10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005.

or

o 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 000-26086

YARDVILLE NATIONAL BANCORP

(Exact name of registrant as specified in its charter)

New Jersey	22-2670267
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2465 Kuser Road, Hamilton, New Jersey	08690
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:     (609) 585-5100

Securities registered pursuant to Section 12(b) of the Act:     None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, no par value	Nasdaq National Market
(Title of class)	(Name of each exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o  Yes     þ  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o  Yes     þ  No

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.

þ  Yes     o  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.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     o          Accelerated filer     þ          Non-accelerated filer     o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o  Yes     þ  No

The aggregate market value of voting common stock held by non-affiliates, computed using the closing sales price on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2005), was $231,760,064.

An aggregate of 10,939,179 shares of common shares were outstanding as of March 13, 2006.

Documents Incorporated By Reference

Portions of the definitive proxy statement for the Annual Meeting of Shareholders of Yardville National Bancorp to be held May 3, 2006 are incorporated by reference into Part III of this Form 10-K.

INDEX

Part I		4
Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	16
Part II		17
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	60
Item 9A.	Controls and Procedures	60
Item 9B.	Other Information	62
Part III		62
Item 10.	Directors and Executive Officers of the Registrant	62
Item 11.	Executive Compensation	62
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions	62
Item 14.	Principal Accounting Fees and Services	62
Part IV		63
Item 15.	Exhibits, Financial Statement Schedules	63
CERTIFICATE OF AMENDMENT
AMENDMENT TO THE SECOND AMENDED
REAL PROPERTY LEASE
REAL PROPERTY LEASE
REAL PROPERTY LEASE
REAL PROPERTY LEASE
LIST OF SUBSIDIARIES OF THE REGISTRANT
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CERTIFICATION
CERTIFICATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

PART I

Item 1. Business.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Annual Report on Form 10-K and other materials we file with the Securities and Exchange Commission, referred to as the “SEC,” as well as information included in oral statements or other written statements made or to be made by us, contain statements that are forward-looking. These may include statements that relate to, among other things, profitability, liquidity, loan loss reserve adequacy, plans for growth, interest rate sensitivity, market risk, regulatory compliance, and financial and other goals. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results and, accordingly, from those expressed in any forward-looking statements made by us or on our behalf. Factors that could cause actual results to differ materially from our current expectations include, among other things:

• the results of our efforts to implement our retail strategy;

• adverse changes in our loan portfolio and the resulting credit risk-related losses and expenses;

• interest rate fluctuations and other economic conditions;

• continued levels of our loan quality and origination volume;

• our ability to attract core deposits;

• continued relationships with major customers;

• competition in product offerings and product pricing;

• adverse changes in the economy that could increase credit-related losses and expenses;

• adverse changes in the market price of our common stock;

• proxy contests and litigation;

• compliance with laws and regulatory requirements, including our formal agreement with the Office of the Comptroller of the Currency, and compliance with Nasdaq standards;

• other factors, including those matters discussed in additional detail under the heading “Risk Factors;” and

• other risks and uncertainties detailed from time to time in our filings with the SEC.

Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

General

Yardville National Bancorp, referred to as “we” or the “Company,” is a registered bank holding company headquartered in Mercer County, New Jersey with total assets of $2.96 billion, total deposits of $1.97 billion and total stockholders’ equity of $177.5 million at December 31, 2005. We conduct a general commercial and retail banking business through our principal operating subsidiary, The Yardville National Bank, referred to as the “Bank,” which commenced operations as a commercial bank in 1925. We provide a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial lending to small to mid-sized businesses and individuals. Our existing and target markets are located in the corridor between New York City and Philadelphia. We currently operate 28 full-service branches throughout Mercer, Hunterdon, Somerset, Middlesex, Burlington and Ocean Counties in New Jersey and Bucks County, Pennsylvania.

Due to continued consolidation among financial institutions, we have grown our asset base both in our existing markets and by expanding into contiguous markets, and we see opportunities for continued growth. We believe these markets have customers with banking needs that can no longer be adequately served by smaller local institutions but who still desire the personalized service that larger institutions typically do not offer. We believe that the key differentiating factors between us and our larger competitors are our philosophy of relationship banking and our in-market expertise, while our ability to enter into larger loan relationships enables us to effectively compete against smaller institutions.

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Our goals are to further develop the earnings power and increase the value of our franchise. In order to achieve these goals, we need to continue to manage our cost of funds and increase our non-interest income by attracting lower cost transaction and other core deposit accounts. Specifically in 2006, we plan to continue to execute our retail strategy by expanding our branch network, enhancing our brand image and upgrading our technology infrastructure.

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC are available without charge through the “Investor” or “Investor Relations” section of our Internet web site, www.ynb.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. Neither our Internet web site nor the information contained in or connected with that web site are incorporated by reference into this report.

Our principal and executive offices are located at 2465 Kuser Road, Hamilton, New Jersey 08690. Our telephone number is (609) 585-5100.

Subsidiaries

The Company directly owns the Bank and six additional subsidiaries, Yardville Capital Trust, Yardville Capital Trust II, Yardville Capital Trust III, Yardville Capital Trust IV, Yardville Capital Trust V and Yardville Capital Trust VI. The Company is also the indirect owner, through the Bank, of ten subsidiaries, which provide insurance and financial services and own a portion of the real estate, loans and securities utilized by the Bank. The assets, liabilities and results of operations of the Bank and its subsidiaries are consolidated with the Company for financial reporting purposes. The trusts are not consolidated subsidiaries. See Note 8 of the Notes to Consolidated Financial Statements filed with this annual report.

Competition

The Bank’s primary market area in Central New Jersey is highly competitive for financial services and the Bank faces significant competition both in making loans and in attracting deposits. The Bank is subject to competition in all aspects of its business from other financial institutions such as commercial banks, savings banks, savings and loan associations, credit unions, insurance companies and finance and mortgage companies. Within the direct market area of the Bank, there are a significant number of competing financial institutions. The Bank competes in its market area with a number of larger commercial banks which have substantially greater resources, higher lending limits and larger branch systems, and which provide a broader array of banking products and services. Liberalized branching and acquisition laws have lowered barriers to entry into the banking business, and increased both competition for and opportunities to acquire other financial institutions. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans. In its lending business, the Bank is subject to competition from consumer finance companies and mortgage companies, which are subject to fewer regulatory restrictions than banks, and can often offer lower loan rates than banks. Financial institutions are intensely competitive in the interest rates they offer on deposits. In addition, the Bank faces competition for deposits from non-bank institutions such as brokerage firms, insurance companies and investment companies who offer the opportunity to invest in such instruments as short-term money market funds, corporate and government securities funds, mutual funds and annuities.

Supervision and Regulation

General

The Company and its subsidiaries are subject to extensive supervision and regulation under both Federal and state laws. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and restrict the Company’s ability to repurchase stock or to receive dividends from the Bank. The Company and its subsidiaries are also subject to comprehensive examination and supervision by the Board of Governors of the Federal Reserve System (“FRB”) and the Office of the Comptroller of the Currency (“OCC”). The Company and certain of its subsidiaries are also functionally regulated by the Securities and Exchange Commission (“SEC”) and state insurance regulators. These regulatory agencies generally have broad discretion to impose

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restrictions and limitations on the operations of the Company and the Bank. The consequences of noncompliance with these laws and regulations can include substantial monetary and administrative penalties and sanctions. This supervisory framework could materially impact the conduct and profitability of the Company’s activities.

To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of the Company and the Bank.

Bank Holding Company Act

The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and is subject to regulation and supervision by the FRB. The BHC Act requires the Company to secure the prior approval of the FRB before it owns or controls, directly or indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of, any bank or thrift, or merges or consolidates with another bank or thrift holding company. In addition, bank holding companies are restricted in the types of activities in which they may engage, directly or indirectly through subsidiaries, and prior approval of the FRB may be required before engaging in certain activities.

The Company had elected to become a “financial holding company” under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) in March of 2000. The GLB Act amended the BHC Act to allow a “financial holding company” to engage in certain activities that were not previously permitted for a bank holding company, and to engage on less restrictive terms in certain activities that were previously permitted. These expanded activities include securities underwriting and dealing, insurance underwriting and sales, and merchant banking activities. In order to maintain its status as a financial holding company, the Company and the Bank must be “well capitalized” and “well managed,” and have a “satisfactory” rating under the Community Reinvestment Act (“CRA”). For bank holding companies that are not financial holding companies, the permissible activities are limited to those previously determined by the FRB to be so “closely related to banking” as to be a “proper incident thereto.” As a result of the agreement between the Bank and the OCC (which is more fully discussed under “Regulatory Matters” in Part I, Item 3 ), the Company elected to decertify as a financial holding company. Because the Company was not engaged in any activity that would have required it to be a financial holding company at the time of its decertification, such decertification did not impact the Company’s activities or operations.

There are a number of restrictions imposed on the Company and the Bank by Federal law which are designed to reduce potential loss exposure to the depositors of the Bank and Federal Deposit Insurance Corporation (“FDIC”) insurance funds in the event the Bank should become insolvent. For example, FRB policy requires a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks and to commit resources to support such institutions in circumstances where it might not do so otherwise. The FRB has, in some cases, entered orders for bank holding companies to take affirmative action to strengthen the finances or management of subsidiary banks.

Supervision and Regulation of the Bank

The operations and investments of the Bank are also limited by Federal and state statutes and regulations. The primary Federal regulator of the Bank is the OCC. The Bank and its operating subsidiaries may engage in any activities that are determined by the OCC to be part of or incidental to the business of banking. Under the GLB Act, the Bank may engage in expanded activities through the formation of a “financial subsidiary.” The Bank has filed a financial subsidiary certification with OCC and thus may engage through a financial subsidiary in such expanded activities as insurance sales and securities underwriting. As a result of the agreement between the Bank and the OCC (which is more fully discussed under “Regulatory Matters” in Part I, Item 3), the Bank is no longer eligible to establish or acquire a financial subsidiary. Because the Bank is not engaged in any activity that could only be conducted through a financial subsidiary, this status will not impact its current activities and operations.

In order to be eligible to establish or acquire a financial subsidiary, the Bank must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. In addition, the total assets of all financial subsidiaries of a national bank may not exceed the lesser of $50 billion or 45% of the parent bank’s total assets. In calculating its risk-based capital, the Bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary, and the assets of the financial subsidiary from the Bank’s consolidated

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assets. If the Bank were to fail to meet the “well capitalized” or “well managed” criteria, it would not be permitted to continue these expanded activities. In addition, if the Bank receives less than a “satisfactory” CRA rating, it would not be permitted to engage in any new activities or to make new investments in reliance on the financial subsidiary authority.

OCC banking laws and regulations generally govern, among other things, the scope of a bank’s business, the investments a bank may make, the loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. In addition, the OCC possesses broad powers to prohibit the Bank from engaging in any activity that it determines would be an unsafe and unsound banking practice.

The Bank is also subject to Federal laws that limit the amount of transactions between the Bank and its nonbank affiliates, including the Company. Under these provisions, transactions (such as a loan or investment) by the Bank with any nonbank affiliate are generally limited to 10% of the Bank’s capital and surplus for all covered transactions with such affiliate or 20% of capital and surplus for all covered transactions. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specified amounts. The Bank is also prohibited from purchasing any “low quality” asset from an affiliate. The GLB Act imposes similar restrictions on transactions between the Bank and its financial subsidiaries.

Under the CRA, the record of a bank holding company and its subsidiary banks must be considered by the appropriate Federal banking agencies in reviewing and approving or disapproving a variety of regulatory applications including approval of a branch or other deposit facility, office relocation, a merger and certain acquisitions of bank shares. Regulators are required to assess the record of the Company and the Bank to determine if they are meeting the credit needs of the communities they serve. Regulators make publicly available an evaluation of banks’ records in meeting credit needs in their communities, including a descriptive rating and a statement describing the basis for the rating.

Deposit Insurance

The deposits of the Bank are insured up to $100,000 per insured depositor by the FDIC. The premiums paid by insured depository institutions range from $0.00 to $0.27 per $100 of insured deposits, and are based on an institution’s relative risk to the deposit insurance funds, as measured by the institution’s regulatory capital position and other supervisory factors. The Bank currently pays FDIC insurance premiums of $0.0075 per $100 of insured deposits based on this risk assessment.

As FDIC deposit insurance premiums are “risk-based,” higher premiums would be charged to banks that have lower capital ratios or higher risk profiles. Consequently, a decrease in the Bank’s capital ratios, or a negative evaluation by the OCC, as the Bank’s primary Federal banking regulator, may also increase the Bank’s net funding costs and reduce its net income.

All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a Federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation. FDIC-insured depository institutions paid approximately 1.5 cents per $100 of assessable deposits in 2005. The FDIC established the FICO assessment rate effective for the first quarter of 2006 at approximately 1.4 cents annually per $100 of assessable deposits.

As a result of recently enacted legislation, the federal deposit insurance system has been substantially reformed. The more important features of this legislation would include (1) merging the Bank Insurance Fund and the Savings Association Insurance Fund into the new Deposit Insurance Fund, (2) increasing the deposit insurance limit for certain retirement accounts to $250,000, (3) indexing the insurance limit to allow for inflation, (4) providing credits (totaling $4.7 billion) to offset future premium payments by banks in recognition of their contributions to the FDIC since 1996 and (5) eliminating the current 1.25% coverage ratio in favor of FDIC discretion to set the ratio within a range of 1.15% to 1.50% annually. The FDIC is required to implement most of these provisions by November 5, 2006. Two provisions, merger of the two insurance funds and raising the coverage for certain retirement accounts, should be completed by May 9, 2006. Until these final regulations are enacted, the Company is unable to determine the financial impact of this legislation on the Bank.

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Capital Rules

Under risk-based capital requirements for bank holding companies, the Company is required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of eight percent. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangible assets (“Tier 1 Capital”). The remainder may consist of certain subordinated debt, certain hybrid capital instruments and other qualifying preferred stock, and a limited amount of the allowance for loan losses (“Tier 2 Capital” and, together with Tier 1 Capital, “Total Capital”). At December 31, 2005, the Company’s Tier 1 Capital and Total Capital ratios were 10.8 percent and 11.8 percent, respectively.

In addition, the FRB has established minimum leverage ratio requirements for bank holding companies. For bank holding companies that meet certain specified criteria, including having the highest regulatory rating and not experiencing significant growth or expansion, these requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted average assets, equal to three percent. Other bank holding companies that fail to meet such criteria will generally be required to maintain a leverage ratio of four to five percent. The Company’s leverage ratio at December 31, 2005, was 8.6 percent. The Bank is subject to similar capital requirements adopted by the OCC.

Both the FRB and the OCC risk-based capital standards explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agency in assessing an institution’s general capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluation the Bank’s capital adequacy. The FRB has issued additional guidelines for certain bank holding companies that engage in trading activities. The Company does not believe that consideration of these additional factors will affect the regulators’ assessment of the Company’s or the Bank’s capital position.

In addition to the required minimum capital levels described above, Federal law establishes a system of “prompt corrective actions” which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a federally regulated depository institution falls. The extent of these powers depends upon whether the institution in question is considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Generally, the smaller an institution’s capital base relative to its total assets, the greater the scope and severity of the agencies’ powers. The capital thresholds for a “well capitalized” institution and “adequately capitalized” institution are set forth below. An institution will be deemed “undercapitalized” if it fails to meet the minimum capital requirements, “significantly undercapitalized” if it has a Total Capital ratio that is less than 6.0 percent, a Tier 1 Capital ratio that is less than 3.0 percent or a leverage ratio that is less than 3.0 percent and “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent. Business activities may also be influenced by an institution’s capital classification. For example, only a “well capitalized” institution may accept brokered deposits without prior regulatory approval. An “adequately capitalized” institution may accept brokered deposits only with prior regulatory approval.

The following table sets forth the minimum capital ratios that a bank must satisfy in order to be considered adequately capitalized or well capitalized under the prompt corrective action regulations, the minimum capital ratios applicable to the Bank under its agreement with the OCC, and the Bank’s capital ratios at December 31, 2005:

	Adequately			Well			OCC Required
	Capitalized			Capitalized			Minimums			Bank ratios
Total Risk-Based Capital Ratio		8.00	%		10.00	%		10.75	%		10.95	%
Tier 1 Risk-Based Capital Ratio		4.00	%		6.00	%		9.75	%		9.95	%
Leverage Ratio		4.00	%		5.00	%		7.50	%		7.62	%

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As a result of the agreement with the OCC, the Bank is no longer deemed to be “well-capitalized” for regulatory purposes. This classification, however, is not intended to be and should not be construed as a representation of the overall financial condition or prospects of the Bank.

The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person.” Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions, including increased reporting burdens and regulatory monitoring, a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in new lines of business, obligations to raise additional capital, restrictions on transactions with affiliates, and restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be placed in receivership.

Under currently applicable guidance, subordinated debentures recorded on the Company’s balance sheet (issued in connection with trust preferred securities) are included in Tier 1 Capital of the Company, up to a maximum of 25% of Tier 1 Capital. Historically, this capital treatment was based on the accounting for these instruments, however, trust preferred securities are no longer consolidated under U.S. generally accepted accounting principles, or “GAAP.” Partly in response to this accounting change, the FRB amended its risk-based capital standards for bank holding companies to allow for the continued inclusion of outstanding and prospective issuances of trust preferred securities in Tier 1 Capital subject to stricter quantitative limits and qualitative standards. Under the amended rule, the aggregate amount of trust preferred securities and certain other capital instruments would be limited to 25% of Tier 1 Capital, net of goodwill less any deferred tax liability. The amount of trust preferred securities and certain other capital instruments in excess of the limit could be included in Tier 2 Capital, subject to restrictions. The amended rule provides a five-year transition period for the application of the quantitative limits. The Company would continue to follow GAAP in accounting for these instruments for regulatory reporting purposes. The amended rule would not impact the Company’s existing treatment of trust preferred securities for purposes of computing its Tier 1 Capital, nor would it affect the capital adequacy rating of the Bank. See “Subordinated Debentures” and “Regulatory Capital” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Limitations on Payment of Dividends

Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock if, following the payment of the dividend, (1) it would be unable to pay its debts as they become due in the usual course of business or (2) its total assets would be less than its total liabilities. Further, it is the policy of the FRB that bank holding companies should pay dividends only out of current earnings and only if future retained earnings would be consistent with the Company’s capital, asset quality and financial condition.

Since it has no significant independent sources of income, the ability of the Company to pay dividends is dependent on its ability to receive dividends from the Bank. Under national banking laws, the Bank must obtain the approval of the OCC before declaring any dividend which, together with all other dividends declared by the Bank in the same calendar year, will exceed the total of the bank’s net profits of that year combined with its retained net profits of the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Net profits are to be calculated without adding back any provision for the Bank’s allowance for loan losses. Furthermore, the Bank, as an FDIC-insured institution, may not pay dividends or make distributions that would cause the institution to fail to meet minimum capital requirements. These restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time.

In addition, as a bank whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default of any assessment due to the FDIC. The Bank is not in default under any of its obligations to the FDIC.

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Under the agreement with the OCC, and the supervisory letter from the Federal Reserve Bank of Philadelphia, prior regulatory approval is required for dividend payments by both the Bank and the Company.

Effect of Government Monetary Policies

The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The FRB has had, and will likely continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The FRB has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies.

USA PATRIOT Act

The USA PATRIOT Act authorizes the Secretary of the Treasury, in consultation with the other Federal financial institution regulatory agencies, to adopt special measures applicable to financial institutions. Among its provisions, the USA PATRIOT Act requires each financial institution to (1) establish an anti-money laundering program, (2) establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private bank accounts and correspondent accounts maintained for non-United States persons or their representatives, and (3) avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, the USA PATRIOT Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to request for information from Federal banking agencies within 120 hours.

The USA PATRIOT Act also requires the Federal banking regulators to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.

The Department of Treasury has issued regulations implementing the due diligence requirements of the USA PATRIOT Act. These regulations require minimum standards to verify customer identity and maintain accurate records, encourage cooperation among financial institutions, Federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, prohibit the anonymous use of “concentration accounts,” and require all covered financial institutions to have in place an anti-money laundering compliance program.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, auditing and accounting, executive compensation and corporate reporting for entities, such as the Company, with equity or debt securities registered under the Securities Exchange Act of 1934. Among other things, Sarbanes-Oxley and its implementing regulations have established new membership requirements and additional responsibilities for our audit committee, imposed restrictions on the relationship between the Company and its outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate the Company’s disclosure controls and procedures and its internal control over financial reporting, and required our auditors to issue a report on our internal control over financial reporting. The Nasdaq Stock Market, Inc. (“NASDAQ”) has also adopted corporate governance rules that have been approved by the SEC. The requirements are intended to allow shareholders to more easily and efficiently monitor the performance of companies and directors. The Company and its Board of Directors have, as appropriate, adopted or modified the Company’s policies and practices in order to comply with these regulatory requirements and to enhance the Company’s corporate governance practices.

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Other Laws and Regulations

The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking organizations. In lending to commercial and consumer borrowers, and in owning and operating its own property, the Bank is subject to regulations and potential liabilities under state and Federal environmental laws.

Legislation and Regulatory Changes

Legislation and regulations may be enacted which increase the cost of doing business, limit or expand permissible activities, or affect the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions are frequently made in Congress and before various bank regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on the Company and the Bank.

Employees

At December 31, 2005, the Company employed 395 full-time employees and 22 part-time employees.

Statistical Disclosure

The Company’s statistical disclosure information, required of bank holding companies, is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is set forth in Item 7 of this report.

Item 1A. Risk Factors.

The following is a discussion of certain significant risk factors that could potentially negatively impact our financial condition and results of operations.

We may not be able to continue to grow our business, which may adversely impact our results of operations.

During the last five years, our total assets have grown substantially from $1.94 billion at December 31, 2001 to $2.96 billion at December 31, 2005. Our business strategy calls for continued expansion, but we do not anticipate growth to continue at this rate. Our ability to continue to grow depends, in part, upon our ability to open new branch locations, successfully attract deposits to existing and new branches, and identify favorable loan and acquisition opportunities. In the event that we do not continue to grow, our results of operations could be adversely impacted.

We may not be able to manage our growth, which may adversely impact our financial results.

As part of our expansion strategy, we plan to open new branches in our existing and target markets. However, we may be unable to identify attractive locations on terms favorable to us or to hire qualified management to operate the new branches. In addition, the organizational and overhead costs may be greater than we anticipated or we may not be able to obtain the regulatory approvals necessary to open new branches. New branches may take longer than expected to reach profitability, and we cannot assure that they will become profitable. The additional costs of starting new branches may adversely impact our financial results.

Our ability to manage growth successfully will depend on whether we can continue to fund this growth while maintaining cost controls and asset quality, as well as on factors beyond our control, such as national and regional economic conditions and interest rate trends. If we are not able to control costs and maintain asset quality, such growth could adversely impact our earnings and financial condition.

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The Company may require additional capital in the future, but that capital may not be available when it is needed.

The Company is required by Federal regulatory authorities to maintain adequate levels of capital to support its operations. The Company may at some point need to raise additional capital to comply with regulatory requirements, including requirements under the Bank’s agreement with the OCC, or to support continued growth. The Company’s ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside the Company’s control, and on its financial performance. Accordingly, the Company cannot assure you of its ability to raise additional capital if needed or on terms acceptable to the Company. If the Company cannot raise additional capital when needed, the ability to further expand its operations could be materially impaired.

Our exposure to credit risk, because we focus on commercial lending, could adversely affect our earnings and financial condition.

There are certain risks inherent in making loans. These risks include interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the economy, risks inherent in dealing with borrowers and, in the case of a loan backed by collateral, risks resulting from uncertainties about the future value of the collateral.

Commercial loans are generally viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Commercial and industrial loans and commercial real estate loans, which comprise our commercial loan portfolio, were 82.5% of our total loan portfolio at December 31, 2005. Construction and development loans, which are included as part of our commercial real estate loans, were 14.0% of our total loan portfolio at December 31, 2005. Construction financing typically involves a higher degree of credit risk than commercial mortgage lending. Risk of loss on a construction loan depends largely on the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost (including interest) of construction. If the estimated property value proves to be inaccurate, the loan may be undersecured.

Because our loan portfolio contains a significant number of commercial real estate loans and commercial and industrial loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could cause an increase in the provision for loan losses and an increase in loan charge offs, which could adversely impact our results of operations and financial condition.

Adverse economic and business conditions in our market area may have an adverse effect on our earnings.

Substantially all of our business is with customers located within Mercer County and contiguous counties. Generally, we make loans to small to mid-sized businesses, most of which depend on the health of the regional economy for their success. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. Adverse economic and business conditions in our market area could reduce our growth rate, affect our borrowers’ ability to repay their loans and, consequently, adversely affect our financial condition and performance. Further, we place substantial reliance on real estate as collateral for our loan portfolio. A sharp downturn in real estate values in our market area could leave many of our loans undersecured. If we are required to liquidate the collateral to satisfy the debt securing a loan during a period of reduced real estate values, our earnings could be adversely affected.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings would decrease.

In an attempt to mitigate any loan losses we may incur, we maintain an allowance for loan losses based on, among other things, national and regional economic conditions, and historical loss experience and delinquency trends among loan types. However, we cannot predict loan losses with certainty and we cannot assure you that charge offs in future periods will not exceed the allowance for loan losses. In addition, regulatory agencies, as an integral part of their examination process, review our allowance for loan losses and may require additions to the allowance

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based on their judgment about information available to them at the time of their examination. Factors that require an increase in our allowance for loan losses could reduce our earnings.

Loss of our key personnel or an inability to hire and retain qualified personnel could adversely affect our business.

Our future operating results are substantially dependent on the continued service of our senior and executive management team. The loss of key personnel could have a negative impact on our banking operations because of the loss of their business development skills, lending expertise and community involvement, among other things. Our success also depends on the experience of our branch managers and our lending officers and on their relationships with the communities they serve. Although we have employment agreements with certain key personnel, our employees may voluntarily terminate their employment at any time. We cannot assure you that we will be able to retain our key personnel or attract the qualified personnel necessary for the management of our business.

Changes in interest rates may adversely affect our earnings and financial condition.

Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.

Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income. We are unable to accurately predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets.

We may not be able to successfully integrate acquisitions, which may adversely affect our business.

We intend to consider future strategic acquisitions, some of which could be material to us and which may include companies that are substantially equivalent or larger in size compared to us. We continually explore and conduct discussions with third parties regarding possible acquisitions. As of the date of this report, we have not entered into any definitive agreement and we do not have any definitive plans relating to any specific acquisitions.

We will have to integrate any acquisitions into our business. The difficulties of combining the operations, technologies and personnel of companies we acquire include coordinating and integrating geographically separated organizations and integrating personnel with diverse business backgrounds. We may not be able to effectively manage or integrate the acquired companies. Further, we may not be successful in implementing appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. Our efforts to integrate these businesses could be affected by a number of factors beyond our control, such as regulatory developments, general economic conditions and increased competition. In addition, the process of integrating these businesses could cause an interruption of, or loss of momentum in, the activities of our existing business and the loss of key personnel and customers. The diversion of management’s attention and any delays or difficulties encountered in connection with the transition and integration of these businesses could negatively impact our business and results of operations if any of the above adverse effects were to occur. Further, the benefits that we anticipate from any acquisitions may not be obtained.

Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability.

We face substantial competition in originating loans. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders. Many of our competitors enjoy advantages, including

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greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans.

In attracting deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy advantages, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require us to increase our rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations and increase our cost of funds.

We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable terms. Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.

Government regulation significantly affects our business.

The banking industry is extensively regulated. Banking regulations are intended primarily to protect depositors, and the FDIC deposit insurance funds, not the shareholders of the Company. We are subject to regulation and supervision by the FRB. The Bank is subject to regulation and supervision by the OCC and, as discussed under the heading “Regulatory Matters” in Part I, Item 3, is party to an agreement with the OCC. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and growth. The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. We are subject to various regulatory capital requirements, which involve both quantitative measures of our assets and liabilities and qualitative judgments by regulators regarding risks and other factors. Failure to meet minimum capital requirements or comply with other regulations could result in actions by regulators that could adversely affect our ability to pay dividends or otherwise adversely impact operations. In addition, changes in laws, regulations and regulatory practices affecting the banking industry may limit the manner in which we conduct our business. Such changes may adversely affect us, including our ability to offer new products and services, obtain financing, attract deposits, make loans and achieve satisfactory spreads and impose additional costs on us. The Bank is also subject to a number of Federal laws which, among other things, require it to lend to various sectors of the economy and population, and establish and maintain comprehensive programs relating to anti-money laundering and customer identification. The Bank’s compliance with these laws will be considered by the Federal banking regulators when reviewing bank merger and bank holding company acquisitions or commence new activities or make new investment in reliance on the GLB Act. As a public company, we are also subject to the corporate governance standards set forth in the Sarbanes-Oxley Act of 2002, as well as the rules or regulations promulgated by the SEC or NASDAQ.

Our disclosure controls and procedures and our internal controls over financial reporting may not achieve their intended objectives.

Our system of internal controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the internal control system will be met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. The design of any control system is based in part

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upon certain assumptions about the likelihood of future events. Because of inherent limitation in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements, which could reduce our ability to effectively compete.

The financial services industry is undergoing rapid technological changes with frequent introduction of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services to enhance customer convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We cannot assure you that we will be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete.

Our information systems are vulnerable to damage that could harm our business.

We rely upon our existing information systems for operating and monitoring all major aspects of our business, including deposit and loan information, as well as various internal management functions. These systems and our operations are vulnerable to damage or interruption from natural disasters, power loss, network failure, improper operation by our employees, security breaches, computer viruses or intentional attacks by third parties. Any disruption in the operation of our information systems could adversely impact our operations, which may affect our results of operations and financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

As of March 16, 2006, we were conducting our business through 28 banking branches, an operations center and a maintenance center.

Our executive offices are located at 2465 Kuser Road, Hamilton, New Jersey, which is also the location of one of our branches. The Bank leases the offices at this location pursuant to a lease that began in October 1999, has an initial term of 14 years ending in 2013, and is renewable for two additional five-year periods thereafter. The monthly rental payments under the lease are $56,387 during the second five years of the lease, which commenced in October 2004. The monthly rental will be adjusted every five years in accordance with a formula based on the Consumer Price Index, provided that the monthly rental payment for any lease period may not vary by more than 3% from the monthly rental payment in the immediately preceding lease period. The Bank has the option to purchase the property at its fair market value at the time the option is exercised.

Of the 28 banking branches, five of the buildings and the land on which they are located are owned and 23 buildings and the land on which they are located are leased. The operations center, the maintenance center, and the land on which they are located are leased.

Item 3. Legal Proceedings.

Actions Related to 2006 Annual Meeting

On March 3, 2006, certain shareholders of the Company, namely Seidman and Associates, L.L.C., Lawrence B. Seidman and Dennis Pollack, filed a Verified Complaint and Order to Show Cause in the Superior Court of New Jersey, Chancery Division, Passaic County, against the Bank, its directors and certain former directors. The plaintiffs are disputing the validity of the actions taken by the Company’s board of directors in December 2005, to reduce the size of the board from fifteen to thirteen, and in January 2006, to include certain qualifications for directors and director nominees in the Company’s By-laws. Specifically, the plaintiffs have asked the court to order four members of the board to stand for election at the 2006 annual meeting of shareholders, to invalidate the director qualification By-law the Company adopted in January 2006, and to declare that Lawrence B. Seidman and Dennis Pollack are qualified to serve as directors, if elected at the 2006 annual meeting of shareholders. The Company and the named defendants are defending the actions of the Company’s board.

Regulatory Matters

On August 31, 2005, the Bank entered into a formal agreement with the OCC regarding the Bank’s operations, maintaining specified capital levels, obtaining prior approvals of dividend payments, and other concerns identified in the OCC’s Report of Examination for the examination that commenced on January 3, 2005. The agreement also encompasses activities initiated earlier in 2005 by the Bank to strengthen its board and management supervision, and internal audit and risk management processes. Under the agreement, the Bank will not be deemed to be “well

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capitalized” for certain regulatory purposes. Such capital category may not, however, accurately represent the Bank’s general financial condition or prospects. As a result of the agreement, the Bank is not eligible to establish or acquire a financial subsidiary to engage in expanded financial activities such as securities and insurance brokerage. In addition, the Company has elected to decertify as a “financial holding company” within the meaning of the Bank Holding Company Act. A “financial holding company’ may affiliate with financial companies, such as merchant banking, securities and insurance firms, that engage in a broader range of activities than previously permitted for bank holding companies. Neither of these actions will impact current activities and operations of the Company or the Bank.

On January 3, 2006, the OCC commenced its annual examination for the annual period ended September 30, 2005. The OCC’s Report of Examination for this examination is expected to be received by the Bank in the second quarter of 2006. While we believe that we have made significant progress in addressing the concerns raised by the OCC, we do not expect the OCC to terminate its formal agreement with the Bank at this time.

On January 27, 2006, based primarily on the condition of the Bank, as determined by the OCC at the examination for the annual period ended September 30, 2004, as well as other information, the Federal Reserve Bank of Philadelphia issued a supervisory letter to the Company. The supervisory letter sets forth certain provisions with respect to which the Reserve Bank has requested our compliance, including obtaining prior approvals of dividend payments and any indebtedness other than indebtedness incurred in the ordinary course of business, as well as refraining from purchasing or redeeming any shares of our stock.

Other Legal Proceedings

Apart from the matters discussed above, the Company and the Bank are party, in the ordinary course of business, to litigation involving collection matters, contract claims and other miscellaneous causes of action arising from our business. We do not consider that any such proceedings depart from usual routine litigation, and in our judgment, our consolidated financial position or results of operations will not be affected materially by the final outcome of any pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2005.

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PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded in the Nasdaq National Market under the symbol “YANB.” The following table shows, by quarter, the high and low closing sales prices of our common stock in the Nasdaq National Market during 2004 and 2005.

2005 Quarter	High		Low		Close
First	$	33.83	$	31.41	$	32.75
Second		33.36		32.34		35.75
Third		36.95		34.68		35.25
Fourth		38.04		33.10		34.65
2004 Quarter
First	$	26.00	$	23.50	$	24.70
Second		25.53		23.80		24.95
Third		29.88		23.21		29.10
Fourth		35.05		29.35		34.26

Holders

As of December 31, 2005, our common stock was held by approximately 3,400 holders of record, which included approximately 700 registered holders and an estimate of individual participants who held our common stock through registered clearing agencies and their nominees.

Dividends

In 2004, the Company paid four quarterly cash dividends on its common stock in the aggregate amount of $4.8 million. In 2005, the Company paid four quarterly cash dividends on its common stock in the aggregate amount of $4.9 million. Dividends paid per share in 2005 totaled $0.46. Cash dividends are generally paid quarterly or four times a year. In the first quarter of 2006, the Company paid a cash dividend in the amount of $0.115 per share on the common stock. Because substantially all of the funds available for the payment of cash dividends are derived from the Bank, future cash dividends will depend primarily upon the Bank’s earnings, financial condition, need for funds, and government policies and regulations applicable to both the Bank and the Company. The Company has also agreed with the holders of the trust preferred securities issued by subsidiary trusts (see Note 8 of the Notes to Consolidated Financial Statements) that the Company will not pay dividends if an event of default should occur (and remain uncured) under the terms of the trust preferred securities. As of December 31, 2005, the net profits of the Bank available for distribution to the Company as dividends without regulatory approval were approximately $33.0 million. The Company expects to pay quarterly cash dividends for the remaining three quarters in 2006 to holders of common stock, subject to the conditions described above.

Pursuant to the supervisory letter we received from the Federal Reserve Bank of Philadelphia, the Company may not declare or pay any dividend without the prior approval of the Reserve Bank. In addition, the Bank’s formal agreement with the OCC provides that the Bank may not declare or pay any dividend to the Company without the prior written approval of the OCC. In the event that the Bank was unable to pay dividends, it would adversely affect the Company’s ability to pay dividends. While we cannot ensure that we will receive the necessary approvals, we do not believe that the Reserve Bank supervisory letter or the Bank’s formal agreement with the OCC will

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materially limit our ability to pay future dividends on our common stock. For additional discussion of the supervisory letter and formal agreement, see Part I, Item 3. “Legal Proceedings.”

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information as of December 31, 2005, with respect to compensation plans, including individual compensation arrangements, under which our common stock is authorized for issuance.

					Number of shares
					remaining available for
	Number of shares to be		Weighted-average exercise		future issuance under
	issued upon exercise of		price of outstanding		equity compensation plans
	outstanding options,		options, warrants and		(excluding securities
Plan category	warrants and rights		rights		reflected in first column)
Equity compensation plans approved by security holders (1)		856,983		$    17.09		746,974
Equity compensation plans not approved by security holders		—		—		—
Total		856,983		$    17.09		746,974

(1) These plans consist of the Yardville National Bancorp 1997 Stock Option Plan, the 2003 Director Plan and the 2005 Equity Incentive Plan.

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Item 6. Selected Financial Data.

The following table sets forth certain historical financial data with respect to the Company and should be read in conjunction with the consolidated financial statements and related notes thereto included in this report.

	At or for the year ended December 31,
	2005		2004		2003		2002		2001
Statement of Income
(in thousands)
Interest income	$	170,267	$	139,864	$	121,469	$	120,259	$	119,044
Interest expense		87,054		69,145		68,289		73,776		82,909
Net interest income		83,213		70,719		53,180		46,483		36,135
Provision for loan losses		10,530		9,625		9,360		4,375		3,925
Securities gains, net		862		1,297		1,513		3,084		3,182
Other non-interest income		6,628		6,682		6,581		5,220		4,855
Non-interest expense		49,602		42,649		38,159		31,044		29,052
Income before income tax expense		30,571		26,424		13,755		19,368		11,195
Income tax expense		9,637		7,899		3,446		5,364		2,642
Net income	$	20,934	$	18,525	$	10,309	$	14,004	$	8,553
Balance Sheet
(in thousands, except per share data)
Assets	$	2,956,731	$	2,805,917	$	2,431,193	$	2,232,468	$	1,944,399
Loans		1,972,840		1,782,592		1,443,355		1,195,143		1,007,973
Allowance for loan losses		22,703		20,116		17,295		16,821		13,542
Securities		830,694		880,782		866,693		876,365		813,246
Deposits		1,972,717		1,810,004		1,483,809		1,272,286		1,092,690
Subordinated debentures		62,892		62,892		47,428		33,510		33,510
Borrowed funds		718,120		753,130		738,080		757,711		707,113
Stockholders’ equity		177,458		160,158		143,557		145,939		93,245
Per Share Data
Net income — basic	$	1.97	$	1.77	$	0.99	$	1.72	$	1.13
Net income — diluted		1.89		1.71		0.97		1.68		1.11
Cash dividends		0.46		0.46		0.46		0.44		0.44
Stockholders’ equity (book value)		16.35		15.27		13.80		14.08		11.68
Other Data
Average shares outstanding — basic		10,609		10,455		10,391		8,124		7,601
Average shares outstanding — diluted		11,057		10,861		10,651		8,319		7,678

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Selected Financial Data (cont.)

	At or for the year ended December 31,
	2005			2004			2003			2002			2001
Financial Ratios
Return on average assets		0.72	%		0.70	%		0.44	%		0.67	%		0.48	%
Return on average stockholders’ equity		12.57			12.38			7.09			13.45			9.86
Net interest margin		2.98			2.76			2.35			2.29			2.10
Net interest margin (1)		3.05			2.83			2.42			2.36			2.17
Efficiency ratio		54.69			54.19			62.28			56.66			65.77
Efficiency ratio (1)		53.21			53.06			60.87			55.40			62.23
Total loans to total assets		66.72			63.53			59.37			53.53			51.84
Capital Ratios
Average stockholders’ equity to average assets		5.76			5.64			6.19			4.97			4.85
Dividend payout ratio		23.88			26.00			46.46			25.32			39.06
Tier 1 leverage ratio		8.32			7.62			7.79			7.76			6.45
Tier 1 capital as a percentage of risk-weighted assets		10.82			10.09			11.05			11.84			10.03
Total capital as a percentage of risk-weighted assets		11.82			11.42			12.07			13.00			11.25
Asset Quality Ratios
Allowance for loan losses to total loans		1.15			1.13			1.20			1.41			1.34
Net loan charge offs to average total loans		0.42			0.42			0.67			0.10			0.15
Nonperforming loans to total loans		0.94			0.56			0.74			0.52			0.51
Nonperforming assets to total loans and other real estate owned		0.94			0.56			0.74			0.61			0.74
Nonperforming assets to total assets		0.63			0.36			0.44			0.33			0.38
Allowance for loan losses to nonperforming assets		121.97			201.00			162.55			229.73			181.67
Allowance for loan losses to nonperforming loans		121.97	%		201.00	%		162.55	%		268.11	%		264.23	%
Market Price Per Share of Common Stock
Closing	$	34.65		$	34.26		$	25.74		$	17.24		$	12.50
High closing		38.04			35.05			25.90			21.20			14.45
Low closing		31.41			23.21			16.30			12.25			10.96

(1) The net interest margin and efficiency ratio are also presented on a tax equivalent basis. We believe that this presentation provides comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Although we believe that these financial measures enhance investors’ understanding of our business and performance, these measures should not be considered an alternative to GAAP. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Average Balances, Yields and Costs.”

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of this discussion and analysis is to provide the reader with information pertinent to understanding and assessing Yardville National Bancorp’s results of operations for each of the past three years and financial condition for each of the past two years, as well as selected data for the past five years. Throughout this annual report the terms “YNB,” “Company,” “we,” “us,” “our,” and “corporation” will refer to Yardville National Bancorp, our wholly owned banking subsidiary The Yardville National Bank (the “Bank”), and other subsidiaries as a consolidated entity, except where noted. The following discussion and analysis should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements with respect to the financial condition, results of operations and business of YNB. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set in Part I, Item 1, on page 3.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In the preparation of our consolidated financial statements we are required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

YNB’s significant accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Note 1 of the Notes to Consolidated Financial Statements contains a summary of our significant accounting policies. Two of these policies, governing the allowance for loan losses and income taxes, are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed and approved these critical accounting policies and has discussed these policies with the Audit Committee.

The allowance for loan losses represents management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses has been determined in accordance with U.S. generally accepted accounting principles, under which we are required to maintain an adequate allowance for loan losses. The allowance for loan losses is determined based on our assessment of several factors. Those factors include reviews and evaluations of specific loans, current economic conditions, historical loan loss experience and the level of classified and nonperforming loans. We believe that our allowance for loan losses is adequate to cover specifically identifiable loan losses, as well as estimate losses inherent in our portfolio for which certain losses are probable but not specifically identifiable. Note 1 of the Notes to Consolidated Financial Statements describes the methodology used to determine the allowance for loan losses.

We account for income taxes by recognizing the amount of taxes payable for the current year and deferred tax assets and liabilities for the estimated future tax consequences, which require judgment of events that have been recognized in our consolidated financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact YNB’s consolidated financial statements or results of operations. Notes 1 and 9 of the Notes to Consolidated Financial Statements include further explanation on the accounting for income taxes.

Results of Operations
2005 Executive Summary

Yardville National Bancorp is a $2.96 billion holding company headquartered in Hamilton, New Jersey. During 2005 we celebrated the 80^th anniversary of our founding as a community bank. We provide a broad range of lending, deposit, and other financial products and services. Our strength and emphasis is reflected in our origination of commercial real estate and commercial and industrial lending to small to mid-sized

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businesses. Headquartered in Mercer County since 1925, we offer relationship-based community banking to customers throughout New Jersey and Eastern Pennsylvania. Our commitment is to provide quality products and exceptional service to customers, while building long-term, sustainable shareholder value by expanding and extending the YNB franchise into demographically strong markets.

Located in the dynamic Central New Jersey business corridor connecting New York City and Philadelphia, we operate 28 full-service branches through our wholly-owned banking subsidiary, The Yardville National Bank, in Mercer, Hunterdon, Somerset, Middlesex, Burlington, and Ocean Counties in New Jersey and Bucks County, Pennsylvania.

We generate substantially all of our income from our loan and securities portfolios. Our earning asset base is primarily funded through deposits, and to a lesser degree, borrowed funds. Increasing net interest income is critical in reaching our financial objectives. To accomplish our objectives, we must actively manage our cost of funds and effectively price and expand our loan portfolio in competitive markets. Our focus as a commercial business lender provides continued opportunities to generate higher yielding earning assets. As a result, we continue to execute our retail strategy, which includes the opening of branches in new markets to generate and provide lower cost deposits to fund our growth. In addition to opening new branches in an expanded geographic area, our retail strategy focuses on reinforcing our brand image through consistent marketing campaigns and the continued introduction of new products and enhanced services to attract new customers and retain current ones. This strategy, however, requires investment of resources in people, facilities, marketing and technology. Results have been positive but we have not yet fully realized all of the benefits of this continuing strategic objective.

During 2005, as part of our retail strategy, we opened four new branches, three in our Mercer County market and one in Morrisville, Pennsylvania, our second in Bucks County. In January 2006 we opened our first branch in Ocean County, New Jersey. We introduced Simply Better Savings^SM to our markets in early 2005 and continued to enhance our brand image and products and services throughout the year. Looking forward in 2006 we expect to open additional branches in our emerging Hunterdon and Middlesex County markets. In early 2006, we introduced our Simply Better Money Market^SM product throughout our branch network. We believe continuing to grow our commercial loan business, expanding our geographic footprint and attracting lower cost deposits will provide us the best opportunity to enhance profitability and the value of the YNB franchise.

On August 31, 2005, the Bank entered into a formal agreement with the OCC which sets forth certain understandings regarding our operations, including meeting and maintaining specified capital levels, obtaining prior approval of dividend payments, and addressing other concerns identified in the OCC’s Report of Examination for the examination that commenced on January 3, 2005, using financial information as of September 30, 2004. We initiated actions early in 2005 to address certain concerns which were later set forth in the agreement. These actions included strengthening Board and management supervision and internal audit and credit processes, including problem loan management. Following the execution of the agreement, the Board formed a Compliance Committee which overseas all aspects of compliance with the provisions of the agreement.

On November 3, 2005, we completed a private offering of our common stock to certain accredited investors including members of the Board of Directors, in order to comply with the capital levels specified in the OCC agreement. Yardville National Bancorp raised slightly more than $8.7 million in this offering and contributed it to the Bank.

We believe that the actions we took in 2005 both before and after the date of the agreement, constitute significant progress in addressing the concerns raised in the referenced examination.

YNB generated double digit increases in net income and earnings per share in a competitive market and challenging regulatory environment in 2005. We earned net income of $20.9 million or $1.89 per diluted share for the year ended December 31, 2005, compared to $18.5 million or $1.71 per diluted share for the year ended December 31, 2004. This represents an increase of 13.0% and 10.5%, respectively. The level of improvement in diluted earnings per share was negatively impacted by the additional shares issued in the fourth quarter of 2005. The increase in net income was primarily attributable to solid net interest income growth of $12.5 million, or 17.7%, primarily due to consistent commercial loan growth and a 22 basis point increase in our tax equivalent net interest margin to 3.05%. Partially offsetting the improvement was a $7.0 million increase in non-interest expense and higher income tax expense.

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Return on average assets modestly improved to 0.72%, compared with 0.70% in 2004, while return on average stockholders’ equity increased to 12.57% in 2005 compared to 12.38% in 2004.

During 2005, total loans increased $190.2 million, or 10.7%, to $1.97 billion. Nonperforming assets increased to $18.6 million or 0.63% of total assets at December 31, 2005, compared to $10.0 million, or 0.36%, at the same date in 2004. Contributing to the increase in nonperforming assets in 2005 was an $8.7 million commercial loan relationship that became nonperforming in the fourth quarter. Net loan chargeoffs were $7.9 million for 2005 compared to $6.8 million for 2004.

In 2005, Simply Better Savings was a primary contributor to the increase in deposits for the year. Total deposits increased $162.7 million or 9.0% to $1.97 billion from $1.81 billion at December 31, 2004. Led by the growth in Simply Better Savings, saving deposits increased $204.9 million to $298.5 million. This growth resulted from new customers attracted to the Bank as well as existing depositors shifting their balances. As a result, interest bearing demand deposits and money markets decreased 30.7% and 23.3%, respectively. In addition, as interest rates rose throughout the year, CDs or time deposits became more attractive to depositors relative to other deposits. Time deposits increased 26.8% to $811.6 million at year-end 2005.

Our non-interest expense increased 16.3% due primarily to the increase in salaries and employee benefits. Staffing, and the related benefits costs, increased during 2005 due to our continued branch expansion and overall growth. We have further strengthened staffing to support audit, compliance and loan and credit administration. As we have grown, our efficiency ratio has remained relatively stable at 54.7% for 2005 compared to 54.2% for 2004. Growth in net interest income has helped offset the impact of higher expenses and lower non-interest income.

We positioned our balance sheet in 2005 to take advantage of gradually increasing interest rates experienced during the year. We are currently reviewing strategies to position the balance sheet for a lower interest rate environment to minimize the potential risk to net interest income should interest rates decline in late 2006 or early 2007. While the commercial lending landscape remains a challenge due to a flat yield curve and strong competition for quality loans, we remain optimistic about our loan growth for 2006. We believe that we will continue to have opportunities to broaden our lending base by attracting quality commercial borrowers in new markets in 2006. We will also continue to expand our retail footprint and attract lower cost core deposits. We believe this should contribute to a modestly higher net interest margin, improved financial performance and ultimately, increased franchise value during 2006.

Net Interest Income

Net interest income is the largest and most significant component of our operating income. Net interest income is the difference between income on interest earning assets and expense on interest bearing liabilities. Net interest income depends upon the relative amounts and types of interest earning assets and interest bearing liabilities, and the interest rate earned or paid on them. Net interest income is also impacted by changes in interest rates and the shape of market yield curves.

The following table sets forth an analysis of net interest income by each major category of average interest earning assets and interest bearing liabilities and the related yields and costs for the years ended December 31, 2005, 2004, 2003, 2002 and 2001. Average yields for each year are derived by dividing income by the average balance of the related assets, and average costs are derived by dividing expense by the average balance of the related liabilities. The yields and costs include fees, costs, premiums and discounts, which are considered adjustments to interest rates.

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Financial Summary
Average Balances, Yields and Costs

	December 31, 2005								December 31, 2004
						Average								Average
	Average					Yield/			Average					Yield/
(in thousands)	Balance			Interest		Cost			Balance			Interest		Cost
INTEREST EARNING ASSETS:
Interest bearing deposits with banks	$	30,534		$	1,027		3.36	%	$	25,545		$	371		1.45	%
Federal funds sold		23,112			730		3.16			26,198			347		1.32
Securities		860,430			40,826		4.74			879,794			38,640		4.39
Loans (1)		1,880,166			127,684		6.79			1,626,477			100,506		6.18
Total interest earning assets	$	2,794,242		$	170,267		6.09	%	$	2,558,014		$	139,864		5.47	%
NON-INTEREST EARNING ASSETS:
Cash and due from banks	$	32,939							$	29,026
Allowance for loan losses		(21,823	)							(18,805	)
Premises and equipment, net		10,716								11,200
Other assets		76,561								73,045
Total non-interest earning assets		98,393								94,466
Total assets	$	2,892,635							$	2,652,480
INTEREST BEARING LIABILITIES:
Deposits:
Savings, money markets, and interest bearing demand	$	985,346		$	20,757		2.11	%	$	880,130		$	12,929		1.47	%
Certificates of deposit of $100,000 or more		208,521			6,992		3.35			161,065			4,165		2.59
Other time deposits		497,530			16,432		3.30			460,694			12,269		2.66
Total interest bearing deposits		1,691,397			44,181		2.61			1,501,889			29,363		1.96
Borrowed funds		740,075			38,114		5.15			738,110			36,071		4.89
Subordinated debentures		62,892			4,759		7.57			55,718			3,711		6.66
Total interest bearing liabilities	$	2,494,364		$	87,054		3.49	%	$	2,295,717		$	69,145		3.01	%
NON-INTEREST BEARING LIABILITIES:
Demand deposits	$	209,179							$	185,443
Other liabilities		22,520								21,679
Stockholders’ equity		166,572								149,641
Total non-interest bearing liabilities and stockholders’ equity	$	398,271							$	356,763
Total liabilities and stockholders’ equity	$	2,892,635							$	2,652,480
Interest rate spread (2)							2.60	%							2.46	%
Net interest income and margin (3)				$	83,213		2.98	%				$	70,719		2.76	%
Net interest income and margin (tax equivalent basis) (4)				$	85,187		3.05	%				$	72,397		2.83	%

(1)	Loan origination fees are considered an adjustment to interest income. For purposes of calculating loan yields, average loan balances include nonaccrual balances with no related interest income.
(2)	The interest rate spread is the difference between the average yield on interest earning assets and average rate paid on interest bearing liabilities.
(3)	The net interest margin is equal to net interest income divided by average interest earning assets.
(4)	In order to make pre-tax income and resultant yield on tax-exempt investments and loans on a basis comparable to those on taxable investments and loans, a tax equivalent adjustment is made to interest income. The tax equivalent adjustment has been computed using the appropriate Federal income tax rate for the period and has the effect of increasing interest income by $1,974,000, $1,678,000, $1,419,000, $1,245,000, and $1,062,000 for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.

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December 31, 2003								December 31, 2002								December 31, 2001
					Average								Average								Average
Average					Yield/			Average					Yield/			Average					Yield/
Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost
$	10,383		$	121		1.17	%	$	2,887		$	60		2.08	%	$	3,816		$	171		4.48	%
	48,102			523		1.09			72,790			1,157		1.59			74,624			2,765		3.71
	878,698			35,296		4.02			864,895			43,647		5.05			748,182			45,700		6.11
	1,323,243			85,529		6.46			1,085,306			75,395		6.95			891,957			70,408		7.89
$	2,260,426		$	121,469		5.37	%	$	2,025,878		$	120,259		5.94	%	$	1,718,579		$	119,044		6.93	%
$	25,428							$	22,965							$	21,026
	(17,060	)							(14,771	)							(11,583	)
	12,085								11,363								10,081
	67,005								51,198								52,288
	87,458								70,755								71,812
$	2,347,884							$	2,096,633							$	1,790,391
$	662,262		$	10,834		1.64	%	$	469,985		$	11,228		2.39	%	$	318,595		$	9,931		3.12	%
	137,168			4,014		2.93			148,119			5,184		3.50			129,340			7,581		5.86
	457,717			14,521		3.17			469,858			17,747		3.78			453,747			27,085		5.97
	1,257,147			29,369		2.34			1,087,962			34,159		3.14			901,682			44,597		4.95
	742,877			35,799		4.82			735,201			36,403		4.95			644,690			35,264		5.47
	40,395			3,121		7.73			33,700			3,214		9.54			32,058			3,048		9.51
$	2,040,419		$	68,289		3.35	%	$	1,856,863		$	73,776		3.97	%	$	1,578,430		$	82,909		5.25	%
$	139,332							$	118,154							$	104,577
	22,728								17,493								20,617
	145,405								104,123								86,767
$	307,465							$	239,770							$	211,961
$	2,347,884							$	2,096,633							$	1,790,391
						2.02	%							1.97	%							1.68	%
			$	53,180		2.35	%				$	46,483		2.29	%				$	36,135		2.10	%
			$	54,599		2.42	%				$	47,728		2.36	%				$	37,197		2.16	%

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Changes in net interest income and margin result from the interaction between the volume and composition of interest earning assets, interest bearing liabilities, related yields, and associated funding costs. The following table demonstrates the impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates earned and paid.

RATE/VOLUME ANALYSIS

	2005 vs. 2004							2004 vs. 2003
	Increase (Decrease)							Increase (Decrease)
	Due to changes in:							Due to changes in:
(in thousands)	Volume			Rate		Total		Volume			Rate			Total
INTEREST EARNING ASSETS:
Interest bearing deposits with other banks	$	85		$	571	$	656	$	215		$	35		$	250
Federal funds sold		(45	)		428		383		(271	)		95			(176	)
Securities		(859	)		3,045		2,186		45			3,299			3,344
Loans (1)		16,645			10,533		27,178		18,826			(3,849	)		14,977
Total interest income		15,826			14,577		30,403		18,815			(420	)		18,395
INTEREST BEARING LIABILITIES:
Deposits:
Savings, money markets, and interest bearing demand		1,686			6,142		7,828		3,305			(1,210	)		2,095
Certificates of deposit of $100,000 or more		1,416			1,411		2,827		650			(499	)		151
Other time deposits		1,038			3,125		4,163		94			(2,346	)		(2,252	)
Total deposits		4,140			10,678		14,818		4,049			(4,055	)		(6	)
Borrowed funds		97			1,946		2,043		(235	)		507			272
Subordinated debentures		508			540		1,048		1,066			(476	)		590
Total interest expense		4,745			13,164		17,909		4,880			(4,024	)		856
Net interest income	$	11,081		$	1,413	$	12,494	$	13,935		$	3,604		$	17,539

(1) Loan origination fees are considered adjustments to interest income.

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During 2005 we continue to improve our net interest margin. The table below lists various components relating to our net interest margin by quarter for 2005 and 2004.

		2005											2004
	4th			3rd			2nd			1st			4th			3rd			2nd			1st
	Qtr			Qtr			Qtr			Qtr			Qtr			Qtr			Qtr			Qtr
Interest Earning Assets:
Interest bearing deposits with banks		4.18	%		3.54	%		3.08	%		2.47	%		2.10	%		1.52	%		0.94	%		1.00	%
Federal funds sold		3.98			3.45			2.94			2.43			1.99			1.39			0.97			0.98
Securities		4.84			4.76			4.71			4.67			4.53			4.49			4.30			4.24
Loans		7.12			6.91			6.69			6.40			6.33			6.16			6.06			6.15
Total interest earning assets		6.39	%		6.16	%		6.02	%		5.78	%		5.65	%		5.49	%		5.35	%		5.36	%
Interest Bearing Liabilities:
Total interest bearing deposits		3.02	%		2.75	%		2.45	%		2.19	%		2.03	%		1.92	%		1.89	%		1.97	%
Borrowed funds		5.24			5.26			5.07			5.02			5.01			4.91			4.82			4.81
Subordinated debentures		8.13			7.74			7.35			7.04			6.72			6.39			6.77			6.83
Total interest bearing liabilities		3.78	%		3.60	%		3.38	%		3.18	%		3.07	%		2.98	%		2.95	%		3.05	%
Interest rate spread		2.61	%		2.56	%		2.64	%		2.60	%		2.58	%		2.51	%		2.40	%		2.31	%
Net interest margin		3.03			2.94			3.00			2.94			2.90			2.82			2.70			2.62
Net interest margin (tax equivalent basis)		3.10			3.01			3.07			3.01			2.97			2.89			2.76			2.69

Net interest income, on a tax equivalent basis, increased 17.7% to $85.2 million for 2005, compared to $72.4 million for 2004. The increase is primarily attributable to the increased volume and rate on average loans, partially offset by the higher volume and cost of interest bearing deposits.

The Federal Open Market Committee (FOMC) increased short-term interest rates 25 basis points each of the eight times it met in 2005, raising the Fed funds rate from 2.25% to 4.25%. YNB’s balance sheet throughout 2005 was asset sensitive and, as a result, net interest income and the margin moved higher. Longer-term interest rates did not increase as the FOMC moved short-term rates higher. The flattening of the treasury yield curve, to varying degrees, limited further improvement in our tax equivalent net interest margin, impacting our fixed rate commercial loan pricing and limiting the increase in our securities yields.

In 2005, interest income rose to $170.3 million, or 21.7%, from $139.9 million in 2004, primarily due to higher interest income on loans. Average interest earning assets increased $236.2 million or 9.2% to $2.79 billion in 2005 from $2.56 billion in 2004. Loans averaged $1.88 billion for 2005, an increase of $253.7 million or 15.6% compared to $1.63 billion for 2004. During 2005, interest and fees on loans increased $27.2 million, or 27.0%, as loan yields increased by 61 basis points to 6.79% from 6.18% for 2004. The principal factor driving loan yields higher in 2005 was our floating rate commercial loans. Approximately 47% of our commercial loan portfolio had floating interest rates at December 31, 2005, typically tied to the prime rate of interest. In 2005, the average prime rate increased to 6.19% compared to 4.35% in 2004. Approximately $631.2 million of our floating rate commercial loans have caps. Floating rate commercial loans that have reached their caps totaled $159.0 million. These loans, as well as other floating rate loans, would have the effect of restricting the growth in interest income should the prime rate of interest continue to move higher. We do expect loan yields to continue to move higher during 2006 as additional rate increases are expected in the first half of the year.

Average securities declined $19.4 million or 2.2% to $860.4 million in 2005 from $879.8 million in 2004. Due to a 2005 portfolio yield of 4.74%, 35 basis points higher than 2004, interest on securities increased $2.2 million from 2004 and contributed to higher net interest income levels. Based on the repricing characteristics of our balance sheet, securities, principally mortgage-

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backed securities, were purchased with modestly longer durations at or close to par. The result was a consistent portfolio yielded, in spite of a flat yield curve, without taking excessive interest rate risk.

The combination of greater average interest bearing liabilities, primarily interest bearing deposits, and increased average costs due to the higher interest rate environment, resulted in a $17.9 million or 25.9% increase in interest expense. Average interest bearing liabilities rose $198.6 million to $2.49 billion, while overall funding costs rose just 48 basis points to 3.49% during 2005 or only 24% of the 200 basis point increase in the Federal funds rate during that same period.

We continued the execution of our retail strategy in 2005 with the ongoing objective of effectively managing our cost of funds by attracting lower cost deposits through a larger geographic footprint. In 2005, average savings, money markets and interest bearing demand deposits grew $105.2 million or 12.0% to $985.3 million, principally due to growth in our Simply Better Savings product. To a somewhat lesser extent, average time deposits, including CDs of $100,000 or more, increased $84.3 million or 13.6% to $706.1 million in 2005 compared to $621.8 million in 2004. We increased time deposit rates during 2005 due to the interest rate environment, funding needs and competitive factors. Interest expense on interest bearing deposits rose $14.8 million or 82.7% of the total increase in interest expense on average interest bearing liabilities. The growth in average non-interest bearing demand deposits of $23.7 million or 12.8% to $209.2 million in 2005 contributed positively to our net interest margin.

Average borrowed funds and subordinated debentures increased $2.0 million and $7.2 million, respectively, while related interest costs increased by 26 and 91 basis points to 5.15% and 7.57%, respectively. During 2004 and into 2005 we strategically replaced floating rate Federal Home Loan Bank advances with fixed rate advances as interest rates were rising. This initiative, in effect, limited the increase in the cost of these funds, which had a positive impact on net interest income and the margin in 2005 and we expect this impact to continue into 2006. We had $62.9 million in outstanding subordinated debentures, of which $41.2 million had floating interest rates tied to spreads over LIBOR, which is the primary cause for the increase in interest expense of $1.0 million as rates rose during 2005.

In summary, our solid financial performance in 2005 was primarily the result of greater net interest income due, in part, to a higher net interest margin. By effectively pricing our commercial loans and attracting a better mix of deposits in our new and existing branches we have continued to move our tax-equivalent margin higher. The net interest margin, on a tax equivalent basis, increased 7.8% or 22 basis points to 3.05% for the twelve months ended December 31, 2005 compared with 2.83% for the same period in 2004. Nonaccrual loans averaged $11.1 million in 2005 compared to $10.3 million in 2004. Had these nonaccrual loans performed at original contract terms, we would have recognized additional interest income of approximately $825,000 in 2005 compared to $600,000 in 2004 and our tax equivalent margin would have been higher by three basis points in 2005 and two basis points in 2004.

We expect the challenge of strong competition for commercial loans and deposits to continue in 2006. As short term treasury rates have moved higher and long term rates have remained relatively unchanged, this flattening of the yield curve has impacted earning asset spreads as YNB’s cost of funds moved higher. Despite these challenges, we believe our net interest margin should modestly improve during 2006, which is expected to help us achieve our profitability goals. Our formula for success is dependent on meeting commercial loan growth targets and effectively managing our cost of funds by continuing to execute our retail strategy. In 2006, we will continue to open branches in new and developing markets, promote our brand image, and market YNB’s attractive core deposit products like the recently introduced Simply Better Money Market in addition to our established Simply Better Savings and Checking product offerings. We expect short term rates to peak in 2006 and are reviewing strategies to reduce FHLB advances, if liquidity levels allow, or change the repricing characteristics of these advances from fixed to floating using interest rate swaps in anticipation of lower interest rates. We are beginning to position our balance sheet to protect net interest income in a lower interest rate environment. We believe this strategy will give us the best opportunity to increase profitability and franchise value in 2006.

Provision for Loan Losses

We provide for loan losses by a charge to current income to maintain the allowance for loan losses at an adequate level determined according to our documented allowance adequacy methodology. The provision for loan losses for the year ended December 31, 2005 was $10.5 million compared to $9.6 million for 2004. The $905,000 higher provision is primarily the result of the increased level of net charge-offs. Net charge-offs were 0.42% of average loans for the years ended December 31, 2005 and 2004. The allowance for loan losses increased by $2.6

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million to $22.7 million at December 31, 2005 compared to $20.1 million at the end of 2004. The allowance for loan losses as a percentage of total loans was 1.15% at December 31, 2005 compared with 1.13% at December 31, 2004. See Management’s Discussion of Asset Quality and Allowance for Loan Losses under the heading “Review of Financial Condition.”

Non-Interest Income

We earn fee and other income primarily from service charges on deposit accounts and other banking products and services, and this continues to be a large component of our non-interest income. We also derive non-interest income from income on bank owned life insurance (BOLI) and net securities gains. For 2005, non-interest income totaled $7.5 million, a decrease of $489,000, or 6.1% from 2004. Non-interest income represented 4.2% and 5.4% of total interest income and non-interest income for 2005 and 2004, respectively.

Non-interest income, excluding net securities gains, declined modestly by $54,000 or 0.8% to $6.6 million for 2005 compared to $6.7 million for 2004. The decline is principally due to lower service charge income partially offset by increased other service fee income.

The components of non-interest income for the three-year period ended December 31, 2005 are presented in the following table.

	Year ended December 31,
(in thousands)	2005		2004		2003
Service charges on deposit accounts	$	2,819	$	3,134	$	2,388
Other service fees		1,886		1,495		1,384
Income on bank owned life insurance		1,651		1,766		2,036
Securities gains, net		862		1,297		1,513
Investment and insurance fees		92		89		72
Other non-interest income		180		198		701
Total	$	7,490	$	7,979	$	8,094

Service charges on deposit accounts continue to represent the largest single source of our non-interest income. Service charges on deposit accounts decreased $315,000 or 10.1%, mainly due to a lower volume of overdraft activity. In addition, to make certain product offerings more competitive, we have modified these products, which has also reduced service charge income.

Other service fee income totaled $1.9 million in 2005, an increase of $391,000 or 26.2% when compared to $1.5 million in 2004. Other service fee income is primarily composed of prepayment penalties on loans, automated teller machine fees, VISA debit income and wire transfer fees. In 2005, the increase was primarily attributable to the collection of prepayment penalties on commercial loans of approximately $460,000.

With no additional purchases of Bank Owned Life Insurance (BOLI) in 2005, our investment in BOLI totaled $46.2 million at year-end. BOLI assets are single premium policies purchased to offset the costs of deferred compensation plans and other employee benefits. Income on BOLI is tax-free, providing an attractive rate of return while reducing our overall effective tax rate. Income on BOLI was $1.7 million in 2005, a decrease of 6.5% compared to $1.8 million in 2004. The decline in income is a result of a lower interest crediting rate for 2005 applicable to BOLI assets.

Net securities gains totaled $862,000 during 2005 compared to $1.3 million in 2004. The comparable lower level of net gains realized in 2005 compared to 2004 was primarily due to a lower level of sales in 2005 compared to 2004.

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During 2005 we repositioned or sold securities to achieve asset and liability objectives, which included enhancing future interest income, liquidity needs and managing interest rate risk.

While non-interest income was not a significant part of overall revenues in 2005, we believe the actions we are taking to expand our retail and commercial customer bases should begin to translate into comparatively higher levels of non-interest income in the future. In 2006 we expect to generate additional non-interest income through fee collection, cash management services revenue and the increased usage of electronic banking services.

Non-interest expense

In 2005, non-interest expense totaled $49.6 million, an increase of $6.9 million or 16.3%, compared to $42.7 million in 2004. The largest increases in non-interest expense in 2005 were primarily in salaries and employee benefits, occupancy and marketing expenses. To a lesser extent, audit and examination fees, outside services and processing fees, and attorney’s fees also contributed to higher non-interest expenses in 2005.

Our efficiency ratio, which provides a measure of our operating efficiency, is total non-interest expense as a percentage of the sum of net interest income plus non-interest income. We also measure our efficiency ratio on a tax equivalent basis. Our efficiency ratio was slightly higher in 2005, finishing the year at 54.7% compared to 54.2% in 2004. On a tax equivalent basis, our efficiency ratio was 53.5% and 53.1% for 2005 and 2004, respectively. Our efficiency ratio for 2005 was basically unchanged as expenses associated with our retail strategy, additional expenses associated with our growth and to a lesser extent, the costs associated with meeting regulatory requirements were in line with our growth in net interest income. Based on projected growth in branches and expenses associated with our retail strategy, our efficiency ratio could move modestly higher in 2006.

The following table presents the major components of non-interest expense for the years ended December 31, 2005, 2004, and 2003.

	Year ended December 31,
(in thousands)	2005		2004		2003
Salaries and employee benefits	$	27,654	$	23,476	$	21,433
Occupancy expense, net		4,934		4,283		3,934
Equipment expense		3,173		3,123		2,955
Marketing		2,224		1,768		1,661
Outside services and processing fees		1,773		1,483		819
Audit and examination fees		1,323		1,032		725
Directors and committee fees		1,004		1,355		346
Communication and postage		981		938		844
Stationery and supplies		941		757		908
Attorneys’ fees		662		509		408
Insurance		563		393		480
Amortization of subordinated debentures expense		272		251		169
FDIC insurance premium		259		239		213
Deposit intangible amortization		204		204		17
ORE expense		79		5		194
Other		3,556		2,833		3,053
Total	$	49,602	$	42,649	$	38,159

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Salaries and employee benefits, which represent the largest portion of non-interest expense, increased $4.2 million or 17.8% to $27.7 million for the year ended December 31, 2005 compared to $23.5 million for the same period in 2004. Full time equivalent employees increased to 406 at December 31, 2005 from 364 at December 31, 2004. Salaries rose $3.3 million or 17.2% to $22.2 million in 2005, primarily due to new hires in 2005, merit pay increases and the full impact of employees hired in 2004. Staffing additions in 2005 and 2004 resulted from our continued branch expansion, enhanced regulatory compliance and risk management. Benefits expense increased 20.1%, principally due to higher health benefit costs and payroll taxes associated with the increase in full time employees. Also contributing to the increase in benefits expense were costs associated with our executive deferred compensation plan.

Net occupancy expense increased $651,000 or 15.2% to $4.9 million in 2005 from $4.3 million in 2004. The increase was principally due to costs associated with our branch expansion, including rent, taxes and associated maintenance costs. Occupancy costs are expected to rise in 2006 as we continue to open new branches as part of our retail strategy and operate a larger branch network.

By consistently promoting our new branches, while marketing our products and services and enhancing our brand image, we have attracted new depositors to YNB. We believe marketing is an important component of our retail strategy. As a result, marketing expenses increased 25.8% to $2.2 million in 2005, compared to $1.8 million in 2004.

Outside services and processing expenses, audit and examination fees, and attorney fees increased 19.6%, 28.2%, and 68.4% to $1.8 million, $1.3 million, and $662,000, respectively. Outside services and processing expenses include services provided by third parties, outsourced services and consulting fees. The increase in outside services and processing fees primarily resulted from increased consulting costs related to regulatory compliance. The higher audit and examination fees resulted from costs associated with Section 404 of the Sarbanes-Oxley Act of 2002, or “SOX 404,” compliance and tax services. Attorney fees increased due to costs associated with problem loan workout, various regulatory compliance issues and shareholder relations. In 2006, we anticipate, and have budgeted for, increased attorney’s fees associated with a proxy contest at our 2006 annual meeting of shareholders and related litigation.

Other expenses totaled $3.6 million in 2005 compared to $2.8 million in 2004. Other expenses are comprised of a variety of professional fees, expenses associated with the origination and management of loans and other operating expenses.

We will continue to make investments in technology, our retail strategy, and delivery systems to attract new customers and provide the ongoing quality products and services our customers expect.

Income Tax

We have identified accounting for income taxes as a critical accounting policy. The provision for income taxes, comprised of Federal and state income taxes, was $9.6 million for 2005, an increase of $1.7 million when compared to $7.9 million for 2004. The provisions for income taxes in 2005 and 2004 were at effective rates of 31.5% and 29.9%, respectively. The increase in the effective tax rate resulted from the greater percentage increase in taxable income compared to tax-free income.

Financial Condition

Total Assets

Total assets at December 31, 2005 were $2.96 billion, an increase of $150.8 million or 5.4%, as compared to total assets of $2.81 billion at December 31, 2004. This growth in our balance sheet is attributable to higher commercial loan balances funded primarily by deposits. Loans increased to $1.97 billion at December 31, 2005 from $1.78 billion at December 31, 2004, while deposits increased to $1.97 billion from $1.81 billion during the same time period.

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The combination of our relationship banking philosophy, commercial lending strength and retail growth all contributed to our consistent asset growth in 2005. We expect loan growth to continue in 2006 as we expand our markets and promote our established and new loan products and services.

Loans

In 2005 we achieved solid loan growth of 10.7% or $190.2 million to $1.97 billion at December 31, 2005 from $1.78 billion at December 31, 2004 in a very competitive and challenging environment. Commercial real estate and commercial and industrial loans experienced growth of $98.7 million and $56.5 million, respectively in 2005. Our focus and strength as a commercial business lender was again shown in our 2005 results. We believe the combination of a strong New Jersey real estate market, increased business activity and additional loan opportunities from new and established relationships should result in continued loan growth in 2006. Commercial loans, which include commercial real estate and commercial and industrial loans, grew 10.5%, due primarily to growth in our Mercer County market and the developing Hunterdon and Middlesex markets in 2005.

While we were able to grow our loan portfolio in 2005, the growth was slower than the $339.2 million, or 23.5% loan growth we produced in 2004. The slower loan growth, principally in our commercial loan portfolio, was due to several factors, including a relatively higher level of commercial loan payoffs and a decline in commercial loan participations. Total commercial loan payoffs during 2005 totaled $252.2 million compared to $167.2 million in 2004. In addition, commercial loan participations declined $27.9 million in 2005 compared to an increase of $68.0 million in 2004.

Increased competition was reflected in aggressive pricing and terms offered by competitors in 2005. With the goal of moving our net interest margin higher, we made our lending decisions with that key financial objective in mind and did not aggressively compete for or retain business that did not meet our profitability and interest rate risk objectives. We focused our efforts on our established loan customers who value our relationship banking philosophy.

The following table reflects the composition of the loan portfolio for the five years ended December 31, 2005.

LOAN PORTFOLIO COMPOSITION

	December 31,
	2005					2004					2003					2002					2001
(In thousands)	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
Commercial real estate Investor occupied	$	596,476		30.3	%	$	594,799		33.4	%	$	432,571		30.0	%	$	321,583		26.9	%	$	255,471		25.3	%
Construction and development		277,075		14.0			190,546		10.7			123,790		8.6			121,295		10.1			99,978		9.9
Owner occupied		225,823		11.4			215,313		12.1			204,539		14.2			164,450		13.8			143,767		14.3
Commercial and industrial Line of credit		375,737		19.0			301,163		16.9			218,097		15.1			207,562		17.4			164,075		16.3
Term		150,059		7.6			169,829		9.5			169,296		11.7			129,513		10.8			117,005		11.6
Demand		2,112		0.1			374		0.0			1,199		0.1			972		0.1			1,055		0.1
Residential
1-4 family		175,503		8.9			159,306		8.9			150,733		10.4			116,829		9.8			107,840		10.7
Multi- family		33,536		1.7			22,717		1.3			30,097		2.1			34,012		2.8			33,970		3.4
Consumer
Home equity		90,414		4.6			86,295		4.8			78,877		5.5			70,579		5.9			58,084		5.8
Installment		32,719		1.7			32,149		1.8			24,165		1.7			19,078		1.6			19,266		1.9
Other		13,386		0.7			10,101		0.6			9,991		0.6			9,270		0.8			7,462		0.7
Total	$	1,972,840		100.0	%	$	1,782,592		100.0	%	$	1,443,355		100.0	%	$	1,195,143		100.0	%	$	1,007,973		100.0	%

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At December 31, 2005 commercial loans represented 82.5% of total loans compared to 82.5% in 2004. We manage risk associated with our commercial portfolio, including participations, through strict underwriting policies and procedures, diversification and diligent loan monitoring efforts. Our underwriting standards include requiring independent appraisals, periodic property inspection, analysis of the quality and experience of the organization or developer managing each property, and evaluation of the cash flow capability of the borrower to repay the loan. In addition to real estate collateral, the majority of our commercial loans are secured by business assets and most are secured by personal guarantees and other assets of the principals.

