SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-16931
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UNITED NATIONAL BANCORP
(Exact name of Registrant as specified in its Charter)
New Jersey 22-2894827
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1130 Route 22 East
Bridgewater, New Jersey 08807
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(Address of principal executive offices) (ZIP CODE)
(908) 429-2200
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock $1.25 par value NASDAQ National Market System
- ---------------------------- -----------------------------
(Title of each class) (Name of each exchange on which
registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of United National Bancorp's common stock held by
non-affiliates, as of January 31, 1998, amounted to $232,699,692.
The number of shares of Registrant's Common Stock, $1.25 par value, outstanding
as of March 16, 1998 was 9,371,209.
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Documents Incorporated by Reference
Part(s) Into
Documents Which Incorporated
United's Annual Report to Shareholders
for the year ended December 31, 1997
("United's 1997 Annual Report"),
Financial Review section pages 1 through 32. Part I, Part II
United's Proxy Statement to be used in
connection with the Annual Meeting of
Shareholders which is anticipated to be
held on April 21, 1998 ("United's Proxy
Statement for its 1998 Annual Meeting")
under the captions "Election of Directors",
"Stock Ownership of Management and Principal
Shareholder", "Executive Compensation",
and "Compensation Committee Interlocks and
Insider Participation". Part III
With the exception of information specifically incorporated by reference,
United's 1997 Annual Report and United's Proxy Statement for its 1998 Annual
Meeting are not deemed to be part of this report.
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PART I
Item 1 - Business
(a) General Development of Business
United National Bancorp ("United", "Registrant" or the "Company") is a bank
holding company registered with the Board of Governors of the Federal Reserve
System (the "Board") under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). United was incorporated by United National Bank (the "Bank") in the
State of New Jersey on August 13, 1987 and commenced operations August 1, 1988
as a bank holding company for the Bank. The corporate headquarters of both
United and the Bank are located at 1130 Route 22 East, Bridgewater, New Jersey,
and the phone number is (908) 429-2200.
As of December 31, 1997, United had consolidated assets of approximately $1.3
billion, deposits of $987.8 million and stockholders' equity of $111.0 million.
Banking Subsidiary
The Bank, a wholly-owned subsidiary of United, is a commercial bank established
in 1902 under the laws of the United States of America. The Bank is a member of
the Federal Reserve System and the Federal Home Loan Bank and its deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
headquartered in Bridgewater, New Jersey and operates 26 branches throughout
Central New Jersey. The Bank operates six branches in Hunterdon County, three
branches in Middlesex County, one branch in Morris County, six branches in
Somerset County, six branches in Union County and four branches in Warren
County, New Jersey. The Bank also operates 30 automatic teller machines ("ATMs")
affiliated with the MAC System, an eight-state network with membership in the
Plus Nationwide network and Honor, a Florida network.
The Bank provides a full range of commercial and retail bank services, including
the acceptance of demand, savings and time deposits. The Bank also provides
retail and commercial loans and mortgages to a variety of individuals and
businesses and offers full personal, corporate and pension trust and other
fiduciary services.
Growth of United National Bank
On January 23, 1995, the Bank acquired from the Resolution Trust Corporation
("RTC") two branches of the former Carteret Federal Savings Bank. In connection
with the acquisition, the Bank assumed deposits, including accrued interest, of
approximately $99 million. The Bank paid a premium of approximately $11.7
million to the RTC in the transaction.
On June 30, 1995, the Bank acquired all of the outstanding shares of New Era
Bank ("New Era") based in the Somerset section of Franklin Township, New Jersey.
Each share of New Era was converted into .7431 shares of the Company's common
stock, for a total of 684,904 shares issued, not adjusted for subsequent stock
dividends and splits. At the time of the acquisition, New Era had approximately
$120 million in assets. The acquisition was accounted for as a
pooling-of-interests.
On November 3, 1995, the Bank and Hudson United Bank ("Hudson") formed a joint
venture under which each now participates equally as owners of a financial
services corporation providing data processing, check processing, management
information services and other automated record keeping functions for the two
banks. The financial services corporation, known as United Financial Services,
Inc., is located in Mahwah, New Jersey. The investment is being accounted for by
the equity method of accounting.
On February 28, 1997, the Bank acquired all of the outstanding shares of
Farrington based in North Brunswick, New Jersey. Each share of Farrington was
converted into .7647 shares of the Company's common stock, for a total of
549,212 shares issued, not adjusted for subsequent stock dividends and splits.
At the time
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of the acquisition, Farrington had approximately $60 million in assets. The
acquisition was accounted for as a pooling-of-interests.
On March 21, 1997, the Company privately placed $20 million in capital
securities pursuant to Rule 144A under the Securities Act of 1933. The 10.01%
capital securities represent a preferred beneficial interest in the assets of
UNB Capital Trust I, a statutory business trust. The Trust exists for the sole
purpose of issuing the trust securities and investing the proceeds in 10.01%
Junior Subordinated Debentures of the Company due March 15, 2027, which are the
sole assets of the Trust. The capital securities have preference over the common
securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation. The $20 million qualifies as Tier I capital for
regulatory capital purposes, subject to certain limitations, and are accounted
for as minority interest.
In 1997, the Bank established a subsidiary corporation in New Jersey, United
Commercial Capital Group, to provide timely and innovative financing solutions
for real estate and commercial transactions that do not fall within the
boundaries of traditional financing.
On December 6, 1997, the Company, through the Bank, assumed deposits, including
accrued interest, of approximately $21 million from another bank. In addition,
the Bank received $214,000 in cash and cash equivalents and approximately
$692,000 in other assets. In connection with the transaction, the Bank recorded
an intangible asset of $1,400,000, representing the premium paid over the
carrying amount of deposits acquired.
(b) Industry Segments
The Company has one industry segment - commercial banking.
(c) Narrative Description of Business
Personal Banking Services
The Bank, through its 26 branch network and 30 MAC installations, provides both
retail and commercial services. Among the services provided at the branch
locations are: checking accounts, money market accounts, Super NOW accounts,
certificates of deposit, statement and passbook savings accounts, individual
retirement accounts ("IRAs"), self-employed pension plans ("SEPs"), safe deposit
services, installment and other personal loans, home equity loans, mortgage
loans, lines of credit and other consumer financing. The Bank also issues
secured and unsecured credit cards.
The Bank offers a full range of trust services for individuals and corporations.
These services include: fiduciary services, estate planning, custodial, employee
benefits, pension as well as profit sharing plans. The market value of trust
assets under administration was in excess of $1 billion at December 31, 1997.
Discount Brokerage Service has been offered since 1986 as an additional service
to customers. It is currently managed by Fiserv Investor Services, Inc.
(formerly TradeStar Investor Services).
Commercial Banking Services
The Bank provides commercial customers with a wide array of financial services,
which are administered at the branch level as well as at the Headquarters Office
in Bridgewater. These services include secured and unsecured loans, term loans,
lines of credit and corporate credit cards. The Bank also participates in the
New Jersey Economic Development Authority programs, which make tax-exempt, low
interest financing programs available to borrowers who wish to relocate or
expand their activity in New Jersey. As a Small Business Administration ("SBA")
Preferred Lender, the Bank is able to offer streamlined processing on SBA loans.
In
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addition, the Bank makes other Government loan programs available. As a
member of the Automated Clearing House, the Bank makes direct deposit services
available.
Other Subsidiaries
In 1989, the Bank established a subsidiary corporation in New Jersey, United
National Investment Company, Inc. (formerly UNB Investment Co., Inc.), to manage
a portion of its investment portfolio and to operate under state tax law as an
investment company. As of December 31, 1997, approximately $214.7 million of the
Bank's investment portfolio is being managed by this New Jersey Corporation.
In 1997, the Bank established a subsidiary corporation in New Jersey, United
Commercial Capital Group, to provide timely and innovative financing solutions
for real estate and commercial transactions that do not fall within the
boundaries of traditional financing.
Supervision and Regulation
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limits options of
its management to deploy assets and maximize income. Areas subject to regulation
and supervision by the bank regulatory agencies include: nature of business
activities; minimum capital levels; dividends; affiliate transactions; expansion
and closing of locations; acquisitions and mergers; interest rates paid on
certain types of deposits; reserves against deposits; terms, amounts and
interest rates charged to various types of borrowers; and investments.
Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the BHCA, and is
registered as such with and is supervised by the Board. The Company is required
to file reports with the Board and provide such additional information as the
Board may require.
The Company is required to obtain the approval of the Board before it may
acquire all or substantially all of the assets of any bank, or direct or
indirect ownership of any voting securities of any bank if, after giving effect
to such acquisition, the Company would, directly or indirectly, own or control
more than 5% of the voting shares of such bank. The BHCA also prohibits
acquisition by the Company of more than 5% of the voting shares of a bank
located outside the State of New Jersey, unless such an acquisition is
specifically authorized by laws of the state in which such bank is located. In
addition to the approval of the Board, prior approval must also be obtained from
any other banking agency having supervisory jurisdiction over the bank to be
acquired before any bank acquisition can be completed. Many states, including
New Jersey, have adopted legislation, which permits banks and bank holding
companies resident in New Jersey to acquire banks and bank holding companies in
states with reciprocal legislation. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking Act") provides that
the Board may approve an acquisition by a bank holding company of a bank located
in a state other than the bank holding company's home state without regard to
whether such transaction is prohibited under the laws of any state. The
Interstate Banking Act also permits Federal banking agencies to approve
interstate bank mergers without regard to state law effective June 1, 1997.
States have authority to opt out of the legislation subject to certain
conditions and states have the authority to permit interstate merger
transactions prior to the 1997 effective date. In addition, the Interstate
Banking Act permits de novo branching across state lines effective June 1, 1997
but only with respect to states which affirmatively adopt legislation
authorizing de novo interstate branching.
On April 17, 1996, New Jersey enacted legislation to opt-in with respect to
earlier interstate banking and branching and the entry into New Jersey of
foreign country banks. New Jersey did not authorize de novo branching into the
state. However, under federal law, federal savings banks, which meet certain
conditions, may branch into a state, regardless of state law.
A bank holding company is prohibited from engaging in, or acquiring direct or
indirect control of more than
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5% of the voting shares of any company engaged in nonbanking activities unless
the Board, by order or regulation, has found such activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
Under the Board's policy, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and is
required to commit resources to support its subsidiary banks.
Regulation of the Bank
The Bank is subject to regulation and examination by the Comptroller of the
Currency ("Comptroller"). The Bank is also subject to regulations of the Federal
Reserve System (the "Federal Reserve"). The deposits of the Bank are insured by
the FDIC to the extent provided by law, primarily through the Bank Insurance
Fund (the "BIF"). As a result of the Bank's acquisition of various branches and
deposits of Savings Association Insurance Fund ("SAIF") member institutions, a
portion of the Bank's deposit base is subject to deposit insurance premiums
calculated at assessment rates paid by SAIF-member institutions. At December 31,
1997, the portion of the Bank's deposit base assessed at the SAIF rate was
approximately $82.8 million, or 8.4% of the Bank deposits.
For the first three quarters of 1995, both SAIF-member institutions and
BIF-member institutions paid deposit insurance premiums based on a schedule from
$0.23 to $0.31 per $100 of deposits. In August, 1995, the FDIC, in anticipation
of the BIF's imminent achievement of a required 1.25% reserve ratio, reduced the
deposit insurance premium rates paid by BIF-insured banks from a range of $0.23
to $0.31 per $100 of deposits to a range of $0.04 to $0.31 per $100 of deposits.
The new rate schedule for the BIF was made effective June 1, 1995. On November
14, 1995 the FDIC voted to reduce annual assessments for the semi-annual period
beginning January 1, 1996 to the legal minimum of $2,000 for BIF insured
institutions, except for institutions that are not well capitalized and are
assigned to the higher supervisory risk categories.
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act"),
signed into law on September 30, 1996, included the Deposit Insurance Funds Act
of 1996 (the "Funds Act") under which the FDIC was required to impose a special
assessment on SAIF-assessable deposits to recapitalize the SAIF. As a result of
the Funds Act, the Bank paid a special assessment of $512,000 for its SAIF
deposits, which it accrued in the third quarter of 1996. Under the Funds Act,
the FDIC also will charge assessments for SAIF and BIF deposits in a 5 to 1
ratio to pay Financing Corporation ("FICO") bonds until January 1, 2000, at
which time the assessment will be equal. A FICO rate of approximately 1.29 basis
points will be charged on BIF deposits, and approximately 6.44 basis points will
be charged on SAIF deposits. Oakar deposits will be treated as SAIF deposits for
purposes of the FICO bond assessment. The 1996 Act instituted a number of other
regulatory relief provisions.
The Company and the Bank are also subject to applicable provisions of New Jersey
law insofar as they do not conflict with or are not preempted by Federal law.
Community Reinvestment
Under the Community Reinvestment Act ("CRA"), as implemented by OCC regulations,
a national bank has a continuing and affirmative obligation consistent with its
safe and sound operation to help meet the credit needs of its entire community,
including low and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OCC, in connection with its examination of a
national bank, to assess the association's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such association. The CRA also requires all institutions to make
public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA
rating in its most recent examination.
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In April 1995, the OCC and the other federal banking agencies adopted amendments
revising their CRA regulations, with the new regulations phased in over a period
from July 1, 1995 through July 1, 1997. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual performance
in meeting community needs. In particular, the system focuses on three tests:
(i) a lending test, to evaluate the institution's record of making loans in its
service areas; (ii) an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing and programs
benefiting low or moderate income individuals and businesses; and (iii) a
service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices. The amended CRA regulations also clarify how
an institution's CRA performance will be considered in the application process.
Dividend Restrictions and Other Actions
The Company is a legal entity, separate and distinct from the Bank. Most of the
Company's revenues, including funds available for the payment of dividends and
for operating expenses, are provided by dividends paid by the Bank. There are
statutory and regulatory limitations on the amount of dividends, which may be
paid to the Company by the Bank. The prior approval of the Comptroller is
required if the total of all dividends declared by the Bank in any calendar year
exceeds the Bank's net profits for that year combined with its retained net
profits for the preceding two years, less any required transfers to surplus.
The Comptroller has the authority to prohibit a national bank from engaging in
what, in the Comptroller's opinion, constitutes an unsafe or unsound practice in
conducting its business. It is possible that the Comptroller could assert that
the payment of dividends or other payments might, under some circumstances, be
an unsafe or unsound practice for a national bank.
If, in the opinion of the Comptroller, a bank under its jurisdiction is engaged
in or is about to engage in an unsafe or unsound practice (which, depending on
the financial condition of the bank, could include the payment of dividends),
the Comptroller may require, after notice and hearing, that such bank cease and
desist from such practice or, as a result of an unrelated practice, require the
bank to limit dividends in the future. The Federal Reserve Board has similar
authority with respect to bank holding companies. In addition, the Federal
Reserve Board and the Comptroller have issued policy statements, which provide
that insured banks and bank holding companies should generally only pay
dividends out of current operating earnings. Regulatory pressures to reclassify
and charge-off loans and to establish additional loan loss reserves can have the
effect of reducing current operating earnings and thus impact an institution's
ability to pay dividends. The regulatory authorities have established guidelines
with respect to the maintenance of appropriate levels of capital by a bank or
bank holding company under their jurisdiction.
See "Capital" on page 4, "Note 13 - Capital Requirements" on pages 23-24, and
"Cash Dividend Restrictions" on page 31 of United's 1997 Financial Review
section of the Annual Report.
Capital Requirements
The Board measures capital adequacy for bank holding companies on the basis of a
risk-based capital framework and a leverage ratio. The minimum ratio of total
risk-based capital to risk-weighted assets is 8%. At least half of the total
capital must be common stockholders' equity (not inclusive of net unrealized
gains and losses on available for sale securities) and perpetual preferred
stock, less goodwill and other nonqualifying intangible assets ("Tier 1
capital"). The remainder (i.e., the "Tier 2 risk-based capital") may consist of
hybrid capital instruments, perpetual debt, term-subordinated debt, other
preferred stock and a limited amount of the allowance for loan losses. At
December 31, 1997, the Company had Tier 1 capital as a percentage of
risk-weighted assets of 14.87% and total risk-based capital as a percentage of
risk-weighted assets of 15.86%.
In addition, the Board has established minimum leverage ratio guidelines for
bank holding companies. These
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guidelines currently provide for a minimum ratio of Tier 1 capital as a
percentage of total assets (the "Leverage Ratio") of 3% for bank holding
companies that meet certain criteria, including that they maintain the highest
regulatory rating. All other bank holding companies are required to maintain a
Leverage Ratio of at least 100 to 200 basis points above the minimum. At
December 31, 1997, the Company had a Leverage Ratio of 8.96%.
The Bank is subject to the FDIC's Statement of Policy on Risk-Based Capital, the
requirements of which are substantially identical to the Board's risk-based
capital framework. As of December 31, 1997, the Bank had Tier 1 capital as a
percentage of risk-weighted assets of 14.11% and a total risk-based capital
ratio of 15.11%.
In addition to the Statement of Policy on Risk-Based Capital, the FDIC requires
banks to operate with a minimum Leverage Ratio of 3%. Under these guidelines,
institutions operating at the 3% minimum are expected to have well diversified
risk profiles, including no undue interest rate risk, excellent asset quality,
high liquidity and good earnings. Institutions not meeting these
characteristics, as well as institutions experiencing growth, would be expected
to maintain capital levels at least 100 to 200 basis points above the minimum.
The FDIC is authorized to set higher capital requirements for an individual bank
when the bank's particular circumstances so warrant.
At December 31, 1997, the Bank had a Leverage Ratio of 8.49%.
The Board and the FDIC have adopted regulations effective January 17, 1995 which
identify concentration of credit risk and certain risks arising from
nontraditional activities, as well as an institution's ability to manage these
risks, as important factors in assessing an institution's overall capital
adequacy. The Board adopted amendments to its capital adequacy guidelines
effective April 1, 1995 which limit the amount of certain deferred tax assets
that may be included in a bank holding company's Tier 1 capital for risk-based
and leverage capital purposes. These regulatory amendments, as adopted, had no
material impact on the Company's or the Bank's overall capital adequacy.
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
Under FIRREA, a bank insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The term "default" is
defined to mean the appointment of a conservator or receiver for such
institution and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the absence
of regulatory assistance. Thus, the Bank could incur liability to the FDIC
pursuant to this statutory provision in the event of the default of any other
insured depository institution owned or controlled by the Company.
At the present time, the Bank is the only FDIC-insured depository institution
controlled by the Company. Such liability to the FDIC is subordinated in right
of payment to deposit liabilities, secured obligations, any other general or
senior liability and any obligation subordinated to depositors or other general
creditors, other than obligations owed to any affiliate of the depository
institution (with certain exceptions) and any obligations to shareholders in
such capacity. The imposition of such liability in sufficient amounts, however,
could lead to the appointment of the FDIC as conservator or receiver for the
Bank.
FIRREA also broadened the enforcement powers of the Federal banking agencies,
including the power to impose fines and penalties, over all financial
institutions. FIRREA also prohibits an insured depository institution from
entering into a written or oral contract with any person for goods, products or
services that would jeopardize the safety or soundness of the institution.
Further, under FIRREA the failure to meet capital guidelines could subject a
financial institution to a variety of regulatory actions, including the
termination of deposit insurance by the FDIC.
In addition, if any insured depository institution becomes insolvent and the
FDIC is appointed its conservator or receiver, within a reasonable period
following such appointment the FDIC may disaffirm or repudiate any contract or
lease to which such institution is a party, the performance of which it
determines to be
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burdensome, and the disaffirmance or repudiation of which it determines to
promote the orderly administration of the institution's affairs.
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
FDICIA was enacted in December 1991 and was primarily designed to provide
additional financing for the FDIC by increasing its borrowing ability. The FDIC
was given the authority to increase deposit insurance premiums to repay any such
borrowing. In addition, FDICIA identifies the following capital standard
categories for financial institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. As a result of FDICIA, the various banking regulatory agencies
have set certain capital and other measures for determining the categories into
which financial institutions fall. FDICIA imposes progressively more restrictive
constraints on operations, management and capital distributions depending on the
category in which an institution is classified. Pursuant to FDICIA,
undercapitalized institutions must submit recapitalization plans, and a company
controlling a failing institution must guarantee such institution's compliance
with its plan. FDICIA also required the various regulatory agencies to prescribe
certain non-capital standards for safety and soundness relating generally to
operations and management, asset quality and executive compensation, and permits
regulatory action against a financial institution that does not meet such
standards.
Securities and Exchange Commission
The Company's Common Stock is registered with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 (the "1934 Act").
As a result of such registration, the Company and its officers, directors and
major shareholders are obligated to file certain reports with the SEC.
Furthermore, the Company is subject to proxy and tender offer rules promulgated
pursuant to the 1934 Act.
Monetary Policy and Economic Conditions
The earnings and business of the Company and the Bank are affected by the
policies of regulatory authorities, including the Board. The monetary policies
of the Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of the changing conditions in the national and international
economy and in the money markets, as a result of actions by monetary and fiscal
authorities, interest rates, credit availability and deposit levels may change
due to circumstances beyond the control of the Company and the Bank.
From time to time, various proposals are made in the United States Congress and
the New Jersey Legislature and before various bank regulatory authorities which
would alter the powers of, and restrictions on, different types of banking
companies and other financial institutions. It is impossible to predict whether
any of the proposals will be adopted and the impact, if any, of such adoption on
the business of the Bank or the Company.
Effects of Inflation
A bank's asset and liability structure differs from that of an industrial
company, since its assets and liabilities fluctuate over time based upon
monetary policies and changes in interest rates. The growth in the bank's
earning assets, regardless of the effects of inflation, will increase net
interest income if the bank is able to maintain a consistent interest spread
between earning assets and supporting liabilities.
A purchasing power gain or loss from holding net monetary assets during the year
represents the effect of general inflation on monetary assets and liabilities.
Almost all of the assets and liabilities of the Company are considered monetary
because they are fixed in terms of dollars and therefore, are not materially
affected by inflation.
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Concentration of Customers and Seasonality of Business
No single person, group of persons, enterprise or other entity produces a
material portion of the Bank's deposits or loans. No customer accounts for as
much as two percent of the Bank's overall business. There is no material impact
on the Bank's volume, deposits or loans, as a result of seasonal changes.
Competition
Banking in New Jersey has become increasingly competitive. The Bank competes for
loans and deposits with commercial banks, non-bank banks, savings and loan
associations, savings banks, finance companies, credit unions and other large
interstate and foreign banks now allowed to bank in New Jersey. Money market
funds increasingly compete for the deposit dollar. Larger financial institutions
with larger lending limits and a greater array of sophisticated services provide
an additional competitive feature.
Employees
On December 31, 1997, there were 471 full-time equivalent persons employed by
the Company and the Bank.
Statistical Information
The following are the statistical disclosures for a bank holding company
required pursuant to Industry Guide 3:
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following table reflects the components of net interest income, setting
forth, for the three years presented, (1) average assets, liabilities and
stockholders' equity, (2) interest earned on earning assets and interest paid on
interest bearing liabilities, (3) average rates earned on earning assets and
average rates paid on interest bearing liabilities, (4) net interest spread
(i.e., the difference between the average rate earned on earning assets and the
average rate paid on interest bearing liabilities and (5) the net interest
margin (i.e., net interest income divided by average earning assets). Dollar
amounts are presented on a tax-equivalent basis assuming a 34% tax rate.
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<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- --------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in Thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest Earning Assets:
Securities:
Taxable $ 411,556 $28,089 6.84% $ 326,902 $22,151 6.78% $ 340,668 $23,121 6.79%
Non-Taxable 59,813 4,550 7.61 53,230 4,015 7.54 43,671 3,353 7.68
Trading Account Securities 516 18 3.49 344 13 3.78 366 14 3.83
-------------------------------------------------------------------------------------------------
Total Securities 471,885 32,657 6.92 380,476 26,179 6.88 384,705 26,488 6.89
-------------------------------------------------------------------------------------------------
Federal Funds Sold 13,589 755 5.56 7,879 418 5.31 12,396 734 5.92
Federal Home Loan Bank Deposits 1,181 65 5.50 906 48 5.30 6,028 351 5.82
Loans (Net of Unearned Income)(1):
Commercial 143,640 13,635 9.49 153,301 14,278 9.31 138,572 11,836 8.54
Commercial-Tax Exempt 1,401 139 9.92 1,515 145 9.58 1,795 173 9.64
Real Estate 267,462 22,440 8.39 208,119 17,615 8.46 184,513 17,361 9.41
Credit Card 32,600 6,317 19.38 30,485 5,982 19.62 33,378 5,941 17.80
Installment 161,536 13,698 8.48 190,833 15,983 8.38 182,530 15,199 8.33
Impaired Loans 6,305 465 7.38 5,664 131 2.31 4,310 668 15.50
-------------------------------------------------------------------------------------------------
Total Loans 612,944 56,694 9.25 589,917 54,134 9.18 545,098 51,178 9.39
-------------------------------------------------------------------------------------------------
Total Interest Earning Assets 1,099,599 90,171 8.21 979,178 80,779 8.25 948,227 78,751 8.31
-------------------------------------------------------------------------------------------------
Non-Interest Earning Assets:
Cash and Due From Banks 41,164 45,640 46,335
Other Assets 59,114 55,337 52,537
Net Unrealized Gain (Loss) on
Securities Available for Sale 3,369 (132) (4,816)
Allowance for Possible Loan
Losses (8,258) (8,474) (9,869)
------------- ------------- -----------
Total Non-Interest Earning Assets 95,389 92,371 84,187
------------- ------------- ------------
Total Assets $1,194,988 $1,071,549 $1,032,414
============= ============= ===========
Liabilities and Stockholders'
Equity:
Interest Bearing Liabilities:
Savings Deposits $ 360,390 6,969 1.93 $ 382,954 7,318 1.91 $ 413,727 9,533 2.30
Time Deposits 421,239 22,691 5.39 358,696 19,230 5.36 336,357 18,321 5.45
-------------------------------------------------------------------------------------------------
Total Savings and Time 781,629 29,660 3.79 741,650 26,548 3.58 750,084 27,854 3.71
Deposits
Short-Term Borrowings 65,177 3,672 5.63 50,350 2,653 5.27 29,638 1,581 5.33
Other Borrowings 48,307 3,368 6.97 9,687 929 9.59 6,495 669 10.30
-------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 895,113 36,700 4.10 801,687 30,130 3.76 786,217 30,104 3.83
-------------------------------------------------------------------------------------------------
Non-Interest Bearing Liabilities:
Demand Deposits and
Non-Interest Bearing Savings 166,667 165,515 153,208
Other Liabilities 14,128 11,421 10,449
------------- ------------ ------------
Total Non-Interest
Bearing Liabilities 180,795 176,936 163,657
------------- ------------ ------------
Trust Capital Securities 16,156 - -
------------- ------------ ------------
Stockholders' Equity (2) 102,924 92,926 82,540
------------- ------------ ------------
Total Liabilities and
Stockholders' Equity $1,194,988 $1,071,549 $1,032,414
============= ============ ============
Net Interest Income
(Tax-Equivalent Basis) 53,471 50,649 48,647
Tax-Equivalent Adjustment (1,594) (1,419) (1,199)
--------- --------- --------
Net Interest Income $51,877 $49,230 $47,448
========= ========= ========
Net Interest Spread 4.11% 4.49% 4.48%
====== ======= ======
Net Interest Margin 4.86% 5.17% 5.13%
====== ======= ======
(1) Average loan balances and yields include non-accruing loans. Loan fees are
included in the interest amounts and are not material. (2) Includes net
unrealized gain (loss) on securities available for sale, net of tax, of $2,224,
$(87) and $(3,179) for 1997, 1996 and 1995, respectively.
</TABLE>
11
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates:
<TABLE>
<CAPTION>
1997 Compared with 1996 1996 Compared with 1995
------------------------------------------ ------------------------------------------
Increase(Decrease) Increase(Decrease)
(In Thousands) Total Due to Change in: Total Due to Change in:
Increase ---------------------------- Increase ----------------------------
(Decrease) Volume Rate (Decrease) Volume Rate
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $2,560 $2,144 $416 $2,956 $4,096 $(1,140)
Securities - Taxable 5,938 5,712 226 (970) (903) (67)
Securities - Non Taxable 535 516 19 662 715 (53)
Trading Account Securities 5 6 (1) (1) (1) -
Federal Funds Sold
and Deposits with Federal
Home Loan Bank 354 332 22 (619) 146 (765)
----------------------------------------------------------------------------------------------------------------------------
Total Interest Income 9,392 8,710 682 2,028 4,053 (2,025)
- ----------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Deposits (349) (424) 75 (2,215) (591) (1,624)
Time Deposits 3,461 3,354 107 909 1,217 (308)
Short-Term Borrowings 1,019 837 182 1,072 1,090 (18)
Other Borrowings 2,439 2,693 (254) 260 306 (46)
- ----------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 6,570 6,460 110 26 2,022 (1,996)
- ----------------------------------------------------------------------------------------------------------------------------
Changes in Net
Interest Income $2,822 $2,250 $572 $2,002 $2,031 $ (29)
============================================================================================================================
</TABLE>
The change in interest due to both volume and rate has been allocated
proportionally to both, based on their relative absolute values.
12
<PAGE>
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost of securities held to maturity
at year-end 1997, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Securities:
U.S. Treasury Securities $ 990 $ 6,967 $17,642
Obligations of U.S. Government
Agencies and Corporations 27,953 42,921 21,151
Obligations of States and Political Subdivisions 11,712 12,643 3,750
Mortgage-Backed Securities 4,528 4,945 -
Securities Issued by Foreign Governments 125 100 75
- ---------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity $45,308 $67,576 $42,618
=====================================================================================================================
</TABLE>
The following table sets forth the market value of securities available for sale
at year-end 1997, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Securities:
U.S. Treasury Securities $ 7,979 $ 11,922 $ 16,593
Obligations of U.S. Government
Agencies and Corporations 86,079 46,378 85,015
Obligations of States and Political Subdivisions 56,887 45,231 39,923
Mortgage-Backed Securities 312,164 174,040 186,523
Corporate Debt Securities 13,920 - -
- ---------------------------------------------------------------------------------------------------------------------
Total Debt Securities 477,029 277,571 328,054
- ---------------------------------------------------------------------------------------------------------------------
Equity Securities:
Marketable Equity Securities 55,555 23,703 21,056
Federal Reserve Bank and Federal
Home Loan Bank Stock 8,661 4,394 4,219
- ---------------------------------------------------------------------------------------------------------------------
Total Equity Securities 64,216 28,097 25,275
- ---------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale $541,245 $305,668 $353,329
=====================================================================================================================
</TABLE>
13
<PAGE>
The contractual maturity distribution and weighted average yields (calculated on
the basis of the stated yields to maturity, considering applicable premium or
discount), on a tax-equivalent basis (assuming a 34% Federal income tax rate),
of the Company's securities held to maturity and securities available for sale
portfolios at December 31, 1997, excluding equity securities, were as follows:
MATURITIES AND WEIGHTED AVERAGE YIELDS
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but Within but Within After
(Dollars in Thousands) 1 Year 5 Years 10 Years 10 Years Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
U.S. Treasury Securities:
Amortized Cost $ 990 $ - $ - $ - $ 990
Weighted Average Yield 6.25 % - % - % - % 6.25 %
Obligation of U.S. Government
Agencies and Corporations:
Amortized Cost 27,953 - - - 27,953
Weighted Average Yield 7.00 % - % - % - % 7.00 %
Obligation of States and
Political Subdivisions:
Amortized Cost 2,249 - 4,644 4,819 11,712
Weighted Average Yield 5.92 % - % 7.05 % 9.00 % 7.63 %
Mortgage-Backed Securities:
Amortized Cost - - - 4,528 4,528
Weighted Average Yield - % - % - % 7.20 % 7.20 %
Securities Issued by
Foreign Governments:
Amortized Cost - - 125 - 125
Weighted Average Yield - % - % 7.13 % - % 7.13 %
- -----------------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity:
Amortized Cost $ 31,192 $ - $ 4,769 $ 9,347 $ 45,308
Weighted Average Yield 6.90 % - % 7.05 % 8.13 % 7.17 %
=============================================================================================================================
SECURITIES AVAILABLE FOR SALE
U.S. Treasury Securities
Amortized Cost $ 7,987 $ - $ - $ - $ 7,987
Weighted Average Yield 5.57 % - % - % - % 5.57 %
Obligations of U.S. Government
Agencies and Corporations:
Amortized Cost 64,956 20,428 - - 85,384
Weighted Average Yield 7.17 % 7.27 % - % - % 7.19 %
Obligations of States and
Political Subdivisions:
Amortized Cost 4,486 18,438 31,880 828 55,632
Weighted Average Yield 7.48 % 7.08 % 7.79 % 4.62 % 7.48 %
Mortgage-Backed Securities:
Amortized Cost 17,060 64,975 113,307 114,732 310,074
Weighted Average Yield 6.34 % 6.74 % 7.23 % 6.86 % 6.94 %
Corporate Debt Securities:
Amortized Cost - 3,500 5,000 4,996 13,496
Weighted Average Yield - % 9.46 % 8.90 % 9.54 % 9.28 %
- -----------------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale:
Amortized Cost $ 94,489 $107,341 $150,187 $120,556 $472,573
Weighted Average Yield 6.90 % 6.99 % 7.40 % 6.96 % 7.09 %
=============================================================================================================================
</TABLE>
14
<PAGE>
LOAN PORTFOLIO
Types of Loans
The following schedule presents the components of gross loans, by type, as of
December 31 for each of the last five years.
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $135,113 $173,063 $141,309 $100,705 $103,604
Real Estate 306,960 229,554 213,926 209,910 171,811
Installment 183,273 239,302 249,345 228,549 148,220
------------------------------------------------------------------------------
Total Loans Outstanding 625,346 641,919 604,580 539,164 423,635
Less: Unearned Income
On Loans 11,634 20,884 22,026 19,513 8,583
------------------------------------------------------------------------------
Loans, Net of Unearned
Income $613,712 $621,035 $582,554 $519,651 $415,052
==============================================================================
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the maturity of loans (excluding residential mortgages
of 1-4 family residences and installment loans) outstanding as of December 31,
1997, and segregates loans with fixed interest rates from those with floating or
variable interest rates.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------
After One
Within But Within After
(In Thousands) One Year Five Years Five Years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $111,617 $19,108 $ 4,388 $135,113
Real Estate-Construction 7,429 13,349 699 21,477
Real Estate-Commercial 18,210 39,905 50,991 109,106
- --------------------------------------------------------------------------------------------------------------------
$137,256 $72,362 $56,078 $265,696
=====================================================================================================================
Amount of Loans Based Upon:
Fixed Interest Rates $44,223 $11,092
Variable Interest Rates 28,139 44,986
- --------------------------------------------------------------------------------------------------------------------
$72,362 $56,078
=====================================================================================================================
</TABLE>
15
<PAGE>
Non-Accrual, Past Due and Restructured Loans
The following table provides an analysis of non-performing assets as of December
31 for each of the last five years.
<TABLE>
<CAPTION>
(Dollars In Thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans (1):
Commercial and Industrial $ 67 $ 463 $ 705 $ 2,311 $ 1,874
Loans Secured by Real Estate 5,964 7,903 6,135 7,333 5,921
Loans to Individuals for
Household, Family and Other
Personal Expenditure 350 351 483 433 38
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Accrual Loans 6,381 8,717 7,323 10,077 7,833
- ----------------------------------------------------------------------------------------------------------------------
Loans Past Due 90 Days or More (2):
Commercial and Industrial - 7 61 730 3,411
Loans Secured by Real Estate 1,619 1,202 681 339 1,179
Loans to Individuals for
Household, Family and Other
Personal Expenditures 577 1,266 936 989 620
- ----------------------------------------------------------------------------------------------------------------------
Total Loans Past Due
90 Days or More (2) 2,196 2,475 1,678 2,058 5,210
- ----------------------------------------------------------------------------------------------------------------------
Troubled Debt Restructured 53 67 - - -
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Performing Loans 8,630 11,259 9,001 12,135 13,043
Other Real Estate Owned (3) 1,463 1,722 2,747 1,366 2,326
Other Assets Owned (4) 174 178 223 181 75
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Performing Assets $10,267 $13,159 $11,971 $13,682 $15,444
======================================================================================================================
Non-Performing Loans as a
Percentage of Loans (year-end) 1.41% 1.81% 1.55% 2.34% 3.14%
======================================================================================================================
Non-Performing Loans as
Percentage of Total Assets (year-end) 0.66% 1.02% 0.84% 1.28% 1.41%
======================================================================================================================
Non-Performing Assets as
a Percentage of Loans, Other
Real Estate Owned and Other
Assets Owned (year-end) 1.67% 2.11% 2.04% 2.63% 3.70%
======================================================================================================================
Non-Performing Assets as
a Percentage of Total Assets (year-end) 0.78% 1.19% 1.12% 1.44% 1.67%
======================================================================================================================
</TABLE>
(1) Generally represents those loans on which Management has determined that
borrowers may be unable to meet contractual principal and/or interest
obligations or where interest or principal is past due for a period of 90 days
or more (except when such loans are both well-secured and in the process of
collection). When loans are placed on non-accrual status, all accrued but unpaid
interest is reversed.
(2) Represents loans on which payments of interest and/or principal are
contractually past due 90 days or more, but are currently accruing interest at
the previously negotiated rates, based on a determination that such loans are
both well-secured and in the process of collection.
(3) Consists of real estate acquired through foreclosure.
(4) Consists of assets, other than real estate, acquired through repossession,
forfeiture or abandonment.
16
<PAGE>
Potential Problem Loans
At December 31, 1997, the Company had no material loans where payments were
presently current or less than 90 days past due, yet the borrowers were known to
the Company to be experiencing severe financial difficulties. Management
continues to review and evaluate all loans on an ongoing basis so that potential
problems can be addressed immediately.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table provides an analysis of the allowance for possible loan
losses for the five-year period ending December 31, 1997:
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, Net of Unearned
Income - December 31, $613,712 $621,035 $582,554 $519,651 $415,052
=====================================================================================================================
Average Loans Outstanding $612,944 $589,917 $545,098 $457,450 $385,473
=====================================================================================================================
Allowance for Possible Loan
Losses-January 1, $ 8,158 $ 8,297 $ 10,768 $ 11,950 $ 9,895
Loans Charged Off:
Commercial (99) - (417) (1,608) (1,060)
Real Estate (193) (160) (605) (47) (151)
Installment (4,667) (3,578) (3,072) (2,721) (2,506)
- -------------------------------------------------------------------------------------------------------------------------
Total Loans Charged Off (4,959) (3,738) (4,094) (4,376) (3,717)
- -------------------------------------------------------------------------------------------------------------------------
Recoveries of Loans:
Commercial 104 95 224 317 189
Real Estate 21 30 20 150 -
Installment 709 425 508 604 344
- -------------------------------------------------------------------------------------------------------------------------
Total Recoveries 834 550 752 1,071 533
- -------------------------------------------------------------------------------------------------------------------------
Net Loans Charged Off (4,125) (3,188) (3,342) (3,305) (3,184)
Provision for Possible
Loan Losses 3,600 3,049 871 2,123 5,239
- -------------------------------------------------------------------------------------------------------------------------
Allowance for Possible Loan
Losses - December 31, $ 7,633 $ 8,158 $ 8,297 $ 10,768 $ 11,950
=========================================================================================================================
Allowance for Possible Loan
Losses to Non-Performing
Loans - December 31, 88.45% 72.46% 92.18% 88.74% 91.62%
=========================================================================================================================
Allowance for Possible Loan
Losses to Total Loans
Outstanding - December 31, 1.24% 1.31% 1.42% 2.07% 2.88%
=========================================================================================================================
Net loans Charged Off to
Average Loans Outstanding 0.67% 0.54% 0.61% 0.72% 0.83%
=========================================================================================================================
</TABLE>
17
<PAGE>
Allocation of the Allowance for Possible Loan Losses
The accompanying table sets forth the allocation of the allowance for possible
loan losses (the "Allowance") by category of loans and the percentage of loans
in each category to total loans. The determination of an appropriate level of
the Allowance is based upon an analysis of the risks inherent in the Bank's loan
portfolio. The analysis is performed on a continuous basis by account officers,
various loan committees, and the Bank's Loan Review Department.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------------------------------------
(Dollars in 1997 1996 1995 1994 1993
Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
of to Total of to Total Of To Total of to Total of to Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,713 22% $1,786 27% $2,125 23% $ 3,433 19% $ 7,416 24%
Real Estate 2,225 49% 2,471 36% 1,510 35% 1,765 39% 2,311 41%
Installment 3,695 29% 3,901 37% 4,662 42% 5,570 42% 2,223 35%
- ----------------------------------------------------------------------------------------------------------------------------------
Total $7,633 100% $8,158 100% $8,297 100% $10,768 100% $11,950 100%
==================================================================================================================================
</TABLE>
DEPOSITS
The following table reflects the average balances and average rates paid on
deposits and short-term borrowed funds for the years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand and Non-Interest
Bearing Savings $166,667 - % $165,515 - % $153,208 -%
- ------------------------------------------------------------------------------------------------------------------------
Interest Bearing
Transaction Accounts 110,797 1.60 118,232 1.48 127,552 1.99
Other Savings 249,593 2.08 264,722 2.54 286,175 2.42
Time 421,239 5.39 358,696 5.36 336,357 5.45
- ------------------------------------------------------------------------------------------------------------------------
Total Savings and Time 781,629 3.79 741,650 3.58 750,084 3.71
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits $948,296 - $907,165 - $903,292 -
========================================================================================================================
Short-Term Borrowings $ 65,177 5.63 % $ 50,350 5.27 % $ 29,638 5.33%
========================================================================================================================
</TABLE>
18
<PAGE>
The following table sets forth a summary of the maturities of time certificates
of deposit $100,000 and over at December 31, 1997.
<TABLE>
<CAPTION>
(In Thousands)
- -------------------------------------------------------------------------------
<S> <C>
Three Months or Less $60,179
Over Three Through Six Months 11,492
Over Six Through Twelve Months 8,089
Over Twelve Months 9,114
- -------------------------------------------------------------------------------
Total $88,874
===============================================================================
</TABLE>
RETURN ON EQUITY AND ASSETS
United's 1997 Annual Report, Financial Review section, contains on page 10,
"Selected Consolidated Financial Data," the information required by this Item
and that information is incorporated herein by reference.
SHORT-TERM BORROWINGS
United's 1997 Annual Report, Financial Review section, contains on page 22,
"Note 10 - Short-Term Borrowings," the information required by this Item and
that information is incorporated herein by reference.
19
<PAGE>
(f) Executive Officers of the Registrant
The following persons are executive officers of the Company or the Bank who do
not also serve as directors.
<TABLE>
<CAPTION>
Executive
Officer Principal Occupation or Employment
Name Age Since For the Past Five Years
- ---------------------- -------- ---------- ---------------------------------
<S> <C> <C> <C>
Warren R. Gerleit 50 1992 Executive Vice President-
Lending and Branch
Administration since
September 10, 1996;
Executive Vice
President-Lending of the
Bank since December 20,
1994; Senior Vice
President- Lending since
May 25, 1992.
Donald W. Malwitz 54 1988 Vice President and
Treasurer of the Company
since September 28, 1995;
Treasurer of the Company
since August 1, 1988;
Executive Vice President
and Chief Financial
Officer of the Bank since
January 1, 1990.
Ralph L. Straw, Jr. 55 1993 Vice President and Secretary
of the Company since July 1,
1996;Executive Vice President,
General Counsel and Cashier of
the Bank since July 1, 1996;
Executive Vice President and
General Counsel of the Bank
since December 21,
1995; Senior Vice President
and General Counsel
since September 13, 1993;
previously Vice
President and Counsel of
National Westminster
Bank NJ and its predecessors.
A. Richard Abrahamian 38 1992 Senior Vice President
and Chief Accounting
Officer of the Bank.
John J. Cannon 53 1995 Senior Vice President and
Senior Trust Officer of
the Bank since December 21,
1995; Vice
President and Trust Officer
since July 11, 1994;
formerly Vice President and
Trust Administrator
of National Westminster Bank
NJ and its predecessors.
Joanne F. Herb 47 1993 Senior Vice President and
Corporate Strategic
Planning Manager of the Bank
since May 16, 1995;
Vice President and Corporate
Strategic Planning
Manager since May 31, 1993;
previously Vice
President and Manager of
On-Site Banking 1992-
1993 and Vice President of
Business Coordination
1989-1992 of National
Westminster Bank NJ and
its predecessors.
20
<PAGE>
Raymond C. Kenwell 46 1995 Senior Vice President-
Commercial Lending since
December 21, 1995; Vice
President-Commercial
Lending 1993 to 1995;
formerly Vice President
Lending of National
Westminster Bank NJ and its
predecessors.
