualized basis, as a percentage of average
assets were 1.91% for the first nine months of 1999 compared to 2.22% for the
same period of 1998. The improvement in this ratio is due to the strong asset
growth in the first nine months of the year. YNB's efficiency ratio for the
first nine months of 1999 was 56.0%, a decrease from the 58.9% for the same
period in 1998. The efficiency ratio is computed by dividing total operating
expenses by net interest income and other income. An increase in the efficiency
ratio indicates that more resources are being utilized to generate the same or
greater volume of income while a decrease would indicate a more efficient
allocation of resources.
Salary and employee benefits increased $1,270,000 or 21.0% to $7,330,000 for the
first nine months of 1999 compared to $6,060,000 for the same period in 1998.
Salary and benefits expense accounted for 55.2% of total non-interest expenses
for the first nine months of 1999. Salary expense increased $778,000 or 13.7%
reflecting increased staffing levels associated with the Pennington and Newtown
branches, new hires in other areas of YNB, and normal salary increases. Benefit
expense increased $492,000 or 42.0%. In 1999, YNB created the ESOP for the
benefit of employees. The compensation expense portion of the ESOP was $262,000
and accounted for 53.3% of the increase in benefit expense and 20.6% of the
total increase in salary and employee benefits.
Equipment expense increased $187,000 or 19.9% to $1,125,000 for the first nine
months of 1999 from $938,000 for the same period in 1998. The equipment costs
increase reflects the continuing efforts of YNB to maintain and upgrade
technology in order to provide the highest quality service, increase
productivity, and address Year 2000 issues. Equipment costs included
depreciation on equipment, which totaled $661,000 for the first nine months of
1999 reflecting an increase of $139,000 or 26.6% from the $522,000 for the same
period in 1998. The increase in depreciation accounted for 74.3% of the total
increase in equipment expense.
Occupancy expense for the first nine months of 1999 was $967,000, an increase of
$186,000 or 23.8% compared to $781,000 for the same period in 1998. The increase
was primarily due to higher costs associated with the lease payments and other
operating costs of the Pennington and Newtown branches opened in August 1998 and
April 1999, respectively. Total rent expense on leased properties increased
$78,000 and accounted for 41.9% of the total increase for the period. Another
component of occupancy expense that had a significant increase was repairs and
maintenance, which increased $41,000. In October, YNB began to occupy its new
corporate headquarters building. The 45,000 square foot building will house all
the loan functions, senior management and a branch. The estimated monthly
24
<PAGE>
expenses associated with the building are approximately $90,000. This estimated
expense includes all lease costs, depreciation of leasehold improvements,
furniture and equipment and utility costs.
Other non-interest expenses increased $535,000 or 16.2% to $3,845,000 for the
first nine months of 1999 when compared to the $3,310,000 for the same period in
1998. The increase in other non-interest expenses accounted for 24.6% of the
increase in total non-interest expenses. Expenses, including write downs,
related to other real estate owned increased $224,000 or 99.1% for the nine
months ended September 30, 1999 when compared to the same period in 1998. This
increase accounted for 41.9% of the increase in other non-interest expense and
10.3% of the total increase in non-interest expense. Marketing expenses
increased $161,000 or 40.6% to $558,000 for the nine months ended September 30,
1999 when compared to the same period last year. This increase reflects the
higher costs associated with increased marketing efforts related to attracting
deposits and increased costs of marketing to the wider market area now serviced
by YNB.
For the three months ended September 30, 1999 total non-interest expense
increased $682,000 or 17.4% to $4,594,000 from $3,912,000 for the same period in
1998. Total non-interest expense, on an annualized basis, as a percentage of
average assets was 1.80% for the three months ended September 30, 1999 compared
to 2.20% for the same period in 1998. YNB's efficiency ratio for the three
months ended September 30, 1999 was 52.95, an improvement over the 59.73% for
the same period in 1998. Salary and employee benefit expense increased $482,000
or 22.7% to $2,602,000 from $2,120,000 for the same period in 1998. The increase
in salary and employee benefit expenses accounted for 70.7% of the total
increase in non-interest expense for the three months ended September 30, 1999
when compared to the same period in 1998. Occupancy expense increased $47,000 or
16.4% to $333,000 from $286,000 for the same period in 1998. Equipment expense
increased $76,000 or 23.8% to $396,000 from $320,000 for the same period in
1998. Other non-interest expense increased $77,000 or 6.5% to $1,263,000 from
$1,186,000 for the same period last year. The reasons for the increase in
non-interest expense for the quarter are the same as discussed above.
Income Tax Expense
The effective income tax rate for the three and nine months ended September 30,
1999 was 28.6% and 28.3% respectively, as compared to 34.1% and 34.9% for the
same periods in 1998. The decrease in the effective tax rate was primarily due
to the use of a state income tax planning strategy initiated in 1998. Management
anticipates that this strategy will continue to reduce state income tax expense
in 1999. Higher levels of tax-free income also reduced Federal income taxes in
1999 when compared to 1998. Total income tax expense for the nine months ended
September 30, 1999 was $2,265,000, an increase of $51,000 or 2.3% from the
$2,214,000 for the same period in 1998. The increase in tax expense resulted
from higher taxable income partially offset by a lower effective tax rate. For
the three months ended September 30, 1999 tax expense was $882,000 a $152,000 or
20.8% increase from the $730,000 for the same period in 1998. The increase was
due to higher taxable income partially offset by the lower tax rate.
25
<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 response includes a written compliance plan. Management has also
prepared a cash contingency plan designed to insure that YNB has adequate
liquidity to meet anticipated deposit outflows that could occur towards the end
of 1999. 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
(FFIEC), 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 deposit, loan and general ledger activity. In June
1998, YNB completed preliminary testing of all loan and deposit functions at a
remote disaster recovery site utilizing Y2K testing software purchased from ITI.
Results of the preliminary testing were satisfactory. Due to the recent hardware
upgrades, YNB successfully completed testing on deposit, loan functions and
general ledger in April 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 network which supports YNB's automatic teller machines (ATM) and Automated
Clearing House (ACH) which YNB uses to process direct deposit activities
including payrolls. YNB requires vendors and suppliers to provide
representations that their systems are Y2K compliant and has a system in place
26
<PAGE>
to track vendors' Y2K compliance efforts. Testing of the Fed Line wire system,
the MAC network and ACH transactions has been successfully completed
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 Y2K compliance. ALLTEL has advised YNB
that their systems are Y2K compliant at December 31, 1998. Based on reports
received June 11, 1999, management has determined that Wendover is in compliance
with FFIEC Y2K servicer guidelines. 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 company includes the replacement of non-compliant computers and
related software. All mission critical personal computers are now Y2K complaint.
YNB is in the process of testing non-mission critical personal computers and
replacing them as necessary. YNB has determined that some personal computers, in
non-mission critical areas, will only function if the internal clocks are
manually reset to January 1, 2000. Management has successfully tested these
computers by manually resetting the date to January 1, 2000 and determined that
the computers function correctly once the date is changed. Rather than replace
these personal computers, YNB has a plan in place to manually reset the dates on
the affected personal computers to January 1, 2000. Management does not
anticipate any major Y2K complaince issues with its personal computers.
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 was successfully tested at each location. Management does not anticipate
any significant Y2K compliance issues with its network.
Physical Property and Infrastructures: YNB's physical properties and
infrastructures include energy and security systems as well as date sensitive
equipment. Testing in this area is complete 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 having 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 complaint.
27
<PAGE>
Y2K Program Status
Core Computer Systems Plan: 100% compliant by 3/31/99.
Present Status: 100% completed.
Significant Alliances Plan: 100% ready* by 6/30/99.
Present Status: 100% completed.
End User Computing Plan: 100% compliant by 6/30/99.
Present Status: 100% completed.
Technical Infrastructure Plan: 100% compliant by 6/30/99.
Present Status: 100% completed.
Physical Properties and Plan: 100% compliant by 3/31/99.
Infrastructure Present Status: 100% completed.
Commercial Loan Customers Plan: 100% ready* by 6/30/99.
Present Status: 100% 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 testing and upgrading 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. As of September 30, 1999, YNB has expensed
approximately $31,000 in Y2K related costs. This level could rise in the event
that unanticipated Y2K compliance issues are uncovered.
Y2K Contingency Plans
YNB has established 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 disruptions with a minimum of
disruption and moderate increased costs.
28
<PAGE>
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 chargeoffs should the Y2K
problems 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
communication it would be very difficult for YNB to effectively operate.
Item 3: Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in YNB's market risk from December 31, 1998
except as discussed below. For information regarding YNB's market risk refer to
the Company's 1998 Annual Report to stockholders.
Changes in Earnings Risk
Net interest income over the next twelve-month period indicates a reduction in
the risk to lower rates (-200 basis points) at September 30, 1999 than reported
at December 31, 1998. Comparing the simulation results of this low rate scenario
to the flat rate interest rate scenario indicates a -3.9% change in net interest
income compared to -6.7% at year end 1998. The 1998 results reflect rate changes
of up or down 300 basis points. At the same time, YNB's exposure to higher rates
(+200 basis points) shifted to a 0.8% change in net interest income compared to
a 1.8% change at year-end 1998. The cumulative one-year gap turned negative
$90,948,000 or -8.6% of total assets at September 30, 1999 compared to positive
$12,718,000 or 1.7% of assets at year-end 1998. The dollar change in the gap was
$103,666,000. The most important reasons for this change in short-term earnings
risk profile include:
1. The addition of $143,059,000 in securities with repricing or maturity dates
beyond one year.
2. The origination of $78,148,000 in loans with repricing or maturity dates
beyond one year.
3. Offsetting the increase in assets with repricing or maturity dates beyond
one year were $50,474,000 in deposits and $53,484,000 in borrowed funds
with repricing or maturity dates beyond one year.
Changes in Market risk
Management measures longer term market risk by changes in the Economic Value of
Portfolio Equity (EVPE) as a percentage of total assets with rate shifts of +/-
200 basis points.
EVPE analysis is an indication of long-term market risks in the balance sheet.
It measures the present value of asset and liability cash flows based on current
inventory and market rates to determine the present value of equity. The present
29
<PAGE>
value of equity is subsequently measured by shifting interest rates by +/- 200
basis points to observe the variances as a percentage of total assets. It is
management's intention to maintain modest changes in this measure with a target
variance not to exceed 3% of total assets.
At September 30, 1999, the EVPE changes by -4.02% for rate shifts of +200 and
- -0.21% for rate shifts of -200 basis points. The non-symmetry of the results is
indicative of the callable funding utilized to fund earning asset growth. This
compares to changes of -2.35% and -2.74% respectively at December 31, 1998 and
- -4.26% and -0.14% at June 30, 1999.
The primary causes for this increase in risk to rising rates since year-end 1998
are discussed below:
Liability durations had a significant impact falling to 1.52 years at September
30, 1999 from 1.84 years at December 31, 1998. This resulted from the increased
level of shorter duration funding associated with the investment growth
strategy. In addition, the recent upward shift in the yield curve has shortened
the expected conversion dates of callable funding. The 1.52 year liability
duration at September 30, 1999 is an increase from the 1.40 years at June 30,
1999.
Asset durations increased to 2.44 years at September 30, 1999 from 1.99 years at
December 31, 1998. The primary cause of this lengthening was a shift in
borrowers' preference to fixed rate loans from floating rate loans. This has
resulted in the duration of the loan portfolio extending to 1.62 years at
September 30, 1999 compared to 1.33 years at December 31, 1999. Another factor
was an increase in the investment portfolio duration to 4.77 years from 4.12
years. This lengthening resulted in additional Investment Growth Strategy
purchases, the purchase of long-term tax-free municipal bonds, extending of
expected call dates on callable bonds and slower prepayment speeds extending the
average lives of mortgage backed securities. The asset duration of 2.44 years at
September 30, 1999 is a decrease from the 2.46 years at June 30, 1999.
