-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgBuwWAUekimxRAzJQH4OSLSQohlgfK/HHfa8SI/8OOv8m6HBpuLpe7eUKSK/ZxE FpVVo6xXKJU/WZ+m2vtzBA== 0000950116-96-000749.txt : 19960816 0000950116-96-000749.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950116-96-000749 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960806 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: YARDVILLE NATIONAL BANCORP CENTRAL INDEX KEY: 0000787849 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 222670267 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-78050 FILM NUMBER: 96604612 BUSINESS ADDRESS: STREET 1: 4569 SOUTH BROAD STREET CITY: YARDVILLE STATE: NJ ZIP: 08620 BUSINESS PHONE: 6095812767 MAIL ADDRESS: STREET 1: 4569 SOUTH BROAD ST CITY: YARDVILLE STATE: NJ ZIP: 08620 SB-2/A 1 AMENDMENT #2 TO FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996 REGISTRATION NO. 33-78050 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- POST-EFFECTIVE AMENDMENT NO. 2 TO FORM SB-2 Registration Statement Under the Securities Act of 1933 ----------------------- YARDVILLE NATIONAL BANCORP (Name of small business issuer in its charter) NEW JERSEY 6021 22-2670267 (State or Other (Primary Standard Industrial (I.R.S. Employer Jurisdiction of Classification Code Number) Identification Number) Incorporation or Organization) YARDVILLE NATIONAL BANCORP 3111 QUAKERBRIDGE ROAD TRENTON, NEW JERSEY 08619 TELEPHONE (609) 585-5100 (Address and telephone number of registrant's principal executive offices and principal place of business) Patrick M. Ryan, President Yardville National Bancorp 3111 Quakerbridge Road Trenton, New Jersey 08619 Telephone (609) 584-2110 (Name, address and telephone number of agent for service) ----------------------- Please send copies of all communications to: Brian S. Vargo, Esq. Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, Pennsylvania 19103-7098 ----------------------- Approximate date of commencement of proposed sale to the public: From time to time after the Registration Statement becomes effective. ----------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ PROSPECTUS LOGO 156,566 SHARES OF COMMON STOCK This Prospectus relates to 156,566 shares of Common Stock, no par value per share ("Common Stock"), of Yardville National Bancorp (the "Company"), a bank holding company headquartered in Hamilton Township, New Jersey that provides commercial and retail banking services through its wholly-owned subsidiary, Yardville National Bank (the "Bank"). The 156,566 shares of Common Stock to which this Prospectus relates may be offered for sale from time to time by certain stockholders (the "Selling Security Holders") of the Company. The Company will not receive any proceeds from the offering. The Common Stock is traded on the NASDAQ National Market System under the symbol "YANB". The last reported sale price of the Common Stock on the NASDAQ National Market System on August 2, 1996, was $15.88 per share. See "Investment Considerations" at page 6 herein for a discussion of certain factors that should be considered by prospective purchasers of the Common Stock offered hereby. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proceeds Underwriting to the Discounts Proceeds Selling and to the Security Price to the Public(1) Commission Company(2) Holders(1)(2)(3) --------------------- ------------- --------- --------------- Per share $15.88 -- N/A $15.88 Total $15.88 N/A $15.88
- - ------ (1) Based on the last reported sale price per share of Common Stock on the NASDAQ National Market System on August 2, 1996. (2) The Company will not receive any proceeds from the offering. (3) Before applicable underwriting discounts or commissions and state registration or qualification fees and expenses, none of which can be estimated at this time. The date of this Prospectus is August 6, 1996. INSERT YARDVILLE NATIONAL BANCORP MAP AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (which term shall include all amendments, exhibits and schedules thereto) on Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. Copies of such materials may be obtained from the Public Reference Section of the Commission, Washington, D.C., at prescribed rates. The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance with the Exchange Act, files periodic reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional offices at 7 World Trade Center, New York, New York 10048, and Citicorp Building, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Washington, D.C., at prescribed rates. 2 PROSPECTUS SUMMARY The following summary of certain information contained elsewhere in this Prospectus is not intended to be complete and is qualified in its entirety by reference to, and should be read in conjunction with, the more detailed information and the consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. References to the "Company" in this Prospectus include the Company and its consolidated subsidiaries, unless the context requires otherwise. THE COMPANY Yardville National Bancorp (the "Company") is a bank holding company headquartered in Hamilton Township, New Jersey, that provides retail and commercial banking services through its wholly-owned subsidiary, Yardville National Bank (the "Bank"). Founded in 1924, the Bank currently operates eight community banking offices in Mercer County, New Jersey. At March 31, 1996, the Company had total consolidated assets of $421.9 million, deposits of $310.5 million and stockholders' equity of $32.4 million. The Bank provides financial products and services designed to meet the borrowing and depository needs of small and medium sized businesses and consumers in the local communities that it serves. As a community bank, the Bank's business strategy emphasizes customer service and relationship banking, and targets those customers who desire personalized attention and prompt, local decision making and with whom the Bank can develop both loan and deposit relationships. As a result of its emphasis on broad-based customer relationships, the Bank's lending and investing activities are funded almost entirely with core deposits, approximately 58% of which are demand and savings deposits, with the balance being funded primarily with certificates of deposit. In November, 1992, Patrick M. Ryan became President and Chief Executive Officer of the Company after joining the Bank in November, 1991 as Executive Vice President and Senior Lending Officer. Under Mr. Ryan's leadership, the Bank has focused on increasing its loan portfolio, particularly its commercial loan portfolio, and expanding its credit administration department to support this growth. This commitment to community lending has resulted in the Bank's loan-to-deposit ratio increasing from 53% at December 31, 1991 to 85% at March 31, 1996 and contributed to a return on average assets of .99% and a return on average equity of 13.84% for the year ended December 31, 1995, and a return on average assets of .98% and a return on average equity of 12.49% for the three months ended March 31, 1996. THE OFFERING The Selling Security Holders intend to offer for sale from time to time an aggregate of 156,566 shares of Common Stock. The Selling Security Holders may sell shares of Common Stock pursuant to this Prospectus from time to time on terms to be determined at the time of sale, either directly or through agents, dealers or underwriters designated from time to time. The aggregate proceeds to the Selling Security Holders will be the offering price of the shares sold, less applicable agents' commissions and underwriters' discounts, if any. 3 USE OF PROCEEDS The Company will not receive any proceeds from the offering. INVESTMENT CONSIDERATIONS Prospective investors of the Common Stock offered hereby should read and consider carefully the information set forth under the heading "Investment Considerations." COMMON STOCK Common Stock Authorized ....... The Company is authorized to issue 6,000,000 shares of Common Stock, no par value per share. Common Stock Outstanding and Issuable .................... As of July 15, 1996 there were 2,428,754 shares of Common Stock issued and outstanding, and outstanding options to purchase 99,885 shares of Common Stock. Dividends...................... Currently paid quarterly at an annual rate of $0.44 per share. See "Market for Common Stock and Related Stockholder Matters." NASDAQ National Market System Symbol................ YANB All information in this Prospectus has been adjusted to reflect a 100% Common Stock dividend distributed on November 18, 1994, and a 5% Common Stock dividend distributed on October 9, 1992. 4 SUMMARY FINANCIAL DATA (Dollars in thousands, except per share data)
Three Months Ended March 31, Year Ended December 31, --------------------- --------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (unaudited) STATEMENT OF OPERATIONS DATA: Net interest income .................... $ 4,120 $ 3,352 $ 14,495 $ 11,644 $ 8,700 $ 7,330 $ 6,718 Provision for loan losses .............. 265 180 865 305 -- 50 3,239 Gains (losses) on sales of securities and mortgages, net ..................... (21) (1) 72 (32) 648 504 239 Other non-interest income .............. 531 475 1,927 1,586 1,542 1,499 1,525 Non-interest expense ................... 2,818 2,518 10,260 9,285 8,423 8,325 7,655 Net income (loss) ...................... 992 756 3,403 2,523 1,925 568 (1,852) BALANCE SHEET DATA: Assets ................................. $421,917 $321,454 $403,115 $280,550 $223,438 $205,494 $188,702 Investment securities and securities available for sale 125,513 69,610 133,853 63,235 68,670 77,811 76,575 Loans, net of unearned income .......... 262,918 216,297 245,054 196,910 134,983 106,993 93,174 Allowance for loan losses .............. 3,858 3,121 3,677 2,912 2,703 2,940 3,310 Deposits ............................... 310,482 277,056 302,972 259,296 206,688 192,223 175,816 Stockholders' equity ................... 32,363 19,529 31,717 18,451 14,208 10,829 10,261 PER SHARE DATA: Net income (loss) - fully diluted(1) .... $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86 $ 0.61 $ (2.00) Cash dividends ......................... 0.11 0.09 0.38 0.28 -- -- 0.07 Book value(2) .......................... 13.51 12.59 13.50 11.92 12.42 11.69 11.09 PERFORMANCE RATIOS: Return on average assets ............... 0.98% 1.03% 0.99% 1.04% 0.92% 0.29% (0.97)% Return on average stockholders' equity . 12.49 15.56 13.84 15.89 15.81 5.44 (17.05) Net interest margin (FTE)(3) ............ 4.31 4.87 4.49 5.16 4.51 3.99 3.84 Efficiency ratio(4) .................... 60.86 65.81 62.75 70.35 77.35 89.20 90.25 LIQUIDITY AND CAPITAL RATIOS: Total loans to total deposits .......... 84.68% 78.07% 80.88% 75.94% 65.31% 55.66% 53.00% Stockholders' equity to total assets ... 7.67 6.08 7.87 6.58 6.36 5.27 5.44 Average stockholders' equity to average assets ................................ 7.81 6.60 7.14 6.57 5.79 5.24 5.71 Leverage ratio(5) ....................... 7.78 6.27 7.84 6.97 6.36 5.27 5.44 Tier 1 capital as a percentage of risk-weighted assets ................... 11.41 9.20 11.95 9.59 9.38 8.81 9.20 Total capital as a percentage of risk-weighted assets ................... 12.66 10.45 13.20 10.84 10.64 10.07 10.70 ASSET QUALITY RATIOS: Nonperforming assets(6) to total assets ................................ 0.73% 0.75% 0.85% 0.85% 1.73% 2.79% 4.83% Nonperforming assets(6) to total loans and other real estate owned (period end) 1.17 1.12 1.40 1.21 2.83 5.30 9.66 Allowance for loan losses to nonperforming loans(7) (period end) .... 159.88 147.98 130.44 140.95 109.30 63.65 41.95 Net loan charge offs (recoveries) to average total loans ................. 0.03 (0.01) 0.05 0.06 0.20 0.45 1.68