Charles E. Nunn, Jr. 44 1995 Senior Vice President and
Director of Human
Resources of the Bank since
December 21, 1995;
Vice President and Director
of Human Resources
1994-1995; Vice President of
Human Resources
1992-1994; Vice President and
Training and Education
Coordinator 1989-1992.
Donald E. Reinhard 43 1996 Senior Vice President and
Director of Marketing since
September 10, 1996; Vice
President and
Marketing Manager 1993-1996;
formerly Director of Marketing
for Carteret Savings Bank.
Chris Van Der Stad 40 1996 President of United National
Investment Company,
Inc. since June 1, 1996 and
Vice President and
Comptroller of the Bank since
July 1, 1995; formerly
Senior Vice President and
Treasurer of New Era Bank.
</TABLE>
21
<PAGE>
Item 2 - Properties
The corporate headquarters of United is located in a three story facility in
Bridgewater, New Jersey. The building, which is leased, is approximately 65,000
square feet and houses the executive offices of the Company, the Bank, and a
branch office of the Bank. The Bank occupies 25 additional branch offices, of
which 13 are owned and 12 are leased.
United's 1997 Annual Report Financial Review section contains information on
page 22, Note 8, page 23, Note 11 and pages 28 to 29, Note 17 that is
incorporated herein by reference.
Item 3 - Legal Proceedings
United's 1997 Annual Report Financial Review section contains on pages 28 to 29,
Note 17, the information required by Item 3 and that information is incorporated
herein by reference.
Item 4 - Submission of Matters to a Vote of Shareholders
There were no matters submitted to a vote of Shareholders during the fourth
quarter of the fiscal year ended December 31, 1997.
PART II
Item 5 - Market for Registrant's Common Stock and Related Shareholder Matters
The only voting securities of the Company consist of its common stock
outstanding. The shares are listed on the NASDAQ Stock Market, formerly known as
the National Association of Securities Dealers Automated Quotation National
Market System, under the symbol UNBJ.
On December 31, 1997, there were 1,429 shareholders of the Company's common
stock.
United's 1997 Annual Report, contains on page 14, under the heading "Market and
Dividend Information", the information required by Item 5 and that information
is incorporated herein by reference.
Item 6 - Selected Financial Data
United's 1997 Annual Report, Financial Review section, contains on pages 10 and
15 through 17 (Note 1) information required by Item 6 and that information is
incorporated herein by reference.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
United's 1997 Annual Report, Financial Review section, contains on pages 1
through 9 information required by Item 7 and that information is incorporated
herein by reference.
22
<PAGE>
Item 8 - Financial Statements and Supplementary Data
United's 1997 Annual Report, Financial Review section, contains on pages 10
through 31 information required by Item 8 and that information is incorporated
herein by reference.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
United's Proxy Statement for its 1998 Meeting contains, under the caption
"Election of Directors", the information required by Item 10 with respect to
directors of United and certain information with respect to executive officers
and that information is incorporated herein by reference. Certain additional
information regarding executive officers of United, who are not also directors,
appears in Part I, Item 1(f).
Item 11 - Executive Compensation
United's Proxy Statement for its 1998 Meeting contains, under the captions
"Executive Compensation", and "Compensation Committee Interlocks and Insider
Participation", the information required by Item 11 and that information is
incorporated herein by reference
Item 12 - Security Ownership of Certain Beneficial Owners and Management
United's Proxy Statement for its 1998 Annual Meeting contains, under the caption
"Stock Ownership of Management and Principal Shareholder", the information
required by Item 12 and that information is incorporated herein by reference.
Item 13 - Certain Relationships and Related Transactions
United's Proxy Statement for its 1998 Annual Meeting contains, under the caption
"Compensation Committee Interlocks and Insider Participation", the information
required by Item 13 and that information is incorporated herein by reference.
23
<PAGE>
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The below listed consolidated financial statements and report of independent
public accountants of United National Bancorp, included in United's 1997 Annual
Report, are incorporated herein by reference.
Financial Review
Page *
Independent Auditors' Report 32
Consolidated Balance Sheets at December
31, 1997 and 1996 11
Consolidated Statements of Income for the
Three Years Ended December 31,1997 12
Consolidated Statements of Changes in
Stockholders' Equity for the Three
Years Ended December 31, 1997 13
Consolidated Statements of Cash Flows
for the Three Years Ended
December 31, 1997 14
Notes to Consolidated Financial Statements 15-31
Unaudited Quarterly Financial Data 9
*Refers to respective page numbers of United National Bancorp 1997
Annual Report to Shareholders, Financial Review section, included as
Exhibit 13. Such pages are incorporated herein by reference.
Report of Independent Public Accountants for United National Bancorp, dated
January 12,1996 for the year ended December 31, 1995.
Independent Auditors' Report for Farrington Bank, dated February 22,1996 for the
year ended December 31, 1995.
(a)(2) Financial Statement Schedules
Financial statement schedules are omitted as the required information is not
available or the information is presented in the financial statements or related
notes thereto.
(a)(3) Other Exhibits
List of Exhibits
(3) (a) Certificate of Incorporation of the Company
(incorporated by reference to the Company's Annual
Report on Form 10-K for the Year Ended December 31,
1995 filed with the Securities and Exchange
Commission on March 29, 1996 (Exhibit 3(a)).
(b) By-laws of the Company (incorporated by reference to
the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1994 filed with the Securities and
Exchange Commission on March 30, 1995 (Exhibit 3(b)).
24
<PAGE>
(10) Material Contracts
(a) Change of Control Agreements for six executive
officers are incorporated by reference to the
Company's Annual Report on Form 10-K for the Year
Ended December 31, 1994 filed with the Securities and
Exchange Commission on March 30, 1995 (Exhibits 10(a)
through 10(f)).
(b) Stock Purchase and Stockholder Agreement dated as of
October 24, 1995 among HUB Financial Services, Inc.,
HUBCO, Inc., Hudson United Bank, United National
Bancorp and United National Bank (Incorporated by
reference to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission on
November 17, 1995).
(c) Data Processing Service and Clearing Agency Agreement
dated November 2, 1995 between United National Bank
and HUB Financial Services, Inc. (Incorporated by
reference to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission on
November 17, 1995).
(d) Data Processing Service and Clearing Agency Agreement
dated November 2, 1995 between Hudson United Bank and
HUB Financial Services, Inc. (Incorporated by
reference to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission on
November 17, 1995).
(e) Administrative Services Agreement dated November 2,
1995 between Hudson United Bank and HUB Financial
Services, Inc. (Incorporated by reference to the
Company's Report on Form 8-K filed with the
Securities and Exchange Commission on November 17,
1995).
(f) Executive Supplemental Retirement Income Agreement
and Conditions, Assumptions, and Schedule of
Contributions and Phantom Contributions for six
Executive Officers
(g) Executive Death Benefit Master Agreement
(h) Executive Deferred Compensation Plan
(i) Executive Deferred Bonus Plan
(j) Director Deferred Compensation Plan for United
National Bancorp
(k) Director Deferred Compensation Plan for United
National Bank
(13)(a) Portions of United National Bancorp's Annual Report
to its Shareholders for the fiscal Year Ended
December 31, 1997 are incorporated by reference into
this Annual Report on Form 10-K.
(b) Report of Independent Public Accountants for United
National Bancorp, dated January 12, 1996 for the year
ended December 31, 1995.
(c) Independent Auditors' Report for Farrington Bank,
dated February 22, 1996 for the year ended December
31, 1995.
(21) List of Subsidiaries
(23) Consents of Independent Public Accountants
(a) KPMG Peat Marwick LLP for United National Bancorp
(b) Arthur Andersen LLP for United National Bancorp
(c) KPMG Peat Marwick LLP for Farrington Bank
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-Ks were filed during the fourth quarter of 1997.
25
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
UNITED NATIONAL BANCORP
By: /s/ Thomas C. Gregor
---------------------------
Thomas C. Gregor
Chairman of the Board,
President and
Chief Executive Officer
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Thomas C. Gregor Chairman of the Board March 30, 1998
- ------------------------ President and Director
Thomas C. Gregor
/s/ Donald W. Malwitz V.P. & Treasurer March 30, 1998
- ------------------------
Donald W. Malwitz
/s/ Ralph L. Straw, Jr. V.P. & Secretary March 30, 1998
- -------------------------
Ralph L. Straw, Jr.
/s/ George W. Blank Director March 30, 1998
- ------------------------
George W. Blank
/s/ Director March , 1998
- ------------------------
Donald A. Buckley
/s/ C. Douglas Cherry Director March 30, 1998
- ------------------------
C. Douglas Cherry
/s/ Charles E. Hance Director March 30, 1998
- ------------------------
Charles E. Hance
/s/ John R. Kopicki Director March 30, 1998
- ------------------------
John R. Kopicki
Director March , 1998
- ------------------------
Antonia S. Marotta
/s/ John W. McGowan III Director March 30, 1998
- ------------------------
John W. McGowan III
/s/ Patricia McKiernan Director March 30, 1998
- ------------------------
Patricia A. McKiernan
26
<PAGE>
/s/ Charles N. Pond, Jr. Director March 30, 1998
- -------------------------
Charles N. Pond, Jr.
Director March , 1998
- ------------------------
Kenneth W. Turnbull
Director March , 1998
- ------------------------
David R. Walker
/s/ Ronald E. West Director March 30, 1998
- ------------------------
Ronald E. West
Director March , 1998
- ------------------------
George J. Wickard
27
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
FOR _______________________
UNITED NATIONAL BANK
Bridgewater, New Jersey
October 1, 1997
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT FOR ________________
This Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 1st day of October, 1997, formalizes the
understanding by and between UNITED NATIONAL BANK (the "Bank"), a national
banking association having its principal place of business in New Jersey, and
_______________ (hereinafter referred to as "Executive"). United National
Bancorp (the "Holding Company") is a party to this Agreement for the sole
purpose of guaranteeing the Bank's performance hereunder.
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
by the Executive and wishes to encourage his continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to
a certain amount of additional compensation for some definite period of time
from and after retirement from active service with the Bank or other termination
of employment and wishes to provide his beneficiary with benefits from and after
death; and
WHEREAS, the Bank and the Executive wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executive after retirement or other termination of employment and/or death
benefits to his beneficiary after death; and
WHEREAS, the Bank has adopted this Executive Supplemental Retirement
Income Agreement which controls all issues relating to benefits as described
herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the Bank and the Executive agree as follows:
2
<PAGE>
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit Account" shall be represented by the bookkeeping
entries required to record the Executive's (i) Phantom Contributions
plus (ii) accrued interest, equal to the Interest Factor, earned
to-date on such amounts. However, neither the existence of such
bookkeeping entries nor the Accrued Benefit Account itself shall be
deemed to create either a trust of any kind, or a fiduciary
relationship between the Bank and the Executive or any Beneficiary.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Administrator" means the Bank.
1.4 "Bank" means UNITED NATIONAL BANK and any successor thereto.
1.5 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in Exhibit B of this Agreement to whom the deceased
Executive's benefits are payable. If no Beneficiary is so designated,
then the Executive's Spouse, if living, will be deemed the Beneficiary.
If the Executive's Spouse is not living, then the Children of the
Executive will be deemed the Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
1.6 "Benefit Age" means the later of: (i) the Executive's sixty-fifth
(65th) birthday or (ii) the actual date the Executive's full-time
service with the Bank terminates. Notwithstanding the above, if the
Executive is employed by the Bank on his Early Retirement Age and
elects to retire on or after the attainment of his Early Retirement Age
but before Normal Retirement Age, "Benefit Age" shall mean the later
of: (i) the Executive's sixtieth (60th) birthday or (ii) the actual
date of the Executive's retirement.
3
<PAGE>
1.7 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any benefit(s) pursuant to Section(s) III or V of
this Agreement. It shall be the first day of the month following the
month in which the Executive attains his Benefit Age.
1.8 "Board of Directors" means the board of directors of the Bank.
1.9 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Holding Company or the Bank, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Holding Company or the Bank. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such
majority, the Executive was guilty of conduct which was deemed to be
Cause for termination and specifying the particulars thereof in detail,
and (ii) after reasonable notice to the Executive there shall have been
an opportunity for the Executive, together with counsel to the
Executive, to be heard before such non-officer members of the Board of
Directors.
1.10 "Change in Control" of the Holding Company or the Bank shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Holding Company) becomes a beneficial owner,
directly or indirectly, of 25% or more Holding Company's
and/or the Bank's voting securities or all or substantially
all of the assets of Holding Company and/or the Bank.
(b) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Holding Company or the Bank with an
unaffiliated entity in which either or both of the following
is to occur: (i) the directors of Holding Company and/or Bank,
as applicable, immediately prior to such merger, consolidation
or combination will constitute less than a majority of the
board of directors
4
<PAGE>
of the surviving, new or combined entity; or (ii) less than
75% of the outstanding voting securities of the surviving, new
or combined entity will be beneficially owned by the
stockholders of Holding Company immediately prior to such
merger, consolidation or combination; provided, however, that
if any definitive agreement to merge, consolidate or combine
is terminated without consummation of the transaction, then no
Change in Control shall be deemed to have occurred pursuant to
this paragraph (b).
(c) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the transfer of all or
substantially all of Holding Company's and/or the Bank's
assets, other than to a wholly-owned subsidiary of Holding
Company; provided, however, that if any definitive agreement
to transfer assets is terminated without consummation of the
transfer, then no Change in Control shall be deemed to have
occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Holding Company or the Bank shall be persons who: (i) were not
members of such Board on the date hereof ("current members");
and (ii) were not nominated by a vote of the Board which
included the affirmative vote of a majority of the current
members on the Board at the time of their nomination ("future
designees") and (iii) were not nominated by a vote of the
Board which included the affirmative vote of a majority of the
current members and future designees, taken as a group, on the
Board at the time of their nomination.
1.11 "Children" means all natural or adopted children of the Executive, and
issue of any predeceased child or children.
1.12 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.13 "Contribution(s)" means those annual contributions which the Bank is
required to make to the Retirement Income Trust Fund on behalf of the
Executive in accordance with Subsection 2.1(a) and in the amounts set
forth in Exhibit A of the Agreement.
1.14 (a) "Disability Benefit" means the benefit payable to the Executive
following a determination, in accordance with Subsection 6.1(a), that
he is no longer able, properly and satisfactorily, to perform his
duties at the Bank.
5
<PAGE>
(b) "Disability Benefit-Supplemental" (if applicable) means the benefit
payable to the Executive's Beneficiary upon the Executive's death in
accordance with Subsection 6.1(b).
1.15 "Early Retirement Age" means, if elected by the Executive, the
Executive's sixtieth (60th) birthday or any later age mutually agreed
upon by the parties, prior to the Executive's attainment of the Normal
Retirement Age set forth in the Plan.
1.16 "Effective Date" of this Agreement shall be October 1, 1997.
1.17 "Estate" means the estate of the Executive.
1.18 "Holding Company" means United National Bancorp, the holding company
for the Bank, and any successor thereto.
1.19 "Interest Factor" means monthly compounding, discounting or
annuitizing, as applicable, at a rate set forth in Exhibit A.
1.20 "Normal Retirement Age" means the Executive's sixty-fifth (65th)
birthday or any later age mutually agreed upon by the parties.
1.21 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing
for a period of one hundred eighty (180) months. Should the Executive
make a Timely Election to receive a lump sum benefit payment, the
Executive's Payout Period shall be deemed to be one (1) month.
1.22 "Phantom Contributions" means those annual Contributions which the Bank
is no longer required to make on behalf of the Executive to the
Retirement Income Trust Fund. Rather, once the Executive has exercised
the withdrawal rights provided for in Subsection 2.2, the Bank shall be
required to record the annual amounts set forth in Exhibit A of the
Agreement in the Executive's Accrued Benefit Account, pursuant to
Subsection 2.1.
6
<PAGE>
1.23 "Plan Year" shall mean the twelve (12) month period commencing January
1 and ending December 31.
1.24 "Retirement Income Trust Fund" means the trust fund account established
by the Executive and into which annual Contributions will be made by
the Bank on behalf of the Executive pursuant to Subsection 2.1. The
contractual rights of the Bank and the Executive with respect to the
Retirement Income Trust Fund shall be outlined in a separate writing to
be known as the _________________ Grantor Trust agreement.
1.25 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death, provided, however, that the term
"Spouse" shall not refer to an individual to whom the Executive is
legally married at the time of death if the Executive and such
individual have entered into a formal separation agreement or initiated
divorce proceedings.
1.26 "Supplemental Retirement Income Benefit" means an annual amount (before
taking into account federal and state income taxes), payable in monthly
installments throughout the Payout Period. Such benefit is projected
pursuant to the Agreement for the purpose of determining the
Contributions to be made to the Retirement Income Trust Fund (or
Phantom Contributions to be recorded in the Accrued Benefit Account).
The annual Contributions and Phantom Contributions have been
actuarially determined, using the assumptions set forth in Exhibit A,
in order to fund for the projected Supplemental Retirement Income
Benefit. The Supplemental Retirement Income Benefit for which
Contributions (or Phantom Contributions) are being made (or recorded)
is set forth in Exhibit A.
1.27 "Timely Election" means the Executive has made an election to change
the form of his benefit payment(s) by filing with the Administrator a
Notice of Election to Change Form of Payment (Exhibit C of this
Agreement). In the case of benefits payable from the Accrued Benefit
Account, such election shall have been made prior to the event which
triggers distribution and at least two (2) years prior to the
Executive's Benefit Eligibility Date. In the case of benefits payable
from the Retirement Income Trust Fund, such election may be made at any
time.
7
<PAGE>
SECTION II
BENEFIT FUNDING
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. The
Executive shall establish the ________________ Grantor Trust into which
the Bank shall be required to make annual Contributions on the
Executive's behalf, pursuant to Exhibit A and this Section II of the
Agreement. A trustee shall be selected by the Executive. The trustee
shall maintain an account, separate and distinct from the Executive's
personal contributions, which account shall constitute the Retirement
Income Trust Fund. The trustee shall be charged with the responsibility
of investing all contributed funds. Distributions from the Retirement
Income Trust Fund of the ________________ Grantor Trust may be made by
the trustee to the Executive, for purposes of payment of any income or
employment taxes due and owing on Contributions by the Bank to the
Retirement Income Trust Fund, if any, and on any taxable earnings
associated with such Contributions which the Executive shall be
required to pay from year to year, under applicable law, prior to
actual receipt of any benefit payments from the Retirement Income Trust
Fund. If the Executive exercises his withdrawal rights pursuant to
Subsection 2.2, the Bank's obligation to make Contributions to the
Retirement Income Trust Fund shall cease and the Bank's obligation to
record Phantom Contributions in the Accrued Benefit Account shall
immediately commence pursuant to Exhibit A and this Section II of the
Agreement. To the extent this Agreement is inconsistent with the ______
_________ Grantor Trust agreement, the ________________ Grantor Trust
Agreement shall supersede this Agreement.
The annual Contributions (or Phantom Contributions) required to be made
by the Bank to the Retirement Income Trust Fund (or recorded by the
Bank in the Accrued Benefit Account) have been actuarially determined
and are set forth in Exhibit A which is attached hereto and
incorporated herein by reference. Contributions shall be made by the
Bank to the Retirement Income Trust Fund (i) within seventy-five (75)
days of establishment of such trust, and (ii) within the first thirty
(30) days of the beginning of each subsequent Plan Year, unless this
Section expressly provides otherwise. Phantom Contributions, if any,
shall be recorded in the Accrued Benefit Account within the first
thirty (30) days of the beginning of each applicable Plan Year, unless
this Section expressly provides otherwise. Phantom Contributions shall
accrue interest at a rate equal to the Interest Factor, during the
Payout Period, until the balance of the Accrued Benefit Account has
been fully distributed. Interest on any Phantom Contribution shall not
commence until such Payout Period commences.
8
<PAGE>
The Administrator shall review the schedule of annual Contributions (or
Phantom Contributions) provided for in Exhibit A (i) within thirty (30)
days prior to the close of each Plan Year and (ii) if the Executive is
employed by the Bank until attaining Normal Retirement Age, on or
immediately before attainment of such Normal Retirement Age. Such
review shall consist of an evaluation of the accuracy of all
assumptions used to establish the schedule of Contributions (or Phantom
Contributions). Provided that (i) the Executive has not exercised his
withdrawal rights pursuant to Subsection 2.2 and (ii) the investments
contained in the Retirement Income Trust Fund have been deemed
reasonable by the Bank, the Administrator shall prospectively amend or
supplement the schedule of Contributions provided for in Exhibit A
should the Administrator determine during any such review that an
increase in or supplement to the schedule of Contributions is necessary
in order to adequately fund the Retirement Income Trust Fund so as to
provide an annual benefit (or to provide the lump sum equivalent of
such benefit, as applicable) equal to the Supplemental Retirement
Income Benefit, on an after-tax basis, commencing at Benefit Age and
payable for the duration of the Payout Period.
(b) Withdrawal Rights Not Exercised.
(1) Contributions Made Annually
If the Executive does not exercise any withdrawal rights pursuant to
Subsection 2.2, the annual Contributions to the Retirement Income Trust
Fund shall continue each year, unless this Subsection 2.1(b)
specifically states otherwise, until the earlier of (i) the last Plan
Year that Contributions are required pursuant to Exhibit A, or (ii) the
Plan Year of the Executive's termination of employment.
(2) Termination Following a Change in Control
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2 and a Change in Control occurs at the Bank, followed
within thirty-six (36) months by either (i) the Executive's involuntary
termination of employment, or (ii) Executive's voluntary termination of
employment after: (A) a material change in the Executive's function,
duties, or responsibilities, which change would cause the Executive's
position to become one of lesser responsibility, importance, or scope
from the position the Executive held at the time of the Change in
Control, (B) a relocation of the Executive's principal place of
employment by more than thirty (30) miles from its location prior to
the Change in Control, or (C) a material reduction in the benefits and
perquisites to the Executive from those being provided at the time of
the Change in Control, the Contribution set forth on Schedule A shall
continue to be required of the Bank. The Bank shall be required to make
an immediate lump sum
9
<PAGE>
Contribution to the Executive's Retirement Income Trust Fund in an
amount equal to: (i) the full Contribution required for the Plan Year
in which such involuntary termination occurs, if not yet made, plus
(ii) the present value (computed using a discount rate equal to the
Interest Factor) of all remaining Contributions to the Retirement
Income Trust Fund; provided, however, that, if necessary, an additional
amount shall be contributed to the Retirement Income Trust Fund which
is sufficient to provide the Executive with after-tax benefits
(assuming a constant tax rate equal to the rate in effect as of the
date of Executive's termination) beginning at his Benefit Age, equal in
amount to that benefit which would have been payable to the Executive
if no secular trust had been implemented and the benefit obligation had
been accrued under APB Opinion No. 12, as amended by FAS 106.
(3) Termination For Cause
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2, and is terminated for Cause pursuant to Subsection 5.2,
no further Contribution(s) to the Retirement Income Trust Fund shall be
required of the Bank, and if not yet made, no Contribution shall be
required for the Plan Year in which such termination for Cause occurs.
(4) Involuntary Termination of Employment.
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2, and the Executive's employment with the Bank is
involuntarily terminated for any reason, including a termination due to
disability of the Executive but excluding termination for Cause, or
termination following a Change in Control within thirty-six (36) months
of such Change in Control, within thirty (30) days of such involuntary
termination of employment, the Bank shall be required to make an
immediate lump sum Contribution to the Executive's Retirement Income
Trust Fund in an amount equal to: (i) the full Contribution required
for the Plan Year in which such involuntary termination occurs, if not
yet made, plus (ii) the present value (computed using a discount rate
equal to the Interest Factor) of all remaining Contributions to the
Retirement Income Trust Fund; provided however, that, if necessary, an
additional amount shall be contributed to the Retirement Income Trust
Fund which is sufficient to provide the Executive with after tax
benefits (assuming a constant tax rate equal to the rate in effect as
of the date of the Executive's termination) beginning at his Benefit
Age, equal in amount to that benefit which would have been payable to
the Executive if no secular trust had been implemented and the benefit
obligation had been accrued under APB Opinion No. 12, as amended by FAS
106.
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<PAGE>
(5) Death During Employment.
If the Executive does not exercise any withdrawal rights pursuant to
Subsection 2.2, and dies while employed by the Bank, and if, following
the Executive's death, the assets of the Retirement Income Trust Fund
are insufficient to provide the Supplemental Retirement Income Benefit
to which the Executive is entitled, the Bank shall be required to make
a Contribution to the Retirement Income Trust Fund equal to the sum of
the remaining Contributions set forth on Exhibit A, after taking into
consideration any payments under any life insurance policies that may
have been obtained on the Executive's life by the Retirement Income
Trust Fund. Such final contribution shall be payable in a lump sum to
the Retirement Income Trust Fund within thirty (30) days of the
Executive's death.
(6) Contributions on Early or Normal Retirement.
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2, and terminates employment on or after attainment of his
Early Retirement Age or Normal Retirement Age, within thirty (30) days
of such termination of employment, the Bank shall be required to make
an immediate additional lump sum Contribution to the Executive's
Retirement Income Trust Fund, if necessary, in an amount sufficient to
provide the Executive with after tax benefits (assuming a constant tax
rate equal to the rate in effect as of the date of the Executive's
termination) beginning at his Benefit Age, equal in amount to that
benefit which would have been payable to the Executive if no secular
trust had been implemented and the benefit obligation had been accrued
under APB Opinion No. 12, as amended by FAS 106.
(c) Withdrawal Rights Exercised.
(1) Phantom Contributions Made Annually.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, no further Contributions to the Retirement Income Trust Fund shall
be required of the Bank. Thereafter, Phantom Contributions shall be
recorded annually in the Executive's Accrued Benefit Account within
thirty (30) days of the beginning of each Plan Year, commencing with
the first Plan Year following the Plan Year in which the Executive
exercises his withdrawal rights. Such Phantom Contributions shall
continue to be recorded annually, unless this Subsection 2.1(c)
specifically states otherwise, until the earlier of (i) the last Plan
Year that Phantom Contributions are required pursuant to Exhibit A, or
(ii) the Plan Year of the Executive's termination of employment.
11
<PAGE>
(2) Termination Following a Change in Control
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, Phantom Contributions shall commence in the Plan Year following
the Plan Year in which the Executive first exercises his withdrawal
rights. If a Change in Control occurs at the Bank, and within
thirty-six (36) months of such Change in Control, the Executive's
employment is either (i) involuntarily terminated, or (ii) voluntarily
terminated by the Executive after: (A) a material change in the
Executive's function, duties, or responsibilities, which change would
cause the Executive's position to become one of lesser responsibility,
importance, or scope from the position the Executive held at the time
of the Change in Control, (B) a relocation of the Executive's principal
place of employment by more than thirty (30) miles from its location
prior to the Change in Control, or (C) a material reduction in the
benefits and perquisites to the Executive from those being provided at
the time of the Change in Control, the Phantom Contribution set forth
below shall be required of the Bank. The Bank shall be required to
record a lump sum Phantom Contribution in the Accrued Benefit Account
within ten (10) days of the Executive's termination of employment. The
amount of such final Phantom Contribution shall be actuarially
determined based on the Phantom Contribution required, at such time, in
order to provide a benefit via this Agreement equivalent to the
Supplemental Retirement Income Benefit, on an after-tax basis,
commencing on the Executive's Benefit Eligibility Date and continuing
for the duration of the Payout Period. (Such actuarial determination
shall reflect the fact that amounts shall be payable from both the
Accrued Benefit Account as well as the Retirement Income Trust Fund and
shall also reflect the amount and timing of any withdrawal(s) made by
the Executive from the Retirement Income Trust Fund pursuant to
Subsection 2.2.)
(3) Termination For Cause
If the Executive is terminated for Cause pursuant to Subsection 5.2,
the entire balance of the Executive's Accrued Benefit Account at the
time of such termination, which shall include any Phantom Contributions
which have been recorded plus interest accrued on such Phantom
Contributions, shall be forfeited.
(4) Involuntary Termination of Employment.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, and the Executive's employment with the Bank is involuntarily
terminated for any reason including termination due to
12
<PAGE>
disability of the Executive, but excluding termination for Cause, or
termination following a Change in Control, within thirty (30) days of
such involuntary termination of employment, the Bank shall be required
to record a final Phantom Contribution in an amount equal to: (i) the
full Phantom Contribution required for the Plan Year in which such
involuntary termination occurs, if not yet made, plus (ii) the present
value (computed using a discount rate equal to the Interest Factor) of
all remaining Phantom Contributions.
(5) Death During Employment.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, and dies while employed by the Bank, Phantom Contributions
included on Exhibit A shall be required of the Bank. Such Phantom
Contributions shall commence in the Plan Year following the Plan Year
in which the Executive exercises his withdrawal rights and shall
continue through the Plan Year in which the Executive dies. The Bank
shall also be required to record a final Phantom Contribution within
thirty (30) days of the Executive's death. The amount of such final
Phantom Contribution shall be actuarially determined based on the
Phantom Contribution required at such time (if any), in order to
provide a benefit via this Agreement equivalent to the Supplemental
Retirement Income Benefit commencing within thirty (30) days of the
date the Administrator receives notice of the Executive's death and
continuing for the duration of the Payout Period. (Such actuarial
determination shall reflect the fact that amounts shall be payable from
the Accrued Benefit Account as well as the Retirement Income Trust Fund
and shall also reflect the amount and timing of any withdrawal(s) made
by the Executive pursuant to Subsection 2.2.)
2.2 Withdrawals From Retirement Income Trust Fund.
Exercise of withdrawal rights by the Executive pursuant to the ______
_________ Grantor Trust agreement shall terminate the Bank's obligation
to make any further Contributions to the Retirement Income Trust Fund,
and the Bank's obligation to record Phantom Contributions pursuant to
Subsection 2.1(c) shall commence. For purposes of this Subsection 2.2,
"exercise of withdrawal rights" shall mean those withdrawal rights to
which the Executive is entitled under Article III of the _________
_______Grantor Trust agreement and shall exclude any distributions made
by the trustee of the Retirement Income Trust Fund to the Executive for
purposes of payment of income taxes in accordance with Subsection 2.1
of this Agreement and the tax reimbursement formula contained in
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the trust document, or other trust expenses properly payable from the
_______________ Grantor Trust pursuant to the provisions of the trust
document.
2.3 Benefits Payable From Retirement Income Trust Fund
Notwithstanding anything else to the contrary in this Agreement, in the
event that the trustee of the Retirement Income Trust Fund purchases a
life insurance policy with the Contributions to and, if applicable,
earnings of the Trust, and such life insurance policy is intended to
continue in force beyond the Payout Period for the disability or
retirement benefits payable from the Retirement Income Trust Fund
pursuant to this Agreement, then the trustee shall have discretion to
determine the portion of the cash value of such policy available for
purposes of annuitizing the Retirement Income Trust Fund (it being
understood that for purposes of this Section 2.3, "annuitizing" does
not mean surrender of such policy and annuitizing of the cash value
received upon such surrender) to provide the disability or retirement
benefits payable under this Agreement, after taking into consideration
the amounts reasonably believed to be required in order to maintain the
cash value of such policy to continue such policy in effect until the
death of the Executive and payment of death benefits thereunder.
SECTION III
RETIREMENT BENEFIT
3.1 (a) Normal form of payment.
If (i) the Executive is employed with the Bank until reaching his Early
Retirement Age or Normal Retirement Age, and (ii) the Executive has not
made a Timely Election to receive a lump sum benefit, this Subsection
3.1(a) shall be controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
benefit payments shall commence on the Executive's Benefit Eligibility
Date. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is less
than the rate of return used to annuitize the Retirement Income Trust
Fund, no additional contributions to the Retirement Income Trust Fund
shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the
less-than-expected rate of return. Should Retirement Income Trust Fund
assets actually earn a rate of return, following the date
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such balance is annuitized, which is greater than the rate of return
used to annuitize the Retirement Income Trust Fund, the final benefit
payment to the Executive (or his Beneficiary) shall distribute the
excess amounts attributable to the greater-than-expected rate of
return. The Executive may at anytime during the Payout Period request
to receive the unpaid balance of his Retirement Income Trust Fund in a
lump sum payment. If such a lump sum payment is requested by the
Executive, payment of the balance of the Retirement Income Trust Fund
in such lump sum form shall be made only if the Executive gives notice
to both the Administrator and trustee in writing. Such lump sum payment
shall be payable within thirty (30) days of such notice. In the event
the Executive dies at any time after attaining his Benefit Age, but
prior to commencement or completion of all monthly payments due and
owing hereunder, (i) the trustee of the Retirement Income Trust Fund
shall pay to the Executive's Beneficiary the monthly installments (or a
continuation of such monthly installments if they have already
commenced) for the balance of months remaining in the Payout Period, or
(ii) the Executive's Beneficiary may request to receive the unpaid
balance of the Executive's Retirement Income Trust Fund in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment
of the balance of the Retirement Income Trust Fund in such lump sum
form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment shall be
payable within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such benefit payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of
all the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a
continuation of such monthly installments if they have already
commenced) for the balance of months remaining in the Payout Period, or
(ii) the Executive's Beneficiary may request to receive the remainder
of any unpaid benefit payments in a lump sum payment. If a lump sum
payment is requested by the Beneficiary, the amount of such lump sum
payment shall be equal to the unpaid balance of the Executive's Accrued
Benefit Account. Payment in such lump sum form shall be made only if
the Executive's Beneficiary (i) obtains Board of Director approval, and
(ii) notifies the Administrator in writing of
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such election within ninety (90) days of the Executive's death. Such
lump sum payment, if approved by the Board of Directors, shall be made
within thirty (30) days of such Board of Director approval.
(b) Alternative payout option.
If (i) the Executive is employed with the Bank until reaching his Early
Retirement Age or Normal Retirement Age, and (ii) the Executive has
made a Timely Election to receive a lump sum benefit, this Subsection
3.1(b) shall be controlling with respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum
on his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit
Age), but before the actual payment is made, his Beneficiary shall be
entitled to receive the lump sum benefit in accordance with this
Subsection 3.1(b) within thirty (30) days of the date the Administrator
receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the
Executive in a lump sum on his Benefit Eligibility Date. In the event
the Executive dies after becoming eligible for such payment (upon
attainment of his Benefit Age), but before the actual payment is made,
his Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 3.1(b) within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
SECTION IV
PRE-RETIREMENT DEATH BENEFIT
4.1 (a) Normal form of payment.
If (i) the Executive dies while employed by the Bank, and (ii) the
Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 4.1(a) shall be controlling with respect to
pre-retirement death benefits.
The balance of the Executive's Retirement Income Trust Fund, measured
as of the later of (i) the Executive's death, or (ii) the date any
final lump sum Contribution is made pursuant to Subsection
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2.1(b), shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable for the Payout Period. Such benefits
shall commence within thirty (30) days of the date the Administrator
receives notice of the Executive's death. Should Retirement Income
Trust Fund assets actually earn a rate of return, following the date
such balance is annuitized, which is less than the rate of return used
to annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be required by
the Bank in order to fund the final benefit payment(s) and make up for
any shortage attributable to the less-than-expected rate of return.
Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is greater
than the rate of return used to annuitize the Retirement Income Trust
Fund, the final benefit payment to the Executive's Beneficiary shall
distribute the excess amounts attributable to the greater-than-expected
rate of return. The Executive's Beneficiary may request to receive the
unpaid balance of the Executive's Retirement Income Trust Fund in a
lump sum payment. If a lump sum payment is requested by the
Beneficiary, payment of the balance of the Retirement Income Trust Fund
in such lump sum form shall be made only if the Executive's Beneficiary
notifies both the Administrator and trustee in writing of such election
within ninety (90) days of the Executive's death. Such lump sum payment
shall be made within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the later of (i) the Executive's death or (ii) the date any final lump
sum Phantom Contribution is recorded in the Accrued Benefit Account
pursuant to Subsection 2.1(c), shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable to the
Executive's Beneficiary for the Payout Period. Such benefit payments
shall commence within thirty (30) days of the date the Administrator
receives notice of the Executive's death, or if later, within thirty
(30) days after any final lump sum Phantom Contribution is recorded in
the Accrued Benefit Account in accordance with Subsection 2.1(c). The
Executive's Beneficiary may request to receive the remainder of any
unpaid monthly benefit payments due from the Accrued Benefit Account in
a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
balance of the Executive's Accrued Benefit Account. Payment in such
lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the
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Administrator in writing of such election within ninety (90) days of
the Executive's death. Such lump sum payment, if approved by the Board
of Directors, shall be payable within thirty (30) days of such Board of
Director approval.
(b) Alternative payout option.
If (i) the Executive dies while employed by the Bank, and (ii) the
Executive has made a Timely Election to receive a lump sum benefit,
this Subsection 4.1(b) shall be controlling with respect to
pre-retirement death benefits.
The balance of the Executive's Retirement Income Trust Fund, measured
as of the later of (i) the Executive's death, or (ii) the date any
final lump sum Contribution is made pursuant to Subsection 2.1(b),
shall be paid to the Executive's Beneficiary in a lump sum within
thirty (30) days of the date the Administrator receives notice of the
Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the later of (i) the Executive's death, or (ii) the date
any final Phantom Contribution is recorded pursuant to Subsection
2.1(c), shall be paid to the Executive's Beneficiary in a lump sum
within thirty (30) days of the date the Administrator receives notice
of the Executive's death.
SECTION V
BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
PRIOR TO NORMAL RETIREMENT AGE
5.1 Voluntary or Involuntary Termination of Service Other Than for Cause.
In the event the Executive's service with the Bank is voluntarily or
involuntarily terminated prior to Normal Retirement Age, for any reason
including a Change in Control, but excluding (i) any disability related
termination for which the Board of Directors has approved early payment
of benefits pursuant to Subsection 6.1, (ii) the Executive's
pre-retirement death, which shall be covered in Section IV, (iii)
retirement elected by the Executive upon the attainment of his Early
Retirement Age, which shall be covered in Section III, or (iv)
termination for Cause, which shall be covered in Subsection 5.2, the
Executive (or his Beneficiary) shall be entitled to receive benefits in
accordance with this Subsection 5.1.
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Payments of benefits pursuant to this Subsection 5.1 shall be made in
accordance with Subsection 5.1 (a) or 5.1 (b) below, as applicable.
(a) Normal form of payment.
(1) Executive Lives Until Benefit Age
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(a)(1) shall be
controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's
Benefit Age, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
payments shall commence on the Executive's Benefit Eligibility Date.
Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is less
than the rate of return used to annuitize the Retirement Income Trust
Fund, no additional contributions to the Retirement Income Trust Fund
shall be required by the Bank in order to fund the final benefit
payment(s) and make up for any shortage attributable to the
less-than-expected rate of return. Should Retirement Income Trust Fund
assets actually earn a rate of return, following the date such balance
is annuitized, which is greater than the rate of return used to
annuitize the Retirement Income Trust Fund, the final benefit payment
to the Executive (or his Beneficiary) shall distribute the excess
amounts attributable to the greater-than-expected rate of return. The
Executive may at anytime during the Payout Period request to receive
the unpaid balance of his Retirement Income Trust Fund in a lump sum
payment. If such a lump sum payment is requested by the Executive,
payment of the balance of the Retirement Income Trust Fund in such lump
sum form shall be made only if the Executive gives notice to both the
Administrator and trustee in writing. Such lump sum payment shall be
payable within thirty (30) days of such notice. In the event the
Executive dies at any time after attaining his Benefit Age, but prior
to commencement or completion of all monthly payments due and owing
hereunder, (i) the trustee of the Retirement Income Trust Fund shall
pay to the Executive's Beneficiary the monthly installments (or a
continuation of the monthly installments if they have already
commenced) for the balance of months remaining in the Payout Period, or
(ii) the Executive's Beneficiary may request to receive the unpaid
balance of the Executive's Retirement Income Trust Fund in a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment
of the balance of the Retirement Income Trust Fund in such lump sum
form shall be made only if the
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Executive's Beneficiary notifies both the Administrator and trustee in
writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment shall be made within thirty (30) days of
such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such benefit payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of
all the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a
continuation of such monthly installments if they have already
commenced) for the balance of months remaining in the Payout Period, or
(ii) the Executive's Beneficiary may request to receive the remainder
of any unpaid benefit payments in a lump sum payment. If a lump sum
payment is requested by the Beneficiary, the amount of such lump sum
payment shall be equal to the unpaid balance of the Executive's Accrued
Benefit Account. Payment in such lump sum form shall be made only if
the Executive's Beneficiary (i) obtains Board of Director approval, and
(ii) notifies the Administrator in writing of such election within
ninety (90) days of the Executive's death. Such lump sum payment, if
approved by the Board of Directors, shall be made within thirty (30)
days of such Board of Director approval.
(2) Executive Dies Prior to Benefit Age
If (i) after such termination, the Executive dies prior to attaining
his Benefit Age, and (ii) the Executive has not made a Timely Election
to receive a lump sum benefit, this Subsection 5.1(a)(2) shall be
controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the date of the
Executive's death, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
payments shall commence within thirty (30) days of the date the
Administrator receives notice of the Executive's death. Should
Retirement Income Trust Fund assets actually earn a rate of return,
following the date such balance is annuitized, which is less than the
rate of return used to annuitize the Retirement Income Trust Fund, no
additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and
make up for any shortage attributable to the less-than-expected rate of
return. Should Retirement Income Trust
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Fund assets actually earn a rate of return, following the date such
balance is annuitized, which is greater than the rate of return used to
annuitize the Retirement Income Trust Fund, the final benefit payment
to the Executive's Beneficiary shall distribute the excess amounts
attributable to the greater- than-expected rate of return. The
Executive's Beneficiary may request to receive the unpaid balance of
the Executive's Retirement Income Trust Fund in the form of a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment
of the balance of the Retirement Income Trust Fund in such lump sum
form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment shall be made
within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the date of the Executive's death, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable for the
Payout Period. Such payments shall commence within thirty (30) days of
the date the Administrator receives notice of the Executive's death.
The Executive's Beneficiary may request to receive the unpaid balance
of the Executive's Accrued Benefit Account in the form of a lump sum
payment. If a lump sum payment is requested by the Beneficiary, payment
of the balance of the Accrued Benefit Account in such lump sum form
shall be made only if the Executive's Beneficiary (i) obtains Board of
Director approval, and (ii) notifies the Administrator in writing of
such election within ninety (90) days of the Executive's death. Such
lump sum payment, if approved by the Board of Directors, shall be made
within thirty (30) days of such Board of Director approval.
(b) Alternative Payout Option.
(1) Executive Lives Until Benefit Age
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(b)(1) shall be
controlling with respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum
on his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit
Age), but before the actual payment is made, his Beneficiary shall be
entitled to receive the lump sum benefit
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in accordance with this Subsection 5.1(b)(1) within thirty (30) days of
the date the Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the
Executive in a lump sum on his Benefit Eligibility Date. In the event
the Executive dies after becoming eligible for such payment (upon
attainment of his Benefit Age), but before the actual payment is made,
his Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 5.1(b)(1) within thirty (30) days of
the date the Administrator receives notice of the Executive's death.
(2) Executive Dies Prior to Benefit Age
If (i) after such termination, the Executive dies prior to attaining
his Benefit Age, and (ii) the Executive has made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(b)(2) shall be
controlling with respect to pre-retirement death benefits.
The balance of the Retirement Income Trust Fund, measured as of the
date of the Executive's death, shall be paid to the Executive's
Beneficiary within thirty (30) days of the date the Administrator
receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the date of the Executive's death, shall be paid to the
Executive's Beneficiary within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
5.2 Termination For Cause.
If the Executive is terminated for Cause, all benefits under this
Agreement, other than those which can be paid from previous
Contributions to the Retirement Income Trust Fund (and earnings on such
Contributions), shall be forfeited. Furthermore, no further
Contributions (or Phantom Contributions, as applicable) shall be
required of the Bank for the year in which such termination for Cause
occurs (if not yet made). The Executive shall be entitled to receive a
benefit in accordance with this Subsection 5.2.
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The balance of the Executive's Retirement Income Trust Fund shall be
paid to the Executive in a lump sum on his Benefit Eligibility Date.
In the event the Executive dies prior to his Benefit Eligibility Date,
his Beneficiary shall be entitled to receive the balance of the
Executive's Retirement Income Trust Fund in a lump sum within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
SECTION VI
OTHER BENEFITS
6.1 (a) Disability Benefit.
If the Executive's service is terminated prior to Early Retirement Age
or Normal Retirement Age due to a disability which meets the criteria
set forth below, the Executive may request to receive the Disability
Benefit in lieu of the retirement benefit(s) available pursuant to
Section 5.1 (which is (are) not available prior to the Executive's
Benefit Eligibility Date).