The EVPE change to rising rates of -4.02% exceeds the target limit of 3.0%.
While still above the target limit of 3.0%, the ratio is an improvement from the
- -4.26% ratio at June 30, 1999. The improvement in this ratio was accomplished by
the above mentioned increase in the liability duration while at the same time
reducing the asset duration. Management is currently implementing a strategy to
lower the ratio below the 3.0% limit by the end of 1999. This strategy involves
extending the duration of liabilities. This will be accomplished by offering
longer term certificates of deposit and extending the duration on borrowed
funds. This strategy is dependent on YNB's ability to sell longer-term
certificates of deposit to its customers.
On the asset side, new security purchases will have a shorter duration than the
existing portfolio. This should result in a gradual lowering of the investment
portfolio duration. Rising interest rates could modestly extend the investment
portfolio duration and mitigate to a degree management's actions. Another factor
influencing the asset duration is the increased demand for fixed rate loans.
Should this demand continue to increase, the ability of management to reduce the
overall asset duration will be limited.
30
<PAGE>
Lowering the change in EVPE to the 3.0% limit by year-end will be dependent on
management's ability to lower the duration of the earning asset portfolio while
at the same time extending the duration of the funding liabilities.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
Not Applicable.
Item 2: Changes in Securities and Use of Proceeds
Not Applicable.
Item 3: Defaults Upon Senior Securities
Not Applicable.
Item 4: Submission of Matters to a Vote of Securities Holders
Not Applicable.
Item 5: Other Information
Not Applicable
Item 6: Exhibits and Reports on Form 8-K
See attached exhibits. There were no Form 8-K reports filed during the quarter
for which this report is filed.
31
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- -----------------------------------------------------------------------------------------------------------
<S> <C>
(G) 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.
(L) 10.1 Employment Contract between Registrant and Patrick M. Ryan.
(L) 10.2 Employment Contract between Registrant and Jay G. Destribats
(L) 10.3 Employment Contract between Registrant and Stephen F. Carman
(L) 10.4 Employment Contract between Registrant and James F. Doran
(L) 10.5 Employment Contract between Registrant and Richard A. Kauffman
(L) 10.6 Employment Contract between Registrant and Mary C. O'Donnell
(L) 10.7 Employment Contract between Registrant and Frank Durand III
(D) 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan
</TABLE>
32
<PAGE>
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------------------
<S> <C>
(D) 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats
(E) 10.10 1988 Stock Option Plan
(L) 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
(L) 10.14 Lease between Gardeners Property Partnership and the Bank
(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
(L) 10.19 Employment Contract between Registrant and Howard N. Hall
(L) 10.20 Employment Contract between Registrant and Sarah J. Strout
(L) 10.21 Employment Contract between Registrant and Nina D. Melker
(L) 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.
</TABLE>
33
<PAGE>
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
(H) 10.26 1994 Stock Option Plan.
(J) 10.27 Lease agreement between Crestwood Construction and the Bank dated May 25, 1998
(K) 10.29 Yardville National Bank Employee Stock Ownership Plan, as amended
(L) 10.30 Lease Agreement between Sycamore Street Associates and the Bank dated October
30, 1998
(M) 10.31 List of Subsidiaries of the Registrant
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)
(C) Incorporated by reference to the Registrant's Annual
Report on Form 10-KSB for fiscal year ended December
31, 1995
(D) Incorporate 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
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(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 Registration Statement
on Form S-8 (Registration No. 333-71741).
(L) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1998 as amended by Form 10-K/A filed on April 20,
1999.
</TABLE>
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YARDVILLE NATIONAL BANCORP
-----------------------------------
(Registrant)
Date: November 15, 1999 By: /s/ Stephen F. Carman
----------------------------- ------------------------------
Stephen F. Carman
Executive Vice President and
Chief Financial Officer
36
<PAGE>
YARDVILLE NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1999
AS AMENDED JULY 28, 1999
<PAGE>
YARDVILLE NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS.............................................................2
"Account"...............................................................2
"ESOP Stock Account"....................................................2
"ESOP Cash Account".....................................................2
"Account Balance".......................................................2
"Acquisition Loan"......................................................2
"Administrator".........................................................2
"Affiliated Company"....................................................3
"Alternate Payee".......................................................3
"Benefits Committee"....................................................3
"Board of Directors"....................................................3
"Break in Service"......................................................3
"Code" ...............................................................4
"Company"...............................................................4
"Compensation"..........................................................4
"Covered Employee"......................................................5
"Credited Service"......................................................5
"Direct Rollover".......................................................5
"Distributee"...........................................................5
"Effective Date"........................................................5
"Election Period".......................................................5
"Eligible Employee".....................................................5
"Eligible Retirement Plan"..............................................6
"Eligible Rollover Distribution"........................................6
"Employee"..............................................................6
"Entry Date"............................................................6
"ERISA" ...............................................................6
"ESOP Stock"............................................................6
"Financed Shares".......................................................7
"Hour of Service".......................................................7
"Limitation Year".......................................................7
"Loan Suspense Account".................................................7
"Normal Retirement Date"................................................8
"Participant"...........................................................8
"Participating Company".................................................8
"Plan" ...............................................................8
"Plan Year".............................................................8
i
<PAGE>
"Qualified Domestic Relations Order"....................................8
"Qualified Participant".................................................8
"Required Beginning Date"...............................................8
"Spouse" ...............................................................9
"Total Disability"......................................................9
"Trust" ...............................................................9
"Trust Agreement".......................................................9
"Trust Investment Committee"............................................9
"Trustee"...............................................................9
"Valuation Date"........................................................10
ARTICLE II
PARTICIPATION...........................................................11
2.1 Participation..................................................11
2.2 Participation Not Guarantee of Employment......................12
2.3 Beneficiary Designation........................................12
2.4 Participation After Reemployment...............................12
2.5 Data...........................................................13
2.6 Credit for Military Service....................................13
ARTICLE III
PLAN CONTRIBUTIONS......................................................14
3.1 Participating Company Contributions............................14
3.2 Participant Contributions......................................14
3.3 Trust..........................................................15
3.4 Timing of Contributions........................................15
ARTICLE IV
ALLOCATION OF PARTICIPATING COMPANY
CONTRIBUTIONS AND FORFEITURES...........................................17
4.1 Allocation.....................................................17
4.2 Maximum Allocation.............................................17
ARTICLE V
PARTICIPANTS' ACCOUNTS..................................................19
5.1 Separate Accounting............................................19
5.2 Investment of Trust............................................19
5.3 Valuation......................................................20
5.4 Adjustment of Accounts.........................................20
5.5 Accounting for Allocations.....................................22
5.6 Restricted Assets..............................................22
5.7 Participant Statements.........................................22
5.8 Registration of Securities.....................................22
5.9 Voting Of Employer Stock.......................................23
5.10 Tender or Exchange Offer.......................................24
5.11 Acquisition Loans..............................................24
5.12 Restrictions on Allocations....................................26
5.13 Dividends on ESOP Stock........................................26
ii
<PAGE>
ARTICLE VI
VESTING AND DISTRIBUTION OF ACCOUNT BALANCES............................28
6.1 Retirement or Total Disability.................................28
6.2 Death..........................................................28
6.3 Termination of Employment other than as a Result of
Death, Retirement or Total Disability..........................28
6.4 Forfeitures and Restoration of Forfeited Amounts
upon Reemployment..............................................29
6.5 Mode of Distribution...........................................30
6.6 Pre-Retirement Diversification Rights..........................32
6.7 Timing of Benefit Distributions................................33
6.8 Valuation for Distribution.....................................36
6.9 Direct Rollover................................................36
ARTICLE VII
DEATH BENEFITS..........................................................37
7.1 Beneficiary....................................................37
7.2 Form of Payment................................................37
ARTICLE VIII
MANAGEMENT OF FUNDS.....................................................38
8.1 Designation of Trustee.........................................38
8.2 Exclusive Benefit..............................................38
8.3 No Interest in Trust...........................................38
8.4 Trust Investment Committee.....................................38
ARTICLE IX
ADMINISTRATION..........................................................40
9.1 Administrator..................................................40
9.2 Benefits Committee.............................................40
9.3 Ministerial Functions..........................................40
9.4 Duties and Powers of Benefits Committee........................40
9.5 Functioning of Benefits Committee..............................41
9.6 Disputes.......................................................41
9.7 Indemnification................................................42
9.8 Expenses.......................................................43
ARTICLE X
AMENDMENT AND TERMINATION...............................................44
10.1 Power of Amendment and Termination.............................44
10.2 Merger.........................................................44
10.3 Change in Control. ............................................45
ARTICLE XI
TOP-HEAVY PROVISIONS....................................................46
11.1 General........................................................46
11.2 Definitions....................................................46
11.3 Minimum Contribution for Non-Key Employees.....................50
11.4 Change in Vesting Schedule.....................................51
11.5 Social Security................................................51
11.6 Adjustment to Maximum Allocation Limitation....................51
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ARTICLE XII
RIGHTS OF ALTERNATE PAYEES..............................................53
12.1 General.......................................................53
12.2 Death Benefits................................................53
ARTICLE XIII
GENERAL PROVISIONS......................................................54
13.1 Source of Benefits.............................................54
13.2 Alienation of Benefits.........................................54
13.3 Facility of Payment............................................54
13.4 Interest and Dividends on Distributions........................54
13.5 Applicable Law.................................................54
SCHEDULE A
PARTICIPATING COMPANIES................................................A-1
SCHEDULE B
TRUST INVESTMENT COMMITTEE CHARTER.....................................B-1
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WHEREAS, Yardville National Bank (the "Company") desires to
adopt a written employee stock ownership plan to permit eligible employees of
the Company and certain participating subsidiaries to share in the growth of the
Company through stock ownership; and
WHEREAS, the plan is intended (1) to comply with the
applicable requirements of the Employee Retirement Income Security Act of 1974,
as amended, (2) to comply with the applicable requirements of sections 401(a),
409 and 4975(e)(7) of the Internal Revenue Code of 1986, as amended, and (3) to
be an employee stock ownership plan within the meaning of section 4975(e)(7) of
the Code; and
WHEREAS, the plan is designed to invest primarily in "employer
securities," as defined in section 409(l) of the Internal Revenue Code; and
WHEREAS, the plan is also intended to accommodate purchases
from shareholders of the Company that qualify for tax treatment under section
1042 of the Code, whether or not such purchases are in fact made;
NOW, THEREFORE, effective January 1, 1999, the Yardville
National Bank Employee Stock Ownership Plan, is established as hereinafter set
forth:
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ARTICLE I
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the
masculine pronoun shall include the feminine and the singular shall include the
plural, and vice versa. Any term used in the Plan without an initial capital
letter that is used in a provision of the Code with which this Plan must comply
to meet the requirements of section 401(a) of the Code shall be interpreted as
having the meaning used in such provision of the Code, if necessary for the Plan
to comply with such provision.
"Account" means the entries maintained in the records of the
Trustees which represent the Participant's interest in the Trust. The term
"Account" shall refer, as the context requires, to any or all of the following:
"ESOP Stock Account" -- the Account to which is credited ESOP
Stock allocated to a Participant under the Plan attributable to Company
contributions, as adjusted for distributions, earnings, losses and expenses
attributable thereto, to the extent held in the form of ESOP Stock.
"ESOP Cash Account" -- the Account to which are credited
Company contributions allocated to a Participant under the Plan, as adjusted for
distributions, earnings, losses and expenses attributable thereto, to the extent
held in any form other than ESOP Stock.