- - -------------- (1) Earnings per share for the three month periods ended March 31, 1996, and March 31, 1995 and the years ended December 31, 1995 and December 31, 1994, were calculated utilizing the modified treasury stock method, while prior periods' earnings per share were calculated utilizing the treasury stock method. The modified treasury stock method includes the potential dilutive effect of options and warrants not included in the treasury stock method. (2) Book value per share at March 31, 1996, March 31, 1995 and December 31, 1995 and December 31, 1994 reflects the unrealized gain (loss) on securities available for sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," adopted on January 1, 1994. See Note 1.C. to the Company's Consolidated Financial Statements, which appears at page F-8. (3) Tax equivalent based on a 34% federal tax rate for all periods presented (FTE = Federal tax equivalent basis). (4) Efficiency ratio is equal to non-interest expense divided by the sum of net interest income and non-interest income. (5) Leverage ratio is Tier 1 capital to period end total assets less intangible assets. (6) Nonperforming assets include nonperforming loans and other real estate owned. (7) Nonperforming loans include nonaccrual loans, restructured loans, and loans 90 days past due or greater and still accruing interest. 5 INVESTMENT CONSIDERATIONS Prospective investors should consider the following factors, in addition to the other information contained in this Prospectus, prior to making an investment in the Common Stock. GROWTH OF LOAN PORTFOLIO Between December 31, 1991, and March 31, 1996, the Bank's loan portfolio increased by almost 300%, from $93.2 million at December 31, 1991, to $262.9 million at March 31, 1996. Commercial loans and commercial mortgage loans increased during this period from $10.8 million to $126.3 million, accounting for 68.0% of the total growth of the loan portfolio, and represented 48.0% of the loan portfolio at March 31, 1996. Accordingly, the Bank does not have a long period of experience with some of its borrowers. However, the majority of the growth in the Bank's commercial loan portfolio consisted of loans to established businesses that, while new to the Bank, had been experienced borrowers with other financial institutions. In addition, while the increase in commercial loans has created a more diversified loan portfolio, it has also increased the overall credit risk inherent in the loan portfolio as commercial loans involve relatively more credit risk than other types of loans in the Bank's loan portfolio. The Company's strategy will continue to focus on expanding the Bank's lending business at a rate that management deems prudent given prevailing economic and competitive conditions. ANTI-TAKEOVER PROVISIONS The Company's Restated Certificate of Incorporation, as well as certain federal and New Jersey laws and regulations, will assist the Company in maintaining its status as an independent publicly-owned corporation. The Company's Restated Certificate of Incorporation provides for a classified board of directors and does not provide for cumulative voting for directors. In addition, the Company's Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Company entitled to vote for the election of directors in order to remove any director or the entire Board of Directors. The Company's Restated Certificate of Incorporation also authorizes the Board of Directors to issue Preferred Stock from time to time without stockholder approval upon such terms as the Board of Directors determines. These provisions, together with the provisions concerning the approval of certain business combinations discussed below, may enhance the ability of current management to remain in control of the Company. The Company's Restated Certificate of Incorporation requires the affirmative vote of holders of at least 80% of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors to approve business combinations with holders of 10% or more of the voting stock of the Company, unless the business combination has been approved by the disinterested directors of the Company or certain other conditions are satisfied. The share ownership of the Company's current directors and executive officers as of July 15, 1996, represents approximately 16% of all the issued and outstanding shares of Common Stock of the Company. In addition, as of July 15, 1996, the Company's current directors and executive officers have the right to acquire an additional 81,176 shares of Common Stock under options that are presently exercisable, which would if exercised increase their ownership to approximately 19% of the issued and outstanding Common Stock of the Company. This share ownership, together with the provisions of the Company's Restated Certificate of Incorporation (and, secondarily, the New Jersey Shareholders Protection Act), could enable the Company's Board of Directors to prevent any business combination or takeover and may discourage potential proxy contests and other takeover attempts, particularly those which have not been negotiated with the Board of Directors of the Company. Accordingly, stockholders could be deprived of an opportunity to sell their shares at a substantial premium over the market price of the shares. See "Description of Capital Stock -- Rights of Holders of Common Stock." In addition, federal law also requires the approval of the Board of Governors of the Federal Reserve System prior to the acquisition of "control" of a bank holding company. See "Supervision and Regulation -- Change in Bank Control Act." 6 THE COMPANY The Company is a bank holding company headquartered in Hamilton Township, New Jersey, that provides commercial and retail banking services through the Bank. The Bank received its charter from the Office of the Comptroller of the Currency in 1924. The Company was incorporated under the laws of New Jersey and became the holding company of the Bank in 1985. The Bank's deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation. At March 31, 1996, the Company had total consolidated assets of $421.9 million, deposits of $310.5 million and stockholders' equity of $32.4 million. The Bank provides a full range of retail and commercial banking services designed to meet the borrowing and depository needs of small and medium sized businesses and consumers in the local communities that it serves. Such products include demand, savings and time deposits, letters of credit, and commercial, real estate and consumer loans. In order to compete more effectively with larger financial institutions in its market area, the Bank concentrates on building relationships through superior service and attention to customers' needs. The Bank seeks to attract customers that will have both deposit and lending relationships with the Bank. The Company believes that customers value personal service and attention and that its emphasis on personal service and local customer relationships, together with its active approach to lending and careful credit administration, have been and will continue to be important factors in the Company's success and growth. In November, 1991, Patrick M. Ryan joined the Bank as Executive Vice President and Senior Loan Officer, bringing with him over 20 years of prior banking experience, including extensive experience in remediating problem loans. Subsequently, he was promoted to the position of President and Chief Executive Officer of the Company in November, 1992. Since Mr. Ryan's arrival, the Bank's nonperforming assets have been reduced to .73% of total assets at March 31, 1996, its loan portfolio has nearly tripled in size to $262.9 million at March 31, 1996, and its credit administration department has been significantly expanded to support its increased lending activity, particularly in the commercial loan area. The Bank's loan portfolio increased from $93.2 million at December 31, 1991, to $262.9 million at March 31, 1996. In the past several years the Bank has focused on making commercial loans and commercial mortgage loans in order to achieve a better balance in its loan portfolio. As a community bank, the Bank's strategy in commercial lending has been to actively market its personal service and local presence and target small and medium sized businesses. As a result, at March 31, 1996, the portfolio contained a balanced mix of loans, with commercial loans and commercial mortgage loans aggregating $126.3 million or 48.0% of the loan portfolio, residential mortgage loans aggregating $75.2 million or 28.6% of the loan portfolio and home equity and consumer loans aggregating $37.0 million or 14.0% of the loan portfolio. The Bank presently intends to maintain a comparable mix of loan types in its portfolio but intends to continue to increase the proportion of commercial and commercial real estate loans in the portfolio. The sales volume of the Bank's commercial loan customers ranges from $100,000 to $35 million (with the average being approximately $2 million) and the average commercial loan was approximately $275,000 at March 31, 1996. Substantially all of the Bank's loans are to borrowers, and secured by property, located within Mercer County or, to a much lesser extent, the contiguous counties of Burlington