Commercial real estate loans increased by $98.7 million, or 9.9% in 2005, to $1.10 billion from $1.00 billion in 2004. The commercial real estate portfolio includes mortgage loans on owner occupied and tenanted investment properties (investor occupied), and construction and development loans. The primary area of growth in 2005 was construction and development loans, which increased by $86.5 million or 45.4% to $277.1 million at December 31, 2005. Investor and owner occupied commercial mortgages are principally secured by professional office buildings, retail stores, shopping centers and industrial developments generally with maturities of five to fifteen years. Construction and development loans primarily fund residential and commercial projects, and to a lesser extent, acquisition of land for future development. Residential construction loans include single family, multi-family, and condominium projects. Commercial construction loans include office and professional development, retail development and other commercial related projects. Generally, construction loans have terms of one to two years, are interest only, and have floating interest rates indexed to the prime rate.

Commercial and industrial loans consist of lines of credit, term loans, and demand loans. Led by an increase of $74.6 million in lines of credit, total commercial and industrial loans grew 12.0% to $527.9 million at December 31, 2005 compared to $471.4 million for the same period in 2004. Commercial and industrial loans typically consist of loans to finance equipment, inventory, receivables, and other working capital needs of small to mid-size businesses.

The following table provides information by industry classification for our commercial and industrial loan portfolio at December 31, 2005.

			Percent of			Number
Industry Classification (balance in thousands)	Balance		balance			of loans
Real estate-related	$	124,228		23.6	%		257
Construction		116,493		22.1			133
Services		108,581		20.6			327
Finance and insurance		56,041		10.6			45
Retail trade		44,524		8.4			130
Individuals		28,224		5.3			81
Manufacturing		21,869		4.1			87
Wholesale trade		13,765		2.6			53
Transportation and public utilities		6,081		1.2			42
Other		8,102		1.5			24
Total	$	527,908		100.0	%		1,179

Our commercial and industrial loan portfolio encompasses a wide variety of industry classifications. At December 31, 2005 the largest concentrations of commercial and industrial loans were in the real estate-related, construction and services industries. However, real estate and construction related loans represented 45.6% of our commercial and industrial loan portfolio. These loans are subject to risks similar to those that impact our commercial real estate loan portfolio. The other significant industry classification is loans to the services industry. There are no significant concentrations of loans to any particular sector of the services industry. While we do not believe that these loan concentrations present any undue risk, we will continue to monitor loan concentrations by industry classification and diversify risk as we deem appropriate.

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The following table provides information concerning the maturity and interest rate sensitivity of YNB’s commercial and industrial and commercial real estate-construction and development portfolios at December 31, 2005.

			After one		After
	Within		but within		five
(in thousands)	one year		five years		years		Total
Maturities:
Commercial and industrial	$	286,747	$	216,021	$	25,140	$	527,908
Commercial real estate - construction and development		155,593		99,576		21,906		277,075
Total	$	442,340	$	315,597	$	47,046	$	804,983
Type:
Floating rate loans	$	381,243	$	193,364	$	17,005	$	591,612
Fixed rate loans		61,097		122,233		30,041		213,371
Total	$	442,340	$	315,597	$	47,046	$	804,983

Residential real estate loans are comprised of 1–4 family and multi-family loans. Residential mortgages consist of first liens on owner occupied 1–4 family residences while multi-family loans primarily consist of loans secured by apartment complexes. As a participating seller and servicer of Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) we generally underwrite residential real estate loans to conform with standards required by these agencies. Residential real estate loans increased $27.0 million or 14.8% to $209.0 million at December 31, 2005 compared to $182.0 million at December 31, 2004. Residential 1-4 family loans represented $175.5 million, or 84.0% of all residential real estate loans at December 31, 2005. In 2005, residential 1-4 family and multi-family loans grew $16.2 million and $10.8 million, respectively. Generally, 1-4 family residential real estate loans are made in connection with a broader relationship. At December 31, 2005 residential loans represented less than 11% of total loans.

Consumer loans increased 6.2% to $136.5 million at year-end 2005 compared to $128.5 million at December 31, 2004. Consumer loans include fixed and floating rate home equity loans and lines, indirect auto loans, personal loans and other traditional installment loans. Home equity loans and lines represented 66.2% of total consumer loans at the end of 2005. Like the commercial lending portfolio, the majority of our consumer loan portfolio is also secured by collateral. The consumer loan marketplace continues to be very competitive. Our larger branch network and targeted home equity promotions contributed to the modest increase in consumer loans in 2005 despite a higher interest rate environment.

In 2006, one of our objectives is to continue our lending relationship banking model while refocusing our efforts to generate additional commercial loan business by the introduction of a credit scored loan product for small business in YNB’s home Mercer County market and the developing markets of Hunterdon, Somerset and Middlesex counties. Commercial loan growth will continue to be an important contributor in enhancing our net interest margin, profitability and franchise value. Increased competition, borrowers’ concerns over the economy, real estate market values in the markets we serve, and interest rates, among other factors, could adversely affect our loan growth and keep us from maintaining the growth rates we experienced in 2005 and prior periods.

Asset Quality

Commercial lending is one of YNB’s most critical functions. While the most profitable part of our business is commercial lending, the risk and complexity of that business is also the greatest. Through our lending and credit functions we continuously review our loan portfolio for credit risk. During 2005, as part of our assessment of the effectiveness of our internal control over financial reporting, as required by SOX 404, we improved policies, procedures and processes, which we believe will enhance overall asset quality moving forward.

Nonperforming assets as a percentage of total assets rose to 0.63% at December 31, 2005 compared to 0.36% at the same date in 2004. During

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the fourth quarter of 2005, we identified an $8.7 million commercial relationship that rapidly deteriorated. That loan was placed on nonaccrual and before year end we had charged off $4.6 million of the loan relationship. While we believe overall asset quality to be sound, over the last few years certain larger credits have increased nonperforming asset levels and net loan charge offs, which has resulted in a higher provision for loan losses and reduced net income.

The following table sets forth nonperforming assets in our loan portfolio by type for the five-year period ended December 31, 2005.

NONPERFORMING ASSETS

					December 31,
(in thousands)	2005		2004		2003		2002		2001
Nonaccrual loans:
Commercial real estate	$	5,762	$	910	$	1,321	$	2,395	$	888
Commercial and industrial		9,899		7,867		8,570		1,143		1,494
Residential		1,588		51		255		1,526		1,133
Consumer		561		281		35		55		98
Total nonaccrual loans		17,810		9,109		10,181		5,119		3,613
Restructured loans		—		—		—		711		770
Loans 90 days or more past due:
Residential		799		791		362		323		514
Consumer		4		108		97		121		228
Total loans 90 days or more past due		803		899		459		444		742
Total nonperforming loans		18,613		10,008		10,640		6,274		5,125
Other real estate		—		—		—		1,048		2,329
Total nonperforming assets	$	18,613	$	10,008	$	10,640	$	7,322	$	7,454

For the five-year period ended December 31, 2005, nonperforming assets averaged $10.8 million. Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming assets increased $8.6 million to $18.6 million at December 31, 2005 compared to $10.0 million at December 31, 2004. Three nonperforming loan relationships made up approximately 51% of total nonperforming assets at December 31, 2005. Nonperforming assets as a percentage of total loans and other real estate owned were 0.94% at December 31, 2005 compared to 0.56% at December 31, 2004. There was no other real estate owned at December 31, 2005 or December 31, 2004.

Nonperforming loans consist of loans on a nonaccrual basis, loans whose terms have been restructured because of a deterioration in the financial position of the borrower and loans which are contractually past due 90 days or more as to interest or principal payments and have not been classified as nonaccrual. Nonaccrual loans totaled $17.8 million or 0.90% of total loans at December 31, 2005 compared to $9.1 million or 0.51% of total loans at the same date in 2004. Nonaccrual commercial and industrial loans account for approximately 56% of total nonaccrual loans. There were no restructured loans at December 31, 2005 or December 31, 2004.

Our policies regarding nonaccrual loans vary by loan type. Generally, commercial loans are placed on nonaccrual when they are 90 days past due, unless they are well secured and in the process of collection, or, regardless of the past due status of the loan, when management determines that the complete recovery of principal or interest is in doubt. Consumer loans are generally charged off after they become 120 days past due. Residential mortgage loans are not generally placed on nonaccrual status unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists. Subsequent payments are credited to income only if collection of

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principal is not in doubt. If principal and interest payments are brought contractually current, and future collectibility is reasonably assured, loans are returned to accrual status. Restructured loans remain on nonaccrual until collectibility improves and a satisfactory payment history is established, generally six consecutive monthly payments.

We believe that the sound credit culture in place and enhanced credit risk administration, which includes strict underwriting standards, should result in lower levels of nonperforming assets and an improved credit quality profile in 2006. Factors beyond our control, such as adverse economic and business conditions, could result in higher nonperforming asset levels, which would have a negative impact on our financial performance. Additionally, since the majority of our loans are backed by real estate collateral, if it were necessary to liquidate our real estate collateral during a period of reduced real estate values, earnings would be negatively impacted.

Allowance for Loan Losses

We have identified the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is maintained at a level believed adequate by management to absorb losses inherent in the loan portfolio. YNB’s methodology for evaluating the adequacy of the allowance consists of a number of significant elements, which include specific allowances for impaired loans, an allocated allowance for each specific loan pool, and an unallocated allowance to cover inherent loan losses within a given loan pool, which have not been otherwise reviewed or measured on an individual basis. The formal evaluation process for determining the adequacy of the allowance for loan losses takes place quarterly.

As part of our formal process our commercial lending staff reviews, evaluates and rates our commercial loans at origination based on their respective risks. Risk classifications range from 1 to 9 or from minimal risk to loss. For more detailed information on risk classifications please see Note 1E in the Notes to the Consolidated Financial Statements. Internal loan review staff, independent of loan and credit administration, formally evaluate risk ratings and classifications. Additionally, the Criticized and Classified Assets Committee, comprised of key executive and senior officers, meets monthly to review, among other things, criticized asset trends, and to review pertinent information about classified assets with our lending officers. If necessary, loans that fall into criticized categories are further evaluated for impairment as called for in Statement of Financial Accounting Standards (FASB) No. 114, “Accounting by Creditors for Impairment of a Loan.” The credit administration staff validates all impairment testing and reserve allocations for all impaired loans each quarter. Reserves associated with these loans are based on a thorough analysis of the most probable sources of repayment, which is normally the liquidation of collateral, but could also include discounted future cash flows.

During 2005, there were several enhancements made to the allowance process. At year-end 2004, there were a limited number of broad loan pools evaluated to perform the quarterly allowance analysis. We refined our commercial loan analysis, creating individual pools based on specific commercial categories or grouping of borrowers with similar characteristics (e.g. contractors, health care facilities) to better measure the risk in each by borrower group or loan type.

The reserve percentage assigned to each risk-rating category within in each pool is determined quarterly from historical loan loss rates based on an eight quarter rolling trend using migration analysis. In addition, we use our judgment concerning the anticipated impact on credit risk of economic conditions, real estate values, interest rates and business activity. Allocations for the allowance for loan losses are determined after the review described above.

Factors used to evaluate the adequacy of the allowance for loan losses include the amounts and trends of criticized loans, results of regulatory examinations (as the allowance for loan losses is typically an integral part of the examination process) and economic data associated with New Jersey’s real estate market. After the conclusion of this evaluation, we present the quarterly review of the loan loss reserve to the Board of Directors for their approval.

We provide for probable loan losses by a charge to current income to maintain the allowance for loan losses at an adequate level according to our documented allowance adequacy methodology. For additional information on the allowance for loan losses see “Results of Operations – Provision for Loan Losses.”

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The following table provides information regarding loans charged off, loan recoveries, the provision for loan losses and the allowance for loan losses for the five-year period ended December 31, 2005.

ALLOWANCE FOR LOAN LOSSES

	Year Ended December 31,
(in thousands)	2005			2004			2003			2002			2001
Allowance balance, beginning of year	$	20,116		$	17,295		$	16,821		$	13,542		$	10,934
Charge offs:
Commercial real estate		—			—			(1,853	)		(78	)		(696	)
Commercial and industrial		(7,484	)		(6,556	)		(6,592	)		(719	)		(591	)
Residential		(174	)		(254	)		(251	)		(168	)		—
Consumer		(513	)		(229	)		(293	)		(223	)		(412	)
Total charge offs		(8,171	)		(7,039	)		(8,989	)		(1,188	)		(1,699	)
Recoveries:
Commercial real estate		—			—			—			1			—
Commercial and industrial		18			156			6			11			31
Residential		43			30			—			—			—
Consumer		167			49			97			80			351
Total recoveries		228			235			103			92			382
Net charge offs		(7,943	)		(6,804	)		(8,886	)		(1,096	)		(1,317	)
Provision charged to operations		10,530			9,625			9,360			4,375			3,925
Allowance balance, end of year	$	22,703		$	20,116		$	17,295		$	16,821		$	13,542
Loans, end of year	$	1,972,840		$	1,782,592		$	1,443,355		$	1,195,143		$	1,007,973
Average loans outstanding	$	1,880,166		$	1,626,477		$	1,323,243		$	1,085,306		$	891,957
Allowance for loan losses to total loans		1.15	%		1.13	%		1.20	%		1.41	%		1.34	%
Net charge offs to average loans outstanding		0.42			0.42			0.67			0.10			0.15
Nonperforming loans to total loans		0.94			0.56			0.74			0.52			0.51
Nonperforming assets to total assets		0.63			0.36			0.44			0.33			0.38
Nonperforming assets to total loans and other real estate owned		0.94			0.56			0.74			0.61			0.74
Allowance for loan losses to nonperforming assets		121.97			201.00			162.55			229.73			181.67
Allowance for loan losses to nonperforming loans		121.97	%		201.00	%		162.55	%		268.11	%		264.23	%

At December 31, 2005, the allowance for loan losses totaled $22.7 million, an increase of $2.6 million or 12.9% from $20.1 million at December 31, 2004. The ratio of the allowance for loan losses to total loans was 1.15%, 1.13% and 1.20%, at December 31, 2005, 2004, and 2003, respectively. We also measure the adequacy of the allowance for loan losses by reviewing coverage of nonperforming loans. The allowance for loan losses to total nonperforming loans decreased to 122.0% at December 31, 2005 compared to 201.0% at December 31, 2004, primarily as the result of the increase in nonperforming loans. It is our assessment, based on our judgment and analysis, that the allowance was appropriate in relation to the credit risk at December 31, 2005.

Loans or portions of loans deemed uncollectible are deducted from the allowance for loan losses, while recoveries of amounts previously charged off, if any, are added to the allowance. Net loan charge offs were $7.9 million for the year ended December 31, 2005, compared to $6.8 million for the same period in 2004. The ratio of net charge offs to average loans was 0.42% for 2005 and 2004, compared to 0.67% for 2003.

We recognize that despite our best efforts to manage credit risk, losses will occur. In times of economic slowdown, either within our markets or nationally, the risk inherent in our loan portfolio may increase. Many of our loans are

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secured by real estate collateral. Any adverse trends in our real estate markets could have a significant negative effect on the quality of our loan portfolio and the level of the allowance for loan losses. In addition to economic conditions and other factors, the timing and amount of loan losses will also be dependent on the specific financial condition of our borrowers. While the allowance for loan losses is maintained at a level believed to be adequate for probable losses inherent in the loan portfolio, determination of the allowance is inherently subjective, as it requires management’s estimates, all of which may be susceptible to significant change. Changes in these estimates could impact the provisions charged to expense in future periods.

Allocation of the Allowance for Loan Losses

The following table describes the allocation of the allowance for loan losses among various categories of loans and certain other information as of the dates indicated. The allowance contains an unallocated portion to cover inherent losses within a given loan category which have not been otherwise reviewed or measured on an individual basis and is distributed among each loan category. This unallocated portion of the loan loss allowance is important to maintain the overall allowance at a level that is adequate to absorb credit losses inherent in the total loan portfolio. The allocation is made for analytical purposes only and is not necessarily indicative of the categories in which future loan losses may occur. The total allowance is available to absorb losses from any category of loans.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

	December 31,
	2005								2004								2003
						Percent of								Percent of								Percent of
	Reserve		Percent of			Loans to			Reserve		Percent of			Loans to			Reserve		Percent of			Loans to
(in thousands)	Amount		Allowance			Total Loans			Amount		Allowance			Total Loans			Amount		Allowance			Total Loans
Commercial real estate	$	9,028		39.8	%		55.7	%	$	10,312		51.3	%		56.2	%	$	7,225		41.8	%		53.3	%
Commercial and industrial		11,921		52.5			26.8			8,575		42.6			26.4			8,611		49.7			26.9
Residential		1,177		5.2			10.6			611		3.0			10.2			719		4.2			12.5
Consumer		577		2.5			6.9			618		3.1			7.2			740		4.3			7.3
Total	$	22,703		100.0	%		100.0	%	$	20,116		100.0	%		100.0	%	$	17,295		100.0	%		100.0	%

	December 31,
	2002								2001
						Percent of								Percent of
	Reserve		Percent of			Loans to			Reserve		Percent of			Loans to
(in thousands)	Amount		Allowance			Total Loans			Amount		Allowance			Total Loans
Commercial real estate	$	8,189		48.7	%		50.8	%	$	6,843		50.5	%		49.5	%
Commercial and industrial		6,886		40.9			28.3			4,974		36.7			28.0
Residential		1,063		6.3			12.6			1,106		8.2			14.1
Consumer		683		4.1			8.3			619		4.6			8.4
Total	$	16,821		100.0	%		100.0	%	$	13,542		100.0	%		100.0	%

Securities

The securities portfolio is used primarily to manage liquidity, interest rate risk and regulatory capital, and to take advantage of market conditions that create attractive returns on these securities. Our securities are comprised of high quality earning assets that provide favorable returns with limited credit risk. Securities totaled $830.7 million or 28.1% of assets at December 31, 2005 compared to $880.8 million or 31.4% of assets at December 31, 2004. Agency named mortgage-backed securities (MBS) represented 50.0% of total securities at year-end 2005. Other than Federal Home Loan Bank stock, there were no securities in the name of any one issuer exceeding 10% of stockholders’ equity, except for securities issued by United States government-sponsored agencies, including mortgage-backed securities issued by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). The

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securities portfolio was structured to provide consistent cash flow to enhance liquidity and provide funding for commercial loan growth. The reduction in the securities portfolio during 2005 resulted primarily from the sale of securities to fund loan growth.

The following tables present the amortized cost and estimated market values of our securities portfolios at December 31, 2005, 2004 and 2003:

SECURITIES AVAILABLE FOR SALE

	December 31,
	2005				2004				2003
			Estimated				Estimated				Estimated
	Amortized		Market		Amortized		Market		Amortized		Market
(in thousands)	Cost		Value		Cost		Value		Cost		Value
U.S. Treasury obligations	$	4,030	$	3,882	$	2,016	$	1,938	$	2,018	$	1,922
U.S. government-sponsored agencies		272,350		266,253		236,846		235,441		140,995		139,976
Mortgage-backed securities
Issued by FNMA/FHLMC		412,429		402,333		470,993		470,787		518,875		517,281
Issued by GNMA		11,486		11,293		20,339		20,597		62,656		63,212
Corporate obligations		18,557		19,161		31,723		33,111		35,071		35,765
Federal Reserve Bank stock		3,851		3,851		3,551		3,551		3,551		3,551
Federal Home Loan Bank stock		34,895		34,895		37,100		37,100		36,300		36,300
Total	$	757,598	$	741,668	$	802,568	$	802,525	$	799,466	$	798,007

INVESTMENT SECURITIES

	December 31,
	2005				2004				2003
			Estimated				Estimated				Estimated
	Amortized		Market		Amortized		Market		Amortized		Market
(in thousands)	Cost		Value		Cost		Value		Cost		Value
Obligations of state and political subdivisions	$	87,339	$	88,917	$	76,142	$	77,785	$	65,747	$	67,468
Mortgage-backed securities
Issued by FNMA/FHLMC		1,687		1,694		2,115		2,169		2,939		3,008
Total	$	89,026	$	90,611	$	78,257	$	79,954	$	68,686	$	70,476

As of December 31, 2005, securities available for sale (AFS) totaled $741.7 million, a decrease of $60.8 million from $802.5 million at December 31, 2004. The AFS portfolio represented 89.3% of total securities and was primarily comprised of MBS and agency callable bonds. Securities are classified as available for sale if they may be sold in response to changes in interest rates, prepayment risk, our income tax position, the need to increase regulatory capital, liquidity needs or other like factors.

AFS securities are reported at fair market value, with unrealized gains and losses, net of income tax, recognized in stockholders’ equity. The unrealized loss on securities available for sale increased to $10.4 million, net of taxes, compared to $28,000 for the same period in 2004, reflecting the increase in market interest rates during 2005. Volatility in market interest rates in 2005 created opportunities to reposition securities to achieve asset and liability objectives, which resulted in net securities gains of $862,000.

Investment securities are classified as held to maturity when YNB has the intent and ability to hold these securities to maturity. Securities held to maturity are carried at amortized cost or book value. These securities totaled $89.0 million at December 31, 2005, compared to $78.3 million at December 31, 2004. The increase in investment securities was due primarily to an $11.2 million increase in the municipal bond portfolio. Municipal bonds increased

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to $87.3 million at December 31, 2005 from $76.1 million at December 31, 2004. Municipal bonds were purchased to reduce our overall effective tax rate and enhance the tax equivalent yield of the portfolio in 2005. We expect to purchase additional municipal bonds for these reasons during 2006.

During 2005, based on the repricing characteristics of our loan portfolio and our overall interest rate risk position, we maintained a modestly longer portfolio duration. With approximately 48% of YNB’s floating rate commercial loans repricing higher throughout 2005, in an increasing interest rate environment, our balance sheet was well positioned which resulted in greater interest income. The duration of our portfolio at December 31, 2005 was 4.7 years compared to 3.8 years at December 31, 2004. The effect of a longer duration portfolio while longer-term rates remained relatively stable and short term rates increased during 2005 was a higher yielding portfolio with consistent cash flows and protection should interest rates move lower. Additionally, mortgage-backed securities purchased in 2005 were primarily at prices at or below par, mitigating the risk of a lower yield due to premium amortization. The improved yield on the AFS portfolio contributed to the increase in the overall securities yield to 4.74% for 2005 compared to 4.39% for 2004.

We evaluate all securities with unrealized losses quarterly to determine whether the loss is other than temporary. At December 31, 2005, management determined that all unrealized losses were temporary in nature. This conclusion was based on several factors, including the strong credit quality of the securities with unrealized losses, the performing nature of these securities and the low level and short time frame of the unrealized losses. We believe that the unrealized losses in the securities portfolios were caused by changes in interest rates, market credit spreads, and perceived and actual changes in prepayment speeds on MBS. For a discussion of these matters, see Note 3 to the Notes to Consolidated Financial Statements.

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SECURITY MATURITIES AND AVERAGE WEIGHTED YIELDS

SECURITIES AVAILABLE FOR SALE

	December 31, 2005
				After one			After five
	Within			but within			but within			After
(in thousands)	one year			five years			ten years			ten years			Total
U.S. Treasury obligations	$	—		$	—		$	3,882		$	—		$	3,882
U.S. government-sponsored agencies		498			97,580			168,175			—			266,253
Mortgage-backed securities
Issued by FNMA/FHLMC		—			4,639			6,204			391,490			402,333
Issued by GNMA		—			—			—			11,293			11,293
Corporate obligations		1,012			—			2,948			15,201			19,161
Federal Reserve Bank stock		—			—			—			3,851			3,851
Federal Home Loan Bank stock		—			—			—			34,895			34,895
Total	$	1,510		$	102,219		$	181,209		$	456,730		$	741,668
Weighted average yield, computed on a tax equivalent basis		6.53	%		4.03	%		4.85	%		5.06	%		4.87	%

INVESTMENT SECURITIES

	December 31, 2005
				After one			After five
	Within			but within			but within			After
(in thousands)	one year			five years			ten years			ten years			Total
Obligations of state and political subdivisions	$	1,177		$	3,221		$	12,627		$	70,314		$	87,339
Mortgage-backed securities
Issued by FNMA/FHLMC		—			182			—			1,505			1,687
Total	$	1,177		$	3,403		$	12,627		$	71,819		$	89,026
Weighted average yield, computed on a tax equivalent basis		7.06	%		7.13	%		6.91	%		6.76	%		6.80	%

Mortgage-Backed Securities (MBS)

At December 31, 2005, we had $413.6 million of MBS classified as available for sale and $1.7 million classified as held to maturity. All of the mortgage-backed securities we own are issued by FNMA, FHLMC, or the Government National Mortgage Association (GNMA). MBS securities issued by FNMA, FHLMC and GNMA totaled $245.8 million, $158.2 million and $11.3 million, respectively at December 31, 2005. Included in our mortgage-backed securities portfolio at December 31, 2005 were $165.8 million of agency-named collateralized mortgage obligations (CMOs) compared to $177.9 million of total CMO balances at December 31, 2004. These securities provide a significant source of liquidity through the monthly cash flow of principal and interest. Cash flows from the mortgage-backed securities portfolios declined to $126.1 million in 2005 compared to $188.3 million in 2004 due to comparatively slower prepayment speeds and the smaller size of the MBS portfolio.

Like all securities we own, MBS are sensitive to changes in interest rates, increasing and decreasing in market value as interest rates rise and fall. As interest rates rise, cash flows from MBS prepayments generally decline while the duration of these assets extend. On the other hand, when interest rates fall, prepayments generally increase, which may reduce the yield on mortgage-backed securities, and proceeds are reinvested at lower yields.

Our 2006 investment portfolio strategy, which includes duration targets, will depend on the overall interest rate risk position of our balance sheet and other asset and liability objectives, including capital requirements and liquidity needs. Should the composition of our floating rate loan portfolio shift to a more fixed rate profile, then we would anticipate purchasing securities with shorter-weighted average lives, durations or maturity dates. We continually review and reposition the securities portfolios to adjust for current and anticipated interest rate and yield

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curve levels. Based on potential liquidity needs and market conditions, we anticipate limited or no portfolio growth in 2006.

Deposits

Total deposits reached $1.97 billion at December 31, 2005, an increase of $162.7 million or 9.0% from $1.81 billion for the same time period in 2004. With deposits representing our principal funding source, our focus continued in 2005 to further expand our geographic footprint, strengthen our brand image, introduce new products and services and attract lower cost core deposits, which should enable us to more effectively manage our deposit costs. This retail strategy, we believe, is contributing to the increased value of our franchise.

Bringing our relationship driven brand of banking to new markets and neighborhoods is a critical factor in attracting a lower cost diversified deposit base to fund our loan growth at targeted margin spreads. During 2005 we opened three new branches in our Mercer County market, in addition to our second Bucks County branch in Morrisville, Pennsylvania in December. YNB also opened its first branch in the attractive Ocean County, New Jersey market in January 2006. Several more branches are expected to open later in 2006 in the developing markets of Hunterdon and Middlesex counties in New Jersey. The generation of additional deposits is preferable to the use of wholesale funding vehicles, such as FHLB advances, and other higher cost funding alternatives.

The cost of interest bearing deposits increased to 2.61% for 2005 compared to 1.96% in 2004 as we increased rates to compete for deposits in a higher interest rate environment. The 65 basis point increase in the cost of interest bearing deposits is approximately 35% of the 187 basis point increase in the average Fed funds rate, indicative of the positive results of our retail strategy and our enhanced capability to manage our cost of funds.

The average balances and average rates of deposits for each of the years 2005, 2004, and 2003 are presented below.

AVERAGE DEPOSIT BALANCES AND RATES

	December 31,
	2005								2004								2003
						% of								% of								% of
(in thousands)	Balance		Rate			Total			Balance		Rate			Total			Balance		Rate			Total
Non-interest bearing demand deposits	$	209,179		—	%		11.0	%	$	185,443		—	%		11.0	%	$	139,332		—	%		10.0	%
Interest bearing demand deposits		445,492		2.22			23.4			418,772		1.91			24.8			233,210		2.16			16.7
Money market deposits		290,939		1.89			15.3			356,794		1.22			21.1			341,145		1.59			24.4
Savings deposits		248,915		2.17			13.1			104,564		0.55			6.2			87,907		0.76			6.3
Time deposits of $100,000 or more		208,521		3.35			11.0			161,065		2.59			9.6			137,168		2.93			9.8
Other time deposits		497,530		3.30			26.2			460,694		2.66			27.3			457,717		3.17			32.8
Total	$	1,900,576		2.32	%		100.0	%	$	1,687,332		1.74	%		100.0	%	$	1,396,479		2.10	%		100.0	%

Average total deposits increased $213.2 million or 12.6% to $1.90 billion for 2005 compared to $1.69 billion for 2004. The average interest rate paid on deposits during 2005 increased 58 basis points to 2.32% compared to 1.74% during 2004. The two principal areas of average growth were in savings deposits and time deposits of $100,000 or more.

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Average savings deposits increased $144.4 million during 2005 with the cost of savings deposits increasing to 2.17% from 0.55% in 2004. In the first quarter of 2005, we introduced Simply Better Savings, a competitively priced tiered product. The successful introduction of this product accounted for nearly all of the growth and increased cost of savings deposits experienced in 2005. We have marketed this product extensively during new branch openings, as well as throughout our branch system, with excellent results. In 2005 we opened 4,174 new accounts with balances of $226.7 million at year-end. A portion of this growth was from our existing customers who shifted their Simply Better Checking and other deposit balances to obtain the higher rate on Simply Better Savings.

Average interest bearing demand deposits increased 6.4% while money market deposits declined 18.5%. During 2005 the cost of average interest bearing and money market deposits rose 31 and 67 basis points to 2.22% and 1.89%, respectively. Simply Better Checking balances decreased $168.2 million to $105.8 million in 2005. We view these balances positively, specifically that the balances maintained in this comparatively lower rate product illustrate our success in fostering and establishing new customer relationships. At December 31, 2005, after only two years out in the marketplace, we have accumulated $332.5 million in Simply Better Checking and Savings balances.

As interest rates increased during 2005, certificates of deposit (CDs), or time deposits, became more popular with depositors. Total average time deposits, consisting of both CDs of $100,000 or more and other time deposits, increased 13.6% or $84.3 million to $706.1 million from $621.8 million in 2004. The CD portfolio’s average months to maturity was approximately 8 months at December 31, 2005 compared to approximately 12 months at December 31, 2004. The comparatively shorter average maturity and higher interest rate environment should result in higher costs on new and maturing CDs, which would increase the overall costs of our CDs. The average cost of time deposits increased 68 basis points in 2005 to 3.32% from 2.64% in 2004. At December 31, 2005 average time deposits represented 37.1% of average total deposits compared to 36.8% during 2004. We anticipate time deposits will represent a larger portion of our deposit base due principally to competitive and customer preference factors.

The following table details amounts and maturities for certificates of deposit of $100,000 or more for the years indicated:

		December 31,
(in thousands)	2005		2004
Maturity Range:
Within three months	$	112,754	$	53,102
After three months but within six months		35,730		22,833
After six months but within twelve months		57,963		32,866
After twelve months		47,346		58,182
Total	$	253,793	$	166,983

The average balance of non-interest bearing demand deposits was $209.2 million, a $23.7 million or 12.8% increase over the average balance for 2004. New and existing business relationships primarily accounted for the increase in interest-free balances in 2005. As we cultivate and further develop new and existing loan relationships, we attract and generally require non-interest bearing deposits from these customers. We believe we can continue to grow these margin enhancing non-interest bearing deposits as we introduce our enhanced business checking product line and relationship banking philosophy in new markets.

To supplement our in-market deposit growth we utilize alternative deposit sources, which are generally more expensive. These sources include Surrogate’s deposits (minor trust accounts), money market balances acquired through an independent third party intermediary (Reserve Funds) and CDs marketed nationally through a computer-based software service. Surrogate’s deposits are acquired through an annual competitive bidding process from various counties in New Jersey. As a result of the 2005 bidding process, at January 3, 2006 we had $96.7 million in

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Surrogate’s deposits from nine counties in New Jersey. At January 2, 2005, we had $89.7 million in Surrogate’s deposits. Reserve Funds, which are priced at a premium over the Fed funds rate, decreased to $68.3 million at the end of 2005 compared to $73.5 million at the end of 2004. CDs acquired through the computer-based software service declined $63.5 million to $41.3 million in 2005. Management has found that these funding sources have been dependable management tools for liquidity and funding purposes but typically tend to be more costly then in-market deposits. During 2005 we were able to reduce and replace these funding sources, as discussed above, with comparatively less expensive deposits generated through our retail strategy.

In 2006 we will continue to follow our retail strategy in order to attract lower cost core deposits. We believe this will result in a higher net interest margin and increased levels of net interest income. To realize these benefits we will continue to open additional branches in developing markets and introduce new products and services. We will complete our Simply Better core product line by introducing our Simply Better Money Market deposit account, giving us the best opportunity to expand customer relationships. We realize the full benefits of our retail strategy will take time. Should a greater part of our deposit base be in higher cost time deposits and alternative funding sources in 2006 we would anticipate pressures on achieving net interest margin and net interest income objectives.

Borrowed Funds

Borrowed funds, excluding subordinated debentures, decreased $35.0 million to $718.1 million at December 31, 2005, from $753.1 million at December 31, 2004. The decrease was primarily the result of a decrease of $38.0 million in FHLB advances partially offset by increases in ESOP and other borrowed funds. At December 31, 2005, total borrowed funds, excluding subordinated debentures, represented 24.3% of total assets compared to 26.8% at the same date in 2004.

FHLB advances totaled $704.0 million at December 31, 2005 compared to $742.0 million at December 31, 2004. Matured or called advances were retired in 2005 as part of our strategy to reduce our reliance on this funding source. In anticipation of higher interest rates in 2005, in December 2004 we began replacing floating rate advances with fixed rate callable advances having lockout periods of one to two years and final maturity dates of five to ten years. From December 2004 to year-end 2005 we replaced $111.0 million in floating rate advances. These advances have an average rate of 3.36% and have proven to be comparatively less expensive then the LIBOR based floating rate borrowings they replaced. Our FHLB advance portfolio is collateralized by securities and mortgage loans (residential and commercial). At December 31, 2005, we had $423.5 million in advances collateralized by securities and $276.5 million by mortgage loans. As additional commercial and residential mortgage loans qualify as collateral, it is our intent to replace securities collateral with mortgage collateral to enhance our liquidity profile if and when advances are renewed.

Our FHLB advance position at December 31, 2005 consisted of $700.0 million in callable advances and $4.0 million in term funding. Of the callable borrowings, $526.0 million have call dates in 2006. Callable advances have terms of five to ten years and are callable after periods ranging from three months to five years. Based on year-end interest rate levels and our analysis we anticipate there will be potential calls in 2006 of $40.0 million and an additional $81.0 million in 2007. With interest rates expected to move higher through the first half of 2006 the likelihood of additional FHLB advance calls should increase. A drop in interest rates would slow call activity. Subject to liquidity needs, we will retire advances if they are called in 2006. We are also analyzing strategies to change the pricing characteristics of our fixed rate convertible advances using swaps. We will base our decisions regarding the use of swaps on several factors including our view of future interest rates and asset and liability management objectives.

Excluding subordinated debentures, borrowed funds averaged $740.1 million in 2005, an increase of less than 1% from the $738.1 million reported in 2004. The average cost of these funds, driven primarily by FHLB advances, increased 26 basis points to 5.15% during 2005 compared to 4.89% during 2004 due to the higher cost of floating rate advances and call of certain lower cost advances. We expect the costs associated with our FHLB advance portfolio to be comparatively stable in 2006.

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Borrowed funds also include a loan related to our Employee Stock Ownership Plan (ESOP). In November 2005, the ESOP trust purchased 64,175 shares of YNB’s common stock with $2.3 million borrowed from a nonaffiliated financial institution.

We believe one of the benefits we should realize from our retail strategy is a reduced reliance on borrowed funds as we grow our deposit base. We may utilize borrowed funds for our earning asset growth not provided by deposit generation and for asset and liability management purposes. Within approved policy guidelines, we may continue to use borrowed funds as an alternative funding source or to achieve business, and asset and liability objectives.

Subordinated Debentures

We have obtained a portion of capital needed to support the growth of the Bank and for other purposes through the sale of subordinated debentures of Yardville National Bancorp to subsidiary statutory business trusts of Yardville National Bancorp (“trusts”). These trusts exist for the sole purpose of raising funds through the issuance of trust preferred securities, typically in private placement transactions, and investing the proceeds in the purchase of the subordinated debentures. The interest rate on the subordinated debentures is identical to the interest rate on the trust preferred securities. Subordinated debentures are the sole assets of each trust and each trust is obligated to distribute all proceeds resulting from any redemption of the subordinated debentures, whether voluntary or upon maturity, to holders of its trust preferred securities. Yardville National Bancorp’s obligation with respect to the subordinated debentures, when viewed together with the obligations of each trust with respect to its trust preferred securities, provides a full and unconditional guarantee on a subordinated basis by Yardville National Bancorp of the obligations of each trust to pay amounts when due on the trust preferred securities of each respective trust.

The following table sets forth our trust subsidiaries as of December 31, 2005, along with the transaction date, principal amount of subordinated debentures issued, interest rate of subordinated debentures, maturity date of subordinated debentures and date on which redemption of subordinated debentures is permitted.

		Principal		Interest				Earliest Date
		Amount of		Rate for			Maturity date of	upon which
(in thousands)	Transaction	Subordinated		Subordinated			Subordinated	Redemptions
Name of Trust	Date	Debentures		Debentures			Debentures	are Permitted
Yardville Capital Trust II	June 2000	$	15,464		9.50	%	June 22, 2030	June 23, 2010
Yardville Capital Trust III	March 2001		6,190		10.18	%	June 8, 2031	June 8, 2011
Yardville Capital Trust IV	February 2003		15,464	Floating rate based			March 1, 2033	March 1, 2008
				on three month LIBOR
				plus 340 basis points
Yardville Capital Trust V	September 2003		10,310	Floating rate based			October 8, 2033	October 8, 2008
				on three month LIBOR
				plus 300 basis points
Yardville Capital Trust VI	June 2004		15,464	Floating rate based			July 23, 2034	July 23, 2009
				on three month LIBOR
				plus 270 basis points
Total		$	62,892

The principal use of proceeds for Yardville Capital Trust, II, III, and V were contributed as capital to the Bank to support growth. A portion of the proceeds of Yardville Capital Trust IV were used to retire the subordinated debentures of Yardville Capital Trust in March 2003 with the remainder contributed as capital to the Bank to support growth. The proceeds from Capital Trust VI were used to meet cash flow needs of the holding company, which included contributions of capital to the Bank to support growth. The cost of subordinated debentures increased 91 basis points to 7.57% in 2005 compared to 6.66% in 2004. Floating rate subordinated debentures

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represented approximately 66% of total subordinated debentures of $62.9 million at December 31, 2005 and accounted for the increase in cost as interest rates increased in 2005.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

The following table presents, as of December 31, 2005, our significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments.

	Payments due by period
	Less than						More than
(in thousands)	1 year		1 -3 years		3 -5 years		5 years		Total
Contractual Obligations
Time deposits	$	589,590	$	208,981	$	13,018	$	—	$	811,589
Borrowed funds		41,892		108,782		124,233		443,213		718,120
Subordinated debentures		—		—		—		62,892		62,892
Operating lease obligations		2,639		5,574		5,076		12,389		25,678
Lines and letters of credit		524,939		5,327		—		—		530,266
Other long-term liabilities		3,193		551		5,481		10,522		19,747
Total	$	1,162,253	$	329,215	$	147,808	$	529,016	$	2,168,292

In the normal course of business, we enter in certain contractual obligations. Such obligations include obligations to make future payments on debt and lease arrangements, as well as payments on deferred compensation and postretirement benefits. We have one capital lease obligation with no other significant long-term contractual obligations. Time deposits are shown at the maturity date.

Borrowed funds are shown based on their amortization schedule. Noncallable borrowed funds are shown at the maturity date, while callable borrowed funds are shown at either the call date, if a call was deemed likely at December 31, 2005, or otherwise at the maturity date. Subordinated debentures are shown at the maturity date.

Commitments to extend credit and letters of credit do not necessarily represent future cash requirements as these commitments may expire without being drawn upon based upon our past historical experience.

We enter into a variety of financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and letters of credit, both of which involve, to varying degrees, elements of risk in excess of the amount reflected in the consolidated financial statements.

Credit risk for letters of credit is managed by limiting the total amount of arrangements outstanding and by applying the same credit policies we apply to all activities with credit risk. Collateral is obtained based on management’s credit assessment of the customer. The contract amounts of off-balance sheet financial instruments as of December 31, 2005 and 2004 for commitments to extend credit were $500.0 million and $406.8 million, respectively, and for letters of credit were $30.3 million and $36.2 million, respectively. Commitments to extend credit and letters of credit may expire without being drawn upon, and therefore, the total commitment amounts do not necessarily represent future cash flow requirements.

Further discussion of our “Other Commitments and Contingent Liabilities” is included in Note 14 of Notes to the Consolidated Financial Statements. In addition, we have commitments and obligations under other postretirement benefit plans as described in Note 10 of Notes to the Consolidated Financial Statements.

Asset and Liability Management

Asset and liability management involves the evaluation, monitoring, and managing of market risk, interest rate risk, liquidity risk and the appropriate use of capital, while maximizing profitability. Our Asset and Liability Committee (ALCO) provides oversight to the asset and liability process. This committee consists of both senior management and independent members of the Board of Directors. ALCO recommends policy guidelines regarding exposure to

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interest rates, and liquidity and capital limits for approval by the Board of Directors. Adherence to these policies is monitored on a monthly basis and decisions related to the management of interest rate exposure due to changes in balance sheet composition and/or market interest rates are made when appropriate and agreed to by ALCO and approved by the Board of Directors. One of the primary goals of asset and liability management is to prudently maximize net interest income while maintaining acceptable levels of interest rate risk. The risk to net interest income is derived from the difference in the maturity and repricing characteristics between assets and liabilities.

Market and Interest Rate Risk

Market risk is the risk of loss from adverse changes in market prices and rates. Market risk arises principally from interest rate risk inherent in loans, securities, deposits and borrowings. We seek to manage our asset and liability portfolios to help reduce any adverse impact on net interest income and earnings caused by fluctuating interest rates. We are subject to interest rate risk because:

• assets and liabilities may mature or reprice at different times;

• assets and liabilities may reprice at the same time but by different amounts;

• short- and long-term interest rates may change by different amounts;

• the expected life of various assets or liabilities may shorten or lengthen as interest rates change; and

• interest rates may have an indirect impact on loan demand, credit losses and other sources of earnings.

The primary goals of our interest rate risk management are to control exposure to interest rate risk inherent in our balance sheet, determine the appropriate risk level given our strategic objectives, and manage the risk consistent with ALCO and the Board of Directors’ approved limits and guidelines. These limits and guidelines reflect our tolerance for interest rate risk over both short- and long-term horizons. Our ALCO meets monthly to discuss pertinent asset and liability issues. On a quarterly basis, we provide a detailed review of our interest rate risk position to the Board of Directors.

We manage and control interest rate risk by identifying and quantifying interest rate risk exposures through the use of net interest income simulation and economic value at risk models. Both measures may change periodically as the balance sheet composition and underlying assumptions change.

We also use a traditional gap analysis that complements the simulation and economic value at risk modeling. The gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and also does not fully account for embedded options, caps and floors. The gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods.

One measure of interest rate risk is the gap position, which is defined as the difference between the dollar volume of interest earning assets and interest bearing liabilities maturing or repricing within a specified period of time as a percentage of total assets. A positive gap results when the volume of interest rate-sensitive assets exceeds that of interest rate-sensitive liabilities within comparable time periods. A negative gap results when the volume of interest rate-sensitive liabilities exceeds that of interest rate-sensitive assets within comparable time periods.

As indicated in the table, our one-year gap position at December 31, 2005 was 0.0%. Throughout 2005 we have maintained a positive gap position during a period of gradually higher interest rates. The combination of increased prime related commercial loans, converting floating rate FHLB advances into fixed rate callable advances and Simply Better Savings deposits resulted in a positive gap of 9.3% at June 30, 2005. The gap change that has taken place in the second half of 2005 has largely been asset driven. The reduction of the positive gap position in the second half of 2005 resulted from increased fixed rate Commercial loans, slower investment portfolio prepayment speeds and certain floating rate commercial loans reaching their interest rate caps. Floating rate commercial loans with caps totaled $631.2 million at December 31, 2005, of which $159.0 million have reached their caps. The weighted average cap rate is 7.26% and the caps have a weighted average life of 32 months. From a liability perspective, FHLB advances have shortened with the increase in the Fed funds rate. We believe that as this increasing rate cycle ends, our gap is moving in the proper direction to eventually be in a better position when rates start to move lower.

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Gaps, as a static measurement, cannot capture the effects of embedded options, caps or floors on assets and liabilities. Generally, a financial institution with a positive gap position will most likely experience an increase in net interest income during periods of rising rates and decreases in net interest income during periods of falling interest rates.

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Included in the analysis of our gap position are certain savings, money markets and interest bearing demand deposits, which are less sensitive to fluctuations in interest rates than other interest bearing sources of funds. In determining the sensitivity of such deposits, we review the movement of our deposit rates relative to market rates over the last 12-months.

RATE SENSITIVE ASSETS AND LIABILITIES

	December 31, 2005
							More than			More than			More than			More than
	Under			Six months			one year			two years			five years			ten years
	six			through			through			through			through			and not
(in thousands)	months			one year			two years			five years			ten years			repricing			Total
Assets
Cash and due from banks	$	—		$	—		$	—		$	—		$	—		$	52,686		$	52,686
Federal funds sold and interest bearing deposits		27,208			—			—			—			—			—			27,208
Available for sale securities		30,442			30,399			93,540			319,351			140,066			127,870			741,668
Investment securities		1,752			1,774			1,353			15,682			43,927			24,538			89,026
Loans		870,935			86,741			198,753			578,737			143,569			94,105			1,972,840
Other assets, net		—			—			—			—			—			73,303			73,303
Total Assets	$	930,337		$	118,914		$	293,646		$	913,770		$	327,562		$	372,502		$	2,956,731
Liabilities and Stockholders’ Equity
Non-interest bearing demand	$	—		$	—		$	—		$	—		$	—		$	232,269		$	232,269
Savings and interest bearing demand		147,517			121,844			28,116			243,377			133,284			—			674,138
Money market		93,991			28,561			—			—			132,169			—			254,721
Certificates of deposit of $100,000 or more		148,484			57,963			41,020			6,326			—			—			253,793
Other time deposits		197,724			187,192			149,537			22,967			376						557,796
Total deposits		587,716			395,560			218,673			272,670			265,829			232,269			1,972,717
Borrowed funds		3,524			22,522			213,543			478,128			172			231			718,120
Subordinated debentures		40,000			—			—			—			—			22,892			62,892
Other liabilities		—			—			—			—			—			25,544			25,544
Stockholders’ equity		—			—			—			—			—			177,458			177,458
Total Liabilities and Stockholders’ Equity	$	631,240		$	418,082		$	432,216		$	750,798		$	266,001		$	458,394		$	2,956,731
Gap		299,097			(299,168	)		(138,570	)		162,972			61,561			(85,892	)
Derivative instruments (notional amounts)		(105,000	)		105,000			—			—			—			—
Gap after derivative instruments		194,097			(194,168	)		(138,570	)		162,972			61,561			(85,892	)
Cumulative gap		194,097			(71	)		(138,641	)		24,331			85,892			—
Cumulative gap to total assets		6.6	%		0.0	%		-4.7	%		0.8	%		2.9	%		—	%

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Simulation Modeling

We believe that the simulation of net interest income in different interest rate environments provides a more meaningful measure of interest rate risk than gap analysis. Our simulation model measures the volatility of net interest income to changes in market interest rates. We dynamically model our interest income and interest expenses over specified time periods under different interest rate scenarios and balance sheet structures. We assess the probable effects on the balance sheet not only of changes in interest rates, but also of possible strategies for responding to them. We measure the sensitivity of net interest income over 12- and 24-month time horizons, based on assumptions approved by ALCO and ratified by the Board of Directors. The Board has established certain policy limits for the potential volatility of net interest income as projected by our simulation model.

In our base case simulation the composition of the balance sheet is kept static. Volatility is measured from a base case where interest rates are assumed to be flat and is expressed as the percentage change, from the base case, in net interest income over 12- and 24-months periods with a change in interest rates of plus and minus 200 basis points over a 12-month period and continuation of rates at that level for the second year. Our ALCO policy has established that net interest income sensitivity is acceptable if net interest income in the base case scenario is within a –7% change in net interest income in the first twelve months and within –14% change over the two year time frame.

The following table reflects the estimated change in net interest income from the base case scenario for a one- and two-year period based on our December 31, 2005 balance sheet:

	Percentage Change in
	Net Interest Income
Change in Market Interest Rates	2006			2007
+200 basis points		2.0	%		-8.1	%
Flat		—			—
-200 basis points		-2.7	%		0.5	%

Based on our simulation analysis, we believe our interest rate risk position remains fairly balanced over the next 12 months whether we experience either rising or falling interest rates. Our risk to increasing interest rates in year two is reflective of the impact to net interest income when floating rate commercial loans reach their caps and interest rates paid on deposits and called FHLB advances increase. While we are still in a position to take advantage of gradually increasing interest rates in 2006 our simulation results have become less asset sensitive over the last several months due to shorter liability repricing and more caps on floating rate commercial loans that were engaged. We believe, however, that the interest rate cycle of increasing rates will be ending some time in the second half of 2006. As a result we are assessing strategies for improved financial performance in a lower interest rate environment. The simulation results are showing more risk to a lower rate environment than our gap might indicate. This is because lower interest rates over the next two years will create more floating rate commercial loans once again as rates fall below caps. In order to reduce risk in the next 12 months and position the 24-month scenario to benefit from lower rates we will consider lengthening bond maturities and moving funding shorter. One way of creating a shorter funding structure would be to use interest rate swaps to change the profile of fixed rate FHLB advances.

We also measure, through simulation analysis, the impact to net interest income based on our 2006 balance sheet growth projections (Growth Scenario) in addition to rate ramps or rate increases or decreases greater than 2% over 12- and 24-month periods. In our growth scenario we see similar results to net interest income assuming expected changes in balances sheet composition. Due to the assumptions used in preparing our simulation analysis, actual outcomes could differ significantly from the simulation outcomes.

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Economic Value at Risk

We also measure long-term interest rate risk through the Economic Value of Equity (“EVE”) model. This model involves projecting cash flows from our assets and liabilities over a long time horizon, discounting those cash flows at appropriate interest rates, and then aggregating the discounted cash flows. Our EVE is the estimated net present value of these discounted cash flows. The variance in the economic value of equity is measured as a percentage of the present value of equity. The sensitivity of EVE to changes in the level of interest rates is a measure of the sensitivity of long-term earnings to changes in interest rates. We use the sensitivity of EVE principally to measure the exposure of equity to changes in interest rates over a relatively long time horizon. The following table lists our percentage change in EVE in a plus or minus 200 basis point rate shock at December 31, 2005 and 2004. The policy guideline is –25%.

	Percentage Change in EVE
Change in Market Interest Rates (Rate Shock)	2005		2004
+200 basis points		-16		-17
-200 basis points		-14		-22

Based on the underlying assumptions, we were within our policy guideline at year-end 2005 and 2004. The EVE model has become more balanced with improvement in both a higher and lower rate shock scenario. Negative convexity declined each quarter that FHLB advances were paid down in 2005. Management believes that as our advances move closer to their maturity dates and become a smaller portion of our funding base that their negative impact on our longer term interest rate risk profile will moderate over time. Continued growth in our core deposit base will also contribute to an improving interest rate risk profile. Our focus has shifted to our risk to lower interest rates as we believe the likelihood of lower rates is now more probable then interest rates moving an additional 200 basis points from rates at the end of 2005. The closer we feel the rate cycle is nearing its peak the more willingness there will be to purchase longer-term MBS pools, municipal bonds or make fixed rate loans to improve our risk to lower interest rates. We will continue to closely monitor our longer-term rate exposures and evaluate strategies to reduce risk while still achieving financial goals.

Certain shortcomings are inherent in the methodology used in the previously discussed interest rate risk measurements. Modeling changes in the simulation and EVE analyses require the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. There are many factors that management evaluates when constructing the assumptions used in short-term and long-term interest rate risk models. One of the most important assumptions involves deposits without fixed maturity dates. These include non-interest bearing demand, interest bearing demand, savings and money market deposits, and represent a significant portion of our deposit base. We believe these deposits are less sensitive to changes in interest rates than other interest bearing assets and liabilities on our balance sheet. The balance of these deposits and the rates paid on them may fluctuate due to changes in market interest rates, competition, or by the fact that customers may add to or withdraw these deposits at any time at no cost. These characteristics and the lack of a maturity date makes modeling these deposits for both simulation and EVE purposes very difficult. A modest change in the maturity term or repricing characteristics can result in very different outcomes. Because each financial institution assigns different repricing and maturity terms to these non-maturity deposits, comparing risk between institutions without understanding the treatment of non-maturity deposits has limited value. Another source of uncertainty reflects the options embedded in many of our financial instruments, which include loans, investments and callable FHLB advances. To deal with the many uncertainties when constructing either short- or long-term interest rate risk measurements, management has developed a number of assumptions. Depending on the product or behavior in question, each assumption will reflect some combination of market data, research analysis and business judgment. Assumptions are reviewed periodically and changes are made when deemed appropriate.

Although the models discussed above provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on YNB’s net interest income or economic value of equity and may differ from actual results.

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We believe that any changes to interest rate levels are likely to occur gradually. We continue to monitor our gap position and rate ramp and shock analyses to detect changes to our exposure to fluctuating interest rates. We have the ability to shorten or lengthen maturities on assets, sell securities, enter into derivative financial instruments, or seek funding sources with different repricing characteristics in order to change our asset and liability structure for the purpose of mitigating the effect of interest rate risk changes.

Derivatives

We use and in the future may use derivatives to manage our exposure to interest rate risk. All derivatives are recorded on the balance sheet at fair value with realized and unrealized gains and losses included in the results of operations or in other comprehensive income, depending on the nature and purpose of the derivative transaction. Derivative interest rate contracts may include interest rate swaps, caps and floors, and are used to modify the repricing characteristics of specific assets and liabilities. (See Notes 1 and 18 of the Notes to Consolidated Financial Statements.)

During 2004 we entered into fair value hedges, which initially had the effect of increasing net interest income and modestly enhancing the net interest margin. More importantly, we were able to competitively price two-year CDs to fund our floating rate commercial loan growth and provide protection against falling interest rates. By entering into $125.0 million in notional value pay floating swaps designated as fair value hedges at inception we were able to more closely match the repricing characteristics of the CDs with the loans, and lock in spreads of approximately 315 basis points for the period of the swaps should rates either rise or fall. We understood that the initial interest benefit realized in 2004 of $498,000 would become negative during 2005 if the prime rate continued to increase. The negative impact to net interest income during 2005 was $412,000 as LIBOR increased throughout the year. The interest rate swaps we entered into in 2004 will begin to mature in May of 2006.

Financial derivatives involve to some degree, interest rate, market and credit risk. Interest rate swaps represent our only derivative transactions and credit risk is limited to the periodic exchange of net interest payments for the remaining maturity of the transactions. This results in a credit risk significantly less than the $125.0 million notional amount. Not all elements of interest rate, market and credit risk are addressed through the use of financial or other derivatives, and such instruments may be ineffective for their intended purposes due to unanticipated market characteristics, among other reasons.

Liquidity Risk

The objective of effective liquidity management is to meet the cash flow requirements of depositors and borrowers, as well as the operating cash needs of YNB at the most reasonable cost. Liquidity risk arises from the possibility we may not be able to satisfy current or future financial commitments or unexpected deposit outflows or other cash needs.

ALCO is responsible for liquidity risk management. This committee recommends liquidity policy guidelines to the Board of Directors for approval. ALCO reviews forecasted liquidity needs and the adequacy of deposits and other alternative funding sources to meet these needs. Each month we present detailed reports to the Board on our liquidity position, including compliance with limits and guidelines. As part of liquidity risk management, we have developed a detailed contingency funding plan. On a quarterly basis, ALCO reviews the adequacy of funding in adverse environments due to changes in interest rates, credit markets or other external risks through its contingency funding report.

Traditional sources of liquidity include deposit growth and scheduled amortization and prepayment of loans and principal cash flows from mortgage-backed securities. We emphasize building and maintaining customer deposits through the execution of our retail strategy and our relationship banking philosophy. Deposit rates and levels are monitored, and trends and significant changes are reported up through ALCO by YNB’s Pricing Committee. Our Pricing Committee, an arm of ALCO, is made up of senior officers and makes deposit pricing decisions in relation to funding needs on a weekly basis consistent with our liquidity policy objectives. We have used and may continue to use borrowed funds to support and enhance liquidity. In addition to the ongoing execution of our retail strategy, which has increased core deposits, we also utilize alternative funding sources like the nationwide computer software-based service to raise funds through placement of CDs to bolster liquidity and fund loan growth. Brokered CD facilities are also available as another source of liquidity. Under our agreement with the OCC we would be required to obtain a waiver from the FDIC to acquire brokered CDs. In the first quarter of 2006 we applied for and received approval from the FDIC to utilize this funding source. The waiver, good until March 2007, will allow us to use brokered CDs when and if we deem appropriate. Mortgage-backed securities represented

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50.0% of total securities at December 31, 2005 and generated substantial cash flows of approximately $126.1 million during 2005, which strengthened liquidity. While maturities and scheduled amortization of loans and MBS are generally a predictable source of funds, deposit flows and securities prepayments are greatly influenced by interest rates and competition.

We are eligible to borrow additional funds from the FHLB subject to its stock and collateral requirements, and individual advance proposals based on FHLB credit standards. FHLB advances are collateralized by securities as well as residential and commercial mortgage loans. Subject to collateral requirements, we also maintained lines of credit totaling approximately $300.0 million at December 31, 2005 with the FHLB and three brokerage firms. We also have the ability to borrow at the Federal Reserve discount window. We also maintain unsecured Federal funds lines totaling $79 million with six correspondent banks for daily funding needs.

The Company pays dividends to stockholders and interest due on subordinated debentures. The principal source of funding for these payments generally comes from dividends from the Bank. Under the agreement with the OCC and the supervisory letter from the Federal Reserve Bank of Philadelphia, prior regulatory approval is required for dividend payments by both the Bank and the Company. We received approval from both of these regulatory agencies to pay dividends in the first quarter of 2006.

By executing our retail strategy in 2005 we further strengthened our liquidity profile. The generation of core deposits in our expanding branch network has provided a reliable stable source of funding. In addition to cash flows generated from MBS, we hold a diversified portfolio of marketable securities from which liquidity could be promptly generated. Total unpledged securities were approximately $367.0 million at December 31, 2005. Effective liquidity planning and management will be critical in maintaining adequate liquidity levels while funding loan growth at a reasonable cost to achieve our profitability goals in 2006.

Capital Management

We manage capital in a highly regulated environment which requires a balance between earning the highest return for stockholders while maintaining sufficient capital levels for proper risk management and satisfying regulatory requirements. Our capital management is designed to generate attractive returns on equity to our stockholders and to assure that we are always well capitalized, or otherwise meet capital targets set by regulatory authorities, while having the necessary capital for our future expansion plans as part of our retail strategy.

A significant measure of the strength of a financial institution is its stockholders’ equity. Stockholders’ equity at December 31, 2005 totaled $177.5 million compared to $160.2 million at December 31, 2004. The increase in stockholders’ equity of $17.3 million or 10.8% resulted from earnings of $20.9 million, proceeds of $8.7 million from common shares issued in a private equity offering in November, proceeds of $1.7 million and $374,000 from exercised stock options and shares issued through our dividend reinvestment plan, respectively, $377,000 from allocated ESOP shares, and an increase of $307,000 associated with the fair market adjustment related to the allocation of shares from the ESOP. Also contributing to the increase was the recognition of a $147,000 expense, related to the accelerated vesting of all unvested stock options outstanding under Yardville National Bancorp’s 1997 Stock Option Plan, provided that such stock options become vested on December 30, 2005. The increase in stockholders’ equity was partially offset by cash dividend payments of $4.9 million and a negative adjustment to equity of $10.3 million from the depreciation in market value of securities available for sale.

We have an Employee Stock Ownership Plan (ESOP) that permits eligible employees to share in our growth through stock ownership. In May 2003, the ESOP purchased an additional 39,515 shares from our 401(k) Plan for $755,000. The YNB Stock Fund, a fund offered through our 401(k) Plan, was discontinued in May 2003. The ESOP financed the stock purchased with a loan from a nonaffiliated financial institution. The loan was for a term of two years and was paid in full at December 31, 2005. In November 2005, the ESOP purchased 64,175 shares of common stock for approximately $2.3 million. The ESOP funded the transaction by borrowing approximately $2.3 million from an unaffiliated financial institution.

The balance of unallocated ESOP shares at December 31, 2005 was $2.3 million. The annual expenses associated with the ESOP were $693,000 in 2005, $550,000 in 2004 and $618,000 in 2003. These expenses include compensation expense, debt service on the loan and any adjustment required due to changes in the market value of

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the shares at time of allocation. The reason for the increase in cost in 2005 compared to 2004, was related to our higher stock price on common shares allocated.

Dividends declared on common stock for 2005 and 2004 totaled $0.46 per share, respectively. The dividend payout ratio was 23.9% for 2005, compared to 26.0% for 2004. The decrease in the dividend payout ratio was due to higher earnings while maintaining the same cash dividend per common share in 2005.

Regulatory Capital

We are subject to risk-based capital standards under Federal banking regulations. These banking regulations relate a company’s regulatory capital to the risk profile of its total assets and off-balance sheet items, and provide the basis for evaluating capital adequacy. Under these standards, assets and certain off-balance sheet items are assigned to broad risk categories each with applicable weights. Risk based capital standards require all banks to have Tier 1 capital of at least 4%, and total capital (including Tier 1 capital) of at least 8%, of risk-adjusted assets. YNB is also subject to leverage ratio requirements. The leverage ratio measures Tier 1 capital to adjusted average assets. The minimum ratio requirement is 4%.

Tier 1 capital includes stockholders’ equity (adjusted for intangibles and the unrealized gains/losses in securities available for sale) and trust preferred securities. Trust preferred securities are limited to 25% of Tier 1 capital. Any trust preferred securities in excess of the Tier 1 limit are included in total capital. Total capital is comprised of all of the components of Tier 1 capital plus the allowance for loan losses.

The following table sets forth the Company’s regulatory capital ratios at December 31, 2005, 2004 and 2003:

	December 31,
	2005			2004			2003
Risk based capital ratios:
Tier 1		8.6	%		7.6	%		8.0	%
Total Capital		10.8			10.1			11.1
Leverage ratio		11.8			11.4			12.1

Under the capital adequacy guidelines, a well capitalized financial institution must maintain a total risk based capital ratio of at least 10%, a Tier 1 risk based capital ratio of at least 6% and a leverage ratio of at least 5%.

Due to our agreement with the OCC, however, the Bank is no longer considered “well capitalized” for certain regulatory purposes. This capital category does not, however, constitute an accurate representation of the Bank’s general financial condition or prospects. In addition, under the agreement, the Bank has to achieve and maintain a total risk based capital ratio of at least 10.75%, a Tier 1 risk based capital ratio of at least 9.75% and a leverage ratio of at least 7.50%. In November 2005, to help meet the higher capital and leverage ratios established by the formal agreement, we completed a private equity placement to a select number of accredited investors, which included YNB Directors of approximately $8.7 million, substantially all of which was contributed to the Bank.

We were in compliance with all required ratios at December 31, 2005. We believe the combination of controlled asset growth and solid financial performance in 2006 will allow us to continue to exceed all applicable minimum capital requirements.

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Earnings Analysis for Prior Year
(2004 compared to 2003)

YNB earned net income of $18.5 million or $1.71 per diluted share in 2004 compared to $10.3 million or $0.97 per diluted share in 2003. This represents an increase of 79.7% and 76.3%, respectively. The notable increase in net income was due to strong net interest income growth of $17.5 million partially offset by a $4.5 million increase in non-interest expense, as well as higher income tax expense due to better financial performance.

Net Interest Income

Net interest income totaled $70.7 million in 2004, an increase of $17.5 million or 33.0% from net interest income of $53.2 million in 2003. There were two principal factors that contributed to the increase in net interest income in 2004. An increase in interest income of $18.4 million resulting from a 17.5% increase in interest and fees on loans, due to increased volumes for the comparative periods, was the primary driver in higher net interest income. To a somewhat lesser extent, a 34 basis point decline in the cost of interest bearing liabilities, partially offset by a 12.5% increase in average interest bearing liabilities, also contributed to the net interest income improvement.

The net interest margin, on a tax equivalent basis, increased to 2.83% for the twelve months ended December 31, 2004 compared with 2.42% for the same period in 2003. YNB’s financial success in 2004 was driven by the combination of a low interest rate environment, our strength as a commercial business lender and the successful execution of our retail strategy, which resulted in a lower cost of funds and a higher net interest margin.

Average interest earning assets increased by $297.6 million or 13.2% to $2.56 billion for 2004, compared to $2.26 billion in 2003. In addition, the yield on our earning assets increased 10 basis points to 5.47%. As a result, in 2004, interest income rose to $139.9 million, compared to $121.5 million for 2003.

Driven by commercial loans, loans averaged $1.63 billion for 2004, an increase of $303.2 million or 22.9% when compared with $1.32 billion for 2003. Interest and fees on loans increased $15.0 million or 17.5% despite a 28 basis point decline on loan yields. Even though short-term interest rates rose 125 basis points in the second half of 2004 the booking of prime priced commercial loans at yield levels less than fixed rate loans had the effect of lowering the loan portfolio yield. The loan portfolio yield increased throughout the last six months of 2004 as a significant portion of our floating rate commercial loan portfolio rose above their floors, which had been instituted over the last few years. Approximately 50% of YNB’s commercial loans have floating interest rates. During 2004 the average prime rate increased to 4.35% compared to 4.12% in 2003.

The higher yield on our securities portfolio also contributed to our net interest income and margin improvement. Securities purchased at levels close to par with modestly longer duration resulted in a higher securities yield.

Average interest bearing liabilities rose $255.3 million to $2.30 billion, while overall funding costs declined 34 basis points to 3.01% during 2004. The higher volume of average interest bearing liabilities resulted in a modest increase in interest expense of $856,000, or 1.3%, to $69.1 million when compared to $68.3 million in 2003.

In 2004, we experienced success in reducing and then managing our cost of funds as the result of the execution of our retail strategy. To achieve that objective we focused on our relationship based banking philosophy, which attracted lower cost core deposits and changed the composition of our deposit base. Total interest expense on interest bearing deposits remained the same for 2004 compared to 2003, as money market balances and interest bearing demand deposits increased $217.9 million, or 32.9% to $880.1 million during 2004. The corresponding cost of these deposits declined 17 basis points to 1.47%. Average savings, money markets and interest bearing deposits represented 58.6% of total average interest bearing deposits during 2004 compared to 52.7% for 2003. Higher cost average time deposits represented 36.8% of our average deposit base during 2004 compared to 42.6% during 2003. Growth in average demand deposits of $46.1 million or 33.1% to $185.4 million in 2004 positively impacted our net interest margin.

The average cost of borrowed funds increased seven basis points to 4.89% due to higher costs associated with floating rate FHLB advances that repriced higher as interest rates gradually moved higher in the second half of 2004.

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Conversely, the average cost of subordinated debentures declined 107 basis points to 6.66% from 7.73% in 2003 principally due to a change in composition and cost from 2003 through 2004. The combination of factors discussed above resulted in a 34 basis point decline in the cost of interest bearing liabilities to 3.01% in 2004 from 3.35% during 2003.

Provision for Loan Losses

The provision for loan losses totaled $9.6 million for 2004, an increase of $265,000 when compared to $9.5 million for 2003. The modest increase is reflective of the strong commercial loan growth experienced in 2004, partially offset by lower net charge offs. The allowance for loan losses increased by $2.8 million to $20.1 million at December 31, 2004 compared to $17.3 million at the end of 2003.

Non-interest Income

Non-interest income, excluding net securities gains and the gain on sale of our operations building in 2003, rose $503,000 or 8.6% to $6.7 million for 2004 when compared to $6.2 million for 2003. The increase was primarily due to higher service charge income partially offset by a reduction in income on bank owned life insurance due to a lower interest-crediting rate, reflective of the lower interest rate environment that existed when the interest crediting rate was established.

Service charges represented the largest single source of core non-interest income in 2004. During 2004, fee-based services, which include automated teller machine related fees, Second Check, wire transfer and check fees increased $111,000 to $1.5 million in 2004 from $1.4 million in 2003. Other non-interest income, which included mortgage servicing, and safe deposit box rentals, totaled $198,000 in 2004 compared to $701,000 in 2003. Included in our 2003 results was the sale of our former operations building to a board member, which resulted in a $429,000 gain.

Non-interest Expense

Non-interest expense totaled $42.7 million in 2004, an increase of $4.5 million or 11.8%, compared to $38.2 million in 2003. The largest increases in non-interest expense in 2004 were in salaries and employee benefits, and directors and committee fees. Expenses associated with our SOX 404 compliance, including audit and consulting fees, contributed to the increase in non-interest expense.

Salaries and employee benefits increased $2.0 million or 9.5% to $23.5 million for the year ended December 31, 2004 compared to $21.4 million for the same period in 2003. The increase in salaries and employee benefits expense in 2004 was primarily due to increased salary expense as the result of additional lending staff and from growth. Net occupancy expense increased $349,000 or 8.9% to $4.3 million in 2004 from $3.9 million in 2003 principally due to new branches opened as part of our retail strategy and facilities-related expenses, such as repairs and maintenance. Outside services and processing expenses increased $664,000 or 81.1% to $1.5 million in 2004 from $819,000 in 2003.

We estimate that the impact to pre-tax earnings of implementing SOX 404 as a result of additional expenses was approximately $750,000 to $1,000,000 or 5 to 7 cents on diluted earnings per share in 2004.

Excluding net securities gains and the sale of our former operations building in 2003, our efficiency ratio was 55.1% and 64.3% for 2004 and 2003, respectively. The improvement in this ratio is principally due to the increased level of net interest income in 2004.

Income Taxes

The provision for Federal and state income taxes was $7.9 million in 2004 compared to $3.4 million in 2003. For 2004, the effective tax rate was 29.9% compared to 25.1% for 2003. The increases in tax expense and our effective tax rates were principally due to higher taxable income.

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Recent Accounting Pronouncements

Financial Accounting Standards Board (the “FASB”) Statement No. 123 (revised 2004) (“Statement 123(R)”) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant date fair value of stock options and other equity-based compensation issued to employees in the income statement. Statement 123(R) also generally requires that an entity account for those transactions using the fair-value-based method, and eliminates an entity’s ability to account for share-based compensation transactions using the intrinsic value method of accounting in APB Opinion No. 25, Accounting for Stock Issued to Employees, which was permitted under Statement 123, as originally issued. The revised Statement 123(R) requires entities to disclose information needed about the nature of the share-based payment transactions and the effects of those transactions on the financial statements. Statement 123(R) is effective for the Company beginning January 1, 2006. The Company must use either the modified prospective or the modified retrospective transition method. The adoption of Statement 123(R) will cause the Company to recognize additional expense upon the grant of each stock option.

FASB Staff Position No. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (the “FSP”), was issued on November 3, 2005 and addresses the determination of when an investment is considered impaired; whether the impairment is other than temporary, and how to measure an impairment loss. The FSP also addresses accounting considerations subsequent to the recognition of an other-than-temporary impairment on a debt security, and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The FSP replaces the impairment guidance in EITF issue No. 03-1 with references to existing authoritative literature concerning other-than-temporary determinations (principally SFAS No. 115 and SEC Staff Accounting Bulletin 58). Under the FSP, impairment losses must be recognized in earnings equal to the entire difference between the security’s cost and its fair value at the financial statement date, without considering partial recoveries subsequent to that date. The FSP also requires that an investor recognize an other-than-temporary impairment loss when a decision to sell a security has been made and the investor does not expect the fair value of the security to fully recover prior to the expected time of sale. The FSP is effective for reporting periods beginning after December 15, 2005. The Company does not expect that the application of the FSP will have a material impact on its financial condition, results of operations or financial statement disclosures.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retroactive application to prior period’s financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2006, with earlier application permitted to accounting changes and corrections of errors made in fiscal years beginning after May 31, 2005.

In November 2005 the Financial Accounting Standard’s Board Emerging Issues Task Force (EITF) stated that it would review employer accounting for deferred compensation or postretirement benefit aspects of split-dollar life insurance arrangements at its March 2006 meeting. The Company’s accounting for the Bank owned life insurance could change as a result of actions taken by the EITF. At this time the Company is unable to determine the impact, if any, of any changes in the accounting in this area.

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Quarterly Financial Data (Unaudited)

	Three Months Ended
(in thousands, except per share data)	December 31		September 30		June 30		March 31
2005
Interest income	$	45,911	$	43,754	$	41,569	$	39,033
Interest expense		24,177		22,865		20,843		19,169
Net interest income		21,734		20,889		20,726		19,864
Provision for loan losses		4,830		2,100		2,100		1,500
Non-interest income		1,804		2,042		1,927		1,717
Non-interest expense		12,571		12,933		12,240		11,858
Income before income tax expense		6,137		7,898		8,313		8,223
Income tax expense		1,804		2,546		2,677		2,610
Net income	$	4,333	$	5,352	$	5,636	$	5,613
Earnings per share-basic	$	0.40	$	0.50	$	0.54	$	0.53
Earnings per share-diluted		0.39		0.49		0.51		0.51
2004
Interest income	$	37,897	$	36,048	$	33,701	$	32,218
Interest expense		18,411		17,529		16,733		16,472
Net interest income		19,486		18,519		16,968		15,746
Provision for loan losses		2,800		2,400		1,975		2,450
Non-interest income		1,593		2,296		1,716		2,374
Non-interest expense		11,157		10,622		10,583		10,287
Income before income tax expense		7,122		7,793		6,126		5,383
Income tax expense		2,386		2,344		1,664		1,505
Net income	$	4,736	$	5,449	$	4,462	$	3,878
Earnings per share-basic	$	0.45	$	0.52	$	0.43	$	0.37
Earnings per share-diluted		0.43		0.50		0.41		0.36

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information furnished with respect to this Item is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is set forth in Item 7 of this report.

Item 8. Financial Statements and Supplementary Data.

The information furnished with respect to this Item is contained in our financial statements included in Item 15 of this report and the quarterly financial data included in Item 7 of this report.

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended, the “Exchange Act”, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of December 31, 2005. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is a process designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on the assessment, management believes that, as of December 31, 2005, our internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on management’s assessment of, and the effectiveness of, our internal control over financial reporting as of December 31, 2005. This report appears on page 60.

Changes to Internal Control Over Financial Reporting

As part of the evaluation and assessment discussed above, management considered each of the provisions of our agreement with the OCC and the responsive actions that have been taken. During the fiscal quarter ended December 31, 2005, the Bank revised its credit risk rating matrices, formalized its problem loan management program, made enhancements to its credit approval process, revised its lending policy in general, and enhanced the methodology used to determine the allowance for loan losses. As these changes could impact the risk rating of certain loans and, as a result, our allowance and provision for loan losses, they could also impact our financial statements.