In any instance in which: (i) it is determined by a duly licensed,
independent physician selected by the Bank, that the Executive is no
longer able, properly and satisfactorily, to perform his regular duties
as an officer, because of ill health, accident, disability or general
inability due to age, (ii) the Executive requests payment under this
Subsection in lieu of Subsection 5.1, and (iii) Board of Director
approval is obtained to allow payment under this Subsection, in lieu of
Subsection 5.1, the Executive shall be entitled to the following lump
sum benefit(s). The lump sum benefit(s) to which the Executive is
entitled shall include: (i) the balance of the Retirement Income Trust
Fund, plus (ii) the balance of the Accrued Benefit Account (if
applicable). The benefit(s) shall be paid within thirty (30) days
following the date of the Executive's request for such benefit is
approved by the Board of Directors. In the event the Executive dies
after becoming eligible for such payment(s) but before the actual
payment(s) is (are) made, his Beneficiary shall be entitled to receive
the benefit(s) provided for in this Subsection 6.1(a) within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
(b) Disability Benefit - Supplemental.
Furthermore, if Board of Director approval is obtained within thirty
(30) days of the Executive's death, the Bank shall make a direct, lump
sum payment to the Executive's Beneficiary in an amount
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equal to the sum of all remaining Contributions (or Phantom
Contributions) set forth in Exhibit A, but not required pursuant to
Subsection 2.1(b) (or 2.1(c)) due to the Executive's disability-related
termination. Such lump sum payment, if approved by the Board of
Directors, shall be payable to the Executive's Beneficiary within
thirty (30) days of such Board of Director approval.
6.2 Additional Death Benefit - Burial Expense.
Upon the Executive's death, the Executive's Beneficiary shall also be
entitled to receive a one-time lump sum death benefit in the amount of
Ten Thousand Dollars ($10,000). This benefit shall be paid directly
from the Bank to the Beneficiary and shall be provided specifically for
the purpose of providing payment for burial and/or funeral expenses of
the Executive. Such death benefit shall be payable within thirty (30)
days of the date the Administrator receives notice of the Executive's
death. The Executive's Beneficiary shall not be entitled to such
benefit if the Executive is terminated for Cause prior to death.
SECTION VII
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of this Agreement and shall have
the right to change such designation, at any subsequent time, by
submitting to (i) the Administrator, and (ii) the trustee of the
Retirement Income Trust Fund, in substantially the form attached as
Exhibit B to this Agreement, a written designation of primary and
secondary Beneficiaries. Any Beneficiary designation made subsequent to
execution of this Agreement shall become effective only when receipt
thereof is acknowledged in writing by the Administrator.
SECTION VIII
NON-COMPETITION
8.1 Non-Competition During Employment.
In consideration of the agreements of the Bank contained herein and of
the payments to be made by the Bank pursuant hereto, the Executive
hereby agrees that, for as long as he remains employed by the Bank, he
will devote substantially all of his time, skill, diligence and
attention to the business of the
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Bank, and will not actively engage, either directly or indirectly, in
any business or other activity which is, or may be deemed to be, in any
way competitive with or adverse to the best interests of the business
of the Bank, unless the Executive has the prior express written consent
of the Bank.
8.2 Breach of Non-Competition Clause.
(a) Continued Employment Following Breach.
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 8.1 occurs, and (ii) the Executive
continues employment at the Bank following such breach, all further
Contributions to the Retirement Income Trust Fund (or Phantom
Contributions recorded in the Accrued Benefit Account) shall
immediately cease, and all benefits under this Agreement, other than
those which can be paid from previous Contributions to the Retirement
Income Trust Fund (and earnings on such Contributions), shall be
forfeited. The Executive (or his Beneficiary) shall be entitled to
receive a benefit from the Retirement Income Trust Fund in accordance
with Subpart (1) or (2) below, as applicable.
(1) Executive Lives Until Benefit Age
If, following such breach, the Executive lives until attaining his
Benefit Age, he shall be entitled to receive a benefit from the
Retirement Income Trust Fund in accordance with this Subsection
8.2(a)(1). The balance of the Retirement Income Trust Fund, measured as
of the Executive's Benefit Age, shall be paid to the Executive in a
lump sum on his Benefit Eligibility Date. In the event the Executive
dies after attaining his Benefit Age but before actual payment is made,
his Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 8.2(a)(1) within thirty (30) days of
the date of the Administrator receives notice of the Executive's death.
(2) Executive Dies Prior to Benefit Age
If, following such breach, the Executive dies prior to attaining his
Benefit Age, his Beneficiary shall be entitled to receive a benefit
from the Retirement Income Trust Fund in accordance with this
Subsection 8.2 (a)(2). The balance of the Retirement Income Trust Fund,
measured as of the date of the Executive's death, shall be paid to the
Executive's Beneficiary in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
(b) Termination of Employment Following Breach.
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In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 8.1 occurs, and (ii) the Executive's
employment with the Bank is terminated due to such breach, such
termination shall be deemed to be for Cause and the benefits payable to
the Executive shall be paid in accordance with Subsection 5.2 of this
Agreement.
8.3 Non-Competition Following Employment.
(a) Executive Agrees Not to Compete The Executive expressly agrees
that, as consideration for the covenants of the Bank contained herein
and as a condition to the performance by the Bank of its obligations
hereunder, from and after any voluntary or involuntary termination of
service, other than a termination of service related to a Change in
Control, and continuing throughout the Payout Period or, with respect
to Section 8.3 (c), for three years following termination of
employment, he will not without the prior written consent of the Bank,
engage in, become interested, directly or indirectly, as a sole
proprietor, as a partner in a partnership, or as a substantial
shareholder in a corporation, nor become associated with, in the
capacity of an employee, director, officer, principal agent, trustee or
in any other capacity whatsoever, any enterprise conducted in the
trading area of business of the Bank (specifically, in New Jersey or
New York) which enterprise is, or may be deemed to be, competitive with
any business carried on by the Bank as of the date of the termination
of the Executive's employment or his retirement.
(b) Benefits Paid From Accrued Benefit Account.
Executive understands and agrees that, following Executive's voluntary
or involuntary termination of employment, the Bank's obligation, if
any, to make payments to the Executive from the Accrued Benefit Account
shall be conditioned on the Executive's forbearance from actively
engaging, either directly or indirectly in any business or other
activity which is, or may be deemed to be, in any way competitive with
or adverse to the best interests of the Bank, unless the Executive has
the prior written consent of the Bank. In the event of the Executive's
breach of the covenants and agreements contained herein, further
payments to the Executive from the Accrued Benefit Account, if any,
shall cease and Executive's rights to amounts credited to the Accrued
Benefit Account shall be forfeited.
(c) Benefits Paid From Retirement Income Trust Fund.
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Executive understands and agrees that Executive's violation of these
provisions following a voluntary or involuntary termination of
employment, other than a termination of employment following a Change
in Control, will cause irreparable harm to the Bank. In the event of
Executive's violation of this Section 8.3 within three (3) years of
such voluntary or involuntary termination of employment, Executive
agrees to pay or cause the Retirement Income Trust Fund to pay to the
Bank, as liquidated damages an amount equal to 10% of the after-tax
contributions, which the Bank has made on Executive's behalf to the
Retirement Income Trust Fund. Said liquidated damages payment shall be
separate from, and in addition to, any amounts forfeited from the
Accrued Benefit Account.
(d) Change in Control.
In the event of a Change in Control, this Section 8.3 shall be null and
void.
SECTION IX
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Agreement, shall be solely
those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary, or any other person claiming through the Executive, shall
only have the right to receive from the Bank those payments or amounts
so specified under this Agreement. The Executive agrees that he, his
Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any
insurance policies or contracts which the Bank may possess or obtain to
informally fund this Agreement. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Agreement
shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, unless such asset is contained in the
rabbi trust described in Section XII of this Agreement. Any such asset
shall be and remain, a general, unpledged asset of the Bank in the
event of the Bank's insolvency.
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<PAGE>
SECTION X
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement,
other than those Contributions required to be made to the Retirement
Income Trust Fund. The Executive, his Beneficiaries or any successor in
interest to him shall be and remain simply a general unsecured creditor
of the Bank in the same manner as any other creditor having a general
claim for matured and unpaid compensation. The Bank reserves the
absolute right in its sole discretion to either purchase assets to meet
its obligations undertaken by this Agreement or to refrain from the
same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life
insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to replace such
assets from time to time or to terminate its investment in such assets
at any time, in whole or in part. At no time shall the Executive be
deemed to have any lien, right, title or interest in or to any specific
investment or to any assets of the Bank. If the Bank elects to invest
in a life insurance, disability or annuity policy upon the life of the
Executive, then the Executive shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Bank, as Administrator, shall be
the Named Fiduciary of this Agreement. As Administrator, the Bank shall
be responsible for the management, control and administration of the
Agreement as established herein. The Administrator may delegate to
others certain aspects of the management and operational
responsibilities of the Agreement, including the employment of advisors
and the delegation of ministerial duties to qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Executive (or to his Beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Administrator within
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<PAGE>
sixty (60) days from the date payments are refused. The Administrator
shall review the written claim and, if the claim is denied, in whole or
in part, it shall provide in writing, within ninety (90) days of
receipt of such claim, its specific reasons for such denial, reference
to the provisions of this Agreement upon which the denial is based, and
any additional material or information necessary to perfect the claim.
Such writing by the Administrator shall further indicate the additional
steps which must be undertaken by claimants if an additional review of
the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any issues and comments, in writing, they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the
specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
SECTION XII
MISCELLANEOUS
12.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
Executive without regard to the existence of the Agreement.
29
<PAGE>
12.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the state of New Jersey, to the extent such
laws are not preempted by the Act and valid regulations published
thereunder.
12.3 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of the Executive is not made known to the Bank as of the
date upon which any payment of any benefits from the Accrued Benefit
Account may first be made, the Bank shall delay payment of the
Executive's benefit payment(s) until the location of the Executive is
made known to the Bank; however, the Bank shall only be obligated to
hold such benefit payment(s) for the Executive until the expiration of
thirty-six (36) months. Upon expiration of the reorganize into the
mutual holding company structure or convert to the stock form of
ownership in view of: the ongoing trend toward mutual-to-stock
conversions and mutual holding company reorganizations; the likely
changes in the regulation of thrift institutions and the possible
elimination of the federal and state thrift charters by the current
Congress; and the competitive changes in the financial services
industry. They shall thereupon forfeit any rights to the balance, if
any, of the Executive's Accrued Benefit Account provided for such
Executive and/or Beneficiary under this Agreement.
12.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, no individual acting as an employee or
agent of the Bank, or as a member of the Board of
30
<PAGE>
Directors shall be personally liable to the Executive or any other
person for any claim, loss, liability or expense incurred in connection
with the Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in or
be covered by any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, if
the Executive's death results from suicide, whether sane or insane,
within twenty-six (26) months after execution of this Agreement, all
further Contributions to the Retirement Income Trust Fund (or Phantom
Contributions recorded in the Accrued Benefit Account) shall thereupon
cease, and no Contribution (or Phantom Contribution) shall be made by
the Bank to the Retirement Income Trust Fund (or recorded in the
Accrued Benefit Account) in the year such death resulting from suicide
occurs (if not yet made). All benefits other than those available from
previous Contributions to the Retirement Income Trust Fund under this
Agreement shall be forfeited, and this Agreement shall become null and
void. The balance of the Retirement Income Trust Fund, measured as of
the Executive's date of death, shall be paid to the Beneficiary within
thirty (30) days of the date the Administrator receives notice of the
Executive's death.
12.10 Inurement. This Agreement shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
31
<PAGE>
12.12 Establishment of a Rabbi Trust. The Bank shall establish a rabbi trust
into which the Bank shall contribute assets which shall be held
therein, subject to the claims of the Bank's creditors in the event of
the Bank's "Insolvency" (as defined in such rabbi trust agreement),
until the contributed assets are paid to the Executive and/or his
Beneficiary in such manner and at such times as specified in this
Agreement. It is the intention of the Bank that the contribution or
contributions to the rabbi trust shall provide the Bank with a source
of funds to assist it in meeting the liabilities of this Agreement.
12.13 Source of Payments. All payments provided in this Agreement shall be
timely paid in cash or check from the general funds of the Bank or the
assets of the rabbi trust, to the extent made from the Accrued Benefit
Account. The Holding Company, however guarantees payment and provision
of all amounts and benefits due to the Executive from the Accrued
Benefit Account or Contribution to the Retirement Income Trust Fund
and, if such Contributions, amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits
shall be paid or provided by the Holding Company.
SECTION XIII
AMENDMENT/PLAN TERMINATION
13.1 Amendment or Plan Termination. The Bank intends this Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. However, any termination of the Agreement which is done in
anticipation of or pursuant to a "Change in Control", as defined in
Section I, shall be deemed to trigger Subsection 2.1(b)(2) (or
2.1(c)(2), as applicable) of the Agreement notwithstanding the
Executive's continued employment, and benefit(s) shall be paid from the
Retirement Income Trust Fund (and Accrued Benefit Account, if
applicable) in accordance with Subsection 13.2 below and with
Subsections 2.1(b)(2) (or 2.1(c)(2), as applicable). Any amendment or
termination of the Agreement by the Bank shall be made pursuant to a
resolution of the Board of Directors of the Bank and shall be effective
as of the date of such resolution. No amendment or termination of the
Agreement by the Bank shall directly or indirectly deprive the
Executive of all or any portion of the Executive's Retirement
32
<PAGE>
Income Trust Fund (and Accrued Benefit Account, if applicable) as of
the effective date of the resolution amending or terminating the
Agreement.
Notwithstanding the above, if the Executive does not exercise any
withdrawal rights pursuant to Subsection 2.2, and if at any time after
the final Contribution is made to the Retirement Income Trust Fund the
Executive elects to terminate the Retirement Income Trust Fund and
receive a distribution of the assets of the Retirement Income Trust
Fund, then upon such distribution this Agreement shall terminate.
13.2 Executive's Right to Payment Following Plan Termination. In the event
of a termination of the Agreement, the Executive shall be entitled to
the balance, if any, of his Retirement Income Trust Fund (and Accrued
Benefit Account, if applicable). However, if such termination is done
in anticipation of or pursuant to a "Change in Control," such
balance(s) shall include the final Contribution (or final Phantom
Contribution) made (or recorded) pursuant to Subsection 2.1(b)(2) (or
2.1(c)(2)). Payment of the balance(s) of the Executive's Retirement
Income Trust Fund (and Accrued Benefit Account, if applicable) shall
not be dependent upon his continuation of employment with the Bank
following the termination date of the Agreement. Payment of the
balance(s) of the Executive's Retirement Income Trust Fund (and Accrued
Benefit Account, if applicable) shall be made in a lump sum within
thirty (30) days of the date of termination of the Agreement.
SECTION XIV
EXECUTION
14.1 This Agreement and the ________________ Grantor Trust Agreement set
forth the entire understanding of the parties hereto with respect to
the transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement and the ______
___________ Grantor Trust Agreement.
33
<PAGE>
14.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Bank, the Holding Company and the Executive
have caused this Agreement to be executed on the day and date first above
written.
ATTEST: UNITED NATIONAL BANK:
By:
Secretary (Title)
ATTEST: UNITED NATIONAL BANCORP:
__________________________ By: ________________________________
Secretary
--------------------------------
(Title)
WITNESS: EXECUTIVE:
34
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the
Payout Period, the trustee of the ________________ Grantor
Trust shall exercise discretion in selecting the appropriate
rate given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return
associated with the investments. For these purposes, if the
trustee of the Retirement Income Trust Fund has purchased a
life insurance policy, the trustee shall have the discretion
to determine the portion of the cash value of such policy
available for purposes of annuitizing the Retirement Income
Trust Fund, in accordance with Section 2.3 of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to _____________________________________________
($___,___) at age 65 if paid entirely from the Accrued Benefit Account
or ____________________________________________________________________
($___,___) at age 65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has
been incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions
(or Phantom Contributions) to the Retirement Income Trust Fund
(or Accrued Benefit Account) and is intended to be an amount
equal to (a) seventy percent (70%) of the highest average
salary received by the Executive during any three (3)
consecutive calendar years less (b) the actual annual amount
available to the Executive, on or after his Benefit Age, from
Bank funding of the Bank's tax-qualified retirement plans.
The amount of any actual retirement, pre-retirement or
disability benefit payable pursuant to the Agreement will be a
function of (i) the amount and timing of Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and (ii) the actual investment
experience of such Contributions (or the monthly compounding
rate of Phantom Contributions).
Exhibit A
35
<PAGE>
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Exhibit A - Cont'd.
36
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Executive Supplemental Retirement
Income Agreement executed by the Bank, dated the 1st day of October, 1997,
hereby designates the following Beneficiary(ies) to receive any guaranteed
payments or death benefits under such Agreement, following his death:
PRIMARY BENEFICIARY:
SECONDARY BENEFICIARY:
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 19____
- ----------------------------------- ------------------------------
(WITNESS) EXECUTIVE
- -----------------------------------
(WITNESS)
Exhibit B
37
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
NOTICE OF ELECTION TO CHANGE FORM OF PAYMENT
TO: Bank
Attention:
I hereby give notice of my election to change the form of payment of my
Supplemental Retirement Income Benefit, as specified below. I understand that
such notice, in order to be effective, must be submitted in accordance with the
time requirements described in my Executive Supplemental Retirement Income
Agreement.
o I hereby elect to change the form of payment of my benefits
from monthly installments throughout my Payout Period to a
lump sum benefit payment.
o I hereby elect to change the form of payment of my benefits
from a lump sum benefit payment to monthly installments
throughout my Payout Period. Such election hereby revokes my
previous notice of election to receive a lump sum form of
benefit payments.
Executive
Date
Acknowledged
By:
Title:
Date
Exhibit C
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<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR THOMAS C. GREGOR
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the
Payout Period, the trustee of the Thomas C. Gregor Grantor
Trust shall exercise discretion in selecting the appropriate
rate given the nature of the investments contained in the
Retirement Income Trust Fund and the expected return
associated with the investments. For these purposes, if the
trustee of the Retirement Income Trust Fund has purchased
a life insurance policy, the trustee shall have the discretion
to determine the portion of the cash value of such policy
available for purposes of annuitizing the Retirement Income
Trust Fund, in accordance with Section 2.3 of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Two Hundred Nine Thousand Eleven Dollars
($209,911) at age 65 if paid entirely from the Accrued Benefit Account
or One Hundred Thirty-Four Thousand Three Hundred Forty-Three Dollars
($134,343) at age 65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) seventy percent (70%) of the highest average salary received
by the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 54,796
1998 63,892
1999 74,121
2000 85,607
2001 98,490
2002 112,921
2003 129,069
2004 147,120
2005 167,278
2006 189,769
2007 214,841
2008 242,768
2009 261,963
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR WARREN R. GERLEIT
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the Payout
Period, the trustee of the Warren R. Gerleit Grantor Trust shall
exercise discretion in selecting the appropriate rate given the
nature of the investments contained in the Retirement Income
Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement
Income Trust Fund has purchased a life insurance policy, the
trustee shall have the discretion to determine the portion of the
cash value of such policy available for purposes of annuitizing
the Retirement Income Trust Fund, in accordance with Section 2.3
of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Seventy-Six Thousand One-hundred Forty-Five
Dollars ($76,145) at age 65 if paid entirely from the Accrued Benefit
Account or Forty-Eight Thousand Seven Hundred Thirty-Three Dollars
($48,733) at age 65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) sixty percent (60%) of the highest average salary received by
the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 11,867
1998 16,684
1999 19,371
2000 22,390
2001 25,777
2002 29,571
2003 33,818
2004 38,567
2005 43,870
2006 49,788
2007 56,386
2008 63,737
2009 71,919
2010 81,020
2011 91,137
2012 56,060
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR DONALD W. MALWITZ
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the Payout
Period, the trustee of the Donald W. Malwitz Grantor Trust shall
exercise discretion in selecting the appropriate rate given the
nature of the investments contained in the Retirement Income
Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement
Income Trust Fund has purchased a life insurance policy, the
trustee shall have the discretion to determine the portion of the
cash value of such policy available for purposes of annuitizing
the Retirement Income Trust Fund, in accordance with Section 2.3
of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Thirty-Two Thousand Seventeen Dollars ($32,017)
at age 65 if paid entirely from the Accrued Benefit Account or Twenty
Thousand Four Hundred Ninety-One Dollars ($20,491) at age 65 if paid
from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) sixty percent (60%) of the highest average salary received by
the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 11,435
1998 13,333
1999 15,467
2000 17,864
2001 20,553
2002 23,564
2003 26,934
2004 30,701
2005 34,907
2006 39,601
2007 44,833
2008 21,972
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR RALPH L. STRAW, JR
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the Payout
Period, the trustee of the Ralph L. Straw, Jr. Grantor Trust
shall exercise discretion in selecting the appropriate rate given
the nature of the investments contained in the Retirement Income
Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement
Income Trust Fund has purchased a life insurance policy, the
trustee shall have the discretion to determine the portion of the
cash value of such policy available for purposes of annuitizing
the Retirement Income Trust Fund, in accordance with Section 2.3
of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Sixty-Three Thousand Ninety-Four Dollars
($63,094) at age 65 if paid entirely from the Accrued Benefit Account
or Forty Thousand Three Hundred Eighty Dollars ($40,380) at age 65 if
paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) sixty percent (60%) of the highest average salary received by
the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 28,087
1998 32,749
1999 37,992
2000 43,880
2001 50,483
2002 57,880
2003 66,157
2004 75,409
2005 85,742
2006 82,773
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR JOHN J. CANNON
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the Payout
Period, the trustee of the John J. Cannon Grantor Trust shall
exercise discretion in selecting the appropriate rate given the
nature of the investments contained in the Retirement Income
Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement
Income Trust Fund has purchased a life insurance policy, the
trustee shall have the discretion to determine the portion of the
cash value of such policy available for purposes of annuitizing
the Retirement Income Trust Fund, in accordance with Section 2.3
of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Fifty Thousand Two Hundred Twenty Dollars
($50,220) at age 65 if paid entirely from the Accrued Benefit Account
or Thirty-Two Thousand One Hundred Forty-One Dollars ($32,141) at age
65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) sixty percent (60%) of the highest average salary received by
the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 14,383
1998 16,771
1999 19,456
2000 22,471
2001 25,853
2002 29,641
2003 33,879
2004 38,618
2005 43,909
2006 49,813
2007 56,394
2008 63,724
2009 46,128
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
FOR JOANNE F. HERB
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be eight percent (8%) per
annum, compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing
the balance of the Retirement Income Trust Fund over the Payout
Period, the trustee of the Joanne F. Herb Grantor Trust shall
exercise discretion in selecting the appropriate rate given the
nature of the investments contained in the Retirement Income
Trust Fund and the expected return associated with the
investments. For these purposes, if the trustee of the Retirement
Income Trust Fund has purchased a life insurance policy, the
trustee shall have the discretion to determine the portion of the
cash value of such policy available for purposes of annuitizing
the Retirement Income Trust Fund, in accordance with Section 2.3
of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to
the Retirement Income Trust Fund (or Accrued Benefit Account) has been
based on the annual incremental accounting accruals which would be
required of the Bank through the earlier of the Executive's death or
Normal Retirement Age, (i) pursuant to APB Opinion No. 12, as amended
by FAS 106 and (ii) assuming a discount rate equal to eight percent
(8%) per annum, in order to provide the unfunded, non-qualified
Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Thirty-Seven Thousand One Hundred Nineteen
Dollars ($37,119) at age 65 if paid entirely from the Accrued Benefit
Account or Twenty-Three Thousand Seven Hundred Fifty-Six Dollars
($23,756) at age 65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of
actuarially establishing the amount of annual Contributions (or
Phantom Contributions) to the Retirement Income Trust Fund (or
Accrued Benefit Account) and is intended to be an amount equal to
(a) sixty percent (60%) of the highest average salary received by
the Executive during any three (3) consecutive calendar years
less (b) the actual annual amount available to the Executive, on
or after his Benefit Age, from Bank funding of the Bank's
tax-qualified retirement plans. The amount of any actual
retirement, pre-retirement or disability benefit payable pursuant
to the Agreement will be a function of (i) the amount and timing
of Contributions (or Phantom Contributions) to the Retirement
Income Trust Fund (or Accrued Benefit Account) and (ii) the
actual investment experience of such Contributions (or the
monthly compounding rate of Phantom Contributions).
Exhibit A
4. Schedule of Annual Gross Contributions/Phantom Contributions
Plan Year Amount
1997 $ 4,482
1998 5,227
1999 6,063
2000 7,003
2001 8,057
2002 9,237
2003 10,558
2004 12,035
2005 13,684
2006 15,524
2007 17,574
2008 19,859
2009 22,402
2010 25,229
2011 28,372
2012 31,863
2013 35,738
2014 40,037
2015 29,927
EXECUTIVE DEATH BENEFIT MASTER AGREEMENT
UNITED NATIONAL BANK
Bridgewater, New Jersey
October 1, 1997
<PAGE>
EXECUTIVE DEATH BENEFIT MASTER AGREEMENT
This Executive Death Benefit Master Agreement (the "Agreement"),
effective as of the 1st day of October, 1997, formalizes the understanding by
and between UNITED NATIONAL BANK (the"Bank"), a national banking association
with its principal place of business in New Jersey, and certain key employees,
hereinafter referred to as "Executive", who shall be approved by the Bank to
participate and who shall elect to become a party to this Executive Death
Benefit Master Agreement by execution of an Executive Death Benefit Joinder
Agreement ("Joinder Agreement") in a form provided by the Bank. Any reference
herein to "Holding Company" shall mean UNITED NATIONAL BANCORP, which shall join
in this Agreement solely for purposes of guaranteeing the payments to the
Executive hereunder.
W I T N E S S E T H :
WHEREAS, the Executives are employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
by such Executives and wishes to encourage continued employment; and
WHEREAS, the Executives wish to provide their beneficiaries with
benefits from and after death; and
WHEREAS, the Bank and the Executives wish to provide the terms and
conditions upon which the Bank shall pay such death benefits to the Executive's
beneficiaries after death; and
WHEREAS, the Bank and the Executives intend this Agreement to be
considered an unfunded arrangement, maintained primarily to provide death
benefits for such Executives, members of a select group of management or highly
compensated employees of the Bank and/or Corporation, for purposes of the
Employee Retirement Income Security Act of 1974, as amended; and
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WHEREAS, the Bank has adopted this Executive Death Benefit Master
Agreement which controls all issues relating to the pre-retirement and
post-termination death benefits as described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the Bank and the Executive agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit" means that portion of the Executive's Pre-Retirement
or Post- Termination Death Benefit which is required to be expensed and
accrued in accordance with generally accepted accounting principles
(GAAP). Any appropriate GAAP methodology may be selected by the Board
of Directors in the exercise of its sole discretion. The Accrued
Benefit shall be collectively maintained on the books of the Bank and
the Corporation for each Executive and the allocation of the expense
required during any plan year shall be determined in accordance with
the Executive's Allocation Percentage as shown in Exhibit A of this
Agreement.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Bank" means UNITED NATIONAL BANK and any successor thereto.
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1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Executive's Joinder Agreement to whom the
deceased Executive's death benefits are payable. If no Beneficiary is
so designated, then the Executive's Spouse, if living, will be deemed
the Beneficiary. If the Executive's Spouse is not living, then the
Children of the Executive will be deemed the Beneficiaries and will
take on a per stirpes basis. If there are no living Children, then the
Estate of the Executive will be deemed the Beneficiary.
1.5 "Benefit Expiration Age" means the age, upon the attainment of which,
as demonstrated in the Death Benefit Joinder Agreement, the Executive
is no longer entitled to a benefit under this Agreement.
1.6 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Holding Company or the Bank, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Holding Company or the Bank. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such
majority, the Executive was guilty of conduct which was deemed to be
Cause for termination and specifying the particulars thereof in detail,
and (ii) after reasonable notice to the Executive there shall have been
an opportunity for the Executive, together with counsel to the
Executive, to be heard before such non-officer members of the Board of
Directors.
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<PAGE>
1.7 "Children" means the Executive's children, both natural and adopted,
then living at the time payments are due the Children under this
Agreement.
1.8 "Change in Control" of the Holding Company or the Bank shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Holding Company) becomes a beneficial owner,
directly or indirectly, of 25% or more Holding Company's
and/or the Bank's voting securities or all or substantially
all of the assets of Holding Company and/or the Bank.
(b) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Holding Company or the Bank with an
unaffiliated entity in which either or both of the following
is to occur: (i) the directors of Holding Company and/or Bank,
as applicable, immediately prior to such merger, consolidation
or combination will constitute less than a majority of the
board of directors of the surviving, new or combined entity;
or (ii) less than 75% of the outstanding voting securities of
the surviving, new or combined entity will be beneficially
owned by the stockholders of Holding Company immediately prior
to such merger, consolidation or combination; provided,
however, that if any definitive agreement to merge,
consolidate or combine is terminated without consummation of
the transaction, then no Change in Control shall be deemed to
have occurred pursuant to this paragraph (b).
(c) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the transfer of all or
substantially all of Holding Company's and/or the Bank's
assets, other than to a wholly-owned subsidiary of Holding
Company; provided, however, that if any definitive agreement
to transfer assets is terminated without consummation of the
transfer, then no Change in Control shall be deemed to have
occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Holding Company or the Bank shall be persons who: (i) were not
members of such Board on the date
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hereof ("current members"); and (ii) were not nominated by a
vote of the Board which included the affirmative vote of a
majority of the current members on the Board at the time of
their nomination ("future designees") and (iii) were not
nominated by a vote of the Board which included the
affirmative vote of a majority of the current members and
future designees, taken as a group, on the Board at the time
of their nomination.
1.9 "Effective Date" of this Agreement shall be October 1, 1997.
1.10 "Estate" means the estate of the Executive.
1.11 "Holding Company" means UNITED NATIONAL BANCORP and any successor
thereto.
1.12 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
1.13 "Pre-Retirement Death Benefit" means a lump sum benefit payable to
Executive's Beneficiary in the event of the Executive's death prior to
attainment of the Benefit Expiration Age. The Pre-Retirement Death
Benefit payable is set forth in the Executive Death Benefit Joinder
Agreement attached hereto.
1.14 "Post-Termination Death Benefit" means a lump sum benefit equal to the
amount set forth in the Executive's Death Benefit Joinder Agreement
payable to Executive's Beneficiary in the event of Executive's death
(i) after Executive's termination of employment for any reason, other
than Cause, and (ii) prior to Executive's attainment of the benefit
Expiration Age.
1.15 "Retirement Age" means the Executives retirement age, as set forth in
the Bank's pension plan, or if the Bank does not maintain a pension
plan, age 65.
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<PAGE>
SECTION II
BENEFITS
2.1 Payment of Pre-Retirement Death Benefit. If the Executive is employed
by the Bank at the time of his death, the Executive's Beneficiary shall
be entitled to the Pre-Retirement Death Benefit. Such benefit shall be
payable within thirty (30) days of the Executive's death. No additional
benefits provided for in this Agreement shall be due to any Beneficiary
of the Executive.
2.2 Payment of Post-Termination Death Benefit. If the Executive dies, prior
to attainment of the Benefit Expiration Age and following termination
of service with the Bank, other than for Cause, the Executive's
Beneficiary shall be entitled to the Post-Termination Death Benefit.
Such benefit shall be paid in a lump sum within ninety (90) days of the
Executive's death. No additional benefits provided for in this
Agreement shall be due to any Beneficiary of the Executive.
2.3 Additional Death Benefit Burial Expense. Upon the Executive's death,
the Executive's Beneficiary shall be entitled to receive a one-time
lump sum death benefit in the amount of Ten Thousand Dollars ($10,000).
This benefit shall be provided specifically for the purpose of
providing payment for burial and/or funeral expenses of the Executive.
Such death benefit shall be payable within thirty (30) days of the
Executive's death. The Executive's Beneficiary shall not be entitled to
such benefit if the Executive is terminated for Cause prior to death.
Notwithstanding anything in this Section 2.3 to the contrary, if the
Executive is also a participant in the Executive Deferred Compensation
Plan or Executive Deferred Bonus Plan under which an additional $10,000
death benefit for burial expenses is being paid, no such death benefit
shall be paid hereunder.
2.4 Benefits in the Event of a Change in Control. In the event of a
voluntary or involuntary termination of employment within three (3)
years following a Change in Control of the
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<PAGE>
Holding Company or the Bank, other than due to the Executive's death,
the Executive shall be entitled to a benefit under this Section 2.4, in
lieu of any other benefit to which he might be entitled hereunder.
Commencing within thirty (30) days of the Executive's attainment of his
Retirement Age, the Executive shall receive an annual benefit of
Twenty-Five Thousand Dollars ($25,000) payable monthly, for a period of
One Hundred Twenty (120) Months. In the event the Executive dies before
all benefits are paid under this Section 2.4, the Executive's
Beneficiary shall be paid all remaining installments due and owing
hereunder.
2.5 Termination for Cause. If the Executive is terminated for Cause, all
benefits under this Agreement shall be forfeited and this Agreement
shall become null and void with regard to such Executive.
SECTION III
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of his Joinder Agreement and shall have
the right to change such designation, at any subsequent time, by submitting to
the Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
7
<PAGE>
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Agreement, shall be solely those of an
unsecured general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments so specified under this Agreement. The
Executive agrees that he, his Beneficiary, or any other person claiming through
him shall have no rights or interests whatsoever in any asset of the Bank,
including any insurance policies or contracts which the Bank may possess or
obtain to informally fund this Agreement. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Agreement, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Executive or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any such
asset shall be and remain, a general, unpledged, and unrestricted asset of the
Bank.
SECTION V
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such assets at any time, in whole or
in part. At no time shall the Executive be deemed to have any lien, right, title
or interest in or to any specific
8
<PAGE>
investment or to any assets of the Bank. If the Bank elects to invest in a life
insurance, disability or annuity policy upon the life of the Executive, then the
Executive shall assist the Bank by freely submitting to a physical examination
and by supplying such additional information necessary to obtain such insurance
or annuities.
SECTION VI
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate with respect to such Executive or Beneficiary
SECTION VII
ACT PROVISIONS
7.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Agreement, including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
7.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Executive's Beneficiary and such
claimant(s) feel they are entitled to receive
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<PAGE>
such benefits, then a written claim must be made to the Administrator
within sixty (60) days from the date payments are refused. The Bank and
its Board shall review the written claim and, if the claim is denied,
in whole or in part, they shall provide in writing, within ninety (90)
days of receipt of such claim, their specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based, and any additional material or information necessary to perfect
the claim. Such writing by the Bank and its Board shall further
indicate the additional steps which must be undertaken by claimants if
an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Agreement, or any documents relating
thereto and submit any issues and comments, in writing, they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the
specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute
to mediation, administered by the American Arbitration Association
("AAA") (or a mediator selected by the parties) in accordance with the
AAA's Commercial Mediation Rules. If mediation is not successful in
resolving the dispute, it shall be settled by arbitration administered
by the AAA under its Commercial Arbitration Rules, and judgment on the
award rendered by the arbitrators) may be entered in any court having
jurisdiction thereof.
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<PAGE>
SECTION VIII
MISCELLANEOUS
8.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
Executive without regard to the existence of the Agreement.
8.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of New Jersey, to the extent such
laws are not preempted by the Act and valid regulations published
thereunder.
8.3 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court
of competent jurisdiction, then: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
8.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate. Except as provided above in this paragraph, when the Bank's
Board of Directors, in its sole discretion determines that the
Executive is unable to manage his financial affairs, the Board may
direct the Bank to make distributions to any person for the benefit of
the Executive.
8.5 Recovery of Estate Taxes. If the Executive's gross estate for federal
estate tax purposes includes any amount determined by reference to and
on account of this Agreement, and if
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the Beneficiary is other than the Executive's estate, then the
Executive's estate shall be entitled to recover from the Beneficiary
receiving such benefit under the terms of the Agreement an amount by
which the total estate tax due by Executive's estate, exceeds the total
estate tax which would have been payable if the value of such benefit
had not been included in the Executive's gross estate. If there is more
than one person receiving such benefit, the right of recovery shall be
against each such person.
8.6 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts of any person. If
the location of the Executive is not made known to the Bank as of the
date upon which any payment of any benefits may first be made, the Bank
shall delay payment of the Executive's benefit payment(s) until the
location of the Executive is made known to the Bank; however, the Bank
shall only be obligated to hold such benefit payment(s) for the
Executive until the expiration of thirty-six (36) months. Upon
expiration of the thirty-six (36) month period, the Bank may discharge
its obligation by payment to the Executive's Beneficiary. If the
location of the Executive's Beneficiary is not made known to the Bank
by the end of an additional two (2) month period following expiration
of the thirty-six (36) month period, the Bank may discharge its
obligation by payment to the Executive's Estate. If there is no Estate
in existence at such time or if such fact cannot be determined by the
Bank, the Executive and his Beneficiary(ies) shall thereupon forfeit
any rights to the balance, if any, of the Executive's Accrued Benefit
provided for such Executive and/or Beneficiary under this Agreement.
8.7 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, neither the Bank, nor any individual
acting as an employee or agent of the Bank, or as a member of the Board
of Directors shall be liable to the Executive or any other person for
any claim, loss, liability or expense incurred in connection with the
Agreement.
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8.8 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
8.9 Effect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in or
be covered by any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
8.10 Suicide. Notwithstanding anything to the contrary in this Agreement,
the benefits otherwise provided herein shall not be payable if the
Executive's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of this Agreement. If the
Executive dies during this twenty-six (26) month period due to suicide,
all benefits under this Agreement shall be forfeited and this Agreement
shall become null and void.
8.11 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
8.12 Inurement. This Agreement shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
8.13 Establishment of a Rabbi Trust. The Bank shall establish a rabbi trust
into which the Bank shall contribute assets which shall be held
therein, subject to the claims of the Bank's creditors in the event of
the Bank's "Insolvency" (as defined in such rabbi trust agreement),
until the contributed assets are paid to the Executive and/or his
Beneficiary in such manner and at such times as specified in this
Agreement. It is the intention of the Bank that the
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contribution or contributions to the rabbi trust shall provide the Bank
with a source of funds to assist it in meeting the liabilities of this
Agreement.
8.14 Source of Payments. All payments provided in this Agreement shall be
timely paid in cash or check from the general funds of the Bank or the
assets of the rabbi trust. The Holding Company, however, guarantees
payment and provision of all amounts and benefits due to the Executive
and, if such amounts are not timely paid or provided by the Bank, or
the rabbi trust, such amounts and benefits shall be paid or provided by
the Holding Company.
SECTION IX
AMENDMENT/REVOCATION
This Agreement shall not be amended, modified or revoked at any time,
in whole or part, without the mutual written consent of the Executive and the
Bank and such mutual consent shall be required even if the Executive is no
longer employed by the Bank.
SECTION X
EXECUTION
10.1 This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any
previous agreements or understandings between the parties hereto
regarding the subject matter hereof are merged into and superseded by
this Agreement.
10.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed on this day and date first above written.
UNITED NATIONAL BANK:
By: _______________________
---------------------------
(Title)
UNITED NATIONAL BANCORP:
By:
(Title)
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EXECUTIVE DEATH BENEFIT JOINDER AGREEMENT
I, A. Richard Abrahamian, hereby apply for approval by UNITED NATIONAL
BANK to participate in the Executive Death Benefit Master Agreement ("Master
Agreement") established on October 1, 1997, by UNITED NATIONAL BANK, as such
Master Agreement may now exist or hereafter be modified; and do further agree to
the terms and conditions thereof.
I understand that receipt by my Beneficiary of the Pre-Retirement or
Post-Termination Death Benefit is contingent upon my compliance with the
provisions of the Agreement.
I understand that if I die while employed by the Bank or voluntarily or
involuntarily terminate employment at the Bank, for reasons other than Cause, my
Beneficiary will be entitled to a Pre-Retirement Death Benefit or
Post-Termination Death Benefit in accordance with the following schedule:
Age at Death Death Benefit
------------ -------------
38 126,953
39 123,363
40 119,705
41 115,976
42 112,171
43 108,288
44 104,322
45 100,269
46 96,126
47 91,886
48 87,547
49 83,103
50 78,550
51 73,881
52 69,093
53 64,179
54 59,133
16
<PAGE>
55 53,950
56 48,624
57 43,147
58 37,513
59 31,715
60 25,746
61 19,598
62 13,263
63 6,733
64 0
17
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
(i) the Executive, (ii) a duly authorized officer of the Bank and (iii) a duly
authorized officer of the Corporation.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
(Corporation's duly authorized Officer)
18
<PAGE>
EXECUTIVE DEATH BENEFIT JOINDER AGREEMENT
I, Raymond C. Kenwell, hereby apply for approval by UNITED NATIONAL
BANK to participate in the Executive Death Benefit Master Agreement ("Master
Agreement") established on October 1, 1997, by UNITED NATIONAL BANK, as such
Master Agreement may now exist or hereafter be modified; and do further agree to
the terms and conditions thereof.
I understand that receipt by my Beneficiary of the Pre-Retirement or
Post-Termination Death Benefit is contingent upon my compliance with the
provisions of the Agreement.
I understand that if I die while employed by the Bank or voluntarily or
involuntarily terminate employment at the Bank, for reasons other than Cause, my
Beneficiary will be entitled to a Pre-Retirement Death Benefit or
Post-Termination Death Benefit in accordance with the following schedule:
Age at Death Death Benefit
45 78,681
46 75,431
47 72,106
48 68,703
49 65,217
50 61,645
51 57,983
52 54,226
53 50,370
54 46,412
55 42,345
56 38,165
57 33,867
58 29,445
59 24,895
60 20,210
61 15,384
62 10,412
63 5,286
64 0
19
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
(i) the Executive, (ii) a duly authorized officer of the Bank and (iii) a duly
authorized officer of the Corporation.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
(Corporation's duly authorized Officer)
20
<PAGE>
EXECUTIVE DEATH BENEFIT JOINDER AGREEMENT
I, Charles E. Nunn, Jr., hereby apply for approval by UNITED NATIONAL
BANK to participate in the Executive Death Benefit Master Agreement ("Master
Agreement") established on October 1, 1997, by UNITED NATIONAL BANK, as such
Master Agreement may now exist or hereafter be modified; and do further agree to
the terms and conditions thereof.
I understand that receipt by my Beneficiary of the Pre-Retirement or
Post-Termination Death Benefit is contingent upon my compliance with the
provisions of the Agreement.
I understand that if I die while employed by the Bank or voluntarily or
involuntarily terminate employment at the Bank, for reasons other than Cause, my
Beneficiary will be entitled to a Pre-Retirement Death Benefit or
Post-Termination Death Benefit in accordance with the following schedule:
Age at Death Death Benefit
44 64,052
45 61,580
46 59,051
47 56,464
48 53,815
49 51,102
50 48,322
51 45,471
52 42,546
53 39,545
54 36,462
55 33,296
56 30,041
57 26,655
58 23,172
59 19,589
60 15,901
61 12,103
62 8,190
63 4,157
64 0
21
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
(i) the Executive, (ii) a duly authorized officer of the Bank and (iii) a duly
authorized officer of the Corporation.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
(Corporation's duly authorized Officer)
22
<PAGE>
EXECUTIVE DEATH BENEFIT JOINDER AGREEMENT
I, Donald E. Reinhard, hereby apply for approval by UNITED NATIONAL
BANK to participate in the Executive Death Benefit Master Agreement ("Master
Agreement") established on October 1, 1997, by UNITED NATIONAL BANK, as such
Master Agreement may now exist or hereafter be modified; and do further agree to
the terms and conditions thereof.
I understand that receipt by my Beneficiary of the Pre-Retirement or
Post-Termination Death Benefit is contingent upon my compliance with the
provisions of the Agreement.
I understand that if I die while employed by the Bank or voluntarily or
involuntarily terminate employment at the Bank, for reasons other than Cause, my
Beneficiary will be entitled to a Pre-Retirement Death Benefit or
Post-Termination Death Benefit in accordance with the following schedule:
Age at Death Death Benefit
42 76,340
43 73,700
44 71,004
45 68,248
46 65,431
47 62,548
48 59,596
49 56,574
50 53,476
51 50,300
52 47,042
53 43,698
54 40,264
55 36,736
56 33,111
57 29,382
58 25,547
59 21,599
60 17,535
61 13,348
62 9,034
63 4,586
64 0
23
<PAGE>
I further understand that I am entitled to review or obtain a copy of
the Master Agreement, at any time, and may do so by contacting the Bank.