and Middlesex, New Jersey, and Bucks County, Pennsylvania. In conducting its lending activities, the Bank emphasizes loan quality and loan and credit administration. At July 15, 1996, the Bank's lending staff consisted of a total of 43 people, of which 19 people were in the commercial lending department (11 in loan production and 8 in credit administration). The three senior staff members in the lending area (including Mr. Ryan) average 28 years of banking experience and actively participate in the credit approval and monitoring process. Although the Bank's legal lending limit was $5.4 million at March 31, 1996, its general policy is to limit aggregate loans to any one borrower (including affiliates) to $2.5 million. As of March 31, 1996, the Bank had several lending relationships where the aggregate loans to any one borrower (including affiliates) exceeded $2.5 million and, although the Bank does not seek such loans, it may make such loans in the future in selected cases where the Bank deems it appropriate in light of the customer relationship and the Bank's collateral or other security position for the loan. Finally, in making loans the Bank seeks, and in nearly all cases obtains, collateral security to reduce credit risk and its lending policies and procedures emphasize careful documentation. At March 31, 1996, the Company's nonperforming assets totaling approximately $3.1 million, consisting of fifteen nonaccrual loans totaling $1.8 million, fourteen loans 90 days or more past due and still accruing interest totaling $619,000 and four properties classified as other real estate owned totaling $659,000. The Company's strategy will continue to focus on expanding the Bank's lending business as management deems prudent given economic and competitive conditions, while increasing deposits to fund lending activities. The Company will also 7 utilize wholesale funding when deemed appropriate. Among its efforts to increase deposits, the Bank introduced two new products in 1994, one offering a package of free services to customers maintaining certain minimum checking or savings balances and one designed to attract two-year and three-year certificates of deposit. Another relationship-oriented deposit product targeting customers aged 50 years and an additional product designed to attract two and three year certificates of deposit were introduced in 1995. By developing new products and services and branching into contiguous geographic markets, the Company intends to expand the Bank's existing customer relationships and attract new customers to the Bank. In addition to its headquarters, the Bank operated for 20 years from four branches in Hamilton Township, New Jersey. More recently, the Bank has embarked upon a plan of expansion by opening a branch in Ewing Township in April, 1994, a branch in East Windsor Township in March, 1995, a branch in Trenton in May, 1995 and a branch in Hamilton Square in May, 1996. The Bank plans to open a branch in West Trenton sometime in August, 1996. As of July 15, 1996, the Company employed a full-time equivalent staff of 151. Management considers relations with employees to be good. The Company's principal executive offices are located at 3111 Quakerbridge Road, Trenton, New Jersey 08619, and its telephone number there is (609) 585-5100. COMPETITION The Bank is subject to vigorous competition in all aspects of its business from other financial institutions such as commercial banks, savings banks, savings and loan associations, credit unions, insurance companies and finance and mortgage companies. Within the direct market area of the Bank there are a significant number of offices of competing financial institutions. The Bank competes in its market area with a number of larger commercial banks that have substantially greater resources, higher lending limits, larger branch systems and that provide a wider array of banking services. Money market funds also actively compete with banks for deposits. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans. In its lending business, the Bank is subject to increasing competition from consumer finance companies and mortgage companies, which are not subject to the same kind of regulatory restrictions as banks. Financial institutions compete generally on the basis of rates and service. Financial institutions are intensely competitive in the interest rates they offer, especially for time deposits. In addition, finance companies, which are not subject to the same regulation as banks, are becoming increasingly significant competitors because they often offer lower loan rates than banks. Finally, a number of the Bank's competitors provide a wider array of services (such as trust and international services, which the Bank does not provide) and, by virtue of their greater financial resources, have higher lending limits and larger branch systems. The effect of liberalized branching and acquisition laws, especially after the Financial Institutions Reform, Recovery and Enforcement Act of 1989, has been to lower barriers to entry into the banking business and increase competition for banking business, as well as to increase both competition for and opportunities to acquire other financial institutions. The Company anticipates that the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted in September, 1994, and the corresponding New Jersey interstate banking legislation enacted in 1991 will increase competitive pressures in the Bank's market by permitting entry of additional competitors. In addition, legislation recently enacted in New Jersey is expected to increase competition for the Bank from out of state financial institutions. See "Supervision and Regulation -- Recent Banking Laws and Regulations." While the Bank will seek to remain competitive with the interest rates that it charges on loans and offers on deposits, the Company believes that its success has been and will continue to be due to its emphasis on community banking, customer service and relationships. In the past several years, consolidation in the banking industry, particularly in the Company's markets, has created opportunities for smaller profitable banks to attract customers who prefer the level of attention and customer service which they receive from a community bank. Management of the Company believes it can profitably exploit such opportunities by establishing a local presence in such areas to provide community banking services. PROPERTIES The principal executive offices of the Company and the Bank are located at 3111 Quakerbridge Road, Trenton, New Jersey, in a building owned by the Bank. The Bank owns and maintains its operations center at 4569 South Broad Street, Yardville, New Jersey. The Bank owns four banking offices in Hamilton Township as well as the site of the Bank's future branch in West Trenton. The Bank leases its banking offices in Ewing Township, East Windsor Township, Trenton and Hamilton Square. 8 THE OFFERING The following table sets forth the name of certain owners of shares of Common Stock (the "Selling Security Holders") and the number of shares of Common Stock owned, and that may be sold pursuant to this Prospectus, by each Selling Security Holder as of the date hereof, based upon information furnished to the Company:
Total Number of Shares to be Total Number Total Number Owned Upon of Shares of Shares Completion of Name of Selling Security Holder Owned Offered Offering --------------------------------------------------- ------------ ------------ --------------- Philip Marfuggi ....................................... 9,000 9,000 0 Maria M. Marfuggi, Trustee under Irrevocable Trust of Eugene P. Marfuggi ................................... 8,440 8,440 0 Garrison Enterprise, Inc. ............................. 8,000 8,000 0 Domenic J. and Gisela B. Sciarra (as tenants by the entireties) .......................................... 8,000 8,000 0 AB Management Services of New Jersey, Inc. ............. 71,000 50,000 21,000 Leo Zamparelli ........................................ 8,000 8,000 0 Rein Clabbers ......................................... 8,000 8,000 0 Anthony M. Giampetro, M.D., custodian for Anthony Giampetro, John Giampetro and Celeste Giampetro, under Pennsylvania Uniform Gift to Minors Act .............. 13,126 13,126 0 Bellarmino-Giampetro Profit Sharing Fund .............. 8,000 8,000 0 Bellarmino-Giampetro Pension Fund (Voluntary Contribution) ........................................ 11,800 10,000 1,800 Elizabeth Bralynski Bowman ............................ 10,000 10,000 0 Michael Koretsky ...................................... 8,000 8,000 0 Steven G. Vasso IRA ................................... 8,000 8,000 0 ------- ------- ------ TOTAL ............................................... 179,366 156,566 22,800 ======= ======= ======
Anthony Giampetro is a director of the Company. Certain Selling Security Holders and their associates are customers of and have had transactions with the Bank, and it is expected that such persons will continue to be customers of and have such transactions in the future. All such transactions (which include deposit accounts, loans, and commitments) were made in the ordinary course of business of the Bank on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and, in the opinion of management of the Company and the Bank, did not involve more than normal risks of collectibility or present other unfavorable features. Except as described in this paragraph and other than by ownership of Common Stock and options to acquire Common Stock, none of the Selling Security Holders has had any material relationship with the Company within the past three years. All of the shares of Common Stock that may be offered and sold by the Selling Security Holders pursuant to this Prospectus were acquired by them from the Company in a private placement to accredited investors, including the Selling Security Holders, that closed on August 31, 1993. The Selling Security Holders may sell all or a portion of the Common Stock from time to time directly to purchasers or through agents, dealers who may act as principals for their own account or underwriters on terms to be determined at the times of such sales. Any agent, dealer or underwriter through whom the shares of Common Stock are sold may receive compensation in the form of underwriting discounts, commissions or concessions from the Selling Security Holders and/or the purchasers of the shares of Common Stock for whom they act as agent. To the extent required, the number of shares of Common Stock to be sold, the offering price thereof, the name of each Selling Security Holder and each agent, dealer and underwriter, if any, and any applicable discounts or commissions concerning a particular offering will be set forth in an accompanying Prospectus Supplement. The aggregate proceeds to the Selling Security Holders from the shares of Common Stock offered by them hereby will be the offering price of such shares of Common Stock less applicable commissions or discounts. 