Except to the extent set forth in the preceding paragraph, there were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have identified deficiencies that we do not consider to be “material weaknesses” but which we nonetheless believe should be remedied. These deficiencies have been disclosed to the Audit Committee of our Board of Directors and to our independent registered public accounting firm. In conjunction with our internal auditors, we

-58-

will continue to review, evaluate, document and test our internal controls and procedures as required under Section 404 of the Sarbanes-Oxley Act and may identify additional areas where disclosure and corrective measures are advisable or required.

Management has discussed its remedial action plans with the Audit Committee and will continue to provide periodic updates on progress made.

Limitations of Effectiveness of Controls

We note that, like other companies, any system of internal controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the internal control system will be met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of inherent limitation in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

-59-

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Yardville National Bancorp and subsidiaries:

We have audited management’s assessment, included on pages 58-59, Item 9A, “Management’s Report on Internal Control Over Financial Reporting,” that Yardville National Bancorp and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management of the Company is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Yardville National Bancorp and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, Yardville National Bancorp and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of Yardville National Bancorp and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 16, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG

Short Hills, New Jersey
March 16, 2006

Item 9B. Other Information.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Shareholders to be held May 3, 2006.

Item 11. Executive Compensation.

Incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Shareholders to be held May 3, 2006. The information contained in the Company’s definitive proxy statement under the captions “Organization and Compensation Committee Report,” “Performance Graph” and “Audit Committee Report” shall not be deemed to be incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in Connection with its Annual Meeting of Shareholders to be held May 3, 2006.

Item 13. Certain Relationships and Related Transactions.

Incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Shareholders to be held May 3, 2006.

Item 14. Principal Accounting Fees and Services.

Incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Shareholders to be held May 3, 2006.

-61-

PART IV

Item 15. Exhibits, Financial Statement Schedules.

Exhibits and Financial Statement Schedules

Financial Statements

For a list of the Financial statements filed herewith, see the Index to Financial Statements on page F-1. No schedules are included with the financial statements because the required information is inapplicable or is presented in the financial statements or notes thereto.

Exhibits

The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page E-1.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

YARDVILLE NATIONAL BANCORP
By:	Patrick M. Ryan      Patrick M. Ryan
	Chief Executive Officer

March 16, 2006

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Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date
Jay G. Destribats Jay G. Destribats	Chairman of the Board and Director	March 16, 2006
Patrick M. Ryan Patrick M. Ryan	Director and Chief Executive Officer	March 16, 2006
F. Kevin Tylus F. Kevin Tylus	Director, President and Chief Operating Officer	March 16, 2006
Stephen F. Carman Stephen F. Carman	Vice President, Treasurer, Principal Financial Officer and Principal Accounting Officer	March 16, 2006
James E. Bartolomei James E. Bartolomei	Director	March 16, 2006
Elbert G. Basolis, Jr. Elbert G. Basolis, Jr.	Director	March 16, 2006
Anthony M. Giampetro Anthony M. Giampetro	Director	March 16, 2006
Gilbert W. Lugossy Gilbert W. Lugossy	Director	March 16, 2006
Samuel D. Marrazzo Samuel D. Marrazzo	Director	March 16, 2006
Louis R. Matlack Louis R. Matlack	Director	March 16, 2006
George D. Muller George D. Muller	Director	March 16, 2006
Martin Tuchman Martin Tuchman	Director	March 16, 2006
Christopher S. Vernon Christopher S. Vernon	Director	March 16, 2006
Robert L. Workman Robert L. Workman	Director	March 16, 2006

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INDEX TO FINANCIAL STATEMENTS

Description	Page
Consolidated Statements of Condition at December 31, 2005 and 2004		F-2
Consolidated Statements of Income for each of the years ended December 31, 2005, 2004 and 2003		F-3
Consolidated Statements of Changes in Stockholders’ Equity for each of the years ended December 2005, 2004 and 2003		F-4
Consolidated Statements of Cash Flows for each of the years ended December 31, 2005, 2004 and 2003		F-5
Notes to Consolidated Financial Statements		F-6
Report of Independent Registered Public Accounting Firm		F-38

F- 1

Yardville National Bancorp and Subsidiaries
Consolidated Statements of Condition

	Year ended December 31,
(in thousands, except share data)	2005			2004
Assets:
Cash and due from banks	$	52,686		$	32,115
Federal funds sold		10,800			6,769
Cash and Cash Equivalents		63,486			38,884
Interest bearing deposits with banks		16,408			41,297
Securities available for sale		741,668			802,525
Investment securities (market value of $90,611 in 2005 and $79,954 in 2004)		89,026			78,257
Loans		1,972,840			1,782,592
Less: Allowance for loan losses		(22,703	)		(20,116	)
Loans, net		1,950,137			1,762,476
Bank premises and equipment, net		11,697			10,431
Bank owned life insurance		46,152			44,501
Other assets		38,157			27,546
Total Assets	$	2,956,731		$	2,805,917
Liabilities and Stockholders’ Equity:
Deposits
Non-interest bearing	$	232,269		$	202,196
Interest bearing		1,740,448			1,607,808
Total Deposits		1,972,717			1,810,004
Borrowed funds
Securities sold under agreements to repurchase		10,000			10,000
Federal Home Loan Bank advances		704,000			742,000
Subordinated debentures		62,892			62,892
Obligation for Employee Stock Ownership Plan (ESOP)		2,250			377
Other		1,870			753
Total Borrowed Funds		781,012			816,022
Other liabilities		25,544			19,733
Total Liabilities	$	2,779,273		$	2,645,759
Commitments and Contingent Liabilities
Stockholders’ equity
Preferred stock: no par value
Authorized 1,000,000 shares, none issued
Common Stock: no par value
Authorized 20,000,000 shares
Issued 11,095,331 shares in 2005 and 10,691,213 shares in 2004		105,122			91,658
Surplus		2,205			2,205
Undivided profits		85,896			69,860
Treasury stock, at cost: 180,594 shares		(3,160	)		(3,160	)
Unallocated ESOP shares		(2,250	)		(377	)
Accumulated other comprehensive loss		(10,355	)		(28	)
Total Stockholders’ Equity		177,458			160,158
Total Liabilities and Stockholders’ Equity	$	2,956,731		$	2,805,917

See Accompanying Notes to Consolidated Financial Statements.

F- 2

Yardville National Bancorp and Subsidiaries
Consolidated Statements of Income

	Year Ended December 31,
(in thousands, except per share amounts)	2005		2004		2003
Interest Income:
Interest and fees on loans	$	127,684	$	100,506	$	85,529
Interest on deposits with banks		1,027		371		121
Interest on securities available for sale		36,983		35,282		32,308
Interest on investment securities:
Taxable		109		137		192
Exempt from Federal income tax		3,734		3,221		2,796
Interest on Federal funds sold		730		347		523
Total Interest Income		170,267		139,864		121,469
Interest Expense:
Interest on savings account deposits		20,757		12,929		10,834
Interest on certificates of deposit of $100,000 or more		6,992		4,165		4,014
Interest on other time deposits		16,432		12,269		14,521
Interest on borrowed funds		38,114		36,071		35,799
Interest on subordinated debentures		4,759		3,711		3,121
Total Interest Expense		87,054		69,145		68,289
Net Interest Income		83,213		70,719		53,180
Less provision for loan losses		10,530		9,625		9,360
Net Interest Income After Provision for Loan Losses		72,683		61,094		43,820
Non-Interest Income:
Service charges on deposit accounts		2,819		3,134		2,388
Securities gains, net		862		1,297		1,513
Income on bank owned life insurance		1,651		1,766		2,036
Other non-interest income		2,158		1,782		2,157
Total Non-Interest Income		7,490		7,979		8,094
Non-Interest Expense:
Salaries and employee benefits		27,654		23,476		21,433
Occupancy expense, net		4,934		4,283		3,934
Equipment expense		3,173		3,123		2,955
Other non-interest expense		13,841		11,767		9,837
Total Non-Interest Expense		49,602		42,649		38,159
Income before income tax expense		30,571		26,424		13,755
Income tax expense		9,637		7,899		3,446
Net Income	$	20,934	$	18,525	$	10,309
Earnings Per Share:
Basic	$	1.97	$	1.77	$	0.99
Diluted		1.89		1.71		0.97

See Accompanying Notes to Consolidated Financial Statements.

F- 3

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

	Year Ended December 31, 2005, 2004 and 2003
																	Accumulated
														Unallocated			other
	Common			Common				Undivided			Treasury			ESOP			Comprehensive
(in thousands, except share amounts)	shares			stock		Surplus		profits			stock			shares			income (loss)			Total
BALANCE, December 31, 2002		10,395,909		$	89,297	$	2,205	$	50,633		$	(3,154	)	$	(400	)	$	7,358		$	145,939
Net income									10,309												10,309
Unrealized loss — securities available for sale, net of tax benefit of $3,772																		(7,323	)		(7,323	)
Less reclassification of realized net gain on sale of securities available for sale, net of tax of $514																		(999	)		(999	)
Total comprehensive income																					1,987
Cash dividends paid ($0.46 per share)									(4,790	)											(4,790	)
ESOP shares acquired															(755	)					(755	)
ESOP fair value adjustment					221																221
Common stock issued:
Exercise of stock options		40,596			492																492
Dividend reinvestment plan		3,102			69																69
ESOP shares allocated															400						400
Treasury shares acquired		(346	)									(6	)								(6	)
BALANCE, December 31, 2003		10,439,261		$	90,079	$	2,205	$	56,152		$	(3,160	)	$	(755	)	$	(964	)	$	143,557
Net income									18,525												18,525
Unrealized gain — securities available for sale, net of tax of $958																		1,779			1,779
Less reclassification of realized net gain on sale of securities available for sale, net of tax of $454																		(843	)		(843	)
Total comprehensive income																					19,461
Cash dividends paid ($0.46 per share)									(4,817	)											(4,817	)
ESOP fair value adjustment					163																163
Common stock issued:
Exercise of stock options		54,487			965																965
Dividend reinvestment plan		16,871			451																451
ESOP shares allocated															378						378
BALANCE, December 31, 2004		10,510,619		$	91,658	$	2,205	$	69,860		$	(3,160	)	$	(377	)	$	(28	)	$	160,158
Net income									20,934												20,934
Unrealized loss — securities available for sale, net of tax of $5,258																		(9,767	)		(9,767	)
Less reclassification of realized net gain on sale of securities available for sale net of tax of $302																		(560	)		(560	)
Total comprehensive income																					10,607
Cash dividends paid ($0.46 per share)									(4,898	)											(4,898	)
ESOP shares acquired		64,175			2,250										(2,250	)
ESOP fair value adjustment					307																307
Common stock issued:
Common shares issued		235,401			8,717																8,717
Exercise of stock options and related tax benefit		93,404			1,669																1,669
Option acceleration expense					147																147
Dividend reinvestment plan		11,138			374																374
ESOP shares allocated															377						377
BALANCE, December 31, 2005		10,914,737		$	105,122	$	2,205	$	85,896		$	(3,160	)	$	(2,250	)	$	(10,355	)	$	177,458

See Accompanying Notes to Consolidated Financial Statements.

F-4

Yardville National Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

	Year Ended December 31,
(in thousands)	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	20,934		$	18,525		$	10,309
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		10,530			9,625			9,360
Depreciation		2,558			2,355			2,267
ESOP fair value adjustment		307			163			221
Option acceleration expense		147			—			—
Income tax payable reduction due to stock option excercises		296			152			—
Amortization of deposit intangible		204			204			17
Amortization and accretion on securities		4			1,652			5,307
Gain on sales of securities available for sale		(862	)		(1,297	)		(1,513	)
Gain on sale of bank branch		—			(5	)		—
Writedown and loss on sale of other real estate		—			—			236
Increase in other assets		(6,906	)		(296	)		(7,226	)
Increase (decrease) in other liabilities		5,515			1,262			(4,703	)
Net Cash Provided by Operating Activities		32,727			32,340			14,275
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest bearing deposits with banks		24,889			(20,745	)		(18,051	)
Purchase of securities available for sale		(194,349	)		(446,025	)		(753,178	)
Maturities, calls and paydowns of securities available for sale		142,656			240,415			592,237
Proceeds from sales of securities available for sale		97,513			202,139			168,215
Proceeds from maturities and paydowns of investment securities		2,113			6,297			7,129
Purchase of investment securities		(12,874	)		(15,853	)		(21,133	)
Net increase in loans		(198,191	)		(346,041	)		(257,992	)
Expenditures for bank premises and equipment		(3,174	)		(1,125	)		(2,366	)
Proceeds from sale of bank branch		—			641			—
Proceeds from sale of other real estate		—			—			1,706
Net Cash Used by Investing Activities		(141,417	)		(380,297	)		(283,433	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, money market, and savings deposits		(8,896	)		277,082			247,415
Net increase (decrease) in certificates of deposit		171,609			49,113			(35,892	)
Net (decrease) increase in borrowed funds		(35,660	)		15,050			(19,631	)
Proceeds from issuance of subordinated debentures		—			15,464			25,774
Retirement of subordinated debentures		—			—			(11,856	)
Proceeds from issuance of common stock		13,010			1,416			561
(Increase) decrease in unallocated ESOP shares		(1,873	)		378			(355	)
Treasury shares acquired		—			—			(6	)
Dividends paid		(4,898	)		(4,817	)		(4,790	)
Net Cash Provided by Financing Activities	$	133,292		$	353,686		$	201,220
Net increase (decrease) in cash and cash equivalents	$	24,602		$	5,729		$	(67,938	)
Cash and cash equivalents as of beginning of year		38,884			33,155			101,093
Cash and Cash Equivalents as of End of Year	$	63,486		$	38,884		$	33,155
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	83,020		$	69,266		$	70,822
Income taxes		13,854			7,304			10,097
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of building with capitalized leases	$	650		$	—		$	—
Transfers from loans to other real estate, net of charge offs		—			—			894

See Accompanying Notes to Consolidated Financial Statements.

F-5

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Yardville National Bancorp is a bank holding company, which conducts a general commercial and retail banking business through its principal operating subsidiary, The Yardville National Bank (the Bank), a nationally chartered banking institution. The Bank provides a broad range of lending, deposit and other financial products and services with an emphasis on commercial real estate and commercial and industrial loans to small to mid-sized businesses and individuals. Our existing and targeted markets are located in the corridor between New York City and Philadelphia. We operate 27 full-service branches including 18 branches in our primary market of Mercer County, New Jersey. We have expanded our franchise into the demographically attractive markets of Hunterdon, Somerset, and Middlesex Counties in New Jersey and Bucks County in Pennsylvania. The Bank is subject to competition from other financial institutions and non-bank providers of financial services. Yardville National Bancorp and the Bank are both subject to the regulation by certain Federal agencies and undergo periodic examinations by those regulatory authorities.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statements of condition and revenues and expenses for the periods. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.

A. Consolidation. The consolidated financial statements include the accounts of Yardville National Bancorp and its subsidiary, the Bank, and the Bank’s wholly owned direct and indirect subsidiaries (collectively, the Company). All significant inter-company accounts and transactions have been eliminated in consolidation. Under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) the following former subsidiaries have been deconsolidated: Yardville Capital Trust, Yardville Capital Trust II, Yardville Capital Trust III, Yardville Capital Trust IV, Yardville Capital Trust V and Yardville Capital Trust VI. All prior periods presented have been reclassified to reflect the deconsolidation.

B. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Generally, Federal funds are purchased or sold for one day periods.

C. Securities. Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. The premium or discount adjustments are recognized as adjustments to interest income, on a level yield basis. Securities that may be sold in response to, or in anticipation of, changes in interest rates, liquidity needs or other factors and marketable equity securities are classified as available-for-sale and carried at market value. The unrealized gains and losses on these securities are reported, net of applicable taxes, in accumulated other comprehensive (loss) income, a component of stockholders’ equity. All securities with unrealized losses are evaluated quarterly to determine whether the unrealized losses are other than temporary. If an unrealized loss is determined to be other than temporary, the security is written down to its market value with the loss recognized in the consolidated statements of income. Gains and losses on disposition are included in earnings using the specific identification method. Debt securities that are purchased and held primarily for the purpose of being sold in the near term are classified as trading. Trading securities are carried at market value with realized and unrealized gains and losses reported in non-interest income. There were no trading securities at December 31, 2005 or 2004.

F-6

D. Loans. Interest on loans is recognized based upon the principal amount outstanding. Loans are stated at face value, less unearned income and net deferred fees. A loan is considered past due when a payment has not been received in accordance with the contractual terms. Generally, commercial loans are placed on nonaccrual status when they are 90 days past due unless they are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal and interest is in doubt. Commercial loans are generally charged off after an analysis is completed which indicates that collectibility of the full principal balance is in doubt. Consumer loans are generally charged off after they become 120 days past due. Mortgage loans are not generally placed on a nonaccrual status unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists. Subsequent payments are credited to income only if collection of principal is not in doubt. If principal and interest payments are brought contractually current and future collectibility is reasonably assured, loans are returned to accrual status. Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance. Loan origination and commitment fees less certain costs are deferred and the net amount amortized as an adjustment to the related loan’s yield. Loans held for sale are recorded at the lower of aggregate cost or market value.

E. Allowance for Loan Losses. The provision for loan losses charged to operating expense is determined by management and is based upon a periodic review of the loan portfolio, past experience, the economy, and other factors that may affect a borrower’s ability to repay a loan. The provision is based on management’s estimates and actual losses may vary from these estimates. Estimates are reviewed and adjustments, as they become necessary, are reported in the periods in which they become known. Management believes that the allowance for loan losses is adequate to reserve against probable losses inherent in the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly in New Jersey, and due to the factors listed above. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and the valuation of other real estate. Such agencies may require the Company to recognize additions to the allowance or adjustments to the carrying value of other real estate based on their judgments about information available to them at the time of their examination.

Management has identified the allowance for loan losses to be a critical accounting policy. The Company utilizes a system to rate substantially all loans based on their respective risk. Consumer and residential mortgage loans are evaluated as a group with only those loans that are delinquent evaluated separately. The primary emphasis in the risk rating system is on commercial real estate and commercial and industrial loans, due to the greater credit risk they entail compared to residential mortgage and consumer loans.

Risk is measured by use of a matrix, which is customized to measure the risk of each loan type. The reserve percentage assigned to each risk-rating category is determined quarterly from historical loan loss rates, based on an eight-quarter rolling trend using migration analysis. Commercial risk ratings of 1 to 5 are considered to be acceptable and correspond to loans rated as minimal, modest, better than average, average and acceptable. At December 31, 2005, the following reserve percentages were applied. Loans with acceptable risk were reserved at a range of 0.35% to 2.01%. Risk ratings of between 6 and 9 are considered higher than acceptable risk and correspond to loans rated as special mention, substandard, doubtful and loss. Due to the higher level of risk, these loans were reserved at a range of 3.75% to 100%. Loans with a risk rating of 9 are considered to be a loss and would be reserved at 100%. At December 31, 2005, there were no 9 rated loans. In setting the reserve percentage for each risk rating, management uses a computer software program to perform migration analysis to determine historic loan loss experience. In addition, management relies on its judgment concerning the anticipated impact on credit risk of economic conditions, real estate values, interest rates and level of business activity.

At December 31, 2005, residential mortgage loans were assigned an individual risk reserve percentage of 0.04% due to the strong secured nature of these loans and the historically low level of losses experienced with this loan type. Multi-family residential loans are included in commercial real estate loans for reserve analysis purposes.

Consumer loans include home equity loans, installment loans and all other loans. At December 31, 2005, home equity loans were assigned reserve percentages of 0.01% for the lowest risk to 0.18% for the highest risk. This range is reflective of the strict underwriting standards and the historically low level of losses experienced with these loans. All other secured consumer loans, primarily automobile loans, are reserved at a range of 0.63% to 3.86%. The higher reserve percentages assigned to these loans reflect the greater risk and higher historical losses. Unsecured consumer loans are reserved at a range of 2.49% to 3.86%.

F-7

The company has defined the population of impaired loans to be all nonaccrual commercial real estate and commercial and industrial loans. Management, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or fair value of the collateral. Impairment losses are included in the allowance for loan losses through charges to income.

F. Bank Premises, Equipment and Leases. Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is computed on straight-line and accelerated methods over the estimated useful lives of the assets ranging from three years to forty years depending on the asset or lease. Charges for maintenance and repairs are expensed as they are incurred.

The Company leases certain branch facilities and office space for varying periods under lease agreements. Most of the leases are non-cancelable operating leases with fixed rental payments, expiring over the next 5-20 years and contain renewal provisions. Leases that are determined to be “capital leases” following Statement of Financial Accounting Standards No. 13 “Accounting for Leases” (FAS 13) of U.S. Generally Accepted Accounting Principals, are recognized on the balance sheet at the lower of the present value of the minimum lease payments or the fair market value of the leased property. The asset value is amortized over the initial base lease term. Leases that are determined to be “operating leases” under FAS 13 are not capitalized thus their periodic rental payments with respect to these lease contracts are expensed as incurred. With regard to subsequent leasehold improvements expenditures made on either capitalized or operating leases, they are depreciated over the lower of the existing term/option period or the economic deemed life of the improvement.

G. Other Real Estate (ORE). ORE comprises real properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of loans. The properties are recorded at the lower of cost or fair value less estimated disposal costs at the date acquired. When a property is acquired, the excess of the loan balance over the fair value is charged to the allowance for loan losses. Any subsequent writedowns that may be required to the carrying value of the property are included in other non-interest expense. Gains realized from the sale of other real estate are included in other non-interest income, while losses are included in non-interest expense. There was no ORE on December 31, 2005 or 2004.

H. Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of enactment. Management has identified the accounting for income taxes to be a critical accounting policy.

I. Stock-Based Compensation. The Company applies Accounting Principles Board (APB) Opinion 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No.123 “Accounting for Stock-Based Compensation,” to stock-based employee compensation. For stock options issued with a graded vesting schedule, compensation expense is recognized on a straight line basis over the vesting period.

F-8

(in thousands)	2005		2004		2003
Net income as reported:	$	20,934	$	18,525	$	10,309
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		1,297		952		687
Pro forma net income	$	19,637	$	17,573	$	9,622
Earnings per share
Basic:
As reported	$	1.97	$	1.77	$	0.99
Pro forma		1.85		1.68		0.93
Diluted:
As reported	$	1.89	$	1.71	$	0.97
Pro forma		1.78		1.62		0.91

The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. The table below lists the weighted average assumptions used for grants in 2005, 2004 and 2003, respectively. The Black-Scholes option pricing model requires the use of highly subjective assumptions, including expected stock price volatility, which if changed, can materially affect fair value estimates.

	2005			2004			2003
Number of options granted		84,000			77,500			134,500
Expected annual dividend rate	$	0.46		$	0.46		$	0.46
Risk free rate		4.1	%		3.6	%		2.9	%
Expected average option life (years)		6.3			6.8			7.4
Expected volatility		30.2	%		32.5	%		35.0	%
Weighted average fair value of options granted	$	9.32		$	10.45		$	8.23

On December 21, 2005, upon the recommendation of the Company’s organization and compensation committee, the Company’s board of directors accelerated the vesting of all unvested stock options outstanding under the Yardville National Bancorp 1997 Stock Option Plan, providing that such stock options shall become fully vested on December 30, 2005. Such options were granted during the 2001 through 2005 calendar years. The acceleration included stock options held by two executive vice presidents as well as other officers of the Company. There were no options accelerated for any member of the board of directors as all outstanding options held by board members were vested under their respective normal vesting schedule.

Prior to accelerating the vesting of the affected stock options, the Company’s board of directors determined such acceleration was in the best interests of the Company’s and its shareholders in order to reduce the impact of recording non-cash compensation upon the adoption of Statement of Financial Accounting Standards No. 123R “Share-based Payment” (SFAS 123R). This standard will require all share based awards to employees, including grants of stock options, to be recognized as compensation expense in the Company’s financial statements over the vesting period of each award based on the award’s fair value at the date of grant. Options covering 97,340 shares of the Company’s common stock, or less than one percent of the current shares outstanding, are affected by the acceleration. The weighted average exercise price of the accelerated stock options was $21.36 and based on the closing price of the Company’s common stock on the date of acceleration ($34.65), all of the accelerated stock options would have economic value to the holders. The Company estimates that, as a result of the acceleration, pretax compensation expense related to the options of approximately $252,000, $215,000, $151,000 $97,000 and $32,000, which otherwise would have been recognized in the Company’s consolidated statements of income for the years ended December 31, 2006, 2007, 2008, 2009 and 2010, respectively, will not be recognized.

F-9

The Company recorded an expense of $147,000 in salary and benefit expense related to the accelerated vesting of these options.

J. Earnings Per Share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income available to stockholders by the weighted average number of shares outstanding, adjusted for common stock equivalents outstanding during the period accounted for under the treasury stock method.

Weighted average shares for the basic net income per share computation for the years ended December 31, 2005, 2004, and 2003 were 10,609,000, 10,455,000 and 10,391,000, respectively. For the diluted net income per share computation, common stock equivalents of 448,000, 406,000 and 260,000 are included for the years ended December 31, 2005, 2004, and 2003, respectively. Common stock equivalents that were antidilutive were 24,000, 7,000 and 11,000 in 2005, 2004, and 2003, respectively.

K. Comprehensive Income. Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes items recorded directly to equity, such as unrealized gains and losses on securities available for sale, net of taxes. Comprehensive income is presented in the consolidated statements of changes in stockholders’ equity.

L. Intangible Assets. Intangible assets of the Company consist primarily of a core deposit intangible. Core deposit intangibles represent the intangible value of depositor relationships assumed in purchase acquisitions and are amortized on a straight-line basis over a period of ten years, and the unamortized balance is evaluated for impairment on a periodic basis.

M. Derivative Financial Instruments. Derivative financial instruments are recorded at fair value as either assets or liabilities on the balance sheet. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics. The Company designates a derivative as held for trading or hedging purposes when it enters into a derivative contract. Derivatives designated as held for trading activities are included in the Company’s trading portfolio with changes in fair value reflected in trading account profits. The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives, strategies for undertaking various hedge transactions, and the methodology for measuring ineffectiveness as required by SFAS 133. Additionally, the Company uses regression analysis at the hedge’s inception and quarterly thereafter to assess whether the derivative used in its hedging transaction is expected to be or has been highly effective in offsetting changes in the fair value or cash flows of the hedged items. The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value in earnings.

The Company uses its derivatives designated for hedging activities as either fair value or cash flow hedges. Fair value hedges are used to limit the Company’s exposure to changes in the fair value of its fixed rate interest earning assets or interest bearing liabilities due to interest rate volatility. Cash flow hedges are used to minimize the variability of cash flows of interest bearing assets or liabilities caused by interest rate fluctuations. Changes in the fair value of derivatives designated as highly effective as hedges are recorded in earnings or other comprehensive income, depending on whether the hedging relationship satisfies the criteria for a fair value or cash flow hedge, respectively. Hedge ineffectiveness and gains and losses on the excluded component of a derivative in assessing hedge effectiveness are recorded in earnings.

If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the difference between a hedged item’s then carrying amount and its face amount is recognized into income over the original hedge period. Similarly, if a derivative instrument in a cash flow hedge is terminated or the hedge designation removed, related amounts accumulated in other comprehensive income are reclassified into earnings over the original hedge period during which the hedged item affects income.

N. Segment Reporting. Substantially all of the Company’s business is conducted through the Bank and involves the delivery of loan and deposit products to customers. The Company makes operating decisions and assesses

F-10

performance based on an ongoing review of these banking operations, which constitute the only operating segment for financial reporting.

O. Reclassification. Certain reclassifications have been made in the consolidated financial statements for 2004 and 2003 to conform to the classification presented in 2005.

2. CASH AND DUE FROM BANKS

The Company maintains various deposits with other banks. As of December 31, 2005 and 2004, the Company maintained sufficient cash on hand to satisfy Federal regulatory requirements.

3. SECURITIES

The amortized cost and estimated market value of securities available for sale are as follows:

	December 31,
	2005									2004
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
(in thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
U.S. Treasury obligations	$	4,030	$	—	$	(148	)	$	3,882	$	2,016	$	—	$	(78	)	$	1,938
U.S. government-sponsored agencies		272,350		—		(6,097	)		266,253		236,846		309		(1,714	)		235,441
Mortgage-backed securities
Issued by FNMA/FHLMC		412,429		107		(10,203	)		402,333		470,993		4,002		(4,208	)		470,787
Issued by GNMA		11,486		—		(193	)		11,293		20,339		296		(38	)		20,597
Corporate obligations		18,557		656		(52	)		19,161		31,723		1,483		(95	)		33,111
Federal Reserve Bank stock		3,851		—		—			3,851		3,551		—		—			3,551
Federal Home Loan Bank stock		34,895		—		—			34,895		37,100		—		—			37,100
Total	$	757,598	$	763	$	(16,693	)	$	741,668	$	802,568	$	6,090	$	(6,133	)	$	802,525

     The amortized cost and estimated market value of investment securities are as follows:

	December 31,
	2005									2004
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
(in thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Obligations of state and political subdivisions	$	87,339	$	1,973	$	(395	)	$	88,917	$	76,142	$	1,977	$	(334	)	$	77,785
Mortgage-backed securities Issued by FNMA/FHLMC		1,687		14		(7	)		1,694		2,115		56		(2	)		2,169
Total	$	89,026	$	1,987	$	(402	)	$	90,611	$	78,257	$	2,033	$	(336	)	$	79,954

F-11

The amortized cost and estimated market value of securities available for sale and investment securities as of December 31, 2005 by contractual maturity are shown below. The contractual maturity of Federal Reserve Bank stock, Federal Home Loan Bank stock and other equity securities, which lack maturity dates, are shown as due after ten years. Expected maturities may differ from contractual maturities because issuers may have the right to call their obligations with or without call or prepayment penalties.

SECURITIES AVAILABLE FOR SALE

			Estimated
	Amortized		Market
(in thousands)	Cost		Value
Due in 1 year or less	$	1,498	$	1,510
Due after 1 year through 5 years		99,993		97,580
Due after 5 years through 10 years		178,889		175,005
Due after 10 years		53,303		53,947
Subtotal		333,683		328,042
Mortgage-backed securities
Issued by FNMA/FHLMC		412,429		402,333
Issued by GNMA		11,486		11,293
Total	$	757,598	$	741,668

INVESTMENT SECURITIES

			Estimated
	Amortized		Market
(in thousands)	Cost		Value
Due in 1 year or less	$	1,177	$	1,187
Due after 1 year through 5 years		3,221		3,313
Due after 5 years through 10 years		12,627		13,055
Due after 10 years		70,314		71,362
Subtotal		87,339		88,917
Mortgage-backed securities
Issued by FNMA/FHLMC		1,687		1,694
Total	$	89,026	$	$90,611

Proceeds from sale of securities available for sale during 2005, 2004, and 2003 were $97.5 million, $202.1 million and $168.2 million, respectively. Gross gains of $1,090,000, $1,663,000, and $1,809,000 were realized on those sales in 2005, 2004, and 2003, respectively. Gross losses of $228,000, $366,000 and $296,000 were realized on those sales in 2005, 2004 and 2003, respectively.

Securities with a carrying value of approximately $475.1 million as of December 31, 2005 were pledged to secure public deposits and for other purposes as required or permitted by law. As of December 31, 2005, FHLB stock with a carrying value of $34.9 million was held by the Company as required by the FHLB.

F-12

The following tables provide additional information regarding securities with unrealized losses at December 31, 2005.

SECURITIES AVAILABLE FOR SALE

						December 31, 2005
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
(in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Treasury Obligations	$	1,974	$	(41	)	$	1,908	$	(107	)	$	3,882	$	(148	)
U.S. government-sponsored agencies		99,080		(1,385	)		167,173		(4,712	)		266,253		(6,097	)
Mortgage-backed securities
Issued by FNMA/FHLMC		243,812		(4,355	)		126,504		(5,848	)		370,316		(10,203	)
Issued by GNMA		5,754		(33	)		5,539		(160	)		11,293		(193	)
Corporate obligations		1,948		(52	)		—		—			1,948		(52	)
Total	$	352,568	$	(5,866	)	$	301,124	$	(10,827	)	$	653,692	$	(16,693	)

INVESTMENT SECURITIES

						December 31, 2005
	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
(in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Obligations of state and political subdivisions	$	15,850	$	(259	)	$	4,306	$	(136	)	$	20,156	$	(395	)
Mortgage-backed securities
Issued by FNMA/FHLMC		236		(7	)		—		—			236		(7	)
Total	$	16,086	$	(266	)	$	4,306	$	(136	)	$	20,392	$	(402	)

The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. At December 31, 2005, the Company determined that all unrealized losses were temporary in nature. This conclusion was based on several factors, including the strong credit quality of the securities with unrealized losses, the performing nature of these securities, and the low level and short time frame of the unrealized losses. Management believes that the unrealized losses in the securities portfolios were caused by changes in interest rates, market credit spreads, and perceived and actual changes in prepayment speeds on mortgage-backed securities.

At December 31, 2005, our securities portfolio included 124 issues that had unrealized losses of less than twelve months. These issues included one U.S. Treasury issue, 21 issues of U.S. government-sponsored agencies, 67 agency named mortgage-backed securities, including CMOs, and 34 obligations of state and political subdivisions (tax-free municipal bonds), all of which had an investment grade rating at the time of purchase and at year end. The remaining issue was a fixed rate corporate bond issued by a financial institution.

At December 31, 2005, our securities portfolio included 85 issues that had unrealized losses of 12 months or longer. Twenty-nine of those issues were U.S. government-sponsored agencies, one issue was a U.S. Treasury bond, 44 were issues of agency named mortgage-backed securities, including CMOs and 11 were tax-free municipal bonds, all of which had an investment grade rating at the time of purchase and at year end. The Company has the intent and ability to hold these securities until the price recovers.

F-13

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table shows comparative year-end detail of the loan portfolio and includes unamortized deferred fees of $3.1 million and $2.4 million at December 31, 2005 and 2004, respectively:

	December 31,
(in thousands)	2005		2004
Commercial real estate	$	1,099,374	$	1,000,658
Commercial and industrial		527,908		471,366
Residential		209,039		182,023
Consumer		136,519		128,545
Total loans	$	1,972,840	$	1,782,592

Residential mortgage loans held for sale amounted to $396,000 and $453,000 as of December 31, 2005 and 2004, respectively. These loans are accounted for at the lower of aggregate cost or market value and are included in the table above. At December 31, 2005, approximately $352.4 million of loans were pledged as collateral under borrowing arrangements with the FHLB.

The Company originates and sells mortgage loans to FNMA and FHLMC. Generally, servicing on such loans is retained by the Company. As of December 31, 2005 and 2004, loans serviced for FNMA and FHLMC were $5.8 million and $7.8 million, respectively.

The Company has extended credit in the ordinary course of business to directors, officers, and their associates on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other customers of the Company. None of these loans were past due or on nonaccrual status as of December 31, 2005 and 2004.

The following table summarizes activity with respect to such loans:

	Year ended December 31,
(in thousands)	2005		2004
Balance as of beginning of year	$	54,863	$	72,888
Additions		14,136		13,696
Reductions		11,585		31,721
Balance as of end of year	$	57,414	$	54,863

The majority of the Company’s business is with customers located within Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate collectibility of the loan portfolio and the recovery of the carrying amount of real estate are subject to changes in the region’s economic environment and real estate market. A significant portion of the total portfolio is secured by real estate. The principal areas of exposure are construction and development loans, which are primarily commercial and residential projects, and commercial mortgage loans. Commercial mortgage loans are completed projects and are generally owner-occupied or tenanted investment projects, creating cash flow.

F-14

Changes in the allowance for loan losses are as follows:

	Year ended December 31,
(in thousands)	2005			2004			2003
Balance as of beginning of year	$	20,116		$	17,295		$	16,821
Loans charged off		(8,171	)		(7,039	)		(8,989	)
Recoveries of loans charged off		228			235			103
Net charge offs		(7,943	)		(6,804	)		(8,886	)
Provision charged to operations		10,530			9,625			9,360
Balance as of end of year	$	22,703		$	20,116		$	17,295

The detail of loans charged off is as follows:

	Year ended December 31,
(in thousands)	2005			2004			2003
Commercial real estate	$	—		$	—		$	(1,853	)
Commercial and industrial		(7,484	)		(6,556	)		(6,592	)
Residential		(174	)		(254	)		(251	)
Consumer		(513	)		(229	)		(293	)
Total	$	(8,171	)	$	(7,039	)	$	(8,989	)

Nonperforming assets include nonperforming loans and other real estate. The nonperforming loan category includes loans on which accrual of interest has been discontinued (nonaccrual), loans 90 days past due or more on which interest is still accruing, and restructured loans. Nonperforming loans as a percentage of total loans were 0.94% as of December 31, 2005 and 0.56% as of December 31, 2004.

A summary of nonperforming assets follows:

	December 31,
(in thousands)	2005		2004
Nonaccrual loans:
Commercial real estate	$	5,762	$	910
Commercial and industrial		9,899		7,867
Residential		1,588		51
Consumer		561		281
Total nonaccrual loans	$	17,810	$	9,109
Loans past due 90 days or more:
Residential	$	799	$	791
Consumer		4		108
Total loans past due 90 days or more		803		899
Total nonperforming loans		18,613		10,008
Total nonperforming assets	$	18,613	$	10,008

The Company has defined the population of impaired loans to be all nonaccrual commercial real estate and commercial and industrial loans. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the fair value of the collateral or the present value of the loan’s expected cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, including residential mortgage and consumer loans, are specifically excluded from the impaired loan portfolio.

F-15

The recorded investment in loans receivable for which an impairment has been recognized as of December 31, 2005 and 2004 was $15.7 million and $8.8 million, respectively. The related allowance for loan losses on these loans as of December 31, 2005 and 2004 was $5.8 million and $2.7 million, respectively. At December 31, 2005 and 2004 all impaired loans have a related allowance for loan losses. The average recorded investment in impaired loans during 2005, 2004, and 2003 was $10.1 million, $10.6 million and $6.7 million, respectively. There was no interest income recognized on impaired loans in 2005, 2004, and 2003 while the loans were impaired. There are no commitments to lend additional funds to debtors whose loans are nonperforming.

Additional income before income taxes amounting to approximately $825,000 in 2005, $600,000 in 2004 and $541,000 in 2003 would have been recognized if interest on all nonaccrual loans had been recorded based upon original contract terms.

5. BANK PREMISES, EQUIPMENT AND LEASES

The following table represents comparative information for premises and equipment:

	December 31,
(in thousands)	2005		2004
Land and improvements	$	359	$	346
Buildings and improvements		8,784		8,114
Furniture and equipment		16,427		14,393
Leased property under capital leases		650		—
Construction in process		235		312
Total		26,455		23,165
Less accumulated depreciation		14,758		12,734
Bank premises and equipment, net	$	11,697	$	10,431

Depreciation expense on bank premises and equipment included in non-interest expense in the consolidated statements of income was $2.6 million, $2.4 million and $2.3 million for 2005, 2004 and 2003 respectively.

At December 31, 2005, the Company leased various banking offices, its corporate headquarters and its operations center where future minimum rental payments applicable to non-cancellable capital and operating leases are as follows:

(in thousands)	Capital		Operating
Year ended December 31,	Leases		Leases
2006		78		2,639
2007		78		2,773
2008		78		2,801
2009		85		2,653
2010		86		2,423
Thereafter		743		12,389
Total minimum lease payments		1,148		25,678
Less: amounts representing interest		530
Present value of net minimum lease payments		618

Total lease rental expense was $2.6 million, $2.3 million, and $2.1 million for the years ended December 31, 2005, 2004, and 2003, respectively.

F-16

6. DEPOSITS

Total deposits consist of the following:

	December 31,
(in thousands)	2005		2004
Non-interest bearing demand deposits	$	232,269	$	202,196
Interest bearing demand deposits		375,630		542,186
Money market deposits		254,721		332,072
Savings deposits		298,508		93,571
Certificates of deposit of $100,000 or more		253,793		166,983
Other time deposits		557,796		472,996
Total	$	1,972,717	$	1,810,004

A summary of certificates of deposit by maturity is as follows:

	December 31,
(in thousands)	2005		2004
Within one year	$	589,590	$	350,409
One to two years		190,588		187,596
Two to three years		18,393		69,730
Three to four years		7,581		19,722
Four to five years		5,437		12,522
Total	$	811,589	$	639,979

In December 2003, the Bank purchased the Lawrence, New Jersey branch of First Savings Bank, a subsidiary of First Sentinel Bancorp. Under the terms of the agreement, the Bank assumed approximately $38.0 million in deposits and purchased the land and building. In March 2004 the Company entered into a sale lease back transaction on the acquired land and building, which resulted in an immaterial gain. The primary purpose of the branch purchase was to continue to expand the Bank’s branch network and increase deposits. The Company recognized a core deposit intangible of approximately $2.0 million. This core deposit intangible is being amortized over a ten-year period using a straight-line methodology. Under SFAS No. 142 “Goodwill and Other Intangible Assets” intangible assets, having finite useful lives, are separately recognized and amortized over their estimated useful lives. Intangible assets with finite useful lives are reviewed for impairment on a periodic basis. Core deposit intangible amortization was $204,000 in each of 2005 and 2004 and $17,000 in 2003. At December 31, 2005 the balance in core deposit intangible, which is included in other assets in the accompanying Consolidated Statement of Condition, was approximately $1.6 million. The estimated annual amortization expense per year for the years of 2006 through 2010 is $204,000.

7. BORROWED FUNDS

Borrowed funds include securities sold under agreements to repurchase, FHLB advances, subordinated debentures and obligation for ESOP. Other borrowed funds consist of Federal funds purchased, capital leases and Treasury tax and loan deposits.

The Company maintains Fed fund purchased lines of credit with six correspondent banks totaling $79.0 million with no balances outstanding at December 31, 2005. Subject to collateral requirements, the Company also maintains lines of credit with the FHLB and three brokerage firms totaling approximately $300.0 million at December 31, 2005.

F - 17

The following table presents comparative data related to borrowed funds of the Company as of and for the years ended December 31, 2005, 2004, and 2003.

	December 31,
(in thousands)	2005			2004			2003
Securities sold under agreements to repurchase	$	10,000		$	10,000		$	10,000
FHLB advances		704,000			742,000			726,000
Subordinated debentures		62,892			62,892			47,428
Obligation for ESOP		2,250			377			755
Capitalized lease obligations		618			—			—
Other		1,252			753			1,325
Total	$	781,012		$	816,022		$	785,508
Maximum amount outstanding at any month end	$	824,392		$	816,022		$	785,508
Average interest rate on year-end balance		5.50	%		5.15	%		4.95	%
Average amount outstanding during the year	$	802,967		$	793,828		$	783,272
Average interest rate for the year		5.34	%		5.01	%		4.97	%

     There were $10.0 million in securities sold under agreements to repurchase with an expected maturity over 90 days as of December 31, 2005. The outstanding amount is a callable repurchase agreement with an original maturity date of ten years and an original call date of one year. Due to the call provision, the expected maturity could differ from the contractual maturity.

     The FHLB advances as of December 31, 2005 mature as follows:

in thousands	2005
Over one year to two years	$	10,000
Over two years to three years		16,500
Over three years to four years		133,500
Over four years to five years		350,000
Over five years		194,000
Total	$	704,000

The outstanding amount includes $700.0 million in callable advances with original maturity dates of five to ten years and original call dates of three months to five years. After an advance’s original call date it is callable quarterly. Due to the call provisions of these advances, expected maturities could differ from contractual maturities.

F - 18

     Interest expense on borrowed funds is comprised of the following:

	Year ended December 31,
(in thousands)	2005		2004		2003
Securities sold under agreements to repurchase	$	623	$	655	$	624
FHLB advances		37,338		35,381		35,138
Subordinated debentures		4,759		3,711		3,121
Obligation for ESOP		25		28		31
Interest on capitalized leases		111		—		—
Other		17		7		6
Total	$	42,873	$	39,782	$	38,920

8. SUBORDINATED DEBENTURES (COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUSTS)

The Company has obtained a portion of funds needed to support the growth of the Bank through the sale of subordinated debentures (“subordinated debentures”) of Yardville National Bancorp to subsidiary statutory business trusts of Yardville National Bancorp (“trusts”). These trusts exist for the sole purpose of raising funds through the issuance of trust preferred securities (“trust preferred securities”), typically in private placement transactions, and investing the proceeds in the purchase of subordinated debentures. The interest rate on the subordinated debentures is identical to the interest rate on the trust preferred securities. Subordinated debentures are the sole assets of each trust and each trust is obligated to distribute all proceeds of a redemption of the subordinated debentures, whether voluntary or upon maturity, to holders of its trust preferred securities. Yardville National Bancorp’s obligation with respect to the subordinated debentures, when viewed together with the obligations of each trust with respect to its trust preferred securities, provides a full and unconditional guarantee on a subordinated basis by Yardville National Bancorp of the obligations of each trust to pay amounts when due on the trust preferred securities of each respective trust.

For the year ended December 31, 2005, the Company’s trust subsidiaries, along with the transaction date, principal amount of subordinated debentures issued, interest rate of subordinated debentures, maturity date of subordinated debentures and commencement date for redemption of subordinated debentures were comprised of the following:

		Principal			Interest			Earliest Date
		Amount of			Rate for		Maturity Date of	upon which
(in thousands)	Transaction	Subordinated			Subordinated		Subordinated	Redemptions
Name of Trust	Date	Debentures			Debentures		Debentures	are Permitted
Yardville Capital Trust II	June 2000	$	15,464		9.50	%	June 22, 2030	June 23, 2010
Yardville Capital Trust III	March 2001		6,190		10.18	%	June 8,2031	June 8, 2011
Yardville Capital Trust IV	February 2003		15,464	Floating rate based on three month LIBOR plus 340 basis points			March 1, 2033	March 1, 2008
Yardville Capital Trust V	September 2003		10,310	Floating rate based on three month LIBOR plus 300 basis points			October 8, 2033	October 8, 2008
Yardville Capital Trust VI	June 2004		15,464	Floating rate based on three month LIBOR plus 270 basis points			July 23, 2034	July 23, 2009
Total		$	62,892

F - 19

At December 31, 2005 subordinated debentures supported payment of $1,892,000 in equity securities and $61,000,000 in trust preferred securities.

The principal use of proceeds for Yardville Capital Trusts II, III and V were contributed as capital to the Bank to support growth. A portion of the proceeds of Yardville Capital Trust IV was used to retire the subordinated debentures of Yardville Capital Trust in March 2003 with the remainder contributed as capital to the Bank to support growth. The proceeds from Yardville Capital Trust VI were used to meet cash flow needs of the holding company, which included contributions as capital to the Bank to support growth.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) was issued in January 2003 and was reissued as FASB Interpretation No. 46 (revised December 2003) (“FIN 46R”). For public entities, FIN 46 or FIN 46R is applicable to all special-purpose entities (SPEs) in which the entity holds a variable interest no later than the end of the first reporting period ending after December 15, 2003. FIN 46 and FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 and FIN 46R provide guidance on the identification of entities controlled through means other than voting rights. FIN 46 and FIN 46R specify how a business enterprise should evaluate its interest in a variable interest entity to determine whether to consolidate that entity. A variable interest entity must be consolidated, by its primary beneficiary, if the entity does not effectively disperse risks among the parties involved. The adoption of FIN 46 required the Company to deconsolidate its investment in Mandatorily Redeemable Trust Preferred Securities of subsidiary trusts in its financial statements. See Note 15 — Regulatory Matters.

9. INCOME TAXES

Income taxes reflected in the consolidated financial statements for 2005, 2004, and 2003 are as follows:

	Year ended December 31,
(in thousands)	2005			2004			2003
Federal:
Current	$	12,287		$	8,629		$	3,509
Deferred		(3,049	)		(1,208	)		(279	)
State:
Current		768			622			719
Deferred		(369	)		(144	)		(503	)
Total tax expense	$	9,637		$	7,899		$	3,446

F - 20

Deferred income taxes reflect the impact of “temporary differences” between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences, which give rise to a significant portion of deferred tax assets and liabilities for 2005 and 2004 are as follows:

	December 31,
(in thousands)	2005			2004
Deferred tax assets:
Allowance for loan losses	$	9,275		$	8,217
Writedown of basis of ORE properties		—			207
Nonaccrual loans		76			39
Deferred compensation		3,334			2,543
State tax credits		900			900
Depreciation		853			18
Accumulated other comprehensive loss		5,575			15
Total deferred tax assets	$	20,013		$	11,939
Deferred tax liabililites:
Deferred income		(847	)		(2,601	)
Unamortized discount accretion		(463	)		(95	)
Prepaid expenses		(210	)		—
Deferred loan costs		(272	)		—
Total deferred tax liability		(1,792	)		(2,696	)
Net deferred tax assets	$	18,221		$	9,243

     The Company is not aware of any factors which would generate significant differences between taxable income and pre-tax accounting income in future years, except for the effects of the reversal of current or future net deductible temporary differences. Management believes, based upon current information, that it is more likely than not that there will be sufficient taxable income through carryback to prior years to realize the net deferred tax assets. However, there can be no assurance regarding the level of earnings in the future.

     In February 2006, the Division of Taxation of the State of New Jersey adopted new regulations relating to the dividends paid by Real Estate Investment Trusts (REITs). Dividends received from a REIT are now ineligible for inclusion in the New Jersey dividends received deduction for corporations. This regulation applies to dividends paid on or after February 6, 2006. The Company believes, based on actions taken in 2005, that this new regulation will not have a material impact on its financial condition or results of operations.

     A reconciliation of the tax expense computed by multiplying pre-tax accounting income by the statutory Federal income tax rate of 35% for 2005 and 2004 and 34% for 2003 is as follows:

	Year ended December 31,
(in thousands)	2005			2004			2003
Income tax expense at statutory rate	$	10,700		$	9,248		$	4,677
State income taxes, net of Federal benefit		260			310			143
Changes in taxes resulting from:
Tax-exempt interest		(1,284	)		(1,082	)		(937	)
Tax-exempt non-interest income		(578	)		(618	)		(692	)
Non-deductible expenses		249			220			164
Other		290			(179	)		91
Total	$	9,637		$	7,899		$	3,446

F - 21

10. BENEFIT PLANS

Retirement Savings Plan. The Company has a 401(k) plan, which covers substantially all employees. After one year of service, the Company provided a matching contribution of 50% of each participant’s contribution, up to 6% of his or her base compensation for 2005, 2004, and 2003. The plan permits all eligible employees to make contributions to the plan of up to the maximum deferral limit in effect in the calendar year. Employer contributions to the plan amounted to $381,000 in 2005, $363,000 in 2004, and $284,000 in 2003.

Postretirement Benefits. The Company provides additional postretirement benefits, namely life and health insurance, to retired employees over the age of 62 who have completed 15 years of service. The plan calls for retirees to contribute a portion of the cost of providing these benefits in relation to years of service.

The cost of retiree health and life insurance benefits is recognized over the employees’ period of service. There were $186,000 in periodic postretirement benefit costs under FASB Statement No. 106 in 2005, $243,000 in 2004 and $130,000 in 2003. The actuarial present value of benefit obligations was approximately $1.5 million in 2005 and $1.3 million in 2004.

Other Benefit Plans. The Company has a salary continuation plan for key executives and a director deferred compensation plan for its non-employee board members. The plans provide for either yearly retirement benefits to be paid over a specified period or a lump sum payout based on the election choice of the participant. In addition, there is an officer group life insurance plan for divisional officers that includes a post retirement benefit. The present value of the benefits accrued under these plans as of December 31, 2005 and 2004 was approximately $6.6 million and $4.9 million, respectively, and is included in other liabilities in the accompanying consolidated statements of condition. Compensation expense of approximately $1,775,000, $1,588,000 and $709,000 is included in the accompanying consolidated statements of income for the years ended December 31, 2005, 2004, and 2003, respectively.

In connection with the benefit plans, the Company has purchased life insurance policies on the lives of the executives, directors, and divisional officers. The Company is the owner and beneficiary of the policies. The Company has entered into split dollar arrangements with certain executives, which share death benefit proceeds with those executives. The cash surrender values of the policies were approximately $46.2 million and $44.5 million as of December 31, 2005 and 2004, respectively.

In November 2005 the Financial Accounting Standard’s Board Emerging Issues Task Force (EITF) stated that it would review employer accounting for deferred compensation or postretirement benefit aspects of split-dollar life insurance arrangements at its March 2006 meeting. The Company’s accounting for the Bank owned life insurance could change as a result of actions taken by the EITF. At this time the Company is unable to determine the impact, if any, of any changes in the accounting in this area.

Stock Option Plans. The Company maintains stock option plans for both officers and directors. Common shares issued relating to the exercise of stock options are obtained from authorized shares. In March 1988, the stockholders approved the 1988 plan for key employees (Employee Plan). The Employee Plan allowed for the granting of options to purchase up to 328,000 shares of the Company’s common stock at option prices no less than the market value of stock on the date such options were granted. As of February 28, 1998, no stock options may be granted under the Employee Plan. As of December 31, 2005, there were no stock options outstanding related to the Employee Plan.

In April 1997, the stockholders approved the 1997 stock option plan for key employees (the 1997 Plan). The 1997 Plan allows for the granting of options to purchase 1,070,000 shares of the Company’s common stock at option prices to be no less than the market value of the stock on the date such options are granted. Options typically have a ten-year term and vest ratably over a five-year period. At December 31, 2005, there were 89,974 shares available for grant under the 1997 Plan.

In April 1994, the Board of Directors approved a non-qualified stock option plan for non-employee directors (the 1994 Director Plan). The 1994 Director Plan allowed for the granting of options to purchase 228,820 shares of the Company’s common stock at option prices to be no less than the market value of the stock on the date such options were granted. As of November 1, 2002, options to purchase an aggregate of 125,980 shares of common stock were outstanding under the plan (at exercise prices ranging from $10.94 to $17.20 per share, with vesting over a period of

F - 22

four years and terms of ten years). In addition, an aggregate of 8,248 shares had been acquired upon exercise of vested options by two directors. On three occasions (once in 1998, once in 2000 and once in 2002), the number of shares available for grant of options under this plan was increased by the Board of Directors. Each of these increases was inadvertently implemented without obtaining shareholder approval required under applicable rules of the Nasdaq Stock Market. Upon being advised of this shareholder approval requirement, the Company cancelled the increases in number of shares available under the plan, and the non-employee directors holding options granted without shareholder approval have rescinded and terminated such options. These terminations were completed in November 2002. In addition, the Company and the two directors that had exercised vested options agreed to rescind the exercise by taking back shares that had been acquired upon exercise of such options in exchange for a return of the exercise price (aggregating approximately $124,000) to the applicable holder. These recissions and exchanges were completed in November 2002. These transactions did not have a material adverse effect on the Company’s financial condition or results of operations. At December 31, 2005, there were no shares available for grant under the 1994 Director Plan.

In June 2003, the stockholders approved a non-qualified stock option plan for non-employee directors (the 2003 Directors Plan). The 2003 Directors Plan allows for the granting of options to purchase 250,000 shares of the Company’s common stock at an option price to be no less than the market value of the stock on the date such options are granted. Options granted under this plan vest immediately and have a term not to exceed ten years. The plan provides for a grant of 3,000 options per year to each non-employee director who is a director on the day immediately after each annual meeting of stockholders. In addition, the plan allows for the granting of stock options to new non-employee directors. At December 31, 2005, there were 157,000 shares available for grant under the 2003 Director Plan.

In June 2005, the stockholders approved an equity incentive plan for employees and directors (the 2005 Plan). The 2005 Plan allows for granting of options, restricted stock awards and other stock-based awards with respect to 500,000 shares of the Company’s common stock. Of the 500,000 shares of the Company’s common stock available in the plan up to 250,000 may be granted in the form of restricted stock. Option terms are limited to maximum of 10 years. The vesting terms of options or restricted stock granted under this plan are determined by a committee designated by the Company’s Board of Directors to oversee this plan. No options or restricted stock awards have been made from this plan as of December 31, 2005. At December 31, 2005 there were 500,000 shares available for grant under the 2005 plan.

F - 23

The tables below list the activity in the Company’s stock option plans for each of the years in the three-year period ended December 31, 2005:

			Weighted average
1988 and 1997 Plans	Shares		exercise price
Balance, December 31, 2002		872,714	$	13.86
Shares:
Granted		107,500		20.00
Exercised		37,596		11.58
Expired		56,540		17.73
Balance, December 31, 2003		886,078	$	14.46
Shares:
Granted		47,500		28.51
Exercised		51,487		14.38
Expired		52,120		19.00
Balance, December 31, 2004		829,971	$	14.98
Shares:
Granted		48,000		34.37
Exercised		90,404		14.56
Expired		14,584		28.00
Balance, December 31, 2005		772,983	$	15.98
Shares exercisable as of December 31, 2005		772,983	$	15.98

			Weighted average
2003 Director Plan	Shares		exercise price
Balance, December 31, 2002		—	$	—
Shares:
Granted		27,000		18.96
Exercised		3,000		18.96
Balance, December 31, 2003		24,000	$	18.96
Shares:
Granted		30,000		24.54
Exercised		3,000		24.54
Balance, December 31, 2004		51,000	$	21.91
Shares:
Granted		36,000		34.25
Exercised		3,000		34.23
Balance, December 31, 2005		57,000	$	27.31
Shares exercisable as of December 31, 2005		84,000	$	27.31

F - 24

The table below lists information on stock options outstanding as of December 31, 2005:

	Options Outstanding									Options Exercisable
				Weighted Average			Weighted
	Number Of			Remaining			Average			Number of		Weighted
	Shares			Contractual Life in			Exercise			Shares Exercisable		Average
Range of Exercise Prices	Outstanding			Years			Price			At Period End		Exercise Price
$9.50 — $14.05			371,481		4.86			$11.15			371,481		$	11.15
$16.35 — $19.78		328,002				3.07			17.57		328,002			17.57
$22.50 — $31.41			91,500			7.07			26.90		91,500			26.90
$33.53 — $35.52		66,000				5.75			34.59		66,000			34.60
		856,983				4.48			$17.09		856,983		$	17.09

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11. COMMON STOCK

On November 3, 2005, the Company completed a private placement of 235,401 shares of its common stock. The common stock was offered at a price of $37.06 per share and generated gross proceeds of $8.7 million. Net proceeds after offering costs were $8.7 million and were contributed to the Bank to support asset growth and compliance with regulatory capital levels.

On December 18, 2002, the Company completed the sale of 2,300,000 shares of its common stock in an underwritten public offering. The common stock was offered at a price of $16.25 per share and generated gross proceeds of $37.4 million. Net proceeds after the underwriting discount and other offering costs were $34.3 million. Of the net proceeds, $33.0 million was contributed to the Bank to support asset growth.

On June 23, 2000, the Company completed the private placement of 68,500 units, each unit consisting of 10 shares of common stock and one common stock purchase warrant. The warrants have an expiration date of June 23, 2010 and a purchase price of $12.00 per share. At December 31, 2005, there were 68,500 warrants outstanding relating to this offering.

On November 14, 2002, the Company repurchased 8,248 shares of the Company’s common stock for approximately $124,000 from two directors relating to the termination of the 1994 Director Plan. See Note 10 – Benefit Plans.

In 1997, in connection with adding a 3% discount to dividend reinvestments through our dividend reinvestment and stock purchase plan (the “YNB DRIP”), the Company inadvertently did not register with the Securities and Exchange Commission common stock purchased through the YNB DRIP and may not have distributed certain information to plan participants as required by securities laws. After being advised of those requirements, the Company promptly suspended operation of the YNB DRIP. Beginning in the second quarter of 2003 and ending July 21, 2003, the Company made an offer to all YNB DRIP participants to rescind their purchases of common stock through the YNB DRIP since December 1, 1997. Approximately 125,993 shares of common stock, as adjusted for stock splits and stock dividends, were acquired through the YNB DRIP since December 1, 1997, at prices ranging from $8.88 to $19.93 per share. On July 21, 2003, the rescission offer expired. YNB DRIP participants accepted the offer with respect to 346 shares. The cost of the repurchase of those shares, the interest paid to those YNB participants and the other costs related to the rescission offer were not material to the Company’s financial condition or results of operations.

On October 15, 2003, the Company filed a registration statement for a new Dividend Reinvestment and Stock Purchase Plan and offered reinvestment of dividends starting with the fourth quarter 2003 dividend. In conjunction with the reinvestment of dividends, the Company issued 11,138, 16,871 and 3,102 shares for the years ended December 31, 2005, 2004 and 2003 respectively.

In 1999, the Bank established an Employee Stock Ownership Plan and related trust (“ESOP”) for eligible employees. The ESOP is a tax-qualified plan subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Employees with twelve months of employment with the Bank and who have worked at least 1,000 hours are eligible to participate. Shares purchased by the ESOP are held in a suspense account pending allocation among participants as the loan is repaid.

The Company’s 401(k) savings plan had, since August 1998, included an option for employees to invest a portion of their plan accounts in a fund (the “YNB Stock Fund”) that acquired shares of the Company’s common stock in the open market. In connection with the addition of the YNB Stock Fund to the plan, the Company inadvertently did not register with the Securities and Exchange Commission the 401(k) savings plan interests or the shares of common stock acquired by the YNB Stock Fund and may not have distributed certain information to plan participants on a timely basis as required by securities laws. After being advised of those requirements, management promptly completed the registration and distributed the required information to the plan participants. In November 2002, the Company’s Board of Directors approved the discontinuance of the YNB Stock Fund, and the sale of all common stock shares owned by the YNB Stock Fund to the ESOP. As of May 31, 2003, there was approximately $5.9 million invested in the 401(k) savings plan. In May 2003, the ESOP purchased the 39,515 shares of common stock representing all common shares in the YNB Stock Fund from the 401(k) savings plan for approximately $755,000. The ESOP funded this transaction by borrowing $755,000 from an unaffiliated financial institution. This loan was fully repaid in December 2005. While it is still possible that the Company may have liability based on the

F - 26

requirements applicable to the 401(k) savings plan, management does not believe that any such liabilities or claims, if asserted, would have a material adverse effect on our financial condition or results of operations.

In November 2005, the ESOP purchased 64,175 shares of common stock for approximately 2,250,000. The ESOP funded the transaction by borrowing $2,250,000 from an unaffiliated financial institution.

ESOP compensation expense is recognized based on the fair value of the stock when it is committed to be released. Compensation expense amounted to $668,000, $522,000, and $588,000 for the years ended December 31, 2005, 2004, and 2003, respectively. The fair value of unallocated shares at December 31, 2005 was $2,224,000. The number of shares allocated as of December 31, 2005 was 194,856.

Unallocated shares are deducted from common shares outstanding for earnings per share purposes with shares that are committed to be released during the year added back into weighted average shares outstanding.

12. OTHER NON-INTEREST EXPENSE

Other non-interest expense included the following:

	Year ended December 31,
(in thousands)	2005		2004		2003
Marketing	$	2,224	$	1,768	$	1,661
Outside services and processing		1,773		1,483		819
Audit and examination fees		1,323		1,032		725
Directors and committee fees		1,004		1,355		346
Communication and postage		981		938		844
Stationery and supplies		941		757		908
Attorneys’ fees		662		393		480
Insurance		563		509		408
Amortization of subordinated debentures expense		272		251		169
FDIC insurance premium		259		239		213
Deposit intangible amortization		204		204		17
ORE expense		79		5		194
Other		3,556		2,833		3,053
Total	$	13,841	$	11,767	$	9,837

13. RELATED PARTY TRANSACTIONS

The Company has had and expects to have transactions in the ordinary course of business with many of its directors, senior officers and other affiliates (and their associates) on substantially the same terms as those prevailing for comparable transactions with others. For a discussion of credit transactions, see Note 4 — Loans and Allowance for Loan Losses. Listed below is a summary of other material relationships or transactions with the Company’s directors, senior officers and other affiliates.

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In January 2005, Patrick L. Ryan, the son of Patrick M. Ryan, the Chief Executive Officer of the Holding Company and the Bank, joined the Bank in the position of Senior Vice President and Strategic Planning Officer. His employment agreement with the Bank includes a base salary of $138,000 together with benefits consistent with those provided to other officers of the same level.

In March 2006, the Bank signed a ten-year lease effective with an unlimited number of one-year renewals for its Morrisville branch. The lease had an effective date of November 1, 2005. The lease has no expiration date. The property is owned by MYNB, LLC, a limited liability company of which Mr. Sidney L. Hofing, a director of the Company and the Bank has an ownership interest. Mr. Hofing resigned from the Board of Directors effective December 31, 2005. Under the terms of the lease, the Bank is obligated to pay approximately $10,800 per month, which includes any common area maintenance expenses.

In January 2006, the Bank signed a one-year lease effective December 1, 2005 for a temporary location for its Cream Ridge Branch located in Plumsted Township, New Jersey. After the initial term expires the lease will be a month-to-month lease pending relocation to the final site. The current location is a 1,900 square foot space in a strip shopping center. The Bank will occupy this space pending the completion of a full service branch to be located on a pad site adjacent to the shopping center. The shopping center and the pad site are owned by Vernon Holdings 101837 LLC. Mr. Vernon a director of the Company and the Bank has an ownership interest in Vernon Holdings 101837 LLC. Under the terms of the lease, the Bank is obligated to pay approximately $3,500 per month, which includes any common area maintenance expenses. A new lease will be negotiated for the pad site in the near future.

In January 2005, the Bank signed a five-year lease with 2 five-year renewal options for its maintenance department center. This property is owned by Lalor Storage LLC, a limited liability company of which Christopher S. Vernon, a director of the Company and the Bank, is a member. Under the terms of the lease, the Bank is required to pay $4,984 per month, which includes any common area maintenance expenses.

In April 2005, the Bank signed a fifteen-year lease with two five-year renewal options for its West Windsor Branch. The property is owned by WWM Properties LLC, a limited liability company. Sidney L. Hofing, a director of the Company and the Bank has an ownership interest in WWM Properties, LLC. Mr. Hofing resigned from the Board of the Company and Bank effective December 31, 2005. Over the initial term of the lease, the Bank is obligated to pay an average of approximately $13,850 per month including any common area maintenance expenses. Lease payments will start when the Branch is completed.

In October 2004, upon expiration of the initial five-year term and the second five-year renewal term, the Bank renewed its lease for another five-year term for its Trenton branch office, which is owned by The Lalor Urban Renewal Limited Partnership. The Lalor Company, which is the general partner of the limited partnership, is owned by Sidney L. Hofing, a director of the Company and the Bank. Mr. Hofing resigned from the Board of Directors of both the Company and the Bank effective December 31, 2005. Under the lease, the Bank is obligated to pay approximately $3,100 per month, which includes any common area maintenance expenses.

In June 2003, the Bank sold its former operations building to Christopher S. Vernon, a director of the Company and the Bank. The purchase price was $650,000 and the Bank recorded a gain of $429,000 in the second quarter of 2003, which is included in other non-interest income in the consolidated statements of income. The Bank leased the basement of the building on a month-by-month basis. Under the terms of that lease, the Bank was required to pay $2,783 per month, which included any common area maintenance expenses. In February 2005, the Bank ended its lease for this property.

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In October 2001, the Bank signed a fifteen-year lease with 3 five-year renewal options for its Hunterdon County Regional Headquarters. The property is owned by FYNB LLC, a limited liability company of which Sidney L. Hofing, a director of the Company and the Bank, previously had an ownership interest and several members of Mr. Hofing’s immediate family, including his spouse, continue to have an ownership interest. Mr. Hofing resigned from the Board of Directors of both the Company and the Bank effective December 31, 2005. Under the terms of the lease, the Bank is obligated to pay approximately $21,800 per month, which included any common area maintenance expenses. In March 2006, the Bank signed a new lease for its Hunterdon County Regional Headquarters with FYNB LLC, with a 12-year term with 3 five-year renewals. The new lease has an effective date of November 1, 2005. The payments terms of the new lease are the same as the prior lease.

In May 2001, the Bank signed a ten-year lease with 3 five-year renewal options for its Bordentown, New Jersey branch office. The Bank acquired the property from the bankruptcy estate of a borrower and sold the property to BYN, LLC, a limited liability company of which Sidney L. Hofing, a director of the Company and the Bank, is a member. Mr. Hofing resigned from the Board of Directors of both the Company and the Bank effective December 31, 2005. The purchase price was approximately $537,000. Under the terms of the lease, the Bank is obligated to pay approximately $7,000 per month, which included any common area maintenance expenses.

In July 2000, the Bank signed a ten-year lease with 4 five-year renewal options for the Lawrence branch office. The property is owned by Union Properties LLC, a limited liability company of which Sidney L. Hofing, a director of the Company and the Bank, is a member. Mr. Hofing resigned from the Board of Directors of both the Company and the Bank effective December 31, 2005. Under the terms of the lease, the Bank is obligated to pay approximately $8,700 per month, which included any common area maintenance expenses. In March 2006, the Bank signed a new 10-year lease, with an unlimited number of one-year renewals, with Union Properties LLC. The payment terms of the new lease are the same as the prior lease.

In April 2000, the Bank signed a five-year lease with 3 five-year renewal options for its branch in Marrazzo’s Thriftway in West Trenton, New Jersey. The property is owned by Serenity Point LLC, a limited liability company of which Mr. Marrazzo, a director of the Company and the Bank, is a member. Mr. Marrazzo also owns and operates Marrazzo’s Thriftway. Under the terms of the lease, which was executed prior to Mr. Marrazzo becoming a member of the Board, the Bank is obligated to pay approximately $2,200 per month, which included any common area maintenance expenses.

Except as described in Note 4 – Loans and Allowance for Loan Losses and above, there were no new material loan relationships established in 2005.

14. OTHER COMMITMENTS AND CONTINGENT LIABILITIES

The Company enters into a variety of financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and letters of credit, both of which involve, to varying degrees, elements of risk in excess of the amount recognized in the consolidated financial statements.

Credit risk, the risk that a counterparty of a particular financial instrument will fail to perform, is the contract amount of the commitments to extend credit and letters of credit. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies to all activities with credit risk. Collateral is obtained based on management’s credit assessment of the customer.

The contract amounts of off-balance sheet financial instruments as of December 31, 2005 and 2004 for commitments to extend credit were $500.0 million and $406.8 million, respectively. Letters of credit include stand by letters of credit and commercial letters of credit. At December 31, 2005 and 2004, the contract amounts were $30.3 million and $36.2 million, respectively.

As part of its normal course of business, the Company issues standby letters of credit as part of an overall lending relationship. These standby letters of credit are primarily related to performance guarantees on real estate development. At December 31, 2005 and 2004, the amount of standby letters of credit outstanding (and the maximum liability of the Company) were $28.2 million and $32.9 million, respectively. The Company typically

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obtains collateral to secure standby letters of credit. At December 31, 2005 and 2004, collateral securing standby letters of credit was $22.1 million and $20.0 million, respectively, and is available to offset potential losses.

Commitments to extend credit and letters of credit may expire without being drawn upon and, therefore, the total commitment amounts do not necessarily represent future cash flow requirements.

The Company and the Bank are party, in the ordinary course of business, to litigation involving collection matters, contract claims and other miscellaneous causes of action arising from their business. Management does not consider that any such proceedings depart from usual routine litigation. In March 2006, certain shareholders of the Company commenced an action in the Superior Court of New Jersey against the Bank, its directors and certain former directors. The plaintiffs are seeking to have the Company’s By-law regarding director qualifications invalidated, to have certain individuals qualified to serve as directors and to have four members of the Company’s board of directors stand for election at the 2006 annual meeting of shareholders. The Company and the named defendants are defending the action. In management’s judgment, the Company’s consolidated financial condition and results of operations will not be adversely affected by the final outcome of any of these pending legal proceedings.

15. REGULATORY MATTERS

The Company and the Bank are subject to risk based capital guidelines administered by Federal banking agencies. The guidelines are designed to make regulatory capital requirements more sensitive to risk profiles among banks and bank holding companies, to account for off-balance exposure and to minimize disincentives for holding liquid assets. Under the guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with applicable weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and certain off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, maintain a minimum ratio of Tier 1 capital to total risk-weighted assets of 4% and Tier 1 capital to average total assets of 4%. Capital amounts and classification are also subject to qualitative judgment by Federal banking agencies concerning components, risk weightings and other factors. Failures to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the consolidated financial statements.

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The following table presents the Company’s and Bank’s actual capital amounts and ratios:

						Per Regulatory Guidelines
	Actual					Minimum					"Well Capitalized"
(amounts in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2005:
Company
Total capital (to risk-weighted assets)	$	269,898		11.8	%	$	182,717		8.0	%	$	228,396		10.0	%
Tier 1 capital (to risk-weighted assets)		247,195		10.8			91,358		4.0			137,037		6.0
Tier 1 capital (to average assets)		247,195		8.3			118,916		4.0			148,644		5.0
Bank
Total capital (to risk-weighted assets)	$	248,817		10.9	%	$	181,767		8.0	%	$	227,208		10.0	%
Tier 1 capital (to risk-weighted assets)		226,114		9.9			90,883		4.0			136,325		6.0
Tier 1 capital (to average assets)		226,114		7.6			118,662		4.0			148,327		5.0
As of December 31, 2004:
Company
Total capital (to risk-weighted assets)	$	239,480		11.4	%	$	167,823		8.0	%	$	209,779		10.0	%
Tier 1 capital (to risk-weighted assets)		211,759		10.1			83,912		4.0			125,867		6.0
Tier 1 capital (to average assets)		211,759		7.6			111,146		4.0			138,933		5.0
Bank
Total capital (to risk-weighted assets)	$	210,758		10.1	%	$	167,320		8.0	%	$	209,150		10.0	%
Tier 1 capital (to risk-weighted assets)		190,642		9.1			83,660		4.0			125,490		6.0
Tier 1 capital (to average assets)		190,642		6.7			114,111		4.0			142,639		5.0

On August 31, 2005, the Bank entered into a formal agreement with the OCC regarding the conduct of certain of its operations, maintaining specified capital levels, obtaining prior approvals of dividend payments, and addressing other concerns identified in the OCC’s Report of Examination for the examination that commenced on January 3, 2005. The agreement encompasses activities initiated earlier in 2005 by the Bank to strengthen its board and management supervision and internal audit and credit risk processes, including problem loan management. The Board of Directors formed a Compliance Committee to oversee all aspects of compliance with the provisions of the agreement.

In addition, the agreement requires the Bank to achieve and maintain a total risk-based capital ratio of at least 10.75%, a Tier 1 risk-based capital ratio of at least 9.75% and a leverage ratio of at least 7.50%. As a result of an $8.7 million private offering of the Company’s common stock completed in November 2005, of which substantially all of the proceeds were contributed to the Bank, we were in compliance with all required capital ratios at December 31, 2005.

Under the agreement, the Bank will not be deemed to be “well capitalized” for certain regulatory purposes. Such capital category may not however accurately represent the Bank’s general financial condition or prospects. In addition, as a result of this Agreement the Company has elected to decertify as a financial holding company under the Bank Holding Company Act. The Company is not currently engaged in any activities for which it is required to be a financial holding company.

F-31

In January 2006, the Company received a supervisory letter from its primary regulator the Federal Reserve Bank of Philadelphia. That letter requires that the Company obtain prior approval before declaring and paying dividends to shareholders. In February 2006 the Federal Reserve Bank of Philadelphia approved the first quarter dividend payment to shareholders.

The principal source of funds for the Company is dividends from the Bank. There are various legal and regulatory limits on the extent to which banking subsidiaries can finance or otherwise provide funds to their holding companies. Permission from the OCC is required if the total of dividends declared in a calendar year exceeds the total of the Bank’s net profits, as defined by the OCC, for that year, combined with its retained net profits for the two preceding years. In addition, if the Company were to defer payments on the subordinated debentures used to fund payments on its trust-preferred securities, it would be unable to pay dividends on its common stock until the deferred payments were made. The retained net profits of the Bank available for dividends were approximately $33.0 million as of December 31, 2005.

The adoption of FIN 46R required the Company to deconsolidate its investment in Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trusts in its financial statements (see Note 8).