This Joinder Agreement shall become effective upon execution (below) by
(i) the Executive, (ii) a duly authorized officer of the Bank and (iii) a duly
authorized officer of the Corporation.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
(Corporation's duly authorized Officer)
24
<PAGE>
EXECUTIVE DEATH BENEFIT JOINDER AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Executive Death Benefit Master
Agreement executed by UNITED NATIONAL BANK of, Bridgewater, New Jersey, dated
October 1, 1997, hereby designates the following Beneficiary to receive any
guaranteed payments or death benefits under such Agreement, following his death:
PRIMARY BENEFICIARY: ____________________________________
SECONDARY BENEFICIARY: _________________________________
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 19___
- ----------------------------------- -----------------
(WITNESS) EXECUTIVE
- -----------------------------------
(WITNESS)
Exhibit A
25
EXECUTIVE DEFERRED
COMPENSATION PLAN
UNITED NATIONAL BANK
Bridgewater, New Jersey
OCTOBER 1, 1997
<PAGE>
EXECUTIVE DEFERRED
COMPENSATION PLAN
This Executive Deferred Compensation Plan (the "Plan"), effective as of
the 1st day of October, 1997, formalizes the understanding by and between UNITED
NATIONAL BANK (the "Bank"), a national banking association having its principal
place of business in New Jersey, and certain eligible Executives, hereinafter
referred to as "Executive", who shall be approved by the Bank to participate and
who shall elect to become a party to this Executive Deferred Compensation Plan
by execution of an Executive Deferred Compensation Joinder Agreement ("Joinder
Agreement") in a form provided by the Bank. UNITED NATIONAL BANCORP (the
"Holding Company") is a party to this Plan for the sole purpose of guaranteeing
the Bank's performance hereunder.
W I T N E S S E T H :
WHEREAS, the Executives are employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by such Executives and wishes to encourage continued employment of each;
and
WHEREAS, the Executives wish to be assured that they will be entitled
to a certain amount of additional compensation for some definite period of time
from and after retirement from active employment with the Bank or other
termination of employment and wish to provide their beneficiaries with benefits
from and after death; and
WHEREAS, the Bank and the Executives wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executives after retirement or other termination of employment and/or death
benefits to their beneficiaries after death; and
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WHEREAS, these Executives wish to defer a certain portion of their
compensation to be earned in the future; and
WHEREAS, the Bank and the Executives intend this Plan to be considered
an unfunded arrangement, maintained primarily to provide retirement income for
such Executives, members of a select group of management or highly compensated
employees of the Bank, for tax purposes and for purposes of the Employee
Retirement Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Executive Deferred Compensation Plan
which controls all issues relating to the Deferred Compensation Benefits as
described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.2 "Bank" means UNITED NATIONAL BANK and any successor thereto.
1.3 "Base Compensation" means regular salary compensation received from the
Bank during any calendar year, and before any salary deferral
contributions to any tax-qualified or non-qualified plan.
2
<PAGE>
1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Executive's Joinder Agreement to whom the
deceased Executive's benefits are payable. If no Beneficiary is so
designated, then the Executive's Spouse, if living, will be deemed the
Beneficiary. If the Executive's Spouse is not living, then the Children
of the Executive will be deemed the Beneficiaries and will take on a
per stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
1.5 "Benefit Age" shall be the birthday on which the Executive becomes
eligible to receive benefits under the plan. Such birthday shall be
designated in the Executive's Joinder Agreement.
1.6 "Benefit Eligibility Date" shall be the date on which a Executive is
entitled to receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Executive
attains the Benefit Age designated in his Joinder Agreement.
1.7 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Holding Company or the Bank, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Holding Company or the Bank. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such
majority, the Executive was guilty of conduct which was deemed to be
Cause for termination and specifying the particulars thereof in detail,
and (ii) after reasonable notice to the Executive there shall have been
an opportunity
3
<PAGE>
for the Executive, together with counsel to the Executive, to be heard
before such non-officer members of the Board of Directors.
1.8 "Change in Control" of the Holding Company or the Bank shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Holding Company) becomes a beneficial owner,
directly or indirectly, of 25% or more Holding Company's and/or
the Bank's voting securities or all or substantially all of the
assets of Holding Company and/or the Bank.
(b) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Holding Company or the Bank with an
unaffiliated entity in which either or both of the following is
to occur: (i) the directors of Holding Company and/or Bank, as
applicable, immediately prior to such merger, consolidation or
combination will constitute less than a majority of the board of
directors of the surviving, new or combined entity; or (ii) less
than 75% of the outstanding voting securities of the surviving,
new or combined entity will be beneficially owned by the
stockholders of Holding Company immediately prior to such merger,
consolidation or combination; provided, however, that if any
definitive agreement to merge, consolidate or combine is
terminated without consummation of the transaction, then no
Change in Control shall be deemed to have occurred pursuant to
this paragraph (b).
(c) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the transfer of all or substantially
all of Holding Company's and/or the Bank's assets, other than to
a wholly-owned subsidiary of Holding Company; provided, however,
that if any definitive agreement to transfer assets is terminated
without consummation of the transfer, then no Change in Control
shall be deemed to have occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Holding Company or the Bank shall be persons who: (i) were not
members of such Board on the date
4
<PAGE>
hereof ("current members"); and (ii) were not nominated by a vote
of the Board which included the affirmative vote of a majority of
the current members on the Board at the time of their nomination
("future designees") and (iii) were not nominated by a vote of
the Board which included the affirmative vote of a majority of
the current members and future designees, taken as a group, on
the Board at the time of their nomination.
1.9 "Children" means the Executive's children, or any issue of any deceased
children, both natural and adopted, determined at the time payments are
due the Children under this Plan.
1.10 "Code" means the Internal Revenue Code of 1986, as amended.
1.11 "Deferral Period" means the period of months designated in the
Executive's Joinder Agreement during which the Executive shall be
entitled to defer Base Compensation. The Deferral Period shall commence
on the date designated in the Executive's Joinder Agreement.
1.12 "Deferred Compensation Plan" means the annuitized value (using the
Interest Factor) of the Executive's Elective Contribution Account
measured as of the Executive's Benefit Age, payable in monthly
installments throughout the Payout Period and commencing on the
Executive's Benefit Eligibility Date.
1.13 "Disability Benefit" means the monthly benefit payable to the Executive
following a determination, in accordance with Subsection 5.2, that he
is no longer able, properly and satisfactorily, to perform his duties
as a Executive.
1.14 "Effective Date" of this Plan is October 1, 1997.
5
<PAGE>
1.15 "Elective Contribution" shall refer to any bookkeeping entry required
to record a Executive's voluntary monthly pre-tax deferral of Base
Compensation which shall be made in accordance with the Executive's
Joinder Agreement.
1.16 "Elective Contribution Account" shall be represented by the bookkeeping
entries required to record a Executive's Elective Contributions plus
accrued interest, equal to the Interest Factor, earned to date on such
amounts. However, neither the existence of such bookkeeping entries nor
the Elective Contribution Account itself shall be deemed to create
either a trust of any kind, or a fiduciary relationship between the
Bank and the Executive or any Beneficiary.
1.17 "Estate" means the estate of the Executive.
1.18 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Executive or of a
dependent of the Executive, loss of the Executive's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances which arise as a result of an event not within the
control of the Executive. The circumstances that shall constitute an
unforeseeable emergency will depend upon the facts of each case, but,
in any instance, payment may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
Executive's assets to the extent such liquidation would not itself
cause severe financial hardship, or (iii) by cessation of deferrals
under the Plan. Examples of what are not considered to be unforeseeable
emergencies include the need to send the Executive's child to college
or the decision to purchase a home.
1.19 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need.
6
<PAGE>
1.20 "Interest Factor" means monthly compounding or discounting, as
applicable, at a rate determined annually in accordance with the
following: the Interest Factor shall be equal to the greater of (i)
eight percent (8%) or (ii) the annual rate of return on equity for the
Bank for the immediately preceding year minus five percent (5%),
provided, however, that "(ii)" shall only be applicable if the Bank's
equity to asset ratio is eight percent (8%) or greater.
1.21 [Deleted]
1.22 [Deleted]
1.23 [Deleted]
1.24 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing
7
<PAGE>
on the first day of the month following the occurrence of the event
which triggers distribution and continuing for a period of months, as
designated in the Executive's Joinder Agreement.
1.25 "Plan Year" shall mean the twelve (12) month period from January 1 to
December 31 of each year.
1.26 "Projected Deferral" is an estimate, determined upon execution of a
Joinder Agreement, of the total amount of Base Compensation to be
deferred by the Executive during his Deferral Period (excluding any
interest accrued on such deferrals), and so designated in the
Executive's Joinder Agreement.
1.27 "Projected Deferral Compensation Benefit" is an estimate of the
Deferred Compensation Benefit determined upon execution of the initial
Joinder Agreement, and based upon the Executive's deferral election
over the Deferral Period with earnings calculated using the Interest
Factor.
1.28 [Deleted]
1.29 "Projected Survivor's Benefit" means the benefit payable to the
Beneficiary in monthly installments throughout the Payout Period, equal
to the amount designated in the Executive's Joinder Agreement, and
subject to Subsection 6.1.
1.30 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
8
<PAGE>
1.31 "Survivor's Benefit" means a stream of monthly installments payable to
the Beneficiary throughout the Payout Period. In the event a policy of
life insurance has been purchased by the Plan on the Executive's life,
the Survivor's Benefit is equal to the amount designated in the Joinder
Agreement, and subject to Subsection 6.1. In the event no life
insurance policy has been purchased by the Plan on the Executive's
life, the Survivor's Benefit shall equal the annuitized value (using
the Interest Factor) of the Executive's Elective Contribution Account,
payable over the Payout Period.
1.32 "Tier One Executives" means those Executives who are eligible to
participate herein and who are designated as Tier One Executives by the
Bank's Board of Directors. Exhibit C attached hereto sets forth those
persons who have been designated as Tier One Executives.
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held therein, pursuant to the agreement which
establishes such rabbi trust. The contributed assets shall be subject to the
claims of the Bank's creditors in the event of the Bank's "Insolvency" as
defined in the agreement which establishes such rabbi trust, until the
contributed assets are paid to the Executive and his Beneficiary(ies) in such
manner and at such times as specified in this Plan. It is the intention of the
Bank to make a contribution or contributions to the rabbi trust to provide the
Bank with a source of funds to assist it in meeting the liabilities of this
Plan. The rabbi trust and any assets held therein shall conform to the terms of
the rabbi trust agreement which has been established in conjunction with this
Plan. Any contribution(s) to the rabbi trust shall be made in accordance with
the rabbi trust agreement. The amount of such contribution(s) shall be at least
equal to the Executive's Elective Contribution Account.
9
<PAGE>
SECTION III
DEFERRED COMPENSATION
Commencing on the execution date of the Executive's Joinder Agreement
and continuing through the end of the Deferral Period, the Executive and the
Bank agree that the Executive shall be entitled to defer into his Elective
Contribution Account Base Compensation which the Executive would otherwise be
entitled to receive from the Bank for each Plan Year during the Deferral Period.
The Executive shall be entitled to defer up to ten percent (10%) of his Base
Compensation for the Plan Year, provided that the Executive has first deferred
at least five percent (5%) of his Base Compensation for the Plan Year into the
Bank's tax qualified 401(k) Plan (or if less, the maximum amount permitted under
Code Section 402 (g)). No deferrals will be permitted hereunder unless the
Executive has deferred, or has entered into an election to defer and is
deferring, into the tax-qualified 401(k) Plan at such time, at least at the rate
of five percent (5%) of the Executive's Base Compensation, or at such rate as
would equal by the end of the Plan Year the maximum amount permitted under Code
Section 402(g), whichever is less.
In addition, a Tier One Executive shall be entitled to defer into his
Elective Contribution Account an additional amount of Base Compensation which
the Tier One Executive would otherwise be entitled to receive from the Bank for
each month of the Deferral Period, so long as the average deferral percentage
for all Executives entitled to defer under the Plan shall not exceed the dollar
amount determined by multiplying Ten Percent (10%) times the sum of the Base
Compensation for all Executives entitled to participate hereunder (such dollar
amount shall be referred to as the "Deferral Pool Limit").
If prior to the beginning of any Plan Year the total of the Projected
Deferrals of all Executives for such year is less than the total dollar amount
of the Deferral Pool Limit, the Tier One Executives, on a pro-rata basis, will
be given an opportunity to defer an additional amount, up to the Deferral Pool
Limit. After all Tier One Executives have been given such opportunity, if the
total Projected Deferrals is less than the dollar amount of the Deferral Pool
Limit, the Tier
10
<PAGE>
One Executives shall be given another opportunity to increase their Projected
Deferrals, on a pro-rata basis up to the Deferral Pool Limit, and so on, until
(i) all Tier One Executives have deferred the maximum amount they wish to defer,
or (ii) the total Projected Deferrals equals (but does not exceed) the Deferral
Pool Limit; provided however, that all increases in an Executive's Projected
Deferral must be made prior to January 1 of the Plan Year for which such
Projected Deferral is effective.
SECTION IV
ADJUSTMENT OF DEFERRAL AMOUNT
Deferral of the specific amount of Base Compensation designated in the
Executive's Joinder Agreement shall continue in effect pursuant to the terms of
this Plan unless and until the Executive amends his Joinder Agreement by filing
with the Administrator a Notice of Adjustment of Deferral Amount (Exhibit B of
the Joinder Agreement). A Notice of Adjustment of Deferral Amount shall be
effective if filed with the Administrator no later than December 31st of the
year preceding the year to which the adjustment is applicable. Such Notice of
Adjustment of Deferral Amount shall be effective commencing with the January 1st
following its filing and shall be applicable only to compensation attributable
to services not yet performed by the Executive.
SECTION V
BENEFITS GENERALLY
5.1 Retirement Benefit. Subject to Subsection 6.1 of this Plan, the Bank
agrees to pay the Executive the Deferred Compensation Benefit
commencing on the Executive's Benefit Eligibility Date. Such payments
will be made over the term of the Payout Period. In the event of the
Executive's death after commencement of the Deferred Compensation
Benefit, but prior to completion of all such payments due and owing
hereunder, the Bank shall pay
11
<PAGE>
to the Executive's Beneficiary a continuation of the monthly
installments for the number of months remaining in the Payout Period.
5.2 Disability Benefit. If requested by the Executive and approved by the
Board of Directors, the Executive shall be entitled to receive the
Disability Benefit hereunder, in any case in which it is determined by
a duly licensed independent physician selected by the Bank, that the
Executive is no longer able, properly and satisfactorily, to perform
his regular duties as a Executive because of ill health, accident,
disability or general inability due to age. If the Executive's
employment is terminated pursuant to this Subsection and Board of
Director approval is obtained, the Executive may elect to begin
receiving the Disability Benefit in lieu of the Deferred Compensation
Benefit, which is not available prior to the Executive's Benefit
Eligibility Date. The Disability Benefit shall begin within thirty
(30) days of Board of Director approval of such benefit. The amount of
the monthly benefit shall be the annuitized value of the Executive's
Elective Contribution Account, measured as of the date of the
disability determination and payable over the Payout Period. The
Interest Factor shall be used to annuitize the Elective Contribution
Account. In the event the Executive dies while receiving Disability
Benefit payments pursuant to this Subsection, or after becoming
eligible for such payments but before the actual commencement of such
payments, his Beneficiary shall be entitled to receive those benefits
provided for in Subsection 6.1(a) and the Disability Benefits provided
for in this Subsection shall terminate upon the Executive's death.
5.3 Removal For Cause. In the event the Executive is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Contribution Account, measured as
of the date of removal. Such amount shall be paid in a lump sum within
thirty (30) days of the Executive's date of removal. All other
benefits provided
12
<PAGE>
for the Executive or his Beneficiary under this Plan shall be forfeited
and the Plan shall become null and void with respect to such Executive.
5.4 Voluntary or Involuntary Termination Other Than for Cause. If the
Executive's employment with the Bank is voluntarily or involuntarily
terminated prior to the attainment of his Benefit Eligibility Date, for
any reason including a Change in Control, but excluding termination for
Cause, the Executive's death or disability, then commencing on his
Benefit Eligibility Date, the Executive shall be entitled to the
annuitized value (using the Interest Factor) of his Elective
Contribution Account calculated as of his Benefit Eligibility Date, and
payable over the Payout Period. During the period between termination
of employment and the Executive's Benefit Eligibility Date, the
Executive's Elective Contribution Account will continue to earn
interest at a rate equal to the Interest Factor.
5.5 Financial Hardship Benefit. In the event the Executive incurs a
Financial Hardship, the Executive may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the Bank
in the exercise of its sole discretion. The Executive will be required
to demonstrate to the satisfaction of the Bank that a Financial
Hardship has occurred and that the Executive is otherwise entitled to a
Financial Hardship Benefit in accordance with Sections 1.18 and 1.19.
If a Financial Hardship Benefit is approved, it shall be paid in a lump
sum within thirty (30) days of the event which triggers payment and
only to the extent of the Executive's account balances when paid. Any
Deferred Compensation Benefit or Disability Benefit shall be
actuarially adjusted to reflect such distribution.
13
<PAGE>
SECTION VI
DEATH BENEFITS
6.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit.
In the event of the Executive's death prior to commencement of the
Deferred Compensation Benefit, the Bank shall pay the Executive's
Beneficiary a monthly benefit for the Payout Period, commencing within
thirty (30) days of the Executive's death. The amount of such monthly
benefit payments shall be determined as follows:
(a) (1) In the event death occurs (i) while the Executive is receiving the
Disability Benefit provided for in Subsection 5.2, or (ii) after the
Executive has become eligible for such Disability Benefit payments but
before such payments have commenced, the Executive's Beneficiary shall
be entitled to receive a lump sum benefit equal to the present value
of the Survivor's Benefit reduced by the Disability Benefit payments
made to the Executive. In the event death occurs after the Executive
has received the Disability Benefit provided for in Subsection 5.2 for
the entire Payout Period, the Executive's Beneficiary shall not be
entitled to the benefit set forth above. However, the lump sum payment
described in paragraph two (2) of this Subsection 6.1(a) shall still
be applicable to such Beneficiary.
(2)If (i) the total dollar amount of Disability Benefit payments
received by the Executive under Subsection 5.2 is less than the total
dollar amount of payments which would have been received had the
Survivor's Benefit been paid in lieu of the Disability Benefit which
was paid during the Executive's life, and (ii) Board of Director
approval is obtained, the Bank shall pay the Executive's Beneficiary
a lump sum payment for the difference. This lump sum payment shall be
made within thirty (30) days of the Executive's death.
(b) In the event death occurs while the Executive is (i) in the service of
the Bank, (ii) deferring Base Compensation pursuant to Section III and
(iii) prior to any reduction
14
<PAGE>
or discontinuance (via an effective filing of a Notice of Adjustment
of Deferral Amount) in the level of deferrals reflected in the
Executive's Joinder Agreement, the Executive's Beneficiary shall be
paid the Survivor's Benefit.
(c) In the event death occurs while the Executive is (i) in the service of
the Bank, (ii) deferring Base Compensation pursuant to Section III,
and (iii) after any reduction or discontinuance (via an effective
filing of a Notice of Adjustment of Deferral Amount) in the level of
deferrals reflected in the Executive's initial Joinder Agreement, the
Executive's Beneficiary shall be paid a reduced Survivor's Benefit.
The amount of such reduced Survivor's Benefit shall be determined by
multiplying the monthly payment available as a Projected Survivor's
Benefit by a fraction, the numerator of which is equal to (i) the
total amount of Base Compensation actually deferred by the Executive
as of his death and the denominator of which is equal to the total
amount of Base Compensation which would have been deferred as of his
death, if no reduction or discontinuance in the level of deferrals had
accrued at any time following execution of the Joinder Agreement and
during the Deferral Period.
(d) In the event the Executive completes less than One Hundred Percent
(100%) of his Projected Deferrals due to any voluntary or involuntary
termination of employment other than termination for Cause, the
Executive's Beneficiary shall be paid a reduced Survivor's Benefit.
The amount of such reduced Survivor's Benefit shall be determined by
multiplying the monthly payment available as a Projected Survivor's
Benefit by a fraction, the numerator of which is equal to the total
Base Compensation actually deferred by the Executive, and the
denominator of which is equal to the Executive's Projected Deferral.
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(e) In the event the Executive completes One Hundred Percent
(100%) of his Projected Deferrals prior to any voluntary or
involuntary termination other than removal for Cause, and
provided no payments have been made pursuant to Subsection
5.2, the Executive's Beneficiary shall be paid the Survivor's
Benefit.
6.2 Additional Death Benefit - Burial Expense. In addition to the
above-described death benefits, upon the Executive's death, the
Executive's Beneficiary shall be entitled to receive a one-time lump
sum death benefit in the amount of Ten Thousand Dollars ($10,000.00).
This benefit shall be provided specifically for the purpose of
providing payment for burial and/or funeral expenses of the Executive.
Such benefit shall be payable within thirty (30) days of the
Executive's death. The Executive's Beneficiary shall not be entitled to
such benefit if the Executive is removed for Cause prior to death.
Notwithstanding anything in this Section 6.2 to the contrary, if the
Executive is also a participant in an Executive Supplemental Retirement
Income Agreement under which an additional $10,000 death benefit for
burial expenses is being paid, no additional death benefit shall be
paid under this Section 6.2.
SECTION VII
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of his Joinder Agreement and shall have
the right to change such designation, at any subsequent time, by submitting to
the Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
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SECTION VIII
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments so specified under this Plan. The Executive
agrees that he, his Beneficiary, or any other person claiming through him shall
have no rights or interests whatsoever in any asset of the Bank, including any
insurance policies or contracts which the Bank may possess or obtain to
informally fund this Plan. Any asset used or acquired by the Bank in connection
with the liabilities it has assumed under this Plan, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain, a general, unpledged, and unrestricted asset of the Bank.
SECTION IX
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The Executive,
his Beneficiaries or any successor in interest to him shall be and remain simply
a general unsecured creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Plan or to refrain from the same and to
determine the extent, nature, and method of any such asset purchases. Should the
Bank decide to purchase assets such as life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such assets at any time, in whole or in part. At no
time shall the Executive be deemed to have any lien, right, title or interest in
or to any specific investment or
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to any assets of the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Executive, then the Executive
shall assist the Bank by freely submitting to a physical examination and by
supplying such additional information necessary to obtain such insurance or
annuities.
SECTION X
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate, with respect to such Executive or Beneficiary.
SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Plan. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Plan as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Plan, including the employment
of advisors and the delegation of ministerial duties to qualified
individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Plan are not paid to the Executive (or to his Beneficiary in the case
of the Executive's death) and such
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claimants feel they are entitled to receive such benefits, then a
written claim must be made to the Administrator within sixty (60) days
from the date payments are refused. The Administrator shall review the
written claim and, if the claim is denied, in whole or in part, they
shall provide in writing, within ninety (90) days of receipt of such
claim, their specific reasons for such denial, reference to the
provisions of this Plan or the Joinder Agreement upon which the denial
is based, and any additional material or information necessary to
perfect the claim. Such writing by the Administrator shall further
indicate the additional steps which must be undertaken by claimants if
an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Plan, the Joinder Agreement or any
documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then review the second claim and provide a written
decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include
reference to specific provisions of this Plan or the Joinder Agreement
upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
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SECTION XII
MISCELLANEOUS
12.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the employment of the
Bank nor limit the right of the Bank to discharge or otherwise deal
with the Executive without regard to the existence of the Plan.
12.2 State Law. The Plan is established under, and will be construed
according to, the laws of the state of New Jersey.
12.3 Severability. In the event that any of the provisions of this Plan or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the Plan
to which such Executive is entitled shall be paid to such conservator
or other person legally charged with the care of his person or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. If the
location of the Executive is not made known to the Bank within three
(3) years after the date on which any payment of the Deferred
Compensation Benefit may first be made, payment may be made as though
the Executive had died at the end of the three (3) year period.
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12.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Executives shall be personally
liable to the Executive or any other person for any claim, loss,
liability or expense incurred in connection with this Plan.
12.7 Gender. Whenever in this Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Plans. Nothing contained in this Plan
shall affect the right of the Executive to participate in or be covered
by any qualified or non-qualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Plan, the
benefits otherwise provided herein shall not be payable if the
Executive's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of his Joinder Agreement. If
the Executive dies during this twenty-six (26) month period due to
suicide, the balance of his Elective Contribution Account will be paid
to the Executive's Beneficiary in a single payment. Payment is to be
made within thirty (30) days after the Executive's death is declared a
suicide by competent legal authority. Credit shall be given to the Bank
for payments made prior to determination of suicide.
12.10 Inurement. This Plan shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Source of Payments. All payments provided in this Plan shall be timely
paid in cash or check from the general funds of the Bank or the assets
of the rabbi trust. The Holding
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Company guarantees payment and provision of all amounts and benefits
due to the Executives and, if such amounts and benefits are not timely
paid or provided by the Bank, or a rabbi trust, such amounts and
benefits shall be paid or provided by the Holding Company.
12.12 Modification of Benefit Eligibility Date. In the event that a Executive
desires to modify his Benefit Eligibility Date or Payout Period with
respect to future Elective Contributions, the Executive may do so at
the time and in the manner that the Executive is entitled to adjust his
Elective Contribution, pursuant to Section IV of the Plan. In the event
that a Executive desires to modify his Benefit Eligibility Date or
Payout Period with respect to amounts accrued in his Elective
Contribution Account the Executive may do so, provided, however, that
any such modification is made no later than twenty-four (24) months
prior to the date of both (i) the Executive's existing Benefit
Eligibility (at the time of such modification) and (ii) the Executive's
Benefit Eligibility Date, as modified.
12.13 Tax Withholding. The Bank may withhold from any benefits payable under
this Plan all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation then in effect.
12.14 Headings. Headings and sub-headings in this Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Plan.
SECTION XIII
AMENDMENT/REVOCATION
This Plan shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Executive and the Bank,
and such mutual consent shall be required even if the Executive is no longer
employed by the Bank.
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SECTION XIV
EXECUTION
14.1 This Plan sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Plan.
14.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Plan to be executed on the day and date first above written.
ATTEST: UNITED NATIONAL BANK
By: _________________
Secretary
Title: _____________________
ATTEST: UNITED NATIONAL BANCORP
By:
Secretary
Title:
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EXECUTIVE DEFERRED COMPENSATION JOINDER AGREEMENT
I, ________________, and UNITED NATIONAL BANK hereby agree for good and
valuable consideration, the value of which is hereby acknowledged, that I shall
participate in the Executive Deferred Compensation Plan ("Plan"), which is
effective October 1, 1997, as such Plan may now exist or hereafter be amended or
modified, and do further agree to the terms and conditions thereof.
I understand that I must execute this Executive Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before October 1, 1997 in order to participate in the Plan
from its Effective Date. Otherwise, I may execute this Joinder Agreement and
give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to defer $__________ (or 10%) of my Base Compensation.
Such deferrals shall commence on October 1, 1997 shall renew annually unless
otherwise changed and shall continue for a period of 60 months known as the
"Deferral Period", and will result in a "Projected Deferral" in the amount of
$___,___ and a monthly Projected Deferred Compensation Benefit of $_,___.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Administrator, at least thirty
(30) days prior to any January 1st of my Deferral Period. A Notice of Adjustment
of Deferral Amount can be used to adjust the amount of Board fees and/or
retainer to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 65 and a "Payout Period" of 180
months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly payment in the amount of $_,___,
pursuant to Subsection 6.1 of the Plan and subject to all relevant Subsections
of the Plan.
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I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY
SECONDARY BENEFICIARY
------------------------------------------
I understand that I am entitled to review or obtain a copy of the Plan,
at any time, and may do so by contacting the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Executive and a duly authorized officer of the Bank.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
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Exhibit A
3
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EXECUTIVE DEFERRED COMPENSATION JOINDER AGREEMENT
NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT
TO: Bank
Attention:
I hereby give notice of my election to adjust the amount of my
compensation deferral in accordance with my Executive Deferred Compensation
Joinder Agreement, dated the ____ day of __________, 19__. This notice is
submitted thirty (30) days prior to January 1st, and shall become effective
January 1st, as specified below.
Adjust deferral as of: January 1st, 19__
Previous Deferral Amount ____________ per month
New Deferral Amount ____________ per month
(to discontinue deferral, enter $0)
------------------------------------
EXECUTIVE
------------------------------------
DATE
ACKNOWLEDGED
BY:_________________________________
TITLE: _____________________________
------------------------------------
DATE
Exhibit B
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EXECUTIVE DEFERRED COMPENSATION PLAN
TIER ONE EXECUTIVES
Thomas C. Gregor
Donald W. Malwitz
Warren R. Gerleit
John J. Cannon
Joanne F. Herb
Ralph L. Straw, Jr.
Exhibit C
5
EXECUTIVE DEFERRED
BONUS PLAN
UNITED NATIONAL BANK
Bridgewater, New Jersey
October 1, 1997
<PAGE>
EXECUTIVE DEFERRED
BONUS PLAN
This Executive Deferred Bonus Plan (the "Plan"), effective as of the
1st day of October, 1997, formalizes the understanding by and between UNITED
NATIONAL BANK (the "Bank"), a national banking association having its principal
place of business in New Jersey, and certain eligible Executives, hereinafter
referred to as "Executive", who shall be approved by the Bank to participate and
who shall elect to become a party to this Executive Deferred Bonus Plan by
execution of a Executive Deferred Bonus Joinder Agreement ("Joinder Agreement")
in a form provided by the Bank. UNITED NATIONAL BANCORP (the "Holding Company")
is a party to this Plan for the sole purpose of guaranteeing the Bank's
performance hereunder.
W I T N E S S E T H :
WHEREAS, the Executives are employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by such Executives and wishes to encourage continued employment of each;
and
WHEREAS, the Executives wish to be assured that they will be entitled
to a certain amount of additional compensation for some definite period of time
from and after retirement from active employment with the Bank or other
termination of employment and wish to provide their beneficiaries with benefits
from and after death; and
WHEREAS, the Bank and the Executives wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executives after retirement or other termination of employment and/or death
benefits to their beneficiaries after death; and
WHEREAS, these Executives wish to defer a certain portion of their
bonus compensation to be earned in the future; and
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WHEREAS, the Bank and the Executives intend this Plan to be considered
an unfunded arrangement, maintained primarily to provide retirement income for
such Executives, members of a select group of management or highly compensated
employees of the Bank, for tax purposes and for purposes of the Employee
Retirement Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Executive Deferred Bonus Plan which
controls all issues relating to the Deferred Bonus Benefits as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.2 "Bank" means UNITED NATIONAL BANK and any successor thereto.
1.3 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Executive's Joinder Agreement to whom the
deceased Executive's benefits are payable. If no Beneficiary is so
designated, then the Executive's Spouse, if living, will be deemed the
Beneficiary. If the Executive's Spouse is not living, then the Children
of the Executive will be deemed the Beneficiaries and will take on a
per stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
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1.4 "Benefit Age" shall be the birthday on which the Executive becomes
eligible to receive benefits under the Plan. Such birthday shall be
designated in the Executive's Joinder Agreement.
1.5 "Benefit Eligibility Date" shall be the date on which a Executive is
entitled to receive his Deferred Bonus Benefit. It shall be the first
day of the month following the month in which the Executive attains the
Benefit Age designated in his Joinder Agreement.
1.6 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Holding Company or the Bank, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Holding Company or the Bank. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such
majority, the Executive was guilty of conduct which was deemed to be
Cause for termination and specifying the particulars thereof in detail,
and (ii) after reasonable notice to the Executive there shall have been
an opportunity for the Executive, together with counsel to the
Executive, to be heard before such non-officer members of the Board of
Directors.
1.7 "Change in Control" of the Holding Company or the Bank shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Holding Company) becomes a beneficial owner,
directly or indirectly, of 25% or more
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Holding Company's and/or the Bank's voting securities or all or
substantially all of the assets of Holding Company and/or the
Bank.
(b) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Holding Company or the Bank with an
unaffiliated entity in which either or both of the following is
to occur: (i) the directors of Holding Company and/or Bank, as
applicable, immediately prior to such merger, consolidation or
combination will constitute less than a majority of the board of
directors of the surviving, new or combined entity; or (ii) less
than 75% of the outstanding voting securities of the surviving,
new or combined entity will be beneficially owned by the
stockholders of Holding Company immediately prior to such merger,
consolidation or combination; provided, however, that if any
definitive agreement to merge, consolidate or combine is
terminated without consummation of the transaction, then no
Change in Control shall be deemed to have occurred pursuant to
this paragraph (b).
(c) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the transfer of all or substantially
all of Holding Company's and/or the Bank's assets, other than to
a wholly-owned subsidiary of Holding Company; provided, however,
that if any definitive agreement to transfer assets is terminated
without consummation of the transfer, then no Change in Control
shall be deemed to have occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Holding Company or the Bank shall be persons who: (i) were not
members of such Board on the date hereof ("current members"); and
(ii) were not nominated by a vote of the Board which included the
affirmative vote of a majority of the current members on the
Board at the time of their nomination ("future designees") and
(iii) were not nominated by a vote of the Board which included
the affirmative vote of a majority of the current members and
future designees, taken as a group, on the Board at the time of
their nomination.
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1.8 "Children" means the Executive's children, or any issue of any deceased
children, both natural and adopted, determined at the time payments are
due the Children under this Plan.
1.9 "Deferral Period" means the period of months designated in the
Executive's Joinder Agreement during which the Executive shall be
entitled to defer bonus compensation. The Deferral Period shall
commence on the date designated in the Executive's Joinder Agreement.
1.10 "Deferred Bonus Benefit" means the annuitized value (using the Interest
Factor) of the Executive's Elective Bonus Contribution Account,
measured as of the Executive's Benefit Age, payable in monthly
installments throughout the Payout Period and commencing on the
Executive's Benefit Eligibility Date.
1.11 "Disability Benefit" means the monthly benefit payable to the Executive
following a determination, in accordance with Subsection 5.2, that he
is no longer able, properly and satisfactorily, to perform his duties
as a Executive.
1.12 "Effective Date" of this Plan is October 1, 1997.
1.13 "Elective Bonus Contribution" shall refer to any bookkeeping entry
required to record an Executive's annual pre-tax deferral of up to One
Hundred Percent (100%) of his bonus compensation which shall be made in
accordance with the Executive's Joinder Agreement.
1.14 "Elective Bonus Contribution Account" shall be represented by the
bookkeeping entries required to record a Executive's Elective Bonus
Contributions plus accrued interest, equal to the Interest Factor,
earned to date on such amounts. However, neither the existence of such
bookkeeping entries nor the Elective Bonus Contribution Account itself
shall be deemed to create either a trust of any kind, or a fiduciary
relationship between the Bank and the Executive or any Beneficiary.
Amounts credited to the Elective Bonus
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Contribution Account with respect to a Executive shall include the
total fair market value of all accruals on behalf of such Executive
prior to the adoption of this restated Plan and amounts accrued
hereunder.
1.15 "Estate" means the estate of the Executive.
1.16 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Executive or of a
dependent of the Executive, loss of the Executive's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances which arise as a result of an event not within the
control of the Executive. The circumstances that shall constitute an
unforeseeable emergency will depend upon the facts of each case, but,
in any instance, payment may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
Executive's assets to the extent such liquidation would not itself
cause severe financial hardship, or (iii) by cessation of deferrals
under the Plan. Examples of what are not considered to be unforeseeable
emergencies include the need to send the Executive's child to college
or the decision to purchase a home.
1.17 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need.
1.18 "Interest Factor" means monthly compounding or discounting, as
applicable, at a rate determined annually in accordance with the
following: the Interest Factor shall be equal to the greater of (i)
eight percent (8%) or (ii) the annual rate of return on equity for the
Bank for the immediately preceding year minus five percent (5%),
provided, however, that "(ii)" shall only be applicable if the Bank's
equity to asset ratio is eight percent (8%) or greater.
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1.19 "Maximum Elective Bonus Contribution" means the total amount of bonus
compensation that the Executive shall be allowed to defer during his
Deferral Period, as designated in his Joinder Agreement.
1.20 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing
for a period of months, as designated in the Executive's Joinder
Agreement.
1.21 "Plan Year" shall mean the twelve (12) month period from January 1 to
December 31 of each year.
1.22 "Projected Deferral" is an estimate, determined upon execution of a
Joinder Agreement, of the total amount of bonus compensation to be
deferred by the Executive during his Deferral Period (excluding any
interest accrued on such deferrals), and so designated in the
Executive's Joinder Agreement.
1.23 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
1.24 "Survivor's Benefit" means a stream of monthly installments payable to
the Beneficiary throughout the Payout Period. In the event a policy of
life insurance has been purchased by the Plan on the Executive's life,
the Survivor's Benefit is equal to the amount designated in the Joinder
Agreement, and subject to Subsection 6.1. In the event no life
insurance policy has been purchased by the Plan on the Executive's
life, the Survivor's Benefit shall equal the annuitized value (using
the Interest Factor) of the Executive's Elective Bonus Contribution
Account, payable over the Payout Period.
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1.25 "Tier One Executives" means those Executives who are eligible to
participate herein and who are designated as Tier One Executives by the
Bank's Board of Directors. Exhibit C attached hereto sets forth those
persons who have been designated as Tier One Executives.
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held therein, pursuant to the agreement which
establishes such rabbi trust. The contributed assets shall be subject to the
claims of the Bank's creditors in the event of the Bank's "Insolvency" as
defined in the agreement which establishes such rabbi trust, until the
contributed assets are paid to the Executive and his Beneficiary(ies) in such
manner and at such times as specified in this Plan. It is the intention of the
Bank to make a contribution or contributions to the rabbi trust to provide the
Bank with a source of funds to assist it in meeting the liabilities of this
Plan. The rabbi trust and any assets held therein shall conform to the terms of
the rabbi trust agreement which has been established in conjunction with this
Plan. Any contribution(s) to the rabbi trust shall be made in accordance with
the rabbi trust agreement. The amount and timing of such contribution(s) shall
be specified in the agreement which establishes such rabbi trust.
SECTION III
DEFERRED COMPENSATION
Commencing on the execution date of the Executive's Joinder Agreement
and continuing through the end of the Deferral Period, the Executive and the
Bank agree that the Executive shall be entitled to defer into his Elective Bonus
Contribution Account up to Twenty-Five Percent (25%) of the Executive's bonus
compensation which the Executive would otherwise be entitled to receive from the
Bank in each Plan Year during the Deferral Period. The specific amount of bonus
compensation which the Executive elects to defer annually shall be designated in
the Executive's Joinder Agreement.
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In addition, a Tier One Executive shall be entitled to defer into his
Elective Bonus Contribution Account up to an additional amount of the Tier One
Executive's bonus compensation which the Tier One Executive would otherwise be
entitled to receive from the Bank in each Plan Year during the Deferral Period,
so long as the average bonus deferral percentage for all Executives (not just
Tier One Executives) entitled to make bonus deferrals under the Plan shall not
exceed the dollar amount determined by multiplying Twenty-Five Percent (25%) by
the sum of the bonus compensation for all Executives entitled to participate
hereunder (such dollar amount shall be referred to as the "Bonus Deferral Pool
Limit.")
If prior to the beginning of any Plan Year the total of the Projected
Deferrals of all Executives for such year is less than the total dollar amount
of the Bonus Deferral Pool Limit, the Tier One Executives, on a pro-rata basis,
will be given an opportunity to defer an additional amount, up to the Bonus
Deferral Pool Limit. After all Tier One Executives have been given such
opportunity, if the total Projected Deferrals is less than the dollar amount of
the Bonus Deferral Pool Limit, the Tier One Executives shall be given another
opportunity to increase their Projected Deferrals, on a pro-rata basis up to the
Bonus Deferral Pool Limit, and so on, until (i) all Tier One Executives have
deferred the maximum amount they wish to defer, or (ii) the total Projected
Deferrals equals (but does not exceed) the Bonus Deferral Pool Limit; provided
however, that all increases in an Executive's Projected Deferral must be made
prior to January 1 of the Plan Year for which such Projected Deferral is
effective.
SECTION IV
ADJUSTMENT OF DEFERRAL AMOUNT
Deferral of the specific amount of bonus compensation designated in the
Executive's Joinder Agreement shall continue in effect pursuant to the terms of
this Plan unless and until the Executive amends his Joinder Agreement by filing
with the Administrator a Notice of Adjustment of Deferral Amount (Exhibit B of
the Joinder Agreement). A Notice of Adjustment of Deferral Amount shall be
effective if filed with the Administrator no later than December 31st
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during the Executive's Deferral Period. Such Notice of Adjustment of Deferral
Amount shall be effective January 1st following its filing and shall be
applicable only to bonus compensation not yet awarded to the Executive.
SECTION V
BENEFITS GENERALLY
5.1 Retirement Benefit. Subject to Subsection 6.1 of this Plan, the Bank
agrees to pay the Executive the Deferred Bonus Benefit commencing on
the Executive's Benefit Eligibility Date. Such payments will be made
over the term of the Payout Period. In the event of the Executive's
death after commencement of the Deferred Bonus Benefit, but prior to
completion of all such payments due and owing hereunder, the Bank shall
pay to the Executive's Beneficiary a continuation of the monthly
installments for the number of months remaining in the Payout Period.
5.2 Disability Benefit. If requested by the Executive and approved by the
Board of Directors, the Executive shall be entitled to receive the
Disability Benefit hereunder, in any case in which it is determined by
a duly licensed independent physician selected by the Bank, that the
Executive is no longer able, properly and satisfactorily, to perform
his regular duties as an Executive because of ill health, accident,
disability or general inability due to age. If the Executive's
employment is terminated pursuant to this Subsection and Board of
Director approval is obtained, the Executive may elect to begin
receiving the Disability Benefit in lieu of the Deferred Bonus Benefit,
which is not available prior to the Executive's Benefit Eligibility
Date. The benefit shall begin within thirty (30) days of Board of
Director approval of such benefit. The amount of the monthly benefit
shall be the annuitized value of the Executive's Elective Bonus
Contribution Account, measured as of the date of the disability
determination and payable over the Payout Period. The Interest Factor
shall be used to annuitize the Elective Bonus Contribution Account. In
the event the Executive dies while receiving Disability Benefit
payments pursuant to this
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Subsection, or after becoming eligible for such payments but before the
actual commencement of such payments, his Beneficiary shall be entitled
to receive those benefits provided for in Subsection 6.1(a) and the
Disability Benefits provided for in this Subsection shall terminate
upon the Executive's death.
5.3 Removal For Cause. In the event the Executive is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Bonus Contribution Account,
measured as of the date of removal. Such amount shall be paid in a lump
sum within thirty (30) days of the Executive's date of removal. All
other benefits provided for the Executive or his Beneficiary under this
Plan shall be forfeited and the Plan shall become null and void with
respect to such Executive.
5.4 Voluntary or Involuntary Termination Other Than for Cause. If the
Executive's employment with the Bank is voluntarily or involuntarily
terminated prior to the attainment of his Benefit Eligibility Date, for
any reason including a Change in Control, but excluding termination for
Cause, the Executive's death or disability, then commencing on his
Benefit Eligibility Date, the Executive shall be entitled to the
annuitized value (using the Interest Factor) of his Elective Bonus
Contribution Account calculated as of his Benefit Eligibility Date, and
payable over the Payout Period. During the period between termination
of employment and the Executive's Benefits Eligibility Date, the
Executive's Elective Contribution Account will continue to earn
interest at a rate equal to he Interest Factor.
5.5 Financial Hardship Benefit. In the event the Executive incurs a
Financial Hardship, the Executive may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the Bank
in the exercise of its sole discretion. The Executive will be required
to demonstrate to the satisfaction of the Bank that a Financial
Hardship has occurred and that the Executive is otherwise entitled to a
Financial Hardship Benefit in accordance with Sections 1.16 and 1.17.
If a Financial Hardship Benefit is approved, it shall be paid in a
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lump sum within thirty (30) days of the event which triggers payment
and only to the extent of the Executive's account balances when paid.
Any Deferred Compensation Benefit or Disability Benefit shall be
actuarially adjusted to reflect such distribution.
SECTION VI
DEATH BENEFITS
6.1 Death Benefit Prior to Commencement of Deferred Bonus Benefit. In the
event of the Executive's death prior to commencement of the Deferred
Bonus Benefit, the Bank shall pay the Executive's Beneficiary a monthly
benefit for the Payout Period, commencing within thirty (30) days of
the Executive's death. The amount of such monthly benefit payments
shall be determined as follows:
(a) (1) In the event death occurs (i) while the Executive is
receiving the Disability Benefit provided for in Subsection 5.2,
or (ii) after the Executive has become eligible for such
Disability Benefit payments but before such payments have
commenced, the Executive's Beneficiary shall be entitled to
receive a lump sum benefit equal to the present value of the
Survivor's Benefit, reduced by the Disability Benefit payments
made to the Executive. In the event death occurs after the
Executive has received the Disability Benefit provided for in
Subsection 5.2 for the entire Payout Period, the Executive's
Beneficiary shall not be entitled to the Survivor's Benefit for
any length of time. However, the lump sum payment described in
paragraph two (2) of this Subsection 6.1(a) shall still be
applicable to such Beneficiary.
(2)If (i) the total dollar amount of Disability Benefit payments
received by the Executive under Subsection 5.2 is less than the
total dollar amount of payments which would have been received
had the Survivor's Benefit been paid in lieu of the Disability
Benefit which was paid during the Executive's life, and (ii)
Board of
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Director approval is obtained, the Bank shall pay the
Executive's Beneficiary a lump sum payment for the difference.