9 There is no assurance that the Selling Security Holders will sell any of the shares of Common Stock offered hereby. In order to comply with the securities laws of certain states or other jurisdictions, if applicable, the shares of Common Stock will be sold in such jurisdictions only through registered or licensed brokers or dealers where required. In addition, in certain States or other jurisdictions the shares of Common Stock may not be sold unless they have been registered or qualified for sale under the securities laws of such jurisdictions or an exemption from the registration and qualification requirements of such laws is available and the conditions of such exemption are satisfied. The Selling Security Holders and any broker-dealers, agents or underwriters that participate with the Selling Security Holders in the distribution of the shares of Common Stock may be deemed to be "underwriters" within the meaning of the Securities Act, in which case any commissions received by such broker-dealers, agents or underwriters and any profit on the resale of the shares of Common Stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Security Holder and any other person who participates in a distribution of the shares of Common Stock will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of Common Stock by the Selling Security Holders. The applicable provisions of the Exchange Act and the rules and regulations thereunder may affect the marketability of the shares of Common Stock and the ability of any person to engage in market making activities for the shares of Common Stock. The Company will not receive any proceeds from the offering. The Company will not pay any fees and expenses of the offering, other than the fees and expenses incident to the preparation and filing of the Registration Statement. 10 MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS DIVIDENDS On each of February 15, 1996, and May 15, 1996, the Company paid a cash dividend in the amount of $0.11 per share on the Common Stock. The Company paid four quarterly cash dividends aggregating $0.38 per share on the Common Stock in 1995 and four quarterly cash dividends aggregating $0.28 per share on the Common Stock in 1994. Because substantially all of the funds available for the payment of cash dividends are derived from the Bank, future cash dividends will depend primarily upon the Bank's earnings, financial condition, need for funds, and government policies and regulations applicable to both the Bank and the Company. As of March 31, 1996, the net profits of the Bank available for distribution to the Company as dividends without regulatory approval were approximately $5.3 million. See "Supervision and Regulation -- Limitations on Payment of Dividends." PRICE RANGE OF COMMON STOCK AND CASH DIVIDENDS The Common Stock of the Company began trading in the NASDAQ National Market on June 9, 1995. However, prior to June 9, 1995, there was no active public trading market for the Common Stock, although the Common Stock was traded sporadically in the over-the-counter market. The following table shows the range of high and low closing bid prices of the Common Stock, as reported by the National Quotation Bureau for the periods prior to the second quarter of 1995 and thereafter on the NASDAQ National Market, and the cash dividends declared per share on the Common Stock, in each case for the periods indicated. The price quotations reflect inter-dealer quotations without adjustment for retail markup, markdown or commission, and may not represent actual transactions. Bid Price ----------------- Cash High Low Dividends Declared ------ ----- ------------------ Year Ended December 31, 1994: - - ----------------------------- First Quarter .............. $ 8 1/2 $ 7 3/4 $.05 Second Quarter ............. 10 1/2 8 .075 Third Quarter .............. 12 8 7/8 .075 Fourth Quarter ............. 12 11 .08 Year Ended December 31, 1995: - - ----------------------------- First Quarter .............. $12 1/4 $11 3/4 $.09 Second Quarter ............. 15 14 1/4 .09 Third Quarter .............. 17 1/2 17 .10 Fourth Quarter ............. 16 1/2 15 3/4 .10 Quarter Ended March 31, 1996: $17 $15 3/4 $.11 - - ----------------------------- Quarter Ended June 30, 1996 $16 3/4 $15 1/2 $.11 On August 2, 1996, the last reported sale price of the Common Stock on the NASDAQ National Market System was $15.88 per share. HOLDERS The Common Stock was held by approximately 573 holders of record on July 15, 1996. OUTSTANDING STOCK OPTIONS AND SHARES AVAILABLE FOR RESALE At July 15, 1996, there were options outstanding to purchase 99,885 shares of Common Stock. Of such options, 1,431 were exercisable at a price of $14.75 per share, 67,454 were exercisable at a price of $8.75 per share, 27,208 were exercisable at a price of $8.00 per share, 3,200 were exercisable at a price of $15.75 per share, and 592 will become exercisable at a price of $8.00 per share later in 1996. 11 Of the 2,428,754 shares of Common Stock outstanding as of July 15, 1996, 1,892,554 shares may be sold without restriction and 156,566 shares may be sold from time to time by the Selling Security Holders pursuant to this Prospectus. The Company has agreed with the Selling Security Holders to maintain the Registration Statement in effect until all shares of such Selling Security Holders registered for sale thereunder have been sold or August 8, 1997, whichever is earlier. In addition, 379,634 shares of Common Stock held by the Company's current directors and executive officers presently may be sold either pursuant to a registration statement filed by the Company under the Securities Act with respect to shares issued to directors and officers under the Company's stock option plans or pursuant to Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, a stockholder (or stockholders whose shares are aggregated) who (A) has beneficially owned "restricted" shares for at least two years or (B) is an affiliate of the Company (which includes directors and executive officers and may include other stockholders in certain circumstances) is entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock or (ii) the average weekly trading volume of the Common Stock reported through the NASDAQ National Market during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. Sales under Rule 144 are subject to certain manner of sales provisions, notice requirements and the availability of current public information about the Company. Other than the offering of Common Stock pursuant to this Prospectus and the issuance of Common Stock upon exercise of stock options that have been granted and that may be granted to directors and employees pursuant to the Company's stock option plans, the Company has no present plan to register the issuance and sale of any securities and has not agreed to register the sale of any securities by any stockholder under the Securities Act. 12 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following table sets forth certain historical financial data with respect to the Company on a consolidated basis for the three months ended March 31, 1996 and 1995 and each year in the five-year period ended December 31, 1995. The unaudited data have been prepared on the same basis as the other consolidated financial statements of the Company and, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results for the unaudited periods have been made. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of results that may be expected for any other period. This table should be read in conjunction with the Company's historical consolidated financial statements and related notes thereto included in this Prospectus.
At or for the Three Months Ended March 31, At or for the Year (unaudited) Ended December 31, -------------------------- ----------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) STATEMENT OF OPERATIONS Interest income ......................... $ 7,887 $ 5,878 $ 27,336 $ 18,004 $ 14,055 $ 13,990 $ 15,739 Interest expense ........................ 3,767 2,526 12,841 6,360 5,355 6,660 9,021 ---------- ---------- ---------- ---------- ---------- -------- -------- Net interest income ..................... 4,120 3,352 14,495 11,644 8,700 7,330 6,718 Provision for loan losses ............... 265 180 865 305 -- 50 3,239 Securities gains (losses), net .......... (21) -- (91) (124) 294 153 54 Gains (losses) on sales of mortgages, net. -- (1) 19 92 354 351 185 Other non-interest income ............... 531 475 1,927 1,586 1,542 1,499 1,525 Non-interest expense .................... 2,818 2,518 10,260 9,285 8,423 8,325 7,655 ---------- ---------- ---------- ---------- ---------- -------- -------- Income (loss) before income tax expense (benefit) and cumulative effect of the change in accounting principle ......... 1,547 1,128 5,225 3,608 2,467 958 (2,412) Income tax expense (benefit) ............ 555 372 1,822 1,085 733 390 (560) ---------- ---------- ---------- ---------- ---------- -------- -------- Income (loss) before cumulative effect of the change in accounting principle ..... 992 756 3,403 2,523 1,734 568 (1,852) Cumulative effect of the change in accounting principle ................... -- -- -- -- 191 -- -- ---------- ---------- ---------- ---------- ---------- -------- -------- Net income (loss) ....................... $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925 $ 568 (1,852) ========== ========== ========== ========== ========== ======== ======== BALANCE SHEET Assets .................................. $ 421,917 $ 321,454 $ 403,115 $ 280,550 $ 223,438 $205,494 $188,702 Loans, net of unearned income ........... 262,918 216,297 245,054 196,910 134,983 106,993 93,174 Deposits ................................ 310,482 277,056 302,972 259,296 206,688 192,223 175,816 Stockholders' equity .................... 32,363 19,529 31,717 18,451 14,208 10,829 10,261 Allowance for loan losses ............... 3,858 3,121 3,677 2,912 2,703 2,940 3,310 PER SHARE DATA Net income (loss) -- fully diluted* ..... $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86 $ 0.61 $ (2.00) Cash dividends .......................... $ 0.11 $ 0.09 $ 0.38 $ 0.28 $ -- $ -- $ 0.07 Book value** ............................ $ 13.51 $ 12.59 $ 13.50 $ 11.92 $ 12.42 $ 11.69 $ 11.09 OTHER DATA Average shares outstanding .............. 2,530,000 2,047,000 2,192,000 1,757,000 1,036,000 926,000 926,000