On March 1, 2005, the Board of Governors of the Federal Reserve System adopted a final rule that allows the continued inclusion of outstanding and prospective issuances of trust preferred securities in the Tier 1 capital of bank holding companies, subject to stricter quantitative limits and qualitative standards. The new quantitative limits become effective after a five-year transition period ending March 31, 2009. Under the final rules, trust preferred securities and other restricted core capital elements are limited to 25% of all core capital elements. Amounts of restricted core capital elements in excess of these limits may be included in Tier 2 capital. At December 31, 2005, the only restricted core capital element owned by the Company is trust preferred securities. Based on a review of the final rule, the Company believes that its trust preferred issues will qualify as Tier 1 capital up to the limit with the remaining qualifying as Tier 2 capital.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 “Disclosure About Fair Value of Financial Instruments” (SFAS 107) requires the Company to disclose estimated fair value for its financial instruments. Fair value estimates are made at a specific point in time, based on relevant market data and information about the financial instruments. SFAS 107 has no effect on the financial position or results of operations in the current year or any future period. Furthermore, the fair values disclosed under SFAS 107 are not representative of the total value of the Company. The following fair value estimates, methods and assumptions were used to measure the fair value of each class of financial instruments for which it is practical to estimate that value:

Cash and Cash Equivalents. For such short-term investments, the carrying amount was considered to be a reasonable estimate of fair value.

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Interest Bearing Deposits with Banks. For interest bearing deposits with banks, the carrying amount was considered to be a reasonable estimate of fair value.

Securities Available for Sale and Investment Securities. The fair value of securities, including mortgage-backed securities, is based on bid prices published in financial newspapers or bid quotations received from securities dealers.

Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, commercial real estate, residential mortgage and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

The fair value of performing loans, except residential mortgage loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.

Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

Deposit Liabilities. The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, interest bearing demand deposits, money market, and savings deposits, is considered to be equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowed Funds. For securities sold under agreements to repurchase and FHLB advances, fair value was based on rates currently available to the Company for agreements with similar terms and remaining maturities. For convertible securities sold under agreements to repurchase and FHLB advances, option adjusted spread pricing (OAS) was obtained from sources believed to be reliable. For other borrowed funds, the carrying amount was considered to be a reasonable estimate of fair values.

Subordinated Debentures. For subordinated debentures, the fair value was based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for subordinated debentures having similar credit and maturity terms.

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The estimated fair values of the Company’s financial instruments are as follows:

	December 31, 2005
	Carrying		Fair
(in thousands)	Value		Value
Financial Assets:
Cash and cash equivalents	$	63,486	$	63,486
Interest bearing deposits		16,408		16,408
Securities available for sale		741,668		741,668
Investment securities		89,026		90,611
Loans, net		1,950,137		1,934,274
Financial Liabilities:
Deposits		1,972,717		1,966,351
Borrowed funds		718,120		737,296
Subordinated debentures		62,892		66,007

	December 31, 2004
	Carrying		Fair
(in thousands)	Value		Value
Financial Assets:
Cash and cash equivalents	$	38,884	$	38,884
Interest bearing deposits		41,297		41,297
Securities available for sale		802,525		802,525
Investment securities		78,257		79,954
Loans, net		1,762,476		1,764,803
Financial Liabilities:
Deposits		1,810,004		1,808,962
Borrowed funds		753,130		804,587
Subordinated debentures		62,892		64,763

The fair value of commitments to extend credit and letters of credit are estimated using the fees currently charged to enter into similar agreements, and as the fair value for these financial instruments was not material, are not included above.

Limitations. Fair value estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include the deferred tax assets and bank premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

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17. PARENT COMPANY INFORMATION

The condensed financial statements of the parent company only are presented below:

Condensed Statements of Condition

	December 31,
(in thousands)	2005		2004
Assets:
Cash	$	13,633	$	14,923
Securities available for sale		5,328		5,328
Investment in subsidiaries		217,366		192,304
Other assets		6,992		11,607
Total Assets	$	243,319	$	224,162
Liabilities and Stockholders’ Equity:
Other liabilities	$	719	$	735
Obligation for ESOP		2,250		377
Subordinated debentures		62,892		62,892
Stockholders’ equity		177,458		160,158
Total Liabilities and Stockholders’ equity	$	243,319	$	224,162

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Condensed Statements of Income

	Year ended December 31,
(in thousands)	2005			2004			2003
Operating Income:
Dividends from subsidiary	$	9,832		$	3,970		$	7,575
Interest income		154			113			96
Other income		402			405			431
Total Operating Income		10,388			4,488			8,102
Operating Expense:
Interest expense		4,784			3,738			3,057
Other expense		1,828			1,306			1,320
Total Operating Expense		6,612			5,044			4,377
Income (loss) before taxes and equity in undistributed income of subsidiaries		3,776			(556	)		3,725
Federal income tax benefit		(1,917	)		(1,439	)		(1,289	)
Income before equity in undistributed income of subsidiaries		5,693			883			5,014
Equity in undistributed income of subsidiaries		15,241			17,642			5,295
Net Income	$	20,934		$	18,525		$	10,309

Condensed Statements of Cash Flows

	Year ended December 31,
(in thousands)	2005			2004			2003
Cash Flows from Operating Activities:
Net Income	$	20,934		$	18,525		$	10,309
Adjustments:
Decrease (increase) in other assets		4,615			(7,881	)		(1,931	)
Equity in undistibuted income of subsidiairies		(15,241	)		(17,642	)		(5,295	)
Increase in other liabilities		440			329			59
Net Cash Provided by (Used in) Operating Activities		10,748			(6,669	)		3,142
Cash Flows from Investing Activities:
Purchase of securities available for sale		—			(3,449	)		(668	)
Investing in subsidiaires		(20,150	)		—			(5,600	)
Net Cash Used by Investing Activities		(20,150	)		(3,449	)		(6,268	)
Cash Flows from Financing Activities:
Increase (decrease) in obligation for ESOP		1,873			(378	)		355
Proceeds from issuance of subordinated debentures		—			15,464			25,744
Retirement of subordinated debentures		—			—			(11,856	)
Proceeds from shares issued		11,137			1,794			961
Treasury stock acquired		—			—			(6	)
Dividends paid		(4,898	)		(4,817	)		(4,790	)
Net Cash Provided by Financing Activities		8,112			12,063			10,408
Net (decrease) increase in cash		(1,290	)		1,945			7,282
Cash as of beginning of year		14,923			12,978			5,696
Cash as of end of year	$	13,633		$	14,923		$	12,978

F-36

18. DERIVATIVE FINANCIAL INSTRUMENTS

The use of derivative financial instruments creates exposure to credit risk. This credit risk relates to losses that would be recognized if the counterparties fail to perform their obligations under the contracts. To mitigate this exposure to nonperformance, the Company only deals with counterparties of good credit standing and establishes counterparty credit limits. As part of the Company’s interest rate risk management process, the Company periodically enters into interest rate derivative contracts. Interest rate derivative contracts are typically used to limit the variability of the Company’s net interest income that could result due to shifts in interest rates. These derivative interest rate contracts may include interest rate swaps, caps, and floors and are used to modify the repricing characteristics of specific assets and liabilities. At December 31, 2005 and 2004, the Company’s position in derivative contracts consisted entirely of interest rate swaps.

The following table details the interest rate swaps and associated hedged liabilities outstanding as of December 31, 2005.

(dollars in thousands)	Hedged	Notional		Swap Fixed			Swap Variable
Maturity	Liability	Amounts		Interest Rates			Interest Rates
Pay floating Swaps
2006	Time Deposits	$	125,000		3.10% - 2.73	%		4.31% - 4.42	%

The following table details the interest rate swaps and associated hedged liabilities outstanding as of December 31, 2004.

(dollars in thousands)	Hedged	Notional		Swap Fixed			Swap Variable
Maturity	Liability	Amounts		Interest Rates			Interest Rates
Pay floating Swaps
2006	Time Deposits	$	125,000		3.10% - 2.73	%		2.41% - 2.26	%

During 2004, the Company issued two-year fixed-rate certificates of deposit to fund loan growth and generate liquidity. In conjunction with the certificate of deposit issuance, the Company entered into $125.0 million in pay floating swaps designated as fair value hedges that were used to convert fixed rate two year final maturity time deposits to variable rates indexed to one month and three month LIBOR, based on common notional amounts and maturity dates. The pay floating swaps change the repricing characteristics of the certificates of deposit from fixed rate to floating rate. The result is a better match between the repricing characteristics of the certificates of deposit with floating rate commercial loans the Company made in 2004. These transactions increased interest expense by approximately $412,000 for the year ended December 31, 2005 and reduced interest expense by approximately $498,000 for the year ended December 31, 2004. The amount of hedge ineffectiveness recorded in non-interest expense in the Consolidated Statement of Income on these transactions for the years ended December 31, 2005 and 2004 was less than $1,000. The fair value of the pay floating swaps outstanding at December 31, 2005 was $1,442,000 and $532,000 at December 31, 2004 and was recorded in Other Liabilities in the Consolidated Statements of Condition.

F-37

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Yardville National Bancorp:

We have audited the accompanying consolidated statements of condition of Yardville National Bancorp and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yardville National Bancorp and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Short Hills, New Jersey

March 16, 2006

F-38

INDEX TO EXHIBITS

	Exhibit
	Number		Description
(A)		3.1	Restated Certificate of Incorporation of the Company, as corrected by the Certificate of Correction thereto filed on July 6, 1995 and as amended by the Certificate of Amendment thereto filed on March 6, 1998.
		3.2	Certificate of Amendment to the Restated Certificate of Incorporation of the Company filed on June 6, 2003.
(B)		3.3	Amended and Restated By-Laws of the Company
(C)		4.1	Specimen Share of Common Stock
		4.2	The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030: (J) Amended and Restated Declaration of Trust dated June 23, 2000, among the Registrant, The Bank of New York, as property trustee, and the Administrative Trustees of Yardville Capital Trust II; (J) Indenture dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Registrant’s Series A 9.50% Junior Subordinated Deferrable Interest Debentures due June 22, 2030; and (iii) Series A Capital Securities Guarantee Agreement dated as of June 23, 2000, between the Registrant and The Bank of New York, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust II.
		4.3	The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031: (J) Amended and Restated Declaration of Trust dated March 28, 2001, among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust III; (J) Indenture dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Series A 10.18% Junior Subordinated Deferrable Interest Debentures due June 8, 2031; and (iii) Series A Capital Securities Guarantee Agreement dated as of March 28, 2001, between the Registrant and Wilmington Trust Company, as trustee, relating to the Series A Capital Securities of Yardville Capital Trust III.
		4.4	The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due March 1, 2033: (J) Amended and Restated Declaration of Trust dated February 19, 2003, among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust IV; (J) Indenture dated as of February 19, 2003, between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due March 1, 2033; and (iii) Capital Securities Guarantee Agreement dated as of February 19, 2003, between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust IV.

E-1

	Exhibit
	Number		Description
		4.5	The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due October 8, 2033: (J) Amended and Restated Declaration of Trust among the Registrant, Wilmington Trust Company, as property trustee, and the Administrative Trustees of Yardville Capital Trust V; (J) Indenture between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due October 8, 2033; and (iii) Capital Securities Guarantee Agreement between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust V.
		4.6	The Registrant will furnish to the Commission upon request copies of the following documents relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due July 23, 2034: (J) Amended and Restated Declaration of Trust among the Registrant, Wilmington Trust Company] as property trustee, and the Administrative Trustees of Yardville Capital Trust VI; (J) Indenture between the Registrant and Wilmington Trust Company, as trustee, relating to the Registrant’s Floating Rate Junior Subordinated Deferrable Interest Debentures due July 23, 2034; and (iii) Capital Securities Guarantee Agreement between the Registrant and Wilmington Trust Company, as trustee, relating to the Floating Rate Capital Securities of Yardville Capital Trust VI.
(D)		10.1	Employment Contract between the Bank and Kathleen O. Blanchard*
(E)		10.2	Employment Agreement among Registrant, the Bank, and Stephen F. Carman*
(E)		10.3	Employment Agreement among Registrant, the Bank, and Jay G. Destribats*
(D)		10.4	Employment Contract between the Bank and Brian K. Gray*
(D)		10.5	Employment Contract between the Bank and Howard N. Hall*
(E)		10.6	Employment Agreement among Registrant, the Bank, and Timothy J. Losch*
(F)		10.7	Employment Contract between the Bank and Daniel J. O’Donnell*
(G)		10.8	Employment Contract between the Bank and Joanne C. O’Donnell*
(E)		10.9	Employment Agreement among Registrant, the Bank, and Patrick M. Ryan*
(D)		10.10	Employment Contract between the Bank and Patrick L. Ryan*
(D)		10.11	Employment Contract between the Bank and John P. Samborski*
(H)		10.12	Employment Agreement among Registrant, the Bank, and F. Kevin Tylus*
(E)		10.13	Employment Agreement among Registrant, the Bank, and Stephen R. Walker*
(D)		10.14	Second, Amended and Restated Supplemental Executive Retirement Plan*

E-2

	Exhibit
	Number		Description
		10.15	Amendment to the Second Amended and Restated Supplemental Executive Retirement Plan
(A)		10.16	1988 Stock Option Plan*
(I)		10.17	Directors’ Deferred Fee Plan*
(J)		10.18	1997 Stock Option Plan and Form of Stock Option Agreement*
(K)		10.19	Yardville National Bank Employee Stock Ownership Plan, as amended*
(L)		10.20	Yardville National Bancorp 2003 Stock Option Plan for Non-Employee Directors*
(H)		10.21	Yardville National Bancorp 2003 Stock Option Plan for Non-Employee Directors—Form of Stock Option Agreement*
(M)		10.22	2005 Equity Incentive Plan*
(D)		10.23	Real property lease between Crestwood Construction, LLC and the Bank dated May 25, 1998
(N)		10.24	Real property lease between the Bank and BYN, LLC for our branch located at 1041 Route 206, Bordentown, New Jersey
		10.25	Real property lease between the Bank and FYNB, LLC for our branch located in Raritan, New Jersey
		10.26	Real property lease between the Bank and Union Properties, LLC for our branch located at 1575 Brunswick Avenue, Lawrence, New Jersey
(N)		10.27	Real property lease between the Bank and The Lalor Urban Renewal Limited Partnership for our branch located in the Lalor Plaza in Trenton, New Jersey
(O)		10.28	Real property lease between the Bank and Christopher S. Vernon, Eileen Vernon and Mark Corcoran
(P)		10.29	Real property sublease between the Bank and Samuel Marrazzo and Margaret Marrazzo, predecessors in interest to Serenity Point LLC, for our branch located at 1400 Parkway Avenue, Ewing, New Jersey
(D)		10.30	Real property lease between the Bank and Lalor Storage LLC for our maintenance center
(G)		10.31	Real property lease between the Bank and WWM Properties, LLC for our branch located at Route 571 and Southfield Road, West Windsor, New Jersey
		10.32	Real property lease between the Bank and MYNB, L.L.C. for the lease of our branch located at 301 West Trenton Avenue, Falls Township, Pennsylvania
		10.33	Real property lease between the Bank and Vernon Holdings 101837 LLC for the lease of our branch located at 403 Route 539, Cream Ridge, New Jersey

E-3

	Exhibit
	Number		Description
(D)		10.34	Yardville National Bank’s Change in Control Severance Compensation Plan*
(D)		10.35	Consulting Agreement between Registrant and Lawrence Seidman
		21	List of Subsidiaries of the Registrant
		23	Consent of KPMG, LLP
		31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) as adopted by Section 302 of the Sarbanes-Oxley Act of 2002
		31.2	Certification of Vice President and Treasurer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) as adopted by Section 302 of the Sarbanes-Oxley Act of 2002
		32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
		32.2	Certification of Vice President and Treasurer Pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
(Q)		99.1	Agreement by and between the Bank and The Office of the Comptroller of the Currency

(A)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on May 2, 2003
(B)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 25, 2006, filed with the SEC on January 31, 2006
(C)	Incorporated by reference to the Registrant’s Registration Statement on Form SB-2 (Registration No. 33-78050)
(D)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the SEC on March 31, 2005
(E)	Incorporated by reference to Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 30, 2004, filed with the SEC on December 13, 2004
(F)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, filed with the SEC on November 9, 2005
(G)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005, filed with the SEC on August 15, 2005
(H)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, filed with the SEC on November 9, 2004
(I)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed with the SEC on March 15, 2004

E-4

(J)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-28193), filed with the SEC on May 30, 1997
(K)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-71741), filed with the SEC on February 4, 1999
(L)	Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A for the 2003 Annual Meeting of Shareholders, filed with the SEC on April 30, 2003
(M)	Incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A for the 2005 Annual Meeting of Shareholders, filed with the SEC on May 6, 2005
(N)	Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-99269), filed with the SEC on September 6, 2002
(O)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003, filed with the SEC on November 14, 2003
(P)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004, filed with the SEC on May 10, 2004
(Q)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 31, 2005, filed with the SEC on September 2, 2005

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K.

E-5

EX-3.2

                                                                     EXHIBIT 3.2

                           YARDVILLE NATIONAL BANCORP

                            CERTIFICATE OF AMENDMENT
                                     TO THE
                      RESTATED CERTIFICATE OF INCORPORATION

            Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned executes
the following Certificate of Amendment to its Restated Certificate of
Incorporation:

      1. The name of the Corporation is:

                           Yardville National Bancorp

      2. The first sentence of Articles III.A of the Restated Certificate of
Incorporation of the Corporation is amended to read in its entirety as follows:

                  "The total authorized capital stock of the Corporation shall
            be 21,000,000 shares, consisting of 20,000,000 shares of Common
            Stock and 1,000,000 shares of Preferred Stock which may be issued in
            one or more classes or series."

      3. The amendment was adopted by the Corporation's shareholders pursuant to
a vote taken at the 2003 Annual Meeting of the Corporation's shareholders, held
on June 5, 2003.

      4. A total of 10,400,705 shares of capital stock of the Corporation were
entitled to vote upon the amendment.

      5. The number of shares voting for and against the amendment is as
follows:

Number of Shares Voting for Amendment  Number of Shares Voting Against Amendment
- -------------------------------------  -----------------------------------------

           8,240,395                                  158,749

      6. The amendment shall become effective upon the date of filing.

            IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed this 5th day of June, 2003.

                                            YARDVILLE NATIONAL BANCORP

                                            By: Stephen F. Carman
                                                ----------------------------
                                            Name:  Stephen F. Carman
                                            Title: Vice President

EX-10.15

                                                                   EXHIBIT 10.15

       Amendment to the Second Amended and Restated Supplemental Executive
                                 Retirement Plan

            WHEREAS, the Board of Directors of the Bank has the authority to
amend the Second Amended and Restated Supplemental Executive Retirement Plan
("SERP") pursuant to Article 9 therein;

            WHEREAS, the Board of Directors has determined that it is
appropriate to make certain changes to the definition of "Final Average
Compensation" as set forth therein;

            NOW THEREFORE BE IT RESOLVED, that the definition of Final Average
Compensation is amended by adding the following thereto, effective as of January
1, 2006:

                  "Notwithstanding anything in this Plan to the contrary, for
            purposes of determining a Participant's Normal Retirement benefit
            under this Plan, a Participant's Final Average Compensation shall
            not exceed the amount determined as of the date the Participant
            attains Normal Retirement Age without regard to whether the
            Participant remains employed by the Bank after such date."

            BE IT FURTHER RESOLVED, that, in all other respects, the provisions
of the SERP are hereby ratified and confirmed.

EX-10.25

                                                                   EXHIBIT 10.25

                                      LEASE

                                      from

                              FYNB, LLC , Landlord

                                       to

                         YARDVILLE NATIONAL BANK, Tenant

                                       RE:

                         RT. 31 N AND WALTER FORAN BLVD
                     FLEMINGTON, N.J., HUNTERDON COUNTY N.J.

                                 DATA & EXHIBITS

DATE OF LEASE:                         November 1, 2005

LOCATION OF DEMISED PREMISES:          Rt. 31 N. and Walter Foran Blvd.
                                       Flemington, Hunterdon County, New Jersey



RENT:             Period                             Annual Rent                Monthly Rent
                  ------                             -----------                ------------
                                                                       
                  11/1/05 - 10/31/07                 $204,095.04                $17,007.92
                  11/01/07 - 10/31/12                $224,504.52                $18,708.71
                  11/01/12 - 10/31/17                $246,955.00                $20,579.58

                  11/01/17 - 10/31/22 (opt. #1)      $271,650.50                $22,637.54
                  11/01/22 - 10/31/27 (opt. #2)      $298,815.55                $24,901.29
                  11/01/28 - 10/31/32 (opt. #3)      $328,697.10                $27,391.42


LEASE TERM:             Twelve (12) years

RENEWAL OPTIONS:        Three (3) renewal options of five (5) years each

NOTICE FOR RENEWALS:    Must be exercised twelve (12) months prior otherwise
option is null and void.

NOTICES:      Landlord:                 FYNB, LLC.

                                        c/o Hofing Management
                                        928 West State Street
                                        Trenton, NJ 08618

              Tenant:                   YARDVILLE NATIONAL BANK
                                        Box 8487
                                        Trenton, New Jersey 08650
                                        Attn.:   Frank Durand
                               with a copy to:
                                        YARDVILLE NATIONAL BANK
                                        2465 Kuser Road
                                        Hamilton, New Jersey 08690
                                        Attn.:   Daniel J. O'Donnell, Esq.

                                       1


EXHIBITS:

            A:    Plan showing location of Demised Premises

            B:    Landlord's Work

            C:    Signs

            D:    Exclusives

            E:    Rules and Regulations

                                       2


                                 INDEX TO LEASE



                                                                                           Page
                                                                                           ----
                                                                                        
Article I                  Definitions.............................................          2
Article II                 Lease of Demised Premises...............................          3
Article III                Term....................................................          3
Article IV                 Rent....................................................          4
Article V                  Tenant Reimbursements...................................          4
Article VI                 Utilities...............................................          7
Article VII                Maintenance.............................................          7
Article VIII               Tenant's Insurance......................................          8
Article IX                 Limitations on Use; Rules & Regulations; Trade Name.....          9
Article X                  Compliance with Applicable Law..........................          10
Article XI                 Preparation of Demised Premises.........................          10
Article XII                Tenant's Work...........................................          10
Article XIII               Landlord's Entry on Demised Premises....................          11
Article XIV                Assignment and Subletting...............................          12
Article XV                 Indemnification of Landlord.............................          12
Article XVI                Fire and Casualty.......................................          13
Article XVII               Condemnation............................................          14
Article XVIII              Events of Default.......................................          15
Article XIX                Landlord's Remedies.....................................          16
Article XX                 Surrender of Demised Premises...........................          18
Article XXI                Holding Over............................................          18
Article XXII               INTENTIONALLY OMMITTED..................................          18
Article XXIII              Common Areas............................................          18
Article XXIV               Signs...................................................          19
Article XXV                Subordination...........................................          19
Article XXVI               Nature of Landlord's Liability..........................          19
Article XXVII              Waiver..................................................          20
Article XXVIII             Quiet Enjoyment.........................................          20
Article XXIX               INTENTIONALLY OMMITTED .................................          21
Article XXX                Waiver of Subrogation...................................          21
Article XXXI               INTENTIONALLY OMMITTED .................................          21
Article XXXII              Miscellaneous...........................................          21
Article XXXIII             Leasehold Mortgages.....................................          23
Article XXXIV              Tenant's Responsibility Regarding Hazardous Substances..          25
Article XXXV               ISRA Compliance ........................................          26
Article XXXVI              Sorting and Separation of Refuse and Trash..............          26
Article XXXVII             Removal of Garbage and Debris...........................          27
Article XXXVIII            Renewal Option..........................................          27


                                       3


                        THIS LEASE, dated the 15th day of February , 2006,
between FYNB, LLC., a New Jersey Limited Liability Company, with offices at c/o
Hofing Management, 928 West State Street, Trenton, NJ 08618 (hereinafter
referred to as the "Landlord"); and YARDVILLE NATIONAL BANK, Box 8487, Trenton,
New Jersey 08650 (hereinafter referred to as the "Tenant").

                                   WITNESSETH:

      In consideration of the agreements contained in this Lease, and for other
good and valuable consideration, Landlord and Tenant covenant and agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

      For purposes of this Lease, the following terms shall have the indicated
meanings:

      SECTION 1.01. "ADDITIONAL RENT" shall mean any sums other than Fixed Rent
which Tenant is required to pay to Landlord under this Lease.

      SECTION 1.02. "APPLICABLE LAWS" shall mean all present and future laws,
ordinances, resolutions, regulations and orders of all governmental entitles at
any time having jurisdiction over the building.

      SECTION 1.03. "COMMENCEMENT DATE" shall mean the date of the issuance of a
temporary or permanent Certificate of Occupancy for the Demised Premises to be
used and occupied only for lawful purposes, more specifically bank branch and
office use.

      SECTION 1.04. "COMMON AREAS" shall mean all areas of the building that are
designated by Landlord from time to time for the general use and convenience of
Tenant and other tenants of the Building and their respective authorized
representatives and invitees. Common Areas include, without limitation,
pedestrian walkways and patios, landscaped areas, sidewalks (exclusive of
sidewalks in front of the Demised Premises), service corridors, restrooms,
stairways, decorative walls, plazas, throughways, loading areas, parking areas
and roads.

      SECTION 1.05. "DEMISED PREMISES" shall mean those premises as outlined or
designated on the plan attached hereto and marked as Exhibit A, being a part of
the Building. Said Demised Premises containing approximately _6,732_ square feet

      SECTION 1.06. "EXCUSABLE DELAY" shall mean that any time limits required
to be met by either party hereunder, whether specifically made subject to
Excusable Delay or not, except those related to the payment of Fixed Rent,
Percentage Rent, if any, or Additional Rent, shall, unless specifically stated
to the contrary elsewhere in this Lease, be automatically extended by the number
of days by which any performance called for is delayed due to Excusable Delay.
Excusable Delay shall mean and include those situations beyond Landlord's or
Tenant's control, including by way of example and not by way of limitation, acts
of God; accidents, repairs, strikes, shortages of labor, supplies or materials;
inclement weather or, where applicable, the passage of time while waiting for an
adjustment of insurance proceeds.

      SECTION 1.07. "FIXED RENT" shall mean the guaranteed fixed rent during the
Term to accrue as follows:



RENT:             Period                             Annual Rent                Monthly Rent
                  ------                             -----------                ------------
                                                                       
                  11/01/05 - 10/31/07                $204,095.04                $17,007.92
                  11/01/07 - 10/31/12                $224,504.52                $18,708.71
                  11/01/12 - 10/31/17                $246,955.00                $20,579.58

                  11/01/17 - 10/31/22 (opt. #1)      $271,650.50                $22,637.54
                  11/01/22 - 10/31/27 (opt. #2)      $298,815.55                $24,901.29
                  11/01/28 - 10/31/32 (opt. #3)      $328,697.10                $27,391.42


all payable in the manner provided in Section 4.01.

      SECTION 1.08. "LEASE YEAR" shall mean the period beginning on the
Commencement Date and ending twelve (12) months later (the lease term is twelve
(12) years).

      SECTION 1.09. "PERMITTED TRADE NAME" shall mean Yardville National Bank or
YNB.

      SECTION 1.10. "PERMITTED USE" shall mean the use of the Demised Premises
by Tenant for the following purposes only: as a financial institution.

                                       4


      SECTION 1.11. "RENT" shall mean and include Fixed Rent and Additional
Rent.

      SECTION 1.12. "RENT COMMENCEMENT DATE": shall mean the Commencement Date.

      SECTION 1.13. "BUILDING" shall mean the building located at Rt. 31 and
Walter Foran Blvd., Flemington, N.J.

      SECTION 1.14. "STATE" shall mean the State of New Jersey.

      SECTION 1.15. "TENANT'S SHARE" shall mean 100%.

      SECTION 1.16. "TERM" shall mean twelve (12) years.

                                   ARTICLE II

                            LEASE OF DEMISED PREMISES

      SECTION 2.01. Landlord agrees to lease the Demised Premises to Tenant, and
Tenant agrees to rent the Demised Premises from Landlord, upon and subject to
the conditions hereinafter contained.

                                   ARTICLE III

                                      TERM

      SECTION 3.01. The Term shall commence on the Commencement Date and shall
expire on the last day of the month twelve (12) years after the Rent
Commencement Date (herein the "Term Expiration Date").

      SECTION 3.02. All of the obligations of Landlord are expressly conditioned
upon the ability of Landlord to give possession of the Demised Premises to
Tenant. Landlord shall have no liability whatsoever by reason of its inability
to complete Landlord's Work, as hereinafter defined.

      SECTION 3.03. If requested by Landlord, Tenant will execute and return
within seven (7) days after presentation by Landlord an agreement confirming the
Commencement Date, the Rent Commencement Date and the date established for the
expiration of the Term.

                                   ARTICLE IV

                                      RENT

      SECTION 4.01. Tenant agrees to pay to Landlord the Fixed Rent, without
notice or demand, in equal monthly installments, in advance, on or before the
first day of each and every successive calendar month during the Term hereof,
except the first month's Fixed Rent shall be paid upon the execution of this
Lease. The Fixed Rent shall commence on the Rent Commencement Date. The Fixed
Rent for any period which is for less than a full month shall be a prorated
portion of the Fixed Rent based on a thirty (30) day month.

      SECTION 4.02. The Fixed Rent shall be paid to Landlord by Tenant, without
deduction, counterclaim or setoff, except as expressly provided herein, and at
Landlord's address or at such place as Landlord may from time to time designate
in writing.

      SECTION 4.03. If any payment of Rent is not received by Landlord within
five (7) business days of the date when due, Tenant shall pay to Landlord on
demand as a late charge, interest on the overdue Rent at the lesser of the
maximum rate permitted by law or ten (10%) percent per month from the due date.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.

      SECTION 4.04. No abatement, diminution or reduction of the Basic Rent, or
any additional rent or other charges required to be paid by Tenant pursuant to
the terms of this Lease, shall be claimed by, or allowed to, Tenant for any
inconvenience, interruption, cessation or loss of business or otherwise, caused
directly or indirectly by any present or future laws, ordinances, order, rules,
regulations or requirements of any Federal, State, County or Municipal
governments, or by priorities, rationing or curtailment of labor or material, or
by war, civil commotion strikes or riots, or any matter or thing resulting there
from or by any other cause or causes beyond the control of Landlord, including,
without limitations, casualty to the Demised Premises, nor shall this Lease in
any way be affected by any such causes, except as expressly provided in this
Lease.

                                       5


                                    ARTICLE V

                              TENANT REIMBURSEMENTS

      SECTION 5.01. In addition to the Fixed Rent and commencing on the
Commencement Date, Tenant shall pay to Landlord as Additional Rent, Tenant's
Share of the following taxes, insurance premiums and Common Area costs
(hereinafter called "Reimbursements"):

                  (A) All real property taxes and special assessments (the "Real
Estate Taxes") levied or assessed against the Building. Tenant shall not be
required to pay any taxes imposed upon the net income of Landlord or franchise
taxes of Landlord, or any estate, succession, inheritance or transfer taxes
imposed upon Landlord. If, at any time during the Term, any lawful governing
authority levies or assesses against Landlord any tax, fee, or excise, however
described, as a direct substitution in whole or in part for, or in addition to,
or as the substantial equivalent of any Real Estate Taxes, then Tenant shall pay
as provided herein Tenant's Share of that tax, fee or excise. Tenant shall pay
before delinquency all taxes, assessments, license fees, and other charges that
are levied or assessed against Tenant's personal property located on the Demised
Premises. On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments. If any taxes on Tenant's personal property are
levied against Landlord or Landlord's property, or if the assessed value of the
Building is increased by the inclusion of a value placed on Tenant's personal
property or as a result of alterations, additions or improvements made to the
Demised Premises by or for Tenant, Tenant, on demand, shall immediately pay to
Landlord as Additional Rent the sum of the taxes levied against Landlord, or the
proportion of the taxes resulting from such increase in Landlord's assessment
caused thereby. Landlord shall be entitled to, in good faith using its
reasonable determination, ascertain the value of the tax increase attributable
to Tenant's personal property or alterations, additions or improvements.

                        (1.) If permitted by the appropriate taxing authority
      without the necessity of a subdivision, Tenant shall make application for
      the Demised Premises and the improvements erected thereon to be treated as
      a separate tax lot and, if successful, shall pay real property taxes and
      special assessments directly to the taxing authority. In this event, real
      property taxes and assessments will not be paid to Landlord as additional
      rent.

                        (2.) Nothing herein contained shall require Tenant to
      pay any Federal or State income taxes assessed against the Landlord, or
      any gift, estate, succession, inheritance or transfer taxes of Landlord
      imposed as owner of the fee interest of the Demised Premises or any taxes
      imposed upon rent as such, payable by Tenant under this Lease; provided,
      however, that if at any time during the term of this Lease the methods of
      taxation prevailing at the Commencement Date shall be altered so that in
      lieu of or as a substitute for the whole or any part of the taxes,
      assessments, levies, impositions or charges now levied, assessed or
      imposed on real estate and improvements thereon there shall be levied,
      assessed and imposed a tax, assessment, levy, imposition or charge, wholly
      or partially as a capital levy or otherwise, upon the rents received
      therefrom, or measured by or based in whole or in part upon the Demised
      Premises and imposed upon Landlord, than all such taxes, assessments,
      levies impositions, or charges or any part thereof so measured or based
      shall be deemed to be included within the term "Impositions" for the
      purposes hereof to the extent that such imposition would be payable if the
      Demised Premises were the only property of Landlord subject to such
      Imposition, and Tenant shall pay and discharge the same as herein provided
      in respect of the payment of Impositions. Subject to the specific
      exclusions set forth above in this Section 5.01, Tenant shall in addition
      to the foregoing, pay any new taxes of a nature not presently in effect,
      but which may be hereafter levied against or imposed upon Landlord or the
      Demised Premises if such tax shall be based on or arise out of the
      ownership, use or operation of the Demised Premises.

                        (3.) If Tenant pays Real Estate Taxes separately, then
      Tenant, upon request of Landlord, shall furnish to Landlord, or if
      requested by Landlord furnish to any fee mortgagee, within ten (10) days
      after the date when such Imposition will become due, official receipts if
      available of the appropriate taxing authority, or other evidence
      satisfactory to Landlord or such mortgagee evidencing the payment thereof.
      The certificate, receipt or bill of the appropriate official designated by
      law to make or issue the same shall be prima facie evidence that such
      Imposition is due and unpaid, or has been paid at the time of the making
      or issuance of such certificate, receipt or bill.

                        (4.) Landlord appoints Tenant the attorney-in-fact of
      Landlord for the purpose of making all payments to be made by Tenant
      pursuant to any of the provisions of this Lease to persons or entities
      other than Landlord. In case any person or entity to whom any sum is
      directly paid by Tenant under any of the provisions of this Lease shall
      refuse to accept payment of such sum from Tenant, Tenant shall thereupon
      give written notice of such fact to Landlord and shall pay such sum to
      Landlord at the address specified herein and Landlord shall thereupon pay
      such sum to such person or entity.

                                       6


                        (5.) Notwithstanding any other provision herein set
      forth, Tenant, in addition to being responsible for taxes and insurance as
      herein set forth, shall be responsible for all fire insurance premiums on
      buildings and improvements situate on the Demised Premises from the dates
      when Impositions are first payable by Tenant pursuant to Section 5.01
      above through and inclusive of the dates when Basic Rent as herein set
      forth shall be payable.

                        (6.) Tenant, at its own cost and expense, shall take
      good care of the Demised Premises, all exclusive rights of way, curbs and
      appurtenances thereto and maintain and repair any easements used in common
      with others in accordance with any maintenance and repair obligations
      relating thereto, and shall keep the same in good order and condition, and
      reasonably free of any dirt, rubbish, snow, ice and unlawful obstructions.
      Landlord is responsible for snow removal from Tenant's drive-thru area at
      Tenant's sole cost and expense.

                        (7.) Tenant has the right to seek a reduction in the
      valuation of the Demised Premises for tax purposes and to contest in good
      faith by appropriate proceedings, at Tenant's expense, the amount of
      validity in whole or in part of any imposition, tax or assessment
      affecting the Demised Premises.

                        (8.) Landlord shall not be required to join in any
      proceedings referred to herein unless the provisions of any law, rule or
      regulation at the time in effect shall require that such proceedings be
      brought by or in the name of Landlord or any owner of the Demised
      Premises, in which event Landlord shall join in such proceedings or permit
      the same to be brought in its name. Landlord shall not ultimately be
      subjected to any liability for the payment of any costs or expenses in
      connection with any such proceedings, and Tenant shall indemnify and save
      harmless Landlord from any such costs and expenses. Tenant shall be
      entitled to any refund of any imposition and penalties or interest thereon
      received by Landlord which have been paid by Tenant or which have been
      paid by Landlord but previously reimbursed in full by Tenant.

                        (9.) Landlord, in the event Tenant has not filed an
      appeal, reserves unto itself the right to appeal and seek a reduction in
      the valuation of the Demised Premises for real estate tax purposes.

                        (10.) Tenant is only responsible for its share of
      Reimbursements and Impositions which come due during Tenant's Term, and
      Landlord agrees that any improvement assessments will be paid in the
      maximum number of permitted installments.

                  (B) All insurance premiums incurred by Landlord for policies
            of insurance maintained on or with respect to the Building,
            including but not limited to fire and extended coverage insurance,
            liability insurance, workmen's compensation, rent interruption
            insurance and any other insurance that Landlord deems necessary to
            be carried on or with respect to the Building. If the rate of any
            insurance carried by Landlord is increased as a result of Tenant's
            use of the Demised Premises, then Tenant shall pay to Landlord as
            Additional Rent, upon demand, the full amount of any such increase.

                  (C) All customary and reasonable sums expended by Landlord for
            the maintenance and operation of the Common Areas, and an allowance
            to Landlord for Landlord's supervision of maintenance and operation
            of the Common Areas in an amount equal to 15% times the total Common
            Area Expenses of the Building (excluding Real Estate Taxes and
            insurance). Costs for maintenance and operation of the common areas
            shall include by way of example and not by way of limitation, the
            costs of the following: resurfacing, paving, repainting and
            restriping, roof repairs, exterminating, cleaning, sweeping, and
            other maintenance and repair services with respect to the Common
            Areas of the Building, or any part thereof;; policing and providing
            for security guards or security patrols; costs for local fire
            protection; purchasing and maintaining refuse receptacles and costs
            of trash removal; planting and relandscaping; snow removal;
            purchasing, constructing, maintaining or repairing car stops,
            directional signs and other markers; lighting and other utilities;
            reasonable depreciation allowance on improvements, machinery, and
            equipment used in connection with the Common Areas; such fees as may
            be paid to any third party in connection with such maintenance and
            operation or the management of the Building (such management fees
            are to be in lieu of the 5% Landlord's supervision fee set forth
            above); and such other costs as the Landlord, in its reasonable

                                       7

            discretion, shall deem necessary for the maintenance and operation
            of the Common Areas. All Capital Expenditures made to the Building,
            i.e., expenditures which, in accordance with generally accepted
            accounting principles, are not fully chargeable to current expense
            in the year the expenditure is incurred, shall be excluded from
            Common Area Expenses except the cost of repaving described above,
            which repaving cost will be amortized over the useful life of the
            improvement.

      SECTION 5.02. Landlord may submit to Tenant a statement of anticipated
monthly Reimbursements for the period between the Commencement Date and the end
of the first Lease Year and for each subsequent Lease Year or fraction thereof.
If so, Tenant shall pay such Reimbursements on a pro rata monthly basis
concurrent with the payment of the Fixed Rent. Tenant shall continue to make
said monthly payments until notified by Landlord of a change thereof. Landlord
shall furnish to Tenant a statement showing the total Reimbursements, Tenant's
Share of total Reimbursements for the prior Lease Year, and the payments made by
Tenant with respect to such Lease Year, within sixty (60) days after the end of
each Lease Year. However, Landlord's failure to provide such statement of
Reimbursements by the date provided hereinabove shall in no way excuse Tenant
from its obligation to pay its pro rata share of Reimbursements or constitute a
waiver of Landlord's right to bill and collect such pro rata share of
Reimbursements from Tenant in accordance with this Article, provided that
Landlord submits a final statement of total reimbursements for a particular
calendar year within one year after the end of such calendar year. If Tenant's
Share of Reimbursements for the Lease Year exceeds the payments made by Tenant,
Tenant shall pay Landlord the deficiency within ten (10) days after receipt of
the statement. If Tenant's payments made during the Lease Year exceed Tenant's
Share of Reimbursements, Landlord shall credit the sum of such excess toward the
monthly Reimbursements next coming due or, if there are insufficient installment
periods remaining in Tenant's term, pay same over to Tenant. The actual
Reimbursements of the prior Lease Year may be used for the purpose of
calculating the anticipated monthly Reimbursements for the then current Lease
Year, subject to the right of Landlord to increase the monthly Reimbursements
for anticipated increased costs. . Tenant shall have the right, on an annual
basis and at Tenant's sole cost, to audit all Common Area costs charged by the
Landlord.

      SECTION 5.03. Landlord shall keep full, complete and proper books, records
and accounts of Common Area Expenses. No more than once per annum and upon
reasonable written notice, Tenant and its agents and employees shall have the
right at any time and at all times during regular business hours to examine and
inspect all books and records of Landlord pertaining to Common Area Expenses for
the purpose of investigating and verifying the accuracy of any statement of
Common Area Expenses. Once in any calendar year, Tenant may cause an audit of
Common Area Expenses to be made by an independent certified accountant of
Tenant's selection and, if the Common Area Expenses for the accounting period
covered by the statement which is the subject of the audit are found to be
overstated by more than five percent (5%), Landlord shall immediately pay to
Tenant the cost of such audit, not to exceed the lesser of the amount of the
discrepancy or One Thousand Dollars ($1,000.00), plus the amount of any
overpayment made by Tenant to Landlord, otherwise the cost of such audit shall
be paid by Tenant. If the statement of Common Area Expenses which is the subject
of the audit is otherwise found to be incorrect, the party found to be owing
money shall promptly pay an offsetting sum to the other party.

                                   ARTICLE VI

                                    UTILITIES

      SECTION 6.01. Tenant shall pay promptly for all water, gas, heat, light,
power, sewer charges, telephone installation utility hookup, connection and
service charges, sprinkler standby charges, and for all other services and
utilities supplied to the Demised Premises on and after the Commencement Date,
together with any tax, excise or surcharge thereon. Within ten (10) days after
the expiration or termination of the Term of this Lease, Tenant shall provide
Landlord with satisfactory evidence that all such utility charges have been paid
through the last day of the Term. Tenant agrees to immediately apply for all
applicable utilities to be separately metered and billed to Tenant. If any such
services are not separately metered to and paid by Tenant, or if any such
services are furnished and paid for by Landlord, Tenant shall pay to Landlord as
Additional Rent a reasonable proportion to be determined by Landlord of all
charges jointly metered with other premises and all services which are furnished
and paid for by Landlord. If Landlord is required to construct new or additional
utility installations, including, without limitation, wiring, plumbing,
conduits, and mains, resulting from Tenant's changed or increased requirements,
Tenant shall on demand pay to Landlord, in advance of installation, the total
cost of such installation. Landlord reserves the right to interrupt the supply
of water, gas, electric and also sewer service and any other similar utilities
for the Demised Premises when required by reason of accident or of repairs,
alterations or improvements, until such repairs, alterations or improvements
shall have been completed. Landlord agrees to use its best efforts to limit such
interruptions to non-business hours.

                                       8


      SECTION 6.02. Landlord can discontinue, without notice to Tenant, any of
the utilities or services furnished to the Demised Premises for which Tenant
fails to pay and no such discontinuance shall be deemed an actual or
constructive eviction.

      SECTION 6.03. Under no circumstances shall Landlord be liable to Tenant on
account of the failure, discontinuance, interruption or quality of the utilities
or services furnished to the Demised Premises, regardless of whether such
utilities or services are furnished by Landlord or by third parties, nor shall
any of the foregoing excuse any payment or performance by Tenant, unless caused
by the gross negligence of Landlord, provided, however, if said utilities are
discontinued, at no fault of the Tenant, for a consecutive period of 180 days or
more, the Tenant shall have the right to terminate this Lease.

                                   ARTICLE VII

                                   MAINTENANCE

      SECTION 7.01. Tenant, at its sole expense, shall maintain, in good
condition and repair, the Demised Premises and every part thereof (except those
portions required to be maintained by Landlord as hereinafter provided)
including by way of example and not by way of limitation, the maintenance,
replacement and repair of all of Tenant's building, Tenant's personal property,
Tenant's signs as permitted by the provisions of this Lease, storefronts, doors,
window treatments, plate glass and show windows, door and window frames and
moldings,, plumbing and pipes (including any damage to plumbing and pipes caused
by the introduction of any foreign matter into the plumbing system by Tenant or
Tenant's employees or customers), electrical wiring and conduits, and the roof,
to the extent of any installations for vents, skylights or other installations
made by Tenant. Tenant shall be liable for any damage to the building on the
Demised Premises and other buildings in the Building, resulting from the acts or
omissions of Tenant or its representatives, employees or customers. Tenant shall
maintain its store windows in a clean and neat condition and shall keep the
sidewalks adjoining the Demised Premises free from ice, snow and rubbish.

      SECTION 7.02. Should Tenant fail to maintain, replace or repair the
Demised Premises pursuant to Section 7.01, Landlord shall give Tenant specific,
written notice thereof, and Tenant shall have thirty (30) days thereafter to
cure such failure, or such longer period as is reasonably necessary. If such
failure is not cured within said thirty (30) days, Landlord, at its option, may
perform the necessary maintenance, replacement or repair. Should Landlord opt
not to perform the foregoing work, it shall not in any way be liable for any
damages sustained by Tenant, or any of Tenant's employees, invitees, licensees
etc. Landlord shall bill Tenant directly for all costs associated with the
necessary maintenance, replacement or repair including, but not limited to any
damage to third parties affected by Tenant's failure to perform said work, and
said amount shall be deemed Additional Rent and due Landlord with the next
monthly payment of fixed rent. Failure of Tenant to comply with this Section
7.01 (B) shall be deemed an Event of Default under this lease, but only if
Tenant fails to cure such default prior to the expiration of the applicable
grace period provided in Article XVIII.

      SECTION 7.03. Landlord shall maintain in good condition the following with
the cost for same to be deemed Reimbursements and the Tenant shall be
responsible for Tenant's Share of such costs in accordance with Article V: The
roof and structural parts of the building and other improvements in which the
Demised Premises are located, which structural parts include the foundations,
bearing and exterior and exterior walls (excluding glass and doors and the
frames and molding thereof), and the electrical, plumbing and sewage systems
lying outside the Demised Premises. Notwithstanding the foregoing, any damage to
the roof or structure caused by (i) any negligent act or omission by Tenant, its
agents, employees or invitees, (ii) any work done on the roof of the Demised
Premises by Tenant, its agents or employees, or (iii) vandalism or theft by
Tenant, its agents, employees or invitees shall be paid for in full by Tenant.

      SECTION 7.04. If Landlord fails to perform any of its obligations under
Section 7.02, Tenant shall give Landlord specific, written notice thereof, and
Landlord shall have thirty (30) days thereafter to cure such failure; provided,
however, that if such cure cannot reasonably be completed within such thirty
(30) day period, then Landlord shall, subject to Excusable Delays, commence to
cure same within thirty (30) days and diligently and in good faith continue to
cure such failure to completion. The failure of Landlord to perform any such
repairs shall not impose any liability on Landlord nor excuse any performance or
payment by Tenant required by this Lease

                                  ARTICLE VIII

                               TENANT'S INSURANCE

                                       9


      SECTION 8.01. Tenant, at its sole expense, shall maintain liability
insurance with liability limits for injury to persons of not less than Two
Million and 00/100 ($2,000,000.00) Dollars per person and Two Million and 00/100
($2,000,000.00) Dollars per occurrence, and for injury to property of not less
than One Million and 00/100 ($1,000,000.00) Dollars per occurrence, insuring
against all liability arising out of the use or occupancy of the Demised
Premises. All such insurance shall insure performance by Tenant of the indemnity
provisions of Article XV and shall name Landlord, Tenant and such other persons
with an interest in the Building as Landlord shall designate as the insureds.

      SECTION 8.02. Tenant covenants and represents, said representation being
specifically designed to induce Landlord to execute this Lease, that Tenant's
personal property and fixtures and any other items which Tenant may bring to the
Premises which may be subject to any claim for damages or destruction due to
Landlord's negligence shall be fully insured by a policy of insurance covering
all risks with no deductible which policy shall specifically provide for a
waiver of subrogation for Landlord and all Building tenants without regard as to
whether or not same shall cost an additional premium and notwithstanding
anything to the contrary contained in this Lease. Should Tenant fail to maintain
said all risk insurance with the required waiver of subrogation, or fail to
maintain the liability insurance, naming Landlord as an additional named
insured, then Tenant shall be in default hereunder and shall be deemed to have
breached its covenants as set forth herein, and such breach shall constitute an
Event of Default, unless Tenant cures such breach within the applicable grace
period provided in Article XVIII.

      SECTION 8.03. Tenant shall insure the improvements on the property in an
amount equal to the full replacement value of the improvements. Such replacement
value shall be determined from time to time but not more frequently than once in
any one sixty (60) consecutive calendar months at the request of Landlord by an
appraiser, architect or contractor who shall be mutually and reasonably
acceptable to Landlord and Tenant.

                  A. Insurance proceeds shall be held in an interest bearing
account maintained by the attorneys for Landlord and Tenant or if Tenant's
Mortgagee so requires, then such insurance proceeds shall be held by Tenant's
Mortgagee, The proceeds shall first be used to pay Tenant's mortgage, if
Tenant's Mortgagee so elects, and the balance shall be used to construct or
reconstruct buildings or improvements having value substantially equivalent to
or greater than the value of the building(s) or improvement(s) damaged or
destroyed. Tenant shall be responsible to provide any additional funds above
available insurance proceeds to complete the reconstruction. Progress payments
for reconstruction shall be paid to Tenant upon the written request of Tenant
which shall be accompanied by reasonable evidence signed by Tenant, or the
executive officer of Tenant, or by the architect or engineer in charge of such
construction, dated not more than thirty (30) days prior to such request,
setting forth the following:

                  B. That the sum then requested either has been paid by Tenant,
or is justly due to contractors, subcontractors, material men, engineers,
architects or other persons who have rendered services or furnished materials
for the restoration therein specified, and giving a brief description of such
services and materials and the several amounts so paid or due to each of said
persons in respect thereof, and stating that no part of such expenditures has
been or is being made the basis, in any previous or then pending request, for
the payment of such monies or has been made out of the proceeds of such monies
received by Tenant, and that the sum then requested does not exceed the value of
the services and materials described in the certificate.

                  C. That except for the amount, if any, stated pursuant to the
foregoing sub clause A in such certificate to be due for services and materials,
there is no outstanding indebtedness shown on Tenant's books or known to the
person signing such certificate, after due inquiry, for which payment was made
under any prior requisition for labor, wages, materials, supplies or services in
connection with such construction work, which if unpaid, might become the basis
of a vendor's, mechanics, laborer's or material men's statutory or similar lien
upon such construction or upon the Demised Premises or any part thereof.

                  D. An official search of the public records or a search of a
title insurance company doing business in the State of New Jersey showing that
there has not been filed with respect to the Demised Premises, or any part
thereof, any vendor's mechanic's, laborer's, material men's or like lien, which
has not been discharged or record, except such as will be discharged by payment
of the amount then requested.

                  E. If the net money as aforesaid at the time held by the
attorneys for Landlord and Tenant, or Tenant's mortgagee, as the case may be,
shall be insufficient to pay the entire cost of such construction, Tenant shall
pay the deficiency. If, on the other hand, there are any surplus funds held by
such attorneys or mortgagee, as the case may be, after payment of all costs of
restoration, such funds shall be paid over to Tenant.

      SECTION 8.04. All insurance required under this Lease shall be issued by
insurance companies of recognized responsibility which are authorized to do
business in the State, having a Best Rating of B+ or

                                       10

better. Tenant, prior to entering on the Demised Premises, shall deliver to
Landlord each policy or a certificate evidencing such policy, together with
evidence of payment of premiums for all policies of insurance required to be
maintained by Tenant pursuant to the terms of this Lease. Within thirty (30)
days prior to the anniversary date of each policy of insurance required to be
maintained by Tenant pursuant to the terms of this Lease, Tenant shall deliver
to Landlord evidence of renewal of such policies, together with evidence of
payment of premiums for all such policies. Each policy shall be issued as a
primary policy not contributing with and not in excess of coverage of any
insurance which Landlord may carry, and shall contain an endorsement requiring
thirty (30) days' written notice from the insurance company to Landlord before
cancellation or change in the coverage, scope or amount of any policy.

                                   ARTICLE IX

              LIMITATIONS ON USE; RULES AND REGULATIONS; TRADE NAME

      SECTION 9.01. Tenant shall use the Demised Premises for the Permitted Use
only and shall not use or permit the Demised Premises to be used for any other
purpose without the prior written consent of Landlord, which consent will not be
unreasonably withheld or delayed. Tenant acknowledges that Landlord may covenant
with other tenants of the Building to restrict specific uses elsewhere in the
Building, and Tenant agrees, upon written notice from Landlord, to thereafter
immediately refrain from any use of the Demised Premises which is violative of
such covenant(s). Any breach of this Article shall constitute an Event of
Default, but only if Tenant fails to cure such breach within the applicable
grace period provided in Article XVIII. This Section shall not prohibit Tenant
from operating a financial institution or other lawful use permitted under this
Lease.

      SECTION 9.02. Tenant shall not use or permit the Demised Premises to be
used in any manner that will constitute waste, nuisance, unlawful, immoral or
objectionable activity, or unreasonable annoyance (including, without limitation
the use of loudspeakers or sound or light apparatus that can be heard or seen
outside the Demised Premises) to other tenants in the Building or which will
cause an increase in rates or a cancellation of any insurance policy covering
the Building. Tenant shall not use the Demised Premises for the preparation,
manufacture or mixing of anything that might emit any objectionable odor or
objectionable noises or lights into the Building. No secondhand store, auction,
distress or fire sale, or bankruptcy or going-out-of-business sale may be
conducted on the Demised Premises without Landlord's written consent. Tenant
shall not sell or display merchandise outside the confines of the Demised
Premises or within the Common Areas. Tenant shall not do anything on the Demised
Premises that will in any manner injure, vibrate, or shake the Demised Premises
or overload the electrical system.

      SECTION 9.03. Tenant shall open the Demised Premises for the Permitted Use
for at least one day. If the Demised Premises are destroyed or partially
condemned, and this Lease remains in full force and effect, Tenant shall
continue operation of its business at the Demised Premises to the extent
reasonably practical from the standpoint of good business judgment during any
period of reconstruction. While open, Tenant shall maintain adequate personnel
for the efficient serving of its customers. Tenant agrees that Landlord shall
have the right to prohibit the continued use by Tenant of any method of business
operation, advertising or interior display if, in Landlord's reasonable opinion,
the continued use thereof would impair the reputation of the Building or is
otherwise out of harmony with the general character thereof, and upon notice
from Landlord, Tenant shall immediately refrain from or discontinue such
activities. Tenant shall employ its best efforts to operate the business
conducted on the Demised Premises in a manner consistent with a first class
building.

      SECTION 9.04. Tenant shall comply with the rules and regulations
hereinafter set forth in Exhibit E attached hereto and made a part hereof.
Landlord shall have the right from time to time to establish reasonable
amendments and additional rules in relation thereto. On delivery of a copy of
such rules and regulations to Tenant, Tenant shall comply with the rules and
regulations and any subsequent amendments thereto. Landlord shall make
reasonable efforts to enforce the rules and regulations uniformly against all
tenants in the Building, provided, however, that Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenant or occupant of the Building or for any failure
on the part of Landlord to enforce the same.

      SECTION 9.05. Tenant shall operate the Demised Premises under the
Permitted Trade Name and no other, so long as same shall not be held to be in
violation of any applicable law; provided, however, that the Permitted Trade
Name may be changed if Tenant changes its name, merges with another company or
assigns or sublets the Demand Premises with Landlord's consent, pursuant to
Article XIV.

                                    ARTICLE X

                         COMPLIANCE WITH APPLICABLE LAW

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      SECTION 10.01. Tenant shall not use the Demised Premises, or permit
anything to be done in or about the Demised Premises, which will in any way
conflict with any applicable law. Tenant shall, at its sole expense, promptly
comply with all applicable laws, including environmental laws, relating to or
affecting the condition, use or occupancy of the Demised Premises. Failure to
comply with any laws shall constitute an Event of Default, as hereinafter
defined, but only if Tenant fails to cure such failure whether the applicable
grace period provided in Article XVIII.

                                   ARTICLE XI

                         PREPARATION OF DEMISED PREMISES

      SECTION 11.01. Landlord, at its expense, shall perform the work set forth
on Exhibit B (hereinafter referred to as "Landlord's Work"). All other work done
by Landlord at Tenant's request shall be at Tenant's expense and shall be paid
for within five (5) days after the presentation to Tenant of a bill for such
work. Acceptance of possession by Tenant shall be conclusive evidence that
Landlord's Work has been fully performed in the manner required. Any items of
Landlord's Work which are not completed as of Commencement Date shall be
identified by Tenant on a punchlist to be submitted to Landlord at the
Commencement Date and Landlord shall thereafter complete the same. Any items of
Landlord's Work which are not timely identified on such punchlist shall be
deemed completed.

      SECTION 11.02. The Landlord will make every effort to complete Landlord's
Work on or before the anticipated Commencement Date of the Term, provided that
if there shall be a delay in such completion beyond such date, the Term of this
Lease shall be extended by an equal period of time so that this Lease shall
continue for the Term of Ten (10) years after completion of Landlord's Work. The
Landlord and the Tenant shall execute a written instrument to confirm any
modification in the dates of the Term by reason of delay in completing
Landlord's Work.

      SECTION 11.03. The Landlord's Work shall be deemed completed and the Term
of this Lease and Tenant's obligations hereunder shall commence on the date when
the Landlord shall deliver to the Tenant a letter stating that Landlord's Work
is substantially completed, subject only to normal punchlist items.

      SECTION 11.04. The Landlord will perform the Landlord's Work in a good and
workmanlike manner. Landlord may substitute material called for in Exhibit B,
provided same is of equal or greater quality.

                                   ARTICLE XII

                                  TENANT'S WORK

      SECTION 12.01. Subject to Landlord's obligations under Article XI, Tenant
      agrees to accept the Demised Premises in an "AS IS" condition as of the
      Commencement Date without any representations or warranties on the part of
      Landlord. Except as otherwise specifically provided in this Lease,
      Landlord has not made any representations or warranties of any kind to
      Tenant. No representations or warranties of any kind made by anyone,
      including without limitation, any real estate broker or agent, shall be
      binding upon Landlord unless expressly set forth in this Lease. Tenant
      shall be financially responsible for the following construction
      activities. Architects and Tenant shall have rights to any and all
      warranties provided by sub-contractors and or general contractors.

            A.    Architecture Fees for interior work.

            B.    Interior Fit-Out including but not limited to paint,
                  carpet/flooring, furniture, fixtures, equipment, Drive-Thru
                  lanes equipment, upgrades to electrical system, vault system,
                  partitions, and doorways.

Tenant may, at any time and from time to time, alter, expand, demolish, restore,
modify or change any such improvements in whole or in part provided that Tenant
shall first obtain Landlord's written approval, which approval shall not
unreasonably be withheld. Tenant's improvements on the Premises must have a
value substantially equivalent to or greater than the improvements which were
originally approved by Landlord. All work done which is required to be performed
to permit Tenant's occupancy and use of the Demised Premises for the Permitted
Use shall be performed by Tenant, at its sole expense, and Landlord shall not be
required to perform or to bear any of the expenses for such work. All of such
work shall be performed in a diligent manner.

      SECTION 12.02. Any Tenant's Work made shall remain on and be surrendered
with the Demised Premises on expiration or termination of the Term.

                                       12


      SECTION 12.03. Tenant shall have no power to do any act or make any
contract which may create or be the foundation for any lien, mortgage or other
encumbrance upon the estate of Landlord in the Building, or any part thereof.
All Tenant's Work, repairs, materials and labor shall be done at Tenant's sole
expense, and Tenant shall be solely and wholly responsible to contractors,
laborers and materialmen and such contractors, laborers and materialmen are
hereby charged with notice that they must look solely and wholly to Tenant for
the payment of any bills for work done and materials furnished. Landlord
reserves the right, before approving any Tenant's Work, to require Tenant to
furnish it a good and sufficient bond to secure Tenant's liability for payment,
for Tenant's Work.

      SECTION 12.04. Tenant shall procure and maintain an adequate workmen's
compensation insurance policy and such additional insurance policies as Landlord
shall reasonably request to insure against losses, damages or claims arising out
of or from Tenant's Work. Prior to the commencement of such Tenant's Work,
Tenant shall deliver to Landlord each policy, or a certificate evidencing such
policy, together with evidence of payment of premiums for all policies of
insurance required to be maintained by Tenant pursuant to this Section 12.06.

      SECTION 12.05. A. On and after the date of this Lease, Tenant may make,
from time to time, applications for Permits desired by Tenant; provided,
however, (i) that Landlord shall incur no costs or expenses in connection
therewith; and (ii) Tenant shall indemnify and save Landlord harmless from any
and all expenses, charges, claims or liability with respect thereof. As used
herein, Permits shall mean all permits and approvals (including, without
limitation, zoning, use, building, site plan and curb cut permits and approvals;
permits and approvals required by virtue of any of the federal or state
environmental laws as now enacted or hereafter amended or any similar statute,
regulation or requirement whether federal, state or local; and such other
permits and approvals which may be required to be issued by any local, state or
federal governmental body having jurisdiction over the Premises), licenses
subdivision and other approvals, certificates, exceptions, authorizations,
zoning changes, zoning variances and special exceptions, as may be required or
desired by Tenant to permit the lawful construction, installation, maintenance
and operation on the Demised Premises of such improvements as Tenant shall from
time to time desire. Tenant shall have no obligation to appeal the denial of any
Permits but may do so. The granting of any Permit shall not preclude Tenant from
reapplying for a similar Permit based upon different plans for the Demised
Premises.

                  B. Landlord shall fully cooperate with Tenant in connection
with all applications for Permits, including when required, the actual signing
or submission of any application or consent thereto.

      SECTION 12.06 Such improvements as may from time to time exist or be
constructed on the Demised Premises by Tenant shall be owned by Tenant until the
Termination Date or the sooner termination of this Lease. Upon such Termination
Date or sooner termination, Tenant shall automatically transfer ownership of
such improvements to Landlord without further documentation. If requested by
Landlord, Tenant shall execute to Landlord by bargain and sale deed without
payment of any consideration there for.

                                  ARTICLE XIII

                      LANDLORD'S ENTRY ON DEMISED PREMISES

      SECTION 13.01. Landlord and its authorized representatives shall have the
right to enter the Demised Premises at all reasonable times, upon reasonable
notice, except in the case of an emergency, for any purpose whatsoever,
including, without limitation, to post "for rent" or "for lease" signs during
the last six (6) months of the Term.

      SECTION 13.02. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of Landlord's entry on the Demised Premises as allowed in this Article XIII.
Tenant shall not be entitled to any abatement or reduction of rent if Landlord
exercises any rights reserved in this Article, and no such exercise of
Landlord's rights hereunder shall be deemed an eviction or disturbance of
Tenant's use and possession of the Demised Premises. Landlord shall use its best
efforts to conduct its activities on the Demised Premises as allowed in this
Section in a manner that will not cause unreasonable inconvenience, annoyance,
or disturbance to Tenant. Landlord reserves the right to run pipes, lines,
feeders or other systems throughout the land area of the Demised Premises,
subject to the provisions of this Section 13.02.

                                   ARTICLE XIV

                            ASSIGNMENT AND SUBLETTING

                                       13


      SECTION 14.01. Tenant shall not assign or encumber its interest in this
Lease or in the Demised Premises, or sublease all or any part of the Demised
Premises, or sublease all or any part of the Demised Premises, or allow any
other person or entity (except Tenant's authorized representatives) to occupy or
use all or any part of the Demised Premises without first obtaining Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Any assignment, encumbrance, or sublease without Landlord's prior
written consent shall be void and shall constitute an Event of Default under
this Lease. No consent to any assignment, encumbrance, or sublease on any one
occasion shall constitute a consent to any subsequent assignment, encumbrance or
sublease, it being agreed that Tenant must first obtain Landlord's prior written
consent on each occasion. If Tenant is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, or any partner or partners
owning fifty (50%) percent or more of the partnership, or the dissolution of the
partnership, shall be deemed an assignment and shall require Landlord's prior
written consent. The sale of all or substantially all of the assets or capital
stock of the Tenant, by way of merger or acquisition, shall not constitute an
assignment requiring the consent of the Landlord..

      SECTION 14.02. With respect to any proposed sublease or assignment, Tenant
shall submit to Landlord all documents, information and agreements concerning
the same, and prior to the effective date of any such sublease or assignment,
Landlord shall have the option, exercisable in writing to Tenant, to recapture
the within Lease so that such prospective sublessee or assignee shall then
become the sole tenant of Landlord hereunder, or alternatively to recapture said
space, and the within Tenant shall be fully released from any and all
obligations hereunder. Landlord may condition its consent to any assignment or
subletting upon any matters or things required by Landlord as it shall determine
in its reasonable discretion, including without limitation, Landlord's receipt
of a satisfactory attornment from the sublessee. Landlord may further condition
its consent to any subletting upon Landlord's receipt of a covenant by Tenant to
pay to Landlord, in addition to the Rent reserved hereunder, fifty percent (50%)
of any and all sums which Tenant may receive from such sublessee under the
sublease, directly or indirectly, which are in excess of the Rent after
deduction of the reasonable costs to Tenant of the subletting. The assignee or
sublessee shall assume, by written instrument, all of the obligations of this
Lease, and a copy of such assumption agreement shall be furnished to Landlord
within ten (10) days of its execution. The Tenant and each assignee shall be and
remain liable for the observance of all the covenants and provisions of this
Lease, including, but not limited to, the payment of Rent reserved herein,
through the entire Term of this Lease, as the same may be renewed, extended or
otherwise modified.

      SECTION 14.03. Tenant hereby immediately and irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, any sublease
which may be approved by Landlord and all rights and remedies of Tenant under
any such sublease. Landlord shall not have any obligations under any such
sublease. Tenant agrees to execute and deliver to Landlord any and all documents
requested by Landlord to evidence such assignment. Landlord, as assignee and as
attorney-in-fact for Tenant, or as a receiver for Tenant appointed on Landlord's
application, may collect the rent under any sublease and apply it toward
Tenant's obligations under this Lease.

      SECTION 14.04. In any event, the acceptance by the Landlord of any rent
from the assignee or from any of the subtenants or the failure of the Landlord
to insist upon a strict performance of any of the terms, conditions and
covenants herein shall not release the Tenant herein or the Guarantor, if any,
nor any assignee assuming this Lease, from any and all of the obligations herein
during and for the entire Term of this Lease.

      SECTION 14.05. Landlord shall have no right of approval or recapture with
respect to an assignment resulting from a merger of Tenant or from the sale of
50% or more of the stock or assets of Tenant or from the assignment of this
Lease to another financial institution as long as said financial institution has
an equal or greater net worth as the Tenant.

                                   ARTICLE XV

                           INDEMNIFICATION OF LANDLORD

      SECTION 15.01. In addition to any and all other obligations of Tenant to
indemnify and save Landlord harmless as set forth in this Lease, Tenant will
indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without limitation, any and all architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Landlord by reason of any of the
following occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Demised
            Premises, or any part thereof, by or at the direction of Tenant; or

                  (B) Any negligence on the part of Tenant, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                                       14


                  (C) Any injuries to persons or property occurring on or about
            the Demised Premises, except if caused by the gross negligence of
            the Landlord, its employees, agents or invitees; or

                  (D) Any failure on the part of Tenant to perform or comply
            with any of the covenants, agreements, terms or conditions contained
            in this Lease on its part to be performed or complied with.

      SECTION 15.02. In addition to any and all other obligations of Landlord to
indemnify and save Tenant harmless as set forth in this Lease, Landlord will
indemnify and save harmless Tenant against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without limitation, any and all architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Tenant by reason of any of the
following occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Common Areas,
            or any part thereof, by or at the direction of Landlord; or

                  (B) Any negligence on the part of Landlord, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                  (C) Any injuries to persons or property occurring on or about
            the Common Areas; or (D) Any failure on the part of Landlord to
            perform or comply with any of the covenants, agreements, terms or
            conditions contained in this Lease on its part to be performed or
            complied with.

      SECTION 15.03. The provisions of this Article XV, and of any and all other
provisions in this Lease requiring Tenant to indemnify and save Landlord
harmless, shall survive the termination of this Lease. Tenant further covenants
and agrees to pay, and to indemnify Landlord against all reasonable costs,
expenses and charges, including, but not limited to, attorneys' fees, incurred
in obtaining possession of the Demised Premises after default by Tenant or upon
the expiration or earlier rightful termination of the Term or in successfully
enforcing any covenant of Tenant herein contained.

                                   ARTICLE XVI

                                FIRE AND CASUALTY

      SECTION 16.01. If the Demised Premises are damaged by fire or other
insurable casualty, then subject to provisions of Section 16.02, this Lease
shall remain in full force and effect, there shall be no rent abatement and,
subject to the adequacy and availability of insurance proceeds, Tenant shall
promptly repair such damage at its expense (subject to Excusable Delay).

      SECTION 16.02. If, in the reasonable opinion of Landlord, the Demised
Premises are damaged by fire or other casualty within the last two (2) years of
the term, to such an extent that the damage cannot be repaired or restored
within one hundred twenty (120) days from the date of such occurrence, then
Landlord or Tenant shall have the option to terminate this Lease by written
notice given within thirty (30) days after such occurrence; provided, however,
that Tenant may, within thirty (30) days, negate a termination by Landlord
hereunder by exercising a right to renew the Lease. If the above option is not
or may not be exercised by Landlord, then this Lease shall continue in full
force and effect. If the Lease is terminated as provided for in this Section,
Tenant shall remain liable for the Rent and Additional Rent which is due until
the end of the Term. Additionally, Tenant shall be responsible for the clearing
of any remaining structure or debris on the Demised Premises.

      SECTION 16.03. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, subject to the provisions of
Article XXX, Landlord shall have and retain any and all rights which it may then
have in law or equity against Tenant on account of such damage.

      SECTION 16.04. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, in addition to the option to
terminate this Lease, Landlord shall have and retain any and all rights which it
may then have in law or equity against Tenant on account of such damage.

      SECTION 16.05. Within sixty (60) days following the completion of the
Landlord's Work, Tenant shall complete its work on the Demised Premises.

                                  ARTICLE XVII

                                       15


                                  CONDEMNATION

            SECTION 17.01. In the event that the Demised Premises or any part
thereof shall be taken in condemnation proceedings or by exercise of any right
of eminent domain or by agreement between Landlord, Tenant and those authorized
to exercise such right, Landlord, Tenant and any person or entity having an
interest in the award or awards shall have the right to participate in any such
condemnation proceedings or agreement for the purpose of protecting their
interests hereunder. Each party so participating shall pay their own expenses
with regard thereto.

            SECTION 17.02. Subject to Section 17.03, if at any time during the
term of this Lease there shall be a taking of unimproved land, then and in that
event, Landlord herein shall be entitled to the full award for the land and any
and all damages by virtue of such taking, and this Lease shall continue in full
force and effect but the rent shall be reduced subsequent to the taking as
provided in Section 17.05. All provisions hereof shall continue in full force
and effect and the Demised Premises shall consist of that portion of the Demised
Premises remaining subsequent to such taking.

            SECTION 17.03. If at any time during the term of this Lease there
shall be a taking of the whole or substantially of all of the Demised Premises,
this Lease shall terminate and expire on the date of such taking and the Basic
Rent and Additional Rent shall be apportioned and paid as of the date of such
taking. For the purposes of this Article, substantially all of the Demised
Premises shall be deemed to be (a) a taking which reduces access to the Demised
Premises, or parking spaces adjacent to the Demand Premises, to the extent that
the business operations on the Demised Premises are materially adversely
affected, (b) a taking of all of the structures constructed upon the Demised
Premises, or (c) a taking of such portion of the Demised Premises which has a
materially adverse effect on the business operations then being conducted upon
the Demised Premises.

            SECTION 17.04. If this Lease shall have been terminated as a result
of such taking the award or awards paid pursuant to such condemnation
proceedings or agreement shall be distributed as follows:

                  A. All awards for unimproved land shall be paid to Landlord.

                  B. All awards for buildings, improved lands (e.g., parking
lots, buffer areas, roadways and landscaped areas) and other improvements upon
the Demised Premises shall (a) first be paid to any leasehold mortgagee of the
Demised Premises, and (b) the balance distributed as shall be determined in the
condemnation proceedings or if not determined in the condemnation proceedings,
then in accordance with the procedure set forth in Section 17.07 below.

            SECTION 17.05. Notwithstanding any other provision herein set forth,
in the event of taking of less than all of the Demised Premises, Landlord shall
have the right to elect to continue this Lease with regard to the remaining
portions of the Demised Premises subject to all of the terms and conditions
hereof, it being understood that the distribution of proceeds of any
condemnation award shall be made as hereinabove set forth; provided however;

                  A. That the Basic Rent payments hereunder shall be reduced
subsequent to the taking and thereafter Tenant shall be required to pay that
proportion of the Basic Rent as the area of the remaining land bears to the area
of the entire Demised Premises prior to the taking.

                  B. Tenant shall, after such taking, at its expense, either
restore the remaining building or buildings to a complete architectural unit or
construct new buildings or improvements having a value substantially equivalent
to or greater than the buildings and improvements (or portions thereof)
remaining after such taking, provided the condemnation proceeds payable to
Tenant are sufficient to do so.

            SECTION 17.06. In the event of a taking of an easement or any other
taking which shall be of an interest or estate in the land less than a fee
simple, which taking shall not materially adversely affect the business
operations then being conducted on the Demised Premises, such taking shall be
deemed a taking insufficient to terminate this Lease and the award therefore
shall be paid fully to Landlord for the taking of unimproved land and for other
portions of the Premises shall be distributed as hereinabove set forth.

            SECTION 17.07. In the event of any dispute between Landlord or
Tenant with regard to any issue or fact (other than one determined by
condemnation proceeding or condemnation commissioner arising out of a taking set
forth herein and other than one to he determined in accordance with clause B of
this Section), such dispute shall be resolved by arbitration in the manner
hereinafter prescribed.

                  A. If Landlord and Tenant are unable to agree upon the
distribution to Landlord and Tenant of their respective shares (the "Shares") of
a condemnation award, then same shall be

                                       16


determined in the following manner: Within ten (10) days after the vesting of
title pursuant to any such taking, Landlord and Tenant shall each appoint on its
behalf a disinterested third person ("Appraiser") who shall be an appraiser who
is a member of the American Institute of Real Estate Appraisers and who shall
have at least ten (10) years' experience dealing with Middlesex County, New
Jersey commercial real estate, and each party shall give written notice of such
appointment to the other party. The two Appraisers thus appointed shall, within
fifteen (15) days after appointment of the second appraiser, determine the
amount of such award representing the Landlord's Share and the Tenant's Share in
accordance with the above provisions. If the difference in the determinations by
such two Appraisers as to the amount of such award representing the Shares does
not exceed ten percent (10%:) of the lower of such determinations, then such
Shares shall be the average of the determinations by such two Appraisers. If,
however, the difference in the determinations by such two Appraisers as to the
amount of such award representing the Shares exceeds ten (10%) percent of the
lower of such determinations, then such two Appraisers shall appoint a third
Appraiser, and said three Appraisers shall, as promptly as possible, determine
the amount of the award representing the Shares. The decision of a majority of
the three (3) Appraisers shall be conclusive and binding on Landlord and Tenant
and judgment upon the decision may be entered in any court having jurisdiction.
If a party who shall have the rights pursuant to the foregoing to appoint an
Appraiser fails or neglects to do so, then the other party (or if the two
Appraisers appointed by Landlord and Tenant shall fail to appoint a third
Appraiser if required to do so under the provisions of this paragraph B, then
either Landlord or Tenant) may apply to the Assignment Judge of New Jersey
Superior Court, Middlesex County, New Jersey, or such other judicial authority
to appoint such Appraiser. The expenses of the determination shall be shared
equally by Landlord and Tenant, but each party shall be responsible for the fees
of its own attorney and Appraiser. Landlord and Tenant agree to sign all
documents and to do all other things reasonably necessary to submit any dispute
regarding the Shares to a determination in accordance with this paragraph B and
further agree to, and hereby do, waive any and all rights they or either of them
may at any time have to revoke their agreement to determine the value of the
Shares in accordance with this paragraph B and to abide by the decision rendered
hereunder. The appraisers shall be bound by the provisions of this article.