"Account Balance" means, for each Participant, the aggregate
credit standing to his Account.
"Acquisition Loan" means a loan or other extension of credit
used by the Trustee to finance the acquisition of ESOP Stock, as set forth in
Section 5.11.
"Administrator" means the Company.
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"Affiliated Company" means (a) any subsidiaries of the Company
(or companies under common control with the Company) which are members of the
same controlled group of corporations as the Company, as determined under
section 414(b) of the Code; (b) any member of an affiliated service group, as
determined under section 414(m) of the Code, of which the Company is a member;
and (c) any trades or businesses under common control with the Company, as
determined under section 414(c) of the Code. "50% Affiliated Company" means an
Affiliated Company described in (a) or (c) above, but applied as if the phrase
"more than 50%" were substituted for the phrase "at least 80%" each time it
appears in section 1563(a) of the Code.
"Alternate Payee" means any Spouse, former Spouse, child or
other dependent of a Participant who is recognized by a domestic relations order
(within the meaning of section 414(p)(1)(B) of the Code) as having a right to
receive all, or a portion of, the benefits payable under the Plan with respect
to such Participant.
"Benefits Committee" means the person or persons appointed by
the Board of Directors to supervise the administration of the Plan pursuant to
Article IX.
"Board of Directors" means the board of directors of the
Company.
"Break in Service" means any Plan Year during which an
Employee receives credit for not more than 500 Hours of Service. Notwithstanding
the foregoing, if an Employee is absent from work by reason of pregnancy,
childbirth, or adoption, or for purposes of the care of such Employee's child
immediately after birth or adoption, such Employee shall be credited, solely for
purposes of this Section, with the Hours of Service which otherwise would have
been credited to such individual for such absence or, if such hours cannot be
determined, at the rate of eight hours per normal workday, except that the total
number of hours counted as Hours of Service for this purpose will not exceed
501. The hours described in this Section shall be treated as Hours of Service:
3
<PAGE>
(a) only in the Plan Year in which the absence from
work begins, if an Employee would be prevented from incurring a Break in Service
in such Plan Year solely because the period of absence is treated as Hours of
Service under this Section; or
(b) in any other case, in the immediately following
Plan Year.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Yardville National Bank, and its successors.
"Compensation"
(a) In General. Except as otherwise provided in this
definition, the term 'Compensation' means an Employee's base pay for each
calendar year ending with or within a Plan Year and which is includible in the
Employee's gross income for federal income tax purposes. The term 'Compensation'
shall include amounts deferred or contributed under a salary reduction agreement
with a Participating Company and excludible from gross income for federal income
tax purposes pursuant to section 125 or 402(g) of the Code. Except as otherwise
provided above with respect to amounts excludible from gross income under
section 402(g) of the Code, the term 'Compensation' shall not include
contributions to this Plan or any other contributions by or on behalf of the
Employee to any other plan of deferred compensation.
(b) Statutory Limit on Compensation. Except as
otherwise provided in the Plan, only the first $160,000 of a Participant's
Compensation (or such greater amount as may be allowable under section
401(a)(17), as determined by the Secretary of the Treasury) will be considered
for any purpose of the Plan.
4
<PAGE>
"Covered Employee" means any Employee who is employed by a
Participating Company other than:
(a) an Employee who is covered by a collective
bargaining agreement, unless such agreement specifically provides for
participation hereunder; or
(b) an individual who is an Employee solely by reason
of being a leased employee within the meaning of section 414(n) of the Code.
"Credited Service" means that portion of an Employee's
employment with the Company and all Affiliated Companies which is used to
calculate the Employee's vesting status hereunder. An Employee shall earn one
year of Credited Service for each Plan Year beginning on or after the Effective
Date during which he is credited with 1000 Hours of Service.
"Direct Rollover" means a payment by the Plan to an Eligible
Retirement Plan specified by the Distributee.
"Distributee" means a Participant or a Participant's
surviving spouse or Alternate Payee.
"Effective Date" means January 1, 1999.
"Election Period" means, with respect to any Participant,
the 90-day period immediately following the end of (1) the Plan Year in which
such Participant becomes a Qualified Participant and (2) each of the five
succeeding Plan Years.
"Eligible Employee" means an Employee who has become an
Eligible Employee as set forth in Article II, whether or not he is a
Participant, and who has remained a Covered Employee at all times thereafter.
5
<PAGE>
"Eligible Retirement Plan" means:
(a) an individual retirement account described in
section 408(a) of the Code;
(b) an individual retirement annuity described in
section 408(b) of the Code;
(c) a qualified trust described in section 401(a) of
the Code; and
(d) an annuity plan described in section 403(a) of
the Code. Paragraphs (c) and (d) shall not apply if the distributee of an
Eligible Rollover Distribution is the Participant's surviving spouse.
"Eligible Rollover Distribution" means any distribution under
the Plan to a Distributee, to the extent that such distribution is not required
under section 401(a)(9) of the Code.
"Employee" means any individual employed by the Company or any
Affiliated Company, including officers, shareholders or directors who are
employees. An individual who is not otherwise employed by the Company or an
Affiliated Company shall be deemed to be an Employee by the Company if he is a
leased employee with respect to the Company or an Affiliated Company within the
meaning of section 414(n) of the Code.
"Entry Date" means January 1st or July 1st.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESOP Stock" means the common stock of Yardville National
Bancorp, par value $.01 per share, or such other security that meets the
requirements of Section 409(l) of the Code.
6
<PAGE>
"Financed Shares" means shares of ESOP Stock acquired by the
Trustee with the proceeds of an Acquisition Loan.
"Hour of Service" means an hour for which:
(a) an Employee is directly or indirectly paid or
entitled to payment by the Company or an Affiliated Company for the performance
of employment duties;
(b) an Employee is entitled, either by award or
agreement, to back pay from the Company or an Affiliated Company, irrespective
of mitigation of damages;
(c) an Employee is directly or indirectly paid or
entitled to payment by the Company or an Affiliated Company on account of a
period of time during which no duties are performed due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military duty, or
leave of absence.
There shall be excluded from the foregoing those periods
during which payments are made or due under a plan maintained solely for the
purpose of complying with applicable workers' compensation, unemployment
compensation, or disability insurance laws. No more than 501 Hours of Service
shall be credited under Subsection (c) on account of any single continuous
period during which no duties are performed, except to the extent otherwise
provided in this Plan. An Hour of Service shall not be credited where an
Employee is being reimbursed solely for medical or medically-related expenses.
Hours of Service shall be credited in accordance with the
rules set forth in U.S. Department of Labor Reg. ss. 2530.200b-2(b) and (c).
"Limitation Year" means the Plan Year.
"Loan Suspense Account" means an account established to hold
Financed Shares pending repayment of the Acquisition Loan used to purchase such
Financed Shares.
7
<PAGE>
"Normal Retirement Date" means a Participant's 65th birthday.
"Participant" means an individual for whom an Account is
maintained under the Plan.
"Participating Company" means the Company and each of the
Affiliated Companies listed on Schedule A that, with the consent of the Board of
Directors, adopts the Plan for the benefit of its Eligible Employees.
"Plan" means the Yardville National Bank Employee Stock
Ownership Plan as set forth in this plan document and the Trust Agreements, and,
as it may be amended from time to time.
"Plan Year" means the 12-consecutive-month period extending
from January 1st and ending December 31st.
"Qualified Domestic Relations Order" means a domestic
relations order (within the meaning of section 414(p)(1)(B) of the Code) which
creates or recognizes the existence of an Alternate Payee's rights to, or
assigns to an Alternate Payee the right to receive all or a portion of the
benefits payable with respect to a Participant under the Plan, and is determined
by the Benefits Committee to satisfy the requirements of section 414(p) of the
Code.
"Qualified Participant" means a Participant who has attained
age 55 and who has completed 10 years of participation in the Plan.
"Required Beginning Date" means the earlier of the dates
determined under (a) or (b) where:
(a) is the later of (1) the 60th day after the close
of the Plan Year in which the Participant reaches Normal Retirement Date, or (2)
the 60th day after the close of the Plan Year in which the Participant
terminates employment with the Company and all Affiliated Companies; and
8
<PAGE>
(b) is April 1st of the calendar year following the
later of (1) the calendar year in which the Participant reaches age 70 1/2, or
(2) the calendar year in which the Participant terminates employment with the
Company and all Affiliated Companies; provided, however, that clause (2) shall
not apply with respect to a Participant who is a 5-percent owner (as defined in
section 416(i)(1)(B)(i) of the Code) of the Company or any Affiliated Company.
"Spouse" means the person to whom a Participant is married as
of the date of reference.
"Total Disability" means a physical or mental condition of
such severity and probable prolonged duration as to entitle the Participant to
disability retirement benefits under the Federal Social Security Act.
"Trust" means the fund established for this Plan, administered
under the Trust Agreement and out of which benefits payable under this Plan will
be paid.
"Trust Agreement" means any agreement and declaration of trust
executed under this Plan.
"Trust Investment Committee" means the person or persons
appointed by the Board of Directors to exercise the responsibilities assigned to
such Committee under the Plan and Trust Agreement. The operation of the Trust
Investment Committee shall be governed by the Charter attached as Schedule B and
incorporated herein by reference.
"Trustee" means the corporate trustee(s) and/or any group of
one or more individuals collectively appointed by the Board of Directors, to act
as trustee, pursuant to the terms of the Plan and Trust Agreement.
"Valuation Date" means the last day of each Plan Year and each
interim date on which the Trust Investment Committee determines that a valuation
of the Trust shall be made.
9
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Participation.
2.1.1 Each Covered Employee as of the Effective Date who
has reached the first anniversary of his employment with a Participating Company
as of the Effective Date shall become an Eligible Employee as of the Effective
Date. Each other Covered Employee shall become an Eligible Employee on the Entry
Date next following nearest the first anniversary of his commencement of
employment with the Company, provided he is a Covered Employee as of such Entry
Date.
2.1.2 If an individual is not a Covered Employee as of
the Entry Date or next following the first anniversary of his commencement of
employment with the Company, he shall become an Eligible Employee as of the next
following Entry Date on which he is a Covered Employee.
2.1.3 Except as otherwise provided in this Section
2.1.3, an Eligible Employee shall share in contributions and forfeitures under
Section 4.1 for a Plan Year only if he receives Compensation, is credited with
1,000 or more Hours of Service for such Plan Year and is a Covered Employee on
the last day of such Plan Year. An Eligible Employee who is not a Covered
Employee on the last day of a Plan Year solely on account of layoff, leave of
absence approved in writing in advance by the Participating Company, military
leave to the extent that his right to rehire is protected by law, or transfer
approved by the Company to any Affiliated Company that is not a Participating
Company shall share in contributions and forfeitures under Section 4.1 for such
Plan Year only if he receives Compensation and is credited with 1,000 or
10
<PAGE>
more Hours of Service for such Plan Year. Notwithstanding the foregoing, an
Eligible Employee who is not a Covered Employee on the last day of a Plan Year
solely on account of death, Total Disability or termination of employment on or
after Normal Retirement Date during such Plan Year shall share in contributions
and forfeitures under Section 4.1 without regard to whether he is credited with
1,000 or more Hours of Service for such Plan Year.
2.2 Participation Not Guarantee of Employment. Participation
in the Plan does not constitute a guarantee or contract of employment and will
not give any Employee the right to be retained in the employ of the Company or
an Affiliated Company.
2.3 Beneficiary Designation. Upon becoming a Participant in
the Plan, an Employee may designate, in the manner specified by the Benefits
Committee and in accordance with Section 7.1, a beneficiary or beneficiaries to
whom his Account Balance shall be paid in the event of his death. A Participant
may change his beneficiary designation at any time by written notice to the
Benefits Committee in a form approved by the Benefits Committee.