- - -------------- * Earnings per share for the three-month periods ended March 31, 1996 and March 31, 1995 and the years ended December 31, 1995 and 1994, were calculated utilizing the modified treasury stock method, while prior periods' earnings per share were calculated utilizing the treasury stock method. The modified treasury stock method includes the potential dillutive effect of options and warrants not included in the treasury stock method. ** Book value per share at March 31, 1996 and 1995 and December 31, 1995 and 1994 reflects the unrealized gain (loss) on securities available for sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," adopted on January 1, 1994. See Note 1.C. to the Company's Consolidated Financial Statements, which appears at page F-8. 13 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (continued)
At or for the Three Months At or for the Year Ended March 31, Ended December 31, -------------------- ------------------------------------------------------ 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- PERFORMANCE RATIOS: Return on average assets ........................ 0.98% 1.03% 0.99 1.04% 0.92% 0.29% (0.97)% Return on average stockholders' equity .......... 12.49 15.56 13.84 15.89 15.81 5.44 (17.05) Net interest margin (FTE)(1) .................... 4.31 4.87 4.49 5.16 4.51 3.99 3.84 Efficiency Ratio (2) ............................ 60.86 65.81 62.75 70.35 77.35 89.20 90.25 LIQUIDITY AND CAPITAL RATIOS: Total loans to total deposits ................... 84.68% 78.07% 80.88 75.94% 65.31% 55.66% 53.00% Stockholders' equity to total assets ............ 7.67 6.08 7.87 6.58 6.36 5.27 5.44 Average stockholders' equity to average assets ... 7.81 6.60 7.14 6.57 5.79 5.24 5.71 Dividend payout ratio ........................... 26.01 18.46 21.69 15.06 -- -- (4.00) Leverage ratio (3) .............................. 7.78 6.27 7.84 6.97 6.36 5.27 5.44 Tier 1 capital as a percentage of risk-weighted assets ........................... 11.41 9.20 11.95 9.59 9.38 8.81 9.20 Total capital as a percentage of risk-weighted assets ........................... 12.66 10.45 13.20 10.84 10.64 10.07 10.70 ASSET QUALITY RATIOS: Nonperforming loans (4) to total loans .......... 0.92% 0.98% 1.15% 1.05% 1.83% 4.32% 8.47% Nonperforming assets to total assets ............ 0.73 0.75 0.85 0.84 1.73 2.79 4.83 Nonperforming assets (5) to total loans and other real estate owned (period end) ................. 1.17 1.12 1.40 1.21 2.83 5.30 9.66 Allowance for loan losses to nonperforming loans (4) (period end) ............................... 159.88 147.98 130.44 140.95 109.30 63.65 41.95 Allowance for loan losses to nonperforming assets (5) ....................... 125.59 128.70 106.77 122.35 69.92 51.34 36.29 Allowance for loan losses to total loans (period end) ........................................... 1.47 1.44 1.50 1.48 2.00 2.75 3.55 Net loan charge offs (recoveries) to average total loans .......................................... 0.03 (0.01) 0.05 0.06 0.20 0.45 1.68
- - ---------- (1) Tax equivalent based on a 34% federal tax rate for all periods presented (FTE = Federal tax equivalent basis). (2) Efficiency ratio is equal to non-interest expense divided by the sum of net interest income and non-interest income. (3) Leverage ratio is Tier 1 capital to period end total assets less intangible assets. (4) Nonperforming loans include nonaccrual loans, restructured loans, and loans 90 days or more past due and still accruing interest. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition." (5) Nonperforming assets include nonperforming loans and other real estate owned. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition." 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income increased 31.2% for the three months ended March 31, 1996 over the results recorded for the three months ended March 31, 1995. This increase in net income was attributable primarily to increased interest income resulting from a higher volume of outstanding loans. In 1995, the Company achieved continued solid growth in earnings performance. The Company's year was highlighted by the successful completion of its underwritten public offering and coinciding trading on the NASDAQ National Market System under the symbol "YANB" on June 9, 1995. Amid the challenges of increased competition, the Company was able to grow its deposit and lending base 16.8% and 24.4%, respectively, in 1995. Net income amounted to $3,403,000 for the year ended December 31, 1995, a 34.9% increase, compared to the record results of $2,523,000 reported in 1994. Earnings were enhanced by the considerable loan growth experienced during the year. The loan portfolio increased over $48,000,000 in 1995 from a year ago. Asset quality remained strong, as reflected in the nonperforming loans as a percentage of total loans ratio which equalled only 1.15% as of December 31, 1995. The Company's capital base was fortified by the completion of its June 1995 public offering and 1995 earnings. Stockholders' equity totaled $31,717,000 at December 31, 1995, an increase of 71.9% from the $18,451,000 reported at December 31, 1994. The net addition of approximately $7,900,000 from the public offering will provide the framework for continued sustainable growth. Although 1995 key performance measures declined from 1994, they remained strong in comparison to industry standards. Return on average assets decreased to 0.99% from 1.04% in 1994. The 1995 return on average stockholders' common equity decreased to 13.84% compared to 15.89% in 1994. RESULTS OF OPERATIONS The Company reported net income of $992,000 for the three months ended March 31, 1996, an increase of $236,000 or 31.2%, from net income of $756,000 reported for the same time period in 1995. The increase in net income for the three months ended March 31, 1996 compared to the same period of 1995 was primarily attributable to an increase in net interest income partially offset by increases in the provision for loan losses and non- interest expenses. On a per share basis, the net income was $.40 for the first three months of 1996 compared to the same $.40 for the first three months of 1995 on a fully diluted basis. While net income rose by 31% in the first quarter of 1996 compared to the first quarter of 1995, earnings per share stayed the same as a result of the additional shares of Common Stock issued in the Company's 1995 underwritten public offering. The Company earned $3,403,000 or $1.60 per share for the year ended December 31, 1995 compared to $2,523,000 or $1.56 per share for the year ended December 31, 1994. The Company reported net income of $1,925,000 or $1.86 per share in 1993. Earnings per share amounts for 1996, 1995 and 1994 were calculated utilizing the modified treasury stock method while prior years were calculated utilizing the treasury stock method. The modified treasury stock method includes the potential dilutive effect of options and warrants not included in the treasury stock method. NET INTEREST INCOME Net interest income, the Company's largest and most significant component of operating income, is the difference between interest and fees earned on loans and other earning assets, and interest paid on deposits and borrowed funds. Net interest income is impacted by the volume of interest earning assets, level of rates earned on those assets, and the cost of interest bearing liabilities. 15 The following tables set forth the Company's consolidated average balances of assets, liabilities and stockholders' equity as well as the amount of interest income and expense on related items, and the Company's average yields earned and rates paid for the three-month periods ended March 31, 1996 and 1995 and for the years ended December 31, 1995, 1994 and 1993.
Three Months Ended Three Months Ended March 31, 1996 March 31, 1995 ------------------------------------ ------------------------------------- Average Average Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- ---------- --------- ----------- ---------- --------- (Dollars in thousands) INTEREST EARNING ASSETS: Time deposits with other banks ............ $ 2,552 $ 34 5.33% $ 373 $ 5 5.36% Federal funds sold ........................ 4,264 57 5.35 5,931 89 6.00 Securities ................................ 124,439 1,909 6.14 66,957 942 5.63 Loans, net of unearned income (1) ......... 256,001 5,887 9.20 205,914 4,842 9.41 -------- ------ ----- -------- ------ ----- Total interest earning assets ........... $387,256 $7,887 8.15% $279,175 $5,878 8.42% -------- ------ ----- -------- ------ ----- NON-INTEREST EARNING ASSETS: Cash and due from banks ................... $ 9,162 $ 8,046 Allowance for loan losses ................. (3,748) (2,997) Premises and equipment, net ............... 4,285 3,972 Other assets .............................. 9,624 6,395 -------- -------- Total non-interest earning assets ....... 19,323 15,416 -------- -------- Total Assets .............................. $406,579 $294,591 ======== ======== INTEREST BEARING LIABILITIES: Deposits: Savings and interest checking ........... $129,240 972 3.01% $118,284 $1,007 3.41% Certificates of deposit of $100,000 or more................................... 15,233 203 5.33 18,835 263 5.59 Other time deposits ..................... 114,509 1,617 5.65 86,511 1,083 5.01 -------- ------ ----- -------- ------ ----- Total interest bearing deposits ...... 258,982 2,792 4.31 223,630 2,353 4.21 Borrowed funds ............................ 66,718 975 5.85 11,288 173 6.13 -------- ------ ----- -------- ------ ----- Total interest bearing liabilities ...... $325,700 3,767 4.63 234,918 2,526 4.30 -------- ------ ----- -------- ------ ----- NON-INTEREST BEARING LIABILITIES: Demand deposits ........................... $ 46,390 $ 38,960 Other liabilities ......................... 2,726 1,277 Stockholders' equity ...................... 31,763 19,436 -------- -------- Total non-interest bearing liabilities and stockholders' equity ............ $ 80,879 $ 59,673 -------- -------- Total liabilities and stockholders' equity . $406,579 $294,591 ======== ======== Interest rate spread (2) .................. 3.52% 4.12% ===== ===== Net interest income and margin (3) ........ $4,120 4.26% $3,352 4.80% ====== ===== ====== ===== Net interest income and margin (tax equivalent basis) (4) ............. $4,171 4.31% $3,401 4.87% ====== ===== ====== =====