      SECTION 17.08. If the Term of this Lease shall not be terminated as
aforesaid, then the Term of this Lease shall continue in full force and effect,
and subject to the adequacy and availability of condemnation proceeds, Tenant
shall within a reasonable time after possession is physically taken (subject to
Excusable Delays) repair or rebuild what may remain of the Demised Premises for
the occupancy of Tenant; and a just proportion of the Fixed Rent shall be
abated, according to the nature and extent of the injury to the Demised
Premises, until what may remain of the Demised Premises shall be repaired and
rebuilt as aforesaid; and thereafter a just proportion of the Fixed Rent shall
be abated, according to the nature and extent of the Demised Premises acquired
or condemned, for the balance of the Term of the Lease.

      SECTION 17.09. Any damages payable for trade fixtures installed by Tenant
at its own cost and expense and which are not part of the realty and for
relocation expenses shall belong entirely to Tenant and Landlord shall make no
claim thereto.

      SECTION 17.10. In the event fifty (50%) percent or more of the Building is
taken by condemnation, Tenant, upon thirty (30) days written notice, shall have
the right to terminate this Lease.

                                  ARTICLE XVIII

                                EVENTS OF DEFAULT

      SECTION 18.01. Failure to pay Rent or any other payment required to be
made by Tenant under the terms of this Lease, when due, and the continuation of
such failure for a period of five (5) days after the payment shall be due;

      SECTION 18.02. Abandonment and vacating of the Demised Premises (failure
to occupy and operate the Demised Premises for fifteen [15] consecutive days or
more shall be deemed an abandonment and vacating);

      SECTION 18.03. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant (other than the failure to pay Rent or make other payments as set forth
in Section 18.01), where such failure shall continue for a period of thirty (30)
days after written notice to Tenant;

      SECTION 18.04. The making by Tenant of any general assignment or
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty [60] days; or
unless Landlord has received adequate assurances of future performance as then
required under the federal bankruptcy law in connection with building leases);
or the appointment of a trustee or a receiver to take possession of
substantially all of Tenant's

                                       17


assets located at the Demised Premises or of Tenant's interest in this Lease,
where possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Demised Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days;

      SECTION 18.05. The default by Tenant or any affiliate of Tenant with
respect to any other lease or agreement between it and Landlord or any affiliate
of Landlord;

      SECTION 18.06. This Lease or any interest therein by operation of law
devolves upon or passes to any person or persons other than Tenant, except upon
the sale of all or substantially all of the assets or capital stock of the
Tenant by way of merger or acquisition;

      SECTION 18.07. The assignment or subletting of all or any portion of this
Lease or the Demised Premises in violation of Article XIV;

         SECTION 18.08. The failure of Tenant to move into and take possession
of the Demised Premises and open for business within thirty (30) days after the
Commencement Date; or

      SECTION 18.09. Any representation or warranty made by Tenant in connection
with this Lease shall prove to have been false in any material respect.

                                   ARTICLE XIX

                               LANDLORD'S REMEDIES

      SECTION 19.01. If an Event of Default shall occur, Landlord may exercise
one or more of the following remedies, all of which shall be cumulative and in
addition to any remedies available under applicable law:

                  (A) Without any further notice or demand,
            terminate this Lease, and Tenant will forthwith quit and
            surrender the Demised Premises, but Tenant shall remain
            liable as hereinafter provided;

                  (B) Re-enter and resume possession of the Demised
            Premises and remove all persons and property by summary
            dispossess proceedings, by appropriate proceedings,
            without being liable for any damages therefor, and no
            re-entry shall be deemed an acceptance of a surrender of
            this Lease;

                  (C) Proceed to collect any Rent from Tenant then
            due by one or more proceedings;

                  (D) Exercise any remedy available at law or in
            equity to enforce the provisions of this Lease, to
            recover any damages for a breach of this Lease or to
            prevent any breach or threatened breach of this Lease;
            and/or

                  (E) Recover from Tenant on demand an amount equal
            to all expenses, including reasonable attorney's fees
            incurred by Landlord as a result of an Event of Default
            or the exercise of its rights and remedies, all
            reasonable costs and charges for the care of the Demised
            Premises while vacant, and all charges and expenses
            incurred by Landlord in connection with the reletting of
            the Demised Premises, including broker's commissions,
            advertising expenses, and the costs of repairing,
            renovating or remodeling the Demised Premises.

      SECTION 19.02. If this Lease shall be terminated, as provided in this
Article XIX:

                  (A) Landlord may relet the whole or any part of
            the Demised Premises for a period equal to, or greater
            or less than the remainder of the then Term of this
            Lease, at such rental and upon such terms and
            concessions as Landlord shall deem reasonable, to any
            person which it may deem suitable and satisfactory and
            for any use and purpose which it may deem appropriate.
            In no event shall Landlord be liable in any respect for
            failure to collect the rent thereunder. Any sums or
            other consideration received by Landlord on a reletting
            in excess of the rent reserved in this Lease shall
            belong to Landlord.

                                       18


                  (B) If this Lease shall be terminated and whether
            or not the Demised Premises shall be relet, Landlord
            shall be entitled to recover from Tenant an amount equal
            to all Rent and other charges required to be paid by
            Tenant under this Lease, less the net rent, if any,
            collected by Landlord on reletting the Demised Premises.
            Such amount shall be due and payable by Tenant to
            Landlord on the several days on which such Rent and
            other charges would have become due and payable had this
            Lease not been terminated, and Tenant shall pay to
            Landlord the amount of any deficiency then existing. The
            net rent collected by Landlord on reletting shall be
            computed by deducting from the gross rents collected the
            expenses, costs and charges referred to in Subsection
            19.01(E). Without any previous notice or demand,
            separate actions may be instituted by Landlord against
            Tenant from time to time to recover any damages which at
            the commencement of any such action shall have become
            due and payable to Landlord under any provisions hereof
            without waiting until the end of the original Term of
            this Lease, and neither the institution of suit or
            suits, nor the entering of judgment therein shall bar
            Landlord from bringing a subsequent suit for damages of
            any kind. It is expressly agreed that the forbearance on
            the part of Landlord in the institution of any suit or
            entry of judgment for any part of the Rent shall in no
            way serve as a defense against nor prejudice a
            subsequent action for such Rent. Tenant hereby expressly
            waives Tenant's right to claim a merger of such
            subsequent action in any previous suit or in the
            judgment entered therein. Furthermore, it is expressly
            agreed that claims for Rent may be regarded by Landlord,
            if it so elects, as separate claims capable of being
            assigned.

                  (C) Landlord, at its election, which shall be
            exercised by the service of a written notice on Tenant,
            may collect from Tenant and Tenant shall pay in lieu of
            the sums becoming due after the service of such notice
            under the provisions of this Subsection 19.02(C) an
            amount equal to the difference between the Rent required
            to be paid by Tenant under this Lease (form the date of
            the service of such notice to and including the date of
            the expiration of the Term of this Lease which had been
            in force immediately prior to any termination effected
            under this Section) and the then fair and reasonable
            rental value of the Demised Premises for the same
            period, discounted to present value at the rate of six
            (6%) percent per year. In determining the rental value
            of the Demised Premises, the rental realized by any
            reletting shall be deemed prima facie evidence thereof.

      SECTION 19.03. Tenant hereby expressly waives any rights of redemption
granted by any laws in the event of any eviction or dispossession, any notices
which may be required prior to the commencement of any proceeding for possession
of the Demised Premises.

      SECTION 19.04. The Landlord and the Tenant waive trial by jury in any
action, proceeding or counterclaim brought by either the Landlord or the Tenant
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the Tenant's use or occupancy of the Demised
Premises, and/or any claim of injury or damage.

      SECTION 19.05. If Tenant shall fail to pay or perform any of its
obligations when due, then Landlord, in addition to any of its rights and
remedies under this Lease and without waiving its rights or remedies with regard
thereto, may cure such failure on the part of Tenant. Any sums expended by
Landlord to effect any such cure shall be payable by Tenant to Landlord within
30 days after demand, as Additional Rent.

                                   ARTICLE XX

                          SURRENDER OF DEMISED PREMISES

      SECTION 20.01. On expiration or termination of the Term, Tenant shall
surrender to Landlord the Demised Premises, in broom clean condition, and all
Tenant's improvements and alterations in good, clean, orderly and undamaged
condition (except for ordinary wear and tear occurring after the last necessary
maintenance made by Tenant, destruction of the Demised Premises covered by
Article XVI and alterations that Tenant has the right to remove or is obligated
to remove under the provisions of Article XII). Tenant shall remove all its
personal property and shall deliver to Landlord all keys to the Demised Premises
within the above stated time. Tenant shall immediately perform all restoration
made necessary by the removal of any alterations or Tenant's personal property.
Tenant shall be liable to Landlord for any cost incurred by Landlord to repair
any damage to the Demised Premises caused by Tenant.

                                       19


      SECTION 20.02. Landlord can elect to retain or dispose of in any manner
any alterations or Tenant's personal property that Tenant does not remove from
the Demised Premises on expiration or termination of the Term as allowed or
required by this Lease by giving at least ten (10) days' notice to Tenant. Title
to any such alterations or Tenant's personal property that Landlord elects to
retain or dispose of on expiration of the ten (10) day period shall vest in
Landlord. Tenant waives all claims against Landlord for any damage to Tenant
resulting from Landlord's retention or disposition of any such alterations or
Tenant's personal property. Tenant shall be liable to Landlord for Landlord's
costs for storing, removing, and disposing of any alterations or Tenant's
personal property.

      SECTION 20.03. If Tenant fails to surrender the Demised Premises to
Landlord on expiration or termination of the Term, Tenant shall hold Landlord
harmless from all damages resulting from Tenant's failure to surrender the
Demised Premises, including, without limitation, claims made by a succeeding
tenant resulting from Tenant's failure to surrender the Demised Premises.

                                   ARTICLE XXI

                                  HOLDING OVER

      SECTION 21.01. If Tenant, with Landlord's express written consent, remains
in possession of the Demised Premises after expiration or termination of the
Term, or after the date in any notice given by Landlord to tenant terminating
this lease, such possession by Tenant shall be deemed to be a month-to-month
tenancy terminable on thirty (30) days' notice given at any time by either
party. During any such month-to-month tenancy, Tenant shall pay all Rent
required by N.J.S.A. 2A:42-5.

      SECTION 21.02. If Tenant, without Landlord's express written consent,
remains in possession of the Demised Premises after expiration or termination of
the Term, or after the date in any notice given by Landlord to Tenant
terminating this Lease, Tenant shall pay to Landlord Rent as required by
N.J.S.A. 2A:42-6 for the time Tenant retains possession of the Demised Premises
or any part thereof after termination of the Term by lapse or otherwise.

                                  ARTICLE XXII

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXIII

                                  COMMON AREAS

      SECTION 23.01. During the Term of this Lease and any extension thereof,
Tenant and its authorized representatives and invitees shall have the
nonexclusive right to use the Common Areas, with others who are entitled to use
the Common Areas, subject to Landlord's rights as hereinafter provided.
Notwithstanding the aforesaid, Tenant shall not create any disturbance in the
Common Areas nor shall Tenant create any noise from loudspeakers or otherwise,
or permit any noise to be emanated from the Demised Premises nor shall Tenant
distribute any leaflets, advertisements or other materials in the Common Areas.

      SECTION 23.02. Landlord shall have the right to designate specific parking
spaces and loading facilities for use by Tenant and its employees. Where there
is a rear entrance, all loading and unloading of goods shall be made at the rear
entrance. Upon Landlord's demand, Tenant shall submit to Landlord a list of the
license plate numbers for all motor vehicles owned or operated by Tenant and its
employees. Notwithstanding the above, any armored cars that load or unload at
this site may do so at any entrance to the Demised Premises.

      SECTION 23.03. Tenant, at its sole cost and expense, shall maintain,
repair, replace and keep in good condition the Common Areas including but not
limited to parking lot, sidewalk, curbs, signs, lights, landscaping and snow
plowing. Landlord shall have, at any time, the right to establish reasonable
rules and regulations as to the Common Areas, close any of the Common Areas,
either permanently or temporarily, make changes to the Common Areas in any
regard and for any purpose and to hire any person or business to manage and
operate the Common Areas on such terms as Landlord shall determine, all in
accordance with good building practices. Landlord will not construct additional
buildings which will obstruct the visibility of or access to the Demised or
which will materially reduce parking adjacent to the Demised Premises in the
Building.

                                       20


                                  ARTICLE XXIV

                                      SIGNS

      SECTION 24.01. Landlord shall have the right to establish policies and
standards for the size, location, quality, number, color and type of signs which
Tenant may install in or upon the Demised Premises. Such policies and standards
are set forth herein as well as in Exhibit "C" attached hereto. Tenant shall
comply with all of such policies and standards as they may be changed from time
to time and shall install such signs as may be required by Landlord. No signs
shall be installed by Tenant in or upon the Demised Premises until after
Landlord has approved in writing the construction (including all connections),
drawings and specifications pertaining to the signs.

      SECTION 24.02. Tenant shall pay for all signs, their installation,
maintenance and removal. Tenant, at Tenant's sole cost and expense, shall obtain
all necessary permits and approvals from the local governmental agency having
jurisdiction thereof. All work must be of good quality. Landlord shall have the
right to reject any work judged below standard. All signs shall be constructed
and installed by contractors qualified to fabricate and install commercial
signs. Tenant shall maintain signs in a neat and attractive condition. The bulbs
of all permitted signs and lights, whether an exterior or interior sign, shall
be replaced as soon as they become defective or lose their intensity. The signs
and supports shall be kept painted to maintain attractive conditions and to
prevent rust, rot or deterioration. Landlord shall have the right to remove the
signs or any of them, at any time during the term of this Lease, as may be
necessary in order to paint or make any other repairs, alterations or
improvements in or upon the Building, providing the same be removed and replaced
at Landlord's expense upon completion of said work. Tenant shall keep its signs
illuminated from dusk to dawn.

                                   ARTICLE XXV

                  SUBORDINATION; TENANT'S ESTOPPEL CERTIFICATE

      SECTION 25.01. This Lease is and shall be subordinate to any mortgage,
encumbrance or ground lease now or hereafter imposed upon or affecting the
Building, or any part hereof. Such subordination is effective without any
further act of Tenant. Tenant shall from time to time on request from Landlord
execute and deliver any documents or instruments that may be required by a
lender or ground lessor to effectuate any subordination. If Tenant fails to
execute and deliver any such documents or instruments, Tenant irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such documents or instruments. Tenant
agrees to execute any subordination agreement referred to above provided the
lender simultaneously agrees to a non-disturbance of the tenancy so long as the
Tenant is not in default.

      SECTION 25.02. Within ten (10) days after notice from the other Landlord
or Tenant shall execute and deliver to the other a statement in writing
certifying such matters as requested by the other, including that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modifications, the amount of Fixed Rent, the dates to
which the Rent has been paid in advance, and the amount of any security deposit
or prepaid rent.

      SECTION 25.03. As a condition to the effectiveness of this Lease, Tenant
must receive a nondisturbance agreement from the ground lessor and any existing
mortgagee and any subordination to a future mortgage must be subject to such an
agreement.

                                  ARTICLE XXVI

                         NATURE OF LANDLORD'S LIABILITY

      SECTION 26.01. It is specifically understood and agreed by Tenant that
there shall be absolutely no personal liability on the part of Landlord or on
the part of the members of Landlord, or, if Landlord or any successor in
interest shall be an individual, joint venture, tenancy in common, firm or
partnership, general or limited, or a trust or a corporation, there shall be no
personal liability on such individual or the members of the firm, partnership,
joint venture, tenancy in common or the trustee or beneficiaries under any such
trust, in each case with respect to any of the terms of this Lease. Tenant shall
look solely to the equity, if any, of Landlord in the Demised Premises for the
satisfaction of each and every remedy of Tenant in the event of any breach by
Landlord of any of the terms of this Lease to be performed by Landlord. The
foregoing exculpation of personal liability shall be absolute and without any
exception whatsoever.

                                       21


      SECTION 26.02. If Landlord sells or transfers all or any portion of the
Building, Landlord, on consummation of the sale or transfer, shall be released
from any liability thereafter accruing under this Lease and the transferee shall
be automatically responsible for future performance of the Landlord under this
Lease.

      SECTION 26.03. Landlord shall not be liable for failure to furnish any
services when such failure is due to Excusable Delay. Landlord shall not be
liable, under any circumstances, including, but not limited to, that arising
from the negligence of Landlord, its agents, servants or invitees, or from
defects, errors or omissions in the construction or design of the Demised
Premises and/or the Building, including the structural and nonstructural
portions thereof, for loss of or injury to Tenant or to property, however
occurring, through or in connection with or incidental to the furnishing of, or
failure to furnish, any of the aforesaid services or for any interruption to
Tenant's business however occurring. Landlord and its agents shall not be liable
for any loss or damage to property entrusted to their employees or agents, nor
for loss of property by theft. Landlord and its agents shall not be liable for
any injury or damage to persons or property resulting from falling plaster, or
from steam, gas, water or snow which may leak from any part of the Building, or
from the pipes or appliances therein, or from any other part thereof, or from
the sub-surface thereunder, or from dampness, or from any other cause.
Notwithstanding the above, Landlord shall not be exculpated from any injury or
damages to the Tenant or Tenant's property which is caused by Landlord's gross
negligence or the gross negligence of Landlord's employees, agents or invitees.

      SECTION 26.04. This Lease and the obligations of Tenant to pay all Rent
and perform all of its obligations shall in no way be impaired, affected or
excused because Landlord is unable to fulfill its obligations or unable to or
delayed in supplying any service or performing any obligations, including
without limitation, any repairs or work to be done by Landlord, subject to the
self-help provisions contained within this Lease.

      SECTION 26.05. It is expressly agreed that nothing in this Lease shall be
construed as creating a partnership or joint venture between Landlord and
Tenant, or between Landlord or any other party, or cause Landlord to be
responsible for any debts or obligations of Tenant.

                                  ARTICLE XXVII

                                     WAIVER

      SECTION 27.01. No delay or omission in the exercise of any right or remedy
of Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent
shall not constitute a waiver of any default. No act or conduct of Landlord,
including, without limitation, the acceptance of the keys to the Demised
Premises, shall constitute an acceptance of the surrender of the Demised
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Demised
Premises and accomplish a termination of the Lease. Landlord's consent to or
approval shall not be deemed to waive or render unnecessary Landlord's consent
to or approval of any subsequent act by Tenant. Any waiver by Landlord or Tenant
of any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.

      SECTION 27.02. The parties hereto waive a trial by jury of any and all
issues arising in any action or proceeding between them or their successors
under or connected with this Lease or any of its provisions, any negotiations in
connection therewith, or Tenant's use or occupancy of the Demised Premises. In
case Landlord shall commence summary proceedings or an action for nonpayment of
Basic Rent or additional rent hereunder against Tenant, Tenant shall not
interpose any counterclaim of any nature or description in any such proceeding
or action unless compulsory under existing court rules, but shall be relegated
to an independent action at law.

                                 ARTICLE XXVIII

                                 QUIET ENJOYMENT

         SECTION 28.01. Landlord covenants that if, and so long as, Tenant pays
the Fixed Rent and any Additional Rent as herein provided, and performs the
covenants hereof, Landlord shall do nothing to affect Tenant's right to
peaceably and quietly have, hold and enjoy the Demised Premises for the Term
herein mentioned, subject to the provisions of this Lease and to the terms of
all covenants, restrictions, easements and encumbrances (but subject to Section
25.03) now or hereafter affecting fee title to, or Landlord's interest in, the
Building.

                                  ARTICLE XXIX

                             INTENTIONALLY OMMITTED

                                       22


                                   ARTICLE XXX

                              WAIVER OF SUBROGATION

      SECTION 30.01. In the event of any loss or damage to the Building, the
Building, the Demised Premises and/or any contents (herein "property damage"),
each party waives all claims against the other for any such loss or damage and
each party shall look only to any insurance which it has obtained to protect
against such loss (or in the case of Tenant, waives all claims any tenant of the
Building that has similarly waived claims against such Tenant) and each party
shall obtain, for each policy of such insurance, provisions waiving any claims
against the other party (and against any other tenant(s) in the Building that
has waived subrogation against the Tenant) for loss or damage within the scope
of such insurance.

                                  ARTICLE XXXI

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXXII

                                  MISCELLANEOUS

      SECTION 32.01. TIME OF ESSENCE. Time is of the essence of each provision
of this Lease and for the performance of any obligation hereunder.

      SECTION 32.02. BINDING ON SUCCESSORS. Subject to the provisions hereof
with respect to assignment and subletting, this Lease shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, assigns, subtenants and successors in interest.

      SECTION 32.03. NOTICE. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by certified mail, return receipt requested, express mail or overnight
courier, and addressed to the other party at the address set forth at the
beginning of this Lease. Either party may change its address by giving a notice
thereof to the other party in accordance with this Section.

      SECTION 32.04. COMMISSIONS. Landlord and Tenant each represents to the
other, knowing that the other shall rely upon same, that neither has dealt with
any real estate broker, finder of other person in connection with this Lease,
the Building or the Demised Premises and no such real estate broker is entitled
to a commission as a result of this Lease. Each shall hold harmless the other,
its employees, agents and assigns, from and against all claims, demands, actions
and liabilities, expenses and other damages, including attorneys' fees incurred,
resulting from any claims that may be asserted against Landlord or Tenant by any
broker, finder or other person with whom Landlord or Tenant has or purportedly
has dealt and any claim of, or right to lien under the Statutes of the State of
New Jersey relating to real estate broker liens, with respect to any such
broker.

      SECTION 32.05. GOVERNING LAW. This Lease shall be construed and
interpreted in accordance with the laws of the State of New Jersey.

      SECTION 32.06. ENTIRE AGREEMENT. This Lease contains the entire agreement
of the parties and cannot be amended or modified except by a written agreement.
Neither Landlord nor anyone acting on its behalf has made any statement, promise
or agreement which in any way modifies, varies, alters, enlarges or invalidates
the provisions of this Lease, or the obligations of Landlord or Tenant
hereunder.

      SECTION 32.07. CONSTRUCTION. The Landlord and the Tenant agree that each
party and its counsel have reviewed and revised this Lease and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Lease or any amendments, exhibits or schedules hereto.

      SECTION 32.08. CAPTIONS. The captions of this Lease shall have no effect
on its interpretation.

      SECTION 32.09. SEVERABILITY. The unenforceability, invalidity or
illegality of any provision of this Lease shall not render the other provisions
unenforceable, invalid or illegal.

      SECTION 32.10. SECTION REFERENCES. All references to Articles shall refer
to articles of this Lease.

                                       23


      SECTION 32.11. MEMORANDUM OF LEASE. This Lease shall not be recorded,
except that if either party requests that the other do so, it shall execute a
Memorandum of Lease in recordable form.

      SECTION 32.12. AUTHORITY OF CORPORATE TENANT. If Landlord or Tenant is a
corporation, each individual executing this Lease on behalf of said corporation
represents and warrants that (i) he is duly authorized to execute and deliver
this Lease on behalf of said corporation in accordance with the by-laws and
pursuant to a duly enacted resolution of said corporation; (ii) that this Lease
is valid and binding upon said corporation and enforceable against Landlord or
Tenant in accordance with its terms; (iii) the execution and delivery of this
Lease will not, with or without the passage of time, violate any other
agreement, lease or mortgage by which the corporation is bound or by which the
corporation's property is encumbered.

      SECTION 32.13. TENANT'S FINANCIAL CONDITION. Tenant represents and
warrants that all financial statements and other information submitted by, or on
behalf of, Tenant to Landlord in connection with this Lease are true and
complete in all material respects.

      SECTION 32.14. EXECUTION OF LEASE. The submission of this Lease to Tenant
for examination does not constitute an offer on the part of Landlord. This Lease
shall be effective only upon execution by Landlord and Tenant. Upon execution of
this Lease by Tenant and delivery of the executed Lease to Landlord, this Lease
shall constitute an option to Landlord for thirty (30) days to execute and
deliver this Lease, and said option may not be withdrawn during such thirty (30)
day period after delivery to Landlord. If Landlord shall not execute this Lease
within such thirty (30) day period, then the option shall be deemed withdrawn.

      SECTION 32.15. BUILDING EXCLUSIVES. N/A.

      SECTION 32.16. NET LEASE. It is the intention of these presents that
Landlord shall receive the Basic Rent herein reserved and all sum or sums which
shall or may become payable hereunder by Tenant under any contingency, free from
all taxes, charges, expenses, damages and deductions of every kind or sort
whatsoever except as otherwise expressly stated herein, and the Tenant shall and
will and hereby expressly agree to pay all such other sums which, except for the
execution and delivery of these presents, would have been chargeable against the
Demised Premises and payable by Landlord. Tenant, however, shall not be under
any obligation to pay any principal or interest on any mortgage which may be a
lien against the fee simple interest of Landlord on the Demised Premises, or
Landlord's estate or interest therein, or any franchise tax which is or may
become payable to Landlord or any gift, inheritance, transfer, estate or
succession tax by reason of any existing law or any law which may hereafter be
enacted or any judgments, liens, claims or demands asserted against Landlord
which are not specified as the obligation of Tenant herein and which do not
arise out of the use and occupancy of the Demised Premises by Tenant.

      SECTION 32.18. NO ORAL MODIFICATION All prior understandings and
agreements between the parties are merged within this Lease, which alone fully
and completely sets forth the understanding of the parties; and this Lease may
not be changed or terminated orally or in any manner other than by an agreement
in writing and signed by the party against whom enforcement of the change or
termination is sought.

      SECTION 32.19. EXTERMINATION. INTENTIONALLY OMMITTED

      SECTION 32.20. ATTORNEYS' FEES. If either party hereto be made or becomes
a party to any litigation commenced by or against the other party involving the
enforcement of any of the rights and remedies of such party, or arising on
account of the default of the other party in the performance of such party's
obligations hereunder, then the prevailing party in any such litigation, or the
party becoming involved in such litigation because of a claim against such other
party, as the case may be, shall receive from the other party all costs and
reasonable attorneys' fees incurred by such party in such litigation.

                                 ARTICLE XXXIII

                               LEASEHOLD MORTGAGES

      SECTION 33.01. Tenant and every successor and assign of Tenant (including,
but not limited to, any sublessee of Tenant, but only with Tenant's prior
consent) is hereby given the right by Landlord in addition to any other rights
herein granted, without Landlord's prior written consent, to mortgage its
interest in this Lease(s), or any part or parts thereof, and any sublease(s)
under one or more leasehold Mortgage(s), and assign this Lease, or any part or
parts thereof, and any sublease(s) as collateral security for such Mortgage (s),
upon the condition that all rights acquired under such Mortgage(s) shall be
subject to each and all of the covenants, conditions and restrictions set forth
in this Lease, and to all rights and interest of Landlord herein, none of which
covenants, conditions or restrictions is or shall be waived by

                                       24


Landlord by reason of the right given so to mortgage such interest in this
Lease, except as expressly provided herein. If Tenant and/or Tenant's successors
and assigns (including, but not limited to, any sublessee of Tenant, but only
with Tenant's prior consent) shall mortgage this leasehold, or any part or parts
thereof, and if the holder(s) of such Mortgage(s) shall, within thirty (30) days
of its execution, send to Landlord a true copy thereof, together with written
notice specifying the name and address of the Mortgagee and the pertinent
recording date with respect to such Mortgage(s), Landlord agrees that so long as
any such leasehold Mortgage(s) shall remain unsatisfied of record or until
written notice of satisfaction is given by the holder(s) to Landlord, the
following provisions shall apply:

            A.    There shall be no cancellation, surrender or modification of
                  this Lease by joint action of Landlord and Tenant without the
                  prior consent in writing of the leasehold Mortgagee(s).

            B.    Landlord shall, upon serving Tenant with any notice of
                  default, simultaneously serve a copy of such notice upon the
                  holder(s) of such leasehold Mortgage(s). The leasehold
                  Mortgagee(s) shall thereupon have the same period, after
                  services of such notice upon it, to remedy or cause to be
                  remedies the defaults complained of, and Landlord shall accept
                  such performance by or at the instigation of such leasehold
                  Mortgagee(s) as if the same had been done by Tenant.

            C.    Anything herein contained notwithstanding, while such
                  leasehold Mortgage(s) remains unsatisfied of record, or until
                  written notice of satisfaction is given by the holder(s) to
                  Landlord, if any default shall occur which, pursuant to any
                  provision of this Lease, entitled Landlord to terminate this
                  Lease, and if before the expiration of thirty (30) days from
                  the date of service of notice or termination upon such
                  leasehold Mortgagee(s) such leasehold Mortgagee(s) shall have
                  notified Landlord of its desire to nullify such notice and
                  shall have paid to Landlord all Basic Rent and additional rent
                  and other payments herein provided for, and then in default,
                  and shall have complied or shall commence the work of
                  complying with all of the other requirements of this Lease, if
                  any are then in default, and shall prosecute the same to
                  completion with reasonable diligence, then in such event
                  Landlord shall not be entitled to terminate this Lease and any
                  notice of termination theretofore given shall be void and of
                  not effect.

            D.    If the Landlord shall elect to terminate this Lease by reason
                  of any default of Tenant, the leasehold Mortgagee(s) shall not
                  only have the right to nullify and notice of termination by
                  curing such default, as aforesaid, but shall also have the
                  right to postpone and extend the specified date for the
                  termination of this Lease as fixed by Landlord in its notice
                  of termination, for a period of not more than six (6) months,
                  provided that such leasehold Mortgagee(s) shall cure or cause
                  to be cured any then existing money defaults and meanwhile pay
                  the other terms, conditions and provisions of this Lease on
                  Tenant's part to be complied with and performed, other than
                  past non-monetary defaults, and provided further that the
                  leasehold Mortgagee(s) shall forthwith take steps to acquire
                  or sell Tenant's interest in this Lease by foreclosure of the
                  Mortgage(s) or otherwise and shall prosecute the same to
                  completion with all due diligence. If at the end of said six
                  (6) month period the leasehold Mortgagee(s) shall be actively
                  engaged in steps to acquire or sell Tenant's interest herein,
                  the time of said Mortgagee to comply with the provisions of
                  this Article 33 (except Section 33.01 (C) shall be extended
                  for such period as shall be reasonably necessary to complete
                  such steps with reasonable diligence and continuity.

            E.    Landlord agrees that the name of the leasehold Mortgagee(s)
                  may be added to the "Loss Payable Endorsement" of any and all
                  insurance policies required to be carried by Tenant hereunder
                  on condition that the insurance proceeds are to be applied in
                  the manner specified in this Lease and that the leasehold
                  Mortgage(s) or collateral document shall so provide.

            F.    Landlord agrees that in the event of termination of this Lease
                  by reason of any default by Tenant other than for nonpayment
                  of Rent or Additional Rent and other payments herein provided
                  for, that Landlord will enter into a new lease of the Demised
                  Premises with the leasehold Mortgagee(s) or its nominee(s),
                  for the remainder of the term, effective as of the date of
                  such termination, at the Basic Rent and additional rent and
                  upon the terms, provisions, covenants and agreements as herein
                  contained and subject only to the same conditions of

                                       25


                  title as this Lease is subject to on the date of the execution
                  hereof, and to the rights, if any, of any parties then in
                  possession of any part of the Demised Premises, provided:

                  (1) Said Mortgagee(s) or its nominee shall make written
                  request upon Landlord for such new lease within fifteen (15)
                  days after the date of such termination and such written
                  request is accompanied by payment to Landlord of sums then due
                  to Landlord under this Lease.

                  (2) Said Mortgagee(s) or its nominee(s) shall pay to Landlord
                  at the time of the execution and delivery of said new lease,
                  any and all sums which would at the time of the execution and
                  delivery thereof, be due pursuant to this Lease but for such
                  termination, and in addition thereto, any expenses, including
                  reasonable attorney's fees to which Landlord shall have been
                  subjected by reason of such default.

                  (3) Said Mortgagee(s) or its nominee(s) shall perform and
                  observe all covenants herein contained on Tenant's part to be
                  performed and shall further remedy any other conditions which
                  Tenant under the terminated lease was obligated to perform
                  under the terms of this Lease; and upon execution and delivery
                  of such new lease, any subleases which may have theretofore
                  been assigned and transferred by Tenant to Landlord, as
                  security under this Lease, shall thereupon be deemed to be
                  held by Landlord as security for the performance of all of the
                  obligations of Tenant under the new lease.

                  (4) Landlord shall not warrant possession of the Demised
                  Premises to Tenant under the new lease.

                  (5) Such new lease shall be expressly made subject to the
                  rights, if any, of Tenant under the terminated lease.

                  (6) The Tenant under such new lease shall have the same right,
                  title, and interest in and to the buildings and improvements
                  on the Demised Premises as Tenant had under the terminated
                  lease.

            G.    Landlord agrees promptly after submission to execute,
                  acknowledge and deliver any agreements modifying this Lease
                  requested by any leasehold Mortgagee(s), provided that such
                  modification does not decrease Tenant's obligations or
                  decrease Landlord's rights pursuant to this Lease.

            H.    The proceeds from any insurance policies or arising from a
                  condemnation are to be held by any leasehold Mortgagee(s) and
                  distributed pursuant to the provisions of this Lease, but the
                  leasehold Mortgagee(s) may reserve its rights to apply to the
                  mortgage debt all, or an part, of Tenant's are of such
                  proceeds pursuant to such Mortgage(s).

            I.    The leasehold Mortgagee(s) shall be given notice of any
                  arbitration proceedings by the parties hereto, and shall have
                  the right to intervene therein and be made a party to such
                  proceedings, and the parties hereto do hereby consent to such
                  intervention. In the event that the leasehold Mortgagee(s)
                  shall not elect to intervene or become a party to such
                  proceedings, the leasehold Mortgagee(s) shall receive notice
                  of, and a copy of any award or decision made in said
                  arbitration proceedings.

            J.    Landlord shall, upon request, execute, acknowledge and deliver
                  to each leasehold Mortgagee (s), an agreement prepared at the
                  sole cost and expense of Tenant, in form satisfactory to such
                  leasehold Mortgagee(s), between Landlord, Tenant and leasehold
                  Mortgagee(s), agreeing to all of the provisions herein. The
                  term "Mortgage", whenever used herein, shall include whatever
                  security instruments are used in the locale of the Demised
                  Premises, such as, without limitations, deeds of trust,
                  security deeds and conditional deeds, as well as financing
                  statements, security agreements and other documentation
                  required pursuant to the Uniform Commercial Code. The term
                  "Mortgage" whenever used herein, shall also include any
                  instruments required in connection with a sale-leaseback
                  transaction.

                                       26


                                  ARTICLE XXXIV

             TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES

      SECTION 34.01. HAZARDOUS SUBSTANCES. The term "Hazardous Substances" as
used in this Lease, shall include, without limitation, flammable, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCS's), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under the Industrial
Site Recovery Act, N.J.S.A. 13:1k-6, as amended, and the Spill Compensation and
Control Act, N.J.S.A. 58:10-12.1, and any law or regulation now or hereafter
enacted or promulgated by any governmental authority.

      SECTION 34.02. TENANT'S RESTRICTIONS. Tenant shall not cause to permit or
occur:

            (A) Any violation of any federal, state or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions, on,
under, or about the Demised Premises, or arising from Tenant's use or occupancy
of the Demised Premises, including, but not limited to, soil and ground water
conditions; or

            (B) The use, generation, release, manufacture, refining, production,
processing, transport, handling, treatment, storage, or disposal of any
hazardous substance on, under, or about the Demised Premises, or the
transportation to or from the Demised Premises of any hazardous substance,
except for de minimus amounts of oils, greases, and cleaning products providing
same is in conformance with all environmental laws or as specifically disclosed
on Schedule G of this Lease.

      SECTION 34.03. ENVIRONMENTAL CLEANUP.

            (A) Tenant shall, at Tenant's own expense, comply with all laws
      regulating the use, generation, storage, transportation, or disposal of
      hazardous substances ("Laws").

            (B) Tenant shall, at Tenant's own expense, make all submissions to,
      provide all information required by, and comply with all requirements of
      all governmental authorities (the "Authorities") under the laws.

            (C) Should any Authority or any third party demand that a clean-up
      plan be prepared and that a clean-up be undertaken because of any deposit,
      spill, discharge, or other release of hazardous substances that occurs
      during the term of this Lease, at or from the Demised Premises, or which
      arises at any time from Tenant's use or occupancy of the Demised Premises,
      then Tenant shall, at Tenant's own expense, prepare and submit the
      required plans and all related bonds and other financial assurances; and
      Tenant shall carry out all such clean-up plans.

            (D) Tenant shall promptly provide all information regarding the use,
      generation, storage, transportation, or disposal of hazardous substances
      that is requested by Landlord. If Tenant fails to fulfill any duty imposed
      under this Section 34.03 within a reasonable time, Landlord may do so; and
      in such case, Tenant shall cooperate with Landlord in order to prepare all
      documents Landlord deems necessary or appropriate to determine the
      applicability of the Laws to the Demised Premises and Tenant's use
      thereof, and for compliance therewith, and Tenant shall execute all
      documents promptly upon Landlord's request. No such action by Landlord and
      no attempt made by Landlord to mitigate damages under any laws shall
      constitute a waiver of any of Tenant's obligations under this Section
      34.03.

      SECTION 34.04. TENANT'S INDEMNITY.

            (A) Tenant shall indemnify, defend, and hold harmless Landlord,
      Landlord's Mortgagee, the manager of the property, and their respective
      officers, directors, beneficiaries, shareholders, members, partners,
      agents and employees from all fines, suits, procedures, claims, and
      actions of every kind, and all costs associated therewith (including
      attorneys' and consultants' fees) arising out of or in any way connected
      with any deposit, spill, discharge, or other release of hazardous
      substances that occurs during the term of this Lease, at or from the
      Demised Premises, or which arises at any time from Tenant's use or
      occupancy of the Demised Premises, or from Tenant's failure to provide any
      information, make all submissions, and take all steps required by all
      Authorities under the Laws and all other environmental laws.

            (B) Landlord shall indemnify, defend, and hold harmless Tenant,
      Tenant's Mortgagee, the manager of the Demised Premises, and their
      respective officers, directors,

                                       27


      beneficiaries, shareholders, members, partners, agents and employees from
      all fines, suits, procedures, claims, and actions of every kind, and all
      costs associated therewith (including attorneys' and consultants' fees)
      arising out of or in any way connected with any deposit, spill, discharge,
      or other release of hazardous substances that occurred prior to Tenant's
      occupancy of the Demised Premises, or which arose at any time prior to
      Tenant's use or occupancy of the Demised Premises, or from Landlord's
      failure to provide any information, make all submissions, and take all
      steps required by all Authorities under the Laws and all other
      environmental laws.

            (C) Landlord's and Tenant's obligations and liabilities under this
      Section 34.04 shall survive the expiration of this Lease.

      SECTION 34.05.  Tenant represents that its SIC Number is___________ .

                                  ARTICLE XXXV

                                 ISRA COMPLIANCE

      SECTION 35.01. Tenant acknowledges the existence of the New Jersey
Industrial Site Recovery Act ("ISRA"). Tenant represents to Landlord that
Tenant's Standard Industrial Classification (SIC) Number as used on Tenant's
Federal Tax Return will not subject the Demised Premises to ISRA applicability
under current laws and regulations. Any change by Tenant to an operation with an
SIC number subject to ISRA shall require Landlord's written consent, which
consent will not be unreasonably withheld. Any such proposed change shall be
noticed in writing to Landlord sixty (60) days prior to the proposed change.
Landlord, at its sole option, may deny consent to the change.

            Tenant agrees to execute such documents as Landlord reasonably deems
necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Tenant shall bear all costs and expenses incurred
by Landlord associated with any required ISRA compliance resulting from Tenant's
use of the Demised Premises including but not limited to, state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority. The foregoing
undertaking shall survive the termination or sooner expiration of the Lease and
surrender of the Demised Premises and shall also survive sale, or lease or
assignment of the Demised Premises by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from the violation of ISRA occasioned by Tenant's use of
the Demised Premises.

                                  ARTICLE XXXVI

                   SORTING AND SEPARATION OF REFUSE AND TRASH

      SECTION 36.01. COMPLIANCE BY TENANT. Tenant covenants and agrees, at its
sole cost and expense, to comply with all present and future laws, orders, and
regulations of all state, federal, municipal, and local governments,
departments, commissions, and boards regarding the collection, sorting,
separation, and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse, and trash into
such categories as provided by law. Each separately sorted category of waste
products, garbage, refuse, and trash shall be placed in separate receptacles.
Such separate receptacles may, at Landlord's option, be removed from the Demised
Premises in accordance with a collection schedule prescribed by law.

      SECTION 36.02. LANDLORD'S RIGHTS IN EVENT OF NONCOMPLIANCE. Landlord
reserves the right to refuse to collect or accept from Tenant any waste
products, garbage, refuse or trash that is not separated and sorted as required
by law, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Landlord. Tenant shall
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the provisions
of this article, and, at Tenant's sole cost and expense, shall indemnify, defend
and hold harmless (including legal fees and expenses) from and against any
actions, claims, and suits arising from such noncompliance, utilizing counsel
reasonably satisfactory to Landlord.

                                 ARTICLE XXXVII

                          REMOVAL OF GARBAGE AND DEBRIS

                                       28


      SECTION 37.01. Tenant agrees to remove all garbage and debris from
Tenant's Demised Premises. Tenant shall not permit its garbage or debris to be
placed or remain outside the Demised Premises.

      SECTION 37.02. For purposes of this Section, garbage and debris shall
refer to waste generated by Tenant's business facilities, except for any
hazardous substances as defined in Article XXXIV hereinabove.

      SECTION 37.03. Removal of all such garbage and debris shall be at Tenant's
expense in accordance with Article XXXVI set forth above.

      SECTION 37.04. In the event Tenant is specifically permitted to use,
generate, release, manufacture, refine, produce, process, transport, handle,
treat, store or dispose of any hazardous substance in accordance with the
provisions of Article XXXIV herein, Tenant shall not dispose of said hazardous
substances in the common garbage receptacles and/or containers provided by
Landlord for the tenants. Tenant shall dispose of said hazardous substances in
accordance with all applicable laws at its own cost and expense.

      SECTION 37.05. In the event Tenant produces garbage and debris for
disposal in the common garbage receptacles and/or containers provided by
Landlord for Tenant, that is in excess of Tenant's share of the aggregate
garbage and debris for the entire Building, Landlord may assess Tenant and
Tenant shall be responsible for the disposal costs associated with said excess.

                                 ARTICLE XXXVIII

                                 RENEWAL OPTION

      SECTION 38.01. Tenant is hereby granted three (3) five year extensions of
the initial twelve (12) term under the following terms and conditions:


            (A)   It is expressly understood and agreed that the Tenant's option
                  to renew, as hereinafter set forth shall be personal to
                  Tenant, and may not be exercised by any permitted assignee or
                  subtenant hereunder, except an assignee permitted by the terms
                  of Section 14.05. It is understood and agreed that Tenant's
                  Option to Renew shall be null and void in the event that fifty
                  (50%) percent or more of the Demised Premises have been sublet
                  by the Tenant prior to the date set for the exercise by Tenant
                  of the Renewal Option hereinafter set forth.

            (B)   At the time of the exercise of the option to renew and at the
                  time of the said renewal, the Tenant shall not have committed
                  an uncured Event of Default, and shall be in possession of the
                  Demised Premises pursuant to this Lease.

            (C)   Notice of the exercise of the option shall be sent to the
                  Landlord in writing at least twelve (12) months before the
                  expiration of the Term of this Lease.


            (D)   Each renewal term shall be for the term of five (5) years, to
                  commence at the expiration of the Term of this Lease or first
                  renewal and all of the terms and conditions of this Lease,
                  other than the Fixed Rent, shall apply during any such renewal
                  term.

   SECTION 38.02. The Landlord and Tenant acknowledge and agree to make the
                  effective date of the Lease retroactive to the date set forth
                  on the first page herein. The purpose of the retroactive
                  effective date is to make it coincide with the term of the
                  previous Lease of the Demised Premises that was entered into
                  by the parties.

                                       29

      The aforesaid monthly rents shall be payable in advance on the first day
of each calendar month, except that a proportionately lesser sum may be paid for
the first month following the Term Expiration Date if said date falls on a date
other than the first of the month.

      IN WITNESS WHEREOF, the parties hereto execute this Lease on the date set
forth above.

Witness:                                      FYNB, LLC.


Daniel Goodman                                By         Gary S. Hofing
- --------------------------------                 ------------------------------
Daniel Goodman                                           Gary S. Hofing
                                                         Co-Managing Member

                                              YARDVILLE NATIONAL BANK,
                                              A NEW JERSEY  NATIONAL BANK

Daniel J. O'Donnell                           By         Patrick M. Ryan
- --------------------------------                  ------------------------------
Daniel J. O'Donnell, Secretary                           Patrick M. Ryan, CEO

                                       30


                                    EXHIBIT B

                                 LANDLORD'S WORK

                            INTENTIONALLY LEFT BLANK

                                       31


                                    EXHIBIT C

                                      SIGNS

            1.    All signs visible to the outside are to be submitted for
                  approval by landlord, which approval shall not be unreasonably
                  withheld.

            2.    The sign(s) shall not be moving or flashing.

All tenant signage must conform to any local requirements or restrictions as
established by local ordinances. Copies of the approved permits must be posted
in the front windows of the building before installation of any sign commences.

                                       32


                                    EXHIBIT D

                                   EXCLUSIVES

                             INTENTIONALLY OMMITTED

                                       33


                                    EXHIBIT E

                              RULES AND REGULATIONS

      1. All loading and unloading shall be done only in the areas, and through
the entrances, designated for such purposes by Landlord.

      2. INTENTIONALLY OMMITTED

      3. No loudspeakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the Demised
Premises without the prior written consent of the Landlord.

      4. If the Demised Premises are equipped with heating facilities separate
from those in the remainder of the Building, Tenant shall keep the Demised
Premises at a temperature sufficiently high to prevent freezing of water pipes
and fixtures.

      5. Tenant shall, at Tenant's cost, contract the services of an
exterminator in compliance with the Lease requirements.

      6. Tenant shall not burn any trash or garbage of any kind in or about the
Demised Premises, the Building, or within one mile of the outside property lines
of the Building.

      7. Tenant and Tenant's employees and agents shall not conduct or solicit
business in the parking area or other common areas, nor shall Tenant distribute
any handbills or other advertising matter in automobiles parked in the parking
area or in other common areas, including "For Sale" signs in car windows.

      8. Tenant is not permitted to use any space heaters, including but not
limited to kerosene, propane or electric.

      9. The plumbing facilities shall not be used for any other purpose than
that for which they were constructed, and no foreign substance of any kind shall
be thrown therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be borne by Tenant, who
shall, or whose employees, agents or invitees shall, have caused it.

      10. Tenant shall not install any coin operated vending machine, video game
machine, coin telephone, or similar devise, nor any stand for display of goods
for sale upon the sidewalk area or outside wall or any portion of the Building
without written consent of the Landlord.

      11. No buses shall be operated by any tenant in this Building. Should any
tenant wish to charter or otherwise arrange for a bus to be present on the
Building property, he must first obtain written permission from the Landlord.
The request for permission to have a bus enter the property should contain
particulars of the bus' operation noting as to its location of parking, picking
up and discharging of passengers, and the like.

      12. Tenant shall promptly comply with all laws, orders, directions, rules
and requirements of governmental authorities and cognizant insurance carriers.

      13. Maintain the Demised Premises and all equipment within it in good
repair and appearance and in neat, clean, safe and sanitary condition free of
all garbage.

      14. Use all electric, plumbing and other facilities in the rental space
safely.

      15. Promptly notify Landlord when there are conditions that require repair
by Landlord.

      16. Comply with all rules and regulations made by Landlord from time to
time, respecting the delivery or shipment of merchandise, supplies and fixtures
to and from the rental space.

      17. Immediately notify Landlord of any accident, fire or damage occurring
to the rental space.

      18. Install anything on the roof without the prior written consent of
Landlord.

         19. Do anything or permit anything to be done which tends to destroy
the peace and quiet of the Landlord, other tenants, invitees of the Building, or
persons in the neighborhood.

      20. Throw or permit any foreign substance to be thrown into the plumbing
facilities.

                                       34


      21. Permit any vehicle or trailers to remain parked overnight in the
Building.

      22. Obstruct any part of the Building outside the rental space.

      23. Use or operate any equipment that, in Landlord's sole judgment, is or
may be harmful to the rental space of the building which the rental space is a
part.

      24. Attach any awning or other projection to the outside of the rental
space, or the building of which the rental space is a part.

      25. Conduct any auction, fire sale, bankruptcy sale, going-out-of business
sale, or lost-our-lease sale, in or about the rental space.

      26. Tenant's employees may not park in front of the other tenant's stores.

      27. Permit trash or debris to accumulate outside the Demised Premises.

      Failure of Tenant to comply with the rules and regulations of this section
constitutes an Event of Default under this Lease, subject to a Fifty and 00/100
($50.00) Dollar per day fine, after giving Tenant notice of such default and an
opportunity to cure the same within the time provided by this Lease.

                                       35


                                 LEASE ADDENDUM

                                ADDENDUM TO LEASE

In the event of a conflict between this Lease Addendum and the original lease
between FYNB LLC (Landlord) and Yardville National Bank (Tenant) dated February
7, 2006, the Lease Addendum shall prevail.

      1.    The intent of the parties is that this lease shall be considered an
            absolute net lease. Regardless of the specified maintenance
            obligations of the lease agreement, the Tenant shall be 100%
            responsible for any and all maintenance and replacements of the
            building components and/or systems which shall include but not be
            limited to roof, structure, HVAC, plumbing, electrical and lighting,
            paving, sidewalks and all exterior and interior improvements.

      2.    Common area maintenance - Tenant shall be 100% responsible at its
            sole cost and expense for performing any exterior common area
            maintenance including but not limited to landscaping, snow plowing,
            lighting, cleaning and parking lot striping. Landlord can provide
            contact information for snow plower currently contracted if desired
            by Tenant.




                                              Gary S.  Hofing
                                              ----------------------------------
                                              Gary S.  Hofing
                                              Co-Managing Member, FYNB LLC


                                              Patrick M. Ryan
                                              ----------------------------------
                                              Patrick M. Ryan, CEO
                                              Yardville National Bank

                                       36

EX-10.26

                                                                   EXHIBIT 10.26

                                      LEASE

                                      from

                        UNION PROPERTIES, LLC , Landlord

                                       to

                         YARDVILLE NATIONAL BANK, Tenant

                                       RE:

                              1575 BRUNSWICK AVENUE
                    LAWRENCEVILLE, MERCER COUNTY, NEW JERSEY

                                 DATA & EXHIBITS

DATE OF LEASE:                         August 1, 2005

LOCATION OF DEMISED PREMISES:          1575 Brunswick Ave.
                                       Lawrenceville, Mercer County, New Jersey

FIXED RENT SCHEDULE:


Period                                 Annual Fixed  Rent             Monthly Fixed Rent
- ------                                 ------------------             ------------------
                                                                
08/01/05 - 07/31/10                    $        80,706.96             $         6,725.58
08/01/10 - 07/31/15                    $        92,813.04             $         7,734.42
08/01/15 + Beyond                      The fixed rent shall increase by the Consumer Price Index
                                       (CPI) for the Northern New Jersey / New York region every
                                       anniversary date of lease with a minimum of a two (2)
                                       percent and a maximum of a four (4) percent fixed rental increase

LEASE TERM:                            Ten (10) years.

RENEWAL PROVISION: The Term of the lease agreement between Landlord and Tenant
shall be for ten (10) years. On August 1, 2006 and each and every subsequent
annual anniversary date of the lease (The Anniversary Date), the expiration date
shall, without further action of the parties, be extended for an additional year
unless and until the Tenant shall have notified the Landlord of its intention
not to extend the expiration date beyond the end of the then current term. Said
notice shall be in writing and delivered to the Landlord not less than six (6)
months prior to the next anniversary.

NOTICES:           Landlord:                   Union Properties, LLC.
                                               c/o Hofing Management
                                               928 West State Street
                                               Trenton, NJ 08618

                   Tenant:                     YARDVILLE NATIONAL BANK
                                               Box 8487
                                               Trenton, New Jersey 08650
                                               Attn.: Frank Durand
                                  with a copy to:
                                               YARDVILLE NATIONAL BANK
                                               2465 Kuser Road
                                               Hamilton, New Jersey 08690
                                               Attn.: Daniel J. O'Donnell, Esq.

                                       1


EXHIBITS:

       A:          Plan showing location of Demised Premises

       B:          Landlord's Work

       C:          Signs

       D:          Exclusives

       E:          Rules and Regulations

                                       2


                                 INDEX TO LEASE


                                                                                             Page
                                                                                             -----
                                                                                       
Article I          Definitions...................................................              2
Article II         Lease of Demised Premises.....................................              3
Article III        Term..........................................................              3
Article IV         Rent..........................................................              4
Article V          Tenant Reimbursements.........................................              4
Article VI         Utilities.....................................................              7
Article VII        Maintenance...................................................              7
Article VIII       Tenant's Insurance............................................              8
Article IX         Limitations on Use; Rules & Regulations; Trade Name...........              9
Article X          Compliance with Applicable Law................................             10
Article XI         Preparation of Demised Premises...............................             10
Article XII        Tenant's Work.................................................             10
Article XIII       Landlord's Entry on Demised Premises..........................             11
Article XIV        Assignment and Subletting.....................................             12
Article XV         Indemnification of Landlord...................................             12
Article XVI        Fire and Casualty.............................................             13
Article XVII       Condemnation..................................................             14
Article XVIII      Events of Default.............................................             15
Article XIX        Landlord's Remedies...........................................             16
Article XX         Surrender of Demised Premises.................................             18
Article XXI        Holding Over..................................................             18
Article XXII       INTENTIONALLY OMMITTED.......................................              18
Article XXIII      Common Areas..................................................             18
Article XXIV       Signs.........................................................             19
Article XXV        Subordination.................................................             19
Article XXVI       Nature of Landlord's Liability................................             19
Article XXVII      Waiver........................................................             20
Article XXVIII     Quiet Enjoyment...............................................             20
Article XXIX       INTENTIONALLY OMMITTED .......................................             21
Article XXX        Waiver of Subrogation.........................................             21
Article XXXI       INTENTIONALLY OMMITTED .......................................             21
Article XXXII      Miscellaneous.................................................             21
Article XXXIII     Leasehold Mortgages...........................................             23
Article XXXIV      Tenant's Responsibility Regarding Hazardous Substances........             25
Article XXXV       ISRA Compliance ..............................................             26
Article XXXVI      Sorting and Separation of Refuse and Trash....................             26
Article XXXVII     Removal of Garbage and Debris.................................             27
Article XXXVIII    Renewal Option................................................             27


                                       3


                  THIS LEASE, dated the 15th day of February , 2006, between
UNION PROPERTIES, LLC., a New Jersey Limited Liability Company, with offices at
c/o Hofing Management, 928 West State Street, Trenton, NJ 08618 (hereinafter
referred to as the "Landlord"); and YARDVILLE NATIONAL BANK, Box 8487, Trenton,
New Jersey 08650 (hereinafter referred to as the "Tenant").

                              WITNESSETH:

      In consideration of the agreements contained in this Lease, and for other
good and valuable consideration, Landlord and Tenant covenant and agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

      For purposes of this Lease, the following terms shall have the indicated
meanings:

      SECTION 1.01. "ADDITIONAL RENT" shall mean any sums other than Fixed Rent
which Tenant is required to pay to Landlord under this Lease.

      SECTION 1.02. "APPLICABLE LAWS" shall mean all present and future laws,
ordinances, resolutions, regulations and orders of all governmental entitles at
any time having jurisdiction over the building.

      SECTION 1.03. "COMMENCEMENT DATE" shall mean August 1, 2005

      SECTION 1.04. "COMMON AREAS" shall mean all areas of the building that are
designated by Landlord from time to time for the general use and convenience of
Tenant and other tenants of the Building and their respective authorized
representatives and invitees. Common Areas include, without limitation,
pedestrian walkways and patios, landscaped areas, sidewalks (exclusive of
sidewalks in front of the Demised Premises), service corridors, restrooms,
stairways, decorative walls, plazas, throughways, loading areas, parking areas
and roads.

      SECTION 1.05. "DEMISED PREMISES" shall mean those premises as outlined or
designated on the plan attached hereto and marked as Exhibit A, being a part of
the Building. Said Demised Premises containing approximately _6,560_ square feet

      SECTION 1.06. "EXCUSABLE DELAY" shall mean that any time limits required
to be met by either party hereunder, whether specifically made subject to
Excusable Delay or not, except those related to the payment of Fixed Rent,
Percentage Rent, if any, or Additional Rent, shall, unless specifically stated
to the contrary elsewhere in this Lease, be automatically extended by the number
of days by which any performance called for is delayed due to Excusable Delay.
Excusable Delay shall mean and include those situations beyond Landlord's or
Tenant's control, including by way of example and not by way of limitation, acts
of God; accidents, repairs, strikes, shortages of labor, supplies or materials;
inclement weather or, where applicable, the passage of time while waiting for an
adjustment of insurance proceeds.

      SECTION 1.07. "FIXED RENT" shall mean the guaranteed fixed rent during the
Term to accrue as follows:


RENT:      Period                     Annual Fixed Rent      Monthly Fixed Rent
           -------------------        ------------------     ------------------
                                                    
           08/01/05 - 07/31/10        $        80,706.96     $         6,725.58
           08/01/10 - 07/31/15        $        92,813.04     $         7,734.42
           08/01/15 + Beyond          CPI Increases


all payable in the manner provided in Section 4.01.

      SECTION 1.08. "LEASE YEAR" shall mean the period beginning on the
Commencement Date and ending one year thereafter.

      SECTION 1.09. "PERMITTED TRADE NAME" shall mean Yardville National Bank or
YNB.

      SECTION 1.10. "PERMITTED USE" shall mean the use of the Demised Premises
by Tenant for the following purposes only: as a financial institution.

      SECTION 1.11. "RENT" shall mean and include Fixed Rent and Additional
Rent.

      SECTION 1.12. "RENT COMMENCEMENT DATE": shall mean the Commencement Date.

                                       4


      SECTION 1.13. "BUILDING" shall mean the building located at 1575 Brunswick
Ave. Lawrenceville, New Jersey.

      SECTION 1.14. "STATE" shall mean the State of New Jersey.

      SECTION 1.15. "TENANT'S SHARE" shall mean 100%.

      SECTION 1.16. "TERM" shall mean ten (10) years.

                                   ARTICLE II

                            LEASE OF DEMISED PREMISES

      SECTION 2.01. Landlord agrees to lease the Demised Premises to Tenant, and
Tenant agrees to rent the Demised Premises from Landlord, upon and subject to
the conditions hereinafter contained.

                                   ARTICLE III

                                      TERM

      SECTION 3.01. The Term of the lease agreement between Landlord and Tenant
shall be for ten (10) years. On August 1, 2006 and each and every subsequent
annual anniversary date of the lease (The Anniversary Date), the expiration date
shall, without further action of the parties, be extended for an additional year
unless and until the Tenant shall have notified the Landlord of its intention
not to extend the expiration date beyond the end of the then current term. Said
notice shall be in writing and delivered to the Landlord not less than six (6)
months prior to the next anniversary

      SECTION 3.02. All of the obligations of Landlord are expressly conditioned
upon the ability of Landlord to give possession of the Demised Premises to
Tenant. Landlord shall have no liability whatsoever by reason of its inability
to complete Landlord's Work, as hereinafter defined.

      SECTION 3.03. If requested by Landlord, Tenant will execute and return
within seven (7) days after presentation by Landlord an agreement confirming the
Commencement Date, the Rent Commencement Date and the date established for the
expiration of the Term.

                                   ARTICLE IV

                                      RENT

      SECTION 4.01. Tenant agrees to pay to Landlord the Fixed Rent, without
notice or demand, in equal monthly installments, in advance, on or before the
first day of each and every successive calendar month during the Term hereof,
except the first month's Fixed Rent shall be paid upon the execution of this
Lease. The Fixed Rent shall commence on the Rent Commencement Date. The Fixed
Rent for any period which is for less than a full month shall be a prorated
portion of the Fixed Rent based on a thirty (30) day month.

      SECTION 4.02. The Fixed Rent shall be paid to Landlord by Tenant, without
deduction, counterclaim or setoff, except as expressly provided herein, and at
Landlord's address or at such place as Landlord may from time to time designate
in writing.

      SECTION 4.03. If any payment of Rent is not received by Landlord within
five (7) business days of the date when due, Tenant shall pay to Landlord on
demand as a late charge, interest on the overdue Rent at the lesser of the
maximum rate permitted by law or ten (10%) percent per month from the due date.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.

      SECTION 4.04. No abatement, diminution or reduction of the Basic Rent, or
any additional rent or other charges required to be paid by Tenant pursuant to
the terms of this Lease, shall be claimed by, or allowed to, Tenant for any
inconvenience, interruption, cessation or loss of business or otherwise, caused
directly or indirectly by any present or future laws, ordinances, order, rules,
regulations or requirements of any Federal, State, County or Municipal
governments, or by priorities, rationing or curtailment of labor or material, or
by war, civil commotion strikes or riots, or any matter or thing resulting there
from or by any other cause or causes beyond the control of Landlord, including,
without limitations, casualty to the Demised Premises, nor shall this Lease in
any way be affected by any such causes, except as expressly provided in this
Lease.

                                       5


                                    ARTICLE V

                              TENANT REIMBURSEMENTS

      SECTION 5.01. In addition to the Fixed Rent and commencing on the
Commencement Date, Tenant shall pay to Landlord as Additional Rent, Tenant's
Share of the following taxes, insurance premiums and Common Area costs
(hereinafter called "Reimbursements"):

                  (A) All real property taxes and special assessments (the "Real
Estate Taxes") levied or assessed against the Building. Tenant shall not be
required to pay any taxes imposed upon the net income of Landlord or franchise
taxes of Landlord, or any estate, succession, inheritance or transfer taxes
imposed upon Landlord. If, at any time during the Term, any lawful governing
authority levies or assesses against Landlord any tax, fee, or excise, however
described, as a direct substitution in whole or in part for, or in addition to,
or as the substantial equivalent of any Real Estate Taxes, then Tenant shall pay
as provided herein Tenant's Share of that tax, fee or excise. Tenant shall pay
before delinquency all taxes, assessments, license fees, and other charges that
are levied or assessed against Tenant's personal property located on the Demised
Premises. On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments. If any taxes on Tenant's personal property are
levied against Landlord or Landlord's property, or if the assessed value of the
Building is increased by the inclusion of a value placed on Tenant's personal
property or as a result of alterations, additions or improvements made to the
Demised Premises by or for Tenant, Tenant, on demand, shall immediately pay to
Landlord as Additional Rent the sum of the taxes levied against Landlord, or the
proportion of the taxes resulting from such increase in Landlord's assessment
caused thereby. Landlord shall be entitled to, in good faith using its
reasonable determination, ascertain the value of the tax increase attributable
to Tenant's personal property or alterations, additions or improvements.

                        (1.) If permitted by the appropriate taxing authority
      without the necessity of a subdivision, Tenant shall make application for
      the Demised Premises and the improvements erected thereon to be treated as
      a separate tax lot and, if successful, shall pay real property taxes and
      special assessments directly to the taxing authority. In this event, real
      property taxes and assessments will not be paid to Landlord as additional
      rent.

                        (2.) Nothing herein contained shall require Tenant to
      pay any Federal or State income taxes assessed against the Landlord, or
      any gift, estate, succession, inheritance or transfer taxes of Landlord
      imposed as owner of the fee interest of the Demised Premises or any taxes
      imposed upon rent as such, payable by Tenant under this Lease; provided,
      however, that if at any time during the term of this Lease the methods of
      taxation prevailing at the Commencement Date shall be altered so that in
      lieu of or as a substitute for the whole or any part of the taxes,
      assessments, levies, impositions or charges now levied, assessed or
      imposed on real estate and improvements thereon there shall be levied,
      assessed and imposed a tax, assessment, levy, imposition or charge, wholly
      or partially as a capital levy or otherwise, upon the rents received
      therefrom, or measured by or based in whole or in part upon the Demised
      Premises and imposed upon Landlord, than all such taxes, assessments,
      levies impositions, or charges or any part thereof so measured or based
      shall be deemed to be included within the term "Impositions" for the
      purposes hereof to the extent that such imposition would be payable if the
      Demised Premises were the only property of Landlord subject to such
      Imposition, and Tenant shall pay and discharge the same as herein provided
      in respect of the payment of Impositions. Subject to the specific
      exclusions set forth above in this Section 5.01, Tenant shall in addition
      to the foregoing, pay any new taxes of a nature not presently in effect,
      but which may be hereafter levied against or imposed upon Landlord or the
      Demised Premises if such tax shall be based on or arise out of the
      ownership, use or operation of the Demised Premises.

                        (3.) If Tenant pays Real Estate Taxes separately, then
      Tenant, upon request of Landlord, shall furnish to Landlord, or if
      requested by Landlord furnish to any fee mortgagee, within ten (10) days
      after the date when such Imposition will become due, official receipts if
      available of the appropriate taxing authority, or other evidence
      satisfactory to Landlord or such mortgagee evidencing the payment thereof.
      The certificate, receipt or bill of the appropriate official designated by
      law to make or issue the same shall be prima facie evidence that such
      Imposition is due and unpaid, or has been paid at the time of the making
      or issuance of such certificate, receipt or bill.

                        (4.) Landlord appoints Tenant the attorney-in-fact of
      Landlord for the purpose of making all payments to be made by Tenant
      pursuant to any of the provisions of this Lease to persons or entities
      other than Landlord. In case any person or entity to whom any sum is
      directly paid by Tenant under any of the provisions of this Lease shall
      refuse to accept payment of such sum from Tenant, Tenant shall thereupon
      give written notice of such fact to Landlord and shall pay such sum to
      Landlord at the address specified herein and Landlord shall thereupon pay
      such sum to such person or entity.

                                       6


                        (5.) Notwithstanding any other provision herein set
      forth,Tenant, in addition to being responsible for taxes and insurance as
      herein set forth, shall be responsible for all fire insurance premiums on
      buildings and improvements situate on the Demised Premises from the dates
      when Impositions are first payable by Tenant pursuant to Section 5.01
      above through and inclusive of the dates when Basic Rent as herein set
      forth shall be payable.

                        (6.) Tenant, at its own cost and expense, shall take
      good care of the Demised Premises, all exclusive rights of way, curbs and
      appurtenances thereto and maintain and repair any easements used in common
      with others in accordance with any maintenance and repair obligations
      relating thereto, and shall keep the same in good order and condition, and
      reasonably free of any dirt, rubbish, snow, ice and unlawful obstructions.
      Landlord is responsible for snow removal from Tenant's drive-thru area at
      Tenant's sole cost and expense.

                        (7.) Tenant has the right to seek a reduction in the
      valuation of the Demised Premises for tax purposes and to contest in good
      faith by appropriate proceedings, at Tenant's expense, the amount of
      validity in whole or in part of any imposition, tax or assessment
      affecting the Demised Premises.

                        (8.) Landlord shall not be required to join in any
      proceedings referred to herein unless the provisions of any law, rule or
      regulation at the time in effect shall require that such proceedings be
      brought by or in the name of Landlord or any owner of the Demised
      Premises, in which event Landlord shall join in such proceedings or permit
      the same to be brought in its name. Landlord shall not ultimately be
      subjected to any liability for the payment of any costs or expenses in
      connection with any such proceedings, and Tenant shall indemnify and save
      harmless Landlord from any such costs and expenses. Tenant shall be
      entitled to any refund of any imposition and penalties or interest thereon
      received by Landlord which have been paid by Tenant or which have been
      paid by Landlord but previously reimbursed in full by Tenant.

                        (9.) Landlord, in the event Tenant has not filed an
      appeal, reserves unto itself the right to appeal and seek a reduction in
      the valuation of the Demised Premises for real estate tax purposes.

                        (10.) Tenant is only responsible for its share of
      Reimbursements and Impositions which come due during Tenant's Term, and
      Landlord agrees that any improvement assessments will be paid in the
      maximum number of permitted installments.

                  (B) All insurance premiums incurred by Landlord for policies
            of insurance maintained on or with respect to the Building,
            including but not limited to fire and extended coverage insurance,
            liability insurance, workmen's compensation, rent interruption
            insurance and any other insurance that Landlord deems necessary to
            be carried on or with respect to the Building. If the rate of any
            insurance carried by Landlord is increased as a result of Tenant's
            use of the Demised Premises, then Tenant shall pay to Landlord as
            Additional Rent, upon demand, the full amount of any such increase.

                  (C) All customary and reasonable sums expended by Landlord for
            the maintenance and operation of the Common Areas, and an allowance
            to Landlord for Landlord's supervision of maintenance and operation
            of the Common Areas in an amount equal to 15% times the total Common
            Area Expenses of the Building (excluding Real Estate Taxes and
            insurance). Costs for maintenance and operation of the common areas
            shall include by way of example and not by way of limitation, the
            costs of the following: resurfacing, paving, repainting and
            restriping, roof repairs, exterminating, cleaning, sweeping, and
            other maintenance and repair services with respect to the Common
            Areas of the Building, or any part thereof;; policing and providing
            for security guards or security patrols; costs for local fire
            protection; purchasing and maintaining refuse receptacles and costs
            of trash removal; planting and relandscaping; snow removal;
            purchasing, constructing, maintaining or repairing car stops,
            directional signs and other markers; lighting and other utilities;
            reasonable depreciation allowance on improvements, machinery, and
            equipment used in connection with the Common Areas; such fees as may
            be paid to any third party in connection with such maintenance and
            operation or the management of the Building (such management fees
            are to be in lieu of the 5% Landlord's supervision fee set forth
            above); and such other costs as the Landlord, in its reasonable

                                       7


            discretion, shall deem necessary for the maintenance and operation
            of the Common Areas. All Capital Expenditures made to the Building,
            i.e., expenditures which, in accordance with generally accepted
            accounting principles, are not fully chargeable to current expense
            in the year the expenditure is incurred, shall be excluded from
            Common Area Expenses except the cost of repaving described above,
            which repaving cost will be amortized over the useful life of the
            improvement.

      SECTION 5.02. Landlord may submit to Tenant a statement of anticipated
monthly Reimbursements for the period between the Commencement Date and the end
of the first Lease Year and for each subsequent Lease Year or fraction thereof.
If so, Tenant shall pay such Reimbursements on a pro rata monthly basis
concurrent with the payment of the Fixed Rent. Tenant shall continue to make
said monthly payments until notified by Landlord of a change thereof. Landlord
shall furnish to Tenant a statement showing the total Reimbursements, Tenant's
Share of total Reimbursements for the prior Lease Year, and the payments made by
Tenant with respect to such Lease Year, within sixty (60) days after the end of
each Lease Year. However, Landlord's failure to provide such statement of
Reimbursements by the date provided hereinabove shall in no way excuse Tenant
from its obligation to pay its pro rata share of Reimbursements or constitute a
waiver of Landlord's right to bill and collect such pro rata share of
Reimbursements from Tenant in accordance with this Article, provided that
Landlord submits a final statement of total reimbursements for a particular
calendar year within one year after the end of such calendar year. If Tenant's
Share of Reimbursements for the Lease Year exceeds the payments made by Tenant,
Tenant shall pay Landlord the deficiency within ten (10) days after receipt of
the statement. If Tenant's payments made during the Lease Year exceed Tenant's
Share of Reimbursements, Landlord shall credit the sum of such excess toward the
monthly Reimbursements next coming due or, if there are insufficient installment
periods remaining in Tenant's term, pay same over to Tenant. The actual
Reimbursements of the prior Lease Year may be used for the purpose of
calculating the anticipated monthly Reimbursements for the then current Lease
Year, subject to the right of Landlord to increase the monthly Reimbursements
for anticipated increased costs. . Tenant shall have the right, on an annual
basis and at Tenant's sole cost, to audit all Common Area costs charged by the
Landlord.

      SECTION 5.03. Landlord shall keep full, complete and proper books, records
and accounts of Common Area Expenses. No more than once per annum and upon
reasonable written notice, Tenant and its agents and employees shall have the
right at any time and at all times during regular business hours to examine and
inspect all books and records of Landlord pertaining to Common Area Expenses for
the purpose of investigating and verifying the accuracy of any statement of
Common Area Expenses. Once in any calendar year, Tenant may cause an audit of
Common Area Expenses to be made by an independent certified accountant of
Tenant's selection and, if the Common Area Expenses for the accounting period
covered by the statement which is the subject of the audit are found to be
overstated by more than five percent (5%), Landlord shall immediately pay to
Tenant the cost of such audit, not to exceed the lesser of the amount of the
discrepancy or One Thousand Dollars ($1,000.00), plus the amount of any
overpayment made by Tenant to Landlord, otherwise the cost of such audit shall
be paid by Tenant. If the statement of Common Area Expenses which is the subject
of the audit is otherwise found to be incorrect, the party found to be owing
money shall promptly pay an offsetting sum to the other party.

                                   ARTICLE VI

                                    UTILITIES

      SECTION 6.01. Tenant shall pay promptly for all water, gas, heat, light,
power, sewer charges, telephone installation utility hookup, connection and
service charges, sprinkler standby charges, and for all other services and
utilities supplied to the Demised Premises on and after the Commencement Date,
together with any tax, excise or surcharge thereon. Within ten (10) days after
the expiration or termination of the Term of this Lease, Tenant shall provide
Landlord with satisfactory evidence that all such utility charges have been paid
through the last day of the Term. Tenant agrees to immediately apply for all
applicable utilities to be separately metered and billed to Tenant. If any such
services are not separately metered to and paid by Tenant, or if any such
services are furnished and paid for by Landlord, Tenant shall pay to Landlord as
Additional Rent a reasonable proportion to be determined by Landlord of all
charges jointly metered with other premises and all services which are furnished
and paid for by Landlord. If Landlord is required to construct new or additional
utility installations, including, without limitation, wiring, plumbing,
conduits, and mains, resulting from Tenant's changed or increased requirements,
Tenant shall on demand pay to Landlord, in advance of installation, the total
cost of such installation. Landlord reserves the right to interrupt the supply
of water, gas, electric and also sewer service and any other similar utilities
for the Demised Premises when required by reason of accident or of repairs,
alterations or improvements, until such repairs, alterations or improvements
shall have been completed. Landlord agrees to use its best efforts to limit such
interruptions to non-business hours.

                                       8


      SECTION 6.02. Landlord can discontinue, without notice to Tenant, any of
the utilities or services furnished to the Demised Premises for which Tenant
fails to pay and no such discontinuance shall be deemed an actual or
constructive eviction.

      SECTION 6.03. Under no circumstances shall Landlord be liable to Tenant on
account of the failure, discontinuance, interruption or quality of the utilities
or services furnished to the Demised Premises, regardless of whether such
utilities or services are furnished by Landlord or by third parties, nor shall
any of the foregoing excuse any payment or performance by Tenant, unless caused
by the gross negligence of Landlord, provided, however, if said utilities are
discontinued, at no fault of the Tenant, for a consecutive period of 180 days or
more, the Tenant shall have the right to terminate this Lease.

                                   ARTICLE VII

                                   MAINTENANCE

      SECTION 7.01. Tenant, at its sole expense, shall maintain, in good
condition and repair, the Demised Premises and every part thereof (except those
portions required to be maintained by Landlord as hereinafter provided)
including by way of example and not by way of limitation, the maintenance,
replacement and repair of all of Tenant's building, Tenant's personal property,
Tenant's signs as permitted by the provisions of this Lease, storefronts, doors,
window treatments, plate glass and show windows, door and window frames and
moldings,, plumbing and pipes (including any damage to plumbing and pipes caused
by the introduction of any foreign matter into the plumbing system by Tenant or
Tenant's employees or customers), electrical wiring and conduits, and the roof,
to the extent of any installations for vents, skylights or other installations
made by Tenant. Tenant shall be liable for any damage to the building on the
Demised Premises and other buildings in the Building, resulting from the acts or
omissions of Tenant or its representatives, employees or customers. Tenant shall
maintain its store windows in a clean and neat condition and shall keep the
sidewalks adjoining the Demised Premises free from ice, snow and rubbish.