This lump sum payment shall be made within thirty (30) days of
the Executive's death.
(b) In the event death occurs while the Executive is (i) in the
service of the Bank, (ii) deferring bonus compensation
pursuant to Section III and (iii) prior to any reduction or
discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals
reflected in the Executive's Joinder Agreement, the
Executive's Beneficiary shall be paid the Survivor's Benefit.
(c) In the event death occurs while the Executive is (i) in the
service of the Bank, (ii)deferring bonus compensation pursuant
to Section III, and (iii) after any reduction
or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals
reflected in the Executive's initial Joinder Agreement, the
Executive's Beneficiary shall be paid a reduced Survivor's
Benefit. The amount of such reduced Survivor's Benefit shall
be determined by multiplying the monthly payment available as
a Survivor's Benefit by a fraction, the numerator of which is
equal to the total amount of bonus compensation actually
deferred by the Executive as of his death, and the denominator
of which is equal to the total amount of bonus compensation
which would have been deferred as of his death, if
no reduction or discontinuance in the level of deferrals had
occurred at any time following execution of the Joinder
Agreement and during the Deferral Period.
(d) In the event the Executive completes less than One Hundred
Percent (100%) of his Projected Deferrals due to any voluntary
or involuntary termination of employment other than
termination for Cause, the Executive's Beneficiary shall be
paid a reduced Survivor's Benefit. The amount of such reduced
Survivor's Benefit shall be determined by multiplying the
monthly payment available as a Survivor's Benefit by a
fraction, the numerator of which is equal to the total amount
of bonus
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<PAGE>
compensation actually deferred by the Executive, and the
denominator of which is equal to the Executive's Projected
Deferral.
(e) In the event the Executive completes One Hundred Percent
(100%) of his Projected Deferrals prior to any voluntary or
involuntary termination other than removal for Cause, and
provided no payments have been made pursuant to Subsection
5.2, the Executive's Beneficiary shall be paid the
Survivor's Benefit.
6.2 Additional Death Benefit - Burial Expense. In addition to the
above-described death benefits, upon the Executive's death, the
Executive's Beneficiary shall be entitled to receive a one-time lump
sum death benefit in the amount of Ten Thousand Dollars ($10,000.00).
This benefit shall be provided specifically for the purpose of
providing payment for burial and/or funeral expenses of the Executive.
Such benefit shall be payable within thirty (30) days of the
Executive's death. The Executive's Beneficiary shall not be entitled to
such benefit if the Executive is removed for Cause prior to death.
Notwithstanding anything in this Section 6.2 to the contrary, if the
Executive is also a participant in an Executive Supplemental Retirement
Income Agreement or in the Executive Deferred Bonus Plan under which an
additional $10,000 death benefit for burial expenses is being paid, no
such death benefit shall be paid hereunder.
SECTION VII
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of his Joinder Agreement and shall have
the right to change such designation, at any subsequent time, by submitting to
the Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
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SECTION VIII
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments so specified under this Plan. The Executive
agrees that he, his Beneficiary, or any other person claiming through him shall
have no rights or interests whatsoever in any asset of the Bank, including any
insurance policies or contracts which the Bank may possess or obtain to
informally fund this Plan. Any asset used or acquired by the Bank in connection
with the liabilities it has assumed under this Plan, unless expressly provided
herein, shall not be deemed to be held under any trust for the benefit of the
Executive or his Beneficiaries, nor shall any asset be considered security for
the performance of the obligations of the Bank. Any such asset shall be and
remain, a general, unpledged, and unrestricted asset of the Bank.
SECTION IX
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The Executive,
his Beneficiaries or any successor in interest to him shall be and remain simply
a general unsecured creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Plan or to refrain from the same and to
determine the extent, nature, and method of any such asset purchases. Should the
Bank decide to purchase assets such as life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such assets at any time, in whole or in part. At no
time shall the Executive be deemed to have any lien, right, title or interest in
or to any specific investment or
15
<PAGE>
to any assets of the Bank. If the Bank elects to invest in a life insurance,
disability or annuity policy upon the life of the Executive, then the Executive
shall assist the Bank by freely submitting to a physical examination and by
supplying such additional information necessary to obtain such insurance or
annuities.
SECTION X
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Executive
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, communication, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate, with respect to such Executive or Beneficiary.
SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Plan. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Plan as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Plan, including the employment
of advisors and the delegation of ministerial duties to qualified
individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Plan are not paid to the Executive (or to his Beneficiary in the case
of the Executive's death) and such
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<PAGE>
claimants feel they are entitled to receive such benefits, then a
written claim must be made to the Administrator within sixty (60) days
from the date payments are refused. The Administrator shall review the
written claim and, if the claim is denied, in whole or in part, they
shall provide in writing, within ninety (90) days of receipt of such
claim, their specific reasons for such denial, reference to the
provisions of this Plan or the Joinder Agreement upon which the denial
is based, and any additional material or information necessary to
perfect the claim. Such writing by the Administrator shall further
indicate the additional steps which must be undertaken by claimants if
an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Plan, the Joinder Agreement or any
documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then review the second claim and provide a written
decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include
reference to specific provisions of this Plan or the Joinder Agreement
upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
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SECTION XII
MISCELLANEOUS
12.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the employment of the
Bank nor limit the right of the Bank to discharge or otherwise deal
with the Executive without regard to the existence of the Plan.
12.2 State Law. The Plan is established under, and will be construed
according to, the laws of the state of New Jersey.
12.3 Severability. In the event that any of the provisions of this Plan or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the Plan
to which such Executive is entitled shall be paid to such conservator
or other person legally charged with the care of his person or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. If the
location of the Executive is not made known to the Bank within three
(3) years after the date on which any payment of the Deferred Bonus
Benefit may first be made, payment may be made as though the Executive
had died at the end of the three (3) year period.
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12.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Executives shall be personally
liable to the Executive or any other person for any claim, loss,
liability or expense incurred in connection with this Plan.
12.7 Gender. Whenever in this Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Plans. Nothing contained in this Plan
shall affect the right of the Executive to participate in or be covered
by any qualified or non-qualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Plan, the
benefits otherwise provided herein shall not be payable if the
Executive's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of his Joinder Agreement. If
the Executive dies during this twenty-six (26) month period due to
suicide, the balance of his Elective Bonus Contribution Account will be
paid to the Executive's Beneficiary in a single payment. Payment is to
be made within thirty (30) days after the Executive's death is declared
a suicide by competent legal authority. Credit shall be given to the
Bank for payments made prior to determination of suicide.
12.10 Inurement. This Plan shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Source of Payments. All payments provided in this Plan shall be timely
paid in cash or check from the general funds of the Bank or the assets
of the rabbi trust. The Holding
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Company guarantees payment and provision of all amounts and benefits
due to the Executives and, if such amounts and benefits are not timely
paid or provided by the Bank, or a rabbi trust, such amounts and
benefits shall be paid of provided by the Holding Company.
12.12 Modification of Benefit Eligibility Date. In the event that a Executive
desires to modify his Benefit Eligibility Date or Payout Period with
respect to future Elective Bonus Contributions, the Executive may do so
at the time and in the manner that the Executive is entitled to adjust
his Elective Bonus Contribution, pursuant to Section IV of the Plan. In
the event that a Executive desires to modify his Benefit Eligibility
Date or Payout Period with respect to amounts accrued in his Elective
Bonus Contribution Account the Executive may do so, provided, however,
that any such modification is made no later than twenty-four (24)
months prior to the date of both (i) the Executive's existing Benefit
Eligibility (at the time of such modification) and (ii) the Executive's
Benefit Eligibility Date, as modified.
12.13 Tax Withholding. The Bank may withhold from any benefits payable under
this Plan all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation then in effect.
12.14 Headings. Headings and sub-headings in this Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Plan.
SECTION XIII
AMENDMENT/REVOCATION
This Plan shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Executive and the Bank,
and such mutual consent shall be required even if the Executive is no longer
employed by the Bank.
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SECTION XIV
EXECUTION
14.1 This Plan sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Plan.
14.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
[The Remainder of Page Intentionally Left Blank]
21
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IN WITNESS WHEREOF, the Bank and the Holding Compay have caused this
Plan to be executed on the day and date first above written.
ATTEST: UNITED NATIONAL BANK
By: __________________________
Secretary
Title: _____________________
ATTEST: UNITED NATIONAL BANCORP
By:
Secretary
Title:
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<PAGE>
EXECUTIVE DEFERRED BONUS JOINDER AGREEMENT
I, ________________, and UNITED NATIONAL BANK hereby agree for good and
valuable consideration, the value of which is hereby acknowledged, that I shall
participate in the Executive Deferred Bonus Plan ("Plan"), which is effective
October 1, 1997, as such Plan may now exist or hereafter be amended or modified,
and do further agree to the terms and conditions thereof.
I understand that I must execute this Executive Deferred Bonus Joinder
Agreement ("Joinder Agreement") as well as notify the Administrator of such
execution, on or before October 1, 1997 in order to participate in the Plan from
its Effective Date. Otherwise, I may execute this Joinder Agreement and give
notice of such execution to the Administrator at least thirty (30) days prior to
any January 1.
I hereby elect to defer $__________ (or _______%) of my annual bonus
compensation, if any. Such deferrals shall commence with respect to bonuses
declared and paid after the execution of the Joinder Agreement for Plan Year
1997, shall renew annually unless otherwise changed and shall continue for a
period of five years known as the "Deferral Period", and will result in a
"Projected Deferral" in the amount of $__________ and a "Projected Deferred
Bonus Benefit" of $__________.
My "Maximum Elective Bonus Contribution" shall be $__________. I
understand that, in accordance with Subsection l.7 of the Plan, my Maximum
Elective Bonus Contribution shall serve as the limit on the total amount of
bonus compensation that I may defer.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Administrator, at least thirty
(30) days prior to any January 1st of my Deferral Period. A Notice of Adjustment
of Deferral Amount can be used to adjust the amount of Board fees and/or
retainer to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 65 and a "Payout Period" of 180 months.
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly payment in the amount of $__________,
pursuant to Subsection 6.1 of the Plan and subject to all relevant Subsections
of the Plan.
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I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY
SECONDARY BENEFICIARY
I understand that I am entitled to review or obtain a copy of the Plan,
at any time, and may do so by contacting the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Executive and a duly authorized officer of the Bank.
Dated this 1st day of October, 1997.
(Executive)
(Bank's duly authorized Officer)
2
Exhibit A
<PAGE>
EXECUTIVE DEFERRED BONUS JOINDER AGREEMENT
NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT
TO: Bank
Attention:
I hereby give notice of my election to adjust the amount of my
compensation deferral in accordance with my Executive Deferred Bonus Joinder
Agreement, dated the ____ day of __________, 19__. This notice is submitted
thirty (30) days prior to January 1st, and shall become effective January 1st,
as specified below.
Adjust deferral as of: January 1st, 19__
Previous Deferral Amount ____________ per month
New Deferral Amount ____________ per month
(to discontinue deferral, enter $0)
------------------------------------
EXECUTIVE
------------------------------------
DATE
ACKNOWLEDGED
BY:_________________________________
TITLE: _____________________________
------------------------------------
DATE
Exhibit B
<PAGE>
EXHIBIT C
EXECUTIVE DEFERRED COMPENSATION PLAN
TIER ONE EXECUTIVES
Thomas C. Gregor
Donald W. Malwitz
Warren R. Gerleit
John L. Cannon
Joanne F. Herb
Ralph L. Straw, Jr.
Exhibit C
DIRECTOR DEFERRED
COMPENSATION PLAN
UNITED NATIONAL BANCORP
Bridgewater, New Jersey
October 1, 1997
<PAGE>
DIRECTOR DEFERRED
COMPENSATION PLAN
This Director Deferred Compensation Plan (the "Plan"), effective as of
the 1st day of October, 1997, formalizes the understanding by and between UNITED
NATIONAL BANCORP (the "Holding Company"), a banking holding company with its
principal business address in the State of New Jersey, and certain eligible
Directors, hereinafter referred to as "Director", who shall be approved by the
Holding Company to participate and who shall elect to become a party to this
Director Deferred Compensation Plan by execution of a Director Deferred
Compensation Joinder Agreement ("Joinder Agreement") in a form provided by the
Holding Company. Any reference herein to the Bank shall mean "UNITED NATIONAL
BANK," a national banking association subsidiary of the Holding Company.
W I T N E S S E T H :
WHEREAS, the Directors serve the Holding Company as members of the
Board; and
WHEREAS, the Holding Company recognizes the valuable services
heretofore performed for it by such Directors and wishes to encourage continued
service of each; and
WHEREAS, the Holding Company values the efforts, abilities and
accomplishments of such Directors and recognizes that the Directors' services
substantially contribute to its continued growth and profits in the future; and
WHEREAS, the Holding Company had previously adopted a deferred
compensation plan for Directors in order to permit the Directors to defer a
portion of their fees;
WHEREAS, these Directors wish to continue to defer a certain portion of
their fees to be earned in the future; and
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WHEREAS, the Directors and the Holding Company desire to adopt this
Plan in order to amend the terms and conditions upon which the Holding Company
shall pay such deferred compensation to the Directors or their designated
beneficiaries; and
WHEREAS, the Holding Company and the Directors intend this Plan to be
considered an unfunded arrangement, maintained primarily to provide retirement
income for such Directors, for tax purposes and for purposes of the Employee
Retirement Income Security Act of 1974, as amended; and
WHEREAS, the Holding Company has adopted this Director Deferred
Compensation Plan which controls all issues relating to the Deferred
Compensation Benefits as described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Bank" means UNITED NATIONAL BANK and any successor thereto.
1.2 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Director's Joinder Agreement to whom the deceased
Director's benefits are payable. If no Beneficiary is so designated,
then the Director's Spouse, if living, will be deemed the Beneficiary.
If the Director's Spouse is not living, then the Children of the
Director will be deemed the Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Director will be deemed the Beneficiary.
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1.3 "Benefit Age" shall be the birthday on which the Director becomes
eligible to receive benefits under the plan. Such birthday shall be
designated in the Director's Joinder Agreement.
1.4 "Benefit Eligibility Date" shall be the date on which a Director is
entitled to receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Director
attains the Benefit Age designated in his Joinder Agreement.
1.5 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Bank or the Holding Company, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Bank or the Holding Company. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Holding Company finding that, in the good faith
opinion of such majority, the Executive was guilty of conduct which was
deemed to be Cause for termination and specifying the particulars
thereof in detail, and (ii) after reasonable notice to the Executive
there shall have been an opportunity for the Executive, together with
counsel to the Executive, to be heard before such non-officer members
of the Board of Directors.
1.6 "Change in Control" of the Bank or the Holding Company shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Bank) becomes a beneficial owner, directly or
indirectly, of 25% or more Bank's and/or the Holding Company's
voting securities or all or substantially all of the assets of
Bank and/or the Holding Company.
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(b) Bank and/or the Holding Company enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Bank or the Holding Company with an
unaffiliated entity in which either or both of the following
is to occur: (i) the directors of Bank and/or Holding Company,
as applicable, immediately prior to such merger, consolidation
or combination will constitute less than a majority of the
board of directors of the surviving, new or combined entity;
or (ii) less than 75% of the outstanding voting securities of
the surviving, new or combined entity will be beneficially
owned by the stockholders of Bank immediately prior to such
merger, consolidation or combination; provided, however, that
if any definitive agreement to merge, consolidate or combine
is terminated without consummation of the transaction, then no
Change in Control shall be deemed to have occurred pursuant
to this paragraph (b).
(c) Bank and/or the Holding Company enters into a definitive
agreement which contemplates the transfer of all or
substantially all of Bank's and/or the Holding Company's
assets, other than to a wholly-owned subsidiary of Bank;
provided, however, that if any definitive agreement to
transfer assets is terminated without consummation of the
transfer, then no Change in Control shall be deemed to have
occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Bank or the Holding Company shall be persons who: (i) were not
members of such Board on the date hereof ("current members");
and (ii) were not nominated by a vote of the Board which
included the affirmative vote of a majority of the current
members on the Board at the time of their nomination ("future
designees") and (iii)were not nominated by a vote of the Board
which included the affirmative vote of a majority of the
current members and future designees, taken as a group, on the
Board at the time of their nomination.
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1.7 "Children" means the Director's children, both natural and adopted,
determined at the time payments are due the Children under this Plan.
1.8 "Deferral Period" means the period of months designated in the
Director's Joinder Agreement during which the Director shall defer
current Board fees and/or retainer. The Deferral Period shall commence
on the date designated in the Director's Joinder Agreement.
1.9 "Deferred Compensation Benefit" means the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account,
measured as of the Director's Benefit Age, payable in monthly
installments throughout the Payout Period and commencing on the
Director's Benefit Eligibility Date.
1.10 "Disability Benefit" means the monthly benefit payable to the Director
following a determination, in accordance with Subsection 5.2, that he
is no longer able, properly and satisfactorily, to perform his duties
as a Director.
1.11 "Effective Date" of this Plan is October 1, 1997.
1.12 "Elective Contribution" shall refer to any bookkeeping entry required
to record a Director's voluntary monthly pre-tax deferral of Board fees
and/or retainer which shall be made in accordance with the Director's
Joinder Agreement.
1.13 "Elective Contribution Account" shall be represented by the bookkeeping
entries required to record a Director's Elective Contributions plus
accrued interest earned to date on such amounts. However, neither the
existence of such bookkeeping entries nor the Elective Contribution
Account itself shall be deemed to create either a trust of any kind, or
a fiduciary relationship between the Holding Company and the Director
or any Beneficiary. Amounts credited to the Elective Contribution
Account with respect to a Director shall
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include the total fair market value of all accruals on behalf of such
Director prior to the adoption of this restated Plan and amounts
accrued hereunder. From and after the date of adoption of this restated
Plan, a Director's Elective Contribution Account balance shall earn
interest at a rate equal to the Interest Factor.
1.14 "Estate" means the estate of the Director.
1.15 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Director or of a
dependent of the Director, loss of the Director's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances which arise as a result of an event not within the
control of the Director. The circumstances that shall constitute an
unforeseeable emergency will depend upon the facts of each case, but,
in any instance, payment may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
Director's assets to the extent such liquidation would not itself cause
severe financial hardship, or (iii) by cessation of deferrals under the
Plan. Examples of what are not considered to be unforeseeable
emergencies include the need to send the Director's child to college or
the decision to purchase a home.
1.16 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need.
1.17 "Interest Factor" means monthly compounding or discounting, as
applicable, at a rate determined annually in accordance with the
following: the Interest Factor shall be equal to the greater of (i)
eight percent (8%) or (ii) the annual rate of return on equity for the
Bank for the immediately preceding year minus five percent (5%),
provided, however, that "(ii)" shall only be applicable if the Holding
Company's equity to asset ratio is eight percent (8%) or greater.
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1.18 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing
for a period of months, as designated in the Director's Joinder
Agreement.
1.19 "Plan Year" shall mean the twelve (12) month period from January 1 to
December 31 of each year.
1.20 "Projected Deferral" is an estimate, determined upon execution of a
Joinder Agreement, of the total amount of compensation to be deferred
by the Director during his Deferral Period (excluding any interest
accrued on such deferrals), and so designated in the Director's Joinder
Agreement.
1.21 "Projected Survivor's Benefit" means the benefit payable to the
Beneficiary in monthly installments throughout the Payout Period, equal
to the amount designated in the Executive's Joinder Agreement, and
subject to Subsection 6.1.
1.22 "Spouse" means the individual to whom the Director is legally married
at the time of the Director's death.
1.23 "Survivor's Benefit" means a stream of monthly installments payable to
the Beneficiary throughout the Payout Period. In the event a policy of
life insurance has been purchased by the Plan on the Director's life,
the Survivor's Benefit is equal to the amount designated in the Joinder
Agreement, and subject to Subsection 6.1. In the event no life
insurance policy has been purchased by the Plan on the Director's life,
the Survivor's Benefit shall equal the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account,
payable over the Payout Period.
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SECTION II
ESTABLISHMENT OF RABBI TRUST
The Holding Company shall establish a rabbi trust into which the
Holding Company shall contribute assets which shall be held therein, pursuant to
the agreement which establishes such rabbi trust. The contributed assets shall
be subject to the claims of the Holding Company's creditors in the event of the
Holding Company's "Insolvency" as defined in the agreement which establishes
such rabbi trust, until the contributed assets are paid to the Director and his
Beneficiary(ies) in such manner and at such times as specified in this Plan. It
is the intention of the Holding Company to make a contribution or contributions
to the rabbi trust to provide the Holding Company with a source of funds to
assist it in meeting the liabilities of this Plan. The rabbi trust and any
assets held therein shall conform to the terms of the rabbi trust agreement
which has been established in conjunction with this Plan. Any contribution(s) to
the rabbi trust shall be made in accordance with the rabbi trust agreement. The
amount and timing of such contribution(s) shall be specified in the agreement
which establishes such rabbi trust.
SECTION III
DEFERRED FEES
Commencing on the Effective Date, the Director and the Holding Company
agree that the Director shall defer into his Elective Contribution Account up to
One Hundred Percent (100%) of the monthly Board and Committee fees and/or
retainer which the Director would otherwise be entitled to receive from the
Holding Company for each month of the Plan Year. In each subsequent Plan Year
continuing throughout the Deferral Period, the Director shall be entitled to
defer into his Elective Contribution Account up to One Hundred Percent (100%) of
the monthly Board and Committee fees and/or retainer which the Director would
otherwise be entitled to receive from the Holding Company, provided, however,
that the maximum amount that the Director may elect to defer in each subsequent
Plan Year shall not exceed one hundred and five
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percent (105%) of the maximum permitted deferral in the immediately preceding
Plan Year for the Director receiving the highest dollar amount of Board and
Committee fees and/or retainer (taking into consideration any deferrals of such
Director for such year). The total deferral during the term of the Deferral
Period shall not exceed the Director's Projected Deferral, without Board of
Director approval. The specific amount of the Director's monthly deferred
compensation shall be designated in the Director's Joinder Agreement and shall
apply only to compensation attributable to services not yet performed.
SECTION IV
ADJUSTMENT OF DEFERRAL AMOUNT
Deferral of the specific amount of fees and/or retainer designated in
the Director's Joinder Agreement shall continue in effect pursuant to the terms
of this Plan unless and until the Director amends his Joinder Agreement by
filing with the Administrator a Notice of Adjustment of Deferral Amount (Exhibit
B of the Joinder Agreement). If the Holding Company increases the amount of fees
and/or retainer earned by the Director, the Director can include such additional
amounts in his monthly deferral, provided approval from the Board of Directors
is obtained, by filing a Notice of Adjustment of Deferral Amount. A Notice of
Adjustment of Deferral Amount shall be effective if filed with the Administrator
at least thirty (30) days prior to any January 1st during the Director's
Deferral Period. Such Notice of Adjustment of Deferral Amount shall be effective
commencing with the January 1st following its filing and shall be applicable
only to compensation attributable to services not yet performed by the Director.
SECTION V
BENEFITS GENERALLY
5.1 Retirement Benefit. Subject to Subsection 6.1 of this Plan, the Holding
Company agrees to pay the Director the Deferred Compensation Benefit
commencing on the Director's Benefit Eligibility Date. Such payments
will be made over the term of the Payout Period.
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In the event of the Director's death after commencement of the Deferred
Compensation Benefit, but prior to completion of all such payments due
and owing hereunder, the Holding Company shall pay to the Director's
Beneficiary a continuation of the monthly installments for the number
of months remaining in the Payout Period.
5.2 Disability Benefit. If requested by the Director and approved by the
Board of Directors, the Director shall be entitled to receive the
Disability Benefit hereunder, in any case in which it is determined by
a duly licensed independent physician selected by the Holding Company,
that the Director is no longer able, properly and satisfactorily, to
perform his regular duties as a Director because of ill health,
accident, disability or general inability due to age. If the Director's
service is terminated pursuant to this Subsection and Board of Director
approval is obtained, the Director may elect to begin receiving the
Disability Benefit in lieu of the Deferred Compensation Benefit, which
is not available prior to the Director's Benefit Eligibility Date. The
benefit shall begin within thirty (30) days of Board of Director
approval of such benefit. The amount of the monthly benefit shall be
the annuitized value of the Director's Elective Contribution Account,
measured as of the date of the disability determination and payable
over the Payout Period. The Interest Factor shall be used to annuitize
the Elective Contribution Account. In the event the Director dies while
receiving Disability Benefit payments pursuant to this Subsection, or
after becoming eligible for such payments but before the actual
commencement of such payments, his Beneficiary shall be entitled to
receive those benefits provided for in Subsection 6.1(a) and the
Disability Benefits provided for in this Subsection shall terminate
upon the Director's death.
5.3 Removal For Cause. In the event the Director is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Contribution Account, measured as
of the date of removal. Such amount shall be paid in a lump sum within
thirty (30) days of the Director's date of removal. All other benefits
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provided for the Director or his Beneficiary under this Plan shall be
forfeited and the Plan shall become null and void with respect to such
Director.
5.4 Voluntary or Involuntary Termination Other Than for Cause. If the
Director's service with the Holding Company is voluntarily or
involuntarily terminated prior to the attainment of his Benefit
Eligibility Date, for any reason including a Change in Control but
excluding termination for Cause, the Director's death or disability,
then commencing on his Benefit Eligibility Date, the Director shall be
entitled to the annuitized value (using the Interest Factor) of his
Elective Contribution Account calculated as of his Benefit Eligibility
Date, and payable over the Payout Period. During the period between
termination of service and the Director's Benefit Eligibility Date, the
Director's Elective Contribution Account will continue to earn interest
at a rate equal to the Interest Factor.
5.5 Financial Hardship Benefit. In the event the Director incurs a
Financial Hardship, the Director may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the
Holding Company in the exercise of its sole discretion. The Director
will be required to demonstrate to the satisfaction of the Bank that a
Financial Hardship has occurred and that the Director is otherwise
entitled to a Financial Hardship Benefit in accordance with Sections
1.15 and 1.16. If a Financial Hardship Benefit is approved, it shall be
paid in a lump sum within thirty (30) days of the event which triggers
payment and only to the extent of the Director's account balances when
paid. Any Deferred Compensation Benefit or Disability Benefit shall be
actuarially adjusted to reflect such distribution.
SECTION VI
DEATH BENEFITS
6.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit.
In the event of the Director's death prior to commencement of the
Deferred Compensation Benefit, the Holding Company shall pay the
Director's Beneficiary a monthly benefit for the Payout
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Period, commencing within thirty (30) days of the Director's death. The
amount of such monthly benefit payments shall be determined as follows:
(a) (1) In the event death occurs (i) while the Director is
receiving the Disability Benefit provided for in Subsection
5.2, or (ii) after the Director has become eligible for such
Disability Benefit payments but before such payments have
commenced, the Director's Beneficiary shall be entitled to
receive a lump sum benefit equal to the present value of the
Survivor's Benefit, reduced by the Disability Benefit payments
made to the Director. In the event death occurs after the
Director has received the Disability Benefit provided for in
Subsection 5.2 for the entire Payout Period, the Director's
Beneficiary shall not be entitled to the benefit set forth
above. However, the lump sum payment described in paragraph
two (2) of this Subsection 6.1(a) shall still be applicable
to such Beneficiary.
(2) If (i) the total dollar amount of Disability Benefit
payments received by the Director under Subsection 5.2 is less
than the total dollar amount of payments which would have been
received had the Survivor's Benefit been paid in lieu of the
Disability Benefit which was paid during the Director's life,
and (ii) Board of Director approval is obtained, the Holding
Company shall pay the Director's Beneficiary a lump sum
payment for the difference. This lump sum payment shall be
made within thirty (30) days of the Director's death.
(b) In the event death occurs while the Director is (i) in the
service of the Holding Company, (ii) deferring fees pursuant
to Section III and (iii) prior to any reduction or
discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals
reflected in the Director's Joinder Agreement, the Director's
Beneficiary shall be paid the Survivor's Benefit.
(c) In the event death occurs while the Director is (i) in the
service of the Holding Company, (ii) deferring fees pursuant
to Section III, and (iii) after any reduction
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or discontinuance (via an effective filing of a Notice of
Adjustment of Deferral Amount) in the level of deferrals
reflected in the Director's initial Joinder Agreement, the
Director's Beneficiary shall be paid a reduced Survivor's
Benefit. The amount of such reduced Survivor's Benefit shall
be determined by multiplying the monthly payment available as
a Projected Survivor's Benefit by a fraction, the numerator of
which is equal to the total Board fees actually deferred by
the Director as of his death, and the denominator of which is
equal to the total amount of Board fees which would have been
deferred as of his death, if no reduction or discontinuance in
the level of deferrals had occurred at any time following
execution of the Joinder Agreement and during the Deferral
Period.
(d) In the event the Director completes less than One Hundred
Percent(100%)of his Projected Deferrals due to any voluntary
or involuntary termination other than removal for Cause, the
Director's Beneficiary shall be paid a reduced Survivor's
Benefit. The amount of such reduced Survivor's Benefit shall
be determined by multiplying the monthly payment available as
a Projected Survivor's Benefit by a fraction, the numerator of
which is equal to the total Board fees actually deferred by
the Director, and the denominator of which is equal to the
Director's Projected Deferral.
(e) In the event the Director completes One Hundred Percent (100%)
of his Projected Deferrals prior to any voluntary or
involuntary termination other than removal for Cause, and
provided no payments have been made pursuant to
Subsection 5.2, the Director's Beneficiary shall be paid
the Survivor's Benefit.
6.2 Additional Death Benefit - Burial Expense. In addition to the
above-described death benefits, upon the Director's death, the
Director's Beneficiary shall be entitled to receive a one-time lump sum
death benefit in the amount of Ten Thousand Dollars ($10,000.00). This
benefit shall be provided specifically for the purpose of providing
payment for burial
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and/or funeral expenses of the Director. Such benefit shall be payable
within thirty (30) days of the Director's death. The Director's
Beneficiary shall not be entitled to such benefit if the Director is
removed for Cause prior to death.
SECTION VII
BENEFICIARY DESIGNATION
The Director shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
SECTION VIII
DIRECTOR'S RIGHT TO ASSETS
The rights of the Director, any Beneficiary, or any other person
claiming through the Director under this Plan, shall be solely those of an
unsecured general creditor of the Holding Company. The Director, the
Beneficiary, or any other person claiming through the Director, shall only have
the right to receive from the Holding Company those payments so specified under
this Plan. The Director agrees that he, his Beneficiary, or any other person
claiming through him shall have no rights or interests whatsoever in any asset
of the Holding Company, including any insurance policies or contracts which the
Holding Company may possess or obtain to informally fund this Plan. Any asset
used or acquired by the Holding Company in connection with the liabilities it
has assumed under this Plan, unless expressly provided herein, shall not be
deemed to be held under any trust for the benefit of the Director or his
Beneficiaries, nor shall any asset be considered security for the performance of
the obligations of the Holding Company. Any such asset shall be and remain, a
general, unpledged, and unrestricted asset of the Holding Company.
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SECTION IX
RESTRICTIONS UPON FUNDING
The Holding Company shall have no obligation to set aside, earmark or
entrust any fund or money with which to pay its obligations under this Plan. The
Director, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Holding Company in the same
manner as any other creditor having a general claim for matured and unpaid
compensation. The Holding Company reserves the absolute right in its sole
discretion to either purchase assets to meet its obligations undertaken by this
Plan or to refrain from the same and to determine the extent, nature, and method
of any such asset purchases. Should the Holding Company decide to purchase
assets such as life insurance, mutual funds, disability policies or annuities,
the Holding Company reserves the absolute right, in its sole discretion, to
terminate such assets at any time, in whole or in part. At no time shall the
Director be deemed to have any lien, right, title or interest in or to any
specific investment or to any assets of the Holding Company. If the Holding
Company elects to invest in a life insurance, disability or annuity policy upon
the life of the Director, then the Director shall assist the Holding Company by
freely submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION X
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Director nor any Beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Director or his
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Director or any Beneficiary attempts
assignment, communication,
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hypothecation, transfer or disposal of the benefits hereunder, the Holding
Company's liabilities shall forthwith cease and terminate with respect to such
Director or Beneficiary.
SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Holding Company shall be the
Named Fiduciary and Administrator (the "Administrator") of this Plan.
As Administrator, the Holding Company shall be responsible for the
management, control and administration of the Plan as established
herein. The Administrator may delegate to others certain aspects of the
management and operational responsibilities of the Plan, including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Plan are not paid to the Director (or to his Beneficiary in the case of
the Director's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are
refused. The Administrator shall review the written claim and, if the
claim is denied, in whole or in part, they shall provide in writing,
within ninety (90) days of receipt of such claim, their specific
reasons for such denial, reference to the provisions of this Plan or
the Joinder Agreement upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such
writing by the Administrator shall further indicate the additional
steps which must be undertaken by claimants if an additional review of
the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Plan, the Joinder Agreement or any
documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then
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review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the
specific reasons for the decision and shall include reference to
specific provisions of this Plan or the Joinder Agreement upon which
the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
SECTION XII
MISCELLANEOUS
12.1 No Effect on Directorship Rights. Nothing contained herein will confer
upon the Director the right to be retained in the service of the
Holding Company nor limit the right of the Holding Company to discharge
or otherwise deal with the Director without regard to the existence of
the Plan.
12.2 State Law. The Plan is established under, and will be construed
according to, the laws of the state of New Jersey.
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12.3 Severability. In the event that any of the provisions of this Plan or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Director is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the Plan
to which such Director is entitled shall be paid to such conservator or
other person legally charged with the care of his person or Estate.
12.5 Unclaimed Benefit. The Director shall keep the Holding Company informed
of his current address and the current address of his Beneficiaries. If
the location of the Director is not made known to the Holding Company
within three (3) years after the date on which any payment of the
Deferred Compensation Benefit may first be made, payment may be made as
though the Director had died at the end of the three (3) year period.
12.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Holding Company, or as a member of the Board of Directors shall be
personally liable to the Director or any other person for any claim,
loss, liability or expense incurred in connection with this Plan.
12.7 Gender. Whenever in this Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
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12.8 Effect on Other Corporate Benefit Plans. Nothing contained in this Plan
shall affect the right of the Director to participate in or be covered
by any qualified or non-qualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Holding Company's existing or future
compensation structure.
12.9 Suicide. Notwithstanding anything to the contrary in this Plan, the
benefits otherwise provided herein shall not be payable if the
Director's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of his Joinder Agreement. If
the Director dies during this twenty-six (26) month period due to
suicide, the balance of his Elective Contribution Account will be paid
to the Director's Beneficiary in a single payment. Payment is to be
made within thirty (30) days after the Director's death is declared a
suicide by competent legal authority. Credit shall be given to the
Holding Company for payments made prior to determination of suicide.
12.10 Inurement. This Plan shall be binding upon and shall inure to the
benefit of the Holding Company, its successors and assigns, and the
Director, his successors, heirs, executors, administrators, and
Beneficiaries.
12.11 Source of Payments. All payments provided in this Plan shall be timely
paid in cash or check from the general funds of the Holding Company or
the assets of the rabbi trust.
12.12 Modification of Benefit Eligibility Date. In the event that a Director
desires to modify his Benefit Eligibility Date or Payout Period with
respect to future Elective Contributions, the Director may do so at the
time and in the manner that the Director is entitled to adjust his
Elective Contribution, pursuant to Section IV of the Plan. In the event
that a Director desires to modify his Benefit Eligibility Date or
Payout Period with respect to amounts accrued in his Elective
Contribution Account the Director may do so, provided, however, that
any such modification is made no later than twenty-four (24) months
prior to the date of both (i) the
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Director's existing Benefit Eligibility (at the time of such
modification) and (ii) the Director's Benefit Eligibility Date, as
modified.
12.13 Tax Withholding. The Holding Company may withhold from any benefits
payable under this Plan all federal, state, city, or other taxes as
shall be required pursuant to any law or governmental regulation then
in effect.
12.14 Headings. Headings and sub-headings in this Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Plan.
SECTION XIII
AMENDMENT/REVOCATION
This Plan shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Director and the
Holding Company, and such mutual consent shall be required even if the Director
is no longer serving the Holding Company as a member of the Board.
SECTION XIV
EXECUTION
14.1 This Plan sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Plan.
14.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the Holding Company and the Bank have caused this
Plan to be executed on the day and date first above written.
ATTEST: UNITED NATIONAL BANCORP
By: __________________________
Secretary
Title: _____________________
ATTEST: UNITED NATIONAL BANCORP
By:
Secretary
Title:
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, _______________, and UNITED NATIONAL BANCORP hereby agree for good
and valuable consideration, the value of which is hereby acknowledged, that I
shall participate in the Director Deferred Compensation Plan ("Plan"), which is
effective October 1, 1997, as such Plan may now exist or hereafter be amended or
modified, and do further agree to the terms and conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before October 1, 1997 in order to participate in the Plan
from its Effective Date. Otherwise, I may execute this Joinder Agreement and
give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to defer my Board fees and/or retainer, monthly, by the
lesser of (i) Five Hundred Dollars ($500) or (ii) the actual amount of fees
and/or retainer I earn during any given month. Such deferrals shall commence on
October 1, 1997, shall renew annually unless otherwise changed, and shall
continue for a period equal to the lesser of ____ months or until attainment of
my Benefit Age, such period shall be known as the "Deferral Period", and will
result in a "Projected Deferral" in the amount of $______.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Administrator, at least thirty
(30) days prior to any January 1st of my Deferral Period. A Notice of Adjustment
of Deferral Amount can be used to adjust the amount of Board fees and/or
retainer to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 72 and a "Payout Period" of 120 months.
-----
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly payment in the amount of $_______,
pursuant to Subsection 6.1 of the Plan and subject to all relevant Subsections
of the Plan.
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I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY
SECONDARY BENEFICIARY
I understand that I am entitled to review or obtain a copy of the Plan,
at any time, and may do so by contacting the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Holding Company.
Dated this 1st day of October, 1997.
(Director)
(Holding Company's duly authorized Officer)
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
BENEFICIARY DESIGNATION
The Director, under the terms of the Director Deferred Compensation
Plan executed by UNITED NATIONAL BANCORP, of Bridgewater, New Jersey, dated
___________________, 19__, hereby designates the following Beneficiary to
receive any guaranteed payments or death benefits under such Plan, following his
death:
PRIMARY BENEFICIARY: ____________________________________
SECONDARY BENEFICIARY: ____________________________________
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 19___
- ----------------------------------- ------------------------------
(WITNESS) DIRECTOR
- -----------------------------------
(WITNESS)
Exhibit A
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT
TO: Holding Company
Attention:
I hereby give notice of my election to adjust the amount of my
compensation deferral in accordance with my Director Deferred Compensation
Joinder Agreement, dated the ____ day of __________, 19__. This notice is
submitted thirty (30) days prior to January 1st, and shall become effective
January 1st, as specified below.
Adjust deferral as of: January 1st, 19__
Previous Deferral Amount ____________ per month
New Deferral Amount ____________ per month
(to discontinue deferral, enter $0)
------------------------------------
DIRECTOR
------------------------------------
DATE
ACKNOWLEDGED
BY:_________________________________
TITLE: _____________________________
------------------------------------
DATE
Exhibit B
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DIRECTOR DEFERRED
COMPENSATION PLAN
UNITED NATIONAL BANK
Bridgewater, New Jersey
October 1, 1997
<PAGE>
DIRECTOR DEFERRED
COMPENSATION PLAN
This Director Deferred Compensation Plan (the "Plan"), effective as of
the 1st day of October, 1997, formalizes the understanding by and between UNITED
NATIONAL BANK (the "Bank"), a national banking association with its principal
business address in the State of New Jersey, and certain eligible Directors,
hereinafter referred to as "Director", who shall be approved by the Bank to
participate and who shall elect to become a party to this Director Deferred
Compensation Plan by execution of a Director Deferred Compensation Joinder
Agreement ("Joinder Agreement") in a form provided by the Bank. UNITED NATIONAL
BANCORP (the "Holding Company") is a party to this Plan for the sole purpose of
guaranteeing the Bank's performance hereunder.
W I T N E S S E T H :
WHEREAS, the Directors serve the Bank as members of the Board; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by such Directors and wishes to encourage continued service of each; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
such Directors and recognizes that the Directors' services substantially
contribute to its continued growth and profits in the future; and
WHEREAS, the Bank had previously adopted a deferred compensation plan
for Directors in order to permit the Directors to defer a portion of their fees;
WHEREAS, these Directors wish to continue to defer a certain portion of
their fees to be earned in the future; and
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WHEREAS, the Directors and the Bank desire to adopt this Plan in order
to amend the terms and conditions upon which the Bank shall pay such deferred
compensation to the Directors or their designated beneficiaries; and
WHEREAS, the Bank and the Directors intend this Plan to be considered
an unfunded arrangement, maintained primarily to provide retirement income for
such Directors, for tax purposes and for purposes of the Employee Retirement
Income Security Act of 1974, as amended; and
WHEREAS, the Bank has adopted this Director Deferred Compensation Plan
which controls all issues relating to the Deferred Compensation Benefits as
described herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree to the following terms and conditions:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the context clearly indicates otherwise:
1.1 "Bank" means UNITED NATIONAL BANK and any successor thereto.
1.2 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in the Director's Joinder Agreement to whom the deceased
Director's benefits are payable. If no Beneficiary is so designated,
then the Director's Spouse, if living, will be deemed the Beneficiary.
If the Director's Spouse is not living, then the Children of the
Director will be deemed the Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Director will be deemed the Beneficiary.
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1.3 "Benefit Age" shall be the birthday on which the Director becomes
eligible to receive benefits under the plan. Such birthday shall be
designated in the Director's Joinder Agreement.
1.4 "Benefit Eligibility Date" shall be the date on which a Director is
entitled to receive his Deferred Compensation Benefit. It shall be the
first day of the month following the month in which the Director
attains the Benefit Age designated in his Joinder Agreement.
1.5 "Cause" shall mean willful misconduct, breach of fiduciary duty
involving personal benefit to the Executive, conviction of a felony,
wilful breach or willful neglect by the Executive of his duties as an
Executive of the Holding Company or the Bank, or persistent negligence
or misconduct in the performance of such duties. For purposes of this
definition, no act or failure to act on the part of the Executive shall
be considered "willful" unless done or omitted not in good faith and
without reasonable belief that the action or omission was in the best
interest of the Holding Company or the Bank. If the termination for
Cause occurs after a Change in Control, the Executive shall not be
deemed to have been terminated for Cause hereunder unless and until:
(i) there shall have been delivered to the Executive a copy of a
certification by a majority of the non-officer members of the Board of
Directors of the Bank finding that, in the good faith opinion of such
majority, the Executive was guilty of conduct which was deemed to be
Cause for termination and specifying the particulars thereof in detail,
and (ii) after reasonable notice to the Executive there shall have been
an opportunity for the Executive, together with counsel to the
Executive, to be heard before such non-officer members of the Board of
Directors.
1.6 "Change in Control" of the Holding Company or the Bank shall mean the
first to occur of any of the following events:
(a) Any person or entity or group of affiliate persons or entities
(other than the Holding Company) becomes a beneficial owner,
directly or indirectly, of 25% or more Holding Company's and/or
the Bank's voting securities or all or substantially all of the
assets of Holding Company and/or the Bank.
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(b) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the merger, consolidation or
combination of either Holding Company or the Bank with an
unaffiliated entity in which either or both of the following is
to occur: (i) the directors of Holding Company and/or Bank, as
applicable, immediately prior to such merger, consolidation or
combination will constitute less than a majority of the board of
directors of the surviving, new or combined entity; or (ii) less
than 75% of the outstanding voting securities of the surviving,
new or combined entity will be beneficially owned by the
stockholders of Holding Company immediately prior to such merger,
consolidation or combination; provided, however, that if any
definitive agreement to merge, consolidate or combine is
terminated without consummation of the transaction, then no
Change in Control shall be deemed to have occurred pursuant to
this paragraph (b).
(c) Holding Company and/or the Bank enters into a definitive
agreement which contemplates the transfer of all or substantially
all of Holding Company's and/or the Bank's assets, other than to
a wholly-owned subsidiary of Holding Company; provided, however,
that if any definitive agreement to transfer assets is terminated
without consummation of the transfer, then no Change in Control
shall be deemed to have occurred pursuant to this paragraph (c).
(d) A majority of the members of the Board of Directors of either
Holding Company or the Bank shall be persons who: (i) were not
members of such Board on the date hereof ("current members"); and
(ii) were not nominated by a vote of the Board which included the
affirmative vote of a majority of the current members on the
Board at the time of their nomination ("future designees") and
(iii)were not nominated by a vote of the Board which included the
affirmative vote of a majority of the current members and future
designees, taken as a group, on the Board at the time of their
nomination.
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1.7 "Children" means the Director's children, both natural and adopted,
determined at the time payments are due the Children under this Plan.