2.4 Participation After Reemployment.
2.4.1 An individual who is a Participant, who terminates
employment with the Company and all Affiliated Companies and is subsequently
reemployed by a Participating Company as a Covered Employee shall again become
an Eligible Employee as of his reemployment date, provided that such individual
is so reemployed before incurring his fifth consecutive Break in Service.
2.4.2 An individual who is a Participant, who terminates
employment with the Company and all Affiliated Companies employment at a time
when he has a nonforfeitable interest in his Account Balance and who is
subsequently reemployed by a Participating Company as a Covered Employee shall
again become an Eligible Employee as of
11
<PAGE>
his reemployment date, whether or not such individual is so reemployed before
incurring his fifth consecutive Break in Service.
2.4.3 An individual who is a Participant, who terminates
employment with the Company and all Affiliated Companies at a time when he has
no nonforfeitable interest in his Account Balance under the Plan and who
subsequently becomes an Employee after incurring five consecutive Breaks in
Service shall be treated as a new Employee for purposes of determining his
eligibility to participate and of calculating Credited Service under the Plan.
2.5 Data. Each Employee shall furnish to the Benefits
Committee such data as the Benefits Committee may consider necessary for the
determination of the Employee's rights and benefits under the Plan and shall
otherwise cooperate fully with the Benefits Committee in the administration of
the Plan.
2.6 Credit for Military Service. Notwithstanding any provision
of the Plan to the contrary, contributions, benefits and service credit with
respect to qualified military service will be provided in accordance with
section 414(u) of the Code.
12
<PAGE>
ARTICLE III
PLAN CONTRIBUTIONS
------------------
3.1 Participating Company Contributions. Subject to the
conditions and limitations of the Plan, for each Plan Year the Company (or such
other Participating Companies as the Board of Directors shall designate) shall
contribute to the Trust cash equal to, or ESOP Stock having an aggregate fair
market value equal to, such amount, if any, as the Board of Directors shall
determine by resolution; provided, however, that the contribution for any Plan
Year shall not exceed the lesser of the maximum amount deductible by the Company
for Federal income tax purposes, or the maximum amount which may be credited
that year in accordance with the contribution limitation provisions of Section
4.2. To the extent provided in an Acquisition Loan between the Company and the
Trust pursuant to which the Company lends to the Trust amounts attributable to
the proceeds of a loan between the Company and an unrelated third-party lender
and intended for the acquisition of ESOP Stock by the Trust, the Company's
payment of principal and interest pursuant to such loan shall be treated as the
contribution of cash to the Trust pursuant to this Section 3.1, and the
repayment of such Acquisition Loan as described in Section 5.11.2.
3.2 Participant Contributions. No Participant shall be
required or permitted to make any contributions to the Plan.
3.3 Trust.
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3.3.1 The contributions deposited in the Trust in
accordance with this Article shall constitute a fund held for the benefit of
Participants and their eligible beneficiaries under and in accordance with this
Plan. No part of the principal or income of the Trust shall be used for, or
diverted to, any purpose other than the exclusive benefit of such Participants
and their eligible beneficiaries (including necessary administrative costs);
provided that in the case of a contribution made (1) as a mistake of fact, (2)
for which a tax deduction is disallowed, in whole or in part, by the Internal
Revenue Service, or (3) which is conditioned upon the initial qualification of
the Plan under section 401(a) of the Code, if the Plan is the subject of an
adverse determination with respect to its initial qualification, the
Participating Company that made such contribution shall be entitled to its
refund.
3.3.2 Any refund of contributions described in Section
3.3.1 must be made within one year (1) after payment of a contribution made as a
mistake of fact, (2) after disallowance of the tax deduction, to the extent of
such disallowance, or (3) of the date on which the initial qualification of the
Plan is denied by the Internal Revenue Service, but only if the application for
determination is made by the time prescribed by law for filing the Company's
federal income tax return for the taxable year in which the Plan is adopted or
such later date as may be permitted by applicable Treasury Regulation or other
applicable administrative pronouncements, as the case may be.
3.4 Timing of Contributions. Participating Company
contributions for any Plan Year under this Article shall be made no later than
the last date on which amounts so paid may be deducted for federal income tax
purposes for the taxable year of the employer in which the Plan Year ends. All
contributions hereunder are expressly conditioned upon their deductibility for
federal income tax purposes.
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ARTICLE IV
ALLOCATION OF PARTICIPATING COMPANY
-----------------------------------
CONTRIBUTIONS AND FORFEITURES
-----------------------------
4.1 Allocation. Each Participating Company contribution, plus
any forfeitures arising during the Plan Year and any amount held in suspense in
accordance with Section 4.2.2, shall be allocated as of the last day of the Plan
Year for which the contribution is made to the Account of each Eligible Employee
who is entitled to share in such contribution under Section 2.1.3 in the
proportion that his Compensation for that portion of the Plan Year during which
he was an Eligible Employee bears to such Compensation of all such Eligible
Employees for the Plan Year.
4.2 Maximum Allocation.
4.2.1 Notwithstanding anything in this Article to the
contrary, in no event shall amounts allocated to a Participant's Account under
this Plan and any other defined contribution plan maintained by the Company or a
50% Affiliated Company exceed the limitations set forth in section 415 of the
Code, which are hereby incorporated by reference into the Plan.
4.2.2 If the amounts otherwise allocable to the Account of
a Participant under this Plan and any other defined contribution plan maintained
by the Company or a 50% Affiliated Company would exceed the limitation set forth
in section 415(c) of the Code as a result of the reallocation of forfeitures, a
reasonable error in estimating the Participant's compensation or such other
circumstances as permitted by law, the excess amount shall be held in a suspense
account by the Trustee until the following Plan Year (or any succeeding Plan
Years), at which time such amount shall be allocated in the manner described in
Section 4.1
15
<PAGE>
before any contributions by the Company may be made for such Plan Year. Amounts
held in the suspense account shall share in investment gains and losses of the
Trust.
4.2.3 If, in any Limitation Year beginning prior to January
1, 2000, a Participant is a participant in one or more defined benefit plans
sponsored by the Company or a 50% Affiliated Company, the annual additions to
the Account of the Participant under the Plan shall be reduced only to the
extent necessary to meet the combined plan limits of section 415(e) of the Code
and only if the annual benefit under the defined benefit plan(s) is not reduced
to the extent necessary to meet such limits.
4.2.4 Notwithstanding anything in this Plan to the
contrary, the maximum allocation provisions of this Section shall be construed
in accordance with the requirements of section 415 of the Code and the
regulations promulgated thereunder.
16
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ARTICLE V
PARTICIPANTS' ACCOUNTS
----------------------
5.1 Separate Accounting. Separate Accounts shall be maintained
for each Participant. These Accounts shall represent the Participant's
individual interest in the Trust.
5.2 Investment of Trust. Except as otherwise provided in
Sections 6.6 and 5.4.4, the assets of the Trust shall be primarily invested in
ESOP Stock. The Trustee shall invest contributions that are not applied to the
payment of principal and interest on any Acquisition Loan in ESOP Stock, except
that subject to the direction of the Trust Investment Committee, the Trustee
shall be authorized to invest a portion of such contributions received in other
securities as a reserve for the payment of administrative expenses and cash
distributions. The Trustee shall be specifically authorized to invest in
interest-bearing deposit accounts or certificates of deposit of any affiliate of
the Trustee. The Trustee shall also be authorized to invest contributions not
applied to the payment of principal and interest on any Acquisition Loan and
income received on Plan assets in other securities pending investment in ESOP
Stock or pending distribution to Participants. In accordance with the directions
of the Trust Investment Committee, shares of ESOP Stock may be purchased from
any Company shareholder or from the Company or an Affiliated Company. All
purchases of ESOP Stock by the Trustee shall be made only as directed by the
Trust Investment Committee. The Trust Investment Committee may direct the
Trustee to sell shares of ESOP Stock to any person (including the Company or an
Affiliated Company). Except as otherwise provided in Section 6.6, the Trust
Investment Committee may direct the Trustee to hold up to 100% of assets
allocated to Participants' Accounts in ESOP Stock.
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5.3 Valuation. The value of the Trust shall be computed by the
Trustee as of the close of business of each Valuation Date on the basis of the
fair market value of the assets of the Trust. All valuations of ESOP Stock shall
be made in accordance with section 401(a)(28)(C) of the Code, section 3(18) of
ERISA, and applicable regulations issued under such sections.
5.4 Adjustment of Accounts. As of each Valuation Date, the
following adjustments shall be made to each Participant's Account, in the order
described below.
5.4.1 The Account of each Participant shall be charged with
all distributions and payments made to him, or on his behalf, since the last
preceding Valuation Date that have not been charged previously, including
payments by the Trustee in accordance with Section 5.13 of cash dividends paid
with respect to shares of ESOP Stock allocated to the Participant's ESOP Stock
Accounts.
5.4.2 Any appreciation, depreciation, gains or losses
experienced by the Trust hall be allocated among and correspondingly credited to
or charged against each Participant's ESOP Stock Accounts and ESOP Cash
Accounts, respectively, in proportion to the balance in each of such Accounts as
of such Valuation Date, after the application of Section 5.4.1.
5.4.3 Any cash dividends paid by the Company with respect
to Shares of ESOP Stock allocated to a Participant's ESOP Stock Account which
are not applied to the repayment of any Acquisition Loan shall be credited to
the ESOP Cash Account of such Participant.
5.4.4 If dividends paid on shares of ESOP Stock that have
not been allocated to Participants' ESOP Stock Accounts are applied to the
repayment of any Acquisition Loan, then shares will be released from the Loan
Suspense Account as described in Section
18
<PAGE>
5.11.3 and allocated to each Eligible Employee's ESOP Stock Account as a Company
contribution in accordance with Section 4.1.
5.4.5 If dividends paid on shares of ESOP Stock that have
been allocated to Participants' ESOP Stock Accounts (regardless of whether such
shares were acquired with the proceeds of an Acquisition Loan) are applied to
the repayment of any Acquisition Loan, the shares thereby released from the Loan
Suspense Account shall be allocated directly to the ESOP Stock Account of each
Participant for whose benefit the dividends would otherwise have been allocated.
If the fair market value of the shares so allocated to each Participant's
Account is less than the amount of the dividend that would otherwise have been
allocated to such Account, then contributions and/or forfeitures will be
allocated to such Participant's Account until the total allocation made pursuant
to this Section 5.4.5 is equal to the amount of the dividend that would
otherwise have been allocated to such Account. Any allocation of ESOP Stock made
under this Section 5.4.5 shall be made for the Plan Year in which the dividend
would otherwise have been allocated.
5.4.6 Contributions and forfeitures shall be allocated to
each Eligible Employee's Account in accordance with Section 4.1; provided,
however, that to the extent that such contributions or forfeitures are applied
to the repayment of any Acquisition Loan, then shares will be released from the
Loan Suspense Account as described in Section 5.11.3 and allocated to each
Eligible Employee's ESOP Stock Account as a Company contribution in accordance
with Section 4.1.
5.4.7 Each Participant's ESOP Stock Account shall be
credited with the shares of ESOP Stock, if any, that have been purchased with
amounts from his corresponding ESOP Cash Account since the last preceding
Valuation Date, and such ESOP Cash Account shall
19
<PAGE>
be charged with the amount of cash, or the value of such other Plan assets, if
any, used to purchase such shares of ESOP Stock.
5.5 Accounting for Allocations. The Benefits Committee shall
establish or provide for the establishment of accounting procedures for the
purpose of making the allocations, valuations and adjustments to Participants'
Accounts. From time to time, such procedures may be modified for the purpose of
achieving equitable and nondiscriminatory allocations among the Accounts of
Participants in accordance with the general concepts of the Plan and the
provisions of this Article.