      SECTION 7.02. Should Tenant fail to maintain, replace or repair the
Demised Premises pursuant to Section 7.01, Landlord shall give Tenant specific,
written notice thereof, and Tenant shall have thirty (30) days thereafter to
cure such failure, or such longer period as is reasonably necessary. If such
failure is not cured within said thirty (30) days, Landlord, at its option, may
perform the necessary maintenance, replacement or repair. Should Landlord opt
not to perform the foregoing work, it shall not in any way be liable for any
damages sustained by Tenant, or any of Tenant's employees, invitees, licensees
etc. Landlord shall bill Tenant directly for all costs associated with the
necessary maintenance, replacement or repair including, but not limited to any
damage to third parties affected by Tenant's failure to perform said work, and
said amount shall be deemed Additional Rent and due Landlord with the next
monthly payment of fixed rent. Failure of Tenant to comply with this Section
7.01 (B) shall be deemed an Event of Default under this lease, but only if
Tenant fails to cure such default prior to the expiration of the applicable
grace period provided in Article XVIII.

      SECTION 7.03. Landlord shall maintain in good condition the following with
the cost for same to be deemed Reimbursements and the Tenant shall be
responsible for Tenant's Share of such costs in accordance with Article V: The
roof and structural parts of the building and other improvements in which the
Demised Premises are located, which structural parts include the foundations,
bearing and exterior and exterior walls (excluding glass and doors and the
frames and molding thereof), and the electrical, plumbing and sewage systems
lying outside the Demised Premises. Notwithstanding the foregoing, any damage to
the roof or structure caused by (i) any negligent act or omission by Tenant, its
agents, employees or invitees, (ii) any work done on the roof of the Demised
Premises by Tenant, its agents or employees, or (iii) vandalism or theft by
Tenant, its agents, employees or invitees shall be paid for in full by Tenant.

      SECTION 7.04. If Landlord fails to perform any of its obligations under
Section 7.02, Tenant shall give Landlord specific, written notice thereof, and
Landlord shall have thirty (30) days thereafter to cure such failure; provided,
however, that if such cure cannot reasonably be completed within such thirty
(30) day period, then Landlord shall, subject to Excusable Delays, commence to
cure same within thirty (30) days and diligently and in good faith continue to
cure such failure to completion. The failure of Landlord to perform any such
repairs shall not impose any liability on Landlord nor excuse any performance or
payment by Tenant required by this Lease

                                  ARTICLE VIII

                               TENANT'S INSURANCE

                                       9


      SECTION 8.01. Tenant, at its sole expense, shall maintain liability
insurance with liability limits for injury to persons of not less than Two
Million and 00/100 ($2,000,000.00) Dollars per person and Two Million and 00/100
($2,000,000.00) Dollars per occurrence, and for injury to property of not less
than One Million and 00/100 ($1,000,000.00) Dollars per occurrence, insuring
against all liability arising out of the use or occupancy of the Demised
Premises. All such insurance shall insure performance by Tenant of the indemnity
provisions of Article XV and shall name Landlord, Tenant and such other persons
with an interest in the Building as Landlord shall designate as the insureds.

      SECTION 8.02. Tenant covenants and represents, said representation being
specifically designed to induce Landlord to execute this Lease, that Tenant's
personal property and fixtures and any other items which Tenant may bring to the
Premises which may be subject to any claim for damages or destruction due to
Landlord's negligence shall be fully insured by a policy of insurance covering
all risks with no deductible which policy shall specifically provide for a
waiver of subrogation for Landlord and all Building tenants without regard as to
whether or not same shall cost an additional premium and notwithstanding
anything to the contrary contained in this Lease. Should Tenant fail to maintain
said all risk insurance with the required waiver of subrogation, or fail to
maintain the liability insurance, naming Landlord as an additional named
insured, then Tenant shall be in default hereunder and shall be deemed to have
breached its covenants as set forth herein, and such breach shall constitute an
Event of Default, unless Tenant cures such breach within the applicable grace
period provided in Article XVIII.

      SECTION 8.03. Tenant shall insure the improvements on the property in an
amount equal to the full replacement value of the improvements. Such replacement
value shall be determined from time to time but not more frequently than once in
any one sixty (60) consecutive calendar months at the request of Landlord by an
appraiser, architect or contractor who shall be mutually and reasonably
acceptable to Landlord and Tenant.

                  A. Insurance proceeds shall be held in an interest bearing
account maintained by the attorneys for Landlord and Tenant or if Tenant's
Mortgagee so requires, then such insurance proceeds shall be held by Tenant's
Mortgagee, The proceeds shall first be used to pay Tenant's mortgage, if
Tenant's Mortgagee so elects, and the balance shall be used to construct or
reconstruct buildings or improvements having value substantially equivalent to
or greater than the value of the building(s) or improvement(s) damaged or
destroyed. Tenant shall be responsible to provide any additional funds above
available insurance proceeds to complete the reconstruction. Progress payments
for reconstruction shall be paid to Tenant upon the written request of Tenant
which shall be accompanied by reasonable evidence signed by Tenant, or the
executive officer of Tenant, or by the architect or engineer in charge of such
construction, dated not more than thirty (30) days prior to such request,
setting forth the following:

                  B. That the sum then requested either has been paid by Tenant,
or is justly due to contractors, subcontractors, material men, engineers,
architects or other persons who have rendered services or furnished materials
for the restoration therein specified, and giving a brief description of such
services and materials and the several amounts so paid or due to each of said
persons in respect thereof, and stating that no part of such expenditures has
been or is being made the basis, in any previous or then pending request, for
the payment of such monies or has been made out of the proceeds of such monies
received by Tenant, and that the sum then requested does not exceed the value of
the services and materials described in the certificate.

                  C. That except for the amount, if any, stated pursuant to the
foregoing sub clause A in such certificate to be due for services and materials,
there is no outstanding indebtedness shown on Tenant's books or known to the
person signing such certificate, after due inquiry, for which payment was made
under any prior requisition for labor, wages, materials, supplies or services in
connection with such construction work, which if unpaid, might become the basis
of a vendor's, mechanics, laborer's or material men's statutory or similar lien
upon such construction or upon the Demised Premises or any part thereof.

                  D. An official search of the public records or a search of a
title insurance company doing business in the State of New Jersey showing that
there has not been filed with respect to the Demised Premises, or any part
thereof, any vendor's mechanic's, laborer's, material men's or like lien, which
has not been discharged or record, except such as will be discharged by payment
of the amount then requested.

                  E. If the net money as aforesaid at the time held by the
attorneys for Landlord and Tenant, or Tenant's mortgagee, as the case may be,
shall be insufficient to pay the entire cost of such construction, Tenant shall
pay the deficiency. If, on the other hand, there are any surplus funds held by
such attorneys or mortgagee, as the case may be, after payment of all costs of
restoration, such funds shall be paid over to Tenant.

      SECTION 8.04. All insurance required under this Lease shall be issued by
insurance companies of recognized responsibility which are authorized to do
business in the State, having a Best Rating of B+ or

                                       10


better. Tenant, prior to entering on the Demised Premises, shall deliver to
Landlord each policy or a certificate evidencing such policy, together with
evidence of payment of premiums for all policies of insurance required to be
maintained by Tenant pursuant to the terms of this Lease. Within thirty (30)
days prior to the anniversary date of each policy of insurance required to be
maintained by Tenant pursuant to the terms of this Lease, Tenant shall deliver
to Landlord evidence of renewal of such policies, together with evidence of
payment of premiums for all such policies. Each policy shall be issued as a
primary policy not contributing with and not in excess of coverage of any
insurance which Landlord may carry, and shall contain an endorsement requiring
thirty (30) days' written notice from the insurance company to Landlord before
cancellation or change in the coverage, scope or amount of any policy.

                                   ARTICLE IX

              LIMITATIONS ON USE; RULES AND REGULATIONS; TRADE NAME

      SECTION 9.01. Tenant shall use the Demised Premises for the Permitted Use
only and shall not use or permit the Demised Premises to be used for any other
purpose without the prior written consent of Landlord, which consent will not be
unreasonably withheld or delayed. Tenant acknowledges that Landlord may covenant
with other tenants of the Building to restrict specific uses elsewhere in the
Building, and Tenant agrees, upon written notice from Landlord, to thereafter
immediately refrain from any use of the Demised Premises which is violative of
such covenant(s). Any breach of this Article shall constitute an Event of
Default, but only if Tenant fails to cure such breach within the applicable
grace period provided in Article XVIII. This Section shall not prohibit Tenant
from operating a financial institution or other lawful use permitted under this
Lease.

      SECTION 9.02. Tenant shall not use or permit the Demised Premises to be
used in any manner that will constitute waste, nuisance, unlawful, immoral or
objectionable activity, or unreasonable annoyance (including, without limitation
the use of loudspeakers or sound or light apparatus that can be heard or seen
outside the Demised Premises) to other tenants in the Building or which will
cause an increase in rates or a cancellation of any insurance policy covering
the Building. Tenant shall not use the Demised Premises for the preparation,
manufacture or mixing of anything that might emit any objectionable odor or
objectionable noises or lights into the Building. No secondhand store, auction,
distress or fire sale, or bankruptcy or going-out-of-business sale may be
conducted on the Demised Premises without Landlord's written consent. Tenant
shall not sell or display merchandise outside the confines of the Demised
Premises or within the Common Areas. Tenant shall not do anything on the Demised
Premises that will in any manner injure, vibrate, or shake the Demised Premises
or overload the electrical system.

      SECTION 9.03. Tenant shall open the Demised Premises for the Permitted Use
for at least one day. If the Demised Premises are destroyed or partially
condemned, and this Lease remains in full force and effect, Tenant shall
continue operation of its business at the Demised Premises to the extent
reasonably practical from the standpoint of good business judgment during any
period of reconstruction. While open, Tenant shall maintain adequate personnel
for the efficient serving of its customers. Tenant agrees that Landlord shall
have the right to prohibit the continued use by Tenant of any method of business
operation, advertising or interior display if, in Landlord's reasonable opinion,
the continued use thereof would impair the reputation of the Building or is
otherwise out of harmony with the general character thereof, and upon notice
from Landlord, Tenant shall immediately refrain from or discontinue such
activities. Tenant shall employ its best efforts to operate the business
conducted on the Demised Premises in a manner consistent with a first class
building.

      SECTION 9.04. Tenant shall comply with the rules and regulations
hereinafter set forth in Exhibit E attached hereto and made a part hereof.
Landlord shall have the right from time to time to establish reasonable
amendments and additional rules in relation thereto. On delivery of a copy of
such rules and regulations to Tenant, Tenant shall comply with the rules and
regulations and any subsequent amendments thereto. Landlord shall make
reasonable efforts to enforce the rules and regulations uniformly against all
tenants in the Building, provided, however, that Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenant or occupant of the Building or for any failure
on the part of Landlord to enforce the same.

      SECTION 9.05. Tenant shall operate the Demised Premises under the
Permitted Trade Name and no other, so long as same shall not be held to be in
violation of any applicable law; provided, however, that the Permitted Trade
Name may be changed if Tenant changes its name, merges with another company or
assigns or sublets the Demand Premises with Landlord's consent, pursuant to
Article XIV.

                                    ARTICLE X

                         COMPLIANCE WITH APPLICABLE LAW

                                       11


      SECTION 10.01. Tenant shall not use the Demised Premises, or permit
anything to be done in or about the Demised Premises, which will in any way
conflict with any applicable law. Tenant shall, at its sole expense, promptly
comply with all applicable laws, including environmental laws, relating to or
affecting the condition, use or occupancy of the Demised Premises. Failure to
comply with any laws shall constitute an Event of Default, as hereinafter
defined, but only if Tenant fails to cure such failure whether the applicable
grace period provided in Article XVIII.

                                   ARTICLE XI

                         PREPARATION OF DEMISED PREMISES

      SECTION 11.01. Landlord, at its expense, shall perform the work set forth
on Exhibit B (hereinafter referred to as "Landlord's Work"). All other work done
by Landlord at Tenant's request shall be at Tenant's expense and shall be paid
for within five (5) days after the presentation to Tenant of a bill for such
work. Acceptance of possession by Tenant shall be conclusive evidence that
Landlord's Work has been fully performed in the manner required. Any items of
Landlord's Work which are not completed as of Commencement Date shall be
identified by Tenant on a punchlist to be submitted to Landlord at the
Commencement Date and Landlord shall thereafter complete the same. Any items of
Landlord's Work which are not timely identified on such punchlist shall be
deemed completed.

      SECTION 11.02. The Landlord will make every effort to complete Landlord's
Work on or before the anticipated Commencement Date of the Term, provided that
if there shall be a delay in such completion beyond such date, the Term of this
Lease shall be extended by an equal period of time so that this Lease shall
continue for the Term of Ten (10) years after completion of Landlord's Work. The
Landlord and the Tenant shall execute a written instrument to confirm any
modification in the dates of the Term by reason of delay in completing
Landlord's Work.

      SECTION 11.03. The Landlord's Work shall be deemed completed and the Term
of this Lease and Tenant's obligations hereunder shall commence on the date when
the Landlord shall deliver to the Tenant a letter stating that Landlord's Work
is substantially completed, subject only to normal punchlist items.

      SECTION 11.04. The Landlord will perform the Landlord's Work in a good and
workmanlike manner. Landlord may substitute material called for in Exhibit B,
provided same is of equal or greater quality.

                                   ARTICLE XII

                                  TENANT'S WORK

      SECTION 12.01. Subject to Landlord's obligations under Article XI, Tenant
agrees to accept the Demised Premises in an "AS IS" condition as of the
Commencement Date without any representations or warranties on the part of
Landlord. Except as otherwise specifically provided in this Lease, Landlord has
not made any representations or warranties of any kind to Tenant. No
representations or warranties of any kind made by anyone, including without
limitation, any real estate broker or agent, shall be binding upon Landlord
unless expressly set forth in this Lease.

Tenant may, at any time and from time to time, alter, expand, demolish, restore,
modify or change any such improvements in whole or in part provided that Tenant
shall first obtain Landlord's written approval, which approval shall not
unreasonably be withheld. Tenant's improvements on the Premises must have a
value substantially equivalent to or greater than the improvements which were
originally approved by Landlord. All work done which is required to be performed
to permit Tenant's occupancy and use of the Demised Premises for the Permitted
Use shall be performed by Tenant, at its sole expense, and Landlord shall not be
required to perform or to bear any of the expenses for such work. All of such
work shall be performed in a diligent manner.

      SECTION 12.02. Any Tenant's Work made shall remain on and be surrendered
with the Demised Premises on expiration or termination of the Term.

      SECTION 12.03. Tenant shall have no power to do any act or make any
contract which may create or be the foundation for any lien, mortgage or other
encumbrance upon the estate of Landlord in the Building, or any part thereof.
All Tenant's Work, repairs, materials and labor shall be done at Tenant's sole
expense, and Tenant shall be solely and wholly responsible to contractors,
laborers and materialmen and such contractors, laborers and materialmen are
hereby charged with notice that they must look solely and wholly to Tenant for
the payment of any bills for work done and materials furnished. Landlord
reserves the right, before approving any Tenant's Work, to require Tenant to
furnish it a good and sufficient bond to secure Tenant's liability for payment,
for Tenant's Work.

                                       12


      SECTION 12.04. Tenant shall procure and maintain an adequate workmen's
compensation insurance policy and such additional insurance policies as Landlord
shall reasonably request to insure against losses, damages or claims arising out
of or from Tenant's Work. Prior to the commencement of such Tenant's Work,
Tenant shall deliver to Landlord each policy, or a certificate evidencing such
policy, together with evidence of payment of premiums for all policies of
insurance required to be maintained by Tenant pursuant to this Section 12.06.

      SECTION 12.05. A. On and after the date of this Lease, Tenant may make,
from time to time, applications for Permits desired by Tenant; provided,
however, (i) that Landlord shall incur no costs or expenses in connection
therewith; and (ii) Tenant shall indemnify and save Landlord harmless from any
and all expenses, charges, claims or liability with respect thereof. As used
herein, Permits shall mean all permits and approvals (including, without
limitation, zoning, use, building, site plan and curb cut permits and approvals;
permits and approvals required by virtue of any of the federal or state
environmental laws as now enacted or hereafter amended or any similar statute,
regulation or requirement whether federal, state or local; and such other
permits and approvals which may be required to be issued by any local, state or
federal governmental body having jurisdiction over the Premises), licenses
subdivision and other approvals, certificates, exceptions, authorizations,
zoning changes, zoning variances and special exceptions, as may be required or
desired by Tenant to permit the lawful construction, installation, maintenance
and operation on the Demised Premises of such improvements as Tenant shall from
time to time desire. Tenant shall have no obligation to appeal the denial of any
Permits but may do so. The granting of any Permit shall not preclude Tenant from
reapplying for a similar Permit based upon different plans for the Demised
Premises.

                  B. Landlord shall fully cooperate with Tenant in connection
with all applications for Permits, including when required, the actual signing
or submission of any application or consent thereto.

      SECTION 12.06 Such improvements as may from time to time exist or be
constructed on the Demised Premises by Tenant shall be owned by Tenant until the
Termination Date or the sooner termination of this Lease. Upon such Termination
Date or sooner termination, Tenant shall automatically transfer ownership of
such improvements to Landlord without further documentation. If requested by
Landlord, Tenant shall execute to Landlord by bargain and sale deed without
payment of any consideration there for.

                                  ARTICLE XIII

                      LANDLORD'S ENTRY ON DEMISED PREMISES

      SECTION 13.01. Landlord and its authorized representatives shall have the
right to enter the Demised Premises at all reasonable times, upon reasonable
notice, except in the case of an emergency, for any purpose whatsoever,
including, without limitation, to post "for rent" or "for lease" signs during
the last six (6) months of the Term.

      SECTION 13.02. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of Landlord's entry on the Demised Premises as allowed in this Article XIII.
Tenant shall not be entitled to any abatement or reduction of rent if Landlord
exercises any rights reserved in this Article, and no such exercise of
Landlord's rights hereunder shall be deemed an eviction or disturbance of
Tenant's use and possession of the Demised Premises. Landlord shall use its best
efforts to conduct its activities on the Demised Premises as allowed in this
Section in a manner that will not cause unreasonable inconvenience, annoyance,
or disturbance to Tenant. Landlord reserves the right to run pipes, lines,
feeders or other systems throughout the land area of the Demised Premises,
subject to the provisions of this Section 13.02.

                                   ARTICLE XIV

                            ASSIGNMENT AND SUBLETTING

      SECTION 14.01. Tenant shall not assign or encumber its interest in this
Lease or in the Demised Premises, or sublease all or any part of the Demised
Premises, or sublease all or any part of the Demised Premises, or allow any
other person or entity (except Tenant's authorized representatives) to occupy or
use all or any part of the Demised Premises without first obtaining Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Any assignment, encumbrance, or sublease without Landlord's prior
written consent shall be void and shall constitute an Event of Default under
this Lease. No consent to any assignment, encumbrance, or sublease on any one
occasion shall constitute a consent to any

                                       13


subsequent assignment, encumbrance or sublease, it being agreed that Tenant must
first obtain Landlord's prior written consent on each occasion. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary, or by operation of
law, or any partner or partners owning fifty (50%) percent or more of the
partnership, or the dissolution of the partnership, shall be deemed an
assignment and shall require Landlord's prior written consent. The sale of all
or substantially all of the assets or capital stock of the Tenant, by way of
merger or acquisition, shall not constitute an assignment requiring the consent
of the Landlord..

      SECTION 14.02. With respect to any proposed sublease or assignment, Tenant
shall submit to Landlord all documents, information and agreements concerning
the same, and prior to the effective date of any such sublease or assignment,
Landlord shall have the option, exercisable in writing to Tenant, to recapture
the within Lease so that such prospective sublessee or assignee shall then
become the sole tenant of Landlord hereunder, or alternatively to recapture said
space, and the within Tenant shall be fully released from any and all
obligations hereunder. Landlord may condition its consent to any assignment or
subletting upon any matters or things required by Landlord as it shall determine
in its reasonable discretion, including without limitation, Landlord's receipt
of a satisfactory attornment from the sublessee. Landlord may further condition
its consent to any subletting upon Landlord's receipt of a covenant by Tenant to
pay to Landlord, in addition to the Rent reserved hereunder, fifty percent (50%)
of any and all sums which Tenant may receive from such sublessee under the
sublease, directly or indirectly, which are in excess of the Rent after
deduction of the reasonable costs to Tenant of the subletting. The assignee or
sublessee shall assume, by written instrument, all of the obligations of this
Lease, and a copy of such assumption agreement shall be furnished to Landlord
within ten (10) days of its execution. The Tenant and each assignee shall be and
remain liable for the observance of all the covenants and provisions of this
Lease, including, but not limited to, the payment of Rent reserved herein,
through the entire Term of this Lease, as the same may be renewed, extended or
otherwise modified.

      SECTION 14.03. Tenant hereby immediately and irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, any sublease
which may be approved by Landlord and all rights and remedies of Tenant under
any such sublease. Landlord shall not have any obligations under any such
sublease. Tenant agrees to execute and deliver to Landlord any and all documents
requested by Landlord to evidence such assignment. Landlord, as assignee and as
attorney-in-fact for Tenant, or as a receiver for Tenant appointed on Landlord's
application, may collect the rent under any sublease and apply it toward
Tenant's obligations under this Lease.

      SECTION 14.04. In any event, the acceptance by the Landlord of any rent
from the assignee or from any of the subtenants or the failure of the Landlord
to insist upon a strict performance of any of the terms, conditions and
covenants herein shall not release the Tenant herein or the Guarantor, if any,
nor any assignee assuming this Lease, from any and all of the obligations herein
during and for the entire Term of this Lease.

      SECTION 14.05. Landlord shall have no right of approval or recapture with
respect to an assignment resulting from a merger of Tenant or from the sale of
50% or more of the stock or assets of Tenant or from the assignment of this
Lease to another financial institution as long as said financial institution has
an equal or greater net worth as the Tenant.

                                   ARTICLE XV

                           INDEMNIFICATION OF LANDLORD

      SECTION 15.01. In addition to any and all other obligations of Tenant to
indemnify and save Landlord harmless as set forth in this Lease, Tenant will
indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without limitation, any and all architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Landlord by reason of any of the
following occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Demised
            Premises, or any part thereof, by or at the direction of Tenant; or

                  (B) Any negligence on the part of Tenant, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                  (C) Any injuries to persons or property occurring on or about
            the Demised Premises, except if caused by the gross negligence of
            the Landlord, its employees, agents or invitees; or

                  (D) Any failure on the part of Tenant to perform or comply
            with any of the covenants, agreements, terms or conditions contained
            in this Lease on its part to be performed or complied with.

      SECTION 15.02. In addition to any and all other obligations of Landlord to
indemnify and save Tenant harmless as set forth in this Lease, Landlord will
indemnify and save harmless Tenant against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without

                                       14


limitation, any and all architects' and attorneys' fees, which may be imposed
upon or incurred by or asserted against Tenant by reason of any of the following
occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Common Areas,
            or any part thereof, by or at the direction of Landlord; or

                  (B) Any negligence on the part of Landlord, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                  (C) Any injuries to persons or property occurring on or about
            the Common Areas; or

                  (D) Any failure on the part of Landlord to perform or comply
            with any of the covenants, agreements, terms or conditions contained
            in this Lease on its part to be performed or complied with.

      SECTION 15.03. The provisions of this Article XV, and of any and all other
provisions in this Lease requiring Tenant to indemnify and save Landlord
harmless, shall survive the termination of this Lease. Tenant further covenants
and agrees to pay, and to indemnify Landlord against all reasonable costs,
expenses and charges, including, but not limited to, attorneys' fees, incurred
in obtaining possession of the Demised Premises after default by Tenant or upon
the expiration or earlier rightful termination of the Term or in successfully
enforcing any covenant of Tenant herein contained.

                                   ARTICLE XVI

                                FIRE AND CASUALTY

      SECTION 16.01. If the Demised Premises are damaged by fire or other
insurable casualty, then subject to provisions of Section 16.02, this Lease
shall remain in full force and effect, there shall be no rent abatement and,
subject to the adequacy and availability of insurance proceeds, Tenant shall
promptly repair such damage at its expense (subject to Excusable Delay).

      SECTION 16.02. If, in the reasonable opinion of Landlord, the Demised
Premises are damaged by fire or other casualty within the last year of the term,
to such an extent that the damage cannot be repaired or restored within one
hundred twenty (120) days from the date of such occurrence, then Landlord or
Tenant shall have the option to terminate this Lease by written notice given
within thirty (30) days after such occurrence; provided, however, that Tenant
may, within thirty (30) days, negate a termination by Landlord hereunder by
exercising a right to renew the Lease. If the above option is not or may not be
exercised by Landlord, then this Lease shall continue in full force and effect.
If the Lease is terminated as provided for in this Section, Tenant shall remain
liable for the Rent and Additional Rent which is due until the end of the Term.
Additionally, Tenant shall be responsible for the clearing of any remaining
structure or debris on the Demised Premises.

      SECTION 16.03. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, subject to the provisions of
Article XXX, Landlord shall have and retain any and all rights which it may then
have in law or equity against Tenant on account of such damage.

      SECTION 16.04. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, in addition to the option to
terminate this Lease, Landlord shall have and retain any and all rights which it
may then have in law or equity against Tenant on account of such damage.

      SECTION 16.05. Within sixty (60) days following the completion of the
Landlord's Work, Tenant shall complete its work on the Demised Premises.

                                  ARTICLE XVII

                                  CONDEMNATION

      SECTION 17.01. In the event that the Demised Premises or any part thereof
shall be taken in condemnation proceedings or by exercise of any right of
eminent domain or by agreement between Landlord, Tenant and those authorized to
exercise such right, Landlord, Tenant and any person or entity having an
interest in the award or awards shall have the right to participate in any such
condemnation proceedings or agreement for the purpose of protecting their
interests hereunder. Each party so participating shall pay their own expenses
with regard thereto.

                                       15


      SECTION 17.02.Subject to Section 17.03, if at any time during the term of
this Lease there shall be a taking of unimproved land, then and in that event,
Landlord herein shall be entitled to the full award for the land and any and all
damages by virtue of such taking, and this Lease shall continue in full force
and effect but the rent shall be reduced subsequent to the taking as provided in
Section 17.05. All provisions hereof shall continue in full force and effect and
the Demised Premises shall consist of that portion of the Demised Premises
remaining subsequent to such taking.

      SECTION 17.03.If at any time during the term of this Lease there shall be
a taking of the whole or substantially of all of the Demised Premises, this
Lease shall terminate and expire on the date of such taking and the Basic Rent
and Additional Rent shall be apportioned and paid as of the date of such taking.
For the purposes of this Article, substantially all of the Demised Premises
shall be deemed to be (a) a taking which reduces access to the Demised Premises,
or parking spaces adjacent to the Demand Premises, to the extent that the
business operations on the Demised Premises are materially adversely affected,
(b) a taking of all of the structures constructed upon the Demised Premises, or
(c) a taking of such portion of the Demised Premises which has a materially
adverse effect on the business operations then being conducted upon the Demised
Premises.

      SECTION 17.04.If this Lease shall have been terminated as a result of such
taking the award or awards paid pursuant to such condemnation proceedings or
agreement shall be distributed as follows:

                  A. All awards for unimproved land shall be paid to Landlord.

                  B. All awards for buildings, improved lands (e.g., parking
lots, buffer areas, roadways and landscaped areas) and other improvements upon
the Demised Premises shall (a) first be paid to any leasehold mortgagee of the
Demised Premises, and (b) the balance distributed as shall be determined in the
condemnation proceedings or if not determined in the condemnation proceedings,
then in accordance with the procedure set forth in Section 17.07 below.

      SECTION 17.05.Notwithstanding any other provision herein set forth, in the
event of taking of less than all of the Demised Premises, Landlord shall have
the right to elect to continue this Lease with regard to the remaining portions
of the Demised Premises subject to all of the terms and conditions hereof, it
being understood that the distribution of proceeds of any condemnation award
shall be made as hereinabove set forth; provided however;

                  A. That the Basic Rent payments hereunder shall be reduced
subsequent to the taking and thereafter Tenant shall be required to pay that
proportion of the Basic Rent as the area of the remaining land bears to the area
of the entire Demised Premises prior to the taking.

                  B. Tenant shall, after such taking, at its expense, either
restore the remaining building or buildings to a complete architectural unit or
construct new buildings or improvements having a value substantially equivalent
to or greater than the buildings and improvements (or portions thereof)
remaining after such taking, provided the condemnation proceeds payable to
Tenant are sufficient to do so.

      SECTION 17.06. In the event of a taking of an easement or any other taking
which shall be of an interest or estate in the land less than a fee simple,
which taking shall not materially adversely affect the business operations then
being conducted on the Demised Premises, such taking shall be deemed a taking
insufficient to terminate this Lease and the award therefore shall be paid fully
to Landlord for the taking of unimproved land and for other portions of the
Premises shall be distributed as hereinabove set forth.

      SECTION 17.07.In the event of any dispute between Landlord or Tenant with
regard to any issue or fact (other than one determined by condemnation
proceeding or condemnation commissioner arising out of a taking set forth herein
and other than one to he determined in accordance with clause B of this
Section), such dispute shall be resolved by arbitration in the manner
hereinafter prescribed.

                  A. If Landlord and Tenant are unable to agree upon the
distribution to Landlord and Tenant of their respective shares (the "Shares") of
a condemnation award, then same shall be determined in the following manner:
Within ten (10) days after the vesting of title pursuant to any such taking,
Landlord and Tenant shall each appoint on its behalf a disinterested third
person ("Appraiser") who shall be an appraiser who is a member of the American
Institute of Real Estate Appraisers and who shall have at least ten (10) years'
experience dealing with Middlesex County, New Jersey commercial real estate, and
each party shall give written notice of such appointment to the other party. The
two Appraisers thus appointed shall, within fifteen (15) days after appointment
of the second appraiser, determine the amount of such award representing the
Landlord's Share and the Tenant's Share in accordance with the above provisions.
If the difference in the determinations by such two Appraisers as to the amount
of such award representing the Shares does not exceed ten percent (10%:) of the
lower of

                                       16


such determinations, then such Shares shall be the average of the determinations
by such two Appraisers. If, however, the difference in the determinations by
such two Appraisers as to the amount of such award representing the Shares
exceeds ten (10%) percent of the lower of such determinations, then such two
Appraisers shall appoint a third Appraiser, and said three Appraisers shall, as
promptly as possible, determine the amount of the award representing the Shares.
The decision of a majority of the three (3) Appraisers shall be conclusive and
binding on Landlord and Tenant and judgment upon the decision may be entered in
any court having jurisdiction. If a party who shall have the rights pursuant to
the foregoing to appoint an Appraiser fails or neglects to do so, then the other
party (or if the two Appraisers appointed by Landlord and Tenant shall fail to
appoint a third Appraiser if required to do so under the provisions of this
paragraph B, then either Landlord or Tenant) may apply to the Assignment Judge
of New Jersey Superior Court, Middlesex County, New Jersey, or such other
judicial authority to appoint such Appraiser. The expenses of the determination
shall be shared equally by Landlord and Tenant, but each party shall be
responsible for the fees of its own attorney and Appraiser. Landlord and Tenant
agree to sign all documents and to do all other things reasonably necessary to
submit any dispute regarding the Shares to a determination in accordance with
this paragraph B and further agree to, and hereby do, waive any and all rights
they or either of them may at any time have to revoke their agreement to
determine the value of the Shares in accordance with this paragraph B and to
abide by the decision rendered hereunder. The appraisers shall be bound by the
provisions of this article.

      SECTION 17.08. If the Term of this Lease shall not be terminated as
aforesaid, then the Term of this Lease shall continue in full force and effect,
and subject to the adequacy and availability of condemnation proceeds, Tenant
shall within a reasonable time after possession is physically taken (subject to
Excusable Delays) repair or rebuild what may remain of the Demised Premises for
the occupancy of Tenant; and a just proportion of the Fixed Rent shall be
abated, according to the nature and extent of the injury to the Demised
Premises, until what may remain of the Demised Premises shall be repaired and
rebuilt as aforesaid; and thereafter a just proportion of the Fixed Rent shall
be abated, according to the nature and extent of the Demised Premises acquired
or condemned, for the balance of the Term of the Lease.

      SECTION 17.09. Any damages payable for trade fixtures installed by Tenant
at its own cost and expense and which are not part of the realty and for
relocation expenses shall belong entirely to Tenant and Landlord shall make no
claim thereto.

      SECTION 17.10. In the event fifty (50%) percent or more of the Building is
taken by condemnation, Tenant, upon thirty (30) days written notice, shall have
the right to terminate this Lease.

                                  ARTICLE XVIII

                                EVENTS OF DEFAULT

      SECTION 18.01. Failure to pay Rent or any other payment required to be
made by Tenant under the terms of this Lease, when due, and the continuation of
such failure for a period of five (5) days after the payment shall be due;

      SECTION 18.02. Abandonment and vacating of the Demised Premises (failure
to occupy and operate the Demised Premises for fifteen [15] consecutive days or
more shall be deemed an abandonment and vacating);

      SECTION 18.03. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant (other than the failure to pay Rent or make other payments as set forth
in Section 18.01), where such failure shall continue for a period of thirty (30)
days after written notice to Tenant;

      SECTION 18.04. The making by Tenant of any general assignment or
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty [60] days; or
unless Landlord has received adequate assurances of future performance as then
required under the federal bankruptcy law in connection with building leases);
or the appointment of a trustee or a receiver to take possession of
substantially all of Tenant's assets located at the Demised Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Demised Premises or of
Tenant's interest in this Lease, where such seizure is not discharged in thirty
(30) days;

      SECTION 18.05. The default by Tenant or any affiliate of Tenant with
respect to any other lease or agreement between it and Landlord or any affiliate
of Landlord;

                                       17


      SECTION 18.06. This Lease or any interest therein by operation of law
devolves upon or passes to any person or persons other than Tenant, except upon
the sale of all or substantially all of the assets or capital stock of the
Tenant by way of merger or acquisition;

      SECTION 18.07. The assignment or subletting of all or any portion of this
Lease or the Demised Premises in violation of Article XIV;

      SECTION 18.08. The failure of Tenant to move into and take possession of
the Demised Premises and open for business within thirty (30) days after the
Commencement Date; or

      SECTION 18.09. Any representation or warranty made by Tenant in connection
with this Lease shall prove to have been false in any material respect.

                                   ARTICLE XIX

                               LANDLORD'S REMEDIES

      SECTION 19.01. If an Event of Default shall occur, Landlord may exercise
one or more of the following remedies, all of which shall be cumulative and in
addition to any remedies available under applicable law:

                  (A) Without any further notice or demand, terminate this
            Lease, and Tenant will forthwith quit and surrender the Demised
            Premises, but Tenant shall remain liable as hereinafter provided;

                  (B) Re-enter and resume possession of the Demised Premises and
            remove all persons and property by summary dispossess proceedings,
            by appropriate proceedings, without being liable for any damages
            therefor, and no re-entry shall be deemed an acceptance of a
            surrender of this Lease;

                  (C) Proceed to collect any Rent from Tenant then due by one or
            more proceedings;

                  (D) Exercise any remedy available at law or in equity to
            enforce the provisions of this Lease, to recover any damages for a
            breach of this Lease or to prevent any breach or threatened breach
            of this Lease; and/or

                  (E) Recover from Tenant on demand an amount equal to all
            expenses, including reasonable attorney's fees incurred by Landlord
            as a result of an Event of Default or the exercise of its rights and
            remedies, all reasonable costs and charges for the care of the
            Demised Premises while vacant, and all charges and expenses incurred
            by Landlord in connection with the reletting of the Demised
            Premises, including broker's commissions, advertising expenses, and
            the costs of repairing, renovating or remodeling the Demised
            Premises.

      SECTION 19.02. If this Lease shall be terminated, as provided in this
Article XIX:

                  (A) Landlord may relet the whole or any part of the Demised
            Premises for a period equal to, or greater or less than the
            remainder of the then Term of this Lease, at such rental and upon
            such terms and concessions as Landlord shall deem reasonable, to any
            person which it may deem suitable and satisfactory and for any use
            and purpose which it may deem appropriate. In no event shall
            Landlord be liable in any respect for failure to collect the rent
            thereunder. Any sums or other consideration received by Landlord on
            a reletting in excess of the rent reserved in this Lease shall
            belong to Landlord.

                  (B) If this Lease shall be terminated and whether or not the
            Demised Premises shall be relet, Landlord shall be entitled to
            recover from Tenant an amount equal to all Rent and other charges
            required to be paid by Tenant under this Lease, less the net rent,
            if any, collected by Landlord on reletting the Demised Premises.
            Such amount shall be due and payable by Tenant to Landlord on the
            several days on which such Rent and other charges would have become
            due and payable had this Lease not been terminated, and Tenant shall
            pay to Landlord the amount of any deficiency

                                       18


            then existing. The net rent collected by Landlord on reletting shall
            be computed by deducting from the gross rents collected the
            expenses, costs and charges referred to in Subsection 19.01(E).
            Without any previous notice or demand, separate actions may be
            instituted by Landlord against Tenant from time to time to recover
            any damages which at the commencement of any such action shall have
            become due and payable to Landlord under any provisions hereof
            without waiting until the end of the original Term of this Lease,
            and neither the institution of suit or suits, nor the entering of
            judgment therein shall bar Landlord from bringing a subsequent suit
            for damages of any kind. It is expressly agreed that the forbearance
            on the part of Landlord in the institution of any suit or entry of
            judgment for any part of the Rent shall in no way serve as a defense
            against nor prejudice a subsequent action for such Rent. Tenant
            hereby expressly waives Tenant's right to claim a merger of such
            subsequent action in any previous suit or in the judgment entered
            therein. Furthermore, it is expressly agreed that claims for Rent
            may be regarded by Landlord, if it so elects, as separate claims
            capable of being assigned.

                  (C) Landlord, at its election, which shall be exercised by the
            service of a written notice on Tenant, may collect from Tenant and
            Tenant shall pay in lieu of the sums becoming due after the service
            of such notice under the provisions of this Subsection 19.02(C) an
            amount equal to the difference between the Rent required to be paid
            by Tenant under this Lease (form the date of the service of such
            notice to and including the date of the expiration of the Term of
            this Lease which had been in force immediately prior to any
            termination effected under this Section) and the then fair and
            reasonable rental value of the Demised Premises for the same period,
            discounted to present value at the rate of six (6%) percent per
            year. In determining the rental value of the Demised Premises, the
            rental realized by any reletting shall be deemed prima facie
            evidence thereof.

      SECTION 19.03. Tenant hereby expressly waives any rights of redemption
granted by any laws in the event of any eviction or dispossession, any notices
which may be required prior to the commencement of any proceeding for possession
of the Demised Premises.

      SECTION 19.04. The Landlord and the Tenant waive trial by jury in any
action, proceeding or counterclaim brought by either the Landlord or the Tenant
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the Tenant's use or occupancy of the Demised
Premises, and/or any claim of injury or damage.

      SECTION 19.05. If Tenant shall fail to pay or perform any of its
obligations when due, then Landlord, in addition to any of its rights and
remedies under this Lease and without waiving its rights or remedies with regard
thereto, may cure such failure on the part of Tenant. Any sums expended by
Landlord to effect any such cure shall be payable by Tenant to Landlord within
30 days after demand, as Additional Rent.

                                   ARTICLE XX

                          SURRENDER OF DEMISED PREMISES

      SECTION 20.01. On expiration or termination of the Term, Tenant shall
surrender to Landlord the Demised Premises, in broom clean condition, and all
Tenant's improvements and alterations in good, clean, orderly and undamaged
condition (except for ordinary wear and tear occurring after the last necessary
maintenance made by Tenant, destruction of the Demised Premises covered by
Article XVI and alterations that Tenant has the right to remove or is obligated
to remove under the provisions of Article XII). Tenant shall remove all its
personal property and shall deliver to Landlord all keys to the Demised Premises
within the above stated time. Tenant shall immediately perform all restoration
made necessary by the removal of any alterations or Tenant's personal property.
Tenant shall be liable to Landlord for any cost incurred by Landlord to repair
any damage to the Demised Premises caused by Tenant.

      SECTION 20.02. Landlord can elect to retain or dispose of in any manner
any alterations or Tenant's personal property that Tenant does not remove from
the Demised Premises on expiration or termination of the Term as allowed or
required by this Lease by giving at least ten (10) days' notice to Tenant. Title
to any such alterations or Tenant's personal property that Landlord elects to
retain or dispose of on expiration of the ten (10) day period shall vest in
Landlord. Tenant waives all claims against Landlord for any damage to Tenant
resulting from Landlord's retention or disposition of any such alterations or
Tenant's personal

                                       19


property. Tenant shall be liable to Landlord for Landlord's costs for storing,
removing, and disposing of any alterations or Tenant's personal property.

      SECTION 20.03. If Tenant fails to surrender the Demised Premises to
Landlord on expiration or termination of the Term, Tenant shall hold Landlord
harmless from all damages resulting from Tenant's failure to surrender the
Demised Premises, including, without limitation, claims made by a succeeding
tenant resulting from Tenant's failure to surrender the Demised Premises.

                                   ARTICLE XXI

                                  HOLDING OVER

      SECTION 21.01. If Tenant, with Landlord's express written consent, remains
in possession of the Demised Premises after expiration or termination of the
Term, or after the date in any notice given by Landlord to tenant terminating
this lease, such possession by Tenant shall be deemed to be a month-to-month
tenancy terminable on thirty (30) days' notice given at any time by either
party. During any such month-to-month tenancy, Tenant shall pay all Rent
required by N.J.S.A. 2A:42-5.

      SECTION 21.02. If Tenant, without Landlord's express written consent,
remains in possession of the Demised Premises after expiration or termination of
the Term, or after the date in any notice given by Landlord to Tenant
terminating this Lease, Tenant shall pay to Landlord Rent as required by
N.J.S.A. 2A:42-6 for the time Tenant retains possession of the Demised Premises
or any part thereof after termination of the Term by lapse or otherwise.

                                  ARTICLE XXII

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXIII

                                  COMMON AREAS

      SECTION 23.01. During the Term of this Lease and any extension thereof,
Tenant and its authorized representatives and invitees shall have the
nonexclusive right to use the Common Areas, with others who are entitled to use
the Common Areas, subject to Landlord's rights as hereinafter provided.
Notwithstanding the aforesaid, Tenant shall not create any disturbance in the
Common Areas nor shall Tenant create any noise from loudspeakers or otherwise,
or permit any noise to be emanated from the Demised Premises nor shall Tenant
distribute any leaflets, advertisements or other materials in the Common Areas.

      SECTION 23.02. Landlord shall have the right to designate specific parking
spaces and loading facilities for use by Tenant and its employees. Where there
is a rear entrance, all loading and unloading of goods shall be made at the rear
entrance. Upon Landlord's demand, Tenant shall submit to Landlord a list of the
license plate numbers for all motor vehicles owned or operated by Tenant and its
employees. Notwithstanding the above, any armored cars that load or unload at
this site may do so at any entrance to the Demised Premises.

      SECTION 23.03. Tenant, at its sole cost and expense, shall maintain,
repair, replace and keep in good condition the Common Areas including but not
limited to parking lot, sidewalk, curbs, signs, lights, landscaping and snow
plowing. Landlord shall have, at any time, the right to establish reasonable
rules and regulations as to the Common Areas, close any of the Common Areas,
either permanently or temporarily, make changes to the Common Areas in any
regard and for any purpose and to hire any person or business to manage and
operate the Common Areas on such terms as Landlord shall determine, all in
accordance with good building practices. Landlord will not construct additional
buildings which will obstruct the visibility of or access to the Demised or
which will materially reduce parking adjacent to the Demised Premises in the
Building.

                                  ARTICLE XXIV

                                      SIGNS

                                       20


      SECTION 24.01. Landlord shall have the right to establish policies and
standards for the size, location, quality, number, color and type of signs which
Tenant may install in or upon the Demised Premises. Such policies and standards
are set forth herein as well as in Exhibit "C" attached hereto. Tenant shall
comply with all of such policies and standards as they may be changed from time
to time and shall install such signs as may be required by Landlord. No signs
shall be installed by Tenant in or upon the Demised Premises until after
Landlord has approved in writing the construction (including all connections),
drawings and specifications pertaining to the signs.

      SECTION 24.02. Tenant shall pay for all signs, their installation,
maintenance and removal. Tenant, at Tenant's sole cost and expense, shall obtain
all necessary permits and approvals from the local governmental agency having
jurisdiction thereof. All work must be of good quality. Landlord shall have the
right to reject any work judged below standard. All signs shall be constructed
and installed by contractors qualified to fabricate and install commercial
signs. Tenant shall maintain signs in a neat and attractive condition. The bulbs
of all permitted signs and lights, whether an exterior or interior sign, shall
be replaced as soon as they become defective or lose their intensity. The signs
and supports shall be kept painted to maintain attractive conditions and to
prevent rust, rot or deterioration. Landlord shall have the right to remove the
signs or any of them, at any time during the term of this Lease, as may be
necessary in order to paint or make any other repairs, alterations or
improvements in or upon the Building, providing the same be removed and replaced
at Landlord's expense upon completion of said work. Tenant shall keep its signs
illuminated from dusk to dawn.

                                   ARTICLE XXV

                  SUBORDINATION; TENANT'S ESTOPPEL CERTIFICATE

      SECTION 25.01. This Lease is and shall be subordinate to any mortgage,
encumbrance or ground lease now or hereafter imposed upon or affecting the
Building, or any part hereof. Such subordination is effective without any
further act of Tenant. Tenant shall from time to time on request from Landlord
execute and deliver any documents or instruments that may be required by a
lender or ground lessor to effectuate any subordination. If Tenant fails to
execute and deliver any such documents or instruments, Tenant irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such documents or instruments. Tenant
agrees to execute any subordination agreement referred to above provided the
lender simultaneously agrees to a non-disturbance of the tenancy so long as the
Tenant is not in default.

      SECTION 25.02. Within ten (10) days after notice from the other Landlord
or Tenant shall execute and deliver to the other a statement in writing
certifying such matters as requested by the other, including that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modifications, the amount of Fixed Rent, the dates to
which the Rent has been paid in advance, and the amount of any security deposit
or prepaid rent.

      SECTION 25.03. As a condition to the effectiveness of this Lease, Tenant
must receive a nondisturbance agreement from the ground lessor and any existing
mortgagee and any subordination to a future mortgage must be subject to such an
agreement.

                                  ARTICLE XXVI

                         NATURE OF LANDLORD'S LIABILITY

      SECTION 26.01. It is specifically understood and agreed by Tenant that
there shall be absolutely no personal liability on the part of Landlord or on
the part of the members of Landlord, or, if Landlord or any successor in
interest shall be an individual, joint venture, tenancy in common, firm or
partnership, general or limited, or a trust or a corporation, there shall be no
personal liability on such individual or the members of the firm, partnership,
joint venture, tenancy in common or the trustee or beneficiaries under any such
trust, in each case with respect to any of the terms of this Lease. Tenant shall
look solely to the equity, if any, of Landlord in the Demised Premises for the
satisfaction of each and every remedy of Tenant in the event of any breach by
Landlord of any of the terms of this Lease to be performed by Landlord. The
foregoing exculpation of personal liability shall be absolute and without any
exception whatsoever.

      SECTION 26.02. If Landlord sells or transfers all or any portion of the
Building, Landlord, on consummation of the sale or transfer, shall be released
from any liability thereafter accruing under this Lease and the transferee shall
be automatically responsible for future performance of the Landlord under this
Lease.

      SECTION 26.03. Landlord shall not be liable for failure to furnish any
services when such failure is due to Excusable Delay. Landlord shall not be
liable, under any circumstances, including, but not limited to, that arising
from the negligence of Landlord, its agents, servants or invitees, or from
defects, errors or

                                       21


omissions in the construction or design of the Demised Premises and/or the
Building, including the structural and nonstructural portions thereof, for loss
of or injury to Tenant or to property, however occurring, through or in
connection with or incidental to the furnishing of, or failure to furnish, any
of the aforesaid services or for any interruption to Tenant's business however
occurring. Landlord and its agents shall not be liable for any loss or damage to
property entrusted to their employees or agents, nor for loss of property by
theft. Landlord and its agents shall not be liable for any injury or damage to
persons or property resulting from falling plaster, or from steam, gas, water or
snow which may leak from any part of the Building, or from the pipes or
appliances therein, or from any other part thereof, or from the sub-surface
thereunder, or from dampness, or from any other cause. Notwithstanding the
above, Landlord shall not be exculpated from any injury or damages to the Tenant
or Tenant's property which is caused by Landlord's gross negligence or the gross
negligence of Landlord's employees, agents or invitees.

      SECTION 26.04. This Lease and the obligations of Tenant to pay all Rent
and perform all of its obligations shall in no way be impaired, affected or
excused because Landlord is unable to fulfill its obligations or unable to or
delayed in supplying any service or performing any obligations, including
without limitation, any repairs or work to be done by Landlord, subject to the
self-help provisions contained within this Lease.

      SECTION 26.05. It is expressly agreed that nothing in this Lease shall be
construed as creating a partnership or joint venture between Landlord and
Tenant, or between Landlord or any other party, or cause Landlord to be
responsible for any debts or obligations of Tenant.

                                  ARTICLE XXVII

                                     WAIVER

      SECTION 27.01. No delay or omission in the exercise of any right or remedy
of Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent
shall not constitute a waiver of any default. No act or conduct of Landlord,
including, without limitation, the acceptance of the keys to the Demised
Premises, shall constitute an acceptance of the surrender of the Demised
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Demised
Premises and accomplish a termination of the Lease. Landlord's consent to or
approval shall not be deemed to waive or render unnecessary Landlord's consent
to or approval of any subsequent act by Tenant. Any waiver by Landlord or Tenant
of any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.

      SECTION 27.02. The parties hereto waive a trial by jury of any and all
issues arising in any action or proceeding between them or their successors
under or connected with this Lease or any of its provisions, any negotiations in
connection therewith, or Tenant's use or occupancy of the Demised Premises. In
case Landlord shall commence summary proceedings or an action for nonpayment of
Basic Rent or additional rent hereunder against Tenant, Tenant shall not
interpose any counterclaim of any nature or description in any such proceeding
or action unless compulsory under existing court rules, but shall be relegated
to an independent action at law.

                                 ARTICLE XXVIII

                                 QUIET ENJOYMENT

      SECTION 28.01. Landlord covenants that if, and so long as, Tenant pays the
Fixed Rent and any Additional Rent as herein provided, and performs the
covenants hereof, Landlord shall do nothing to affect Tenant's right to
peaceably and quietly have, hold and enjoy the Demised Premises for the Term
herein mentioned, subject to the provisions of this Lease and to the terms of
all covenants, restrictions, easements and encumbrances (but subject to Section
25.03) now or hereafter affecting fee title to, or Landlord's interest in, the
Building.

                                  ARTICLE XXIX

                             INTENTIONALLY OMMITTED

                                   ARTICLE XXX

                              WAIVER OF SUBROGATION

                                       22


      SECTION 30.01. In the event of any loss or damage to the Building, the
Building, the Demised Premises and/or any contents (herein "property damage"),
each party waives all claims against the other for any such loss or damage and
each party shall look only to any insurance which it has obtained to protect
against such loss (or in the case of Tenant, waives all claims any tenant of the
Building that has similarly waived claims against such Tenant) and each party
shall obtain, for each policy of such insurance, provisions waiving any claims
against the other party (and against any other tenant(s) in the Building that
has waived subrogation against the Tenant) for loss or damage within the scope
of such insurance.

                                  ARTICLE XXXI

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXXII

                                  MISCELLANEOUS

      SECTION 32.01. TIME OF ESSENCE. Time is of the essence of each provision
of this Lease and for the performance of any obligation hereunder.

      SECTION 32.02. BINDING ON SUCCESSORS. Subject to the provisions hereof
with respect to assignment and subletting, this Lease shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, assigns, subtenants and successors in interest.

      SECTION 32.03. NOTICE. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by certified mail, return receipt requested, express mail or overnight
courier, and addressed to the other party at the address set forth at the
beginning of this Lease. Either party may change its address by giving a notice
thereof to the other party in accordance with this Section.

      SECTION 32.04. COMMISSIONS. Landlord and Tenant each represents to the
other, knowing that the other shall rely upon same, that neither has dealt with
any real estate broker, finder of other person in connection with this Lease,
the Building or the Demised Premises and no such real estate broker is entitled
to a commission as a result of this Lease. Each shall hold harmless the other,
its employees, agents and assigns, from and against all claims, demands, actions
and liabilities, expenses and other damages, including attorneys' fees incurred,
resulting from any claims that may be asserted against Landlord or Tenant by any
broker, finder or other person with whom Landlord or Tenant has or purportedly
has dealt and any claim of, or right to lien under the Statutes of the State of
New Jersey relating to real estate broker liens, with respect to any such
broker.

      SECTION 32.05. GOVERNING LAW. This Lease shall be construed and
interpreted in accordance with the laws of the State of New Jersey.

      SECTION 32.06. ENTIRE AGREEMENT. This Lease contains the entire agreement
of the parties and cannot be amended or modified except by a written agreement.
Neither Landlord nor anyone acting on its behalf has made any statement, promise
or agreement which in any way modifies, varies, alters, enlarges or invalidates
the provisions of this Lease, or the obligations of Landlord or Tenant
hereunder.

      SECTION 32.07. CONSTRUCTION. The Landlord and the Tenant agree that each
party and its counsel have reviewed and revised this Lease and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Lease or any amendments, exhibits or schedules hereto.

      SECTION 32.08. CAPTIONS. The captions of this Lease shall have no effect
on its interpretation.

      SECTION 32.09. SEVERABILITY. The unenforceability, invalidity or
illegality of any provision of this Lease shall not render the other provisions
unenforceable, invalid or illegal.

      SECTION 32.10. SECTION REFERENCES. All references to Articles shall refer
to articles of this Lease.

      SECTION 32.11. MEMORANDUM OF LEASE. This Lease shall not be recorded,
except that if either party requests that the other do so, it shall execute a
Memorandum of Lease in recordable form.

      SECTION 32.12. AUTHORITY OF CORPORATE TENANT. If Landlord or Tenant is a
corporation, each individual executing this Lease on behalf of said corporation
represents and warrants that (i) he is duly authorized to execute and deliver
this Lease on behalf of said corporation in accordance with the by-laws and
pursuant to a duly enacted resolution of said corporation; (ii) that this Lease
is valid and binding upon said

                                       23


corporation and enforceable against Landlord or Tenant in accordance with its
terms; (iii) the execution and delivery of this Lease will not, with or without
the passage of time, violate any other agreement, lease or mortgage by which the
corporation is bound or by which the corporation's property is encumbered.

      SECTION 32.13. TENANT'S FINANCIAL CONDITION. Tenant represents and
warrants that all financial statements and other information submitted by, or on
behalf of, Tenant to Landlord in connection with this Lease are true and
complete in all material respects.

      SECTION 32.14. EXECUTION OF LEASE. The submission of this Lease to Tenant
for examination does not constitute an offer on the part of Landlord. This Lease
shall be effective only upon execution by Landlord and Tenant. Upon execution of
this Lease by Tenant and delivery of the executed Lease to Landlord, this Lease
shall constitute an option to Landlord for thirty (30) days to execute and
deliver this Lease, and said option may not be withdrawn during such thirty (30)
day period after delivery to Landlord. If Landlord shall not execute this Lease
within such thirty (30) day period, then the option shall be deemed withdrawn.

      SECTION 32.15. BUILDING EXCLUSIVES. N/A.

      SECTION 32.16. NET LEASE. It is the intention of these presents that
Landlord shall receive the Basic Rent herein reserved and all sum or sums which
shall or may become payable hereunder by Tenant under any contingency, free from
all taxes, charges, expenses, damages and deductions of every kind or sort
whatsoever except as otherwise expressly stated herein, and the Tenant shall and
will and hereby expressly agree to pay all such other sums which, except for the
execution and delivery of these presents, would have been chargeable against the
Demised Premises and payable by Landlord. Tenant, however, shall not be under
any obligation to pay any principal or interest on any mortgage which may be a
lien against the fee simple interest of Landlord on the Demised Premises, or
Landlord's estate or interest therein, or any franchise tax which is or may
become payable to Landlord or any gift, inheritance, transfer, estate or
succession tax by reason of any existing law or any law which may hereafter be
enacted or any judgments, liens, claims or demands asserted against Landlord
which are not specified as the obligation of Tenant herein and which do not
arise out of the use and occupancy of the Demised Premises by Tenant.

      SECTION 32.18. NO ORAL MODIFICATION All prior understandings and
agreements between the parties are merged within this Lease, which alone fully
and completely sets forth the understanding of the parties; and this Lease may
not be changed or terminated orally or in any manner other than by an agreement
in writing and signed by the party against whom enforcement of the change or
termination is sought.

      SECTION 32.19. EXTERMINATION. INTENTIONALLY OMMITTED

      SECTION 32.20. ATTORNEYS' FEES. If either party hereto be made or becomes
a party to any litigation commenced by or against the other party involving the
enforcement of any of the rights and remedies of such party, or arising on
account of the default of the other party in the performance of such party's
obligations hereunder, then the prevailing party in any such litigation, or the
party becoming involved in such litigation because of a claim against such other
party, as the case may be, shall receive from the other party all costs and
reasonable attorneys' fees incurred by such party in such litigation.

                                 ARTICLE XXXIII

                               LEASEHOLD MORTGAGES

      SECTION 33.01. Tenant and every successor and assign of Tenant (including,
but not limited to, any sublessee of Tenant, but only with Tenant's prior
consent) is hereby given the right by Landlord in addition to any other rights
herein granted, without Landlord's prior written consent, to mortgage its
interest in this Lease(s), or any part or parts thereof, and any sublease(s)
under one or more leasehold Mortgage(s), and assign this Lease, or any part or
parts thereof, and any sublease(s) as collateral security for such Mortgage (s),
upon the condition that all rights acquired under such Mortgage(s) shall be
subject to each and all of the covenants, conditions and restrictions set forth
in this Lease, and to all rights and interest of Landlord herein, none of which
covenants, conditions or restrictions is or shall be waived by Landlord by
reason of the right given so to mortgage such interest in this Lease, except as
expressly provided herein. If Tenant and/or Tenant's successors and assigns
(including, but not limited to, any sublessee of Tenant, but only with Tenant's
prior consent) shall mortgage this leasehold, or any part or parts thereof, and
if the holder(s) of such Mortgage(s) shall, within thirty (30) days of its
execution, send to Landlord a true copy thereof, together with written notice
specifying the name and address of the Mortgagee and the pertinent recording
date with respect to such Mortgage(s), Landlord agrees that so

                                       24


long as any such leasehold Mortgage(s) shall remain unsatisfied of record or
until written notice of satisfaction is given by the holder(s) to Landlord, the
following provisions shall apply:

                  A.    There shall be no cancellation, surrender or
                        modification of this Lease by joint action of Landlord
                        and Tenant without the prior consent in writing of the
                        leasehold Mortgagee(s).

                  B.    Landlord shall, upon serving Tenant with any notice of
                        default, simultaneously serve a copy of such notice upon
                        the holder(s) of such leasehold Mortgage(s). The
                        leasehold Mortgagee(s) shall thereupon have the same
                        period, after services of such notice upon it, to remedy
                        or cause to be remedies the defaults complained of, and
                        Landlord shall accept such performance by or at the
                        instigation of such leasehold Mortgagee(s) as if the
                        same had been done by Tenant.

                  C.    Anything herein contained notwithstanding, while such
                        leasehold Mortgage(s) remains unsatisfied of record, or
                        until written notice of satisfaction is given by the
                        holder(s) to Landlord, if any default shall occur which,
                        pursuant to any provision of this Lease, entitled
                        Landlord to terminate this Lease, and if before the
                        expiration of thirty (30) days from the date of service
                        of notice or termination upon such leasehold
                        Mortgagee(s) such leasehold Mortgagee(s) shall have
                        notified Landlord of its desire to nullify such notice
                        and shall have paid to Landlord all Basic Rent and
                        additional rent and other payments herein provided for,
                        and then in default, and shall have complied or shall
                        commence the work of complying with all of the other
                        requirements of this Lease, if any are then in default,
                        and shall prosecute the same to completion with
                        reasonable diligence, then in such event Landlord shall
                        not be entitled to terminate this Lease and any notice
                        of termination theretofore given shall be void and of
                        not effect.

                  D.    If the Landlord shall elect to terminate this Lease by
                        reason of any default of Tenant, the leasehold
                        Mortgagee(s) shall not only have the right to nullify
                        and notice of termination by curing such default, as
                        aforesaid, but shall also have the right to postpone and
                        extend the specified date for the termination of this
                        Lease as fixed by Landlord in its notice of termination,
                        for a period of not more than six (6) months, provided
                        that such leasehold Mortgagee(s) shall cure or cause to
                        be cured any then existing money defaults and meanwhile
                        pay the other terms, conditions and provisions of this
                        Lease on Tenant's part to be complied with and
                        performed, other than past non-monetary defaults, and
                        provided further that the leasehold Mortgagee(s) shall
                        forthwith take steps to acquire or sell Tenant's
                        interest in this Lease by foreclosure of the Mortgage(s)
                        or otherwise and shall prosecute the same to completion
                        with all due diligence. If at the end of said six (6)
                        month period the leasehold Mortgagee(s) shall be
                        actively engaged in steps to acquire or sell Tenant's
                        interest herein, the time of said Mortgagee to comply
                        with the provisions of this Article 33 (except Section
                        33.01 (C) shall be extended for such period as shall be
                        reasonably necessary to complete such steps with
                        reasonable diligence and continuity.

                  E.    Landlord agrees that the name of the leasehold
                        Mortgagee(s) may be added to the "Loss Payable
                        Endorsement" of any and all insurance policies required
                        to be carried by Tenant hereunder on condition that the
                        insurance proceeds are to be applied in the manner
                        specified in this Lease and that the leasehold
                        Mortgage(s) or collateral document shall so provide.

                  F.    Landlord agrees that in the event of termination of this
                        Lease by reason of any default by Tenant other than for
                        nonpayment of Rent or Additional Rent and other payments
                        herein provided for, that Landlord will enter into a new
                        lease of the Demised Premises with the leasehold
                        Mortgagee(s) or its nominee(s), for the remainder of the
                        term, effective as of the date of such termination, at
                        the Basic Rent and additional rent and upon the terms,
                        provisions, covenants and agreements as herein contained
                        and subject only to the same conditions of title as this
                        Lease is subject to on the date of the execution hereof,
                        and to the rights, if any, of any parties then in
                        possession of any part of the Demised Premises,
                        provided:

                        (1) Said Mortgagee(s) or its nominee shall make written
                        request upon Landlord for such new lease within fifteen
                        (15) days after the date of such

                                       25


                        termination and such written request is accompanied by
                        payment to Landlord of sums then due to Landlord under
                        this Lease.

                        (2) Said Mortgagee(s) or its nominee(s) shall pay to
                        Landlord at the time of the execution and delivery of
                        said new lease, any and all sums which would at the time
                        of the execution and delivery thereof, be due pursuant
                        to this Lease but for such termination, and in addition
                        thereto, any expenses, including reasonable attorney's
                        fees to which Landlord shall have been subjected by
                        reason of such default.

                        (3) Said Mortgagee(s) or its nominee(s) shall perform
                        and observe all covenants herein contained on Tenant's
                        part to be performed and shall further remedy any other
                        conditions which Tenant under the terminated lease was
                        obligated to perform under the terms of this Lease; and
                        upon execution and delivery of such new lease, any
                        subleases which may have theretofore been assigned and
                        transferred by Tenant to Landlord, as security under
                        this Lease, shall thereupon be deemed to be held by
                        Landlord as security for the performance of all of the
                        obligations of Tenant under the new lease.

                        (4) Landlord shall not warrant possession of the Demised
                        Premises to Tenant under the new lease.

                        (5) Such new lease shall be expressly made subject to
                        the rights, if any, of Tenant under the terminated
                        lease.

                        (6) The Tenant under such new lease shall have the same
                        right, title, and interest in and to the buildings and
                        improvements on the Demised Premises as Tenant had under
                        the terminated lease.

                  G.    Landlord agrees promptly after submission to execute,
                        acknowledge and deliver any agreements modifying this
                        Lease requested by any leasehold Mortgagee(s), provided
                        that such modification does not decrease Tenant's
                        obligations or decrease Landlord's rights pursuant to
                        this Lease.

                  H.    The proceeds from any insurance policies or arising from
                        a condemnation are to be held by any leasehold
                        Mortgagee(s) and distributed pursuant to the provisions
                        of this Lease, but the leasehold Mortgagee(s) may
                        reserve its rights to apply to the mortgage debt all, or
                        an part, of Tenant's are of such proceeds pursuant to
                        such Mortgage(s).

                  I.    The leasehold Mortgagee(s) shall be given notice of any
                        arbitration proceedings by the parties hereto, and shall
                        have the right to intervene therein and be made a party
                        to such proceedings, and the parties hereto do hereby
                        consent to such intervention. In the event that the
                        leasehold Mortgagee(s) shall not elect to intervene or
                        become a party to such proceedings, the leasehold
                        Mortgagee(s) shall receive notice of, and a copy of any
                        award or decision made in said arbitration proceedings.

                  J.    Landlord shall, upon request, execute, acknowledge and
                        deliver to each leasehold Mortgagee (s), an agreement
                        prepared at the sole cost and expense of Tenant, in form
                        satisfactory to such leasehold Mortgagee(s), between
                        Landlord, Tenant and leasehold Mortgagee(s), agreeing to
                        all of the provisions herein. The term "Mortgage",
                        whenever used herein, shall include whatever security
                        instruments are used in the locale of the Demised
                        Premises, such as, without limitations, deeds of trust,
                        security deeds and conditional deeds, as well as
                        financing statements, security agreements and other
                        documentation required pursuant to the Uniform
                        Commercial Code. The term "Mortgage" whenever used
                        herein, shall also include any instruments required in
                        connection with a sale-leaseback transaction.

                                  ARTICLE XXXIV

             TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES

      SECTION 34.01. HAZARDOUS SUBSTANCES. The term "Hazardous Substances" as
used in this Lease, shall include, without limitation, flammable, explosives,
radioactive materials, asbestos, polychlorinated

                                       26


biphenyls (PCS's), chemicals known to cause cancer or reproductive toxicity,
pollutants, contaminants, hazardous wastes, toxic substances or related
materials, petroleum and petroleum products, and substances declared to be
hazardous or toxic under the Industrial Site Recovery Act, N.J.S.A. 13:1k-6, as
amended, and the Spill Compensation and Control Act, N.J.S.A. 58:10-12.1, and
any law or regulation now or hereafter enacted or promulgated by any
governmental authority.

      SECTION 34.02. TENANT'S RESTRICTIONS. Tenant shall not cause to permit or
occur:

            (A) Any violation of any federal, state or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions, on,
under, or about the Demised Premises, or arising from Tenant's use or occupancy
of the Demised Premises, including, but not limited to, soil and ground water
conditions; or

            (B) The use, generation, release, manufacture, refining, production,
processing, transport, handling, treatment, storage, or disposal of any
hazardous substance on, under, or about the Demised Premises, or the
transportation to or from the Demised Premises of any hazardous substance,
except for de minimus amounts of oils, greases, and cleaning products providing
same is in conformance with all environmental laws or as specifically disclosed
on Schedule G of this Lease.

      SECTION 34.03. ENVIRONMENTAL CLEANUP.

            (A) Tenant shall, at Tenant's own expense, comply with all laws
      regulating the use, generation, storage, transportation, or disposal of
      hazardous substances ("Laws").

            (B) Tenant shall, at Tenant's own expense, make all submissions to,
      provide all information required by, and comply with all requirements of
      all governmental authorities (the "Authorities") under the laws.

            (C) Should any Authority or any third party demand that a clean-up
      plan be prepared and that a clean-up be undertaken because of any deposit,
      spill, discharge, or other release of hazardous substances that occurs
      during the term of this Lease, at or from the Demised Premises, or which
      arises at any time from Tenant's use or occupancy of the Demised Premises,
      then Tenant shall, at Tenant's own expense, prepare and submit the
      required plans and all related bonds and other financial assurances; and
      Tenant shall carry out all such clean-up plans.

            (D) Tenant shall promptly provide all information regarding the use,
      generation, storage, transportation, or disposal of hazardous substances
      that is requested by Landlord. If Tenant fails to fulfill any duty imposed
      under this Section 34.03 within a reasonable time, Landlord may do so; and
      in such case, Tenant shall cooperate with Landlord in order to prepare all
      documents Landlord deems necessary or appropriate to determine the
      applicability of the Laws to the Demised Premises and Tenant's use
      thereof, and for compliance therewith, and Tenant shall execute all
      documents promptly upon Landlord's request. No such action by Landlord and
      no attempt made by Landlord to mitigate damages under any laws shall
      constitute a waiver of any of Tenant's obligations under this Section
      34.03.

      SECTION 34.04. TENANT'S INDEMNITY.

            (A) Tenant shall indemnify, defend, and hold harmless Landlord,
      Landlord's Mortgagee, the manager of the property, and their respective
      officers, directors, beneficiaries, shareholders, members, partners,
      agents and employees from all fines, suits, procedures, claims, and
      actions of every kind, and all costs associated therewith (including
      attorneys' and consultants' fees) arising out of or in any way connected
      with any deposit, spill, discharge, or other release of hazardous
      substances that occurs during the term of this Lease, at or from the
      Demised Premises, or which arises at any time from Tenant's use or
      occupancy of the Demised Premises, or from Tenant's failure to provide any
      information, make all submissions, and take all steps required by all
      Authorities under the Laws and all other environmental laws.

            (B) Landlord shall indemnify, defend, and hold harmless Tenant,
      Tenant's Mortgagee, the manager of the Demised Premises, and their
      respective officers, directors, beneficiaries, shareholders, members,
      partners, agents and employees from all fines, suits, procedures, claims,
      and actions of every kind, and all costs associated therewith (including
      attorneys' and consultants' fees) arising out of or in any way connected
      with any deposit, spill, discharge, or other release of hazardous
      substances that occurred prior to Tenant's occupancy of the Demised
      Premises, or which arose at any time prior to Tenant's use or occupancy of
      the Demised Premises, or from Landlord's failure to provide any
      information,

                                       27


      make all submissions, and take all steps required by all Authorities under
      the Laws and all other environmental laws.

            (C) Landlord's and Tenant's obligations and liabilities under this
      Section 34.04 shall survive the expiration of this Lease.

      SECTION 34.05. Tenant represents that its SIC Number is________.

                                  ARTICLE XXXV

                                 ISRA COMPLIANCE

      SECTION 35.01. Tenant acknowledges the existence of the New Jersey
Industrial Site Recovery Act ("ISRA"). Tenant represents to Landlord that
Tenant's Standard Industrial Classification (SIC) Number as used on Tenant's
Federal Tax Return will not subject the Demised Premises to ISRA applicability
under current laws and regulations. Any change by Tenant to an operation with an
SIC number subject to ISRA shall require Landlord's written consent, which
consent will not be unreasonably withheld. Any such proposed change shall be
noticed in writing to Landlord sixty (60) days prior to the proposed change.
Landlord, at its sole option, may deny consent to the change.

            Tenant agrees to execute such documents as Landlord reasonably deems
necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Tenant shall bear all costs and expenses incurred
by Landlord associated with any required ISRA compliance resulting from Tenant's
use of the Demised Premises including but not limited to, state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority. The foregoing
undertaking shall survive the termination or sooner expiration of the Lease and
surrender of the Demised Premises and shall also survive sale, or lease or
assignment of the Demised Premises by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from the violation of ISRA occasioned by Tenant's use of
the Demised Premises.

                                  ARTICLE XXXVI

                   SORTING AND SEPARATION OF REFUSE AND TRASH

      SECTION 36.01. COMPLIANCE BY TENANT. Tenant covenants and agrees, at its
sole cost and expense, to comply with all present and future laws, orders, and
regulations of all state, federal, municipal, and local governments,
departments, commissions, and boards regarding the collection, sorting,
separation, and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse, and trash into
such categories as provided by law. Each separately sorted category of waste
products, garbage, refuse, and trash shall be placed in separate receptacles.
Such separate receptacles may, at Landlord's option, be removed from the Demised
Premises in accordance with a collection schedule prescribed by law.

      SECTION 36.02. LANDLORD'S RIGHTS IN EVENT OF NONCOMPLIANCE. Landlord
reserves the right to refuse to collect or accept from Tenant any waste
products, garbage, refuse or trash that is not separated and sorted as required
by law, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Landlord. Tenant shall
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the provisions
of this article, and, at Tenant's sole cost and expense, shall indemnify, defend
and hold harmless (including legal fees and expenses) from and against any
actions, claims, and suits arising from such noncompliance, utilizing counsel
reasonably satisfactory to Landlord.

                                 ARTICLE XXXVII

                          REMOVAL OF GARBAGE AND DEBRIS

      SECTION 37.01. Tenant agrees to remove all garbage and debris from
Tenant's Demised Premises. Tenant shall not permit its garbage or debris to be
placed or remain outside the Demised Premises.

      SECTION 37.02. For purposes of this Section, garbage and debris shall
refer to waste generated by Tenant's business facilities, except for any
hazardous substances as defined in Article XXXIV hereinabove.

                                       28


      SECTION 37.03. Removal of all such garbage and debris shall be at Tenant's
expense in accordance with Article XXXVI set forth above.

      SECTION 37.04. In the event Tenant is specifically permitted to use,
generate, release, manufacture, refine, produce, process, transport, handle,
treat, store or dispose of any hazardous substance in accordance with the
provisions of Article XXXIV herein, Tenant shall not dispose of said hazardous
substances in the common garbage receptacles and/or containers provided by
Landlord for the tenants. Tenant shall dispose of said hazardous substances in
accordance with all applicable laws at its own cost and expense.

      SECTION 37.05. In the event Tenant produces garbage and debris for
disposal in the common garbage receptacles and/or containers provided by
Landlord for Tenant, that is in excess of Tenant's share of the aggregate
garbage and debris for the entire Building, Landlord may assess Tenant and
Tenant shall be responsible for the disposal costs associated with said excess.

                                 ARTICLE XXXVIII

                                RENEWAL PROVISION

      SECTION 38.01.

            (A)   The Term of the lease agreement between Landlord and Tenant
                  shall be for ten (10) years. On August 1, 2006 and each and
                  every subsequent annual anniversary date of the lease (The
                  Anniversary Date), the expiration date shall, without further
                  action of the parties, be extended for an additional year
                  unless and until the Tenant shall have notified the Landlord
                  of its intention not to extend the expiration date beyond the
                  end of the then current term. Said notice shall be in writing
                  and delivered to the Landlord not less than six (6) months
                  prior to the next anniversary

            (B)   Rent for the first ten (10) years shall be as per the schedule
                  noted on page 1 of the lease. Beginning August 1, 2015, the
                  fixed rent shall increase by the Consumer Price Index (CPI)
                  for the Northern New Jersey / New York region every
                  anniversary date of the lease with a minimum of a two (2)
                  percent and a maximum of a four (4) percent fixed rental
                  increase. The parties understand that the month of May or the
                  most recent available CPI data to the anniversary date will be
                  utilized to calculate the prior twelve (12) month increase.

      The aforesaid monthly rents shall be payable in advance on the first day
of each calendar month, except that a proportionately lesser sum may be paid for
the first month following the Term Expiration Date if said date falls on a date
other than the first of the month.

      SECTION 38.02. The Landlord and Tenant acknowledge and agree to make the
effective date of the Lease retroactive to the date set forth on the first page
herein. The purpose of the retroactive date is to make it coincide with the term
of the previous Lease of the Demised Premises that was entered into by the
parties.

      IN WITNESS WHEREOF, the parties hereto execute this Lease on the date set
forth above.

Witness:                                        UNION PROPERTIES, LLC.