- - ----------- (1) Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include nonaccrual loans with no related interest income. (2) The interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities. (3) The net interest margin is equal to net interest income divided by average interest earning assets. (4) In order to make pretax income and resultant yields on tax exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment is made equally to interest income and income tax expense with no effect on after tax income. The tax equivalent adjustment has been computed using a federal income tax rate of 34% and has increased interest income $51,000 and $49,000 for the three months ended March 31, 1996 and 1995, respectively. 16 NET INTEREST INCOME -- (CONTINUED)
Years Ended -------------------------------------------------------------------------------------------- December 31, 1995 December 31, 1994 December 31, 1993 --------------------------- ---------------------------- ------------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- ------- -------- ---- (Dollars in thousands) INTEREST EARNING ASSETS: Time deposits with other banks... $ 685 $ 36 5.26% $ 643 $ 23 3.58% $ 1,266 $ 34 2.69% Federal funds sold ............. 7,838 464 5.92 1,200 52 4.33 3,211 97 3.02 Securities ..................... 97,456 5,756 5.91 70,045 3,761 5.37 72,928 3,939 5.40 Loans, net of unearned income (1) 221,232 21,080 9.53 157,411 14,168 9.00 117,671 9,985 8.49 -------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest earning assets . $327,211 $27,336 8.35% $229,299 $18,004 7.85% $195,076 $14,055 7.20% -------- ------- ---- -------- ------- ---- -------- ------- ---- NON-INTEREST EARNING ASSETS: Cash and due from banks ......... $ 8,778 $ 8,079 $ 9,449 Allowance for loan losses ...... (3,265) (2,736) (2,860) Premises and equipment, net .... 4,175 3,857 3,812 Other assets ................... 7,490 3,207 4,699 -------- -------- -------- Total non-interest earning assets ....................... 17,178 12,407 15,100 -------- -------- -------- Total Assets ................... $344,389 $241,706 $210,176 ======== ======== ======== INTEREST BEARING LIABILITIES: Deposits: Savings and interest checking $123,029 $ 4,107 3.34% $113,239 $ 3,156 2.79% $105,178 $ 2,832 2.69% Certificates of deposit of $100,000 or more .......... 15,521 883 5.69 7,083 299 4.22 4,202 168 4.00 Other time deposits .......... 103,637 5,792 5.59 66,020 2,810 4.26 55,827 2,338 4.19 -------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest bearing deposits .................. 242,187 10,782 4.45 186,342 6,265 3.36 165,207 5,338 3.23 Borrowed funds ................. 33,339 2,059 6.18 2,248 95 4.23 747 17 2.28 -------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest bearing liabilities ............... 275,526 12,841 4.66 188,590 6,360 3.37 165,954 5,355 3.23 -------- ------- ---- -------- ------- ---- -------- ------- ---- NON-INTEREST BEARING LIABILITIES: Demand deposits ................ $ 42,321 $ 36,634 $ 31,082 Other liabilities .............. 1,950 605 967 Stockholders' equity ........... 24,592 15,877 12,173 -------- -------- -------- Total non-interest bearing liabilities and stockholders' equity .................. $ 68,863 $ 53,116 $ 44,222 -------- -------- -------- Total liabilities and stockholders' equity ....................... $344,389 $241,706 $210,176 ======== ======== ======== Interest rate spread (2) ....... 3.69% 4.48% 3.97% ==== ==== ==== Net interest income and margin (3) $14,495 4.43% $11,644 5.08% $ 8,700 4.46% ======= ==== ======= ==== ======= ==== Net interest income and margin (tax equivalent basis) (4) ........ $14,697 4.49% $11,838 5.16% $ 8,805 4.51% ======= ==== ======= ==== ======= ====
- - ------------ (1) Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include nonaccrual loans with no related interest income. (2) The interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities. (3) The net interest margin is equal to net interest income divided by average interest earning assets. (4) In order to make pretax income and resultant yields on tax exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment is made equally to interest income and income tax expense with no effect on after tax income. The tax equivalent adjustment has been computed using a federal income tax rate of 34% and has increased interest income 202,000, $194,000 and $105,000 for the years ended December 31, 1995, December 31, 1994 and December 31, 1993, respectively. 17 Net interest income also may be analyzed by segregating the volume and rate components of interest income and interest expense. The following table demonstrates the impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates earned and paid.
Three Months Ended March 31, 1996 vs. 1995 1995 vs. 1994 1994 vs. 1993 Increase (Decrease) Increase (Decrease) Increase (Decrease) Due to changes in: Due to changes in: Due to changes in: --------------------- -------------------- ------------------- Volume Rate Total Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- ------ ---- ----- (in thousands) INTEREST EARNING ASSETS: Time deposits with other banks .... $ 29 $ -- $ 29 $ 2 $ 11 $ 13 $ (20) $ 9 $ (11) Federal funds sold ................ (23) (9) (32) 386 26 412 (76) 31 (45) Securities ........................ 875 92 967 1,589 406 1,995 (134) (44) (178) Loans, net of unearned income (1) . 1,154 (109) 1,045 6,039 873 6,912 3,546 637 4,183 ------ ----- ------ ------- ------ ------ ------ ---- ------ Total interest income ........... 2,035 (26) 2,009 8,016 1,316 9,332 3,316 633 3,949 ------ ----- ------ ------- ------ ------ ------ ---- ------ INTEREST BEARING LIABILITIES: Deposits: Savings and interest checking ..... $ 88 $(123) $ (35) $ 289 $ 662 $ 951 $ 222 $102 $ 324 Certificates of deposit of $100,000 or more .......................... (48) (12) (60) 452 132 584 121 10 131 Other time deposits ............... 383 151 534 1,925 1,057 2,982 433 39 472 ------ ----- ------ ------- ------ ------ ------ ---- ------ Total deposits .................. 423 16 439 2,666 1,851 4,517 776 151 927 Borrowed funds .................... 810 (8) 802 1,901 63 1,964 55 23 78 ------ ------ ------ ------- ------ ------ ------ ---- ------ Total interest expense .......... 1,233 8 1,241 4,567 1,914 6,481 831 174 1,005 ------ ------ ------ ------- ------ ------ ------ ---- ------ Net interest income ............... $ 802 $ (34) $ 768 $3,449 $ (598) $2,851 $2,485 $459 $2,944 ------ ----- ------ ------- ------ ------ ------ ---- ------
- - ------------- (1) Loan origination fees are considered adjustments to interest income. The Company's net interest income for the three months ended March 31, 1996 was $4,120,000, an increase of 22.9% over the $3,352,000 for the comparable 1995 period. The principal factor contributing to the increase in net interest income for the three months ended March 31, 1996 was an increase in interest income of $2,009,000 resulting from a substantial increase in loan volume, particularly commercial loans, offset by an increase in interest expense of $1,241,000 due to higher levels of time deposits and borrowed funds, higher costing funding sources. For the three-month period ended March 31, 1996 total interest income of $7,887,000 increased $2,009,000 or 34.2% as compared to the same period a year earlier. The increase in interest income is due to the higher volume of average loan and securities assets. Average loans and securities increased $50,087,000 and $57,480,000 or 24.3% and 85.8%, respectively, for the three months ended March 31, 1996 compared to the same 1995 period. The average yield on the loan portfolio decreased 21 basis points for the comparable period due to the Company's competitive marketplace. The average yield on the securities portfolio, conversely, increased 51 basis points. Interest on Federal funds sold decreased $32,000 for the three month period ended March 31, 1996 due to decreases in average balances of $1,667,000 and average yields of 65 basis points. Overall, the yield on the Company's interest earning assets decreased 27 basis points to 8.15% for the period ended March 31, 1996 from 8.42% for the three month period ended March 31, 1995 for the reasons discussed above. Total interest expense increased $1,241,000 or 49.1% to $3,767,000 for the three months ended March 31, 1996 compared to $2,526,000 reported for the three months ended March 31, 1995. The increase in interest expense for the comparable time periods is the result of a larger deposit base, higher market interest rates and significantly greater levels of borrowed funds. The average rate paid on interest bearing liabilities increased 33 basis points for the time period discussed. Deposit products continued to be competitively priced to increase the Bank's deposit base and provide a source of funds for asset growth. Average interest bearing liabilities amounted to $325,700,000 for the three months ended March 31, 1996 compared to $234,918,000 for the three months ended March 31, 1995. Increases in deposit account relationships, attributable in part to increased commercial loan activity and community presence, are reflected in the results. Average time deposits, a higher costing funding source, increased $24,396,000 of 23.2% for the first quarter of 1996 compared to the first quarter a year earlier. 