1.8 "Deferral Period" means the period of months designated in the
Director's Joinder Agreement during which the Director shall defer
current Board fees and/or retainer. The Deferral Period shall commence
on the date designated in the Director's Joinder Agreement.
1.9 "Deferred Compensation Benefit" means the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account,
measured as of the Director's Benefit Age, payable in monthly
installments throughout the Payout Period and commencing on the
Director's Benefit Eligibility Date.
1.10 "Disability Benefit" means the monthly benefit payable to the Director
following a determination, in accordance with Subsection 5.2, that he
is no longer able, properly and satisfactorily, to perform his duties
as a Director.
1.11 "Effective Date" of this Plan is October 1, 1997.
1.12 "Elective Contribution" shall refer to any bookkeeping entry required
to record a Director's voluntary monthly pre-tax deferral of Board fees
and/or retainer which shall be made in accordance with the Director's
Joinder Agreement.
1.13 "Elective Contribution Account" shall be represented by the bookkeeping
entries required to record a Director's Elective Contributions plus
accrued interest earned to date on such amounts. However, neither the
existence of such bookkeeping entries nor the Elective Contribution
Account itself shall be deemed to create either a trust of any kind, or
a fiduciary relationship between the Bank and the Director or any
Beneficiary. Amounts credited to the Elective Contribution Account with
respect to a Director shall include the
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total fair market value of all accruals on behalf of such Director
prior to the adoption of this restated Plan and amounts accrued
hereunder. From and after the date of adoption of this restated Plan, a
Director's Elective Contribution Account balance shall earn interest at
a rate equal to the Interest Factor.
1.14 "Estate" means the estate of the Director.
1.15 "Financial Hardship" means an unforeseeable emergency resulting from a
sudden and unexpected illness or accident of the Director or of a
dependent of the Director, loss of the Director's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances which arise as a result of an event not within the
control of the Director. The circumstances that shall constitute an
unforeseeable emergency will depend upon the facts of each case, but,
in any instance, payment may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the
Director's assets to the extent such liquidation would not itself cause
severe financial hardship, or (iii) by cessation of deferrals under the
Plan. Examples of what are not considered to be unforeseeable
emergencies include the need to send the Director's child to college or
the decision to purchase a home.
1.16 "Financial Hardship Benefit" means a withdrawal or withdrawals of an
amount or amounts attributable to a Financial Hardship and limited to
the extent reasonably needed to satisfy the emergency need.
1.17 "Interest Factor" means monthly compounding or discounting, as
applicable, at a rate determined annually in accordance with the
following: the Interest Factor shall be equal to the greater of (i)
eight percent (8%) or (ii) the annual rate of return on equity for the
Bank for the immediately preceding year minus five percent (5%),
provided, however, that "(ii)" shall only be applicable if the Bank's
equity to asset ratio is eight percent (8%) or greater.
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1.18 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing
for a period of months, as designated in the Director's Joinder
Agreement.
1.19 "Plan Year" shall mean the twelve (12) month period from January 1 to
December 31 of each year.
1.20 "Projected Deferral" is an estimate, determined upon execution of a
Joinder Agreement, of the total amount of compensation to be deferred
by the Director during his Deferral Period (excluding any interest
accrued on such deferrals), and so designated in the Director's Joinder
Agreement.
1.21 "Projected Survivor's Benefit" means the benefit payable to the
Beneficiary in monthly installments throughout the Payout Period, equal
to the amount designated in the Executive's Joinder Agreement, and
subject to Subsection 6.1.
1.22 "Spouse" means the individual to whom the Director is legally married
at the time of the Director's death.
1.23 "Survivor's Benefit" means a stream of monthly installments payable to
the Beneficiary throughout the Payout Period. In the event a policy of
life insurance has been purchased by the Plan on the Director's life,
the Survivor's Benefit is equal to the amount designated in the Joinder
Agreement, and subject to Subsection 6.1. In the event no life
insurance policy has been purchased by the Plan on the Director's life,
the Survivor's Benefit shall equal the annuitized value (using the
Interest Factor) of the Director's Elective Contribution Account,
payable over the Payout Period.
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SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held therein, pursuant to the agreement which
establishes such rabbi trust. The contributed assets shall be subject to the
claims of the Bank's creditors in the event of the Bank's "Insolvency" as
defined in the agreement which establishes such rabbi trust, until the
contributed assets are paid to the Director and his Beneficiary(ies) in such
manner and at such times as specified in this Plan. It is the intention of the
Bank to make a contribution or contributions to the rabbi trust to provide the
Bank with a source of funds to assist it in meeting the liabilities of this
Plan. The rabbi trust and any assets held therein shall conform to the terms of
the rabbi trust agreement which has been established in conjunction with this
Plan. Any contribution(s) to the rabbi trust shall be made in accordance with
the rabbi trust agreement. The amount and timing of such contribution(s) shall
be specified in the agreement which establishes such rabbi trust.
SECTION III
DEFERRED FEES
Commencing on the Effective Date, the Director and the Bank agree that
the Director shall defer into his Elective Contribution Account up to One
Hundred Percent (100%) of the monthly Board and Committee fees and/or retainer
which the Director would otherwise be entitled to receive from the Bank for each
month of the Plan Year. In each subsequent Plan Year continuing throughout the
Deferral Period, the Director shall be entitled to defer into his Elective
Contribution Account up to One Hundred Percent (100%) of the monthly Board and
Committee fees and/or retainer which the Director would otherwise be entitled to
receive from the Bank, provided, however, that the maximum amount that the
Director may elect to defer in each subsequent Plan Year shall not exceed one
hundred and five percent (105%) of the maximum permitted deferral in the
immediately preceding Plan Year for the Director receiving the highest
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<PAGE>
dollar amount of Board and Committee fees and/or retainer (taking into
consideration any deferrals of such Director for such year). The total deferral
during the term of the Deferral Period shall not exceed the Director's Projected
Deferral, without Board of Director approval. The specific amount of the
Director's monthly deferred compensation shall be designated in the Director's
Joinder Agreement and shall apply only to compensation attributable to services
not yet performed.
SECTION IV
ADJUSTMENT OF DEFERRAL AMOUNT
Deferral of the specific amount of fees and/or retainer designated in
the Director's Joinder Agreement shall continue in effect pursuant to the terms
of this Plan unless and until the Director amends his Joinder Agreement by
filing with the Administrator a Notice of Adjustment of Deferral Amount (Exhibit
B of the Joinder Agreement). If the Bank increases the amount of fees and/or
retainer earned by the Director, the Director can include such additional
amounts in his monthly deferral, provided approval from the Board of Directors
is obtained, by filing a Notice of Adjustment of Deferral Amount. A Notice of
Adjustment of Deferral Amount shall be effective if filed with the Administrator
at least thirty (30) days prior to any January 1st during the Director's
Deferral Period. Such Notice of Adjustment of Deferral Amount shall be effective
commencing with the January 1st following its filing and shall be applicable
only to compensation attributable to services not yet performed by the Director.
SECTION V
BENEFITS GENERALLY
5.1 Retirement Benefit. Subject to Subsection 6.1 of this Plan, the Bank
agrees to pay the Director the Deferred Compensation Benefit commencing
on the Director's Benefit Eligibility Date. Such payments will be made
over the term of the Payout Period. In the event of the Director's
death after commencement of the Deferred Compensation Benefit,
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but prior to completion of all such payments due and owing hereunder,
the Bank shall pay to the Director's Beneficiary a continuation of the
monthly installments for the number of months remaining in the Payout
Period.
5.2 Disability Benefit. If requested by the Director and approved by the
Board of Directors, the Director shall be entitled to receive the
Disability Benefit hereunder, in any case in which it is determined by
a duly licensed independent physician selected by the Bank, that the
Director is no longer able, properly and satisfactorily, to perform his
regular duties as a Director because of ill health, accident,
disability or general inability due to age. If the Director's service
is terminated pursuant to this Subsection and Board of Director
approval is obtained, the Director may elect to begin receiving the
Disability Benefit in lieu of the Deferred Compensation Benefit, which
is not available prior to the Director's Benefit Eligibility Date. The
benefit shall begin within thirty (30) days of Board of Director
approval of such benefit. The amount of the monthly benefit shall be
the annuitized value of the Director's Elective Contribution Account,
measured as of the date of the disability determination and payable
over the Payout Period. The Interest Factor shall be used to annuitize
the Elective Contribution Account. In the event the Director dies while
receiving Disability Benefit payments pursuant to this Subsection, or
after becoming eligible for such payments but before the actual
commencement of such payments, his Beneficiary shall be entitled to
receive those benefits provided for in Subsection 6.1(a) and the
Disability Benefits provided for in this Subsection shall terminate
upon the Director's death.
5.3 Removal For Cause. In the event the Director is removed for Cause at
any time prior to reaching his Benefit Age, he shall be entitled to
receive the balance of his Elective Contribution Account, measured as
of the date of removal. Such amount shall be paid in a lump sum within
thirty (30) days of the Director's date of removal. All other benefits
provided for the Director or his Beneficiary under this Plan shall be
forfeited and the Plan shall become null and void with respect to such
Director.
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5.4 Voluntary or Involuntary Termination Other Than for Cause. If the
Director's service with the Bank is voluntarily or involuntarily
terminated prior to the attainment of his Benefit Eligibility Date, for
any reason including Change in Control but excluding termination for
Cause, the Director's death or disability, then commencing on his
Benefit Eligibility Date, the Director shall be entitled to the
annuitized value (using the Interest Factor) of his Elective
Contribution Account calculated as of his Benefit Eligibility Date, and
payable over the Payout Period. During the period between termination
of service and the Director's Benefit Eligibility Date, the Director's
Elective Contribution Account will continue to earn interest at a rate
equal to the Interest Factor.
5.5 Financial Hardship Benefit. In the event the Director incurs a
Financial Hardship, the Director may request a Financial Hardship
Benefit. Such request shall be either approved or rejected by the Bank
in the exercise of its sole discretion. The Director will be required
to demonstrate to the satisfaction of the Bank that a Financial
Hardship has occurred and that the Director is otherwise entitled to a
Financial Hardship Benefit in accordance with Sections 1.15 and 1.16.
If a Financial Hardship Benefit is approved, it shall be paid in a lump
sum within thirty (30) days of the event which triggers payment and
only to the extent of the Director's account balances when paid. Any
Deferred Compensation Benefit or Disability Benefit shall be
actuarially adjusted to reflect such distribution.
SECTION VI
DEATH BENEFITS
6.1 Death Benefit Prior to Commencement of Deferred Compensation Benefit.
In the event of the Director's death prior to commencement of the
Deferred Compensation Benefit, the Bank shall pay the Director's
Beneficiary a monthly benefit for the Payout Period, commencing within
thirty (30) days of the Director's death. The amount of such monthly
benefit payments shall be determined as follows:
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(a) (1) In the event death occurs (i) while the Director is receiving
the Disability Benefit provided for in Subsection 5.2, or (ii)
after the Director has become eligible for such Disability
Benefit payments but before such payments have commenced, the
Director's Beneficiary shall be entitled to receive a lump sum
benefit equal to the present value of the Survivor's Benefit,
reduced by the Disability Benefit payments made to the Director.
In the event death occurs after the Director has received the
Disability Benefit provided for in Subsection 5.2 for the entire
Payout Period, the Director's Beneficiary shall not be entitled
to the benefit set forth --- above. However, the lump sum payment
described in paragraph two (2) of this Subsection 6.1(a) shall
still be applicable to such Beneficiary.
(2) If (i) the total dollar amount of Disability Benefit payments
received by the Director under Subsection 5.2 is less than the
total dollar amount of payments which would have been received
had the Survivor's Benefit been paid in lieu of the Disability
Benefit which was paid during the Director's life, and (ii) Board
of Director approval is obtained, the Bank shall pay the
Director's Beneficiary a lump sum payment for the difference.
This lump sum payment shall be made within thirty (30) days of
the Director's death.
(b) In the event death occurs while the Director is (i) in the
service of the Bank, (ii) deferring fees pursuant to Section III
and (iii) prior to any reduction or discontinuance (via an
effective filing of a Notice of Adjustment of Deferral Amount) in
the level of deferrals reflected in the Director's Joinder
Agreement, the Director's Beneficiary shall be paid the
Survivor's Benefit.
(c) In the event death occurs while the Director is (i) in the
service of the Bank, (ii) deferring fees pursuant to Section III,
and (iii) after any reduction or discontinuance (via an effective
filing of a Notice of Adjustment of Deferral Amount) in the level
of deferrals reflected in the Director's initial Joinder
Agreement, the Director's Beneficiary shall be paid a reduced
Survivor's Benefit. The amount of such reduced
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Survivor's Benefit shall be determined by multiplying the monthly
payment available as a Projected Survivor's Benefit by a
fraction, the numerator of which is equal to the total Board fees
actually deferred by the Director as of his death, and the
denominator of which is equal to the total amount of Board fees
which would have been deferred as of his death, if no reduction
or discontinuance in the level of deferrals had occurred at any
time following execution of the Joinder Agreement and during the
Deferral Period.
(d) In the event the Director completes less than One Hundred Percent
(100%) of his Projected Deferrals due to any voluntary or
involuntary termination other than removal for Cause, the
Director's Beneficiary shall be paid a reduced Survivor's
Benefit. The amount of such reduced Survivor's Benefit shall be
determined by multiplying the monthly payment available as a
Projected Survivor's Benefit by a fraction, the numerator of
which is equal to the total Board fees actually deferred by the
Director, and the denominator of which is equal to the Director's
Projected Deferral.
(e) In the event the Director completes One Hundred Percent (100%) of
his Projected Deferrals prior to any voluntary or involuntary
termination other than removal for Cause, and provided no
payments have been made pursuant to Subsection 5.2, the
Director's Beneficiary shall be paid the Survivor's Benefit.
6.2 Additional Death Benefit - Burial Expense. In addition to the
above-described death benefits, upon the Director's death, the
Director's Beneficiary shall be entitled to receive a one-time lump sum
death benefit in the amount of Ten Thousand Dollars ($10,000.00). This
benefit shall be provided specifically for the purpose of providing
payment for burial and/or funeral expenses of the Director. Such
benefit shall be payable within thirty (30) days of the Director's
death. The Director's Beneficiary shall not be entitled to such benefit
if the Director is removed for Cause prior to death.
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SECTION VII
BENEFICIARY DESIGNATION
The Director shall make an initial designation of primary and secondary
Beneficiaries upon execution of his Joinder Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit A to the Joinder
Agreement, a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of the Joinder Agreement
shall become effective only when receipt thereof is acknowledged in writing by
the Administrator.
SECTION VIII
DIRECTOR'S RIGHT TO ASSETS
The rights of the Director, any Beneficiary, or any other person
claiming through the Director under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Director, the Beneficiary, or any
other person claiming through the Director, shall only have the right to receive
from the Bank those payments so specified under this Plan. The Director agrees
that he, his Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any insurance
policies or contracts which the Bank may possess or obtain to informally fund
this Plan. Any asset used or acquired by the Bank in connection with the
liabilities it has assumed under this Plan, unless expressly provided herein,
shall not be deemed to be held under any trust for the benefit of the Director
or his Beneficiaries, nor shall any asset be considered security for the
performance of the obligations of the Bank. Any such asset shall be and remain,
a general, unpledged, and unrestricted asset of the Bank.
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SECTION IX
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The Director,
his Beneficiaries or any successor in interest to him shall be and remain simply
a general unsecured creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation. The Bank
reserves the absolute right in its sole discretion to either purchase assets to
meet its obligations undertaken by this Plan or to refrain from the same and to
determine the extent, nature, and method of any such asset purchases. Should the
Bank decide to purchase assets such as life insurance, mutual funds, disability
policies or annuities, the Bank reserves the absolute right, in its sole
discretion, to terminate such assets at any time, in whole or in part. At no
time shall the Director be deemed to have any lien, right, title or interest in
or to any specific investment or to any assets of the Bank. If the Bank elects
to invest in a life insurance, disability or annuity policy upon the life of the
Director, then the Director shall assist the Bank by freely submitting to a
physical examination and by supplying such additional information necessary to
obtain such insurance or annuities.
SECTION X
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Director nor any Beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate, mortgage, commute,
modify or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the Director or his
Beneficiary, nor be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Director or any Beneficiary attempts
assignment, communication, hypothecation, transfer or disposal of the benefits
hereunder, the Bank's liabilities shall forthwith cease and terminate, with
respect to such Director or Beneficiary.
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SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Plan. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Plan as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Plan, including the employment
of advisors and the delegation of ministerial duties to qualified
individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Plan are not paid to the Director (or to his Beneficiary in the case of
the Director's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are
refused. The Administrator shall review the written claim and, if the
claim is denied, in whole or in part, they shall provide in writing,
within ninety (90) days of receipt of such claim, their specific
reasons for such denial, reference to the provisions of this Plan or
the Joinder Agreement upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such
writing by the Administrator shall further indicate the additional
steps which must be undertaken by claimants if an additional review of
the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Plan, the Joinder Agreement or any
documents relating thereto and submit any issues and comments, in
writing, they may feel appropriate. In its sole discretion, the
Administrator shall then review the second claim and provide a written
decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall
16
<PAGE>
include reference to specific provisions of this Plan or the Joinder
Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Plan and the Joinder Agreement or the
meaning and effect of the terms and conditions thereof, then claimants
may submit the dispute to mediation, administered by the American
Arbitration Association ("AAA") (or a mediator selected by the parties)
in accordance with the AAA's Commercial Mediation Rules. If mediation
is not successful in resolving the dispute, it shall be settled by
arbitration administered by the AAA under its Commercial Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
SECTION XII
MISCELLANEOUS
12.1 No Effect on Directorship Rights. Nothing contained herein will confer
upon the Director the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
Director without regard to the existence of the Plan.
12.2 State Law. The Plan is established under, and will be construed
according to, the laws of the state of New Jersey.
12.3 Severability. In the event that any of the provisions of this Plan or
portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
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12.4 Incapacity of Recipient. In the event the Director is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the Plan
to which such Director is entitled shall be paid to such conservator or
other person legally charged with the care of his person or Estate.
12.5 Unclaimed Benefit. The Director shall keep the Bank informed of his
current address and the current address of his Beneficiaries. If the
location of the Director is not made known to the Bank within three (3)
years after the date on which any payment of the Deferred Compensation
Benefit may first be made, payment may be made as though the Director
had died at the end of the three (3) year period.
12.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, no individual acting as an employee or agent of
the Bank, or as a member of the Board of Directors shall be personally
liable to the Director or any other person for any claim, loss,
liability or expense incurred in connection with this Plan.
12.7 Gender. Whenever in this Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Plans. Nothing contained in this Plan
shall affect the right of the Director to participate in or be covered
by any qualified or non-qualified pension, profit sharing, group, bonus
or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
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12.9 Suicide. Notwithstanding anything to the contrary in this Plan, the
benefits otherwise provided herein shall not be payable if the
Director's death results from suicide, whether sane or insane, within
twenty-six (26) months after the execution of his Joinder Agreement. If
the Director dies during this twenty-six (26) month period due to
suicide, the balance of his Elective Contribution Account will be paid
to the Director's Beneficiary in a single payment. Payment is to be
made within thirty (30) days after the Director's death is declared a
suicide by competent legal authority. Credit shall be given to the Bank
for payments made prior to determination of suicide.
12.10 Inurement. This Plan shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Director, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Source of Payments. All payments provided in this Plan shall be timely
paid in cash or check from the general funds of the Bank or the assets
of the rabbi trust. The Holding Company guarantees payment and
provision of all amounts and benefits due to the Directors and, if such
amounts and benefits are not timely paid or provided by the Bank, or a
rabbi trust, such amounts and benefits shall be paid or provided by the
Holding Company.
12.12 Modification of Benefit Eligibility Date. In the event that a Director
desires to modify his Benefit Eligibility Date or Payout Period with
respect to future Elective Contributions, the Director may do so at the
time and in the manner that the Director is entitled to adjust his
Elective Contribution, pursuant to Section IV of the Plan. In the event
that a Director desires to modify his Benefit Eligibility Date or
Payout Period with respect to amounts accrued in his Elective
Contribution Account the Director may do so, provided, however, that
any such modification is made no later than twenty-four (24) months
prior to the date of both (i) the Director's existing Benefit
Eligibility (at the time of such modification) and (ii) the Director's
Benefit Eligibility Date, as modified.
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12.13 Tax Withholding. The Bank may withhold from any benefits payable under
this Plan all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation then in effect.
12.14 Headings. Headings and sub-headings in this Plan are inserted for
reference and convenience only and shall not be deemed a part of this
Plan.
SECTION XIII
AMENDMENT/REVOCATION
This Plan shall not be amended, modified or revoked at any time, in
whole or part, without the mutual written consent of the Director and the Bank,
and such mutual consent shall be required even if the Director is no longer
serving the Bank as a member of the Board.
SECTION XIV
EXECUTION
14.1 This Plan sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby, and any previous
agreements or understandings between the parties hereto regarding the
subject matter hereof are merged into and superseded by this Plan.
14.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
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IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Plan to be executed on the day and date first above written.
ATTEST: UNITED NATIONAL BANK
By: __________________________
Secretary
Title: _____________________
ATTEST: UNITED NATIONAL BANCORP
By:
Secretary
Title:
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
I, _______________, and UNITED NATIONAL BANK hereby agree for good and
valuable consideration, the value of which is hereby acknowledged, that I shall
participate in the Director Deferred Compensation Plan ("Plan"), which is
effective October 1, 1997, as such Plan may now exist or hereafter be amended or
modified, and do further agree to the terms and conditions thereof.
I understand that I must execute this Director Deferred Compensation
Joinder Agreement ("Joinder Agreement") as well as notify the Administrator of
such execution, on or before October 1, 1997 in order to participate in the Plan
from its Effective Date. Otherwise, I may execute this Joinder Agreement and
give notice of such execution to the Administrator at least thirty (30) days
prior to any January 1.
I hereby elect to defer my Board fees and/or retainer, monthly, by the
lesser of (i) Five Hundred Dollars ($500) or (ii) the actual amount of fees
and/or retainer I earn during any given month. Such deferrals shall commence on
October 1, 1997, shall renew annually unless otherwise changed and shall
continue for a period equal to the lesser of ___ months or until attainment of
my Benefit Age, such period shall be known as the "Deferral Period", and will
result in a "Projected Deferral" in the amount of $__________.
I understand that my election to defer shall continue in accordance
with this Joinder Agreement until such time as I submit a "Notice of Adjustment
of Deferral Amount" (Exhibit B, hereto) to the Administrator, at least thirty
(30) days prior to any January 1st of my Deferral Period. A Notice of Adjustment
of Deferral Amount can be used to adjust the amount of Board fees and/or
retainer to be deferred or to discontinue deferrals altogether.
I hereby elect a "Benefit Age" of 72 and a "Payout Period" of 120 months.
-----
In general, I understand that my designated Beneficiary shall be
entitled to a "Survivor's Benefit" monthly payment in the amount of $__________,
pursuant to Subsection 6.1 of the Plan and subject to all relevant Subsections
of the Plan.
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I hereby designate the following individuals as my "Beneficiary" and I
am aware that I can subsequently change such designation by submitting to the
Administrator, at any subsequent time and in substantially the form attached
hereto as Exhibit A, a written designation of the primary and secondary
Beneficiaries to whom payment under the Plan shall be made in the event of my
death prior to complete distribution of the benefits due and payable under the
Plan. I understand that any Beneficiary designation made subsequent to execution
of the Joinder Agreement shall become effective only when receipt thereof is
acknowledged in writing by the Administrator.
PRIMARY BENEFICIARY
SECONDARY BENEFICIARY
I understand that I am entitled to review or obtain a copy of the Plan,
at any time, and may do so by contacting the Administrator.
This Joinder Agreement shall become effective upon execution (below) by
both the Director and a duly authorized officer of the Bank.
Dated this 1st day of October, 1997.
(Director)
(Bank's duly authorized Officer)
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
BENEFICIARY DESIGNATION
The Director, under the terms of the Director Deferred Compensation
Plan executed by United National Bank, of Bridgewater, New Jersey, dated
___________________, 19__, hereby designates the following Beneficiary to
receive any guaranteed payments or death benefits under such Plan, following his
death:
PRIMARY BENEFICIARY: ____________________________________
SECONDARY BENEFICIARY: ____________________________________
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: ______________________, 19___
- ----------------------------------- ------------------------------
(WITNESS) DIRECTOR
- -----------------------------------
(WITNESS)
Exhibit A
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DIRECTOR DEFERRED COMPENSATION JOINDER AGREEMENT
NOTICE OF ADJUSTMENT OF DEFERRAL AMOUNT
TO: Bank
Attention:
I hereby give notice of my election to adjust the amount of my
compensation deferral in accordance with my Director Deferred Compensation
Joinder Agreement, dated the ____ day of __________, 19__. This notice is
submitted thirty (30) days prior to January 1st, and shall become effective
January 1st, as specified below.
Adjust deferral as of: January 1st, 19__
Previous Deferral Amount ____________ per month
New Deferral Amount ____________ per month
(to discontinue deferral, enter $0)
------------------------------------
DIRECTOR
------------------------------------
DATE
ACKNOWLEDGED
BY:_________________________________
TITLE: _____________________________
------------------------------------
DATE
Exhibit B
4
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
This section is presented to assist in understanding the operating results of
United National Bancorp (the "Parent Company") and its wholly-owned
subsidiaries, United National Bank (the "Bank"), and UNB Capital Trust I (the
"Trust") or when consolidated with the Parent Company, the ("Company"), for each
of the past three years and financial condition for each of the past two years.
This section should be read in conjunction with the consolidated financial
statements, the accompanying notes and selected financial data provided within
this report.
On February 28, 1997, the Company, through the Bank, acquired all of the
outstanding shares of Farrington Bank ("Farrington"). The acquisition was
accounted for on the pooling-of-interests accounting method and therefore, the
financial statements for periods prior to the merger have been restated to
include the accounts and results of operations of Farrington.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about our confidence and strategies and
our expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by an "asterisk" ("*") or such forward-looking terminology as
"expect", "believe", "anticipate", or by expressions of confidence such as
"continuing" or "strong" or similar statements or variations of such terms. Such
forward-looking statements involve certain risks and uncertainties. These
include, but are not limited to, expected cost savings not being realized or not
being realized within the expected time frame; income or revenues being lower
than expected or operating costs higher; competitive pressures in the banking or
financial services industries increasing significantly; business disruption
related to program implementation or methodologies; weakening of general
economic conditions nationally or in New Jersey; changes in legal and regulatory
barriers and structures; and unanticipated occurrences delaying planned programs
or initiatives or increasing their costs or decreasing their benefits. Actual
results may differ materially from such forward-looking statements. The Company
assumes no obligation for updating any such forward-looking statements.
OVERVIEW
The Company reported net income in 1997 of $13,880,000, an increase of 13.0%
from the $12,280,000 earned in 1996. Diluted net income per share was $1.48
compared to $1.33 reported in 1996. Basic net income per share in 1997 was $1.50
as compared to the $1.33 reported in 1996.
The Company's operating income for 1997, defined as net income excluding the
effects of one-time charges, net of taxes, was $15,278,000, a 21.4% increase
over the $12,587,000 for the year ended December 31, 1996. During 1997, one-time
charges totaling $1,398,000 or $0.15 per diluted share, net of taxes, were
recorded relating to the acquisition of Farrington and the sale of the Company's
former operations center, while 1996 included a one-time special Savings
Association Insurance Fund ("SAIF") assessment of $307,000 or $0.03 per diluted
share, net of taxes. Operating income per diluted share, adjusted for the 6%
stock dividend paid on November 1, 1997 and the 2-for-1 stock split effective
July 1, 1997, was $1.63, a 19.9% increase over the $1.36 reported for the year
ended December 31, 1996.
The Company reported net income, after one-time charges, for 1996 of
$12,280,000, up 29.2% from the $9,506,000 earned in 1995. Diluted per share
results for 1996 increased 29.1% to $1.33 from $1.03 reported in 1995. Operating
income for 1995 was $11,595,000 or $1.26 per diluted share compared to
$12,587,000 or $1.36 per diluted share in 1996. Operating income for 1995 was
defined as net income excluding the one-time charges of $2,089,000, or $0.23 per
share, net of taxes related to the acquisition of New Era Bank ("New Era") and
the investment in a joint venture, United Financial Services, Inc. ("United
Financial"), a newly formed third party service provider.
Key performance ratios based on operating income increased in 1997. Based on
operating income, return on average assets ("ROA") and return on average equity
("ROE") were 1.28% and 14.84%, respectively, in 1997, compared to 1.17% and
13.55%, respectively, in 1996. ROA and ROE in 1995 were 1.12% and 14.05%,
respectively. ROA and ROE, based on operating income, have averaged 1.14% and
13.84%, respectively, over the past five years.
Based on net income, ROA was 1.16% in 1997 as compared to 1.15% in 1996 and
0.92% in 1995, while ROE was 13.49% in 1997, 13.21% in 1996 and 11.52% in 1995.
In addition, the efficiency ratio improved to 59.93% for 1997 from 61.93% in
1996 and 65.52% in 1995.
The Company's favorable net income results for 1997 were the result of an
improvement in net interest income and non-interest income. These increases were
offset in part by an increase in non-interest expense, an increase in the
provision for loan losses and a slight increase in the provision for income
taxes.
The Company's favorable net income results for 1996 were the result of continued
improvement in net interest income and non-interest income, as well as a
decrease in non-interest expense. These increases were offset in part by a
$2,178,000 increase in the provision for loan losses and an increase in the
provision for income taxes.
Loan demand throughout 1997 was lower than 1996, consequently loan balances at
December 31, 1997 were $7,323,000 lower than the prior year-end. Total loans
averaged $612,944,000 during 1997, an increase of $23,027,000 or 3.9% compared
with the prior year. Interest rates, as measured by the prime rate, increased in
March 1997 to 8.50% and remained stable throughout the remainder of the year.
Consolidated assets at year-end 1997 totaled $1,309,836,000, which represented
an increase of 18.7% over 1996.
Securities available for sale increased to $541,245,000 and represented 41.3% of
the total assets at December 31, 1997 as compared
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to $305,668,000 or 27.7% at year-end 1996. Conversely, securities held to
maturity decreased $22,268,000 and accounted for 3.5% of total assets at
December 31, 1997, versus 6.1% last year. Loans, net of unearned income,
declined $7,323,000 and represented 46.9% of total assets at year-end 1997 as
compared to 56.3% in 1996. Total deposits increased by 5.5% to $987,849,000 at
December 31, 1997. Included in the $51,129,000 increase were the two branches
acquired in December 1997 from another bank with approximately $20,540,000 of
deposits. Of the deposits acquired, $8,548,000 was demand, $5,096,000 was
savings and $6,896,000 was time deposits, including accrued interest. As in
prior years, consumers continued moving monies into higher yielding fixed rate
certificates of deposit. Time deposits grew by $53,074,000 or 13.7% to
$441,484,000 at December 31, 1997 compared to $388,410,000 at year-end 1996.
Demand deposits increased to $166,260,000 at year-end 1997, a 4.6% increase over
the prior year-end. In contrast, savings deposits decreased by $9,187,000 or
2.4% from 1996 to $380,105,000 at year-end 1997. On average, time deposits were
up $62,543,000 or 17.4% from 1996. Demand deposits and non-interest bearing
savings deposits averaged $166,667,000 in 1997, up 0.7% from the 1996 average of
$165,515,000, while average savings deposits were down $22,564,000 or 5.9% from
1996's average balance of $382,954,000.
EARNINGS ANALYSIS
Operating Revenue
The Company's earnings have two major components. Net interest income generates
one source of revenue with the remaining balance comprised of non-interest
income, including net gains from securities transactions. Operating revenue,
excluding securities gains, increased $5,467,000 or 8.5% in 1997 as compared to
1996 and increased $3,019,000 or 5.0% in 1996 as compared to 1995.
Net Interest Income
Net interest income, the amount by which interest earned on assets exceeds
interest paid to depositors and other creditors, is the Company's principal
source of revenue. For purposes of this review, interest exempt from Federal
taxation has been restated to a taxable-equivalent basis, which places
tax-exempt income and yields on a comparable basis with taxable income to
facilitate analysis. The Federal income tax rate used for 1997, 1996 and 1995
was 34%. In calculating loan yields, the applicable loan fees have been included
in interest income and non-performing loans are included in the average loan
balances.
Net interest income increased $2,822,000 or 5.6% to a level of $53,471,000 in
1997 following a $2,002,000 or 4.1% increase in the prior year. The primary
reasons for the increase were the result of an increase in net interest earning
assets, offset in part by a decrease in the net interest margin. The higher
yielding loan portfolio decreased to 55.7% of average earning assets in 1997
from 60.2% in 1996, while average securities increased to 42.9% of average
earning assets in 1997, up from 38.9% in 1996. In the second quarter of 1997,
after raising additional Tier I Capital through the issuance of trust capital
securities, the Company developed and partially implemented a strategy to
increase earning assets, effectively leveraging its new capital and improving
net interest income, by the purchase of $100 million of additional investment
securities funded through advances and repurchase agreements (the "Growth
Strategy"). During August 1997, the Company completed an additional $50 million
of the Growth Strategy. For additional discussion on the Growth Strategy see
"Financial Condition - Securities." The Company's net interest margin may
decline moderately in 1998, largely due to the full year impact of the Growth
Strategy and the effect of an investment in corporate owned life insurance,
which reduces investable funds while increasing non-interest income.*
For 1997, average interest earning assets increased $120,421,000 or 12.3% over
1996 while average rates declined 4 basis points, creating an increase in total
interest income of $9,392,000 or 11.6% from 1996. In 1996, average interest
earning assets increased $30,951,000 or 3.3% over the prior year, offset by
slightly lower rates on earning assets, which decreased 6 basis points.
Accordingly, interest income increased $2,028,000 or 2.6% from 1995.
The Company continued to monitor the rates paid on all categories of interest
bearing liabilities to reflect existing market conditions. Average
interest-bearing deposits increased by $39,979,000 or 5.4%, and the cost of
deposits increased to 3.79% in 1997 from 3.58% in 1996. This growth in average
deposits was the result of the Bank's new branches opened during the year, in
addition to deposit growth at the existing branches. The increase in the cost of
funds was the result of the shift from lower rate savings and money market
accounts into higher cost certificates of deposit. The Company utilized other
borrowings as an additional funding source and to fund the Growth Strategy. The
average balance of other borrowings, including the obligation under capital
lease, was $113,484,000 in 1997 with an average cost of 6.20%, as compared to
the average balance of $60,037,000 in 1996 with an average cost of 5.97%. The
effect of the above changes in 1997 created a 38 basis point and 31 basis point
decline in the Company's net interest spread and net interest margin,
respectively.
In 1996, average interest-bearing deposits decreased by $8,434,000 or 1.1%,
while the cost of deposits declined to 3.58% in 1996 from 3.71% in 1995. This
was primarily the result of the Company's decision to reduce rates on above
market rate deposit products acquired from the Resolution Trust Corporation
("RTC") and New Era in 1995. The Company utilized other borrowings as an
additional funding source in 1996. The average balance of other borrowings,
including the obligation under capital lease, was $60,037,000 in 1996 with an
average cost of 5.97%, as compared to the average balance in 1995 of $36,133,000
at a cost of 6.22%. The effect of the above changes in 1996 created 1 basis
point and 4 basis point increases in the Company's net interest spread and net
interest margin, respectively.
The net interest margin, which represents net interest income as a percentage of
average interest earning assets, is a key indicator of net interest income
performance. The net interest margin decreased during 1997 to 4.86% from 5.17%
in 1996. The decline in the net interest margin in 1997 resulted to a large
degree from the Growth Strategies implemented during 1997. Although the Growth
Strategies resulted in a decline in the net interest margin and spread, the
overall result was a positive impact on the Company's net income and return on
average equity. The net interest margin increased during 1996 to 5.17% from
5.13% in 1995. The improvement in the net interest margin in 1996 resulted from
a decline in the cost of savings deposits, time deposits and other borrowings,
offset in part by a slight decrease in the yield on interest earning assets.
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Non-Interest Income
Non-interest income, which has become an increasingly important source of
revenue for the Company, consists primarily of trust income, service charges on
deposit accounts, other service charges, commissions and fees, and securities
gains. In 1997, total non-interest income amounted to $19,388,000, an increase
of $3,842,000 or 24.7% from 1996, as compared with a 6.1% increase in 1996 from
1995. Included in these figures were net gains from securities transactions of
$1,820,000 in 1997 as compared to $798,000 in 1996 and $1,142,000 in 1995.
Non-interest income in 1997, not including securities gains, was up $2,820,000
or 19.1% over 1996, compared to an increase of $1,237,000 or 9.2% in 1996 from
1995.
Trust income continues to be a major contributor to fee income, representing
25.7% of the total. Trust income rose $640,000 or 14.8% to $4,976,000 in 1997
compared to a $114,000 or 2.7% increase from 1995 to 1996. This increase was due
to growth in the level of assets under management, assisted through the
expansion of new client relationships, as well as the addition of new investment
products. The Trust Division offers a full range of fiduciary services, ranging
from mutual funds to personal trust, investment advisory and employee benefits.
Trust services are expected to continue to play an important role in the
Company's future.*
Service charges on deposit accounts increased $52,000 or 1.3% to $4,045,000 in
1997 as compared to a $439,000 or 12.4% increase from 1995 to 1996. The increase
in 1997 resulted from higher volume of accounts during the year. In 1996, the
increase resulted from a change in fee structures during the year.
Other service charges, commissions and fees increased $1,592,000 or 34.9% to
$6,154,000 in 1997 due primarily to increased application fees collected through
the credit card solicitation program, increases in credit card annual and
transaction fees, and an increase in automated teller machine ("ATM")
transaction fees. During 1996, other service charges, commissions and fees
increased $693,000 or 17.9% from 1995 to $4,562,000 due to increased credit card
application fees.
Other income increased $536,000 or 28.9% from 1996 to $2,393,000 in 1997 due to
increased gains from sales of the guaranteed portions of Small Business
Administration ("SBA") loans and income on an investment in corporate owned life
insurance. Other income decreased $9,000 or 0.5% from 1995 to $1,857,000 in 1996
due primarily to reduced gains on sales of other assets, offset in part by
increased gains from sales of the guaranteed portions of SBA loans. Other income
in 1995 included a $247,000 gain on the sale of the Bank's Bridgewater branch
facility.
Net gains on securities transactions of $1,820,000 were recorded in 1997
compared with $798,000 in 1996 and $1,142,000 in 1995. The gains in 1997 and
prior years were the outcome of restructuring the investment portfolio to alter
maturities, due to the changing interest rate environment, to maximize the
return on the investment portfolio.
Non-Interest Expense
Non-interest expense in 1997 totaled $47,420,000, an increase of $4,318,000 or
10.0% over to 1996. This compared to a $4,327,000 or 9.1% decrease in 1996 over
1995. Included in 1997 were one-time charges of $2,208,000 incurred in
connection with both the Farrington merger and the sale of the Bank's former
operations center. During the third quarter of 1996, the Company recorded a
pre-tax charge of $512,000 for the one-time special SAIF assessment. Included in
1995 were one-time charges of $3,240,000 incurred in connection with both the
New Era merger and the joint venture investment in United Financial. Excluding
the one-time charges, non-interest expense in 1997 increased $2,622,000 or 6.2%
from 1996 and non-interest expense in 1996 decreased $1,599,000 or 3.6% from
1995. Management continues to seek opportunities to control non-interest expense
levels.
The largest component of non-interest expense is salaries and employee benefits,
which accounted for 41.1% of total non-interest expense in 1997 compared to
47.4% and 46.5% in 1996 and 1995, respectively. Management continues to monitor
staffing levels, employee benefits and operational consolidations. Compared to
the previous year, the 1997 expense of $19,467,000 represents a 4.8% decrease
versus a 7.2% decrease between 1996 and 1995. Specifically, salaries and wages
declined $551,000 while employee benefits declined $427,000. Medical health care
costs, continuing the trend from the last several years, declined $323,000 from
1996 and had declined $207,000 in 1996 from 1995. This expense is based on the
level of medical claims and there can be no assurance that these costs will not
increase in the future. The Company's goal to control this expense continues to
remain a high priority. Full-time equivalent employees were 471 at December 31,
1997 compared with 467 and 487 at December 31, 1996 and 1995, respectively.
Net occupancy and equipment expense increased $92,000 or 1.5% in 1997 to
$6,224,000 as compared to a decrease of $522,000 or 7.8% in 1996 from 1995. The
increase in 1997 resulted from the opening of several new branches offset in
part by lower building maintenance costs during the year. The decrease in 1996
resulted from savings on computer equipment rental and maintenance achieved by
outsourcing data processing in late 1995, offset in part by the full year's
occupancy costs relating to the new headquarters facility.
Data processing expense for 1997 increased $988,000 or 23.6% to $5,177,000 from
$4,189,000 in 1996 as a result of higher processing volumes. The 1996 increase
of $2,295,000 over 1995 was the result of outsourcing the Company's data
processing function in the fourth quarter of 1995. Distributions on trust
capital securities of $1,557,000 resulted from the placement of such securities
in March 1997. Amortization of intangible assets was $1,761,000 in 1996 compared
to $1,788,000 and $1,663,000 in 1996 and 1995, respectively.
Net cost to operate other real estate, which results from costs of holding other
real estate in addition to valuation adjustments, amounted to $256,000 in 1997,
a decrease of $48,000 from 1996. These costs decreased in 1996 to $304,000
compared to $412,000 in 1995. The decrease in 1997 was due to lower carrying
costs and write-downs associated with the reduced inventory of other real estate
holdings. For additional discussion on other real estate, see "Asset Quality".
One-time charges in 1997 amounted to $2,208,000, of which $1,665,000 resulted
from the acquisition of Farrington in the first quarter. This amount consisted
primarily of payouts on existing employment contracts, a penalty on termination
of Farrington's data processing service, the
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write-off of unusable fixed assets and supplies, professional services directly
attributable to the acquisition, and severance costs. Additionally, a
non-recurring loss of $543,000 resulting from the sale of the Bank's operations
center was recorded in the second quarter.
Included in one-time charges in 1996 was the one-time special SAIF assessment
of $512,000, pre-tax. In 1995, of the $3,240,000 of one-time charges,
$1,670,000 related to the New Era acquisition, while the balance was a one-time
restructuring charge of $1,570,000 relating to United Financial, which consisted
primarily of lease termination penalties on data processing equipment, severance
costs, professional services directly attributable to the joint venture, and the
write-off of unusable equipment and supplies.
Other expenses, excluding the one-time charges, amounted to $10,770,000 in 1997,
an increase of $1,038,000 or 10.7% compared to the prior year while 1996's
expense was $1,799,000 or 15.6% lower than that of 1995. The increase in 1997
was primarily as a result of additional marketing, postage and telephone
expenses incurred for credit card marketing, along with increases in local
marketing expenses, legal and professional fees. The decrease in 1996 was
primarily due to continued expense reductions achieved through the consolidation
of operations resulting from the acquisition of New Era, the reduction of
expenses related to outsourcing the Company's data processing function, and
lower FDIC premiums which went into effect in the third quarter of 1995.
Included in other expense in 1995 was a loss of $220,000 from the sale of the
Bank's Knowlton branch facility and expenses relating to the acquisition of
branches from the RTC.
Management has initiated a program to assess the Company's computer systems,
applications and third-party vendors for year 2000 compliance. Management has
formed a Year 2000 Committee with members from all significant areas of the
Bank, which has conducted a comprehensive review of its operations to identify
systems and vendors that could be affected by the year 2000 issue. The committee
is developing an implementation plan to rectify any issues related to processing
of transactions in the year 2000 and beyond. The Company expects that all year
2000 compliance testing will be completed by December 31, 1998. It is
anticipated that the cost of year 2000 compliance will not be material to the
Company.*
Income Taxes
The provision for income taxes increased $20,000 in 1997 to $6,365,000 compared
to an increase in 1996 of $2,050,000. The slight increase in income taxes
resulted from the higher levels of taxable income in 1997. The Company
implemented certain tax planning strategies during the first quarter of 1997,
which had the effect of reducing overall income tax expense by approximately
$700,000 for the year. The Company expects similar savings in future years, but
cannot provide assurance that the savings can be material.* The increase in 1996
resulted from the higher levels of taxable income in 1996. For further
information regarding the provision for income taxes, see Note 14 to the
Consolidated Financial Statements.
CAPITAL
The Company is committed to maintaining a strong capital position. Capital
adequacy is monitored in relation to the size, composition and quality of its
asset base and with consideration given to regulatory guidelines and
requirements, as well as industry standards.
At December 31, 1997, total stockholders' equity was $110,950,000, an increase
of $13,998,000 or 14.4% from year-end 1996. The increase was due primarily to
net income of $13,880,000, offset in part by cash dividends declared of
$5,335,000. Capital was also increased as a result of the change in net
unrealized gain adjustment on securities available for sale, net of tax, of
$4,803,000. Other additions resulted from restricted stock activity and stock
options exercised. As detailed in the notes to the consolidated financial
statements, the Company and the Bank currently exceed all minimum capital
requirements.