5.6 Restricted Assets. Financed Shares which are pledged as
collateral for an Acquisition Loan as provided in Section 5.11 shall not be
considered part of the Trust for purposes of determining the Trust's income and
appreciation or depreciation for a valuation period. Such Financed Shares shall
be considered part of the Trust for such purposes only after they are released
from the Loan Suspense Account and allocated to Accounts under Section 5.11.
5.7 Participant Statements. Each Participant will be entitled
to an annual statement showing the additions to and subtractions from his or her
account since the last Valuation Date and the fair market value of his Account
as of the current Valuation Date.
5.8 Registration of Securities. If the Trustee invests any part
of the Trust, pursuant to the directions of the Trust Investment Committee, in
ESOP Stock and the Trust Investment Committee thereafter directs the Trustee to
dispose of such investment, or any part thereof, under circumstances which, in
the opinion of counsel for the Trustee, require registration of the securities
under the Securities Act of 1933 or the registration or qualification of the
securities under the Blue Sky laws or other laws of any state of states, the
Company will take any and all such action as may be necessary or appropriate to
effect such registration or qualification.
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5.9 Voting Of Employer Stock. The Trustee will vote shares of
ESOP Stock in accordance with this Section 5.9.
5.9.1 If the Company has a registration-type class of
securities (as described in section 409(e)(4) of the Code), each Participant (or
beneficiary of a deceased Participant) to whose account shares of ESOP Stock
have been allocated will, as a named fiduciary (within the meaning of section
403(a)(2) of ERISA), have the right to direct the Trustee as to the voting of
such ESOP Stock.
5.9.2 If the Company does not have a registration-type
class of securities (as described in section 409(e)(4) of the Code), the
following voting procedure will apply:
5.9.2.1 Each Participant (or beneficiary of a
deceased Participant) to whose account shares of ESOP Stock have been allocated
will, as a named fiduciary (within the meaning of section 403(a)(2) of ERISA),
have the right to direct the Trustee as to the voting of such ESOP Stock with
respect to any of the following corporate matters involving the Company or any
Affiliated Company: (i) mergers or consolidations; (ii) recapitalizations; (iii)
reclassifications; (iv) liquidations; (v) dissolutions; (vi) sales of
substantially all assets of a trade or business; or (vii) such similar
transactions as may be prescribed in Treasury Regulations.
5.9.2.2 The Trust Investment Committee will, as a
named fiduciary (within the meaning of section 403(a)(2) of ERISA), direct the
Trustee as to the voting of all shares of ESOP Stock with respect to corporate
matters not described in Section 5.9.2.1.
5.9.3 Shares of ESOP Stock that have not been allocated and
shares of ESOP Stock that have been allocated but for which no direction is
received pursuant to Sections 5.9.1 or 5.9.2.1 will be voted by the Trustee in
identical proportion to the votes of shares of ESOP Stock for which direction
has been received pursuant to Sections 5.9.1 or 5.9.2.1
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5.9.4 The Company shall furnish such proxy materials to the
Trustee as are necessary to effectuate the voting procedures described in this
Section.
5.10 Tender or Exchange Offer. ESOP Stock that becomes the
subject of a tender or exchange offer will be tendered or exchanged by the
Trustee in accordance with this Section 5.10.
5.10.1 Each Participant (or beneficiary of a deceased
Participant) to whose account shares of ESOP Stock have been allocated will, as
a named fiduciary (within the meaning of section 403(a)(2) of ERISA), have the
right to direct the Trustee as to the tender or exchange of such ESOP Stock.
5.10.2 Shares of ESOP Stock that have not been allocated
and shares of ESOP Stock that have been allocated but for which no direction has
been received pursuant to Sections 5.10.1 will be tendered or exchanged by the
Trustee in identical proportion to the shares of ESOP Stock for which direction
has been received pursuant to Sections 5.10.1.
5.11 Acquisition Loans. The Trust Investment Committee may,
from time to time, direct the Trustee to incur one or more Acquisition Loans to
finance the acquisition of ESOP Stock for the Trust or to repay a prior
Acquisition Loan, subject to the following provisions.
5.11.1 An Acquisition Loan shall be for a specific term,
shall bear a reasonable rate of interest, and shall not be payable on demand. An
Acquisition Loan may be secured by pledge of Financed Shares acquired with the
proceeds of such Acquisition Loan, or with the proceeds of a prior Acquisition
Loan which is being refinanced and repaid with the proceeds of such current
Acquisition Loan. No other assets of the Plan or Trust may be pledged as
collateral for an Acquisition Loan, and no lender shall have recourse against
any other Plan or
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Trust assets. If the lender is a party in interest under ERISA, the Acquisition
Loan must provide for a transfer of Trust assets upon default only upon and to
the extent of the failure of the Trust to meet the payment schedule of the
Acquisition Loan.
5.11.2 Payments of principal and/or interest on any
Acquisition Loan shall be made by the Trustee only from Company contributions
paid in cash to enable the Trustee to repay such loan or from earnings
attributable to such contributions. In addition, the Trust Investment Committee
may direct the Trustee to apply any cash dividends received by the Trustee on
shares of ESOP Stock (whether or not allocated to Participants' Accounts) to pay
principal and interest on an Acquisition Loan; provided, however, that dividends
paid on such shares may be used to repay only an Acquisition Loan the proceeds
of which were used to acquire such shares for the Trust. In the event that the
Trustee is unable to make payments of principal and/or interest on an
Acquisition Loan when due, the Trust Investment Committee may direct the Trustee
to sell any Financed Shares that have not been allocated to Participants'
Accounts or to obtain an Acquisition Loan in an amount sufficient to make such
payments.
5.11.3 Any pledge of Financed Shares must provide for the
release of shares so pledged as payments are made on the Acquisition Loan by the
Trustee. Financed Shares shall initially be credited to the Loan Suspense
Account and shall be transferred for allocation to Participants' ESOP Stock
Accounts as payments are made on the Acquisition Loan by the Trustee. The number
of shares so released shall bear the same relationship to the number of Financed
Shares held immediately before release for any Plan Year as the amount of
principal and interest paid for such year bears to the total amount of principal
and interest to be paid for such year and all following years.
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5.12 Restrictions on Allocations.
5.12.1 Notwithstanding any other provision in this Plan,
if shares of ESOP Stock are sold to the Plan by a Company shareholder in a
transaction for which such shareholder elects nonrecognition treatment pursuant
to section 1042 of the Code, no assets attributable to such Stock may be
allocated, during the nonallocation period, to the Account of any of the
following:
5.12.1.1 the selling shareholder;
5.12.1.2 any person who is related to that
shareholder (within the meaning of section 267(b) of the Code), but excluding
lineal descendants of such shareholder as long as no more than five percent of
the aggregate amount of all ESOP Stock sold by such shareholder in a transaction
to which Code section 1042 applies is allocated to such lineal descendants; or
5.12.1.3 any other person who owns (after
application of section 318(a) of the Code), more than 25 percent in value of
outstanding securities of the Company at any time during the 1-year period
ending on the date of sale of such ESOP Stock.
Further, no allocation of contributions may be made to the
Accounts of persons described in Sections 5.12.1.1 through 5.12.1.3 unless
additional allocations are made to other Participants, in accordance with the
provisions of sections 401(a) and 410 of the Code. The nonallocation period is
the period beginning on the date of sale and ending 10 years thereafter, or if
later, on the date of the allocation attributable to the final payment on the
Acquisition Loan incurred with respect to the sale.
5.13 Dividends on ESOP Stock. Any cash dividends paid with
respect to shares of ESOP Stock allocated to Participants' ESOP Stock Accounts
which are not applied to the repayment of any Acquisition Loan may, as
determined by the Company, be (1) paid by the Company directly in cash to the
Participants for whose benefit such ESOP Stock is held under the Plan, (2) paid
to the Trustee and distributed by the Trustee to the Participant no later than
90 days after the end of the Plan Year in which paid to the Trustee or (3) paid
to the Trustee and invested in accordance with Section 5.2.
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ARTICLE VI
VESTING AND DISTRIBUTION OF ACCOUNT BALANCES
--------------------------------------------
6.1 Retirement or Total Disability. Any Participant whose
employment with the Company and all Affiliated Companies terminates (1) on or
after his Normal Retirement Date or (2) at any time because of Total Disability
shall be deemed to have retired under the Plan and shall be entitled to receive
his entire Account Balance as provided in Sections 6.5 and 6.7.
6.2 Death. If a Participant's employment with the Company and
all Affiliated Companies terminates as a result of his death, his beneficiary
shall be entitled to receive his entire Account Balance as provided in Sections
6.5 and 6.7. If distributions have begun before the date of the Participant's
death, distributions shall continue to be made to the Participant's beneficiary
on the same basis as in effect before the Participant's death.
6.3 Termination of Employment other than as a Result of Death,
Retirement or Total Disability. Any Participant whose employment with the
Company and all Affiliated Companies terminates for any reason other than under
Sections 6.1 and 6.2 shall be entitled to receive his nonforfeitable interest in
his Account Balance as provided in Section 6.5. Except as otherwise provided in
Section 11.4, a Participant shall vest in his Account Balance in accordance with
the following schedule:
Years of Credited Service Nonforfeitable Percentage
------------------------- -------------------------
after January 1, 1999 of Account Balance
--------------------- ------------------
less than 1 0
1 20
2 40
3 60
4 80
5 or more 100
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6.4 Forfeitures and Restoration of Forfeited Amounts upon
Reemployment.
6.4.1 If a Participant who has terminated employment does
not thereafter complete an Hour of Service before the end of the Plan Year in
which occurs the earlier of:
6.4.1.1 the date on which he receives a distribution
of the nonforfeitable portion of his Account; or
6.4.1.2 the date on which he incurs his fifth
consecutive Break in Service, his Account shall be closed, and any forfeitable
portion of his Account shall be forfeited. For purposes of this Section 6.4.1, a
Participant who has a termination of employment at a time when his
nonforfeitable interest in the Plan is zero shall be deemed to have received a
distribution of his entire Account on the date of such termination of
employment.
6.4.2 If a Participant who has received (or who was deemed
to have received) a distribution described in Section 6.4.1.1, whereby any part
of his Account has been forfeited, becomes an Employee again prior to incurring
five consecutive Breaks in Service, the amount so forfeited shall be restored to
his new Account. Unallocated contributions or forfeitures will be used to fund
the restoration of Accounts pursuant to this Section 6.4.2; provided, however,
that if such unallocated contributions and forfeitures are insufficient for this
purpose, additional Participating Company contributions will be made to fund
such restorations. If forfeitures for a Plan Year exceed the amount necessary
for the restoration of accounts pursuant to this Section 6.4.2, such excess
shall be allocated as an additional Participating Company contribution in
accordance with Section 4.1.
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6.5 Mode of Distribution.
6.5.1 Except as otherwise provided in this Article VI, the
nonforfeitable portion of a Participant's Account, valued in accordance with
Section 6.8, shall be paid to him or applied for his benefit in substantially
equal periodic installments over a period of five years, plus one additional
year (but not more than five additional years) for each $100,000 (or such higher
amount as may be applicable under Section 409(o) of the Code), or portion
thereof by which such Account Balance exceeds $500,000 (or such higher amount as
may be applicable under Section 409(o) of the Code). The undistributed portion
of the Employee's Account shall continue to be invested as provided in the Plan.
6.5.2 Notwithstanding Section 6.5.1, if a Participant's
nonforfeitable interest in his Account Balance is $5,000 or less, his Account
shall be distributed in a single sum payment.