                                          By Sidney Hofing
- -------------------------                    ----------------------------------
                                             Sidney Hofing
                                             Managing Member

Attest:                                   YARDVILLE NATIONAL BANK,
                                          A NEW JERSEY NATIONAL BANK

Daniel J. O'Donnell                       By Patrick M. Ryan
- --------------------------                   -----------------------------------
Daniel J. O'Donnell, Secretary               Patrick M. Ryan, CEO

                                       29


                                    EXHIBIT B

                                 LANDLORD'S WORK

                            INTENTIONALLY LEFT BLANK

                                       30


                                    EXHIBIT C

                                      SIGNS

            1.    All signs visible to the outside are to be submitted for
                  approval by landlord, which approval shall not be unreasonably
                  withheld.

            2.    The sign(s) shall not be moving or flashing.

All tenant signage must conform to any local requirements or restrictions as
established by local ordinances. Copies of the approved permits must be posted
in the front windows of the building before installation of any sign commences.

                                       31


                                    EXHIBIT D

                                   EXCLUSIVES

                             INTENTIONALLY OMMITTED

                                       32


                                    EXHIBIT E

                              RULES AND REGULATIONS

      1. All loading and unloading shall be done only in the areas, and through
the entrances, designated for such purposes by Landlord.

      2. INTENTIONALLY OMMITTED

      3. No loudspeakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the Demised
Premises without the prior written consent of the Landlord.

      4. If the Demised Premises are equipped with heating facilities separate
from those in the remainder of the Building, Tenant shall keep the Demised
Premises at a temperature sufficiently high to prevent freezing of water pipes
and fixtures.

      5. Tenant shall, at Tenant's cost, contract the services of an
exterminator in compliance with the Lease requirements.

      6. Tenant shall not burn any trash or garbage of any kind in or about the
Demised Premises, the Building, or within one mile of the outside property lines
of the Building.

      7. Tenant and Tenant's employees and agents shall not conduct or solicit
business in the parking area or other common areas, nor shall Tenant distribute
any handbills or other advertising matter in automobiles parked in the parking
area or in other common areas, including "For Sale" signs in car windows.

      8. Tenant is not permitted to use any space heaters, including but not
limited to kerosene, propane or electric.

      9. The plumbing facilities shall not be used for any other purpose than
that for which they were constructed, and no foreign substance of any kind shall
be thrown therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be borne by Tenant, who
shall, or whose employees, agents or invitees shall, have caused it.

      10. Tenant shall not install any coin operated vending machine, video game
machine, coin telephone, or similar devise, nor any stand for display of goods
for sale upon the sidewalk area or outside wall or any portion of the Building
without written consent of the Landlord.

      11. No buses shall be operated by any tenant in this Building. Should any
tenant wish to charter or otherwise arrange for a bus to be present on the
Building property, he must first obtain written permission from the Landlord.
The request for permission to have a bus enter the property should contain
particulars of the bus' operation noting as to its location of parking, picking
up and discharging of passengers, and the like.

      12. Tenant shall promptly comply with all laws, orders, directions, rules
and requirements of governmental authorities and cognizant insurance carriers.

      13. Maintain the Demised Premises and all equipment within it in good
repair and appearance and in neat, clean, safe and sanitary condition free of
all garbage.

      14. Use all electric, plumbing and other facilities in the rental space
safely.

      15. Promptly notify Landlord when there are conditions that require repair
by Landlord.

      16. Comply with all rules and regulations made by Landlord from time to
time, respecting the delivery or shipment of merchandise, supplies and fixtures
to and from the rental space.

      17. Immediately notify Landlord of any accident, fire or damage occurring
to the rental space.

      18. Install anything on the roof without the prior written consent of
Landlord.

      19. Do anything or permit anything to be done which tends to destroy the
peace and quiet of the Landlord, other tenants, invitees of the Building, or
persons in the neighborhood.

      20. Throw or permit any foreign substance to be thrown into the plumbing
facilities.

                                       33


      21. Permit any vehicle or trailers to remain parked overnight in the
Building.

      22. Obstruct any part of the Building outside the rental space.

      23. Use or operate any equipment that, in Landlord's sole judgment, is or
may be harmful to the rental space of the building which the rental space is a
part.

      24. Attach any awning or other projection to the outside of the rental
space, or the building of which the rental space is a part.

      25. Conduct any auction, fire sale, bankruptcy sale, going-out-of business
sale, or lost-our-lease sale, in or about the rental space.

      26. Tenant's employees may not park in front of the other tenant's stores.

      27. Permit trash or debris to accumulate outside the Demised Premises.

      Failure of Tenant to comply with the rules and regulations of this section
constitutes an Event of Default under this Lease, subject to a Fifty and 00/100
($50.00) Dollar per day fine, after giving Tenant notice of such default and an
opportunity to cure the same within the time provided by this Lease.

                                       34


                                ADDENDUM TO LEASE

In the event of a conflict between this Lease Addendum and the original lease
between Union Properties LLC (Landlord) and Yardville National Bank (Tenant)
dated August 1, 2005, the Lease Addendum shall prevail.

      1.    The intent of the parties is that this lease shall be considered
            absolute net. Irregardless of the specified maintenance obligations
            of the lease agreement, the Tenant shall be 100% responsible for any
            and all maintenance and replacements of the building components
            and/or systems which shall include but not be limited to roof,
            structure, HVAC, plumbing, electrical and lighting, paving,
            sidewalks and all exterior and interior improvements.

      2.    Common area maintenance - Tenant shall be 100% responsible at its
            sole cost and expense for performing any exterior common area
            maintenance including but not limited to landscaping, snow plowing,
            lighting, cleaning and parking lot striping.

                                          Sidney L. Hofing
                                          -------------------------------------
                                          Sidney L. Hofing
                                          Managing Member, Union Properties LLC

                                          Patrick M. Ryan
                                          -------------------------------------
                                          Patrick M. Ryan, CEO
                                          Yardville National Bank

                                       35

EX-10.32

                                                                   EXHIBIT 10.32

                                      LEASE

                                      from

                              MYNB, LLC , Landlord

                                       to

                         YARDVILLE NATIONAL BANK, Tenant

                                       RE:

                               301 W. TRENTON AVE.

                    MORRISVILLE, FALLS TOWNSHIP, PENNSYLVANIA

                                 DATA & EXHIBITS

DATE OF LEASE:                     December 1, 2005

LOCATION OF DEMISED PREMISES:      301 W. Trenton Ave.
                                   Morrisville, Falls Township, Pennsylvania

FIXED RENT SCHEDULE:


Period                             Annual Fixed Rent         Monthly Fixed Rent
- ------                             -----------------         ------------------
                                                        
12/01/05 -  - 11/30/10                $113,056.68                 $9,421.39
12/01/10 -  - 11/30/15                $124,362.36                $10,363.53
12/01/15 & Beyond                 The fixed rent shall increase by the Consumer Price Index
                                  (CPI) for the Northern New Jersey / New York region
                                  every anniversary date of the lease with a minimum of
                                  a three (3) percent and a maximum of a five (5)
                                  percent fixed rental increase.


LEASE TERM:                                 Ten (10) years.

RENT COMMENCEMENT:                          December 1, 2005

RENEWAL PROVISION: The Term of the lease agreement between Landlord and Tenant
shall be for ten (10) years. On December 1, 2006 and each and every subsequent
annual anniversary date of the lease (The Anniversary Date), the expiration date
shall, without further action of the parties, be extended for an additional year
unless and until the Tenant shall have notified the Landlord of its intention
not to extend the expiration date beyond the end of the then current term. Said
notice shall be in writing and delivered to the Landlord not less than six (6)
months prior to the next anniversary

NOTICES:           Landlord:                 MYNB, LLC.
                                             c/o Hofing Management
                                             928 West State Street
                                             Trenton, NJ 08618

                   Tenant:                   YARDVILLE NATIONAL BANK
                                             Box 8487
                                             Trenton, New Jersey 08650
                                             Attn.:   Frank Durand

                                 with a copy to:
                                             YARDVILLE NATIONAL BANK
                                             2465 Kuser Road
                                             Hamilton, New Jersey 08690
                                             Attn.:   Daniel J. O'Donnell, Esq.


                                       1


EXHIBITS:

        A:           Plan showing location of Demised Premises

        B:           Landlord's Work

        C:           Signs

        D:           Exclusives

        E:           Rules and Regulations

                                       2


                                 INDEX TO LEASE


                                                                                             Page
                                                                                             ----
                                                                                          
Article I                  Definitions...............................................          2
Article II                 Lease of Demised Premises.................................          3
Article III                Term......................................................          3
Article IV                 Rent......................................................          4
Article V                  Tenant Reimbursements.....................................          4
Article VI                 Utilities.................................................          7
Article VII                Maintenance...............................................          7
Article VIII               Tenant's Insurance........................................          8
Article IX                 Limitations on Use; Rules & Regulations; Trade Name.......          9
Article X                  Compliance with Applicable Law............................          10
Article XI                 Preparation of Demised Premises...........................          10
Article XII                Tenant's Work.............................................          10
Article XIII               Landlord's Entry on Demised Premises......................          11
Article XIV                Assignment and Subletting.................................          12
Article XV                 Indemnification of Landlord...............................          12
Article XVI                Fire and Casualty.........................................          13
Article XVII               Condemnation..............................................          14
Article XVIII              Events of Default.........................................          15
Article XIX                Landlord's Remedies.......................................          16
Article XX                 Surrender of Demised Premises.............................          18
Article XXI                Holding Over..............................................          18
Article XXII               INTENTIONALLY OMMITTED.................................             18
Article XXIII              Common Areas..............................................          18
Article XXIV               Signs.....................................................          19
Article XXV                Subordination.............................................          19
Article XXVI               Nature of Landlord's Liability............................          19
Article XXVII              Waiver....................................................          20
Article XXVIII             Quiet Enjoyment...........................................          20
Article XXIX               INTENTIONALLY OMMITTED ...................................          21
Article XXX                Waiver of Subrogation.....................................          21
Article XXXI               INTENTIONALLY OMMITTED ...................................          21
Article XXXII              Miscellaneous.............................................          21
Article XXXIII             Leasehold Mortgages.......................................          23
Article XXXIV              Tenant's Responsibility Regarding Hazardous Substances....          25
Article XXXV               ISRA Compliance ..........................................          26
Article XXXVI              Sorting and Separation of Refuse and Trash................          26
Article XXXVII             Removal of Garbage and Debris.............................          27
Article XXXVIII            Renewal Option............................................          27


                                       3


                  THIS LEASE, dated the 1st day of December , 2005, between
MYNB, LLC., a New Jersey Limited Liability Company, with offices at c/o Hofing
Management, 928 West State Street, Trenton, NJ 08618 (hereinafter referred to as
the "Landlord"); and YARDVILLE NATIONAL BANK, Box 8487, Trenton, New Jersey
08650 (hereinafter referred to as the "Tenant").

                              WITNESSETH:

      In consideration of the agreements contained in this Lease, and for other
good and valuable consideration, Landlord and Tenant covenant and agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

      For purposes of this Lease, the following terms shall have the indicated
meanings:

      SECTION 1.01. "ADDITIONAL RENT" shall mean any sums other than Fixed Rent
which Tenant is required to pay to Landlord under this Lease.

      SECTION 1.02. "APPLICABLE LAWS" shall mean all present and future laws,
ordinances, resolutions, regulations and orders of all governmental entitles at
any time having jurisdiction over the building.

      SECTION 1.03. "COMMENCEMENT DATE" shall mean the date of the issuance of a
temporary or permanent Certificate of Occupancy for the Demised Premises to be
used and occupied only for lawful purposes, more specifically bank branch and
office use. Lease Commenced December 1, 2005.

      SECTION 1.04. "COMMON AREAS" shall mean all areas of the building that are
designated by Landlord from time to time for the general use and convenience of
Tenant and other tenants of the Building and their respective authorized
representatives and invitees. Common Areas include, without limitation,
pedestrian walkways and patios, landscaped areas, sidewalks (exclusive of
sidewalks in front of the Demised Premises), service corridors, restrooms,
stairways, decorative walls, plazas, throughways, loading areas, parking areas
and roads.

      SECTION 1.05. "DEMISED PREMISES" shall mean those premises as outlined or
designated on the plan attached hereto and marked as Exhibit A, being a part of
the Building. Said Demised Premises containing approximately 2,650 square feet


      SECTION 1.06. "EXCUSABLE DELAY" shall mean that any time limits required
to be met by either party hereunder, whether specifically made subject to
Excusable Delay or not, except those related to the payment of Fixed Rent,
Percentage Rent, if any, or Additional Rent, shall, unless specifically stated
to the contrary elsewhere in this Lease, be automatically extended by the number
of days by which any performance called for is delayed due to Excusable Delay.
Excusable Delay shall mean and include those situations beyond Landlord's or
Tenant's control, including by way of example and not by way of limitation, acts
of God; accidents, repairs, strikes, shortages of labor, supplies or materials;
inclement weather or, where applicable, the passage of time while waiting for an
adjustment of insurance proceeds.


      SECTION 1.07. "FIXED RENT" shall mean the guaranteed fixed rent during the
Term to accrue as follows:



RENT:             Period                             Annual Rent                Monthly Rent
                  ------                             -----------                ------------
                                                                       
                  12/01/05 -  - 11/30/10             $113,056.68                 $9,421.39
                  12/01/10 -  - 11/30/15             $124,362.36                $10,363.53
                  12/01/15 & Beyond                  The fixed rent shall increase by the Consumer Price Index
                                                     (CPI) for the Northern New Jersey / New York region
                                                     every anniversary date of the lease with a minimum of
                                                     a three (3) percent and a maximum of a five (5)
                                                     percent fixed rental increase.


all payable in the manner provided in Section 4.01.

      SECTION 1.08. "LEASE YEAR" shall mean the period beginning on the
Commencement Date and ending one year thereafter.

      SECTION 1.09. "PERMITTED TRADE NAME" shall mean Yardville National Bank or
YNB.

      SECTION 1.10. "PERMITTED USE" shall mean the use of the Demised Premises
by Tenant for the following purposes only: as a financial institution.

                                      4


      SECTION 1.11. "RENT" shall mean and include Fixed Rent and Additional
Rent.


      SECTION 1.12. "RENT COMMENCEMENT DATE": shall mean the Commencement Date.


      SECTION 1.13. "BUILDING" shall mean the building located at 301 W. Trenton
Ave., Morrisville, Pennsylvania.

      SECTION 1.14. "STATE" shall mean the Commonwealth of Pennsylvania.

      SECTION 1.15. "TENANT'S SHARE" shall mean 100%.

      SECTION 1.16. "TERM" shall mean ten (10) years.

                                   ARTICLE II

                            LEASE OF DEMISED PREMISES

      SECTION 2.01. Landlord agrees to lease the Demised Premises to Tenant, and
Tenant agrees to rent the Demised Premises from Landlord, upon and subject to
the conditions hereinafter contained.

                                   ARTICLE III

                                      TERM

      SECTION 3.01. The Term of the lease agreement between Landlord and Tenant
shall be for ten (10) years. On December 1, 2006 and each and every subsequent
annual anniversary date of the lease (The Anniversary Date), the expiration date
shall, without further action of the parties, be extended for an additional year
unless and until the Tenant shall have notified the Landlord of its intention
not to extend the expiration date beyond the end of the then current term. Said
notice shall be in writing and delivered to the Landlord not less than six (6)
months prior to the next anniversary date.

      SECTION 3.02. All of the obligations of Landlord are expressly conditioned
upon the ability of Landlord to give possession of the Demised Premises to
Tenant. Landlord shall have no liability whatsoever by reason of its inability
to complete Landlord's Work, as hereinafter defined.

      SECTION 3.03. If requested by Landlord, Tenant will execute and return
within seven (7) days after presentation by Landlord an agreement confirming the
Commencement Date, the Rent Commencement Date and the date established for the
expiration of the Term.

                                   ARTICLE IV

                                      RENT

      SECTION 4.01. Tenant agrees to pay to Landlord the Fixed Rent, without
notice or demand, in equal monthly installments, in advance, on or before the
first day of each and every successive calendar month during the Term hereof,
except the first month's Fixed Rent shall be paid upon the execution of this
Lease. The Fixed Rent shall commence on the Rent Commencement Date. The Fixed
Rent for any period which is for less than a full month shall be a prorated
portion of the Fixed Rent based on a thirty (30) day month.

      SECTION 4.02. The Fixed Rent shall be paid to Landlord by Tenant, without
deduction, counterclaim or setoff, except as expressly provided herein, and at
Landlord's address or at such place as Landlord may from time to time designate
in writing.

      SECTION 4.03. If any payment of Rent is not received by Landlord within
five (7) business days of the date when due, Tenant shall pay to Landlord on
demand as a late charge, interest on the overdue Rent at the lesser of the
maximum rate permitted by law or ten (10%) percent per month from the due date.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.

      SECTION 4.04. No abatement, diminution or reduction of the Basic Rent, or
any additional rent or other charges required to be paid by Tenant pursuant to
the terms of this Lease, shall be claimed by, or allowed to, Tenant for any
inconvenience, interruption, cessation or loss of business or otherwise, caused
directly or indirectly by any present or future laws, ordinances, order, rules,
regulations or requirements of any Federal, State, County or Municipal
governments, or by priorities, rationing or curtailment of labor or material, or
by war, civil commotion strikes or riots, or any matter or thing resulting there
from or by

                                       5

any other cause or causes beyond the control of Landlord, including,
without limitations, casualty to the Demised Premises, nor shall this Lease in
any way be affected by any such causes, except as expressly provided in this
Lease.

                                    ARTICLE V

                              TENANT REIMBURSEMENTS

      SECTION 5.01. In addition to the Fixed Rent and commencing on the
Commencement Date, Tenant shall pay to Landlord as Additional Rent, Tenant's
Share of the following taxes, insurance premiums and Common Area costs
(hereinafter called "Reimbursements"):

                  (A) All real property taxes and special assessments (the "Real
Estate Taxes") levied or assessed against the Building. Tenant shall not be
required to pay any taxes imposed upon the net income of Landlord or franchise
taxes of Landlord, or any estate, succession, inheritance or transfer taxes
imposed upon Landlord. If, at any time during the Term, any lawful governing
authority levies or assesses against Landlord any tax, fee, or excise, however
described, as a direct substitution in whole or in part for, or in addition to,
or as the substantial equivalent of any Real Estate Taxes, then Tenant shall pay
as provided herein Tenant's Share of that tax, fee or excise. Tenant shall pay
before delinquency all taxes, assessments, license fees, and other charges that
are levied or assessed against Tenant's personal property located on the Demised
Premises. On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of these payments. If any taxes on Tenant's personal property are
levied against Landlord or Landlord's property, or if the assessed value of the
Building is increased by the inclusion of a value placed on Tenant's personal
property or as a result of alterations, additions or improvements made to the
Demised Premises by or for Tenant, Tenant, on demand, shall immediately pay to
Landlord as Additional Rent the sum of the taxes levied against Landlord, or the
proportion of the taxes resulting from such increase in Landlord's assessment
caused thereby. Landlord shall be entitled to, in good faith using its
reasonable determination, ascertain the value of the tax increase attributable
to Tenant's personal property or alterations, additions or improvements.

                  (1.) If permitted by the appropriate taxing authority without
      the necessity of a subdivision, Tenant shall make application for the
      Demised Premises and the improvements erected thereon to be treated as a
      separate tax lot and, if successful, shall pay real property taxes and
      special assessments directly to the taxing authority. In this event, real
      property taxes and assessments will not be paid to Landlord as additional
      rent.

                  (2.) Nothing herein contained shall require Tenant to pay any
      Federal or State income taxes assessed against the Landlord, or any gift,
      estate, succession, inheritance or transfer taxes of Landlord imposed as
      owner of the fee interest of the Demised Premises or any taxes imposed
      upon rent as such, payable by Tenant under this Lease; provided, however,
      that if at any time during the term of this Lease the methods of taxation
      prevailing at the Commencement Date shall be altered so that in lieu of or
      as a substitute for the whole or any part of the taxes, assessments,
      levies, impositions or charges now levied, assessed or imposed on real
      estate and improvements thereon there shall be levied, assessed and
      imposed a tax, assessment, levy, imposition or charge, wholly or partially
      as a capital levy or otherwise, upon the rents received therefrom, or
      measured by or based in whole or in part upon the Demised Premises and
      imposed upon Landlord, than all such taxes, assessments, levies
      impositions, or charges or any part thereof so measured or based shall be
      deemed to be included within the term "Impositions" for the purposes
      hereof to the extent that such imposition would be payable if the Demised
      Premises were the only property of Landlord subject to such Imposition,
      and Tenant shall pay and discharge the same as herein provided in respect
      of the payment of Impositions. Subject to the specific exclusions set
      forth above in this Section 5.01, Tenant shall in addition to the
      foregoing, pay any new taxes of a nature not presently in effect, but
      which may be hereafter levied against or imposed upon Landlord or the
      Demised Premises if such tax shall be based on or arise out of the
      ownership, use or operation of the Demised Premises.

                  (3.) If Tenant pays Real Estate Taxes separately, then Tenant,
      upon request of Landlord, shall furnish to Landlord, or if requested by
      Landlord furnish to any fee mortgagee, within ten (10) days after the date
      when such Imposition will become due, official receipts if available of
      the appropriate taxing authority, or other evidence satisfactory to
      Landlord or such mortgagee evidencing the payment thereof. The
      certificate, receipt or bill of the appropriate official designated by law
      to make or issue the same shall be prima facie evidence that such
      Imposition is due and unpaid, or has been paid at the time of the making
      or issuance of such certificate, receipt or bill.

                  (4.) Landlord appoints Tenant the attorney-in-fact of Landlord
      for the purpose of making all payments to be made by Tenant pursuant to
      any of the provisions of this Lease to persons or entities other than
      Landlord. In case any person or entity to whom any sum is

                                       6


      directly paid by Tenant under any of the provisions of this Lease shall
      refuse to accept payment of such sum from Tenant, Tenant shall thereupon
      give written notice of such fact to Landlord and shall pay such sum to
      Landlord at the address specified herein and Landlord shall thereupon pay
      such sum to such person or entity.

                  (5.) Notwithstanding any other provision herein set forth,
      Tenant, in addition to being responsible for taxes and insurance as herein
      set forth, shall be responsible for all fire insurance premiums on
      buildings and improvements situate on the Demised Premises from the dates
      when Impositions are first payable by Tenant pursuant to Section 5.01
      above through and inclusive of the dates when Basic Rent as herein set
      forth shall be payable.

                  (6.) Tenant, at its own cost and expense, shall take good care
      of the Demised Premises, all exclusive rights of way, curbs and
      appurtenances thereto and maintain and repair any easements used in common
      with others in accordance with any maintenance and repair obligations
      relating thereto, and shall keep the same in good order and condition, and
      reasonably free of any dirt, rubbish, snow, ice and unlawful obstructions.
      Landlord is responsible for snow removal from Tenant's drive-thru area at
      Tenant's sole cost and expense.

                  (7.) Tenant has the right to seek a reduction in the valuation
      of the Demised Premises for tax purposes and to contest in good faith by
      appropriate proceedings, at Tenant's expense, the amount of validity in
      whole or in part of any imposition, tax or assessment affecting the
      Demised Premises.

                  (8.) Landlord shall not be required to join in any proceedings
      referred to herein unless the provisions of any law, rule or regulation at
      the time in effect shall require that such proceedings be brought by or in
      the name of Landlord or any owner of the Demised Premises, in which event
      Landlord shall join in such proceedings or permit the same to be brought
      in its name. Landlord shall not ultimately be subjected to any liability
      for the payment of any costs or expenses in connection with any such
      proceedings, and Tenant shall indemnify and save harmless Landlord from
      any such costs and expenses. Tenant shall be entitled to any refund of any
      imposition and penalties or interest thereon received by Landlord which
      have been paid by Tenant or which have been paid by Landlord but
      previously reimbursed in full by Tenant.

                  (9.) Landlord, in the event Tenant has not filed an appeal,
      reserves unto itself the right to appeal and seek a reduction in the
      valuation of the Demised Premises for real estate tax purposes.

                  (10.) Tenant is only responsible for its share of
      Reimbursements and Impositions which come due during Tenant's Term, and
      Landlord agrees that any improvement assessments will be paid in the
      maximum number of permitted installments.

            (B) All insurance premiums incurred by Landlord for policies of
      insurance maintained on or with respect to the Building, including but not
      limited to fire and extended coverage insurance, liability insurance,
      workmen's compensation, rent interruption insurance and any other
      insurance that Landlord deems necessary to be carried on or with respect
      to the Building. If the rate of any insurance carried by Landlord is
      increased as a result of Tenant's use of the Demised Premises, then Tenant
      shall pay to Landlord as Additional Rent, upon demand, the full amount of
      any such increase.

            (C) All customary and reasonable sums expended by Landlord for the
      maintenance and operation of the Common Areas, and an allowance to
      Landlord for Landlord's supervision of maintenance and operation of the
      Common Areas in an amount equal to 15% times the total Common Area
      Expenses of the Building (excluding Real Estate Taxes and insurance).
      Costs for maintenance and operation of the common areas shall include by
      way of example and not by way of limitation, the costs of the following:
      resurfacing, paving, repainting and restriping, roof repairs,
      exterminating, cleaning, sweeping, and other maintenance and repair
      services with respect to the Common Areas of the Building, or any part
      thereof;; policing and providing for security guards or security patrols;
      costs for local fire protection; purchasing and maintaining refuse
      receptacles and costs of trash removal; planting and relandscaping; snow
      removal; purchasing, constructing, maintaining or repairing car stops,
      directional signs and other markers; lighting and other utilities;
      reasonable depreciation allowance on improvements, machinery, and
      equipment used in connection with the

                                       7


      Common Areas; such fees as may be paid to any third party in connection
      with such maintenance and operation or the management of the Building
      (such management fees are to be in lieu of the 5% Landlord's supervision
      fee set forth above); and such other costs as the Landlord, in its
      reasonable discretion, shall deem necessary for the maintenance and
      operation of the Common Areas. All Capital Expenditures made to the
      Building, i.e., expenditures which, in accordance with generally accepted
      accounting principles, are not fully chargeable to current expense in the
      year the expenditure is incurred, shall be excluded from Common Area
      Expenses except the cost of repaving described above, which repaving cost
      will be amortized over the useful life of the improvement.

      SECTION 5.02. Landlord may submit to Tenant a statement of anticipated
monthly Reimbursements for the period between the Commencement Date and the end
of the first Lease Year and for each subsequent Lease Year or fraction thereof.
If so, Tenant shall pay such Reimbursements on a pro rata monthly basis
concurrent with the payment of the Fixed Rent. Tenant shall continue to make
said monthly payments until notified by Landlord of a change thereof. Landlord
shall furnish to Tenant a statement showing the total Reimbursements, Tenant's
Share of total Reimbursements for the prior Lease Year, and the payments made by
Tenant with respect to such Lease Year, within sixty (60) days after the end of
each Lease Year. However, Landlord's failure to provide such statement of
Reimbursements by the date provided hereinabove shall in no way excuse Tenant
from its obligation to pay its pro rata share of Reimbursements or constitute a
waiver of Landlord's right to bill and collect such pro rata share of
Reimbursements from Tenant in accordance with this Article, provided that
Landlord submits a final statement of total reimbursements for a particular
calendar year within one year after the end of such calendar year. If Tenant's
Share of Reimbursements for the Lease Year exceeds the payments made by Tenant,
Tenant shall pay Landlord the deficiency within ten (10) days after receipt of
the statement. If Tenant's payments made during the Lease Year exceed Tenant's
Share of Reimbursements, Landlord shall credit the sum of such excess toward the
monthly Reimbursements next coming due or, if there are insufficient installment
periods remaining in Tenant's term, pay same over to Tenant. The actual
Reimbursements of the prior Lease Year may be used for the purpose of
calculating the anticipated monthly Reimbursements for the then current Lease
Year, subject to the right of Landlord to increase the monthly Reimbursements
for anticipated increased costs. . Tenant shall have the right, on an annual
basis and at Tenant's sole cost, to audit all Common Area costs charged by the
Landlord.


      SECTION 5.03. Landlord shall keep full, complete and proper books, records
and accounts of Common Area Expenses. No more than once per annum and upon
reasonable written notice, Tenant and its agents and employees shall have the
right at any time and at all times during regular business hours to examine and
inspect all books and records of Landlord pertaining to Common Area Expenses for
the purpose of investigating and verifying the accuracy of any statement of
Common Area Expenses. Once in any calendar year, Tenant may cause an audit of
Common Area Expenses to be made by an independent certified accountant of
Tenant's selection and, if the Common Area Expenses for the accounting period
covered by the statement which is the subject of the audit are found to be
overstated by more than five percent (5%), Landlord shall immediately pay to
Tenant the cost of such audit, not to exceed the lesser of the amount of the
discrepancy or One Thousand Dollars ($1,000.00), plus the amount of any
overpayment made by Tenant to Landlord, otherwise the cost of such audit shall
be paid by Tenant. If the statement of Common Area Expenses which is the subject
of the audit is otherwise found to be incorrect, the party found to be owing
money shall promptly pay an offsetting sum to the other party.

                                   ARTICLE VI

                                    UTILITIES

      SECTION 6.01. Tenant shall pay promptly for all water, gas, heat, light,
power, sewer charges, telephone installation utility hookup, connection and
service charges, sprinkler standby charges, and for all other services and
utilities supplied to the Demised Premises on and after the Commencement Date,
together with any tax, excise or surcharge thereon. Within ten (10) days after
the expiration or termination of the Term of this Lease, Tenant shall provide
Landlord with satisfactory evidence that all such utility charges have been paid
through the last day of the Term. Tenant agrees to immediately apply for all
applicable utilities to be separately metered and billed to Tenant. If any such
services are not separately metered to and paid by Tenant, or if any such
services are furnished and paid for by Landlord, Tenant shall pay to Landlord as
Additional Rent a reasonable proportion to be determined by Landlord of all
charges jointly metered with other premises and all services which are furnished
and paid for by Landlord. If Landlord is required to construct new or additional
utility installations, including, without limitation, wiring, plumbing,
conduits, and mains, resulting from Tenant's changed or increased requirements,
Tenant shall on demand pay to Landlord, in advance of installation, the total
cost of such installation. Landlord reserves the right to interrupt the supply
of water, gas, electric and also sewer service and any other similar utilities
for the Demised Premises when required by reason of accident or of repairs,
alterations

                                       8

or improvements, until such repairs, alterations or improvements shall have been
completed. Landlord agrees to use its best efforts to limit such interruptions
to non-business hours.

      SECTION 6.02. Landlord can discontinue, without notice to Tenant, any of
the utilities or services furnished to the Demised Premises for which Tenant
fails to pay and no such discontinuance shall be deemed an actual or
constructive eviction.

      SECTION 6.03. Under no circumstances shall Landlord be liable to Tenant on
account of the failure, discontinuance, interruption or quality of the utilities
or services furnished to the Demised Premises, regardless of whether such
utilities or services are furnished by Landlord or by third parties, nor shall
any of the foregoing excuse any payment or performance by Tenant, unless caused
by the gross negligence of Landlord, provided, however, if said utilities are
discontinued, at no fault of the Tenant, for a consecutive period of 180 days or
more, the Tenant shall have the right to terminate this Lease.

                                   ARTICLE VII

                                   MAINTENANCE

      SECTION 7.01. Tenant, at its sole expense, shall maintain, in good
condition and repair, the Demised Premises and every part thereof (except those
portions required to be maintained by Landlord as hereinafter provided)
including by way of example and not by way of limitation, the maintenance,
replacement and repair of all of Tenant's building, Tenant's personal property,
Tenant's signs as permitted by the provisions of this Lease, storefronts, doors,
window treatments, plate glass and show windows, door and window frames and
moldings,, plumbing and pipes (including any damage to plumbing and pipes caused
by the introduction of any foreign matter into the plumbing system by Tenant or
Tenant's employees or customers), electrical wiring and conduits, and the roof,
to the extent of any installations for vents, skylights or other installations
made by Tenant. Tenant shall be liable for any damage to the building on the
Demised Premises and other buildings in the Building, resulting from the acts or
omissions of Tenant or its representatives, employees or customers. Tenant shall
maintain its store windows in a clean and neat condition and shall keep the
sidewalks adjoining the Demised Premises free from ice, snow and rubbish.

      SECTION 7.02. Should Tenant fail to maintain, replace or repair the
Demised Premises pursuant to Section 7.01, Landlord shall give Tenant specific,
written notice thereof, and Tenant shall have thirty (30) days thereafter to
cure such failure, or such longer period as is reasonably necessary. If such
failure is not cured within said thirty (30) days, Landlord, at its option, may
perform the necessary maintenance, replacement or repair. Should Landlord opt
not to perform the foregoing work, it shall not in any way be liable for any
damages sustained by Tenant, or any of Tenant's employees, invitees, licensees
etc. Landlord shall bill Tenant directly for all costs associated with the
necessary maintenance, replacement or repair including, but not limited to any
damage to third parties affected by Tenant's failure to perform said work, and
said amount shall be deemed Additional Rent and due Landlord with the next
monthly payment of fixed rent. Failure of Tenant to comply with this Section
7.01 (B) shall be deemed an Event of Default under this lease, but only if
Tenant fails to cure such default prior to the expiration of the applicable
grace period provided in Article XVIII.


      SECTION 7.03. Landlord shall maintain in good condition the following with
the cost for same to be deemed Reimbursements and the Tenant shall be
responsible for Tenant's Share of such costs in accordance with Article V: The
roof and structural parts of the building and other improvements in which the
Demised Premises are located, which structural parts include the foundations,
bearing and exterior and exterior walls (excluding glass and doors and the
frames and molding thereof), and the electrical, plumbing and sewage systems
lying outside the Demised Premises. Notwithstanding the foregoing, any damage to
the roof or structure caused by (i) any negligent act or omission by Tenant, its
agents, employees or invitees, (ii) any work done on the roof of the Demised
Premises by Tenant, its agents or employees, or (iii) vandalism or theft by
Tenant, its agents, employees or invitees shall be paid for in full by Tenant.

      SECTION 7.04. If Landlord fails to perform any of its obligations under
Section 7.02, Tenant shall give Landlord specific, written notice thereof, and
Landlord shall have thirty (30) days thereafter to cure such failure; provided,
however, that if such cure cannot reasonably be completed within such thirty
(30) day period, then Landlord shall, subject to Excusable Delays, commence to
cure same within thirty (30) days and diligently and in good faith continue to
cure such failure to completion. The failure of Landlord to perform any such
repairs shall not impose any liability on Landlord nor excuse any performance or
payment by Tenant required by this Lease

                                       9


                                  ARTICLE VIII

                               TENANT'S INSURANCE

      SECTION 8.01. Tenant, at its sole expense, shall maintain liability
insurance with liability limits for injury to persons of not less than Two
Million and 00/100 ($2,000,000.00) Dollars per person and Two Million and 00/100
($2,000,000.00) Dollars per occurrence, and for injury to property of not less
than One Million and 00/100 ($1,000,000.00) Dollars per occurrence, insuring
against all liability arising out of the use or occupancy of the Demised
Premises. All such insurance shall insure performance by Tenant of the indemnity
provisions of Article XV and shall name Landlord, Tenant and such other persons
with an interest in the Building as Landlord shall designate as the insureds.

      SECTION 8.02. Tenant covenants and represents, said representation being
specifically designed to induce Landlord to execute this Lease, that Tenant's
personal property and fixtures and any other items which Tenant may bring to the
Premises which may be subject to any claim for damages or destruction due to
Landlord's negligence shall be fully insured by a policy of insurance covering
all risks with no deductible which policy shall specifically provide for a
waiver of subrogation for Landlord and all Building tenants without regard as to
whether or not same shall cost an additional premium and notwithstanding
anything to the contrary contained in this Lease. Should Tenant fail to maintain
said all risk insurance with the required waiver of subrogation, or fail to
maintain the liability insurance, naming Landlord as an additional named
insured, then Tenant shall be in default hereunder and shall be deemed to have
breached its covenants as set forth herein, and such breach shall constitute an
Event of Default, unless Tenant cures such breach within the applicable grace
period provided in Article XVIII.

      SECTION 8.03. Tenant shall insure the improvements on the property in an
amount equal to the full replacement value of the improvements. Such replacement
value shall be determined from time to time but not more frequently than once in
any one sixty (60) consecutive calendar months at the request of Landlord by an
appraiser, architect or contractor who shall be mutually and reasonably
acceptable to Landlord and Tenant.

                  A. Insurance proceeds shall be held in an interest bearing
account maintained by the attorneys for Landlord and Tenant or if Tenant's
Mortgagee so requires, then such insurance proceeds shall be held by Tenant's
Mortgagee, The proceeds shall first be used to pay Tenant's mortgage, if
Tenant's Mortgagee so elects, and the balance shall be used to construct or
reconstruct buildings or improvements having value substantially equivalent to
or greater than the value of the building(s) or improvement(s) damaged or
destroyed. Tenant shall be responsible to provide any additional funds above
available insurance proceeds to complete the reconstruction. Progress payments
for reconstruction shall be paid to Tenant upon the written request of Tenant
which shall be accompanied by reasonable evidence signed by Tenant, or the
executive officer of Tenant, or by the architect or engineer in charge of such
construction, dated not more than thirty (30) days prior to such request,
setting forth the following:

                  B. That the sum then requested either has been paid by Tenant,
or is justly due to contractors, subcontractors, material men, engineers,
architects or other persons who have rendered services or furnished materials
for the restoration therein specified, and giving a brief description of such
services and materials and the several amounts so paid or due to each of said
persons in respect thereof, and stating that no part of such expenditures has
been or is being made the basis, in any previous or then pending request, for
the payment of such monies or has been made out of the proceeds of such monies
received by Tenant, and that the sum then requested does not exceed the value of
the services and materials described in the certificate.

                  C. That except for the amount, if any, stated pursuant to the
foregoing sub clause A in such certificate to be due for services and materials,
there is no outstanding indebtedness shown on Tenant's books or known to the
person signing such certificate, after due inquiry, for which payment was made
under any prior requisition for labor, wages, materials, supplies or services in
connection with such construction work, which if unpaid, might become the basis
of a vendor's, mechanics, laborer's or material men's statutory or similar lien
upon such construction or upon the Demised Premises or any part thereof.

                  D. An official search of the public records or a search of a
title insurance company doing business in the State of New Jersey showing that
there has not been filed with respect to the Demised Premises, or any part
thereof, any vendor's mechanic's, laborer's, material men's or like lien, which
has not been discharged or record, except such as will be discharged by payment
of the amount then requested.


                  E. If the net money as aforesaid at the time held by the
attorneys for Landlord and Tenant, or Tenant's mortgagee, as the case may be,
shall be insufficient to pay the entire cost of such construction, Tenant shall
pay the deficiency. If, on the other hand, there are any surplus funds held by
such attorneys or mortgagee, as the case may be, after payment of all costs of
restoration, such funds shall be paid over to Tenant.

                                       10


      SECTION 8.04. All insurance required under this Lease shall be issued by
insurance companies of recognized responsibility which are authorized to do
business in the State, having a Best Rating of B+ or better. Tenant, prior to
entering on the Demised Premises, shall deliver to Landlord each policy or a
certificate evidencing such policy, together with evidence of payment of
premiums for all policies of insurance required to be maintained by Tenant
pursuant to the terms of this Lease. Within thirty (30) days prior to the
anniversary date of each policy of insurance required to be maintained by Tenant
pursuant to the terms of this Lease, Tenant shall deliver to Landlord evidence
of renewal of such policies, together with evidence of payment of premiums for
all such policies. Each policy shall be issued as a primary policy not
contributing with and not in excess of coverage of any insurance which Landlord
may carry, and shall contain an endorsement requiring thirty (30) days' written
notice from the insurance company to Landlord before cancellation or change in
the coverage, scope or amount of any policy.

                                   ARTICLE IX

              LIMITATIONS ON USE; RULES AND REGULATIONS; TRADE NAME

      SECTION 9.01. Tenant shall use the Demised Premises for the Permitted Use
only and shall not use or permit the Demised Premises to be used for any other
purpose without the prior written consent of Landlord, which consent will not be
unreasonably withheld or delayed. Tenant acknowledges that Landlord may covenant
with other tenants of the Building to restrict specific uses elsewhere in the
Building, and Tenant agrees, upon written notice from Landlord, to thereafter
immediately refrain from any use of the Demised Premises which is violative of
such covenant(s). Any breach of this Article shall constitute an Event of
Default, but only if Tenant fails to cure such breach within the applicable
grace period provided in Article XVIII. This Section shall not prohibit Tenant
from operating a financial institution or other lawful use permitted under this
Lease.

      SECTION 9.02. Tenant shall not use or permit the Demised Premises to be
used in any manner that will constitute waste, nuisance, unlawful, immoral or
objectionable activity, or unreasonable annoyance (including, without limitation
the use of loudspeakers or sound or light apparatus that can be heard or seen
outside the Demised Premises) to other tenants in the Building or which will
cause an increase in rates or a cancellation of any insurance policy covering
the Building. Tenant shall not use the Demised Premises for the preparation,
manufacture or mixing of anything that might emit any objectionable odor or
objectionable noises or lights into the Building. No secondhand store, auction,
distress or fire sale, or bankruptcy or going-out-of-business sale may be
conducted on the Demised Premises without Landlord's written consent. Tenant
shall not sell or display merchandise outside the confines of the Demised
Premises or within the Common Areas. Tenant shall not do anything on the Demised
Premises that will in any manner injure, vibrate, or shake the Demised Premises
or overload the electrical system.

      SECTION 9.03. Tenant shall open the Demised Premises for the Permitted Use
for at least one day. If the Demised Premises are destroyed or partially
condemned, and this Lease remains in full force and effect, Tenant shall
continue operation of its business at the Demised Premises to the extent
reasonably practical from the standpoint of good business judgment during any
period of reconstruction. While open, Tenant shall maintain adequate personnel
for the efficient serving of its customers. Tenant agrees that Landlord shall
have the right to prohibit the continued use by Tenant of any method of business
operation, advertising or interior display if, in Landlord's reasonable opinion,
the continued use thereof would impair the reputation of the Building or is
otherwise out of harmony with the general character thereof, and upon notice
from Landlord, Tenant shall immediately refrain from or discontinue such
activities. Tenant shall employ its best efforts to operate the business
conducted on the Demised Premises in a manner consistent with a first class
building.

      SECTION 9.04. Tenant shall comply with the rules and regulations
hereinafter set forth in Exhibit E attached hereto and made a part hereof.
Landlord shall have the right from time to time to establish reasonable
amendments and additional rules in relation thereto. On delivery of a copy of
such rules and regulations to Tenant, Tenant shall comply with the rules and
regulations and any subsequent amendments thereto. Landlord shall make
reasonable efforts to enforce the rules and regulations uniformly against all
tenants in the Building, provided, however, that Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenant or occupant of the Building or for any failure
on the part of Landlord to enforce the same.

      SECTION 9.05. Tenant shall operate the Demised Premises under the
Permitted Trade Name and no other, so long as same shall not be held to be in
violation of any applicable law; provided, however, that the Permitted Trade
Name may be changed if Tenant changes its name, merges with another company or
assigns or sublets the Demand Premises with Landlord's consent, pursuant to
Article XIV.

                                       11


                                    ARTICLE X

                         COMPLIANCE WITH APPLICABLE LAW

      SECTION 10.01. Tenant shall not use the Demised Premises, or permit
anything to be done in or about the Demised Premises, which will in any way
conflict with any applicable law. Tenant shall, at its sole expense, promptly
comply with all applicable laws, including environmental laws, relating to or
affecting the condition, use or occupancy of the Demised Premises. Failure to
comply with any laws shall constitute an Event of Default, as hereinafter
defined, but only if Tenant fails to cure such failure whether the applicable
grace period provided in Article XVIII.

                                   ARTICLE XI

                         PREPARATION OF DEMISED PREMISES

      SECTION 11.01. Landlord, at its expense, shall perform the work set forth
on Exhibit B (hereinafter referred to as "Landlord's Work"). All other work done
by Landlord at Tenant's request shall be at Tenant's expense and shall be paid
for within five (5) days after the presentation to Tenant of a bill for such
work. Acceptance of possession by Tenant shall be conclusive evidence that
Landlord's Work has been fully performed in the manner required. Any items of
Landlord's Work which are not completed as of Commencement Date shall be
identified by Tenant on a punchlist to be submitted to Landlord at the
Commencement Date and Landlord shall thereafter complete the same. Any items of
Landlord's Work which are not timely identified on such punchlist shall be
deemed completed.

      SECTION 11.02. The Landlord will make every effort to complete Landlord's
Work on or before the anticipated Commencement Date of the Term, provided that
if there shall be a delay in such completion beyond such date, the Term of this
Lease shall be extended by an equal period of time so that this Lease shall
continue for the Term of Ten (10) years after completion of Landlord's Work. The
Landlord and the Tenant shall execute a written instrument to confirm any
modification in the dates of the Term by reason of delay in completing
Landlord's Work.

      SECTION 11.03. The Landlord's Work shall be deemed completed and the Term
of this Lease and Tenant's obligations hereunder shall commence on the date when
the Landlord shall deliver to the Tenant a letter stating that Landlord's Work
is substantially completed, subject only to normal punchlist items.

      SECTION 11.04. The Landlord has delivered Space in As-Is Condition.

                                   ARTICLE XII

                                  TENANT'S WORK


      SECTION 12.01. Subject to Landlord's obligations under Article XI, Tenant
agrees to accept the Demised Premises in an "AS IS" condition as of the
Commencement Date without any representations or warranties on the part of
Landlord. Except as otherwise specifically provided in this Lease, Landlord has
not made any representations or warranties of any kind to Tenant. No
representations or warranties of any kind made by anyone, including without
limitation, any real estate broker or agent, shall be binding upon Landlord
unless expressly set forth in this Lease. Tenant shall be financially
responsible for the following construction activities. All work shall be
performed in accordance to architectural plans prepared by Pazdera and
Associates and tenant shall have the right to any and all warranties provided by
sub-contractors and/or general contractors.


                  A. Architecture Fees (estimated at $25,000.00)

                  B. Building Shell including but not limited to exterior
                     renovations, HVAC, electrical service, bathrooms, windows,
                     partitions, ceiling and lighting, utility services,
                     drive-thru lanes and related equipment.

                  C. Interior fit out including but not limited to paint,
                     sheetrocking, carpentry, carpet/flooring, furniture,
                     fixtures, and equipment.

                  D. Site Work (as per plan dated 9/21/2004 prepared by JG Park
                     and Associates) E. Off site work (as per plan dated
                     3/3/2005 prepared by JG Park and Associates) F. Any
                     interior or exterior signage


Tenant may, at any time and from time to time, alter, expand, demolish, restore,
modify or change any such improvements in whole or in part provided that Tenant
shall first obtain Landlord's written approval, which approval shall not
unreasonably be withheld. Tenant's improvements on the Premises must have a
value substantially equivalent to or greater than the improvements which were
originally approved by

                                       12


Landlord. All work done which is required to be performed to permit Tenant's
occupancy and use of the Demised Premises for the Permitted Use shall be
performed by Tenant, at its sole expense, and Landlord shall not be required to
perform or to bear any of the expenses for such work. All of such work shall be
performed in a diligent manner.


      SECTION 12.02. Any Tenant's Work made shall remain on and be surrendered
with the Demised Premises on expiration or termination of the Term.

      SECTION 12.03. Tenant shall have no power to do any act or make any
contract which may create or be the foundation for any lien, mortgage or other
encumbrance upon the estate of Landlord in the Building, or any part thereof.
All Tenant's Work, repairs, materials and labor shall be done at Tenant's sole
expense, and Tenant shall be solely and wholly responsible to contractors,
laborers and materialmen and such contractors, laborers and materialmen are
hereby charged with notice that they must look solely and wholly to Tenant for
the payment of any bills for work done and materials furnished. Landlord
reserves the right, before approving any Tenant's Work, to require Tenant to
furnish it a good and sufficient bond to secure Tenant's liability for payment,
for Tenant's Work.

      SECTION 12.04. Tenant shall procure and maintain an adequate workmen's
compensation insurance policy and such additional insurance policies as Landlord
shall reasonably request to insure against losses, damages or claims arising out
of or from Tenant's Work. Prior to the commencement of such Tenant's Work,
Tenant shall deliver to Landlord each policy, or a certificate evidencing such
policy, together with evidence of payment of premiums for all policies of
insurance required to be maintained by Tenant pursuant to this Section 12.06.

      SECTION 12.05. A. On and after the date of this Lease, Tenant may make,
from time to time, applications for Permits desired by Tenant; provided,
however, (i) that Landlord shall incur no costs or expenses in connection
therewith; and (ii) Tenant shall indemnify and save Landlord harmless from any
and all expenses, charges, claims or liability with respect thereof. As used
herein, Permits shall mean all permits and approvals (including, without
limitation, zoning, use, building, site plan and curb cut permits and approvals;
permits and approvals required by virtue of any of the federal or state
environmental laws as now enacted or hereafter amended or any similar statute,
regulation or requirement whether federal, state or local; and such other
permits and approvals which may be required to be issued by any local, state or
federal governmental body having jurisdiction over the Premises), licenses
subdivision and other approvals, certificates, exceptions, authorizations,
zoning changes, zoning variances and special exceptions, as may be required or
desired by Tenant to permit the lawful construction, installation, maintenance
and operation on the Demised Premises of such improvements as Tenant shall from
time to time desire. Tenant shall have no obligation to appeal the denial of any
Permits but may do so. The granting of any Permit shall not preclude Tenant from
reapplying for a similar Permit based upon different plans for the Demised
Premises.

      B. Landlord shall fully cooperate with Tenant in connection with all
applications for Permits, including when required, the actual signing or
submission of any application or consent thereto.

      SECTION 12.06 Such improvements as may from time to time exist or be
constructed on the Demised Premises by Tenant shall be owned by Tenant until the
Termination Date or the sooner termination of this Lease. Upon such Termination
Date or sooner termination, Tenant shall automatically transfer ownership of
such improvements to Landlord without further documentation. If requested by
Landlord, Tenant shall execute to Landlord by bargain and sale deed without
payment of any consideration there for.

                                  ARTICLE XIII

                      LANDLORD'S ENTRY ON DEMISED PREMISES

      SECTION 13.01. Landlord and its authorized representatives shall have the
right to enter the Demised Premises at all reasonable times, upon reasonable
notice, except in the case of an emergency, for any purpose whatsoever,
including, without limitation, to post "for rent" or "for lease" signs during
the last six (6) months of the Term.

      SECTION 13.02. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of Landlord's entry on the Demised Premises as allowed in this Article XIII.
Tenant shall not be entitled to any abatement or reduction of rent if Landlord
exercises any rights reserved in this Article, and no such exercise of
Landlord's rights hereunder shall be deemed an eviction or disturbance of
Tenant's use and possession of the Demised Premises. Landlord shall use its best
efforts to conduct its activities on the Demised Premises as allowed in this
Section in a manner that will not

                                       13

cause unreasonable inconvenience, annoyance, or disturbance to Tenant. Landlord
reserves the right to run pipes, lines, feeders or other systems throughout the
land area of the Demised Premises, subject to the provisions of this Section
13.02.

                                   ARTICLE XIV

                            ASSIGNMENT AND SUBLETTING

      SECTION 14.01. Tenant shall not assign or encumber its interest in this
Lease or in the Demised Premises, or sublease all or any part of the Demised
Premises, or sublease all or any part of the Demised Premises, or allow any
other person or entity (except Tenant's authorized representatives) to occupy or
use all or any part of the Demised Premises without first obtaining Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Any assignment, encumbrance, or sublease without Landlord's prior
written consent shall be void and shall constitute an Event of Default under
this Lease. No consent to any assignment, encumbrance, or sublease on any one
occasion shall constitute a consent to any subsequent assignment, encumbrance or
sublease, it being agreed that Tenant must first obtain Landlord's prior written
consent on each occasion. If Tenant is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, or any partner or partners
owning fifty (50%) percent or more of the partnership, or the dissolution of the
partnership, shall be deemed an assignment and shall require Landlord's prior
written consent. The sale of all or substantially all of the assets or capital
stock of the Tenant, by way of merger or acquisition, shall not constitute an
assignment requiring the consent of the Landlord..

      SECTION 14.02. With respect to any proposed sublease or assignment, Tenant
shall submit to Landlord all documents, information and agreements concerning
the same, and prior to the effective date of any such sublease or assignment,
Landlord shall have the option, exercisable in writing to Tenant, to recapture
the within Lease so that such prospective sublessee or assignee shall then
become the sole tenant of Landlord hereunder, or alternatively to recapture said
space, and the within Tenant shall be fully released from any and all
obligations hereunder. Landlord may condition its consent to any assignment or
subletting upon any matters or things required by Landlord as it shall determine
in its reasonable discretion, including without limitation, Landlord's receipt
of a satisfactory attornment from the sublessee. Landlord may further condition
its consent to any subletting upon Landlord's receipt of a covenant by Tenant to
pay to Landlord, in addition to the Rent reserved hereunder, fifty percent (50%)
of any and all sums which Tenant may receive from such sublessee under the
sublease, directly or indirectly, which are in excess of the Rent after
deduction of the reasonable costs to Tenant of the subletting. The assignee or
sublessee shall assume, by written instrument, all of the obligations of this
Lease, and a copy of such assumption agreement shall be furnished to Landlord
within ten (10) days of its execution. The Tenant and each assignee shall be and
remain liable for the observance of all the covenants and provisions of this
Lease, including, but not limited to, the payment of Rent reserved herein,
through the entire Term of this Lease, as the same may be renewed, extended or
otherwise modified.

      SECTION 14.03. Tenant hereby immediately and irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, any sublease
which may be approved by Landlord and all rights and remedies of Tenant under
any such sublease. Landlord shall not have any obligations under any such
sublease. Tenant agrees to execute and deliver to Landlord any and all documents
requested by Landlord to evidence such assignment. Landlord, as assignee and as
attorney-in-fact for Tenant, or as a receiver for Tenant appointed on Landlord's
application, may collect the rent under any sublease and apply it toward
Tenant's obligations under this Lease.

      SECTION 14.04. In any event, the acceptance by the Landlord of any rent
from the assignee or from any of the subtenants or the failure of the Landlord
to insist upon a strict performance of any of the terms, conditions and
covenants herein shall not release the Tenant herein or the Guarantor, if any,
nor any assignee assuming this Lease, from any and all of the obligations herein
during and for the entire Term of this Lease.

      SECTION 14.05. Landlord shall have no right of approval or recapture with
respect to an assignment resulting from a merger of Tenant or from the sale of
50% or more of the stock or assets of Tenant or from the assignment of this
Lease to another financial institution as long as said financial institution has
an equal or greater net worth as the Tenant.

                                   ARTICLE XV

                           INDEMNIFICATION OF LANDLORD

      SECTION 15.01. In addition to any and all other obligations of Tenant to
indemnify and save Landlord harmless as set forth in this Lease, Tenant will
indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without

                                       14


limitation, any and all architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Landlord by reason of any of the
following occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Demised
            Premises, or any part thereof, by or at the direction of Tenant; or

                  (B) Any negligence on the part of Tenant, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                  (C) Any injuries to persons or property occurring on or about
            the Demised Premises, except if caused by the gross negligence of
            the Landlord, its employees, agents or invitees; or

                  (D) Any failure on the part of Tenant to perform or comply
            with any of the covenants, agreements, terms or conditions contained
            in this Lease on its part to be performed or complied with.

      SECTION 15.02. In addition to any and all other obligations of Landlord to
indemnify and save Tenant harmless as set forth in this Lease, Landlord will
indemnify and save harmless Tenant against and from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses, including,
without limitation, any and all architects' and attorneys' fees, which may be
imposed upon or incurred by or asserted against Tenant by reason of any of the
following occurring during the Term of this Lease:

                  (A) Any work or thing done in, on or about the Common Areas,
            or any part thereof, by or at the direction of Landlord; or

                  (B) Any negligence on the part of Landlord, or any of its
            agents, contractors, servants, employees, licensees or invitees; or

                  (C) Any injuries to persons or property occurring on or about
            the Common Areas; or

                  (D) Any failure on the part of Landlord to perform or comply
            with any of the covenants, agreements, terms or conditions contained
            in this Lease on its part to be performed or complied with.

      SECTION 15.03. The provisions of this Article XV, and of any and all other
provisions in this Lease requiring Tenant to indemnify and save Landlord
harmless, shall survive the termination of this Lease. Tenant further covenants
and agrees to pay, and to indemnify Landlord against all reasonable costs,
expenses and charges, including, but not limited to, attorneys' fees, incurred
in obtaining possession of the Demised Premises after default by Tenant or upon
the expiration or earlier rightful termination of the Term or in successfully
enforcing any covenant of Tenant herein contained.

                                   ARTICLE XVI

                                FIRE AND CASUALTY

      SECTION 16.01. If the Demised Premises are damaged by fire or other
insurable casualty, then subject to provisions of Section 16.02, this Lease
shall remain in full force and effect, there shall be no rent abatement and,
subject to the adequacy and availability of insurance proceeds, Tenant shall
promptly repair such damage at its expense (subject to Excusable Delay).

      SECTION 16.02. If, in the reasonable opinion of Landlord, the Demised
Premises are damaged by fire or other casualty within the last year of the term,
to such an extent that the damage cannot be repaired or restored within one
hundred twenty (120) days from the date of such occurrence, then Landlord or
Tenant shall have the option to terminate this Lease by written notice given
within thirty (30) days after such occurrence; provided, however, that Tenant
may, within thirty (30) days, negate a termination by Landlord hereunder by
exercising a right to renew the Lease. If the above option is not or may not be
exercised by Landlord, then this Lease shall continue in full force and effect.
If the Lease is terminated as provided for in this Section, Tenant shall remain
liable for the Rent and Additional Rent which is due until the end of the Term.
Additionally, Tenant shall be responsible for the clearing of any remaining
structure or debris on the Demised Premises.

      SECTION 16.03. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, subject to the provisions of
Article XXX, Landlord shall have and retain any and all rights which it may then
have in law or equity against Tenant on account of such damage.

      SECTION 16.04. If the Demised Premises or any portion of the Building are
damaged by fire or other casualty due to any act or failure to act on the part
of Tenant, its agents, servants or employees, then, in addition to the option to
terminate this Lease, Landlord shall have and retain any and all rights which it
may then have in law or equity against Tenant on account of such damage.

                                       15


      SECTION 16.05. Within sixty (60) days following the completion of the
Landlord's Work, Tenant shall complete its work on the Demised Premises.

                                  ARTICLE XVII

                                  CONDEMNATION

      SECTION 17.01. In the event that the Demised Premises or any part thereof
shall be taken in condemnation proceedings or by exercise of any right of
eminent domain or by agreement between Landlord, Tenant and those authorized to
exercise such right, Landlord, Tenant and any person or entity having an
interest in the award or awards shall have the right to participate in any such
condemnation proceedings or agreement for the purpose of protecting their
interests hereunder. Each party so participating shall pay their own expenses
with regard thereto.

      SECTION 17.02. Subject to Section 17.03, if at any time during the term of
this Lease there shall be a taking of unimproved land, then and in that event,
Landlord herein shall be entitled to the full award for the land and any and all
damages by virtue of such taking, and this Lease shall continue in full force
and effect but the rent shall be reduced subsequent to the taking as provided in
Section 17.05. All provisions hereof shall continue in full force and effect and
the Demised Premises shall consist of that portion of the Demised Premises
remaining subsequent to such taking.

      SECTION 17.03. If at any time during the term of this Lease there shall be
a taking of the whole or substantially of all of the Demised Premises, this
Lease shall terminate and expire on the date of such taking and the Basic Rent
and Additional Rent shall be apportioned and paid as of the date of such taking.
For the purposes of this Article, substantially all of the Demised Premises
shall be deemed to be (a) a taking which reduces access to the Demised Premises,
or parking spaces adjacent to the Demand Premises, to the extent that the
business operations on the Demised Premises are materially adversely affected,
(b) a taking of all of the structures constructed upon the Demised Premises, or
(c) a taking of such portion of the Demised Premises which has a materially
adverse effect on the business operations then being conducted upon the Demised
Premises.

      SECTION 17.04. If this Lease shall have been terminated as a result of
such taking the award or awards paid pursuant to such condemnation proceedings
or agreement shall be distributed as follows:

                  A. All awards for unimproved land shall be paid to Landlord.

                  B. All awards for buildings, improved lands (e.g., parking
lots, buffer areas, roadways and landscaped areas) and other improvements upon
the Demised Premises shall (a) first be paid to any leasehold mortgagee of the
Demised Premises, and (b) the balance distributed as shall be determined in the
condemnation proceedings or if not determined in the condemnation proceedings,
then in accordance with the procedure set forth in Section 17.07 below.

      SECTION 17.05. Notwithstanding any other provision herein set forth, in
the event of taking of less than all of the Demised Premises, Landlord shall
have the right to elect to continue this Lease with regard to the remaining
portions of the Demised Premises subject to all of the terms and conditions
hereof, it being understood that the distribution of proceeds of any
condemnation award shall be made as hereinabove set forth; provided however;

                  A. That the Basic Rent payments hereunder shall be reduced
subsequent to the taking and thereafter Tenant shall be required to pay that
proportion of the Basic Rent as the area of the remaining land bears to the area
of the entire Demised Premises prior to the taking.

                  B. Tenant shall, after such taking, at its expense, either
restore the remaining building or buildings to a complete architectural unit or
construct new buildings or improvements having a value substantially equivalent
to or greater than the buildings and improvements (or portions thereof)
remaining after such taking, provided the condemnation proceeds payable to
Tenant are sufficient to do so.

      SECTION 17.06. In the event of a taking of an easement or any other taking
which shall be of an interest or estate in the land less than a fee simple,
which taking shall not materially adversely affect the business operations then
being conducted on the Demised Premises, such taking shall be deemed a taking
insufficient to terminate this Lease and the award therefore shall be paid fully
to

                                       16


Landlord for the taking of unimproved land and for other portions of the
Premises shall be distributed as hereinabove set forth.

      SECTION 17.07. In the event of any dispute between Landlord or Tenant with
regard to any issue or fact (other than one determined by condemnation
proceeding or condemnation commissioner arising out of a taking set forth herein
and other than one to he determined in accordance with clause B of this
Section), such dispute shall be resolved by arbitration in the manner
hereinafter prescribed.

                  A. If Landlord and Tenant are unable to agree upon the
distribution to Landlord and Tenant of their respective shares (the "Shares") of
a condemnation award, then same shall be determined in the following manner:
Within ten (10) days after the vesting of title pursuant to any such taking,
Landlord and Tenant shall each appoint on its behalf a disinterested third
person ("Appraiser") who shall be an appraiser who is a member of the American
Institute of Real Estate Appraisers and who shall have at least ten (10) years'
experience dealing with Middlesex County, New Jersey commercial real estate, and
each party shall give written notice of such appointment to the other party. The
two Appraisers thus appointed shall, within fifteen (15) days after appointment
of the second appraiser, determine the amount of such award representing the
Landlord's Share and the Tenant's Share in accordance with the above provisions.
If the difference in the determinations by such two Appraisers as to the amount
of such award representing the Shares does not exceed ten percent (10%:) of the
lower of such determinations, then such Shares shall be the average of the
determinations by such two Appraisers. If, however, the difference in the
determinations by such two Appraisers as to the amount of such award
representing the Shares exceeds ten (10%) percent of the lower of such
determinations, then such two Appraisers shall appoint a third Appraiser, and
said three Appraisers shall, as promptly as possible, determine the amount of
the award representing the Shares. The decision of a majority of the three (3)
Appraisers shall be conclusive and binding on Landlord and Tenant and judgment
upon the decision may be entered in any court having jurisdiction. If a party
who shall have the rights pursuant to the foregoing to appoint an Appraiser
fails or neglects to do so, then the other party (or if the two Appraisers
appointed by Landlord and Tenant shall fail to appoint a third Appraiser if
required to do so under the provisions of this paragraph B, then either Landlord
or Tenant) may apply to the Assignment Judge of New Jersey Superior Court,
Middlesex County, New Jersey, or such other judicial authority to appoint such
Appraiser. The expenses of the determination shall be shared equally by Landlord
and Tenant, but each party shall be responsible for the fees of its own attorney
and Appraiser. Landlord and Tenant agree to sign all documents and to do all
other things reasonably necessary to submit any dispute regarding the Shares to
a determination in accordance with this paragraph B and further agree to, and
hereby do, waive any and all rights they or either of them may at any time have
to revoke their agreement to determine the value of the Shares in accordance
with this paragraph B and to abide by the decision rendered hereunder. The
appraisers shall be bound by the provisions of this article.

      SECTION 17.08. If the Term of this Lease shall not be terminated as
aforesaid, then the Term of this Lease shall continue in full force and effect,
and subject to the adequacy and availability of condemnation proceeds, Tenant
shall within a reasonable time after possession is physically taken (subject to
Excusable Delays) repair or rebuild what may remain of the Demised Premises for
the occupancy of Tenant; and a just proportion of the Fixed Rent shall be
abated, according to the nature and extent of the injury to the Demised
Premises, until what may remain of the Demised Premises shall be repaired and
rebuilt as aforesaid; and thereafter a just proportion of the Fixed Rent shall
be abated, according to the nature and extent of the Demised Premises acquired
or condemned, for the balance of the Term of the Lease.

      SECTION 17.09. Any damages payable for trade fixtures installed by Tenant
at its own cost and expense and which are not part of the realty and for
relocation expenses shall belong entirely to Tenant and Landlord shall make no
claim thereto.

      SECTION 17.10. In the event fifty (50%) percent or more of the Building is
taken by condemnation, Tenant, upon thirty (30) days written notice, shall have
the right to terminate this Lease.

                                  ARTICLE XVIII

                                EVENTS OF DEFAULT

      SECTION 18.01. Failure to pay Rent or any other payment required to be
made by Tenant under the terms of this Lease, when due, and the continuation of
such failure for a period of five (5) days after the payment shall be due;

      SECTION 18.02. Abandonment and vacating of the Demised Premises (failure
to occupy and operate the Demised Premises for fifteen [15] consecutive days or
more shall be deemed an abandonment and vacating);

      SECTION 18.03. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant (other than the failure to pay Rent or make

                                       17


other payments as set forth in Section 18.01), where such failure shall continue
for a period of thirty (30) days after written notice to Tenant;

      SECTION 18.04. The making by Tenant of any general assignment or
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt or a petition for reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty [60] days; or
unless Landlord has received adequate assurances of future performance as then
required under the federal bankruptcy law in connection with building leases);
or the appointment of a trustee or a receiver to take possession of
substantially all of Tenant's assets located at the Demised Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Demised Premises or of
Tenant's interest in this Lease, where such seizure is not discharged in thirty
(30) days;

      SECTION 18.05. The default by Tenant or any affiliate of Tenant with
respect to any other lease or agreement between it and Landlord or any affiliate
of Landlord;

      SECTION 18.06. This Lease or any interest therein by operation of law
devolves upon or passes to any person or persons other than Tenant, except upon
the sale of all or substantially all of the assets or capital stock of the
Tenant by way of merger or acquisition;

      SECTION 18.07. The assignment or subletting of all or any portion of this
Lease or the Demised Premises in violation of Article XIV;

      SECTION 18.08. The failure of Tenant to move into and take possession of
the Demised Premises and open for business within thirty (30) days after the
Commencement Date; or

      SECTION 18.09. Any representation or warranty made by Tenant in connection
with this Lease shall prove to have been false in any material respect.

                                   ARTICLE XIX

                               LANDLORD'S REMEDIES

      SECTION 19.01. If an Event of Default shall occur, Landlord may exercise
one or more of the following remedies, all of which shall be cumulative and in
addition to any remedies available under applicable law:

                  (A) Without any further notice or demand, terminate this
            Lease, and Tenant will forthwith quit and surrender the Demised
            Premises, but Tenant shall remain liable as hereinafter provided;

                  (B) Re-enter and resume possession of the Demised Premises and
            remove all persons and property by summary dispossess proceedings,
            by appropriate proceedings, without being liable for any damages
            therefor, and no re-entry shall be deemed an acceptance of a
            surrender of this Lease;

                  (C) Proceed to collect any Rent from Tenant then due by one or
            more proceedings;

                  (D) Exercise any remedy available at law or in equity to
            enforce the provisions of this Lease, to recover any damages for a
            breach of this Lease or to prevent any breach or threatened breach
            of this Lease; and/or

                  (E) Recover from Tenant on demand an amount equal to all
            expenses, including reasonable attorney's fees incurred by Landlord
            as a result of an Event of Default or the exercise of its rights and
            remedies, all reasonable costs and charges for the care of the
            Demised Premises while vacant, and all charges and expenses incurred
            by Landlord in connection with the reletting of the Demised
            Premises, including broker's commissions, advertising expenses, and
            the costs of repairing, renovating or remodeling the Demised
            Premises.

         SECTION 19.02. If this Lease shall be terminated, as provided in this
Article XIX:

                                       18


                  (A) Landlord may relet the whole or any part of the Demised
            Premises for a period equal to, or greater or less than the
            remainder of the then Term of this Lease, at such rental and upon
            such terms and concessions as Landlord shall deem reasonable, to any
            person which it may deem suitable and satisfactory and for any use
            and purpose which it may deem appropriate. In no event shall
            Landlord be liable in any respect for failure to collect the rent
            thereunder. Any sums or other consideration received by Landlord on
            a reletting in excess of the rent reserved in this Lease shall
            belong to Landlord.

                  (B) If this Lease shall be terminated and whether or not the
            Demised Premises shall be relet, Landlord shall be entitled to
            recover from Tenant an amount equal to all Rent and other charges
            required to be paid by Tenant under this Lease, less the net rent,
            if any, collected by Landlord on reletting the Demised Premises.
            Such amount shall be due and payable by Tenant to Landlord on the
            several days on which such Rent and other charges would have become
            due and payable had this Lease not been terminated, and Tenant shall
            pay to Landlord the amount of any deficiency then existing. The net
            rent collected by Landlord on reletting shall be computed by
            deducting from the gross rents collected the expenses, costs and
            charges referred to in Subsection 19.01(E). Without any previous
            notice or demand, separate actions may be instituted by Landlord
            against Tenant from time to time to recover any damages which at the
            commencement of any such action shall have become due and payable to
            Landlord under any provisions hereof without waiting until the end
            of the original Term of this Lease, and neither the institution of
            suit or suits, nor the entering of judgment therein shall bar
            Landlord from bringing a subsequent suit for damages of any kind. It
            is expressly agreed that the forbearance on the part of Landlord in
            the institution of any suit or entry of judgment for any part of the
            Rent shall in no way serve as a defense against nor prejudice a
            subsequent action for such Rent. Tenant hereby expressly waives
            Tenant's right to claim a merger of such subsequent action in any
            previous suit or in the judgment entered therein. Furthermore, it is
            expressly agreed that claims for Rent may be regarded by Landlord,
            if it so elects, as separate claims capable of being assigned.

                  (C) Landlord, at its election, which shall be exercised by the
            service of a written notice on Tenant, may collect from Tenant and
            Tenant shall pay in lieu of the sums becoming due after the service
            of such notice under the provisions of this Subsection 19.02(C) an
            amount equal to the difference between the Rent required to be paid
            by Tenant under this Lease (form the date of the service of such
            notice to and including the date of the expiration of the Term of
            this Lease which had been in force immediately prior to any
            termination effected under this Section) and the then fair and
            reasonable rental value of the Demised Premises for the same period,
            discounted to present value at the rate of six (6%) percent per
            year. In determining the rental value of the Demised Premises, the
            rental realized by any reletting shall be deemed prima facie
            evidence thereof.

      SECTION 19.03. Tenant hereby expressly waives any rights of redemption
granted by any laws in the event of any eviction or dispossession, any notices
which may be required prior to the commencement of any proceeding for possession
of the Demised Premises.

      SECTION 19.04. The Landlord and the Tenant waive trial by jury in any
action, proceeding or counterclaim brought by either the Landlord or the Tenant
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the Tenant's use or occupancy of the Demised
Premises, and/or any claim of injury or damage.

      SECTION 19.05. If Tenant shall fail to pay or perform any of its
obligations when due, then Landlord, in addition to any of its rights and
remedies under this Lease and without waiving its rights or remedies with regard
thereto, may cure such failure on the part of Tenant. Any sums expended by
Landlord to effect any such cure shall be payable by Tenant to Landlord within
30 days after demand, as Additional Rent.

                                   ARTICLE XX

                          SURRENDER OF DEMISED PREMISES

                                       19


      SECTION 20.01. On expiration or termination of the Term, Tenant shall
surrender to Landlord the Demised Premises, in broom clean condition, and all
Tenant's improvements and alterations in good, clean, orderly and undamaged
condition (except for ordinary wear and tear occurring after the last necessary
maintenance made by Tenant, destruction of the Demised Premises covered by
Article XVI and alterations that Tenant has the right to remove or is obligated
to remove under the provisions of Article XII). Tenant shall remove all its
personal property and shall deliver to Landlord all keys to the Demised Premises
within the above stated time. Tenant shall immediately perform all restoration
made necessary by the removal of any alterations or Tenant's personal property.
Tenant shall be liable to Landlord for any cost incurred by Landlord to repair
any damage to the Demised Premises caused by Tenant.

      SECTION 20.02. Landlord can elect to retain or dispose of in any manner
any alterations or Tenant's personal property that Tenant does not remove from
the Demised Premises on expiration or termination of the Term as allowed or
required by this Lease by giving at least ten (10) days' notice to Tenant. Title
to any such alterations or Tenant's personal property that Landlord elects to
retain or dispose of on expiration of the ten (10) day period shall vest in
Landlord. Tenant waives all claims against Landlord for any damage to Tenant
resulting from Landlord's retention or disposition of any such alterations or
Tenant's personal property. Tenant shall be liable to Landlord for Landlord's
costs for storing, removing, and disposing of any alterations or Tenant's
personal property.

      SECTION 20.03. If Tenant fails to surrender the Demised Premises to
Landlord on expiration or termination of the Term, Tenant shall hold Landlord
harmless from all damages resulting from Tenant's failure to surrender the
Demised Premises, including, without limitation, claims made by a succeeding
tenant resulting from Tenant's failure to surrender the Demised Premises.

                                   ARTICLE XXI

                                  HOLDING OVER

      SECTION 21.01. If Tenant, with Landlord's express written consent, remains
in possession of the Demised Premises after expiration or termination of the
Term, or after the date in any notice given by Landlord to tenant terminating
this lease, such possession by Tenant shall be deemed to be a month-to-month
tenancy terminable on thirty (30) days' notice given at any time by either
party. During any such month-to-month tenancy, Tenant shall pay all Rent
required by N.J.S.A. 2A:42-5.

      SECTION 21.02. If Tenant, without Landlord's express written consent,
remains in possession of the Demised Premises after expiration or termination of
the Term, or after the date in any notice given by Landlord to Tenant
terminating this Lease, Tenant shall pay to Landlord Rent as required by
N.J.S.A. 2A:42-6 for the time Tenant retains possession of the Demised Premises
or any part thereof after termination of the Term by lapse or otherwise.

                                  ARTICLE XXII

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXIII

                                  COMMON AREAS

      SECTION 23.01. During the Term of this Lease and any extension thereof,
Tenant and its authorized representatives and invitees shall have the
nonexclusive right to use the Common Areas, with others who are entitled to use
the Common Areas, subject to Landlord's rights as hereinafter provided.
Notwithstanding the aforesaid, Tenant shall not create any disturbance in the
Common Areas nor shall Tenant create any noise from loudspeakers or otherwise,
or permit any noise to be emanated from the Demised Premises nor shall Tenant
distribute any leaflets, advertisements or other materials in the Common Areas.

      SECTION 23.02. Landlord shall have the right to designate specific parking
spaces and loading facilities for use by Tenant and its employees. Where there
is a rear entrance, all loading and unloading of goods shall be made at the rear
entrance. Upon Landlord's demand, Tenant shall submit to Landlord a list of the
license plate numbers for all motor vehicles owned or operated by Tenant and its
employees. Notwithstanding the above, any armored cars that load or unload at
this site may do so at any entrance to the Demised Premises.