FINANCIAL CONDITION
Total average assets increased $123,439,000 or 11.5% to $1,194,988,000 in 1997,
while total assets reached $1,309,836,000 at year-end, an increase of 18.7% from
the December 31, 1996 balance. Average interest earning assets, which represents
92.0% of total average assets, increased $120,421,000 or 12.3% from 1996 to
$1,099,599,000 in 1997. Specifically, average loans increased $23,027,000 or
3.9% in 1997 to $612,944,000, while average total securities increased
$91,409,000 or 24.0% from 1996 and short-term investments increased $5,985,000
or 68.1%.
Securities
Total securities, which include securities held to maturity, securities
available for sale and trading account securities, averaged $471,885,000 in
1997, an increase of $91,409,000 or 24.0% from 1996. For purposes of this
review, unrealized gains and losses have been excluded. The portfolio
represented 42.9% of average earning assets for 1997 and 38.9% for 1996. The
yield on the total portfolio (on a tax-equivalent basis) remained relatively
stable, increasing 4 basis points to 6.92%. The increase in average balances in
the security portfolio was primarily the result of the $150 million of Growth
Strategy implemented during the year. The Growth Strategy utilized purchases of
U.S. government agency bonds and mortgage-backed securities, including
collateralized mortgage obligations ("CMO's"), funded through advances and
repurchase agreements with various maturities ranging from 90 days to 5 years.
The average lives of the investments purchased in the Growth Strategy were in
the three to five year range.
U.S. Treasury and government agency securities declined $6,920,000 to average
$120,522,000 in 1997. The yield on this portfolio decreased 5 basis points to
6.81% from the reported yield of 6.86% in 1996. The prevailing market rates of
new investments were lower than those of maturing securities.
Tax-exempt securities, consisting primarily of obligations of states and
political subdivisions, averaged $59,813,000 in 1997, an increase of $6,583,000
from 1996. As a part of its tax planning strategy, the Company continues to
invest in these securities. At year-end, tax-exempt securities were $67,344,000,
up $9,936,000 from December 31, 1996. The average tax-equivalent yield on these
securities increased 4 basis points to 7.60% in 1997 from 7.56% in 1996.
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Mortgage-backed securities averaged $244,449,000 in 1997, an increase of
$72,276,000 from 1996. These securities have an average repricing term of
approximately 4.0 years and provide liquidity through periodic principal and
interest repayment. The yield on mortgage-backed securities averaged 6.81%
compared to 6.87% in 1996.
Corporate debt securities averaged $12,611,000 during 1997. At December 31, 1997
the investment in corporate debt securities was $13,496,000, and represented the
Company's purchase of trust capital securities of other banks. The average yield
on trust capital securities was 9.45% in 1997. Securities issued by a foreign
government averaged $115,000 in 1997 compared to $92,000 in the prior year. The
year-end balance was $125,000 as compared to $100,000 a year earlier.
Equity securities, which consist primarily of money market mutual funds, are
utilized as a source of managing liquidity. Money market mutual funds averaged
$27,332,000 in 1997 compared to $22,823,000 in 1996. The remaining equity
securities averaged $7,043,000, up from the average in 1996 of $4,716,000. Of
the $2,327,000 increase in the average, $2,155,000 resulted from additional
purchases of Federal Reserve Bank stock and Federal Home Loan Bank stock during
1997. The balance of the increase was the result of equity investments made by
the Parent Company. The yield on equity securities increased 22 basis points to
5.96% from 5.74% in 1996.
Short-term investments, which included Federal funds sold and Federal Home Loan
Bank deposits averaged $14,770,000 in 1997 compared to $8,785,000 in 1996, an
increase of 68.1%. For 1997, the yield on short-term investments averaged 5.55%,
up from 5.30% in 1996.
Loans
Total loans averaged $612,944,000 during 1997, an increase of $23,027,000 or
3.9% compared with the prior year. At year-end, total loans, net of unearned
income, amounted to $613,712,000, down $7,323,000 or 1.2% compared to 1996.
While loan demand over the past several years has shown improvement as business
and consumer confidence in the economy increased and real estate market values
began to stabilize, the competition for loans has also increased. In addition,
with a lower interest rate environment, loan payoffs and refinancings have
increased. The Company's largest loan category is real estate mortgage loans,
which totaled $306,429,000 at December 31, 1997 and represented 49.9% of total
loans. Real estate mortgage loans included residential and commercial mortgages,
construction loans and first time home buyer mortgages. Installment loans
amounted to $137,747,000, representing 22.4% of loans, and were the Company's
second largest loan category. Major loan types within this category are indirect
automobile loans of $94,069,000, direct personal loans of $20,847,000 and home
equity loans of $19,995,000. Secured and unsecured credit cards were $33,140,000
at December 31, 1997 as compared to $32,261,000 at the end of 1996.
The Company's commercial loan portfolio amounted to $136,334,000 at December 31,
1997, down 10.0% from the prior year-end. Average commercial loans decreased
6.3% to $145,041,000 from $154,816,000 in 1996 and represented 23.7% of the
total average loan portfolio as compared to 26.2% in 1996. The tax-equivalent
yield on the commercial loan portfolio was 9.50% in 1997, up from 9.32% in 1996.
The yield on this portfolio increased as a result of higher rates on loan
originations and repricings.
Real estate mortgage loans averaged $267,462,000, an increase of 28.5% from 1996
and represented 43.6% of the total average loan portfolio. This increase was the
result of additional marketing of adjustable rate mortgage loan products in a
favorable mortgage rate environment and the Bank's first-time homebuyer program
called "Community Action" and an increase in the commercial mortgage portfolio.
The tax-equivalent yield on the total mortgage portfolio decreased 7 basis
points to 8.39% from 8.46% last year as a result of the effect of a lower
interest rate environment on new loan originations and on the adjustable rate
portion of the portfolio. This portfolio consists of residential and commercial
mortgages, as well as construction loans, and carries fixed and adjustable
interest rates.
The Company has a nationwide secured credit card program, along with unsecured
and affinity card programs throughout New Jersey. Credit card loans averaged
$32,600,000 in 1997, an increase of $2,115,000 or 6.9% from 1996. At year-end
1997, the credit card balances were $33,140,000, as compared to $32,261,000 at
year-end 1996. The increase during 1997 was the result of the continued
nationwide direct mail advertising campaign for secured credit cards, and the
local municipal affinity programs for unsecured credit cards. The average yield
in 1997 on credit cards was 19.38%, down 24 basis points from 19.62% in 1996.
Installment loans, on average, decreased to $161,536,000 from $190,833,000 in
1996 and represented 26.4% of the total average loan portfolio. The growth in
indirect automobile loans has slowed from the levels seen in 1996. As a result,
the average installment loan portfolio decreased by 15.4% in 1997 from 1996. At
year-end 1997, installment loans amounted to $137,747,000, down $49,082,000 or
26.3% from the same period in 1996. Increased competition in a lower rate
environment has lowered the yields on new indirect loans, therefore the Company
has redirected its lending efforts to higher yielding direct loan products. The
average yield on the total installment loan portfolio was 8.48% in 1997 compared
with 8.38% in 1996.
Impaired loans averaged $6,305,000, up $641,000 or 11.3% from the prior year
average. For additional discussion on impaired loans, see "Asset Quality -
Non-Performing Assets."
It is expected that a trend of increased refinancing of residential and
commercial mortgage loans will continue if the economy continues to maintain its
current course. The Company will continue to compete for what it believes are
quality loans in those sectors of the business community where such loans are
most prevalent.
Other Assets
At December 31, 1997, other assets totaled $37,979,000, an increase of
$20,584,000 from the prior year-end. This increase is primarily attributable to
an investment in corporate owned life insurance.
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Deposits and Other Borrowings
The Company's deposit base is the primary source of funds supporting its
interest earning assets. Total average deposits increased to $948,296,000 in
1997, up $41,131,000 or 4.5% from $907,165,000 in 1996. At year-end, total
deposits amounted to $987,849,000, up 5.5% from the $936,720,000 reported last
year. The $51,129,000 increase over the prior year-end includes $20,540,000 of
deposits in two branches acquired from another bank in early December.
For 1997, time deposits comprised 44.4% of total average deposits as compared to
39.5% in 1996. These deposits, which consist primarily of retail certificates of
deposit and individual retirement accounts, rose $62,543,000 or 17.4% to average
$421,239,000 during 1997. At December 31, 1997, time deposits increased by
$53,074,000 or 13.7% over year-end 1996. The cost of time deposits increased 3
basis points to 5.39% in 1997. During 1997, certificates of deposit $100,000 and
over averaged $93,283,000, an increase of 59.6% over last year.
Savings deposits, which include savings accounts, money market accounts and
interest bearing transaction accounts, averaged $360,390,000, a decrease of
$22,564,000 or 5.9% from 1996. As interest rates on savings deposits remained at
lower levels, consumers continued to shift from savings type products to higher
paying investment alternatives, including certificates of deposit. The cost of
savings deposits increased 2 basis points to 1.93% in 1997.
Demand deposits averaged $166,667,000, up 0.7% from the 1996 average of
$165,515,000. Demand deposits at year-end were $166,260,000, up 4.6% from the
prior year. Non-interest bearing secured credit card balances averaged
$10,915,000 in 1997, down 6.3% from the 1996 average of $11,644,000.
Non-interest bearing secured credit card deposits at year-end 1997 amounted to
$11,520,000, as compared to $10,539,000 at December 31, 1996.
Short-term borrowings are available as an additional source of funding for the
loan and investment portfolios, as well as, funding deposit outflows. Short-term
borrowings consist primarily of Federal funds purchased, securities sold under
agreements to repurchase ("repurchase agreements"), demand notes-U.S. Treasury
and Federal Home Loan Bank advances. During the year, short-term borrowings rose
$14,827,000 or 29.4% to average $65,177,000. The cost of short-term borrowings
increased 36 basis points from 5.27% in 1996 to 5.63% in 1997 due to the longer
average maturities of the repurchase agreements during 1997 as compared to 1996.
The Company utilized mostly overnight repurchase agreements in 1996 as compared
to 90-day repurchase agreements in 1997, which had the effect of increasing the
cost of short-term borrowings, but would offer more protection in a rising
interest rate environment.*
Other borrowings average for 1997 increased $38,607,000 as a result of
borrowings used to fund the Growth Strategy. The borrowings had an average yield
of 6.31% with a five-year final maturity and are callable in three years at the
issuer's option.
The Bank is a member of the Federal Home Loan Bank of New York (the "FHLB"). As
a result, the Company has access to financing from the FHLB with terms ranging
from overnight up to 10 years. The FHLB advances are secured by securities and
loans receivable under a blanket collateral agreement ("Blanket Advances"). At
December 31, 1997 and 1996, there were no borrowings outstanding from the FHLB
on the $50 million Blanket Advance line. The Company also has access to
financing from the FHLB through advances collateralized by specific securities
("Specific Advances"). At December 31, 1997, the Company had Specific Advances
outstanding from the FHLB of $117,000,000 with maturities ranging from 90 days
to 5 years.
ASSET QUALITY
The Company manages asset quality and controls credit risk through a review of
credit applications along with a continued examination and monitoring of
outstanding loans, commitments and delinquencies. This process is intended to
result in early detection and timely follow-up on problem loans. Credit risk is
also sought to be controlled by limiting exposures to specific types of
borrowers, industries and markets.
Non-Performing Assets
The Company defines non-performing assets as non-accrual loans, impaired loans,
loans past due 90 days or more and still accruing renegotiated loans, other real
estate owned and other assets owned.
At December 31, 1997, total non-performing assets totaled $10,267,000 or 0.8% of
total assets, down $2,892,000 from the $13,159,000 or 1.2% of total assets at
December 31, 1996. Total non-performing assets were down $1,141,000 or 10.0%
from the $11,408,000 balance at September 30, 1997.
Non-performing loans at December 31, 1997 were $8,630,000 or 1.4% of total
loans, as compared to $11,259,000 or 1.8% of total loans at December 31, 1996.
The $2,629,000 decrease from 1996 resulted from loans secured by real estate,
which decreased by $1,522,000, a decline of $471,000 in commercial and
industrial loans and a decline of $636,000 in loans to individuals for
household, family and other personal expenditures. A majority of the
non-performing loans are well secured and management does not anticipate the
realization of significant losses.*
At December 31, 1997, the Company's holdings in other real estate owned amounted
to $1,463,000 as compared to $1,722,000 at December 31, 1996. Foreclosures have
occurred during the past five years and will continue to result in assets
migrating from non-performing loans to other real estate owned. It is the
Company's intent to actively negotiate and dispose of these properties at fair
market values, which are considered reasonable under the circumstances. In 1997,
the Company incurred $256,000 of costs relating to these properties as compared
to $304,000 in 1996. Other assets owned amounted to $174,000 at year-end, a
decrease of $4,000 from 1996.
Allowance for Possible Loan Losses
The Company's year-end 1997 allowance for possible loan losses totaled
$7,633,000 and represented 1.24% of total loans. This compared with a loan loss
allowance at year-end 1996 of $8,158,000 and a ratio to total loans of 1.31%.
Loan loss provisions amounted to $3,600,000 in 1997, up from the $3,049,000 in
1996 and $871,000 in 1995.
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The determination of an appropriate level of the allowance for possible loan
losses (the "Allowance") is based upon an analysis of the risks inherent in the
Bank's loan portfolio. The analysis is performed on a continuous basis by
account officers, various loan committees, and the Bank's Loan Review Officer.
One tool used in establishing these risks is a risk rating system, consisting of
eight loan grading categories. In assigning a rating to a given loan, various
factors are weighted, including (a) the financial condition and past credit
history of the borrower; (b) available collateral, and its valuation; (c)
available documentation of the loan; and (d) concentrations within industries
and geographic locales.
In conjunction with the review of the loan portfolio, a quarterly analysis of
the adequacy of the Allowance is performed. This analysis consists primarily of
evaluating the inherent risk of loss on all loans and applying risk to loss
ratios derived from this review.
Management then determines the adequacy of the Allowance based on the review of
the loan portfolio. Appropriate recommendations are then made to the Board of
Directors regarding the amount of the quarterly charge against earnings (i.e.,
the provision for possible loan losses), needed to maintain the Allowance at a
level deemed adequate by Management. The Allowance is increased by the amount of
such provisions and by the amount of loan recoveries, and is decreased by the
amount of loan charge-offs.
Net charge-offs in 1997 were $4,125,000 or 0.67% of average loans outstanding
compared with $3,188,000 or 0.54% in 1996. Net charge-offs in the credit card
portfolio were $1,695,000 in 1997, compared to $1,083,000 in 1996. Net
charge-offs in installment lending increased to $2,263,000 in 1997, compared
with $2,070,000 in 1996. The net charge-offs in installment lending is primarily
the result of the indirect portfolio, which sustained strong growth during the
mid-1990's. Management recognizes the risks inherent in the indirect automobile
loans, and the Company has made a concerted effort to redirect its lending
efforts to higher yielding direct loan products. Real estate loan net
charge-offs increased to $172,000 in 1997 from $130,000 in 1996 while commercial
loans net recoveries decreased from $95,000 in 1996 to $5,000 in 1997. The
charged-off loans are in various stages of collection and litigation.
MARKET RISK - ASSET/LIABILITY MANAGEMENT
The primary market risk faced by the Company is interest rate risk. The
Company's Asset/Liability Committee ("ALCO") monitors the changes in the
movement of funds and rate and volume trends to enable appropriate management
response to changing market and rate conditions.
Interest Rate Sensitivity
Interest rate sensitivity is a measure of the relationship between earning
assets and supporting funds, which tend to be sensitive to changes in interest
rates during comparable time periods.
ALCO is charged with managing the Company's rate sensitivity to attempt to
optimize net interest income while maintaining an asset/liability mix which
balances liquidity needs and interest rate risk. Interest rate risk arises when
an asset matures, or its interest rate changes, during a time period different
from that of the supporting liability and vice versa.
Historically, the most common method of estimating interest rate risk was to
measure the maturity and repricing relationships between interest-earning assets
and interest-bearing liabilities at specific points in time ("GAP"), typically
one year. Under this method, an asset-sensitive gap means an excess of
interest-sensitive assets over interest-sensitive liabilities, whereas a
liability-sensitive gap means an excess of interest-sensitive liabilities over
interest-sensitive assets.
The Company's GAP model includes certain management assumptions based upon past
experience and the expected behavior of customers during various interest rate
scenarios. The assumptions include principal prepayments for various loan and
security products and classifying the non-maturity deposit balances by degree of
interest rate sensitivity. As of December 31, 1997, utilizing the above
assumptions results in a cumulative interest rate sensitive assets to interest
rate sensitive liabilities of 1.03% and 0.93% for the three-month and
twelve-month intervals, respectively.
However, assets and liabilities with similar repricing characteristics may not
reprice at the same time or to the same degree. As a result, the Company's GAP
does not necessarily predict the impact of changes in general levels of interest
rates on net interest income.
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but the probability that such would occur.
Income simulation also permits management to assess the probable effects on the
balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net interest income in alternative interest rate scenarios. Management
reviews and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a 200 basis
point change in rates during the first year, in even monthly increments, with
rates held constant in the second year. The Company's ALCO has established that
interest income sensitivity will be considered acceptable if net interest income
in the above interest rate scenario is within 10% of net interest income in the
flat rate scenario in the first year and within 20% over the two-year time
frame. At December 31, 1997, the Company's income simulation model indicates an
acceptable level of interest rate risk.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model computes estimated changes in net portfolio value
("NPV") of its cash flows from the Company's assets and liabilities in the event
of a change in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities. This analysis assesses the risk of gain or loss in market
risk sensitive instruments in the event of an immediate and sustained 200 basis
point increase or decrease in market interest rates. The Company's ALCO policy
indicates that the level of interest rate risk is acceptable if the immediate
200 basis point change in interest rates would not result in the loss of more
than 25% from the base market value of equity. At December 31,
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1997, it is projected that a 200 basis point increase in rates would cause the
base market value of equity to decline from $141,662,000 to $119,702,000, a
change of $21,960,000 or 15.5%.* In a 200 basis point decrease in rates, the
base market value of equity is projected to increase from $141,662,000 to
$142,824,000, a change of $1,162,000 or 0.8%.* At December 31, 1997, the market
value of equity indicates an acceptable level of interest rate risk.
NPV is calculated based on the net present value of estimated discounted cash
flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources.
Computation of prospective effects of hypothetical interest rates changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and duration of deposits, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions the ALCO could undertake in response to changes in interest rates.
Liquidity
Liquidity management involves the Company's ability to maintain prudent amounts
of liquid assets in its portfolio in order to meet the borrowing needs and
deposit withdrawal requirements of customers and to support asset growth.
Current and future liquidity needs are reviewed by ALCO to determine the
appropriate asset/liability mix.
The Company intends to hold its investment securities for the foreseeable
future. However, the level and composition of the portfolio may change as a
result of maturities and purchases undertaken as part of the asset/liability
management process. Unexpected changes in the financial environment are likely
to affect the Company's interest rate risk, liquidity position and the potential
return on the portfolio. Additionally, the Company may also purchase and sell
those securities which are available for sale in order to address these changes.
Overall balance sheet size and capital adequacy are considered in determining
the appropriate level for the portfolio. When economic factors cause changes in
the balance sheet or when the Company reassesses its interest rate risk,
liquidity or capital position, strategic changes may be made in both the
securities held to maturity and securities available for sale portfolios based
on opportunities to enhance the ongoing total return of the balance sheet.
Asset liquidity is represented by the ease with which assets can be converted
into cash. This liquidity is provided by money market assets and debt securities
with maturity dates of one year or less, which totaled $202,847,000 at year-end
1997. The market value of money market assets, which includes Federal funds
sold, money market mutual funds and corporate stock, amounted to $58,276,000 at
the end of 1997. Debt securities consist primarily of U.S. Treasury notes and
bonds, obligations of U.S. Government agencies, and obligations of states and
political subdivisions. All securities held by the Company are readily
marketable. As of December 31, 1997, debt securities scheduled to mature within
one year based upon estimated cash flows, amounted to $144,571,000 and
represented 27.7% of the total debt securities portfolio. Approximately 47.6% of
the entire debt portfolio is scheduled to mature within five years, based upon
estimated cash flows. There was no security issue held which represented more
than 10% of the Company's stockholders' equity. Additional liquidity is derived
from scheduled loan and investment payments of principal and interest, as well
as prepayments received.
On the liability side, the primary source of funds available to meet liquidity
needs is the Company's core deposit base, which generally excludes wholesale
certificates of deposit over $100,000. Core deposits amounted to $929,006,000 at
December 31, 1997 and represented 77.2% of earning assets. Short-term
borrowings, consisting primarily of Federal funds purchased, securities sold
under agreements to repurchase and FHLB advances, and wholesale certificates of
deposit over $100,000 are used as supplemental funding sources during periods
when growth in the core deposit base does not keep pace with that of earning
assets. Short-term borrowings and wholesale certificates of deposit amounted to
$138,389,000 at December 31, 1997.
As mentioned earlier, the Bank is a member of the FHLB system, which provides
the Company with an additional source of liquidity by offering financing
alternatives. At year-end 1997, the Company had a $50 million advance line with
the FHLB, all of which was available.
8
<PAGE>
The following table sets forth certain unaudited quarterly financial data for
the periods presented:
<TABLE>
<CAPTION>
(In Thousands, First Second Third Fourth
Except Per Share Data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Interest Income $20,105 $21,178 $23,323 $23,971
Interest Expense 7,620 8,334 9,980 10,766
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income 12,485 12,844 13,343 13,205
Provision for Possible Loan Losses 900 900 900 900
Non-Interest Income, excluding
Securities Transactions 4,227 4,145 4,409 4,787
Net Gains from
Securities Transactions 156 180 494 990
Non-Interest Expense 12,562 11,767 11,526 11,565
Provision for Income Taxes 1,028 1,386 1,909 2,042
- -------------------------------------------------------------------------------------------------------------------
Net Income $2,378 $3,116 $3,911 $4,475
===================================================================================================================
Net Income Per Share - Diluted * $0.24 $0.34 $0.42 $0.48
===================================================================================================================
1996
Interest Income $19,491 $19,732 $19,950 $20,187
Interest Expense 7,476 7,273 7,610 7,771
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income 12,015 12,459 12,340 12,416
Provision for Possible Loan Losses 475 653 725 1,196
Non-Interest Income, excluding
Securities Transactions 3,769 3,846 3,816 3,317
Net Gains from
Securities Transactions 156 218 47 377
Non-Interest Expense 10,815 10,797 10,985 10,505
Provisions for Income Taxes 1,607 1,866 1,459 1,413
- -------------------------------------------------------------------------------------------------------------------
Net Income $3,043 $3,207 $3,034 $2,996
===================================================================================================================
Net Income Per Share - Diluted * $0.33 $0.35 $0.33 $0.32
===================================================================================================================
*Figures have been adjusted for subsequent stock dividends and splits.
</TABLE>
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this Annual
Report and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
(Dollars In Thousands,
Except Share Data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest Income $ 88,577 $ 79,360 $ 77,552 $ 65,384 $ 64,386
Interest Expense 36,700 30,130 30,104 18,913 20,062
-------------------------------------------------------------------------
Net Interest Income 51,877 49,230 47,448 46,471 44,324
Provision for Possible Loan Losses 3,600 3,049 871 2,123 5,239
-------------------------------------------------------------------------
Net Interest Income after Provision
for Possible Loan Losses 48,277 46,181 46,577 44,348 39,085
Non-Interest Income 19,388 15,546 14,653 14,421 16,312
Non-Interest Expense 47,420 43,102 47,429 42,633 42,111
-------------------------------------------------------------------------
Income Before Taxes and Effect of
Accounting Change 20,245 18,625 13,801 16,136 13,286
Provision for Income Taxes 6,365 6,345 4,295 5,264 4,653
-------------------------------------------------------------------------
Income Before Effect of Accounting
Change 13,880 12,280 9,506 10,872 8,633
Cumulative Effect of Change in
Accounting for Income Taxes - - - - 1,059
-------------------------------------------------------------------------
Net Income $13,880 $12,280 $9,506 $10,872 $9,692
=========================================================================
Income Before Merger-Related and
Restructuring Charges, Effect of
Accounting Change,
And SAIF Assessment $ 15,278 $ 12,587 $ 11,595 $ 10,872 $ 8,633
=========================================================================
Balance Sheet Data (at year end):
Total Assets $1,309,836 $1,103,242 $1,071,262 $950,158 $924,395
Securities 587,774 373,756 383,730 343,922 428,323
Federal Funds Sold 1,500 5,887 10,004 14,085 9,772
Loans (Net of Unearned Income) 613,712 621,035 582,554 519,651 415,052
Allowance for Possible
Loan Losses 7,633 8,158 8,297 10,768 11,950
Deposits 987,849 936,720 905,964 815,868 816,127
Short-Term Borrowings (1) 79,546 46,328 53,347 52,301 26,681
Other Borrowings (2) 92,706 9,693 9,680 1,269 1,266
Stockholders' Equity 110,950 96,952 89,537 72,694 72,633
Adjusted Financial Ratios: (3)
Return on Average Assets 1.28% 1.17% 1.12% 1.18% 0.97%
Return on Average Stockholders' Equity 14.84% 13.55% 14.05% 14.39% 12.35%
Financial Ratios:
Return on Average Assets 1.16% 1.15% 0.92% 1.18% 1.09%
Return on Average Stockholders' Equity 13.49% 13.21% 11.52% 14.39% 13.87%
Net Interest Margin 4.86% 5.17% 5.13% 5.62% 5.57%
Efficiency Ratio 59.93% 61.93% 65.52% 65.93% 67.17%
Average Stockholders' Equity to
Average Assets 8.44% 8.68% 8.28% 8.38% 7.86%
Leverage Ratio (year-end) 8.96% 7.96% 7.18% 8.68% 8.15%
Tier I Capital to Risk-Weighted
Assets (year end) 14.87% 11.66% 10.99% 14.30% 16.13%
Combined Tier I and Tier II
Capital to Risk-Weighted
Assets (Year-end) 15.86% 12.78% 12.20% 15.73% 18.06%
Loans to Deposits (year-end) 62.13% 66.30% 64.30% 63.69% 50.86%
Non-Performing Loans to
Loans (year-end) (4) 1.41% 1.81% 1.59% 2.34% 3.14%
Allowance for Possible Loan
Losses to Loans (year-end) 1.24% 1.31% 1.34% 1.83% 2.80%
Dividend Payout Ratio 39% 37% 44% 35% 34%
Common Share Data: (5)
Net Income Per Diluted Share $1.48 $1.33 $1.03 $1.20 $1.08
Net Income Per Diluted Share Before
Merger-Related and
Restructuring Charges,
And SAIF Assessment $1.63 $1.36 $1.26 $1.20 $0.96
Cash Dividends Declared Per Share $0.57 $0.49 $0.46 $0.42 $0.37
Book Value Per Share (year-end) $11.97 $10.58 $9.80 $8.11 $8.13
Average Diluted Shares Outstanding
(in thousands) 9,364 9,264 9,203 9,047 8,968
Other Data:
Number of Employees
(full-time equivalent) 471 467 487 530 560
Number of Stockholders 1,429 1,564 1,727 1,740 1,793
(1) Includes Federal funds purchased, securities sold under agreements to
repurchase less than one year, Federal Home Loan Bank advances and demand
notes-U.S. Treasury.
(2) Includes obligation under capital lease, Federal Home Loan Bank advances
- - one year or more and long-term debt.
(3) Before merger-related and restructuring charges, effect of accounting
change and SAIF Assessment.
(4) Non-performing loans consists of non-accrual loans, restructured loans and
loans past due 90 days or more and still accruing.
(5) Adjusted for stock dividends and splits.
</TABLE>
10
<PAGE>
<TABLE>
UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
-----------------------------------
(In Thousands, Except Share Data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 39,569 $ 55,392
Federal Funds Sold 1,500 5,887
Securities Available for Sale, at Market Value 541,245 305,668
Securities Held to Maturity (Market Value of $45,364 and $67,379
for 1997 and 1996, respectively) 45,308 67,576
Trading Account Securities, at Market Value 1,221 512
Loans, Net of Unearned Income 613,712 621,035
Less: Allowance for Possible Loan Losses 7,633 8,158
- -------------------------------------------------------------------------------------------------------------------
Loans, Net 606,079 612,877
Premises and Equipment, Net 21,503 21,883
Investment in Joint Venture 3,151 3,151
Other Real Estate, Net 1,463 1,722
Intangible Assets, Primarily Core Deposit Premiums 10,818 11,179
Other Assets 37,979 17,395
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,309,836 $1,103,242
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 166,260 $ 159,018
Savings 380,105 389,292
Time 441,484 388,410
- -------------------------------------------------------------------------------------------------------------------
Total Deposits 987,849 936,720
Short-Term Borrowings 79,546 46,328
Other Borrowings 92,706 9,693
Other Liabilities 18,785 13,549
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,178,886 1,006,290
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies - Note 17
Company-Obligated Mandatorily Redeemable
Preferred Series B Capital Securities of a
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company 20,000 -
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock, authorized 1,000,000 shares in 1997
and 300,000 shares in 1996
None issued and outstanding - -
Common Stock ($1.25 Par Value Per Share)
Authorized Shares 16,000,000 in 1997 and 10,000,000 in 1996
Issued shares 9,366,549 in 1997 and 8,731,006 in 1996
Outstanding shares 9,272,246 in 1997 and 8,643,014 in 1996 11,708 10,914
Additional Paid-In Capital 80,102 64,895
Retained Earnings 14,826 21,720
Treasury Stock, at Cost - 94,303 shares in 1997
and 87,992 Shares in 1996 (1,352) (1,337)
Restricted Stock (73) (176)
Net Unrealized Gain on Securities Available for Sale, Net of Tax 5,739 936
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 110,950 96,952
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,309,836 $1,103,242
===================================================================================================================
The accompanying notes to the consolidated financial statements are an integral
part of these statements
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31,
-----------------------------------------------------
(In Thousands, Except Share Data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $56,647 $54,085 $51,119
Interest and Dividends on Securities Available for Sale:
Taxable Income 24,948 18,823 16,390
Tax-Exempt Income 2,409 2,202 1,259
Interest and Dividends on Securities Held to Maturity:
Taxable Income 3,141 3,328 6,731
Tax-Exempt Income 594 443 954
Dividends on Trading Account Securities 18 13 14
Interest on Federal Funds Sold and
Deposits with Federal Home Loan Bank 820 466 1,085
- -------------------------------------------------------------------------------------------------------------------
Total Interest Income 88,577 79,360 77,552
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Savings Deposits 6,969 7,318 9,533
Interest on Time Certificates of Deposit $100,000 or More 4,859 3,797 3,599
Interest on Other Time Deposits 17,832 15,433 14,722
Interest on Short-Term Borrowings 3,672 2,653 1,581
Interest on Other Borrowings 3,368 929 669
- -------------------------------------------------------------------------------------------------------------------
Total Interest Expense 36,700 30,130 30,104
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income 51,877 49,230 47,448
Provision for Possible Loan Losses 3,600 3,049 871
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Possible Loan Losses 48,277 46,181 46,577
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust Income 4,976 4,336 4,222
Service Charges on Deposit Accounts 4,045 3,993 3,554
Other Service Charges, Commissions and Fees 6,154 4,562 3,869
Net Gains from Securities Transactions 1,820 798 1,142
Other Income 2,393 1,857 1,866
- -------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 19,388 15,546 14,653
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries, Wages and Employee Benefits 19,467 20,445 22,035
Occupancy Expense, Net 3,216 3,347 3,078
Furniture and Equipment Expense 3,008 2,785 3,576
Data Processing Expense 5,177 4,189 1,894
Distributions on Series B Capital Securities 1,557 - -
Amortization of Intangible Assets 1,761 1,788 1,663
Net Cost to Operate Other Real Estate 256 304 412
Merger Related and Restructuring Charges 2,208 - 3,240
Other Expenses 10,770 10,244 11,531
- -------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expense 47,420 43,102 47,429
- -------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 20,245 18,625 13,801
Provision for Income Taxes 6,365 6,345 4,295
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $13,880 $12,280 $ 9,506
===================================================================================================================
NET INCOME PER COMMON SHARE:
Basic $ 1.50 $ 1.33 $ 1.04
===================================================================================================================
Diluted $ 1.48 $ 1.33 $ 1.03
===================================================================================================================
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
</TABLE>
12
<PAGE>
UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
(In Thousands, Except Share Data) Additional Securities Total
For the Years Ended Common Paid-In Retained Treasury Restricted Available Stockholders'
December 31, 1995, 1996, and 1997 Stock Capital Earnings Stock Stock for Sale Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1995 $ 9,331 $48,471 $23,496 $(9) $(280) $(8,315) $72,694
Net Income-1995 - - 9,506 - - - 9,506
Cash Dividends Declared ($0.46 per share) - - (3,541) - - - (3,541)
Stock Issued in Payment of
Stock Dividend- 495,462 Shares 619 7,164 (7,783) - - - -
Exercise of Stock Options-
114,224 Shares 143 421 (32) - - - 532
Change in Unrealized Gain ( Loss) on
Securities Available for Sale - - - - - 10,598 10,598
Treasury Stock Purchase-
100,000 Shares - - - (1,705) - - (1,705)
Treasury Stock Sold-
8,750 Shares - 8 - 139 - - 147
Stock Issued from Debenture
Conversion - 94,616 Shares 118 930 - - - - 1,048
Stock Issued from Equity
Contracts - 20,026 Shares 25 196 - - - - 221
Restricted Stock 6 71 - (3) (37) - 37
- -----------------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1995 10,242 57,261 21,646 (1,578) (317) 2,283 89,537
Net Income-1996 - - 12,280 - - - 12,280
Cash Dividends Declared ($0.49 per share) - - (3,945) - - - (3,945)
Stock Issued in Payment of
Stock Dividend - 528,818 Shares 660 7,581 (8,241) - - - -
Exercise of Stock Options-
9,356 Shares 12 50 (20) - - - 42
Change in Unrealized Gain (Loss) on
Securities Available for Sale - - - - - (1,347) (1,347)
Treasury Stock Sold-
14,798 Shares - 3 - 248 - - 251
Restricted Stock - - - (7) 141 - 134
- -----------------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1996 10,914 64,895 21,720 (1,337) (176) 936 96,952
Net Income-1997 - - 13,880 - - - 13,880
Cash Dividends Declared ($0.57 per share) - - (5,335) - - - (5,335)
Stock Issued in Payment of
Stock Dividend-529,928 Shares 662 14,441 (15,103) - - - -
Exercise of Stock Options-
105,615 Shares 132 766 (336) - - - 562
Change in Unrealized Gain (Loss) on
Securities Available for Sale - - - - - 4,803 4,803
Restricted Stock - - - (15) 103 - 88
- -----------------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 1997 $11,708 $80,102 $14,826 $(1,352) $(73) $5,739 $110,950
===================================================================================================================================
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
</TABLE>
13
<PAGE>
UNITED NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $13,880 $12,280 $ 9,506
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 3,685 3,747 3,344
Amortization of Securities Premiums, Net 399 215 390
Provision for Possible Loan Losses 3,600 3,049 871
Provision (Benefit) for Deferred Income Taxes 114 (469) (344)
Net Loss (Gain) on Disposition of Premises and Equipment 545 (1) (77)
Net Gain on Sale of Securities Available for Sale (1,311) (683) (935)
Trading Account Securities Activity, Net (709) (95) (96)
Increase in Other Assets (3,003) (1,605) (2,684)
Increase in Other Liabilities 4,873 171 4,536
Restricted Stock 88 134 37
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 22,161 16,743 14,548
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Securities Available for Sale:
Proceeds from Sales of Securities 119,715 167,687 49,390
Proceeds from Maturities of Securities 55,922 46,597 72,318
Purchases of Securities (399,862) (168,106) (125,612)
Securities Held to Maturity:
Proceeds from Maturities of Securities 30,554 21,660 36,056
Purchases of Securities (11,448) (59,292) (55,242)
Investment in Corporate-Owned Life Insurance (20,170) - -
Net Decrease (Increase) in Loans 3,198 (41,461) (66,245)
Investment in Joint Venture - - (4,215)
Deposit Premium from Branch Acquisition (1,400) - (11,659)
Expenditures for Premises and Equipment (3,202) (1,054) (3,485)
Proceeds from Sale of Premises and Equipment 1,113 236 1,047
Decrease (Increase) in Other Real Estate 259 1,025 (1,381)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (225,321) (32,708) (109,028)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Decrease in Demand and Savings Deposits (1,945) (13,540) (27,252)
Net Increase in Time Deposits 53,074 44,188 117,348
Net Increase (Decrease) in Short-Term Borrowings 33,218 (7,019) 1,046
Net Increase (Decrease) in Other Borrowings 83,013 - (1,269)
Repayment of Obligation Under Capital Lease - - (70)
Cash Dividends on Common Stock (4,972) (3,879) (3,312)
Proceeds from Exercise of Stock Options 562 42 532
Purchase of Treasury Stock - - (1,705)
Sale of Treasury Stock - 251 147
Proceeds from Series B Capital Securities 20,000 - -
Stock Issued from Debenture Conversion - - 1,048
Stock Issued from Equity Contracts - - 221
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 182,950 20,043 86,734
- -------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (20,210) 4,078 (7,746)
Cash and Cash Equivalents at Beginning of Year 61,279 57,201 64,947
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $41,069 $61,279 $57,201
===================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for:
Interest $34,329 $29,920 $24,425
Income Taxes 3,706 6,921 3,126
Reclass to Available for Sale from Held to Maturity 3,160 - 80,183
Capital Lease Obligation Incurred - - 9,750
Transfer of Loans to Other Real Estate 415 256 2,492
Cash Received from Deposit Acquisition 18,244 - 86,955
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
United National Bancorp owns United National Bank, which operates through a
branch network primarily located throughout Central and Northwestern Counties in
New Jersey. The Company provides a full range of banking and trust services to
its market area in a competitive environment.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The significant policies are summarized as follows:
a. Principles of Consolidation and Use of Estimates
The accompanying consolidated financial statements include the accounts of
United National Bancorp (the "Parent Company") and its wholly-owned
subsidiaries, United National Bank (the "Bank"), and UNB Capital Trust I (the
"Trust"), or when consolidated with the Parent Company, the "Company". All
significant intercompany balances and transactions have been eliminated in
consolidation. Prior period financial statements have been restated to include
the accounts and results of operations for all acquisitions accounted for as
pooling-of-interests combinations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Securities
Securities are classified into one of three categories: held to maturity,
available for sale, or trading account securities.
Securities for which the Company has the ability and intent to hold until
maturity are classified as "held to maturity." These securities are stated at
cost, adjusted for amortization of premium and accretion of discount, using the
interest method over the term of the securities.
Securities that may be held for indefinite periods of time which Management
intends to use as part of its asset/liability management strategy and that may
be sold in response to changes in interest rates, changes in prepayment risk, or
other similar factors, are classified as "available for sale" and reported at
estimated market value. Unrealized holding gains and losses (net of related tax
effects) on such securities are excluded from earnings but are included in
stockholders' equity. Upon realization, such gains or losses are included in
earnings using the specific identification method.
Trading account securities are carried at market value. Gains and losses
resulting from adjusting trading account securities to market value, as well as
security sales, are reported in non-interest income. This category includes
securities purchased specifically for short-term appreciation or to be available
for liquidity needs.
c. Investment in Joint Venture
In November 1995, the Company, through the Bank, acquired a 50% ownership in
United Financial Services, Inc., a third party data processing service bureau.
The investment is being accounted for by the equity method.
d. Loans
Loans are stated at the principal amount outstanding, net of deferred loan
origination fees/expenses and unearned discounts. Interest on substantially all
loans is accrued and credited to interest income based upon the principal amount
outstanding. Loan fees and certain expenses associated with originating loans
are deferred and amortized over the lives of the respective loans as an
adjustment to the yield utilizing a method that approximates the level yield.
Generally, interest income is not accrued on loans (including impaired loans)
where principal or interest is 90 days or more past due, unless the loans are
adequately secured and in the process of collection. A loan less than 90 days
past due may be placed on non-accrual if Management believes there is sufficient
doubt as to the ultimate collectibility of the outstanding loan balance.
When a loan (including impaired loans) is classified as non-accrual, uncollected
past due interest is reversed and charged against current income. Interest
income will not be recognized until the financial condition of the borrower
improves, payments are brought current and a consistent payment history is
established. Payments received on non-accrual loans, including impaired loans,
are first applied to all principal amounts owed. Once the remaining principal
balance is deemed fully collectible, payments would then be applied to interest
income and fees.
A loan is considered impaired when, based upon current information and events,
it is probable that the Bank will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans are measured
based upon the present value of expected future cash flows, or, as a practical
expedient, at the loans observable market price, or the fair value of the
underlying collateral, if the loan is collateral dependent. Management has
defined impaired loans as all non-accruing loans with outstanding balances
greater than $50,000.
e. Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased by
provisions charged to expense and reduced by net charge-offs. The level of the
allowance is based on Management's evaluation of potential losses in the
portfolio, after consideration of appraised collateral values, financial
condition of the borrower, delinquency and charge-off trends, as well as
prevailing and anticipated economic conditions. Management evaluates the
adequacy of the allowance for possible loan losses on a regular basis throughout
the year. Management believes that the allowance for possible loan losses is
adequate. While Management uses available information to recognize losses on
loans, future additions to the allowance may be
15
<PAGE>
necessary based upon changes in economic conditions. In addition, various
regulatory agencies periodically review the Company's allowance for possible
loan losses. Such agencies may require the Company to recognize additions to the
allowance based upon their judgements of information available to them at the
time of their examination.
f. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets, which range from three to forty years.
Leasehold improvements are amortized on a straight-line basis over the lives of
the related leases, or the life of the improvement, whichever is shorter.
g. Other Real Estate
Other real estate owned consists of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure. Only collateral of
which the Company has taken physical possession is classified as other real
estate.
Other real estate is carried at the lower of fair value of the related property,
as determined by current appraisals less estimated costs to sell, or the
recorded investment in the property. Write-downs on these properties, which
occur after the initial transfer from the loan portfolio, are recorded as
operating expenses. Costs of holding such properties are charged to expense in
the current period. Gains, to the extent allowable, and losses on the
disposition of these properties are reflected in current operations.
h. Intangible Assets
Intangible assets include: 1) the present value of the future earnings potential
of the core deposit base of acquired banks, which are being amortized on a
straight-line basis over a 10 year period, and 2) goodwill resulting from the
Company's investment in the joint venture, and other acquisitions, which is
being amortized over periods ranging from 10 to 20 years. Management
periodically reviews the potential impairment of intangible assets on a
non-discounted cash flow basis to assess recoverability. If the estimated future
cash flows are projected to be less than the carrying amount, an impairment
write-down, representing the carrying amount of the intangible asset which
exceeds the present value of the estimated expected future cash flows, would be
recorded as a period expense.
i. Trust Assets
Assets held in fiduciary or agency capacities for customers are not included in
the consolidated balance sheets since such items are not assets of the Company.
j. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
k. Net Income Per Common Share
Effective December 31, 1997, the Company adopted the provisions of the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 128. All prior period share amounts have been restated to conform
with the provisions of this Statement.
Basic income per common share is computed by dividing net income by the weighted
average number of shares outstanding during each year (9,266,000, 9,219,000 and
9,169,000 in 1997, 1996 and 1995, respectively).
Diluted net income per common share is computed by dividing net income by
weighted average number of shares outstanding, as adjusted for the assumed
exercise of potential common stock, using the treasury stock method. (9,364,000,
9,264,000 and 9,203,000 in 1997, 1996 and 1995, respectively). Potential common
stock resulting from stock option agreements totaled 98,000, 45,000 and 34,000
in 1997, 1996 and 1995, respectively.
All weighted average shares outstanding have been adjusted for the 6% stock
dividends in 1997 and 1996 and the 2 for 1 stock split in 1997.
l. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and Federal funds sold. Generally, Federal funds are sold for a
one-day period.
m. Stock-Based Compensation
Stock-based compensation is accounted for under the intrinsic value based method
as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Included in these Notes to the Consolidated
Financial Statements are the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," which assumes the fair value based
method of accounting had been adopted. See Note 16 - "Stock Incentive Plan."
n. Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under Statement No. 130, comprehensive
income is divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity, such
as unrealized gains or losses on securities available for sale. Statement No.
130 is effective for interim and annual periods beginning after December 15,
1997. Comparative financial statements provided for earlier periods are required
to be reclassified to reflect application of the provisions of the Statement.