6.5.3 The distribution of a Participant's nonforfeitable
interest in his ESOP Cash Account shall be made in cash. The distribution of a
Participant's nonforfeitable interest in his ESOP Stock Account shall be made in
whole shares of ESOP Stock and in cash equal to the value of any fractional
share. Notwithstanding the foregoing, if shares of ESOP Stock are not traded on
an established market, a Participant (or beneficiary, if applicable) shall have
the right to receive a cash distribution in lieu of shares of ESOP Stock.
6.5.4 If the distribution is made in shares of ESOP Stock
and such shares are not traded on an established market, the former Participant
(or his beneficiary, if applicable) will have the right to sell such shares to
the Company at a price equal to their fair market value as of the last Valuation
Date preceding the exercise of such right, as determined by an independent
appraiser in accordance with section 401(a)(28) of the Code. Such right, known
as a "put
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option," may be exercised at any time during the two option periods described
below. The first put option period shall be a period of 60 days commencing on
the date the ESOP Stock is distributed to the Participant or beneficiary. If the
put option is not exercised within that period, it will temporarily lapse. Upon
the close of the Plan Year in which such temporary lapse of the put option
occurs, the Trustee shall establish the value of the ESOP Stock, as determined
by an independent appraiser, and shall notify each Participant (or beneficiary)
who did not exercise the put option during the first option period of the
revised value of the ESOP Stock. The second period during which the put option
may be exercised shall commence on the date such notice of revaluation is given
and shall permanently terminate 60 days thereafter.
6.5.5 Financed Shares distributed to a Participant (or
his beneficiary) shall be subject to a right of first refusal as provided in
this Section 6.5.5, if such Financed Shares are not publicly traded at the time
the right of first refusal may be exercised. Financed Shares distributed to a
Participant (or his beneficiary) shall not be transferable to any person other
than the Plan or the Company unless (i) the Participant or beneficiary receives
a good faith written offer for the purchase of such Financed Shares from a
person other than the Plan or the Company; (ii) the Participant or beneficiary
provides written notice to the Trust Investment Committee of the receipt of such
offer in a form reasonably acceptable to the Trust Investment Committee; (iii)
such written notice includes a copy of such offer and a description of the terms
and conditions of such offer; and (iv) the Plan fails to purchase such Financed
Shares before the close of the 14th day following the Trust Investment
Committee's receipt of such written notice. In exercising its right of first
refusal under this Section 6.5.5, the Plan may not purchase Financed Shares for
an amount less than the greater of (A) the purchase price and other terms
offered by the offeror for such Financed Shares or (B) the value of such
Financed Shares as
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determined pursuant to Treasury Regulation ss. 54.4975-11(d)(5). The Trust
Investment Committee shall immediately notify the Board of Directors of its
receipt of a written notice from a Participant or beneficiary of any offer to
purchase Financed Shares that are subject to the right of first refusal
hereunder, and of its intentions regarding the exercise of such right of first
refusal. If the Trust Investment Committee notifies the Board of Directors on
behalf of the Plan that the Plan shall decline to exercise such right, the
Company shall have the right to exercise such right to the same extent as the
Plan, provided that such right must be exercised before the close of the 14th
day following the Trust Investment Committee's receipt of the Participant's or
beneficiary's notice of such offer. Such notice shall be deemed received on the
date actually received by the Trust Investment Committee.
6.6 Pre-Retirement Diversification Rights. The Benefits
Committee shall establish a procedure pursuant to which, during an Election
Period, each Qualified Participant may direct the Trustee as to the investment
of the value (determined as of the immediately preceding Valuation Date) of at
least 25% of the number of shares of ESOP Stock credited to his Account. The
amount with respect to which a Qualified Participant may direct the investment
during any Election Period subsequent to the Qualified Participant's initial
Election Period shall be determined by multiplying the number of shares of ESOP
Stock credited to his Account by 25% (or, with respect to a Participant's final
election, 50%), reduced by the aggregate number of shares subject to any prior
elections by such Qualified Participant pursuant to this Section. The procedure
established by the Benefits Committee may provide that the Qualified Participant
may direct the investment of the amount determined pursuant to this Section by
instructing the Trustee to:
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6.6.1 distribute such amount to him within ninety (90)
days after the Election Period;
6.6.2 if the Benefits Committee selects three or more
investment options other than ESOP Stock for purposes of this Section, to invest
such amount, within ninety (90) days after the Election Period, in one or more
of such investment options; or
6.6.3 if the Company maintains another qualified defined
contribution plan that permits participant direction of investments, to transfer
such amount, within ninety (90) days after the Election Period, to such other
plan. The procedure established by the Benefits Committee, and the effectuation
of a Qualified Participant's elections made pursuant to such procedure, shall
comply with section 401(a)(28) of the Code.
6.7 Timing of Benefit Distributions.
6.7.1 Special Distribution Rules. The following special
distribution rules shall supersede the general distribution rules of Sections
6.7.2 through 6.7.3:
6.7.1.1 Required Beginning Date. Notwithstanding any
other provision of the Plan, benefits to a Participant (or to a Participant's
beneficiary following the Participant's death before benefits have begun to be
paid), shall begin to be paid not later than the Required Beginning Date.
6.7.1.2 Small Dollar Cash-Outs. If the value of the
nonforfeitable Account Balance of a Participant who separates from service to
the Company and all Affiliated Companies is $5,000 or less, his Account Balance
shall be distributed in a single sum as soon as administratively practicable
following the Participant's separation from service.
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6.7.1.3 Financed Shares. Except for distributions
subject to Sections 6.7.1.1 and 6.7.1.2 and notwithstanding any other Plan
provision, to the extent a Participant's Account Balance holds Financed Shares,
distributions shall not begin before the Acquisition Loan with respect to such
Financed Shares has been repaid in full.
6.7.1.4 Required Consent to Distribution. Except for
distributions (i) subject to Section 6.7.1.2, (ii) payable following a
Participant's death or (iii) payable following a Participant's Normal Retirement
Date, no distribution will be made without the Participant's consent. Moreover,
for such consent to be valid, it must be given not more than 90 days before the
date as of which distributions begin. If a Participant does not consent to a
distribution of his nonforfeitable interest in his Account Balance at the time
that it first becomes distributable, such nonforfeitable interest shall continue
to be held in the Plan until the earlier of: (i) the close of the Plan Year in
which the Participant reaches Normal Retirement Date or dies, or (ii) as soon as
practicable following such time as the Participant submits a written request for
such distribution to the Benefits Committee.
6.7.2 Normal Retirement, Total Disability or Death.
6.7.2.1 Normal Retirement or Total Disability.
Except as otherwise provided in Section 6.7.1, distributions with respect to a
Participant who separates from service to the Company and all Affiliated
Companies on or after his Normal Retirement Date or on account of a Total
Disability shall begin as soon as administratively practicable following such
separation from service, but not later than the close of the Plan Year following
the Plan Year during which such separation from service occurs.
6.7.2.2 Death. If a Participant separates from
service to the Company and all Affiliated Companies because of death, but the
commencement of the
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distribution is delayed beyond the close of the Plan Year following the Plan
Year during which such separation from service occurs because of the application
of Section 6.7.1.3 (regarding the effect of the existence of an Acquisition Loan
on the timing of distributions), then, notwithstanding any other provision of
this Article VI to the contrary:
(i) if (and to the extent that) the Participant's
beneficiary is a person or entity that is not the Participant's surviving
spouse, distribution with respect to such Participant shall be made in a single
sum as soon as practicable following the repayment of the Acquisition Loan in
full, or, if earlier, by the last day of the calendar year which contains the
fifth anniversary of the Participant's date of death; and
(ii) if (and to the extent that) the Participant's
beneficiary is the Participant's spouse, distribution with respect to such
Participant shall be paid in the form described in Section 6.5.1, and shall
begin to be paid as soon as practicable following the repayment of the
Acquisition Loan, or, if earlier, the date the Participant would have attained
age 70 1/2.
6.7.3 Other Separation From Service. Except as otherwise
provided in Section 6.7.1, distributions with respect to a Participant who
separates from service to the Company and all Affiliated Companies before his
Normal Retirement Date, or as a result of his Total Disability or death, shall
begin as soon as administratively practicable following the fifth anniversary of
such separation from service, but not later than the close of the sixth Plan
Year beginning after such separation from service, provided that distributions
shall not begin under this Section 6.7.3 if the Participant is reemployed by the
Company or an Affiliated Company before the close of the sixth Plan Year
beginning after the Participant's separation from service.
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6.8 Valuation for Distribution. For the purposes of paying the
amounts to be distributed to a Participant or his beneficiaries under the
provisions of this Article, the value of a Participant's Account shall be
determined in accordance with Article V as of the Valuation Date immediately
preceding the date of payment and shall be adjusted for any contributions or
forfeitures which have been allocated to the Participant's Account since that
Valuation Date.
6.9 Direct Rollover. Notwithstanding any provision of the
Plan, a Distributee may elect, at the time and in the manner prescribed by the
Benefits Committee, to have any portion of an Eligible Rollover Distribution
paid directly to the Eligible Retirement Plan specified by that Distributee as a
Direct Rollover.
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ARTICLE VII
DEATH BENEFITS
--------------
7.1 Beneficiary. Following the death of a married Participant,
his entire Account Balance shall be paid to his surviving spouse unless the
Participant has designated a different beneficiary in the manner prescribed by
the Benefits Committee pursuant to Section 2.3, and (i) the Participant's Spouse
has consented to that designation in writing, in an instrument that acknowledges
the effect of the designation and that is witnessed by a representative of the
Benefits Committee or by a notary public, or (ii) the Benefits Committee
concludes that such consent cannot be obtained because the Participant has no
Spouse or because the Spouse cannot be located or because such consent is not
required under such circumstances as are prescribed by governmental regulations.
If the Participant is not married on the date of his death, his beneficiary
shall be the person or persons designated by him pursuant to Section 2.3. Any
portion of the Participant's Account Balances which is undisposed of due to the
failure to designate a beneficiary or to the failure of the designated
beneficiary or Spouse to survive the Participant shall be paid to the
Participant's estate.
7.2 Form of Payment. Death benefits shall be payable in the
form described in Section 6.5.
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<PAGE>
ARTICLE VIII
MANAGEMENT OF FUNDS
-------------------
8.1 Designation of Trustee. The Trust Investment Committee
shall name and designate a Trustee and shall enter into a Trust Agreement with
such Trustee on behalf of the Participating Companies. The Trust Investment
Committee shall have the power to amend the Trust Agreement, remove any Trustee,
and designate a successor Trustee, as provided in the Trust Agreement. All of
the assets of the Plan shall be held by the Trustee for use in accordance with
this Plan in providing for the benefits hereunder.
8.2 Exclusive Benefit. Prior to the satisfaction of all
liabilities under the Plan in the event of termination of the Plan, no part of
the corpus or income of the Trust shall be used for or diverted to purposes
other than for the exclusive benefit of Participants and their beneficiaries
except as expressly provided in this Plan and in the Trust Agreement.
8.3 No Interest in Trust. No person shall have any interest in
or right to any part of the assets or income of the Trust, except to the extent
expressly provided in this Plan and in the Trust Agreement.
8.4 Trust Investment Committee. The Trust Investment Committee
shall be the named fiduciary with respect to management and control of Plan
assets held by the Trustee and shall have exclusive and sole responsibility for
investment thereof in accordance with the Trust Agreement and the provisions of
the Plan. The Trustee shall have the exclusive and sole responsibility for the
custody of Plan assets held by it in accordance with the Trust Agreement and the
provisions of the Plan, for following the directions of the Trust Investment
Committee and of Participants as required by the Plan and Trust Agreement, and
for selecting short-term investment funds for the investment of cash balances
held by the Trust.