18 Interest expense on borrowed funds increased significantly for the comparative time periods. Interest expense increased $802,000 during the first quarter of 1996 compared to the same period in 1995 as a result of significantly higher average balances. Through March 31, 1996 management has purchased investments utilizing repurchase agreements totaling approximately $59,000,000. FHLB advances totaled $15,000,000 through the first quarter of 1996 to provide liquidity and a source of funds for asset growth. The Company's total borrowed funds position at March 31, 1996 was $75,270,000 compared to $22,358,000 at March 31, 1995. Management's strategy, however, is to further build the Bank's core deposit base to fund asset growth and use borrowed funds to meet short term liquidity needs and as an additional source of funding for the loan and investment portfolios. The Company's net interest income totaled $14,495,000 in 1995, an increase of 24.5% from the $11,644,000 reported in 1994. The prior year's increase was 33.8% from 1993's net interest income of $8,700,000. The principal factor contributing to the increase in net interest income in 1995 was an increase in interest income of $9,332,000 due to a substantial increase in commercial loan volume offset by increases in deposits and borrowed funds and the related interest expense. The Company's average loan portfolio increased by 40.5% from $157,411,000 to $221,232,000 from December 31, 1994 to December 31, 1995. The yield on interest earning assets increased 50 basis points to 8.35% in 1995 from 7.85% in 1994. Interest expense was $12,841,000 in 1995, an increase of $6,481,000, or 101.9%, from the $6,360,000 in 1994. The increase in interest expense for the comparable time periods was the result of a larger deposit base, higher market interest rates and greater levels of borrowed funds, Specifically, average interest bearing liabilities increased 46.1% in 1995 compared to 1994. The cost of all interest bearing liabilities rose 129 basis points to 4.66% in 1995 from 3.37% in 1994. Deposit products, particularly time deposits, were competitively priced throughout 1995 to fund the commercial loan growth that was experienced. Net interest income was $11,644,000 in 1994, an increase of 33.8% from $8,700,000 in 1993. The increase resulted principally from a substantial increase in commercial loan volume. Average loans increased by 33.8% from 1993 to 1994 while the average cost of interest bearing liabilities rose only 14 basis points. The Company's net interest margin between yields on average interest earning assets and costs of average funding sources was 4.31% for the three months ended March 31, 1996 compared to 4.87% for the three months ended March 31, 1995. The net interest margin between yields on average interest earning assets and costs of average funding sources was 4.49% for the year ended 1995 versus 5.16% in 1994 and 4.51% in 1993. The decrease in the net interest margin in 1995 and 1996 was principally due to two factors. In the second half of 1995 management instituted a strategy to increase net interest income by purchasing investments using repurchase agreements. By year-end 1995 approximately $55,000,000 in investments had been purchased. The targeted spread on this strategy was 75 basis points after tax. This strategy, while successful in increasing net interest income, had a negative impact on the net interest margin. The increase in the cost of interest bearing liabilities compared to interest earning assets also accounted, in part, for the reduction in the net interest margin. Average interest earning assets exceeded interest bearing liabilities by $51,685,000 in 1995, $40,709,000 in 1994 and $29,122,000 in 1993. The ratio of average interest bearing liabilities to average interest earning assets increased from 82.2% in 1994 to 84.2% in 1995. Average non-interest bearing demand deposits increased 15.5% to $42,321,000 in 1995 from $36,634,000 in 1994. Throughout the comparative periods, increases in average non-interest bearing deposits contributed to the increase in net interest income because a larger portion of interest earning assets was being funded by non-interest bearing liabilities. Nonaccrual loans totaled $1,567,000 at December 31, 1995, a decrease of 9.1% from the $1,724,000 reported at December 31, 1994. Had such nonaccrual loans been paid in the manner and at the rate and time contracted at the time the loans were made, the Company would have recognized additional interest income of approximately $143,000 in 1995, $183,000 in 1994 and $226,000 in 1993. Moreover, the Company's net interest margin would have been .05% higher in 1995, .08% higher in 1994 and .12% higher in 1993. NON-INTEREST INCOME Non-interest income continues to be an important source of revenue for the Company. The major components of non-interest income are presented in the following table. 19
Three Months Ended March 31, (Unaudited) Year ended December 31, (in thousands) 1996 1995 1995 1994 1993 ---------------------------- ------ ------ -------- -------- -------- Service charges on deposit accounts $290 $270 $1,069 $932 $943 Other service fees 112 86 381 370 312 Gains (losses) on sales of mortgages, net -- (1) 19 92 354 Securities gains (losses), net (21) -- (91) (124) 294 Other non-interest income 129 119 477 284 287 ---- ---- ------ ------ ------ Total $510 $474 $1,855 $1,554 $2,190 ==== ==== ====== ====== ======
Non-interest income consists primarily of service charges on deposit accounts, gains on sale of mortgages and securities gains or losses. The Company also generates non-interest income from a variety of fee-based services. These include mortgage servicing fees, safe deposit box rentals and check fee income. Total non-interest income was $510,000 for the first three months of 1996 compared to $474,000 for the same period in 1995. The increase of $36,000 or 7.6% is attributable to increased service charge and other non- interest income offset by securities losses realized. Service charges on deposit accounts increased $20,000, or 7.4%, for the first three months of 1996 as compared to the same period a year earlier. The increase in service charge income was the product of a larger deposit base and the fee income associated with it. The Company realized $21,000 in net losses on the sale of securities, in the first quarter of 1996 versus no losses on the sale of securities, in the first quarter of 1995. Proceeds from securities sold were utilized to fund higher yielding commercial loan assets. Other non-interest income increased $36,000 or 17.6% in the first quarter of 1996 versus the first quarter of 1995. This increase was principally due to additional fee income derived from life insurance assets and increases in other fee income. For 1995, non-interest income totaled $1,855,000, an increase of $301,000, or 19.4%, from non-interest income of $1,554,000 for 1994. Non-interest income in 1994 decreased by $636,000, or 29.0% from 1993's reported total of $2,190,000. Service charges on deposit accounts have historically represented the largest single source of non-interest income. This continued to be the case in 1995, as such revenues totaled $1,069,000, an increase of 14.7%, compared to $932,000 in 1994. Service charge income totaled $943,000 in 1993. Service charge income increased in 1995 as the result of a larger account base and the fee income associated with it. This component of non-interest income represented 57.6%, 60.0% and 43.1% of the total non-interest income in 1995, 1994 and 1993, respectively. The Company's Product Development and Management Committee reviews and develops established and new deposit products and the service charges associated with them. Deposit services are repriced periodically to reflect current costs and competitive factors. Gains on sales of mortgages, net, decreased in 1995 to $19,000 from $92,000 and $354,000 in 1994 and 1993, respectively. Throughout the comparative time period mortgage banking activity was adversely impacted by reduced refinancing activity and higher mortgage rates. Gains on sales of mortgages, net, were 79.3% lower in 1995 compared to 1994. Gains on sales of mortgages, net, in 1993 reflected lower mortgage rates, which led to strong refinancing activity and greater income levels. The Company recorded net securities losses of $91,000 and $124,000 in 1995 and 1994, respectively. Sales of securities in 1993 resulted in net gains of $294,000. Net securities losses realized during 1995 and 1994 were the result of management's decision to reposition funds in the portfolio to improve yield and provide funds for loan growth. CMO's were sold in 1995 to reduce outstandings in this portion of the portfolio, providing funds for higher yielding loan assets. In the third quarter of 1993, management segregated its investment portfolio into two categories: available for sale and investment securities, in anticipation of the adoption of Statement of Financial Accounting Standards, No. 115 as of January 1, 1994. This segregation was followed in the fourth quarter of 1993 with the sale of several securities to establish the desired size of the available for sale portfolio and resulted in a net gain of approximately $221,000. 20 NON-INTEREST EXPENSE Total non-interest expense increased $300,000 or 11.9% to $2,818,000 for the first three months of 1996 compared to $2,518,000 for the first three months of 1995. The increase in non-interest expense is the result of increases in salaries and employee benefits and occupancy and equipment expense. Salaries and employee benefits were $1,581,000 for the first three months of 1996, an increase of $194,000 or 14.0% compared to the same three month period of 1995. The increase resulted from increased staffing required as the Company has grown for the comparable time periods and normal annual salary increases. Employee benefits also increased 16.4% for the comparable time periods. Full time equivalent staff increased to 151 at March 31, 1996 from 146 at March 31, 1995. Net occupancy expenses increased $56,000 or 34.1% for the first three months of 1996 as compared to the same period in 1995 as the result of significantly increased snow removal costs and the additional occupancy costs associated with new branch offices. Equipment expense increased $64,000 or 56.6% for the same period primarily due to increased depreciation costs associated with new furniture and fixtures in the Company's new branches and computer equipment. Other non-interest expenses totaled $840,000 for the three months ended March 31, 1996, a decrease of $14,000 or 1.6%, from the comparable 1995 period. The decrease in other non-interest expense is the result of eliminated FDIC insurance premiums offset by increases in professional fees, computer expenses and stationary and supplies costs associated with a growing branch network. Non-interest expense totaled $10,260,000 in 1995, an increase of $975,000, or 10.5%, compared to $9,285,000 in 1994. Non-interest expense in 1994 increased 10.2% from $8,423,000 in 1993. The increase in non-interest expense, for the comparative periods, is principally the result of increases in salaries and employee benefits and other non-interest expense. Salaries and employee benefits, which