                                       20


      SECTION 23.03. Tenant, at its sole cost and expense, shall maintain,
repair, replace and keep in good condition the Common Areas including but not
limited to parking lot, sidewalk, curbs, signs, lights, landscaping and snow
plowing. Landlord shall have, at any time, the right to establish reasonable
rules and regulations as to the Common Areas, close any of the Common Areas,
either permanently or temporarily, make changes to the Common Areas in any
regard and for any purpose and to hire any person or business to manage and
operate the Common Areas on such terms as Landlord shall determine, all in
accordance with good building practices. Landlord will not construct additional
buildings which will obstruct the visibility of or access to the Demised or
which will materially reduce parking adjacent to the Demised Premises in the
Building.


      SECTION 23.04. Off Site Improvements - - In order to obtain necessary
permits and approvals from Falls Township to construct a bank branch at the
location, it was required that off site improvements be installed in accordance
to JG Park and Associates plans dated March 3, 2005. As part of the requirements
by the township, a segment of sidewalk has to be installed on the opposite side
of West Trenton Avenue to offer safer passage for pedestrians. The sidewalk
specifications are detailed on March 3, 2005 JG Park engineering drawings. In
addition to its routine maintenance duties, Yardville National Bank shall be
obligated at its expense to repair, replace, maintain the sidewalk (including
snow removal and tree damage caused by the sidewalk installation). Copies of the
easements entered into with the property owners shall be supplied to Yardville
National Bank.

                                  ARTICLE XXIV

                                      SIGNS

      SECTION 24.01. Landlord shall have the right to establish policies and
standards for the size, location, quality, number, color and type of signs which
Tenant may install in or upon the Demised Premises. Such policies and standards
are set forth herein as well as in Exhibit "C" attached hereto. Tenant shall
comply with all of such policies and standards as they may be changed from time
to time and shall install such signs as may be required by Landlord. No signs
shall be installed by Tenant in or upon the Demised Premises until after
Landlord has approved in writing the construction (including all connections),
drawings and specifications pertaining to the signs.


      SECTION 24.02. Tenant shall pay for all signs, their installation,
maintenance and removal. Tenant, at Tenant's sole cost and expense, shall obtain
all necessary permits and approvals from the local governmental agency having
jurisdiction thereof. All work must be of good quality. Landlord shall have the
right to reject any work judged below standard. All signs shall be constructed
and installed by contractors qualified to fabricate and install commercial
signs. Tenant shall maintain signs in a neat and attractive condition. The bulbs
of all permitted signs and lights, whether an exterior or interior sign, shall
be replaced as soon as they become defective or lose their intensity. The signs
and supports shall be kept painted to maintain attractive conditions and to
prevent rust, rot or deterioration. Landlord shall have the right to remove the
signs or any of them, at any time during the term of this Lease, as may be
necessary in order to paint or make any other repairs, alterations or
improvements in or upon the Building, providing the same be removed and replaced
at Landlord's expense upon completion of said work. Tenant shall keep its signs
illuminated from dusk to dawn.

                                   ARTICLE XXV

                  SUBORDINATION; TENANT'S ESTOPPEL CERTIFICATE

      SECTION 25.01. This Lease is and shall be subordinate to any mortgage,
encumbrance or ground lease now or hereafter imposed upon or affecting the
Building, or any part hereof. Such subordination is effective without any
further act of Tenant. Tenant shall from time to time on request from Landlord
execute and deliver any documents or instruments that may be required by a
lender or ground lessor to effectuate any subordination. If Tenant fails to
execute and deliver any such documents or instruments, Tenant irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such documents or instruments. Tenant
agrees to execute any subordination agreement referred to above provided the
lender simultaneously agrees to a non-disturbance of the tenancy so long as the
Tenant is not in default.

      SECTION 25.02. Within ten (10) days after notice from the other Landlord
or Tenant shall execute and deliver to the other a statement in writing
certifying such matters as requested by the other, including that this Lease is
unmodified and in full force and effect, or in full force and effect as
modified, and stating the modifications, the amount of Fixed Rent, the dates to
which the Rent has been paid in advance, and the amount of any security deposit
or prepaid rent.

                                       21


      SECTION 25.03. As a condition to the effectiveness of this Lease, Tenant
must receive a nondisturbance agreement from the ground lessor and any existing
mortgagee and any subordination to a future mortgage must be subject to such an
agreement.

                                  ARTICLE XXVI

                         NATURE OF LANDLORD'S LIABILITY

      SECTION 26.01. It is specifically understood and agreed by Tenant that
there shall be absolutely no personal liability on the part of Landlord or on
the part of the members of Landlord, or, if Landlord or any successor in
interest shall be an individual, joint venture, tenancy in common, firm or
partnership, general or limited, or a trust or a corporation, there shall be no
personal liability on such individual or the members of the firm, partnership,
joint venture, tenancy in common or the trustee or beneficiaries under any such
trust, in each case with respect to any of the terms of this Lease. Tenant shall
look solely to the equity, if any, of Landlord in the Demised Premises for the
satisfaction of each and every remedy of Tenant in the event of any breach by
Landlord of any of the terms of this Lease to be performed by Landlord. The
foregoing exculpation of personal liability shall be absolute and without any
exception whatsoever.

      SECTION 26.02. If Landlord sells or transfers all or any portion of the
Building, Landlord, on consummation of the sale or transfer, shall be released
from any liability thereafter accruing under this Lease and the transferee shall
be automatically responsible for future performance of the Landlord under this
Lease.


      SECTION 26.03. Landlord shall not be liable for failure to furnish any
services when such failure is due to Excusable Delay. Landlord shall not be
liable, under any circumstances, including, but not limited to, that arising
from the negligence of Landlord, its agents, servants or invitees, or from
defects, errors or omissions in the construction or design of the Demised
Premises and/or the Building, including the structural and nonstructural
portions thereof, for loss of or injury to Tenant or to property, however
occurring, through or in connection with or incidental to the furnishing of, or
failure to furnish, any of the aforesaid services or for any interruption to
Tenant's business however occurring. Landlord and its agents shall not be liable
for any loss or damage to property entrusted to their employees or agents, nor
for loss of property by theft. Landlord and its agents shall not be liable for
any injury or damage to persons or property resulting from falling plaster, or
from steam, gas, water or snow which may leak from any part of the Building, or
from the pipes or appliances therein, or from any other part thereof, or from
the sub-surface thereunder, or from dampness, or from any other cause.
Notwithstanding the above, Landlord shall not be exculpated from any injury or
damages to the Tenant or Tenant's property which is caused by Landlord's gross
negligence or the gross negligence of Landlord's employees, agents or invitees.


      SECTION 26.04. This Lease and the obligations of Tenant to pay all Rent
and perform all of its obligations shall in no way be impaired, affected or
excused because Landlord is unable to fulfill its obligations or unable to or
delayed in supplying any service or performing any obligations, including
without limitation, any repairs or work to be done by Landlord, subject to the
self-help provisions contained within this Lease.

      SECTION 26.05. It is expressly agreed that nothing in this Lease shall be
construed as creating a partnership or joint venture between Landlord and
Tenant, or between Landlord or any other party, or cause Landlord to be
responsible for any debts or obligations of Tenant.

                                  ARTICLE XXVII

                                     WAIVER

      SECTION 27.01. No delay or omission in the exercise of any right or remedy
of Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent
shall not constitute a waiver of any default. No act or conduct of Landlord,
including, without limitation, the acceptance of the keys to the Demised
Premises, shall constitute an acceptance of the surrender of the Demised
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Demised
Premises and accomplish a termination of the Lease. Landlord's consent to or
approval shall not be deemed to waive or render unnecessary Landlord's consent
to or approval of any subsequent act by Tenant. Any waiver by Landlord or Tenant
of any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.

      SECTION 27.02. The parties hereto waive a trial by jury of any and all
issues arising in any action or proceeding between them or their successors
under or connected with this Lease or any of its provisions, any negotiations in
connection therewith, or Tenant's use or occupancy of the Demised Premises. In
case Landlord shall commence summary proceedings or an action for nonpayment of
Basic

                                       22

Rent or additional rent hereunder against Tenant, Tenant shall not interpose any
counterclaim of any nature or description in any such proceeding or action
unless compulsory under existing court rules, but shall be relegated to an
independent action at law.

                                 ARTICLE XXVIII

                                 QUIET ENJOYMENT

      SECTION 28.01. Landlord covenants that if, and so long as, Tenant pays the
Fixed Rent and any Additional Rent as herein provided, and performs the
covenants hereof, Landlord shall do nothing to affect Tenant's right to
peaceably and quietly have, hold and enjoy the Demised Premises for the Term
herein mentioned, subject to the provisions of this Lease and to the terms of
all covenants, restrictions, easements and encumbrances (but subject to Section
25.03) now or hereafter affecting fee title to, or Landlord's interest in, the
Building.

                                  ARTICLE XXIX

                             INTENTIONALLY OMMITTED

                                   ARTICLE XXX

                              WAIVER OF SUBROGATION

      SECTION 30.01. In the event of any loss or damage to the Building, the
Building, the Demised Premises and/or any contents (herein "property damage"),
each party waives all claims against the other for any such loss or damage and
each party shall look only to any insurance which it has obtained to protect
against such loss (or in the case of Tenant, waives all claims any tenant of the
Building that has similarly waived claims against such Tenant) and each party
shall obtain, for each policy of such insurance, provisions waiving any claims
against the other party (and against any other tenant(s) in the Building that
has waived subrogation against the Tenant) for loss or damage within the scope
of such insurance.

                                  ARTICLE XXXI

                             INTENTIONALLY OMMITTED

                                  ARTICLE XXXII

                                  MISCELLANEOUS

      SECTION 32.01. TIME OF ESSENCE. Time is of the essence of each provision
of this Lease and for the performance of any obligation hereunder.

      SECTION 32.02. BINDING ON SUCCESSORS. Subject to the provisions hereof
with respect to assignment and subletting, this Lease shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, assigns, subtenants and successors in interest.

      SECTION 32.03. NOTICE. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by certified mail, return receipt requested, express mail or overnight
courier, and addressed to the other party at the address set forth at the
beginning of this Lease. Either party may change its address by giving a notice
thereof to the other party in accordance with this Section.

      SECTION 32.04. COMMISSIONS. Landlord and Tenant each represents to the
other, knowing that the other shall rely upon same, that neither has dealt with
any real estate broker, finder of other person in connection with this Lease,
the Building or the Demised Premises and no such real estate broker is entitled
to a commission as a result of this Lease. Each shall hold harmless the other,
its employees, agents and assigns, from and against all claims, demands, actions
and liabilities, expenses and other damages, including attorneys' fees incurred,
resulting from any claims that may be asserted against Landlord or Tenant by any
broker, finder or other person with whom Landlord or Tenant has or purportedly
has dealt and any claim of, or right to lien under the Statutes of the State of
New Jersey relating to real estate broker liens, with respect to any such
broker.

      SECTION 32.05. GOVERNING LAW. This Lease shall be construed and
interpreted in accordance with the laws of the State of New Jersey.

                                       23


      SECTION 32.06. ENTIRE AGREEMENT. This Lease contains the entire agreement
of the parties and cannot be amended or modified except by a written agreement.
Neither Landlord nor anyone acting on its behalf has made any statement, promise
or agreement which in any way modifies, varies, alters, enlarges or invalidates
the provisions of this Lease, or the obligations of Landlord or Tenant
hereunder.

      SECTION 32.07. CONSTRUCTION. The Landlord and the Tenant agree that each
party and its counsel have reviewed and revised this Lease and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Lease or any amendments, exhibits or schedules hereto.

      SECTION 32.08. CAPTIONS. The captions of this Lease shall have no effect
on its interpretation.

      SECTION 32.09. SEVERABILITY. The unenforceability, invalidity or
illegality of any provision of this Lease shall not render the other provisions
unenforceable, invalid or illegal.

      SECTION 32.10. SECTION REFERENCES. All references to Articles shall refer
to articles of this Lease.

      SECTION 32.11. MEMORANDUM OF LEASE. This Lease shall not be recorded,
except that if either party requests that the other do so, it shall execute a
Memorandum of Lease in recordable form.

         SECTION 32.12. AUTHORITY OF CORPORATE TENANT. If Landlord or Tenant is
a corporation, each individual executing this Lease on behalf of said
corporation represents and warrants that (i) he is duly authorized to execute
and deliver this Lease on behalf of said corporation in accordance with the
by-laws and pursuant to a duly enacted resolution of said corporation; (ii) that
this Lease is valid and binding upon said corporation and enforceable against
Landlord or Tenant in accordance with its terms; (iii) the execution and
delivery of this Lease will not, with or without the passage of time, violate
any other agreement, lease or mortgage by which the corporation is bound or by
which the corporation's property is encumbered.

      SECTION 32.13. TENANT'S FINANCIAL CONDITION. Tenant represents and
warrants that all financial statements and other information submitted by, or on
behalf of, Tenant to Landlord in connection with this Lease are true and
complete in all material respects.

      SECTION 32.14. EXECUTION OF LEASE. The submission of this Lease to Tenant
for examination does not constitute an offer on the part of Landlord. This Lease
shall be effective only upon execution by Landlord and Tenant. Upon execution of
this Lease by Tenant and delivery of the executed Lease to Landlord, this Lease
shall constitute an option to Landlord for thirty (30) days to execute and
deliver this Lease, and said option may not be withdrawn during such thirty (30)
day period after delivery to Landlord. If Landlord shall not execute this Lease
within such thirty (30) day period, then the option shall be deemed withdrawn.

      SECTION 32.15. BUILDING EXCLUSIVES. N/A.

      SECTION 32.16. NET LEASE. It is the intention of these presents that
Landlord shall receive the Basic Rent herein reserved and all sum or sums which
shall or may become payable hereunder by Tenant under any contingency, free from
all taxes, charges, expenses, damages and deductions of every kind or sort
whatsoever except as otherwise expressly stated herein, and the Tenant shall and
will and hereby expressly agree to pay all such other sums which, except for the
execution and delivery of these presents, would have been chargeable against the
Demised Premises and payable by Landlord. Tenant, however, shall not be under
any obligation to pay any principal or interest on any mortgage which may be a
lien against the fee simple interest of Landlord on the Demised Premises, or
Landlord's estate or interest therein, or any franchise tax which is or may
become payable to Landlord or any gift, inheritance, transfer, estate or
succession tax by reason of any existing law or any law which may hereafter be
enacted or any judgments, liens, claims or demands asserted against Landlord
which are not specified as the obligation of Tenant herein and which do not
arise out of the use and occupancy of the Demised Premises by Tenant.

      SECTION 32.18. NO ORAL MODIFICATION All prior understandings and
agreements between the parties are merged within this Lease, which alone fully
and completely sets forth the understanding of the parties; and this Lease may
not be changed or terminated orally or in any manner other than by an agreement
in writing and signed by the party against whom enforcement of the change or
termination is sought.

      SECTION 32.19. EXTERMINATION. INTENTIONALLY OMMITTED

      SECTION 32.20. ATTORNEYS' FEES. If either party hereto be made or becomes
a party to any litigation commenced by or against the other party involving the
enforcement of any of the rights and

                                       24

remedies of such party, or arising on account of the default of the other party
in the performance of such party's obligations hereunder, then the prevailing
party in any such litigation, or the party becoming involved in such litigation
because of a claim against such other party, as the case may be, shall receive
from the other party all costs and reasonable attorneys' fees incurred by such
party in such litigation.

                                 ARTICLE XXXIII

                               LEASEHOLD MORTGAGES

      SECTION 33.01. Tenant and every successor and assign of Tenant (including,
but not limited to, any sublessee of Tenant, but only with Tenant's prior
consent) is hereby given the right by Landlord in addition to any other rights
herein granted, without Landlord's prior written consent, to mortgage its
interest in this Lease(s), or any part or parts thereof, and any sublease(s)
under one or more leasehold Mortgage(s), and assign this Lease, or any part or
parts thereof, and any sublease(s) as collateral security for such Mortgage (s),
upon the condition that all rights acquired under such Mortgage(s) shall be
subject to each and all of the covenants, conditions and restrictions set forth
in this Lease, and to all rights and interest of Landlord herein, none of which
covenants, conditions or restrictions is or shall be waived by Landlord by
reason of the right given so to mortgage such interest in this Lease, except as
expressly provided herein. If Tenant and/or Tenant's successors and assigns
(including, but not limited to, any sublessee of Tenant, but only with Tenant's
prior consent) shall mortgage this leasehold, or any part or parts thereof, and
if the holder(s) of such Mortgage(s) shall, within thirty (30) days of its
execution, send to Landlord a true copy thereof, together with written notice
specifying the name and address of the Mortgagee and the pertinent recording
date with respect to such Mortgage(s), Landlord agrees that so long as any such
leasehold Mortgage(s) shall remain unsatisfied of record or until written notice
of satisfaction is given by the holder(s) to Landlord, the following provisions
shall apply:

            A.    There shall be no cancellation, surrender or modification of
                  this Lease by joint action of Landlord and Tenant without the
                  prior consent in writing of the leasehold Mortgagee(s).

            B.    Landlord shall, upon serving Tenant with any notice of
                  default, simultaneously serve a copy of such notice upon the
                  holder(s) of such leasehold Mortgage(s). The leasehold
                  Mortgagee(s) shall thereupon have the same period, after
                  services of such notice upon it, to remedy or cause to be
                  remedies the defaults complained of, and Landlord shall accept
                  such performance by or at the instigation of such leasehold
                  Mortgagee(s) as if the same had been done by Tenant.

            C.    Anything herein contained notwithstanding, while such
                  leasehold Mortgage(s) remains unsatisfied of record, or until
                  written notice of satisfaction is given by the holder(s) to
                  Landlord, if any default shall occur which, pursuant to any
                  provision of this Lease, entitled Landlord to terminate this
                  Lease, and if before the expiration of thirty (30) days from
                  the date of service of notice or termination upon such
                  leasehold Mortgagee(s) such leasehold Mortgagee(s) shall have
                  notified Landlord of its desire to nullify such notice and
                  shall have paid to Landlord all Basic Rent and additional rent
                  and other payments herein provided for, and then in default,
                  and shall have complied or shall commence the work of
                  complying with all of the other requirements of this Lease, if
                  any are then in default, and shall prosecute the same to
                  completion with reasonable diligence, then in such event
                  Landlord shall not be entitled to terminate this Lease and any
                  notice of termination theretofore given shall be void and of
                  not effect.

            D.    If the Landlord shall elect to terminate this Lease by reason
                  of any default of Tenant, the leasehold Mortgagee(s) shall not
                  only have the right to nullify and notice of termination by
                  curing such default, as aforesaid, but shall also have the
                  right to postpone and extend the specified date for the
                  termination of this Lease as fixed by Landlord in its notice
                  of termination, for a period of not more than six (6) months,
                  provided that such leasehold Mortgagee(s) shall cure or cause
                  to be cured any then existing money defaults and meanwhile pay
                  the other terms, conditions and provisions of this Lease on
                  Tenant's part to be complied with and performed, other than
                  past non-monetary defaults, and provided further that the
                  leasehold Mortgagee(s) shall forthwith take steps to acquire
                  or sell Tenant's interest in this Lease by foreclosure of the
                  Mortgage(s) or otherwise and shall prosecute the same to
                  completion with all due diligence. If at the end of said six
                  (6) month period the leasehold Mortgagee(s) shall be actively
                  engaged in steps to acquire or sell Tenant's

                                       25


                  interest herein, the time of said Mortgagee to comply with the
                  provisions of this Article 33 (except Section 33.01 (C) shall
                  be extended for such period as shall be reasonably necessary
                  to complete such steps with reasonable diligence and
                  continuity.

            E.    Landlord agrees that the name of the leasehold Mortgagee(s)
                  may be added to the "Loss Payable Endorsement" of any and all
                  insurance policies required to be carried by Tenant hereunder
                  on condition that the insurance proceeds are to be applied in
                  the manner specified in this Lease and that the leasehold
                  Mortgage(s) or collateral document shall so provide.

            F.    Landlord agrees that in the event of termination of this Lease
                  by reason of any default by Tenant other than for nonpayment
                  of Rent or Additional Rent and other payments herein provided
                  for, that Landlord will enter into a new lease of the Demised
                  Premises with the leasehold Mortgagee(s) or its nominee(s),
                  for the remainder of the term, effective as of the date of
                  such termination, at the Basic Rent and additional rent and
                  upon the terms, provisions, covenants and agreements as herein
                  contained and subject only to the same conditions of title as
                  this Lease is subject to on the date of the execution hereof,
                  and to the rights, if any, of any parties then in possession
                  of any part of the Demised Premises, provided:

                  (1) Said Mortgagee(s) or its nominee shall make written
                  request upon Landlord for such new lease within fifteen (15)
                  days after the date of such termination and such written
                  request is accompanied by payment to Landlord of sums then due
                  to Landlord under this Lease.

                  (2) Said Mortgagee(s) or its nominee(s) shall pay to Landlord
                  at the time of the execution and delivery of said new lease,
                  any and all sums which would at the time of the execution and
                  delivery thereof, be due pursuant to this Lease but for such
                  termination, and in addition thereto, any expenses, including
                  reasonable attorney's fees to which Landlord shall have been
                  subjected by reason of such default.

                  (3) Said Mortgagee(s) or its nominee(s) shall perform and
                  observe all covenants herein contained on Tenant's part to be
                  performed and shall further remedy any other conditions which
                  Tenant under the terminated lease was obligated to perform
                  under the terms of this Lease; and upon execution and delivery
                  of such new lease, any subleases which may have theretofore
                  been assigned and transferred by Tenant to Landlord, as
                  security under this Lease, shall thereupon be deemed to be
                  held by Landlord as security for the performance of all of the
                  obligations of Tenant under the new lease.

                  (4) Landlord shall not warrant possession of the Demised
                  Premises to Tenant under the new lease.

                  (5) Such new lease shall be expressly made subject to the
                  rights, if any, of Tenant under the terminated lease.

                  (6) The Tenant under such new lease shall have the same right,
                  title, and interest in and to the buildings and improvements
                  on the Demised Premises as Tenant had under the terminated
                  lease.

            G.    Landlord agrees promptly after submission to execute,
                  acknowledge and deliver any agreements modifying this Lease
                  requested by any leasehold Mortgagee(s), provided that such
                  modification does not decrease Tenant's obligations or
                  decrease Landlord's rights pursuant to this Lease.

            H.    The proceeds from any insurance policies or arising from a
                  condemnation are to be held by any leasehold Mortgagee(s) and
                  distributed pursuant to the provisions of this Lease, but the
                  leasehold Mortgagee(s) may reserve its rights to apply to the
                  mortgage debt all, or an part, of Tenant's are of such
                  proceeds pursuant to such Mortgage(s).

            I.    The leasehold Mortgagee(s) shall be given notice of any
                  arbitration proceedings by the parties hereto, and shall have
                  the right to intervene therein and be made a party to such
                  proceedings, and the parties hereto do

                                       26


                  hereby consent to such intervention. In the event that the
                  leasehold Mortgagee(s) shall not elect to intervene or become
                  a party to such proceedings, the leasehold Mortgagee(s) shall
                  receive notice of, and a copy of any award or decision made in
                  said arbitration proceedings.

            J.    Landlord shall, upon request, execute, acknowledge and deliver
                  to each leasehold Mortgagee (s), an agreement prepared at the
                  sole cost and expense of Tenant, in form satisfactory to such
                  leasehold Mortgagee(s), between Landlord, Tenant and leasehold
                  Mortgagee(s), agreeing to all of the provisions herein. The
                  term "Mortgage", whenever used herein, shall include whatever
                  security instruments are used in the locale of the Demised
                  Premises, such as, without limitations, deeds of trust,
                  security deeds and conditional deeds, as well as financing
                  statements, security agreements and other documentation
                  required pursuant to the Uniform Commercial Code. The term
                  "Mortgage" whenever used herein, shall also include any
                  instruments required in connection with a sale-leaseback
                  transaction.

                                  ARTICLE XXXIV

             TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES

      SECTION 34.01. HAZARDOUS SUBSTANCES. The term "Hazardous Substances" as
used in this Lease, shall include, without limitation, flammable, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCS's), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under the Industrial
Site Recovery Act, N.J.S.A. 13:1k-6, as amended, and the Spill Compensation and
Control Act, N.J.S.A. 58:10-12.1, and any law or regulation now or hereafter
enacted or promulgated by any governmental authority.

      SECTION 34.02. TENANT'S RESTRICTIONS. Tenant shall not cause to permit or
occur:

            (A) Any violation of any federal, state or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions, on,
under, or about the Demised Premises, or arising from Tenant's use or occupancy
of the Demised Premises, including, but not limited to, soil and ground water
conditions; or

            (B) The use, generation, release, manufacture, refining, production,
processing, transport, handling, treatment, storage, or disposal of any
hazardous substance on, under, or about the Demised Premises, or the
transportation to or from the Demised Premises of any hazardous substance,
except for de minimus amounts of oils, greases, and cleaning products providing
same is in conformance with all environmental laws or as specifically disclosed
on Schedule G of this Lease.

      SECTION 34.03. ENVIRONMENTAL CLEANUP.

            (A) Tenant shall, at Tenant's own expense, comply with all laws
      regulating the use, generation, storage, transportation, or disposal of
      hazardous substances ("Laws").

            (B) Tenant shall, at Tenant's own expense, make all submissions to,
      provide all information required by, and comply with all requirements of
      all governmental authorities (the "Authorities") under the laws.

            (C) Should any Authority or any third party demand that a clean-up
      plan be prepared and that a clean-up be undertaken because of any deposit,
      spill, discharge, or other release of hazardous substances that occurs
      during the term of this Lease, at or from the Demised Premises, or which
      arises at any time from Tenant's use or occupancy of the Demised Premises,
      then Tenant shall, at Tenant's own expense, prepare and submit the
      required plans and all related bonds and other financial assurances; and
      Tenant shall carry out all such clean-up plans.

            (D) Tenant shall promptly provide all information regarding the use,
      generation, storage, transportation, or disposal of hazardous substances
      that is requested by Landlord. If Tenant fails to fulfill any duty imposed
      under this Section 34.03 within a reasonable time, Landlord may do so; and
      in such case, Tenant shall cooperate with Landlord in order to prepare all
      documents Landlord deems necessary or appropriate to determine the
      applicability of the Laws to the Demised Premises and Tenant's use
      thereof, and for compliance therewith, and Tenant shall execute all
      documents promptly upon Landlord's request. No such action by Landlord and
      no attempt made by Landlord to

                                       27

      mitigate damages under any laws shall constitute a waiver of any of
      Tenant's obligations under this Section 34.03.

      SECTION 34.04. TENANT'S INDEMNITY.

            (A) Tenant shall indemnify, defend, and hold harmless Landlord,
      Landlord's Mortgagee, the manager of the property, and their respective
      officers, directors, beneficiaries, shareholders, members, partners,
      agents and employees from all fines, suits, procedures, claims, and
      actions of every kind, and all costs associated therewith (including
      attorneys' and consultants' fees) arising out of or in any way connected
      with any deposit, spill, discharge, or other release of hazardous
      substances that occurs during the term of this Lease, at or from the
      Demised Premises, or which arises at any time from Tenant's use or
      occupancy of the Demised Premises, or from Tenant's failure to provide any
      information, make all submissions, and take all steps required by all
      Authorities under the Laws and all other environmental laws.

            (B) Landlord shall indemnify, defend, and hold harmless Tenant,
      Tenant's Mortgagee, the manager of the Demised Premises, and their
      respective officers, directors, beneficiaries, shareholders, members,
      partners, agents and employees from all fines, suits, procedures, claims,
      and actions of every kind, and all costs associated therewith (including
      attorneys' and consultants' fees) arising out of or in any way connected
      with any deposit, spill, discharge, or other release of hazardous
      substances that occurred prior to Tenant's occupancy of the Demised
      Premises, or which arose at any time prior to Tenant's use or occupancy of
      the Demised Premises, or from Landlord's failure to provide any
      information, make all submissions, and take all steps required by all
      Authorities under the Laws and all other environmental laws.

            (C) Landlord's and Tenant's obligations and liabilities under this
      Section 34.04 shall survive the expiration of this Lease.

      SECTION 34.05. Tenant represents that its SIC Number is .

                                  ARTICLE XXXV

                                 ISRA COMPLIANCE

      SECTION 35.01. Tenant acknowledges the existence of the New Jersey
Industrial Site Recovery Act ("ISRA"). Tenant represents to Landlord that
Tenant's Standard Industrial Classification (SIC) Number as used on Tenant's
Federal Tax Return will not subject the Demised Premises to ISRA applicability
under current laws and regulations. Any change by Tenant to an operation with an
SIC number subject to ISRA shall require Landlord's written consent, which
consent will not be unreasonably withheld. Any such proposed change shall be
noticed in writing to Landlord sixty (60) days prior to the proposed change.
Landlord, at its sole option, may deny consent to the change.

            Tenant agrees to execute such documents as Landlord reasonably deems
necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Tenant shall bear all costs and expenses incurred
by Landlord associated with any required ISRA compliance resulting from Tenant's
use of the Demised Premises including but not limited to, state agency fees,
engineering fees, clean-up costs, filing fees and suretyship expenses. As used
in this Lease, ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority. The foregoing
undertaking shall survive the termination or sooner expiration of the Lease and
surrender of the Demised Premises and shall also survive sale, or lease or
assignment of the Demised Premises by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from the violation of ISRA occasioned by Tenant's use of
the Demised Premises.

                                  ARTICLE XXXVI

                   SORTING AND SEPARATION OF REFUSE AND TRASH

      SECTION 36.01. COMPLIANCE BY TENANT. Tenant covenants and agrees, at its
sole cost and expense, to comply with all present and future laws, orders, and
regulations of all state, federal, municipal, and local governments,
departments, commissions, and boards regarding the collection, sorting,
separation, and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse, and trash into
such categories as provided by law. Each separately sorted category of waste
products, garbage, refuse, and trash shall be placed in separate receptacles.
Such separate

                                       28

receptacles may, at Landlord's option, be removed from the Demised
Premises in accordance with a collection schedule prescribed by law.

      SECTION 36.02. LANDLORD'S RIGHTS IN EVENT OF NONCOMPLIANCE. Landlord
reserves the right to refuse to collect or accept from Tenant any waste
products, garbage, refuse or trash that is not separated and sorted as required
by law, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Landlord. Tenant shall
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the provisions
of this article, and, at Tenant's sole cost and expense, shall indemnify, defend
and hold harmless (including legal fees and expenses) from and against any
actions, claims, and suits arising from such noncompliance, utilizing counsel
reasonably satisfactory to Landlord.

                                 ARTICLE XXXVII

                          REMOVAL OF GARBAGE AND DEBRIS

      SECTION 37.01. Tenant agrees to remove all garbage and debris from
Tenant's Demised Premises. Tenant shall not permit its garbage or debris to be
placed or remain outside the Demised Premises.

      SECTION 37.02. For purposes of this Section, garbage and debris shall
refer to waste generated by Tenant's business facilities, except for any
hazardous substances as defined in Article XXXIV hereinabove.

      SECTION 37.03. Removal of all such garbage and debris shall be at Tenant's
expense in accordance with Article XXXVI set forth above.

      SECTION 37.04. In the event Tenant is specifically permitted to use,
generate, release, manufacture, refine, produce, process, transport, handle,
treat, store or dispose of any hazardous substance in accordance with the
provisions of Article XXXIV herein, Tenant shall not dispose of said hazardous
substances in the common garbage receptacles and/or containers provided by
Landlord for the tenants. Tenant shall dispose of said hazardous substances in
accordance with all applicable laws at its own cost and expense.

      SECTION 37.05. In the event Tenant produces garbage and debris for
disposal in the common garbage receptacles and/or containers provided by
Landlord for Tenant, that is in excess of Tenant's share of the aggregate
garbage and debris for the entire Building, Landlord may assess Tenant and
Tenant shall be responsible for the disposal costs associated with said excess.

                                 ARTICLE XXXVIII

                                RENEWAL PROVISION

      SECTION 38.01.

            (A)   The Term of the lease agreement between Landlord and Tenant
                  shall be for ten (10) years. On December 1, 2006 and each and
                  every subsequent annual anniversary date of the lease (The
                  Anniversary Date), the expiration date shall, without further
                  action of the parties, be extended for an additional year
                  unless and until the Tenant shall have notified the Landlord
                  of its intention not to extend the expiration date beyond the
                  end of the then current term. Said notice shall be in writing
                  and delivered to the Landlord not less than six (6) months
                  prior to the next anniversary.

            (B)   Commencing December 1, 2015, the base rent shall increase by
                  the Consumer Price Index (CPI) for the Northern New Jersey /
                  New York region every anniversary date of the lease with a
                  minimum of a three (3) percent and a maximum of a five (5)
                  percent base rental increase. The parties understand that the
                  month of August or the most recent available CPI data to the
                  anniversary date will be utilized to calculate the prior
                  twelve (12) month increase.

      SECTION 38.02

            (A) The Landlord and Tenant acknowledge and agree to make the
effective date of the lease retroactive to the date set forth on the first page
herein. The purpose of the retroactive effective date is to make it coincide
with the term of the previous lease for the demised premises entered into by the
two parties.

                                       29


      The aforesaid monthly rents shall be payable in advance on the first day
of each calendar month, except that a proportionately lesser sum may be paid for
the first month following the Term Expiration Date if said date falls on a date
other than the first of the month.

      IN WITNESS WHEREOF, the parties hereto execute this Lease on the date set
forth above.

Witness:                                      MYNB, LLC.

                                              By   /s/ Sidney Hofing
- -------------------------------                  -------------------------------
                                                       Sidney Hofing
                                                       Managing Member

                                              YARDVILLE NATIONAL BANK,
                                              A NEW JERSEY  NATIONAL BANK

Daniel J. O'Donnell                           By   /s/ Patrick M. Ryan
- -------------------------------                  -------------------------------
Daniel J. O'Donnell, Secretary                         Patrick M. Ryan, CEO

                                       30


                                    EXHIBIT B

                                 LANDLORD'S WORK

The Landlord shall provide the following work as its scope of services:

      A. Land acquisition

      B. All Professional fees excluding interior architectural

      C. Construction Permits

Construction Management: MYNB, LLC shall be responsible for supervising all
construction activities as its expense. MYNB, LLC shall segregate all invoices
from selected contractors and invoice the responsible parties. All invoices
shall be paid within ten (10) days of receipt.

                                       31


                                    EXHIBIT C

                                      SIGNS

            1.    All signs visible to the outside are to be submitted for
                  approval by landlord, which approval shall not be unreasonably
                  withheld.

            2.    The sign(s) shall not be moving or flashing.

All tenant signage must conform to any local requirements or restrictions as
established by local ordinances. Copies of the approved permits must be posted
in the front windows of the building before installation of any sign commences.

                                       32

                                    EXHIBIT D

                                   EXCLUSIVES

                             INTENTIONALLY OMMITTED

                                       33


                                    EXHIBIT E

                              RULES AND REGULATIONS

      1. All loading and unloading shall be done only in the areas, and through
the entrances, designated for such purposes by Landlord.

      2. INTENTIONALLY OMMITTED

      3. No loudspeakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the Demised
Premises without the prior written consent of the Landlord.

      4. If the Demised Premises are equipped with heating facilities separate
from those in the remainder of the Building, Tenant shall keep the Demised
Premises at a temperature sufficiently high to prevent freezing of water pipes
and fixtures.

      5. Tenant shall, at Tenant's cost, contract the services of an
exterminator in compliance with the Lease requirements.

      6. Tenant shall not burn any trash or garbage of any kind in or about the
Demised Premises, the Building, or within one mile of the outside property lines
of the Building.

      7. Tenant and Tenant's employees and agents shall not conduct or solicit
business in the parking area or other common areas, nor shall Tenant distribute
any handbills or other advertising matter in automobiles parked in the parking
area or in other common areas, including "For Sale" signs in car windows.

      8. Tenant is not permitted to use any space heaters, including but not
limited to kerosene, propane or electric.

      9. The plumbing facilities shall not be used for any other purpose than
that for which they were constructed, and no foreign substance of any kind shall
be thrown therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be borne by Tenant, who
shall, or whose employees, agents or invitees shall, have caused it.

      10. Tenant shall not install any coin operated vending machine, video game
machine, coin telephone, or similar devise, nor any stand for display of goods
for sale upon the sidewalk area or outside wall or any portion of the Building
without written consent of the Landlord.

      11. No buses shall be operated by any tenant in this Building. Should any
tenant wish to charter or otherwise arrange for a bus to be present on the
Building property, he must first obtain written permission from the Landlord.
The request for permission to have a bus enter the property should contain
particulars of the bus' operation noting as to its location of parking, picking
up and discharging of passengers, and the like.

      12. Tenant shall promptly comply with all laws, orders, directions, rules
and requirements of governmental authorities and cognizant insurance carriers.

      13. Maintain the Demised Premises and all equipment within it in good
repair and appearance and in neat, clean, safe and sanitary condition free of
all garbage.

      14. Use all electric, plumbing and other facilities in the rental space
safely.

      15. Promptly notify Landlord when there are conditions that require repair
by Landlord.

      16. Comply with all rules and regulations made by Landlord from time to
time, respecting the delivery or shipment of merchandise, supplies and fixtures
to and from the rental space.

      17. Immediately notify Landlord of any accident, fire or damage occurring
to the rental space.

      18. Install anything on the roof without the prior written consent of
Landlord.

      19. Do anything or permit anything to be done which tends to destroy the
peace and quiet of the Landlord, other tenants, invitees of the Building, or
persons in the neighborhood.

      20. Throw or permit any foreign substance to be thrown into the plumbing
facilities.

                                       34


      21. Permit any vehicle or trailers to remain parked overnight in the
Building.

      22. Obstruct any part of the Building outside the rental space.

      23. Use or operate any equipment that, in Landlord's sole judgment, is or
may be harmful to the rental space of the building which the rental space is a
part.

      24. Attach any awning or other projection to the outside of the rental
space, or the building of which the rental space is a part.

      25. Conduct any auction, fire sale, bankruptcy sale, going-out-of business
sale, or lost-our-lease sale, in or about the rental space.

      26. Tenant's employees may not park in front of the other tenant's stores.

      27. Permit trash or debris to accumulate outside the Demised Premises.

      Failure of Tenant to comply with the rules and regulations of this section
constitutes an Event of Default under this Lease, subject to a Fifty and 00/100
($50.00) Dollar per day fine, after giving Tenant notice of such default and an
opportunity to cure the same within the time provided by this Lease.

                                       35


                                ADDENDUM TO LEASE

In the event of a conflict between this Lease Addendum and the original lease
between MYNB LLC (Landlord) and Yardville National Bank (Tenant) dated December
1, 2005, the Lease Addendum shall prevail.

1.    The intent of the parties is that this lease shall be considered an
      absolute net lease. Regardless of the specified maintenance obligations of
      the lease agreement, the Tenant shall be 100% responsible for any and all
      maintenance and replacements of the building components and/or systems
      which shall include but not be limited to roof, structure, HVAC, plumbing,
      electrical and lighting, paving, sidewalks and all exterior and interior
      improvements.

2.    Common area maintenance - - Tenant shall be 100% responsible at its sole
      cost and expense for performing any exterior common area maintenance
      including but not limited to landscaping, snow plowing, lighting, cleaning
      and parking lot striping.

                                              /s/ Sidney L. Hofing
                                              ----------------------------------
                                              Sidney L. Hofing
                                              Managing Member, MYNB LLC

                                              /s/ Patrick M. Ryan
                                              --------------------------
                                              Yardville National Bank

                                       36

EX-10.33

                                                                   EXHIBIT 10.33

This Lease Agreement made this 19th day of January, 2006 between Mercer
Management & Development, Inc., on behalf of Vernon Holdings 101837 LLC d/b/a
Cream Ridge Mews, hereinafter referred to as "Landlord" and Yardville National
Bank, 2465 Kuser Road Hamilton, NJ 08690, hereinafter referred to as "Tenant."

                                DEMISED PREMISES

1) The Landlord does hereby lease to the Tenant and the Tenant does hereby rent
from the Landlord the following premises:

      The Demised Premises shall consist of Suite # 3 located in the building
      commonly known as Cream Ridge Mews in Plumsted, New Jersey (the
      "Building"), which suite contains approximately 1,900 square feet, outside
      dimensions for both to center line of common wall, together with all
      improvements which have been constructed, thereon by the Landlord and/or
      Tenant for the use of the Tenant, and all easements, improvements,
      tenements, appurtenances, hereditaments, fixtures and rights and
      privileges appurtenances thereto, and any and all fixtures and equipment
      which are installed in the building by the Landlord for the use of the
      Tenant in its occupancy of the Demised Premises.

      "Tenant's Proportionate Share" for all lease purposes is hereby deemed to
      be 14.87% based on the square footage of floors one and two of the
      building, which equals 12,775 square feet.

                                     PARKING

1A) The Tenant shall have the right to use the parking spaces serving the
Building on a non-exclusive basis, in common with Landlord and the other Tenants
thereof, and to use the access driveways for its business purposes and for those
of its agents, servants, employees or invitees. The Landlord and Tenant mutually
agree that they will not block, hinder or otherwise obstruct the access
driveways and parking areas to impede the free flow of vehicular traffic to and
from the Building.

                                  PERMITTED USE

2) The Demised Premises are to be used and continuously occupied for a retail
bank branch and for no other purpose. Tenant agrees that such use will be in
compliance with all applicable laws, ordinances, requirements and regulation of
any governmental authority having jurisdiction. Tenant will not change the
aforementioned use without the prior written consent of Landlord, which consent
may be withheld in its reasonable discretion.

                                   LEASE TERM

3) The Lease Term is for one (1) year. The Lease Term shall commence on December
1, 2005 (the "Commencement Date"). The Lease Term shall end one (1) year after
the Commencement Date, and will become a month-to-month tenancy thereafter until
the pad site located on the same property is constructed and the Tenant
relocates into that premises. In the event that either party elects not to
pursue the tenancy of the pad site, then the parties shall renegotiate the term
of this lease and if a term cannot be agreed



upon, then this lease shall be terminable by either party by giving written
notice at least sixty (60) days prior to the termination date.

                                ANNUAL BASIC RENT

4) The Tenant shall pay Annual Basic Rent which means for Year 1 the sum of
$22.00 per square foot multiplied by number of square feet in the floor area of
the premises, which shall be subject to the proration as provided in this
agreement.

      The rent for each year of this lease after the first year, if applicable,
will be as follows:



                                                MONTHLY
YEAR            SQ. FT. RATE       SQ. FT.        RENT
- ----            ------------       -------     ---------
                                      
 1                $ 22.00          $ 1,900     $3,483.33
 2                $ 22.66                      $3,587.83
 3                $ 23.34                      $3,695.47
 4                $ 24.04                      $3,806.33
 5                $ 24.76                      $3,920.52


      The amounts set forth herein are for Basic Rent only, and are exclusive of
Additional Rent amounts, (as defined below), as well as any deposits, fees, late
charges or other costs which may be payable pursuant to this Lease.

                                 ADDITIONAL RENT

5) Additional Rent assessed herein shall be based on the Tenant's Proportional
Share, as follows:

                                                                                          
"Tenant's Building Common Area Operating Expense Proportionate Share" shall be               14.87%
"Tenant's Real Estate Tax Proportionate Share" shall be                                      14.87%
"Tenant's Insurance Proportionate Share" shall be                                            14.87%
"Tenant's Building Utilities Proportionate Share" shall be                                   14.87%



      Except concerning Building Utilities, Tenant shall pay to Landlord as and
for Additional Rent according to the aforementioned percentages:

      a) BUILDING COMMON AREA OPERATING EXPENSES. As related to the Building,
parking areas and grounds adjacent thereto, the "Common Area Operating Expenses"
shall mean all costs incurred by Landlord for the general maintenance, lighting,
trash removal, landscape and lawn maintenance, utility charges for electricity,
gas, water, sewer, and snow and ice removal and plowing.

                                       2


      b) REAL ESTATE TAXES. All real estate taxes, levied or assessed against
the tax lots and improvements thereon of which the Demised Premises are a part
if improvements are in use by tenants. In the event that a tax is imposed
measured by rental payments, occupancy, use or otherwise, in lieu of taxes on
the real property, then Tenant shall pay its share of such alternative taxes.
The term "real estate taxes", as used in this Lease means real estate taxes
levied or assessed against the Building as currently built. "Real estate taxes"
also include school, sewer and water taxes, rent and charges and other
governmental impositions.

      d) INSURANCE PREMIUMS. All insurance premiums on the insurance polices
maintained by Landlord insuring against loss or damage to the Building and loss
and liability arising in or about the Building.

      e) UTILITIES Utilities, including electricity, gas, heat, water and
sewage, will be charged to the Tenant based on the greater of Tenant's Building
Utilities Proportionate Share of 14.87 % or actual use. Tenant shall pay this
amount monthly with its Basic rent; this amount is deemed Additional rent (See
Schedule A attached). Landlord, at its option, may require Tenant to make
utility payments directly to the supplier.

      Landlord makes no representation with respect to utilities or services,
including availability or adequacy of same, and shall not be liable in the event
of any failure or interruption of any utility or service. Any and such event
shall not constitute a termination of this Lease, an actual or constructive
eviction of Tenant, or entitle Tenant to any abatement of Rent. Notwithstanding
the above, if any utilities are interrupted for a period of 180 days or more,
due to no fault of the Tenant, then the Tenant shall have the right to terminate
the lease.

      f) SCHEDULE OF ESTIMATED EXPENSES. See Schedule A attached to this Lease
as an estimate of Year 1 Expenses.

                           PAYMENT OF ADDITIONAL RENT

6) All items of Additional Rent described above in paragraph 5) shall be due and
payable after Landlord's giving notice to the Tenant of the amount due as
Additional Rent. At the Commencement Date, and once per year thereafter, the
Landlord, at its option, may reasonably estimate the amount of all items of
Additional Rent due from the Tenant and require that of one-twelfth (1/12) be
paid with each installment of the Basic Rent. This Additional Rent amount will
be considered due and payable at the same time as each installment of the Basic
Rent. Once per year, if the Landlord determines that the amount of the
Additional Rent collected is insufficient to satisfy the items in a), b), c),
and d) of paragraph 5), then Tenant shall pay, at the next payment date, such
amounts as shall be necessary to satisfy Tenant's proportionate shares as listed
in 5). Landlord may adjust the amount of the estimated items from time to time.
In the event that the items of Additional Rent, as estimated and collected by
Landlord, exceed the actual expenses of a), b), c) and d) described in paragraph
5), then the excess will be credited against the next payments of Additional
Rents due. There will be no cash refund of payments to the Tenant for any credit
balances until the Tenant vacates the Premises.

                           TENANT'S INSPECTION RIGHTS

                                       3


7) Landlord shall make its books and records in connection with the above
described Building and Office Common Area Operating Expenses, Real Estate Taxes,
and Insurance Premiums available to Tenant or Tenant's representative for
inspection at reasonable times and on reasonable notice at Landlord's office for
the purpose of verifying the accuracy of charges for items of Additional Rent.
The Landlord has the right to charge Additional Rent within one year of when
costs were incurred. The Tenant's right to inspect Landlord's books and records
shall expire one year after the charges or charges in question shall have been
billed to the Tenant.

                                SECURITY DEPOSIT

8) Tenant shall not be required to pay a security deposit.

                             OPTIONS TO EXTEND TERM

9) Intentionally omitted.

                              LATE PAYMENT CHARGES

10) In the event any payment due hereunder is not received within ten (10) days
of its due date, the Tenant agrees to pay a late fee of One Hundred and Fifty
Dollars ($150.00).

                          ATTORNEY AND COLLECTION FEES

11) Tenant agrees to pay Landlord reasonable attorney fees and all costs and
expenses incurred to recover possession of the Demised Premises and to enforce
any provisions of this Lease and recover damages in connection therewith should
it be necessary that an action be filed to enforce the provisions of this Lease
only if action is filed.

                               DEFINITION OF RENT

12) All payment obligations of Tenant under this Lease, other than Basic Rent,
including, without limitation, Tenant's Portion of Common Area Operation
Expenses, Real Estate Taxes, Insurance Premiums, late payment charges, payments
to restore the Security Deposit, are hereby deemed "Additional Rent" whether or
not designated as such, and shall be due and payable when due. The word "Rent"
as used in this Lease, means Basic Rent and Additional Rent. Rent shall be paid
at the office of the Landlord or such other place that the Landlord may
designate in writing.

                               OPERATING COVENANT

13) Tenant covenants and agrees to open and operate the Demised Premises for the
uses described on the front page of this Lease under the trade name of Yardville
National Bank or YNB during the business hours of the Building and to keep the
Demised Premises and to operate the Demised Premises in that manner. Landlord
shall not restrict Tenant's hours or days of operating except that Tenant shall
be open for business Monday through Friday (except national bank holidays), with
such alternative hours as may be reasonable to conduct business. The hours of
operation shall not conflict with any applicable governmental law, rule,
regulation or order.

                                       4


      Tenant, at its own cost and expense, shall obtain all licenses, permits
and approvals necessary for it to legally carry on the business described on the
front page of this Lease and shall provide Landlord with a copy thereof.

      Tenant shall have the right, at Tenant's election, to terminate this
Lease, without further obligation on either party, if any governmental authority
having jurisdiction over the Demised Premises shall change the zoning
classification of the Demised Premises in such a manner that Tenant is unable to
legally carry on the business described on the front page of this Lease.

                               CONDUCT OF BUSINESS

14) Tenant shall conduct its business in accordance with such reasonable rules
and regulations as the Landlord may adopt. Tenant shall not permit any nuisance
to exist or continue at the Demised Premises. Tenant further agrees to comply
with all ground and underlying leases of which it has been given notice in
writing prior to the execution of this Lease, and with all governmental laws,
codes, orders and regulations affecting the Demised Premises and the use
thereof.

                             ENVIRONMENTAL INDEMNITY

15) Tenant shall indemnify, defend and hold the Landlord harmless from fines,
claims, losses and expenses (including reasonable legal and consultant's fees)
of every kind arising out of or in connection with the storage of, handling of,
or the occurrence of spills or discharges of hazardous substance or wastes at
the Demised Premises caused by tenant, their agents, servants, employees and or
invitees. Tenant shall furnish Landlord and the appropriate governmental
agencies with information required in connection with environmental laws and if
a cleanup must be prepared and a cleanup undertaken, resulting from Tenant's use
of the Demised Premises, Tenant shall prepare, submit and implement same and
shall grant Landlord access to the Demised Premises to supervise Tenant's
performance of such work. Tenant's liability under this paragraph shall survive
the expiration of the Lease Term. During the term of this Lease, Tenant shall
not store, manufacture, dispose of discharge, mine, generate, refine, treat,
transport or otherwise permit hazardous substances, as defined in any of the
aforementioned environmental laws, codes, rules, regulations to be present on or
about the Demised Premises. At the end of the Lease, Tenant will provide
Landlord with any environmental clearance required by any jurisdiction of the
Demised Premises. Upon presentation of this environmental clearance to Landlord,
this paragraph shall become null and void.

      Landlord represents and warrants that it has never generated, stored,
handled, or disposed of any hazardous substances in or about the Demised
Premises

                              REMOVAL FROM PREMISES

16) If Tenant fails to comply with the obligations of paragraphs 13, 14 or 15
above, Landlord may seek Tenant's removal from the Demised Premises. Tenant
shall be liable for all Additional Rent, including costs and expenses incurred
by the Landlord in accordance with paragraph 11). The aforesaid provision is
without derogation from Landlord's and Tenant's other rights and remedies under
this Lease and under Law.

                            OPERATION OF COMMON AREAS

                                       5


17) Landlord shall operate and maintain the Common Areas. At the end or other
expiration of the term of this Lease, Tenant shall deliver up the Demised
Premises in good order and condition.

                              REPAIRS & MAINTENANCE

18) Landlord shall make all structural repairs and replacements required with
respect to the Demised Premises, including the roof of the Premises, and shall
make all repairs and replacements required with respect to the systems,
including but not limited to electrical, heating, cooling and plumbing located
on the interior portions of any wall or otherwise on the exterior portions of
the Premises, from Commencement Date. Landlord shall be under no obligation to
effect any repairs or replacements unless and until Landlord has received notice
from Tenant have the need therefor. Landlord will respond as soon as possible
when notified of emergency situations. Notwithstanding anything to the contrary
set forth in this Lease, in the event any repair or replacement to be undertaken
by Landlord pursuant to this paragraph is required or occasioned by the
negligence of Tenant, or in the event any damage is caused to the property of
which the Demised Premises is a part, as a result of the negligence of the
Tenant, then the Landlord shall have the right to make all repairs or
replacements as may be required, but at Tenant's sole cost and expense, which
amount shall be paid to Landlord, as Additional Rent, upon demand.

      Tenant will maintain the Demised Premises in a clean, orderly and sanitary
condition free of insects, rodents, vermin, and other pests and at the end or
other expiration of the term hereof, shall deliver up the rented premises in
good order condition, wear and tear from reasonable use thereof, and damage by
the elements not resulting from the neglect or fault of the Tenant, excepted.
Tenant shall cause a pest control service reasonably acceptable to Landlord to
provide pest control services to the Demised Premises when required.

      Tenant will maintain the Demised Premises, at its own expenses, in a
clean, orderly condition and will not permit accumulation of garbage, trash,
rubbish, and other refuse. Tenant will dispose of its own garbage in the
appropriate receptacles provided by Landlord, which costs are part of the Common
Area Expenses.

                            RETAIL STORE REGULATIONS

19) Tenant further agrees that:

a) It will not permit any noise or odors to emanate from the Demised Premises
(except for alarm systems which have been approved by Landlord and which are
duly registered with the Plumsted Township Police Department; Landlord shall not
unreasonably withhold its approval of these alarms);

b) It will keep all mechanical apparatus free from vibrations and noise which
may be transmitted beyond the Demised Premises;

c) It will not use the sidewalks for the sale and display of merchandise nor
permit any person to conduct business or solicitation thereon. It will not place
any merchandise

                                       6


or other articles on the sidewalk or parking area in front of or adjacent to the
Demised Premises;

d) It will keep the Demised Premises at a temperature sufficiently high to
prevent freezing of water pipes and fixtures;

e) It will not use plumbing facilities for any purpose other than that for which
they were constructed and will not permit any foreign substance therein and the
expense of repairing any breakage, stoppage, seepage or damage whether occurring
on or off the Demised Premises resulting from a violation of this provision by
Tenant or its employees, agents or customers shall be borne by Tenant. All
grease traps and other plumbing traps shall be kept clean and operable by Tenant
at Tenant's own cost and expense;

f) Tenant will not permit any lien or encumbrance to be imposed upon the land or
upon this Lease by reason of its act or omission and will promptly pay,
discharge, bond or otherwise cause to be removed any such lien or encumbrance;

g) It will comply with parking and other reasonable rules from time to time
promulgated by the Landlord affecting the Building, including employee parking
limitations and other parking lot regulations;

      Landlord may modify or supplement these regulations from time to time on
ten (10) days prior notice to Tenant.

        LANDLORD'S ACCESS FOR REPAIRS & TENANT'S RIGHT TO PERFORM REPAIRS

20) If Tenant fails to perform its obligations under paragraph 18 and 19 hereof,
the Landlord or its agents may enter the Demised Premises upon ten (10) days
written notice in order to perform the necessary repairs at Tenant's expense
whereupon Tenant shall reimburse Landlord for all costs incurred. The notice
required in this Paragraph shall not apply in an emergency. The aforesaid
provision is without derogation from Landlord's other rights and remedies under
this Lease and under Law.

      Tenant may, after providing Landlord with prior notice and a reasonable
period of time to respond, but shall not be obligated to, perform repair
obligations on Landlord's behalf, in which Tenant may recover from Landlord or
deduct from subsequent rent payments the amounts reasonably expended by Tenant
for such repairs. The "reasonable period" mentioned shall not exceed ten (10)
days unless the necessary repair obligation cannot be completed within (10) days
and Landlord has commenced performance and is diligently pursuing completion of
its obligation.

                            PREMISES TO BE DELIVERED

21) Tenant accepts the Building in which the Demised Premises is located and
adjoining parking areas in such condition as exists as of the Commencement Date.
Landlord may make changes to the Demise Premises and adjoining parking areas if
required by any municipal authorities, provided these changes do not materially
or adversely affect the size and layout of the Demised Premises.

                                       7


      No alterations, additions or improvements shall be made, and no climate
regulating, air conditioning, cooling, heating or fire sprinkler systems,
television or radio antennas, heavy equipment, apparatus and fixtures, shall be
installed in or attached to the leased premises, without the written consent of
the Landlord which shall not be unreasonably withheld. Unless otherwise provided
herein, all such alterations, additions or improvements and systems, if they are
unable to be removed without damaging Landlord's property, shall belong to and
become the property of the Landlord and shall be surrendered with the premises
and as part thereof upon the expiration or sooner termination of this Lease,
without hindrance, molestation or injury.

      Notwithstanding the above, Landlord hereby consents to the partitions,
counters, shelves and other Tenant's improvements as exist on the Commencement
date. Tenant shall not make any changes to such installations or improvements
until it shall have received all consents and approvals from the Township of
Plumsted as may be required in connection therewith and shall have delivered a
copy thereof to Landlord. All such approvals shall be obtained at Tenant's own
sole cost and expense. Landlord reserves the right to reject such work if not
properly permitted by Plumsted Township or if improperly installed.

                           INDEMNIFICATION & INSURANCE

22) Tenant shall indemnify, defend, and hold Landlord, Landlord's agents, and
employees, mortgagees and ground lessors harmless from all claims, losses and
expenses arising out of or in connection with any occurrence in or about the
Demised Premises including the service areas and sidewalks contiguous thereto
and any occurrence outside of the Demised Premises, that result from the act or
omission of Tenant, its agents, employees, or contractors, or from any breach or
default in the performance of any obligation of Tenant under this Lease.

      During the entire term of this Lease, Tenant shall at its own cost and
expenses, maintain liability insurance with a reputable insurance company with
minimum amounts of one million dollars combined single limit for personal
injuries and property damage. Landlord shall receive a Photostatic copy of the
insurance policy with proof of payment for it no later than December 31st of
each lease term.

      All insurance policies to be maintained by Tenant shall waive all rights
of recovery against Landlord except for any grossly negligent, willful,
malicious or reckless actions by the Landlord, its agents, employees or
contractors. Tenant shall deliver to Landlord, Landlord's management company
and, if requested, Landlord's mortgagee, certificates of such insurance naming
such parties as co-insured parties. All such policies shall provide that the
same may not be terminated without thirty (30) days prior notice to Landlord,
Landlord's mortgagee and any other party that may be reasonably designated by
Landlord.

      Tenant shall not violate or permit to be violated any of the conditions or
provisions of any of said policies nor the provisions of any of Landlord's
insurance policies of which it shall have notice. In the event that the premium
of any insurance policy maintained by Landlord is increased solely as a result
of the maintaining of any article or substance or any use in or about the
Demised Premises, then Tenant shall pay to Landlord, immediately upon demand, as
and for Additional Rent, the amount of any such increase.

                                       8


23) Tenant hereby releases Landlord (except for Landlord's malicious, reckless
or negligent actions) from liability for loss, damage or injury (including
business and other consequential losses) caused by steam, electricity, gas,
water, rain, ice or snow or any leak or flow from any part of the Building or
any equipment therein and from any acts or omissions of co-tenants or other
occupants of the Building and from liability for any damage to or loss of
Tenant's property from any cause whatsoever. Any right or remedy of Tenant
against Landlord shall be limited to Landlord's interest in Building and no
judgment against Landlord or any shareholder, officer, director, partner, joint
venturer or other party therefore shall be subject to enforcement of any
judgment beyond their respective interest in the land and building.

                              FIRE & OTHER CASUALTY

24) In case of fire or other casualty, the Tenant shall give immediate notice to
the Landlord. If during the term of this Lease, or any renewal of this Lease,
the Demised Premises subject to the Lease shall be partially destroyed by any
cause not the fault of the Tenant, the Landlord shall have a period of one
hundred eighty (180) days including when municipal construction approvals are
received to repair, rebuild, or restore the Building and Premises.

      If the Landlord shall fail to repair, rebuild or restore the building and
premises within the period of one hundred eighty (180) days including when
municipal construction approvals are received, the Tenant shall have the option
to terminate this Lease by giving written notice of termination to the Landlord
within thirty (30) days of the expiration of the said one hundred eighty (180)
day period. On the giving of such notice of termination and the surrender of the
Demised Premises, the Tenant shall be relieved of all further covenants and
conditions of this Lease, including the liability for any rent, from the date of
termination, and shall be entitled to a rebate of any rent already paid for the
period following the date of termination.

      If the premises be totally destroyed or so extensively and substantially
damaged as to require practically a rebuilding thereof, then the rent shall be
paid up to the time of such destruction and then and from thenceforth this Lease
shall come to an end. In no event however, shall the provisions of this clause
become effective or be applicable if the fire or other casualty and damage shall
be the result of the carelessness, negligence or improper conduct of the Tenant
or the Tenant's agents, employees, guests, licensees, invitees, subtenants,
assignees or successors. In such case, the Tenant's liability for the payment of
Rent and the performance of all covenants, conditions, and terms hereof on the
Tenant's part to be performed shall continue and the Tenant shall be liable to
the Landlord for any uncovered damage and loss suffered by the Landlord.

                                   ASSIGNMENT

25) Tenant shall not assign, mortgage, sublet, or sublease the Demised Premises
or any part thereof without the written consent of the Landlord, which shall not
be unreasonably withheld. As a condition of any consent Landlord elects to give,
Landlord may require additional security and/or personal or other corporate
guarantors. Any such consent will not release Tenant from its liabilities
hereunder and Landlord's consent shall continue to be required for any future
assignment or sublease.

                                       9


                                END OF LEASE TERM

26) At the expiration of the term, whether by expiration of the original term of
this Lease or otherwise, Tenant shall quit and surrender the Demised Premises
broom clean, in good order and condition. Landlord shall have the right to
require Tenant to remove any or all alterations and improvements installed by
Tenant and repair any damage caused by installation or removal.

      If, upon expiration of the term of this Lease, Tenant shall not have
removed any furniture, fixtures, equipment or other property belonging to Tenant
then Landlord, at its option, may deem the same to be abandoned and may retain
title and possession to the same or may, at Tenant's cost, cause such property
to be removed and carted to any appropriate dumping site or may take possession
of and title to these items of personal property. This obligation shall survive
the expiration of the Lease Term and surrender of the Demised Premises, and
acceptance thereof by Landlord.

                                  HOLDING OVER

27) If Tenant holds over after a formal written termination of this Lease, then
in addition to all other remedies and without limiting Landlord's right to claim
consequential damages arising from such breach of this Lease, Tenant shall pay
Landlord Basic Rent and Additional Rent at one and one-half times the highest
monthly rate ever provided for in this Lease for the entire period in which
Tenant retains possession of the Demised Premises

                                     DEFAULT

28) Each of the following shall constitute a "Default" by Tenant under this
Lease:

A. If Tenant fails to pay Rent or deposit Security when due, or fails to deliver
any insurance certificate or certificate of occupancy when required;

B. If Tenant (1) fails to open for business, (2) vacates the Demised Premises,
or (3) fails to continuously operate its business in the entire Demised Premises
for the Permitted Use and with Tenant's Trade Name for a period of thirty (30)
days or more;

C. If Tenant transfers, assigns, mortgages or encumbers Tenant's interest in
this Lease, or sublets or grants a right to a third party to use or occupy all
or a portion of the Demised Premises except as expressly permitted herein,
though Landlord consent to assignment cannot be unreasonably withheld;

      In the event of the occurrence of a Default by Tenant, provided that
Tenant has been given written notice of the Default and has not cured within ten
(10) days following the receipt of that notice, Landlord may declare this Lease
terminated and shall have all remedies to recover possession and monetary
damages as permitted under the laws of the State of New Jersey and may avail
itself of all procedures prescribed under the laws of the State of New Jersey
for such remedies. If Tenant has commenced curing the Default within ten (10)
days, Landlord agrees to grant the Tenant an additional fourteen (14) days from
the date Tenant has commenced curing the Default to complete its cure.

                                       10


                               LANDLORD'S REMEDIES

29) The Landlord, in addition to any other remedies herein contained or as may
be permitted by law, may either by force or otherwise, without being liable for
prosecution therefore, or for damages, re-enter the said premises and again
possess and enjoy same; and as agent for the Tenant or otherwise, re-let the
premises and receive the rents therefore and apply the same, first to the
payment of such expenses. The Tenant shall remain liable for such Rents as may
be in arrears to the extent of the difference between the Rents reserved
hereunder and the Rents, if any, received by the Landlord during the remainder
of the unexpired term hereof, after deducting the aforementioned expenses, fees
and costs; the same to be paid as such deficiencies arise and are ascertained
each month.

                                   BANKRUPTCY

30) Upon the occurrence of any of the defaults and contingencies set forth in
the preceding clauses, or should the Tenant be adjudicated a bankrupt, insolvent
or placed in receivership, or should proceedings be instituted by or against the
Tenant for bankruptcy, insolvency, receivership agreement of composition or
assignment for the benefit of creditors, or if this Lease or the estate of the
Tenant hereunder shall pass to another by virtue of any court proceedings, writ
of execution, levy, sale, or by operation of law, the Landlord may, if the
Landlord so elects, at any time thereafter, terminate this Lease and the term
hereof, upon giving to the Tenant or to any trustee, receiver, assignee or other
person in charge of or acting as custodian of the assets or property of the
Tenant, ten (10) days notice in writing, of the Landlord's intention so to do.
Upon the giving of such notice, this Lease and the term hereof shall end on the
date fixed in such notice as if the said date was the date originally fixed in
this Lease for the expiration hereof, and the Landlord shall have the right to
remove all persons, goods, fixtures and chattels there from, by force and
otherwise, without liability for damages.

                       COMMON AREAS-NON-EXCLUSIVE LICENSE

31) Tenant, its employees, customers, contractors and invitees are given the
non-exclusive license to use the Common Areas, as designated by Landlord from
time to time including parking and driveway areas of the Building for parking of
cars while working at, or delivering goods to the demised Premises and for
ingress and egress to adjoining public thoroughfares in accordance with the
terms and conditions of this Lease and the reasonable rules and regulations for
the use thereof as prescribed from time to time by Landlord. This license is for
the use of such common areas in common with other tenants, their employees,
customers, contractors and invitees. If the Common Areas are diminished,
Landlord shall not be subject to liability nor shall Tenant be entitled to any
compensation or diminution or abatement of rent, nor shall such diminution of
the Common Areas be deemed a constructive or actual eviction. Notwithstanding
the above, Landlord represents to Tenant that any diminution in the common areas
referred to above will not interfere with the adequacy of parking for Tenant's
employees and customers.

                              LANDLORD RESERVATIONS

                                       11


32) Excepted from the demised leasehold and reserved to the Landlord are the
roof and exterior portions of the Demised Premises. Landlord also reserves the
right to enter the Demised Premises and the easement to install, maintain, use,
repair and replace pipes, ductwork, conduits, utility lines, equipment, alarms,
wires, meters, valves and the like in the Demised Premises in order to serve
other portions of the Building. Landlord agrees that all work in, or, under,
over and through the Demised Premises shall, when possible, be performed in a
manner, which does not interfere unreasonably with Tenant's business with notice
and consent.

      Landlord reserves the right to rearrange the parking facilities and other
common areas; to change the number of buildings and parking spaces, and the
number, identity and type of other stores and tenancies, and the right to
construct and alter buildings and improvements in the Building from time to
time, provided that such activity does not interfere unreasonably with Tenant's
business.

                                 QUITE ENJOYMENT

33) Landlord covenants and represents that the Landlord is the owner of the
premises herein leased and has the right and authority to enter into, execute
and deliver this lease; and does further covenant that the Tenant on paying the
rent and performing the conditions and covenants herein contained, shall and may
peaceably and quietly have, hold and enjoy the leased premises for the term
aforementioned.

                          INABILITY TO GIVE POSSESSION

34) If Landlord is unable to give possession of the Demised Premises or is
delayed in delivering possession, Landlord shall not be liable to Tenant except
if the delay is due to Landlord's willful default and any failure or delay shall
not affect the validity of this Lease, nor shall the Lease Term be extended by
reason thereof.

                                      SIGNS

35) The Tenant shall not place nor allow to be placed any signs of any kind
whatsoever, upon, in or about the said premises or any part thereof, except of a
design and structure in or at such places as may be indicated and consented to
be the Landlord in writing.

      Tenant shall cause said sign or signs to be installed on the facade of the
Demised Premises by a sign company designated Landlord. All signs shall be in
accordance with local ordinances and Tenant shall obtain all municipal permits
required therefore and deliver a copy thereof to Landlord. Periodic maintenance
of such signs, including cleaning and bulb replacement shall be at Tenant's sole
cost and expense. In case the Landlord or the Landlord's agents, employees or
representatives shall deem it necessary to remove any such signs in order to
paint or make any repairs, alterations or improvements in or upon the Common
Areas, the Demised Premises or any part thereof, they may be so removed, but
shall be replaced when the said repairs, alterations or improvements shall have
been completed at Landlord's cost and expense.

                               TENANT'S STATEMENT

                                       12


36) Within seven (7) business days request by Landlord, Tenant will deliver to
Landlord a statement, duly executed by Tenant and acknowledged by a Notary
Public, setting forth the Commencement Date of this Lease, the Termination Date,
the Rents then payable, whether or not there is any default under the terms of
this Lease and any other information which may be reasonably required by any
prospective mortgagee, underlying ground lessor and/or purchaser of the land and
Building of which the Demised Premises are a part. If Tenant fails to deliver
the statement within the said time, then Tenant hereby grants a power of
attorney to act as attorney-in-fact for Tenant to Landlord and any of such
attorney-in-fact by sole signature is authorized to prepare and execute such
Tenant's statement. Tenant shall further provide Landlord or landlord's
mortgagee or other designee with such current information regarding Tenant's
financial condition as may be reasonably requested.

                                  FORCE MAJEURE

37) The Landlord shall not be in default or liable for failure to perform any of
its covenants of this Lease if same is caused by Act of God, strike, labor
dispute, governmental regulations or controls, unavailability of insurance
proceeds, inability to obtain materials, service or financing or due to any
other cause beyond the control of the Landlord.

                                     NOTICES

38) All notices required under the terms of this Lease shall be deemed given
three (3) days after mailing such notices by certified or registered mail,
return receipt requested, to the address of the parties as shown at the head of
this Lease, or to such other address as may be designated in writing, which
notice of change of address shall be given in the same manner.

                                ENTIRE AGREEMENT

39) This Lease and any Exhibits, Schedules and Riders attached hereto and made a
part hereof, set forth the entire understanding and agreement between Landlord
and Tenant with respect to the Demised Premises and there are neither agreements
nor understandings between them except as are set forth. No amendment to this
Lease shall be binding unless in writing and signed by Landlord and Tenant.

                                 APPLICABLE LAW

40) The laws of the State of New Jersey shall govern the validity, performance
and enforcement of this Lease.

                                MORTGAGE PRIORITY

41) This lease shall not be a lien against the said premises in respect to any
mortgages that may hereafter be placed upon said premises. The recording of such
mortgage or mortgages shall have preference and precedence and be superior and
prior in lien to this lease, irrespective of the date of recording and the
Tenant agrees to execute any instruments, without costs, which may be deemed
necessary or desirable, to further effect

                                       13


the subordination of this lease to may such mortgage or mortgages provided,
however, that said mortgagee agrees to execute a nondisturbance and attornment
agreement.

                         REAL ESTATE OR COMMISSIONS FEES

42) There are no Real Estate commission fees required in this lease agreement.

    /s/ Christopher S. Vernon          /s/ Patrick M. Ryan CEO
    -------------------------------    -----------------------------------
    FOR LANDLORD: MERCER MANAGEMENT    FOR TENANT: YARDVILLE NATIONAL BANK

    DATE:  January 24, 2006
          -------------------------
                                       14

EX-21

                                                                      EXHIBIT 21

                     List of Subsidiaries of the Registrant

Yardville National Bancorp Subsidiaries

1.    The Yardville National Bank, a national banking association organized
      under the laws of the United States (the "Bank")

2.    Yardville Capital Trust, a Delaware business trust

3.    Yardville Capital Trust II, a Delaware business trust

4.    Yardville Capital Trust III, a Delaware business trust

5.    Yardville Capital Trust IV, a Delaware business trust

6.    Yardville Capital Trust V, a Delaware business trust

7.    Yardville Capital Trust VI, a Delaware business trust

The Yardville National Bank Direct and Indirect Subsidiaries

8.    Yardville National Investment Corporation, a New Jersey corporation
      (wholly-owned subsidiary of the Bank)

9.    YNB Real Estate Holding Co., Inc., a New Jersey corporation (wholly-owned
      subsidiary of the Bank)

10.   Brendan, Inc., a New Jersey corporation (wholly-owned subsidiary of the
      Bank)

11.   YNB Financial Services, Inc., a New Jersey corporation (wholly-owned
      subsidiary of the Bank)

12.   Nancy Beth, Inc., a New Jersey corporation (wholly-owned subsidiary of the
      Bank)

13.   YNB Realty, Inc., a New Jersey corporation (wholly-owned subsidiary Kuser
      Capital Corporation)

14.   Jim Mary, Inc., a New Jersey corporation (wholly-owned subsidiary of the
      Bank)

15.   YNB Capital Development, Inc., a New Jersey corporation (wholly-owned
      subsidiary of the Bank)

16.   Kuser Capital Corporation, a Delaware corporation (wholly-owned subsidiary
      of Yardville National Investment Corporation)

17.   Kuser Investment Corporation, a Delaware corporation (wholly-owned
      subsidiary of Yardville National Investment Corporation)

EX-23

                                                                      EXHIBIT 23

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Yardville National Bancorp:

We consent to the incorporation by reference in registration statements (No.
333-98076, No. 333-28193, No. 333-71741, No. 333-102932, No. 333-115891 and No.
333-131142) on Form S-8 and registration statements (No. 333-109706 and No.
333-104478) on Form S-3 of Yardville National Bancorp and subsidiaries of our
report dated March 16, 2006 with respect to the consolidated statements of
condition of Yardville National Bancorp and subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2005, management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2005, and the
effectiveness of internal control over financial reporting as of December 31,
2005, which reports are incorporated by reference in the December 31, 2005
Annual Report on Form 10-K of Yardville National Bancorp.


/s/ KPMG LLP

Short Hills, New Jersey
March 16, 2006

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Patrick M. Ryan, President and Chief Executive Officer, certify that:

1. I have reviewed this Annual Report on Form 10-K of the Yardville National
Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, or other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15(e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

      a. designed such disclosure controls and procedures or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

      b. designed internal control over financial reporting, or caused such
      internal control over financial reporting to be designed under our
      supervision, to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements for
      external purposes in accordance with generally accepted accounting
      principles;

      c. evaluated the effectiveness of the registrant's disclosure controls and
      procedures, and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation; and

      d. disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):

      a. all significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

      b. any fraud, whether or not material, that involved management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.

Date: March 16, 2006                        By:   Patrick M. Ryan
                                                -----------------------
                                                  Patrick M. Ryan
                                                  Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Stephen F. Carman, Vice President and Treasurer, certify that:

1. I have reviewed this Annual Report on Form 10-K of the Yardville National
Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, or other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15(e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

      a. designed such disclosure controls and procedures or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

      b. designed internal control over financial reporting, or caused such
      internal control over financial reporting to be designed under our
      supervision, to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements for
      external purposes in accordance with generally accepted accounting
      principles;

      c. evaluated the effectiveness of the registrant's disclosure controls and
      procedures, and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation; and

      d. disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):

      a. all significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

      b. any fraud, whether or not material, that involved management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.

Date: March 16, 2006                    By:    Stephen F. Carman
                                            ---------------------------
                                               Stephen F. Carman
                                               Vice President and Treasurer

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Yardville National Bancorp (the
"Company") on Form 10-K for the fiscal year ended December 31, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Patrick M. Ryan, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or
      15(d) of the Securities and Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.

                                            By:    Patrick M. Ryan
                                                ---------------------------
                                                   Patrick M. Ryan
                                                   Chief Executive Officer

March 16, 2006

EX-32.2

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Yardville National Bancorp (the
"Company") on Form 10-K for the fiscal year ended December 31, 2005 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Stephen F. Carman, Vice President and Treasurer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or
      15(d) of the Securities and Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.

                                       By:   Stephen F. Carman
                                           ---------------------------
                                             Stephen F. Carman
                                             Vice President and Treasurer

March 16, 2006