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<PAGE>
ARTICLE IX
ADMINISTRATION
--------------
9.1 Administrator. The Company shall control and manage the
operation of the Plan and shall be the Plan Administrator.
9.2 Benefits Committee. The Company shall delegate its
discretionary authority and control with respect to Plan administration to the
Benefits Committee, which Benefits Committee shall consist of not less than
three persons who will serve at the pleasure of the Board of Directors. The
Benefits Committee members may be, but need not be, employees of the Company or
members of the Trust Investment Committee. They shall be entitled to
reimbursement of expenses but to no compensation for their service on the
Benefits Committee. Any reimbursement of expenses of the Benefits Committee
shall be paid directly by the Company.
9.3 Ministerial Functions. The Benefits Committee shall
delegate its ministerial duties or functions to such person or persons as the
Benefits Committee shall select. Such person or persons shall be responsible for
the general administration of the Plan under the policy guidance of the Benefits
Committee. Such person or persons may be employees of the Company and shall be
compensated for services and expenses by the Company according to its normal
employment policies, without special or additional compensation for service
hereunder.
9.4 Duties and Powers of Benefits Committee. In addition to the
duties and powers described elsewhere hereunder, the Benefits Committee shall
have the following specific duties and powers:
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<PAGE>
9.4.1 to enact uniform and non-discriminatory rules,
regulations, and procedures necessary or desirable to carry out the provisions
of the Plan;
9.4.2 to interpret the provisions of the Plan and to
resolve questions or disputes relating to or arising under the Plan;
9.4.3 to establish reasonable procedures to determine the
qualified status of domestic relations orders which relate to the Plan, as
provided in section 414(p) of the Code; and
9.4.4 to retain such consultants, accountants, and
attorneys as may be deemed necessary or desirable to render statements, reports,
and advice with respect to the Plan, and to assist the Benefits Committee in
complying with all applicable rules and regulations affecting the Plan. Any
consultants, accountants, or attorneys may be the same as those retained by the
Company.
9.5 Functioning of Benefits Committee. The Benefits Committee
shall keep accurate records and minutes of meetings, interpretations, and
decisions. The Benefits Committee shall act by majority vote of its members, and
such action shall be evidenced by written documents.
9.6 Disputes.
9.6.1 In the event that the Benefits Committee denies, in
whole or in part, a claim for benefits by a Participant or his beneficiary, the
Benefits Committee shall furnish notice of the denial to the claimant, setting
forth (1) the specific reasons for the denial, (2) specific reference to the
pertinent Plan provisions on which the denial is based, (3) a description of any
additional information necessary for the claimant to perfect the claim and an
explanation of why such information is necessary, and (4) appropriate
information as to the steps to be taken
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<PAGE>
if the claimant wishes to submit his claim for review. Such notice shall be
forwarded to the claimant within 90 days of the Benefits Committee's receipt of
the claim; provided, however, that in special circumstances the Benefits
Committee may extend the response period for up to an additional 90 days,
provided that the Benefits Committee notifies the claimant in writing of the
extension and specifies the reason or reasons for the extension.
9.6.2 Within 60 days of receipt of a notice of claim
denial, a claimant or his duly authorized representative may petition the
Benefits Committee in writing for a full and fair review of the denial. The
claimant or his duly authorized representative shall have the opportunity to
review pertinent documents and to submit issues and comments in writing to the
Benefits Committee. The Benefits Committee shall review the denial and shall
communicate its decision and the reasons therefor to the claimant in writing
within 60 days of receipt of the petition; provided, however, that the Benefits
Committee may extend the 60-day response period in special circumstances for up
to an additional 60 days. Written notice of the extension shall be sent to the
claimant prior to the commencement of the extension.
9.7 Indemnification. Each member of the Benefits Committee, the
Trust Investment Committee and any other person who is an Employee or director
of the Company or an Affiliated Company, or any person serving as Trustee, shall
be indemnified by the Company against expenses (other than amounts paid in
settlement to which the Company does not consent) reasonably incurred by him in
connection with any action to which he may be a party by reason of his
performance of administrative functions and duties under the Plan, except in
relation to matters as to which he shall be adjudged in such action to be
personally guilty of willful misconduct in the performance of his duties. The
foregoing right to indemnification shall be in addition to such other rights as
the Benefits Committee member or other person may enjoy as a matter of law or by
reason of insurance coverage of any kind. Rights granted hereunder shall be in
addition to and not in lieu of any rights to indemnification to which the
Benefits Committee member or other person may be entitled pursuant to the
by-laws of the Company.
9.8 Expenses. The expenses incident to the operation of the
Plan and the Trust shall be paid or reimbursed from the Trust, unless they are
paid directly by the Company and the Company does not seek reimbursement for
such payment.
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<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
-------------------------
10.1 Power of Amendment and Termination. It is the intention of
the Company that this Plan will be permanent. However, the Company reserves the
right to amend the Plan or terminate the Plan at any time by action of the Board
of Directors or its delegate. Except as expressly provided elsewhere in the
Plan, prior to the satisfaction of all liabilities with respect to the benefits
provided under this Plan, no such amendment or termination shall cause any part
of the monies contributed hereunder to revert to the Company or to be diverted
to any purpose other than for the exclusive benefit of Participants and their
beneficiaries. Except as otherwise permitted by law, no amendment shall have the
effect of retroactively depriving Participants of benefits already accrued under
the Plan. In the event of a termination, a partial termination, or a complete
discontinuance of contributions, or in the event that the Company is dissolved,
liquidated, or adjudicated bankrupt, the interests of the affected Participants,
their estates, and their beneficiaries shall be fully vested. Any amendment
shall become effective as of the date designated by the Board of Directors.
10.2 Merger. The Plan shall not be merged with or consolidated
with, nor shall its assets be transferred to, any other qualified retirement
plan unless each Participant would receive a benefit after such merger,
consolidation, or transfer (assuming the surviving or transferee plan then
terminated) which is of equal or greater actuarial value than the benefit he
would have received if the Plan had been terminated on the day before such
merger, consolidation, or transfer. The Plan shall not accept a transfer of any
amounts which would cause the Plan to be a direct or indirect transferee of a
plan to which the joint and survivor annuity and pre-retirement survivor annuity
requirements of sections 401(a)(11) and 417 of the Code apply.
10.3 Change in Control.
10.2.1 In the event of a Change in Control, as defined in
Section 10.2.2, the interests of the affected Participants, their estates, and
their beneficiaries shall be fully vested.
10.2.2 "Change in Control" shall mean:
10.2.2.1 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 Yardville National Bank (the "Bank") or Yardville
National Bancorp (the Bank's "Holding Company"); or
10.2.2.2 the sale of all or substantially all of the
assets of the Bank or Holding Company; or,
10.2.2.3 any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be the occurrence of
any event described in sections 10.2.2.1 or 10.2.2.2.
39
<PAGE>
ARTICLE XI
TOP-HEAVY PROVISIONS
--------------------
11.1 General. The following provisions shall apply
automatically to the Plan and shall supersede any contrary provisions for each
Plan Year in which the Plan is a Top-Heavy Plan. It is intended that this
Article shall be construed in accordance with the provisions of section 416 of
the Code.
11.2 Definitions. The following definitions shall supplement
those set forth in Article I of the Plan:
11.2.1 "Aggregation Group" shall mean:
11.2.1.1 each plan (including a frozen plan or a
plan which has been terminated during the 60-month period ending on the
Determination Date) of the Company or an Affiliated Company in which a Key
Employee is a participant,
11.2.1.2 each other plan (including a frozen plan
or a plan which has been terminated during the 60-month period ending on the
Determination Date) of the Company or an Affiliated Company which enables any
plan in which a Key Employee participates to meet the requirements of sections
401(a)(4) and 410 of the Code, and
11.2.1.3 each other plan (including a frozen plan
or a plan which has been terminated during the 60-month period ending on the
Determination Date) of the Company or an Affiliated Company which is included by
the Benefits Committee if the Aggregation Group, including such a plan, would
continue to meet the requirements of sections 401(a)(4) and 410 of the Code.
40
<PAGE>
11.2.2 "Determination Date" shall mean the last day of
the preceding Plan Year.
11.2.3 "Key Employee" shall mean any Employee or former
Employee who at any time during the 60-month period ending on the Determination
Date is described below. Key Employee shall also include the beneficiaries of
such persons. Notwithstanding the foregoing, the number of persons described in
Section 11.2.3.2 for the entire 60-month period shall be limited to 10.
11.2.3.1 An officer of the Company or an
Affiliated Company having annual compensation, as defined in section 414(q) of
the Code, from the Company and all Affiliated Companies for a Plan Year during
such period greater than fifty percent (50%) of the amount in effect under
section 415(b)(1)(A) of the Code for such Plan Year.
11.2.3.2 One of the 10 Employees with annual
compensation, as defined in section 414(q) of the Code, from the Company and all
Affiliated Companies greater than the amount described in section 415(c)(1)(A)
of the Code who own (or are considered as owning, within the meaning of section
318 of the Code) the largest interests in the Company or any Affiliated Company,
provided that such interest exceeds one-half percent (0.5%) of the total share
ownership of the Company or Affiliated Company.
11.2.3.3 A five-percent (5%) owner of the Company
or any Affiliated Company.
11.2.3.4 A one-percent (1%) owner of the Company
or any Affiliated Company who has annual compensation, as defined in section
414(q) of the Code, from the Company and all Affiliated Companies which, in the
aggregate, is in excess of $150,000.
41
<PAGE>
The above determinations will be made in accordance with section 416(i) of the
Code. No more than 50 employees (or, if less, the greater of three employees or
ten percent (10%) of the greatest number of employees, including leased
employees within the meaning of section 414(n) of the Code, employed by the
Company and all Affiliated Companies during the 60-month period ending on the
Determination Date) shall be treated as officers, for which purpose employees
described in section 414(q)(8) of the Code shall not be taken into account.
11.2.4 "Key Employee Ratio" shall mean the ratio for any
Plan Year, calculated as of the Determination Date of such Plan Year, determined
by comparing the amount described in Section 11.2.4.1 with the amount described
in Section 11.2.4.2 after deducting from each such amount any portion thereof
described in Section 11.2.4.3.
11.2.4.1 The sum of (i) the present value of all
accrued benefits of Key Employees under all qualified defined benefit plans
included in the Aggregation Group, (ii) the balances in all of the accounts of
Key Employees under all qualified defined contribution plans included in the
Aggregation Group, and (iii) the amounts distributed from all plans in such
Aggregation Group to or on behalf of any Key Employee during the period of five
Plan Years ending on the Determination Date, except benefits paid on account of
death in excess of the accrued benefit or account balances immediately prior to
death.
11.2.4.2 The sum of (i) the present value of all
accrued benefits of all participants under all qualified defined benefit plans
included in the Aggregation Group, (ii) the balances in all of the accounts of
all participants under all qualified defined contribution plans included in the
Aggregation Group and (iii) the amounts distributed from all plans in such
Aggregation Group to or on behalf of any participant during the period of five
Plan Years ending on the Determination Date.
42
<PAGE>
11.2.4.3 The sum of (i) all rollover contributions
(or fund to fund transfers) to the Plan by an Employee from a plan sponsored by
an employer which is not the Company or an Affiliated Company, (ii) any amount
that is included in Sections 11.2.4.1 and 11.2.4.2 for a person who is a Non-Key
Employee as to the Plan Year of reference but who was a Key Employee as to any
earlier Plan Year, and (iii) any amount that is included in Sections 11.2.4.1
and 11.2.4.2 for a person who had not performed any services for the Company
during the five-year period ending on the Determination Date.