16
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement No. 131"). Statement No. 131
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected financial information about operating
segments in interim financial reports to shareholders. Statement No. 131 is
effective for financial statements for periods beginning after December 15,
1997.
o. Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the classifications used in 1997.
NOTE 2 - ACQUISITIONS
a. 1997 Acquisitions
On February 28, 1997, the Company acquired all of the outstanding shares of
Farrington Bank ("Farrington") based in North Brunswick, New Jersey. Each share
of Farrington was converted into .7647 shares of the Company's common stock for
a total of 549,212 shares issued, not adjusted for subsequent stock dividends
and splits. At the time of the acquisition, Farrington had approximately $60
million in assets. The acquisition was accounted for as a pooling-of-interests,
and accordingly, the Company's consolidated financial statements include the
accounts and results of operations of Farrington for all periods presented.
Separate results of the combined entities for the years ended December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In Thousands) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Interest Income after Provision
For Possible Loan Losses
The Company $42,132 $42,416
Farrington 4,049 4,161
- -------------------------------------------------------------------------------
Total $46,181 $46,577
===============================================================================
Net Income
The Company $11,460 $8,374
Farrington 820 1,132
- -------------------------------------------------------------------------------
Total $12,280 $9,506
===============================================================================
</TABLE>
On December 6, 1997, the Company, through the Bank, assumed deposits, including
accrued interest, of approximately $21 million from another bank. In addition,
the Bank received $214,000 in cash and cash equivalents and approximately
$692,000 in other assets. In connection with the transaction, the Bank recorded
an intangible asset of $1,400,000, representing the premium paid over the
carrying amount of deposits acquired.
b. 1995 Acquisitions
On January 20, 1995, the Company, through the Bank, assumed deposits, including
accrued interest, of approximately $99 million from the Resolution Trust
Corporation ("RTC"). In addition, the Bank received $417,000 in cash and cash
equivalents and approximately $803,000 in other assets. In connection with the
transaction, the Bank recorded an intangible asset of approximately $11,660,000,
representing the premium paid over the carrying amount of deposits acquired.
On June 30, 1995, the Bank acquired all of the outstanding shares of New Era
Bank ("New Era"), which was based in the Somerset section of Franklin Township,
New Jersey. Each share of New Era common stock outstanding was converted into
.7431 shares of the Company's common stock, for a total of 684,904 shares
issued, not adjusted for subsequent stock dividends and splits. At the time of
the acquisition, New Era had approximately $120 million in assets. The
acquisition has been accounted for as a pooling-of-interests and accordingly,
the consolidated financial statements of the Company include the accounts and
results of operations of New Era for all periods presented.
NOTE 3 - CASH AND DUE FROM BANKS
Balances reserved to meet regulatory requirements amounted to $3,041,000 at
December 31, 1997.
17
<PAGE>
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The amortized cost and the estimated market values of securities available for
sale at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury Securities $ 7,987 $ 3 $ (11) $ 7,979
Obligations of U.S. Government
Agencies and Corporations 85,384 716 (21) 86,079
Obligations of States and
Political Subdivisions 55,632 1,262 (7) 56,887
Mortgage-Backed Securities 310,074 2,591 (501) 312,164
Corporate Debt Securities 13,496 424 - 13,920
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Debt Securities 472,573 4,996 (540) 477,029
- --------------------------------------------------------------------------------------------------------------------
Equity Securities:
Marketable Equity Securities 51,313 4,448 (206) 55,555
Federal Reserve Bank and
Federal Home Loan Bank Stock 8,661 - - 8,661
- --------------------------------------------------------------------------------------------------------------------
Total Equity Securities 59,974 4,448 (206) 64,216
- --------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale $532,547 $9,444 $ (746) $541,245
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury Securities $ 11,974 $ 1 $ (53) $ 11,922
Obligations of U.S. Government
Agencies and Corporations 46,427 194 (243) 46,378
Obligations of States and
Political Subdivisions 44,765 466 - 45,231
Mortgage-Backed Securities 175,452 - (1,412) 174,040
- --------------------------------------------------------------------------------------------------------------------
Total Debt Securities 278,618 661 (1,708) 277,571
- --------------------------------------------------------------------------------------------------------------------
Equity Securities:
Marketable Equity Securities 21,241 2,683 (221) 23,703
Federal Reserve Bank and
Federal Home Loan Bank Stock 4,394 - - 4,394
- --------------------------------------------------------------------------------------------------------------------
Total Equity Securities 25,635 2,683 (221) 28,097
- --------------------------------------------------------------------------------------------------------------------
Total Securities Available for Sale $304,253 $3,344 $ (1,929) $305,668
====================================================================================================================
</TABLE>
18
<PAGE>
The amortized cost and estimated market value of debt securities at December 31,
1997, by expected maturity, are shown in the table below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities are included based upon expected prepayment rates and
historical experience, assuming no change in the current interest rate
environment.
<TABLE>
<CAPTION>
Amortized Estimated
(In Thousands) Cost Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Due in One Year or Less $113,362 $113,343
Due After One Year Through Five Years 102,751 103,920
Due After Five Years Through Ten Years 137,883 141,381
Due After Ten Years 118,577 118,385
- -------------------------------------------------------------------------------
Total Debt Securities Available for Sale $472,573 $477,029
===============================================================================
</TABLE>
Proceeds from sales of securities available for sale and gross gains and gross
losses realized during 1997, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Securities:
Proceeds from Sales $119,629 $116,890 $41,303
- -------------------------------------------------------------------------------
Gross Gains $ 1,693 $ 1,040 $ 673
Gross Losses (381) (247) (89)
- -------------------------------------------------------------------------------
Net Gains $ 1,312 $ 793 $ 584
- -------------------------------------------------------------------------------
Equity Securities:
Proceeds from Sales $ 86 $ 50,797 $ 8,087
- -------------------------------------------------------------------------------
Gross Gains $ - $ - $ 368
Gross Losses (1) (110) (17)
- -------------------------------------------------------------------------------
Net Gains (Losses) $ (1) $ (110) $ 351
===============================================================================
Total Proceeds from Sales $119,715 $167,687 $49,390
===============================================================================
Total Gains $ 1,311 $ 683 $ 935
===============================================================================
</TABLE>
19
<PAGE>
NOTE 5 - SECURITIES HELD TO MATURITY
Comparative amortized cost and estimated market values of securities held to
maturity at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------
Gross Gross Gross
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 990 $ 5 $ - $ 995
Obligations of U.S. Government
Agencies and Corporations 27,953 40 (57) 27,936
Obligation of States and
Political Subdivisions 11,712 89 (3) 11,798
Mortgage-Backed Securities 4,528 - (22) 4,506
Securities Issued by Foreign
Governments 125 4 - 129
- -------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity $45,308 $138 $(82) $45,364
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 6,967 $ 9 $ (25) $ 6,951
Obligations of U.S. Government
Agencies and Corporations 42,921 107 - 43,028
Obligations of States and
Political Subdivisions 12,643 - (160) 12,483
Mortgage-Backed Securities 4,945 - (131) 4,814
Securities Issued by Foreign
Governments 100 3 - 103
- -------------------------------------------------------------------------------------------------------------------
Total Securities Held to Maturity $67,576 $119 $(316) $67,379
===================================================================================================================
</TABLE>
The amortized cost and estimated market value of securities held to maturity at
December 31, 1997, by expected maturity, are shown in the table below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties. Mortgage-backed securities are included based upon expected
prepayment rates and historical experience, assuming no change in the current
interest rate environment.
<TABLE>
<CAPTION>
Amortized Estimated
(In Thousands) Cost Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Due in One Year or Less $31,242 $31,228
Due After Five Years Through Ten Years 4,719 4,812
Due After Ten Years 9,347 9,324
- -------------------------------------------------------------------------------
Total Debt Securities Held to Maturity $45,308 $45,364
===============================================================================
</TABLE>
There were no sales of securities held to maturity during 1997, 1996 or 1995.
Securities held to maturity and available for sale with amortized costs totaling
$543,000 and $37,259,000, respectively, on December 31, 1997, were pledged to
secure U.S. Government and other deposits and for other purposes as required and
permitted by law. In addition, securities held to maturity and available for
sale having amortized costs aggregating $5,308,000 and $158,949,000,
respectively, on December 31, 1997, were pledged to secure advances and
agreements to repurchase securities. Securities totaling $9,664,000 remain under
the custodial responsibility of the Company during the period of the applicable
agreements.
Securities with a carrying value of $3,160,000 and a market value of $3,148,000,
previously held by Farrington, which were classified as held to maturity, were
reclassified to available for sale upon consummation of the merger on February
28, 1997 to maintain the Company's interest rate risk position.
In November 1995, the FASB issued a special report - "A Guide to Implementation
of Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities." This special report allowed the Company to make a one-time
reclassification of securities within the categories without tainting other
securities held to maturity. During December 1995, the Company reclassified
$80,183,000 of securities, at amortized cost, from held to maturity to available
for sale, at an unrealized gain of $2,194,000.
20
<PAGE>
NOTE 6 - LOANS
Loans outstanding by classification at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Loans Secured by Real Estate
Construction and Land Development $28,165 $18,424
Secured by Farmland 914 933
Secured by 1-4 Family Residential Properties 191,672 175,049
Secured by Multifamily (5 or more)
Residential Properties 517 634
Secured by Nonfarm Nonresidential Properties 151,912 145,879
Commercial and Industrial Loans 88,146 81,087
Loans to Individuals for Household, Family and
Other Personal Expenditures:
Retail Credit Card Plan 33,140 32,261
Other Installment and Single Payment Loans 128,150 184,429
Other Loans:
All other loans 2,730 3,223
- -------------------------------------------------------------------------------
Total Loans Outstanding 625,346 641,919
Less: Unearned Income on Loans 11,634 20,884
- -------------------------------------------------------------------------------
Loans, Net $613,712 $621,035
===============================================================================
</TABLE>
The Company extends credit in the normal course of business to its customers,
the majority of whom operate or reside within New Jersey. The ability of its
customers to meet contractual obligations is, to some extent, dependent upon the
economic conditions existing in the state.
The following information is presented for those loans classified as
non-accrual, and considered impaired, at December 31:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income that Would have Been Recorded Under
Original Contract Terms $562 $837 $738
Interest Income Received and Recorded 16 60 73
- -------------------------------------------------------------------------------
Lost Income on Non-Accrual Loans at Year-End $546 $777 $665
===============================================================================
</TABLE>
As of December 31, 1997 and 1996, the Company's non-accrual loans were
$6,381,000 and $8,717,000, respectively. Of these, the loans considered to be
impaired were $5,380,000 and $8,461,000 respectively, with related valuation
allowances of $1,786,000 and $1,905,000, respectively. These valuation
allowances are included in the allowance for possible loan losses in the
accompanying consolidated balance sheets. Substantially all impaired loans were
evaluated for impairment losses based upon the fair value of the underlying
collateral of the loan. The average recorded balances in impaired loans during
1997, 1996 and 1995 were $6,305,000, $5,664,000 and $4,310,000, respectively.
Loans to directors, officers, employees and/or their affiliated interests
amounted to approximately $9,088,000 and $10,148,000 at December 31, 1997 and
1996, respectively. All such loans, which are primarily secured, were current as
to principal and interest payments, and in the opinion of Management, all were
granted on terms which were comparable to loans to unrelated parties at the
dates such loans were granted. An analysis of the 1997 activity in these loans
is as follows (in thousands):
<TABLE>
<S> <C>
Balance Outstanding, Beginning of Year $10,148
New Loans 786
Repayments (1,846)
- -------------------------------------------------------------------------------
Balance Outstanding, End of Year $9,088
===============================================================================
</TABLE>
21
<PAGE>
NOTE 7 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the allowance for possible loan losses activity for the years ended
December 31, 1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Beginning of Year $8,158 $8,297 $10,768
Provision Charged to Expense 3,600 3,049 871
Recoveries 834 550 752
Losses Charged to Allowance (4,959) (3,738) (4,094)
- -------------------------------------------------------------------------------
Balance, End of Year $7,633 $8,158 $8,297
===============================================================================
</TABLE>
NOTE 8 - PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1997 and 1996, is as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Premises (includes land of $1,553 and
$1,728 in 1997 and 1996, respectively) $10,583 $12,860
Property Under Capital Lease 9,750 9,750
Equipment 13,016 11,410
Leasehold Improvements 1,345 898
Projects in Progress 633 193
- -------------------------------------------------------------------------------
Total 35,327 35,111
- -------------------------------------------------------------------------------
Less: Accumulated Depreciation and Amortization 13,824 13,228
- -------------------------------------------------------------------------------
Premises and Equipment, Net $21,503 $21,883
===============================================================================
</TABLE>
Depreciation expense amounted to $1,924,000 in 1997, $1,959,000 in 1996 and
$1,703,000 in 1995.
NOTE 9 - DEPOSITS
Time certificates of deposit $100,000 or more totaled $88,874,000 on December
31, 1997 and $78,887,000 on December 31, 1996.
Time deposits, with remaining maturities greater than one year, mature as
follows (in thousands):
<TABLE>
<S> <C>
1999 $53,966
2000 28,750
2001 1,224
2002 333
Thereafter 716
===============================================================================
Total $84,989
===============================================================================
</TABLE>
Interest bearing deposits amounted to $810,069,000 and $767,162,000 at December
31, 1997 and 1996, respectively. Non-interest bearing deposits amounted to
$177,780,000 and $169,558,000 at December 31, 1997 and 1996, respectively.
NOTE 10 - SHORT-TERM BORROWINGS
Selected data relating to short-term borrowings for the years ended December
31,1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
At Year-end:
Securities Sold Under Agreements
to Repurchase $ 74,528 $43,634 $50,592
Federal Funds Purchased 3,000 - -
Demand Notes - U.S. Treasury 2,018 2,694 2,755
- -------------------------------------------------------------------------------
Total Short-Term Borrowings $ 79,546 $46,328 $53,347
===============================================================================
Weighted Average Interest Rate 5.58% 5.13% 5.48%
===============================================================================
For the Year Ended December 31:
Securities Sold Under Agreements
to Repurchase:
Average Balance Outstanding $ 58,699 $40,606 $23,283
Weighted-Average Interest Rate 5.63% 5.24% 5.36%
Highest Month-End Balance $110,375 $53,424 $50,592
</TABLE>
Securities of $9,664,000, pledged to secure borrowings, remain under the
custodial responsibility of the Company during the period of the applicable
agreements.
22
<PAGE>
NOTE 11 - OTHER BORROWINGS
Other borrowings consisted of the following at December 31,:
<TABLE>
<CAPTION>
(In Thousands)
1997 1996
-------------------- ------------------
<S> <C> <C>
FHLB Advances $83,000 $ -
Obligation Under Capital Lease 9,706 9,693
- -------------------------------------------------------------------------------
Total Other Borrowings $92,706 $ 9,693
===============================================================================
</TABLE>
During 1997, the Company developed and implemented a strategy to effectively
leverage its capital and improve net interest income, by the purchase of
additional investment securities funded through advances and repurchase
agreements (the "Growth Strategy"). Of the $150 million of advances and
repurchase agreements used in the Growth Strategy, $83 million were advances and
had an original maturity greater than one year. The balance of the borrowings
were repurchase agreements due within one year.
During 1995, the Company entered into a lease agreement on its new headquarters
building. The lease, which has been accounted for as a capital lease, expires in
2015. Lease commitments under this agreement are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 972
1999 999
2000 999
2001 1,059
2002 1,089
Thereafter 16,167
- -------------------------------------------------------------------------------
Total 21,285
Less: Amount Representing Interest (11,579)
- -------------------------------------------------------------------------------
Total Obligation Under Capital Lease $ 9,706
===============================================================================
</TABLE>
NOTE 12 - CAPITAL TRUST
On March 21, 1997, the Company placed $20 million of trust capital securities
through UNB Capital Trust I, a statutory business trust formed under the laws of
the State of Delaware, of which all common securities are owned by the Company.
The capital securities pay cumulative cash distributions semiannually at an
annual rate of 10.01%. The semi-annual distributions may, at the option of the
Company, be deferred for up to 5 years. The securities are redeemable from March
15, 2007 until March 15, 2017 at a declining rate of 105.0% to 100.0% of the
principal amount. After March 15, 2017 they are redeemable at par until March
15, 2027 when redemption is mandatory. Prior redemption is permitted under
certain circumstances such as changes in tax or regulatory capital rules. The
proceeds of the capital securities, along with its capital, were invested by the
Trust in $20,619,000 principal amount of 10.01% junior subordinated debentures
of the Company due March 15, 2027 which are the sole assets of the Trust. The
Company guarantees the capital securities through the combined operation of the
debentures and other related documents. The Company's obligations under the
guarantee are unsecured and subordinate to senior and subordinated indebtedness
of the Company. The capital securities qualify as Tier I capital for regulatory
capital purposes and are accounted for as minority interest.
NOTE 13 - CAPITAL REQUIREMENTS
The Federal Reserve Board in the case of bank holding Companies such as the
Company and the Office of the Comptroller of the Currency ("OCC") in the case of
Federally chartered banks such as the Bank have adopted risk-based capital
guidelines which require a minimum ratio of 8% of total risk-based capital to
assets, as defined in the guidelines. At least one half of the total capital, or
4%, is to be comprised of common equity and qualifying perpetual preferred
stock, less deductible intangibles (Tier I capital).
In addition, the Federal Reserve Board and the OCC supplemented the risk-based
capital guidelines with an additional capital ratio referred to as the leverage
ratio or core capital ratio. The regulations require a financial institution to
maintain a minimum leverage ratio of 4% to 5%, depending upon the condition of
the institution.
Under its prompt corrective action regulations, the OCC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The regulations
establish a framework for the classification of depository institutions into
five categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a leverage ratio of at
least 5.0%; a Tier I capital ratio of at least 6.0%; and a total risk-based
capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are subject
to qualitative judgements by the regulatory authorities about capital
components, risk weightings and other factors.
Management believes that, as of December 31, 1997 the Company and the Bank meet
all capital adequacy requirements to which they are subject. Further, based upon
the capital ratios, the Company and the Bank would qualify as "well capitalized"
at December 31, 1997.
23
<PAGE>
The following is a summary of the Company's and the Bank's actual capital
amounts and ratios as of December 31, 1997 and 1996, compared to the regulatory
authorities minimum capital adequacy requirements and requirements for
classification as a well capitalized institution:
<TABLE>
<CAPTION>
December 31, 1997 December 31,1996
--------------------------------------------- --------------------------------------------
(Dollars In Thousands) Company Bank Company Bank
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS:
Tier I Capital
Actual $114,575 14.87% $107,661 14.11% $85,492 11.66% $79,925 10.95%
Regulatory Minimum
Requirement 30,818 4.00 30,511 4.00 29,320 4.00 29,202 4.00
For Classification as
Well Capitalized 46,228 6.00 45,767 6.00 43,980 6.00 43,802 6.00
Combined Tier I and Tier II
Capital
Actual 122,208 15.86 115,294 15.11 93,650 12.78 88,083 12.07
Regulatory Minimum
Requirement 61,637 8.00 61,023 8.00 58,640 8.00 58,403 8.00
For Classification as
Well Capitalized 77,046 10.00 76,278 10.00 73,300 10.00 73,004 10.00
LEVERAGE RATIO:
Actual 114,575 8.96 107,661 8.49 85,492 7.96 79,925 7.47
Regulatory Minimum
Requirement 51,144 4.00 50,711 4.00 42,969 4.00 42,806 4.00
For Classification as
Well Capitalized 63,931 5.00 63,389 5.00 53,711 5.00 53,507 5.00
</TABLE>
NOTE 14 - INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $5,686 $5,823 $4,242
Deferred Provision (Benefit) 114 (469) (344)
- -------------------------------------------------------------------------------
Total Federal 5,800 5,354 3,898
State 565 991 397
- -------------------------------------------------------------------------------
Total Provision for Income Taxes $6,365 $6,345 $4,295
===============================================================================
</TABLE>
A reconciliation between the amount of reported income tax expense and the
amount computed by multiplying income before taxes by the statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Provision for Income Taxes $20,245 $18,625 $13,801
================================================================================
Tax Calculated at 34% $ 6,883 $ 6,333 $ 4,692
Increase (Decrease) in Tax Resulting from:
Tax-Exempt Income (1,021) (927) (792)
State Taxes-Net of Federal Tax Benefit 373 654 262
Other-Net 130 285 133
- --------------------------------------------------------------------------------
Provision for Income Taxes $ 6,365 $ 6,345 $ 4,295
================================================================================
Effective Tax Rate 31% 34% 31%
================================================================================
</TABLE>
24
<PAGE>
The components of and changes in the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
Deferred
January 1, (Provision) December 31,
(In Thousands) 1997 Benefit 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Assets
Allowance for Possible Loan Losses $2,259 $ (336) $1,923
Post Retirement Benefits 898 221 1,119
Deferred Directors Fees 97 34 131
Other 1,370 390 1,760
- --------------------------------------------------------------------------------
Total 4,624 309 4,933
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Net Unrealized Gain on Securities
Available for Sale (476) (2,483) (2,959)
Depreciation (829) (170) (999)
Pension Plan (257) (19) (276)
Accretion of Discount (393) (46) (439)
Other (651) (188) (839)
- --------------------------------------------------------------------------------
Total (2,606) (2,906) (5,512)
- --------------------------------------------------------------------------------
Net Deferred Tax Asset (Liability) $2,018 $(2,597) $ (579)
================================================================================
</TABLE>
Management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates sufficient net taxable
income. Additionally, the Company has sufficient refundable taxes in prior years
that are available through carry back for the realization of tax benefits
recorded. Accordingly, Management believes it is more likely than not that the
Company will realize the benefit of the deferred tax asset. However, significant
changes in the Company's operations and/or economic conditions could affect its
ability to fully utilize the benefits of the deferred tax asset.
Included in stockholders' equity are income tax expenses (benefit) attributable
to net unrealized gains on securities available for sale in the amounts of
$2,483,000, $(646,000) and $5,401,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
NOTE 15 - PENSION AND RETIREMENT PLANS
The Company has a noncontributory defined benefit plan, funded through a
self-administered trust, covering substantially all full-time employees who have
attained age 21 and have completed one year of service. Annual contributions are
made to the plan equal to the minimum amount currently deductible for Federal
income tax purposes. In addition, the Company has supplemental pension
agreements with an officer and a Director (a former officer), as well as
employees who retired prior to the formation of the current plan.
Pension Plan
The following table sets forth the Pension Plan's funded status at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Benefit Obligation:
Vested Benefits $16,830 $15,790
Non-Vested Benefits 370 290
- --------------------------------------------------------------------------------
Total Accumulated Benefit Obligation 17,200 16,080
Effect of Projected Future Compensation Levels 1,673 1,576
- --------------------------------------------------------------------------------
Projected Benefit Obligation 18,873 17,656
Plan's Assets at Fair Value, Primarily Listed Stocks,
U.S. Bonds and Commingled Funds 25,199 21,134
- --------------------------------------------------------------------------------
Plan's Assets in Excess of Projected Benefit Obligation 6,326 3,478
Unrecognized Prior Service Cost 617 780
Less:
Unrecognized Net Gain Due to Past Experience
Different from Assumption Made 5,747 2,882
Unrecognized Net Assets Being Recognized in the
Amount of Approximately $211 per year through 1998 187 398
- --------------------------------------------------------------------------------
Prepaid Pension Cost $ 1,009 $ 978
================================================================================
</TABLE>
25
<PAGE>
Net periodic pension (benefit) cost for 1997, 1996 and 1995 include the
following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost of Benefits Earned During Period $ 721 $ 668 $ 601
Interest Cost on Projected Benefit Obligation 1,229 1,179 1,150
Return on Plan Assets (5,209) (2,703) (1,363)
Net Amortization and Deferral 3,228 950 (47)
- --------------------------------------------------------------------------------
Net Periodic Pension (Benefit) Cost $ (31) $ 94 $ 341
================================================================================
Discount Rate 7.00% 7.25% 7.00%
================================================================================
Rate of Increase in Future Salary Levels 6.00% 6.00% 6.00%
================================================================================
Expected Long-Term Rate of Return on Plan Assets 9.00% 9.00% 9.00%
================================================================================
</TABLE>
Non-Qualified Executive Compensation Supplemental Plans
The following table sets forth the Supplemental Plan's funded status at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Benefit Obligation:
Vested Benefits $223 $233
- --------------------------------------------------------------------------------
Total Accumulated Benefit Obligation 223 233
- --------------------------------------------------------------------------------
Projected Benefit Obligation 223 233
- --------------------------------------------------------------------------------
Projected Benefit Obligation in Excess of Plan's Assets 223 233
Unrecognized Net Loss Due to Past Experience Different from
Assumptions Made (34) (19)
Less:
Unrecognized Net Obligation Recognized - -
- --------------------------------------------------------------------------------
Unfunded Accrued Pension Cost $189 $214
================================================================================
</TABLE>
Net periodic pension cost for 1997, 1996 and 1995 included the following:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Cost on Projected Benefit Obligation $16 $17 $18
Net Amortization and Deferral 1 - 1
- --------------------------------------------------------------------------------
Net Periodic Pension Cost $17 $17 $19
================================================================================
</TABLE>
In determining the projected benefit obligation, the weighted average assumed
discount rate was 7.00% in 1997, 7.25% in 1996 and 7.00% in 1995.
Other Post Retirement Benefits
Expected costs of providing these benefits, including medical and life insurance
coverage, are charged to expense during the years that the employees render
service. The Company amortizes the discounted present value of the Net
Transition Obligation ("NTO") to expense over a 20-year period. The NTO, which
is the Accumulated Post Retirement Benefits Obligation ("APBO") since no assets
have been funded for these benefits, amounted to $7,135,000 and $6,903,000 at
December 31, 1997 and 1996, respectively.
The Net Periodic Post Retirement Benefit Cost ("NPPBC") is the amount to be
expensed for any given year. The NPPBC for 1997, 1996 and 1995 amounted to
$1,065,000, $1,031,000 and $974,000, respectively.
The NPPBC for 1997, 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost of Benefits Attributed to
Employee Service During the Year $ 306 $ 275 $ 239
Interest Cost on APBO 469 466 445
Amortization of NTO Over a Twenty-Year Period 290 290 290
- --------------------------------------------------------------------------------
NPPBC $1,065 $1,031 $974
================================================================================
</TABLE>
The discount rate used in determining the APBO was 7.00%, 7.25% and 7.00% at
December 31, 1997, 1996 and 1995, respectively. The assumed health care cost
trend rate used in measuring the APBO ranged from 7.5% for post-age 65 and 9.0%
for pre-age 65 in 1997, declining by 0.5% per year to an ultimate level of 5.5%
per year in 2004 (pre-age 65) and 2001 (post-age 65).
26
<PAGE>
If the health care cost trend rate assumptions were increased by 1%, the APBO at
December 31, 1997 would be increased by $890,000 or 12.5%. The effect of this
change on the sum of the service cost and interest cost components of the NPPBC
for 1997 would be an increase of $140,000 or 18.1%.
Other Benefits
Employees can make contributions to the Company's 401(k) plan by means of
payroll deductions of up to 10% of their compensation. Matching contributions
are made by the Company for up to 5% of the employee's compensation at the
discretion of the Board of Directors and totaled $427,000, $469,000 and $463,000
in 1997, 1996 and 1995, respectively.
During 1997, the Company has adopted a non-tax qualified plan for certain of its
executives ("SERP") to supplement the benefit such executive can receive under
the Company's 401(k) plan and defined benefit plan. In conjunction with the SERP
the Company purchased approximately $20 million in corporate-owned life
insurance.
NOTE 16 - STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan (the "Plan"), in which 200,000 shares,
without giving effect to subsequent stock dividends and splits, of the Company's
common stock may be granted to the Company's employees. The Plan provides for
the discretionary granting of stock options with or without stock appreciation
rights. Under the Plan, the exercise price of each option equals the market
price of the Company's stock on the date of grant.
The Company also has a "Stock Option Plan for Non-Employee Directors" (the
"Directors Plan") in which 35,000 shares, without giving effect to subsequent
stock dividends and splits, of the Company's common stock may be granted to
Non-Employee Directors. During 1997, the shareholders approved an amendment to
the Directors Plan to increase the size of the options granted to each
non-employee director elected or re-elected and to increase the number of shares
which may be granted from 35,000 to 65,000, without giving effect to subsequent
stock dividends and splits
Each Non-Employee Director of the Company or its affiliates is eligible to
receive options under the Directors Plan. The options granted have a term of ten
years and vest over three years. Under the Plan, the exercise price of each
option equals the market price of the Company's stock on the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for both the Plan and Directors Plans. Accordingly, no compensation cost has
been recognized for the stock options in these Plans. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, "Accounting
for Stock-Based Compensation," which was previously described in Note 1(m) the
Company's net income and diluted earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income
As Reported $13,880 $12,280 $9,506
Pro forma 13,631 12,155 9,426
Diluted Earnings Per Share:
As Reported $ 1.48 $ 1.33 $ 1.03
Pro forma 1.46 1.31 1.02
- --------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of 2.3%, 3.1% and 3.1% for 1997, 1996 and 1995, respectively; expected
volatility of 22%, 25% and 24% for 1997, 1996 and 1995, respectively; risk-free
interest rates of 6.7%, 6.0% and 7.0% for 1997, 1996 and 1995, respectively; and
expected lives of 5 years for both plans. A summary of the status of both the
Plan and the Directors Plan of the Company as of December 31, 1997, 1996 and
1995 and changes during the years ended on those dates, adjusted for subsequent
stock dividends and splits, is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ------------------------------ -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Option Shares: Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 302,590 $12.86 227,949 $11.96 109,668 $9.99
Granted 86,973 19.92 88,970 14.25 120,889 13.59
Exercised (36,409) 9.22 (11,952) 5.92 (2,608) 5.39
Forfeited (14,354) 14.04 (2,377) 13.64 - -
- --------------------------------------------------------------------------------------------------------------------
Outstanding at
End of Year 338,800 $15.01 302,590 $12.86 227,949 $11.96
====================================================================================================================
Options Exercisable
at Year-End 111,453 71,491 36,358
====================================================================================================================
Weighted-Average
Fair Value of
Options Granted
During the Year $5.12 $3.39 $3.36
====================================================================================================================
</TABLE>
27
<PAGE>
The following table summarizes information about the stock options outstanding
at December 31, 1997, adjusted for the effect of subsequent stock dividends and
splits.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 Life in Years Price At 12/31/97 Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.39 6,890 3.0 $ 5.39 6,890 $ 5.39
12.53 59,344 6.0 12.53 44,510 12.53
13.43 - 13.64 102,358 7.1 13.59 56,313 13.58
13.91 - 14.30 84,083 8.5 14.30 3,740 13.91
17.87 - 20.55 86,125 9.2 19.92 - -
- -------------------------------------------------------------------------------------------------------------------
$5.39 - $20.55 338,800 7.7 $15.01 111,453 $12.67
===================================================================================================================
</TABLE>
The Stock Incentive Plan also provides for granting of Restricted Stock Awards,
which generally vest between two and four years. Transactions involving these
awards are summarized as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Restricted Stock Awards:
Outstanding - January 1, 10,996 19,000 19,324
Granted - - 4,700
Canceled (918) (450) (200)
Vested (5,518) (7,554) (4,824)
- --------------------------------------------------------------------------------
Outstanding - December 31, 4,560 10,996 19,000
================================================================================
Compensation expense recognized related to the restricted stock awards was
$88,000, $134,000 and $37,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
NOTE 17 - LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any such
proceedings depart from usual routine litigation and, in its judgment, the
Company's financial position and results of operations will not be materially
affected by such proceedings.
The Company has lease commitments expiring at various dates through 2015. Rent
expense on these leases amounted to approximately $759,000, $670,000 and
$588,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The
headquarters building lease has been accounted for as a capital lease, in
accordance with FASB Statement No. 13 "Accounting for Leases," (See Note 11).
The minimum annual rentals under the terms of the lease agreements, excluding
the capital lease, as of December 31, 1997, were as follows:
1998 $595,000
1999 566,000
2000 549,000
2001 410,000
2002 154,000
Thereafter 575,000
The above represents minimum rentals, not adjusted for possible future increases
due to property taxes and cost of living escalation provisions.
The Company also has certain equipment leases, which do not exceed five-year
terms with level monthly payments. Equipment rental expense totaled $1,198,000,
$981,000 and $1,806,000 in 1997, 1996 and 1995, respectively.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments consist of commitments to extend credit and standby
letters of credit. These financial instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the accompanying consolidated balance sheets. The contract or notional amounts
of these instruments express the extent of involvement the Company has in each
class of financial instrument.
The Company uses the same credit policies and collateral requirements in making
commitments and conditional obligations as it does for on-balance sheet
instruments. Commitments to extend credit are agreements to lend to customers as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The
28
<PAGE>
Company evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension
of credit, is based upon Management's credit evaluation of the borrower.
Collateral held on these commitments varies. Standby letters of credit are
conditional commitments issued by the Company insuring performance obligations
of a customer to a third party. These commitments commonly involve real estate
transactions.
Financial Instruments Whose
Contract Amount Represent Contract or Notional Amount
Credit Risk at December 31, 1997
- --------------------------------------------------------------------------------
Outstanding Loan Commitments $159,881,000
Standby Letters of Credit 2,653,000
The Company previously entered into agreements with six executive officers
providing for the payment of cash and other benefits to them in the event of
their voluntary or involuntary termination within three years following a change
of control of the Company. Payment under these agreements in the event of a
change in control would consist of a lump sum payment equal to two or three
years of annual taxable compensation, depending on the officer involved. Under
these agreements, the payment would be reduced if it would be an excess
parachute payment under the federal tax code and would subject the officer to an
excise tax.
NOTE 18 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. The fair value estimates are made at a discrete point in time based
upon relevant market information and information about the financial
instruments. Because no market exists for a portion of the Company's financial
instruments, fair value estimates are based on judgment regarding a number of
factors. These estimates are subjective in nature and involve some
uncertainties. Changes in assumptions and methodologies may have a material
effect on these estimated fair values. In addition, reasonable comparability
between financial institutions may not be likely due to a wide range of
permitted valuation techniques and numerous estimates, which must be made. This
lack of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Short-Term Investments
For those short-term instruments, the carrying value is a reasonable estimate of
fair value.
Securities
Fair values are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities. Federal Reserve Bank and Federal Home Loan Bank
stock is required to be maintained as part of membership. Cost approximates the
fair value of these securities, as that is the amount at which the stock may be
redeemed.
Loans
The fair value of loans is estimated by discounting the future cash flows using
the build-up approach consisting of four components: the risk-free rate, credit
quality, operating expense, and prepayment option price.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the build-up approach consisting of four components: the
risk-free rate, credit quality of the Bank, operating income/expense and early
withdrawal options.
Short-Term and Other Borrowings
For those instruments, the carrying value is a reasonable estimate of fair
value.
Commitments to Extend Credit and Standby Letters of Credit
At December 31, 1997 and 1996, the Bank had standby letters of credit
outstanding of $2,653,000 and $3,130,000, respectively. The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements and the present credit worthiness of the counter parties. On this
basis, these fees approximate the fair value.
At December 31, 1997 and 1996, the Bank had commitments to extend credit
totaling $159,881,000 and $150,355,000 respectively. The Bank does not charge a
fee on these loan commitments and, consequently, there is no basis to calculate
a fair value.
29
<PAGE>
The estimate fair value of the Company's financial instruments as of December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and Short-Term Investments $ 41,069 $ 41,069 $ 61,279 $61,279
Securities Available for Sale 541,245 541,245 305,668 305,668
Securities Held to Maturity 45,308 45,364 67,576 67,379
Trading Account Securities 1,221 1,221 512 512
Loans, Net of Allowance for
Possible Loan Losses 606,079 604,850 612,877 613,186
- --------------------------------------------------------------------------------
Financial Liabilities
Deposits
Demand 166,260 166,260 159,018 159,018
Savings 380,105 380,105 389,292 389,292
Time 441,484 443,002 388,410 389,017
- --------------------------------------------------------------------------------
Total Deposits 987,849 989,367 936,720 937,327
Short-Term Borrowings 79,546 79,546 46,328 46,328
Other Borrowings 92,706 92,706 9,693 9,693
- --------------------------------------------------------------------------------
Off-Balance Sheet Financial Instruments
Standby Letters of Credit - 33 - 38
- --------------------------------------------------------------------------------
</TABLE>
NOTE 19 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY
The condensed financial statements of United National Bancorp (parent company
only) are presented below:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS December 31,
------------------------------
(In Thousands) 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks $ 55 $ 24
Securities Available for Sale 6,178 4,841
Trading Account Securities 1,221 512
Investment in Subsidiaries 123,899 91,822
Other Assets 2,507 1,308
-------------------------------------------------------------------------------
Total Assets $133,860 $98,507
===============================================================================
Liabilities and Stockholders' Equity
Junior Subordinated Debentures $ 20,619 $ -
Other Liabilities 2,291 1,555
Stockholders' Equity 110,950 96,952
-------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $133,860 $98,507
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
For The Years
CONDENSED STATEMENTS OF INCOME Ended December 31,
--------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from Subsidiary $7,125 $4,939 $4,541
Interest and Dividends on Securities 221 168 196
Net Gain from Securities Transactions 508 111 558
- --------------------------------------------------------------------------------
Total Income 7,854 5,218 5,295
- --------------------------------------------------------------------------------
Expense
Interest Expense on Junior Subordinated Debentures 1,605 - -
Other Expenses 298 257 317
- --------------------------------------------------------------------------------
Total Expense 1,903 257 317
- --------------------------------------------------------------------------------
Income Before Taxes 5,951 4,961 4,978
Income Tax (Benefit) Provision (407) (4) 154
- --------------------------------------------------------------------------------
Income Before Equity in Undistributed Income
of Subsidiary 6,358 4,965 4,824
Equity in Undistributed Income of Subsidiary 7,522 7,315 4,682
- --------------------------------------------------------------------------------
Net Income $13,880 $12,280 $9,506
================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS For the Years Ended December 31,
----------------------------------
(In Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $13,880 $12,280 $9,506
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Net (Gain) Loss on Sale of Securities
Available for Sale - - (351)
Trading Account Securities Activity, Net (709) (95) (96)
Increase in Other Assets (1,241) (71) (172)
Increase in Other Liabilities 44 121 180
Restricted Stock 88 134 37
Equity in Undistributed Income
of Subsidiary (7,522) (7,315) (4,682)
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 4,540 5,054 4,422
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available
for Sale 2,800 812 3,712
Purchase of Securities Available for Sale (3,060) (2,287) (3,300)
- --------------------------------------------------------------------------------
Net Cash (Used In) Provided by
Investing Activities (260) (1,475) 412
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash Dividends on Common Stock (4,972) (3,879) (3,312)
Proceeds from Exercise of Stock options 562 42 532
Purchase of Treasury Stock - - (1,705)
Sale of Treasury Stock - 251 147
Stock Issued from Equity Contracts - - 221
Stock Issued from Debenture Conversion - - 1,048
Proceeds from Issuance of Junior
Subordinated Debentures 20,619 - -
Capital Contributed to Subsidiary (20,458) - (1,830)
- --------------------------------------------------------------------------------
Net Cash Used in Financing Activities (4,249) (3,586) (4,899)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 31 (7) (65)
Cash at Beginning of Year 24 31 96
- --------------------------------------------------------------------------------
Cash at End of Year $ 55 $ 24 $ 31
====================================================================================================================
</TABLE>
Cash Dividend Restrictions
Substantially all of the revenue of the Company available for the payment of
dividends on its stock will result from dividends paid to the Company by the
Bank. The Bank is restricted under applicable laws in the payment of cash
dividends to the Company. The Bank is required by Federal law to obtain the
prior approval of the Comptroller of the Currency for the payment of dividends
if the total of all dividends declared by the Board of Directors in any year
will exceed the total of the Bank's net profits for that year combined with the
retained net profits for the preceding two years ("earnings limitation" test).
In addition, a national bank may not pay a dividend in an amount greater than
its undivided profits then on hand after deducting its loan losses and bad debts
("undivided profits" test).
Under the earnings limitation test, the Bank had available $26,596,000 for the
payment of cash dividends at December 31, 1997.
31
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and
Stockholders of United National Bancorp:
We have audited the accompanying consolidated balance sheets of United National
Bancorp and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The accompanying
consolidated financial statements of United National Bancorp and subsidiaries as
of December 31, 1995 and for the year then ended were audited by other auditors
whose report, dated January 12, 1996, on those statements included an
explanatory paragraph that described a change in the Company's method of
accounting for securities in 1994.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of United National Bancorp and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
(Signature of KPMG)
Short Hills, New Jersey
January 14, 1998
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United National Bancorp:
We previously audited and reported on the consolidated statements of income,
changes in stockholders' equity and cash flows of United National Bancorp and
subsidiaries for the year ended December 31, 1995, prior to their restatement
for the 1997 pooling of interests with Farrington Bank. The contribution of
United National Bancorp and subsidiaries to interest income and net income
represented 93% and 88% of their respective restated totals. Separate financial
statements of Farrington Bank included in the 1995 restated consolidated
statements of income, changes in stockholders' equity and cash flows were
audited and reported on separately by other auditors. We also audited the
combination of the accompanying consolidated statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 1995, after
restatement for the 1997 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 of notes
to the consolidated financial statements.
ARTHUR ANDERSEN LLP
(Signature of Arthur Andersen LLP)
Roseland, New Jersey
March 26, 1998
Independent Auditors' Report
The Shareholders and Board of Directors
Farrington Bank:
We have audited the consolidated statements of earnings, changes in
shareholders' equity, and cash flows of Farrington Bank and subsidiary for the
year ended December 31, 1995 (not presented herein). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Farrington Bank and subsidiary for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
(Signature of KPMG)
Short Hills, New Jersey
February 22, 1996
Exhibit 21
(21) LIST OF SUBSIDIARIES
UNITED NATIONAL BANCORP
UNITED NATIONAL BANK
(WHOLLY-OWNED SUBSIDIARY
OF UNITED NATIONAL BANCORP)
UNB CAPITAL TRUST I
(WHOLLY-OWNED SUBSIDIARY
OF UNITED NATIONAL BANCORP
FORMED ON FEBRUARY 21, 1997)
UNITED NATIONAL BANK
UNITED NATIONAL INVESTMENT COMPANY, INC.
(FORMERLY UNB INVESTMENT CO., INC.)
(WHOLLY-OWNED SUBSIDIARY
OF UNITED NATIONAL BANK)
UNITED COMMERCIAL CAPITAL GROUP, INC.
(WHOLLY-OWNED SUBSIDIARY
OF UNITED NATIONAL BANK)
UNITED FINANCIAL SERVICES, INC.
(UNITED NATIONAL BANK
OWNS 50% OF THIS JOINT VENTURE)
UNITED NATIONAL INVESTMENT COMPANY, INC.
BRIDGEWATER MORTGAGE COMPANY, INC.
(WHOLLY-OWNED SUBSIDIARY,
EXCEPT FOR PREFERRED STOCK,
OF UNITED NATIONAL INVESTMENT CO., INC.
FORMED ON MARCH 17,1997)
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United National Bancorp:
We consent to incorporation by reference in the following Registration
Statements filed on Form S-8: the United National Bancorp Stock Based Incentive
Plan, dated May 19, 1993; the United National Bank Profit Sharing and 401(k)
Plan dated March 16, 1994; and the United National Bank 1995 Stock Option Plan
for Non-Employee Directors, dated June 28, 1995, of our report dated January 14,
1998, relating to the consolidated balance sheets of United National Bancorp and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended, which report is incorporated by reference in the December 31,
1997 Annual Report on Form 10-K of United National Bancorp.
KPMG Peat Marwick LLP
(Signature of KPMG)
Short Hills, New Jersey
March 27, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United National Bancorp:
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated March 26, 1998 regarding our
audit of the consolidated financial statements of United National Bancorp and
subsidiaries (the Company) for the year ended December 31, 1995. It should be
noted that we have not audited any financial statements of the Company
subsequent to December 31, 1995 or performed any audit procedures subsequent to
the date of our report.
ARTHUR ANDERSEN LLP
(Signature of Arthur Andersen LLP)
Roseland, New Jersey
March 30, 1998
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
United National Bancorp:
We consent to incorporation by reference in the following Registration
Statements filed on Form S-8: the United National Bancorp Stock Based Incentive
Plan, dated May 19, 1993; the United National Bank Profit Sharing and 401(k)
Plan dated March 16, 1994; and the United National Bank 1995 Stock Option Plan
for Non-Employee Directors, dated June 28, 1995, of our report dated February
22, 1996, relating to the consolidated statements of earning, changes in
shareholders' equity, and cash flows of Farrington Bank and subsidiary for the
year ended December 31, 1995, which report is filed with the December 31, 1997
Annual Report on Form 10-K of United National Bancorp.
KPMG Peat Marwick LLP
(Signature of KPMG)
Short Hills, New Jersey
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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0
0
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