11.2.4.4 The present value of accrued benefits
under all qualified defined benefit plans included in the Aggregation Group
shall be determined on the basis of the 1984 Unisex Mortality Table and an
interest rate of seven percent (7%).
11.2.5 "Non-Key Employee" shall mean any person who is an
Employee or a former Employee of the Company or an Affiliated Company in any
Plan Year but who is not a Key Employee as to that Plan Year. Non-Key Employee
shall also include the beneficiaries of such persons.
11.2.6 "Super Top-Heavy Plan" shall mean each plan in an
Aggregation Group if, as of the applicable Determination Date, the Key Employee
Ratio in the plan exceeds ninety percent (90%), determined in accordance with
section 416 of the Code.
11.2.7 "Top-Heavy Plan" shall mean each plan in an
Aggregation Group if, as of the applicable Determination Date, the Key Employee
Ratio exceeds sixty percent (60%), determined in accordance with section 416 of
the Code.
43
<PAGE>
11.3 Minimum Contribution for Non-Key Employees.
11.3.1 In each Plan Year in which the Plan is a Top-Heavy
Plan, each Participant who is a Non-Key Employee (except a Participant who is a
Non-Key Employee as to the Plan Year of reference but who was a Key Employee as
to any earlier Plan Year) and who is actively employed by a Participating
Company on the last day of such Plan Year will receive a total minimum
allocation of Participating Company contributions (including forfeitures) under
all plans described in Section 11.2.1.1 and 11.2.1.2 of not less than three
percent (3%) of the Participant's annual compensation, as defined in Treas. Reg.
ss.1.415-2(d). Salary reduction contributions to such plans made on behalf of a
Participant shall not be deemed to be Participating Company contributions for
the purpose of this Section 11.3.1.
11.3.2 The percentage set forth in Section 11.3.1 shall
be reduced to the percentage at which contributions, including forfeitures, are
made (or are required to be made) for a Plan Year for the Key Employee for whom
such percentage is the highest for that Plan Year. This percentage shall be
determined for each Key Employee by dividing the contribution for such Key
Employee (including salary reduction contributions to such plans made on behalf
of such Key Employee) by his compensation, as defined in Treas. Reg.
ss.1.415-2(d), for the Plan Year. All defined contribution plans required to be
included in an Aggregation Group shall be treated as one plan for the purpose of
this Section; however, this Section shall not apply to any plan which is
required to be included in an Aggregation Group if such plan enables a defined
benefit plan in the group to meet the requirements of section 401(a)(4) or
section 410 of the Code.
11.3.3 If a Non-Key Employee described in Section 11.3.1
participates in both a defined benefit plan and a defined contribution plan
described in Section 11.2.1.1 and
44
<PAGE>
11.2.1.2, the Company is not required to provide such Employee with both the
minimum benefit under the defined benefit plan and the minimum contribution. In
such event, the Non-Key Employee shall receive the minimum benefit provided
under the defined benefit Top-Heavy Plan.
11.4 Change in Vesting Schedule. Each Participant who has an
Hour of Service in any Plan Year beginning on or after the first day of the
first Plan Year for which the Plan is a Top-Heavy Plan, shall have a 100 percent
nonforfeitable interest in his Account after completing three years of Credited
Service.
11.5 Social Security. The Plan, for each Plan Year in which it
is a Top-Heavy Plan, must meet the requirements of this Article without regard
to any Social Security or similar contributions or benefits.
11.6 Adjustment to Maximum Allocation Limitation. The
following rules shall apply only with respect to Plan Years beginning before
January 1, 2000:
11.6.1 For each Plan Year in which the Plan is (1) a
Super Top-Heavy Plan or (2) a Top-Heavy Plan and the Board of Directors does not
make the election described in Section 11.6.2 and for which a similar election
has not been made as to another plan in the Aggregation Group, the 1.25 factor
in the defined benefit and defined contribution fractions described in sections
415(e)(2) and (e)(3) of the Code shall be reduced to 1.0. The adjustment
described in this Section 11.6.1 shall not apply to any Participant during any
period in which the Participant earns no additional accrued benefit under any
defined benefit plan and has no employer contributions, forfeitures, or
voluntary contributions allocated to his accounts under any defined contribution
plan.
11.6.2 If, in any Plan Year in which the Plan is a
Top-Heavy Plan but not a Super Top-Heavy Plan, the Aggregation Group described
in Section 11.2.1.1 and 11.2.1.2 also includes a defined benefit plan, the Board
of Directors may elect to use a factor of 1.25 in computing the denominator of
the defined benefit and defined contribution fractions described in sections
415(e)(2) and (e)(3) of the Code. In the event of such an election, the minimum
Company contribution described in Section 11.3.1 for each Non-Key Employee who
is not covered under a defined benefit plan shall be increased to four percent
(4%), and the minimum Company contribution described in Section 11.3.3 for each
Non-Key Employee who is covered under a defined benefit plan shall be increased
to seven and one-half percent (7 1/2%).
45
<PAGE>
ARTICLE XII
RIGHTS OF ALTERNATE PAYEES
--------------------------
12.1 General. Except as otherwise provided in this Article, an
Alternate Payee shall have no rights to a Participant's benefit and shall have
no rights under this Plan other than those rights specifically granted to the
Alternate Payee pursuant to a Qualified Domestic Relations Order.
Notwithstanding the foregoing, an Alternate Payee shall have the right to appeal
the denial of a claim for any benefits awarded to the Alternate Payee pursuant
to a Qualified Domestic Relations Order, as provided in Section 9.6. Any
interest of an Alternate Payee in the Account of a Participant, other than an
interest payable solely upon the Participant's death pursuant to a Qualified
Domestic Relations Order that provides that the Alternate Payee shall be treated
as the Participant's surviving spouse, shall be separately accounted for by the
Trustee in the name and for the benefit of the Alternate Payee.
12.2 Death Benefits. Unless a Qualified Domestic Relations
Order provides otherwise, an Alternate Payee shall have the right to designate a
beneficiary, in the same manner as provided in Section 7.1 with respect to a
Participant (except that no spousal consent shall be required), who shall
receive benefits payable to the Alternate Payee which have not been distributed
at the time of the Alternate Payee's death. If the Alternate Payee does not
designate a beneficiary, or if the beneficiary predeceases the Alternate Payee,
benefits payable to the Alternate Payee which have not been distributed at the
time of the Alternate Payee's death shall be paid to the Alternate Payee's
estate.
46
<PAGE>
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 Source of Benefits. The provisions of the Plan shall not
create any obligation or liability of the Company to pay any benefit under the
Plan beyond the funds of the Plan available for such payment.
13.2 Alienation of Benefits. Except with respect to qualified
domestic relations orders pursuant to Code section 414(p), or an amount
necessary to satisfy a federal tax levy made pursuant to Code section 6331,
payments from and benefits under the Plan are neither alienable nor assignable,
and are not subject to attachment by creditors of or through legal processes
against any Participant or his beneficiary.
13.3 Facility of Payment. If the Administrator deems any person
incapable of receiving benefits to which he is entitled by reason of minority,
illness, infirmity, or other incapacity, it may direct that payment be made
directly for the benefit of such person or to any person selected by the Plan
Administrator to disburse it, whose receipt shall be a complete acquittance
therefor. Such payments shall, to the extent thereof, discharge all liability of
the Administrator, the Company and the party making the payment.
13.4 Interest and Dividends on Distributions. The amount of the
distribution shall be determined as of the date provided in Article VI, without
adjustment for earnings, gains, or losses between such date and the date of
actual payment.
13.5 Applicable Law. Except as provided by federal law, the Plan
shall be governed by and construed in accordance with the laws of the State of
New Jersey.
47
<PAGE>
SCHEDULE A TO THE
YARDVILLE NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
PARTICIPATING COMPANIES
-----------------------
The following companies have been designated by the Board of
Directors of Yardville National Bank as Participating Companies in the Yardville
National Bank Employee Stock Ownership Plan (the "Plan"), and have adopted the
Plan for the benefit of their eligible employees, effective as of the Effective
Date of the Plan:
1. Yardville National Bank
A-1
<PAGE>
SCHEDULE B TO THE
YARDVILLE NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
TRUST INVESTMENT COMMITTEE CHARTER
----------------------------------
1. Background. Eligible employees of Yardville National Bank
(the "Company") and certain of its affiliates participate in the Yardville
National Bank Employee Stock Ownership Plan (the "Plan"). The Plan is subject to
the special provisions of the Internal Revenue Code, as amended (the "Code")
that apply to plans that are designed primarily to invest in employer
securities, and to the fiduciary provisions of Part 4 of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company's
Board of Directors (the "Board") has created the Trust Investment Committee
("TIC") to perform certain investment functions, as enumerated below, with
respect to the Plan.
2. Membership. The Board shall appoint the membership of TIC.
Unless otherwise determined pursuant to a Board resolution, TIC shall consist of
not less than three voting members, including a Chairman, who shall also be
appointed by the Board. Members may, but need not be employees of the Company or
an affiliate. Members who are employees of the Company or an affiliate shall not
be separately compensated for their service to TIC. Other members shall be
compensated by the Company as separately agreed to between the Company and such
member. Members shall be reimbursed for reasonable out-of-pocket expenses in
accordance with the Company's regular reimbursement policies. Members shall
serve on TIC at the pleasure of the Board, and may be removed by the Board at
any time, with or without cause. The Chairman, at his discretion, may invite one
or more employees of the Company or an affiliate who are not voting members to
attend meetings of TIC as non-voting members of TIC.
3. Meetings.
3.1 Membership Meetings. TIC shall hold regular meetings of
its membership, at least annually, to review the business of the committee and
prepare regular reports for the Board. Special meetings shall be held as the
Chairman may deem appropriate.
3.2 Reports to the Board. The Chairman of TIC shall prepare
and deliver an annual written report to the Board, or such committee of the
Board as the Board may designate. Such report shall summarize the business of
TIC for the preceding year, evaluate the performance of the trustee of the trust
established under the Plan and the Plan's independent valuation advisor for
employer securities held by the Plan, and the anticipated short-, medium- and
long-term cash needs of the Plan for debt amortization and repurchase of
employer securities from eligible employees who separate from service with a
nonforfeitable interest in their Plan Accounts. The Chairman of TIC shall make
such additional reports and request additional Board or Board committee
consideration at such time or times as the Chairman shall deem necessary or
appropriate.
B-1
<PAGE>
3.3 Valuation Advisors. TIC or its members shall conduct
such meetings with current or prospective independent valuation advisors, and
other consultants and advisors as it may deem appropriate.
4. Jurisdiction. TIC shall have the following responsibilities
under the Plan and related trust:
4.1 The appointment, retention and termination of an
independent valuation advisor to provide valuation reports with respect to
employer securities held by the trust;
4.2 The appointment, retention and termination of the
trustee;
4.3 To vote employer securities held by the trust, except
to the extent otherwise provided in the Plan and trust;
4.4 To decide whether to tender or exchange employer
securities held by the trust;
4.5 To direct the trustee of the trust to purchase employer
securities from the Company and shareholders, to determine the price at which
such purchase shall be closed based on the advice of an independent valuation
advisor, and, in connection with each such purchase, to approve the terms and
conditions under which the trust will finance acquisitions of employer
securities; and
4.6 To take all other actions and make all other decisions
assigned to it under the Plan and trust.
6. Amendment. The Board shall have the authority to amend this
Charter.
Adopted this 27th day of January, 1999.
[Corporate Seal] YARDVILLE NATIONAL BANK
ATTEST:___________________ By: ___________________________
Title: ___________________________
B-2
<PAGE>
Yardville National Bancorp Subsidiaries Exhibit 10.31
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
10 YNB Capital Development, Inc.
(wholly-owned subsidiary of Bank)
- --------------------------------------------------------------------------------
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