represent the largest portion of non-interest expense, recorded an increase in 1995 of $665,000 or 13.2% over 1994. Salaries and employee benefits in 1994 increased $703,000, or 16.3% over 1993. The increase in 1995 over 1994 primarily was the result of increased staffing associated with the opening of the Company's sixth and seventh branches, hiring of experienced lending professionals, expansion of the financial services division and normal annual salary increases. Full time equivalent employees increased to 147 at December 31, 1995 from 143 at December 31, 1994. The increase in 1994 over 1993 primarily was the result of increased staffing from the Company's fifth branch opening, hiring of experienced lending professionals, increased benefits costs and annual merit increases. Salaries and employee benefits as a percent of average assets were 1.7% in 1995 and 2.1% in 1994 and 1993, respectively. Net occupancy expense increased $115,000 to $726,000 in 1995 from $611,000 reported in 1994. The increase in occupancy expenses is the result of additional lease and building maintenance costs associated with two new branches (Lalor Street and East Windsor) in 1995 and a full year's expense on the Company's fifth branch (Ewing) which opened in the second quarter of 1994. This component of non-interest expense has remained constant as a percentage of average assets at 0.2% in 1995 and 0.3% in 1994 and 1993, respectively. Equipment expenses increased $47,000, or 10.1%, to $513,000 in 1995 from $466,000 in 1994. In 1994 equipment expenses decreased 4.5% from 1993. The increase in equipment expenses in 1995 was attributable to increased depreciation costs associated with new furniture and fixtures and computer equipment in the Company's new branches. Certain computer equipment was also purchased in 1995, as well, in preparation for the implementation of an in-house computer system planned in the first quarter of 1996 which resulted in additional depreciation expense. Other non-interest expenses were $3,328,000, $3,180,000 and $3,071,000 in 1995, 1994 and 1993, respectively. 21 The following table sets forth the components of other non-interest expense for the periods indicated: Three Months Ended March 31, Year Ended December 31, ---------------- ------------------------------ (unaudited) 1996 1995 1995 1994 1993 ------ ------ ------- -------- ------- (in thousands) FDIC insurance premium . $ -- $137 $ 290 $ 464 $ 488 O.R.E. expenses ........ 8 36 166 306 386 Stationery and supplies . 101 87 300 229 208 Computer services ...... 116 70 285 270 295 Insurance (other) ...... 21 27 93 119 169 Marketing .............. 117 117 479 415 280 Other .................. 477 380 1,715 1,377 1,245 ---- ---- ------ ------ ------ Total ............. $840 $854 3,328 $3,180 $3,071 ==== ==== ====== ====== ====== FDIC insurance premiums decreased by $174,000, or 37.5% in 1995 to $290,000 from $464,000 in 1994. FDIC insurance premiums totaled $488,000 in 1993. On January 31, 1995, the FDIC proposed to reduce the deposit insurance assessment rates of Bank Insurance Fund ("BIF") insured institutions, effective at the date the BIF fund reaches the required level of 1.25% of BIF-insured deposits. During 1995 the fund reached the 1.25% level. Premiums totaling approximately $168,000 were rebated to the Company on September 15, 1995. The Company's deposit insurance premium assessment was lowered from 23 basis points to 4 basis points effective for the fourth quarter of 1995. As defined by the FDIC, the Company is a well capitalized institution and under new FDIC guidelines first-half 1996 premiums have been eliminated. It is anticipated that premiums for the second half of 1996 will also be eliminated under current FDIC guidelines. Other real estate expenses decreased by $140,000, or 45.8% in 1995 to $166,000 from $306,000 in 1994. Other real estate expenses declined by 20.7% in 1994 compared to 1993. Throughout the comparative periods, management has effectively managed the level of other real estate owned and the expenses associated with loan workout and foreclosed properties. Computer expenses increased $15,000, or 5.6%, in 1995 to $285,000. These expenses were $270,000 in 1994, a decrease of $25,000, or 8.5%, from $295,000 in 1993. The increase in computer expenses in 1995 resulted from increased volume processing due to growth. The reduction in expense in 1994 compared to 1993 was the result of a renegotiated contract with the Company's computer servicer. Management has terminated its agreement with its computer servicer effective late February 1996 as the result of implementing a new in-house computer system. Marketing expenses increased by $64,000, or 15.4% in 1995 to $479,000, compared to $415,000 in 1994. Marketing expenses totaled $280,000 in 1993. The increase in marketing expenses for the comparative periods reflects the Company's emphasis on participation in community activities. To a lesser extent, expenses in this category have increased as the result of additional promotions in connection with branch openings. Other expenses, which include various professional fees, communication expense, postage expense and various loan related expenses, were $1,715,000 in 1995, an increase of $338,000, or 24.5%, from $1,377,000 in 1994. Other expenses totaled $1,245,000 in 1993. The increase in 1995 other expenses compared to 1994, in part, is attributable to attorney fees, consulting fees, and the processing of our mortgage system by a third party vendor to improve service quality and management flexibility. The Company's ratio of non-interest expense to average assets decreased to 3.0% for 1995 compared to 3.8% for 1994 and 4.0% for 1993. INCOME TAXES Income tax expense, which is comprised of Federal and state income taxes, was $1,822,000 in 1995 compared to $1,085,000 in 1994 and $733,000 in 1993. The increase was primarily the result of higher pre-tax income. The effective income tax rate was 34.9% for 1995, compared to 30.1% for 1994 and 29.7% for 1993. The increase in the effective tax rate for 1995 was the result of increased pre-tax earnings with a relatively constant level of tax-free income. 22 The Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109) as of January 1, 1993 and the cumultive effect of this change is reported in the 1993 Consolidated Statement of Income. The favorable cumulative effect at January 1, 1993 was $191,000. FINANCIAL CONDITION TOTAL ASSETS Total consolidated assets at March 31, 1996 totaled $421,917,000, an increase of $18,802,000 or 4.7%, compared to $403,115,000 at December 31, 1995. The Company's assets were $403,115,000 at year-end 1995 versus $280,550,000 the previous year, an increase of $122,565,000, or 43.7%. The growth in the Company's asset base throughout 1995 and during the first quarter of 1996 was, in part, the product of a strategy to improve the profitability of the organization through relationship banking and the origination of quality loans in the Company's marketplace. During the third and fourth quarters of 1995 total consolidated assets grew approximately $69,000,000, predominantly as the result of a strategy to purchase investments utilizing borrowed funds. At March 31, 1996 the Company's asset base includes investments of approximately $59,000,000 purchased since June 1995 utilizing repurchase agreements. The Company's ratio of average interest earning assets to average assets increased slightly to 95.0% at December 31, 1995 compared to 94.9% at December 31, 1994. The Company's ratio of average interest bearing liabilities to average assets increased from 78.0% at December 31, 1994 to 80.0% at December 31, 1995. SECURITIES Total securities decreased by $8,340,000 in the first three months of 1996 compared to year end 1995. The investment portfolio through the maturity and sales of U.S. Treasuries, calls of U.S. agency securities and principal paydowns from mortgage-backed securities provided funding for strong first quarter loan growth. At March 31, 1996 the amortized cost of investment securities classified as held to maturity was $34,576,000, compared to $35,384,000 at December 31, 1995, a decrease of $808,000 or 2.3% Net unrealized losses as of March 31, 1996 in the Company's available for sale securities portfolio were $737,000. Net unrealized losses of $443,000, net of tax effect, were reported as a reduction of stockholders' equity at March 31, 1996. The available for sale portfolio was $91,674,000 at March 31, 1996, and represented 73% of the entire investment portfolio and provides a secondary source of liquidity. The Company's securities portfolio represented $133,853,000 or 33.2% of assets at December 31, 1995 versus $63,235,000, or 22.5%, at December 31, 1994. On an average basis, the securities portfolio represented 29.8% of average interest earning assets for the year ended December 31, 1995 compared to 30.5% of average interest earning assets for 1994. In the second half of 1995, approximately $55,000,000 in available for sale securities were purchased utilizing repurchase agreements to increase net interest income. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), was adopted by the Company on January 1, 1994. This statement requires the classification of securities into one of three categories: held to maturity, available for sale or trading. Available for sale securities are reported at fair market value with unrealized gains and losses, net of tax, included as a separate component of stockholders' equity. At March 31, 1996 and December 31, 1995, the Company held all of its securities in either the held to maturity or available for sale categories. There are no securities designated for trading. 23 The following table represents the book and market values of the Company's securities available for sale portfolio at March 31, 1996 and December 31, 1995 and 1994.
March 31, December 31, ------------------ --------------------------------------------------------------------- (in thousands) 1996 (1) 1995 (1) 1994 (1) 1993 ------------------ ------------------- -------------------- -------------------- Amortized Market Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value Cost Value U.S. Treasury and other federal agencies $14,751 $14,653 $17,795 $17,823 $6,366 $6,150 $ 3,011 $ 3,042 Mortgage--backed securities 74,398 73,759 78,725 78,874 18,358 16,755 22,442 22,623 Federal Reserve Bank stock 550 550 512 512 173 173 -- -- Federal Home Loan Bank stock 1,975 1,975 1,260 1,260 1,074 1,074 -- -- ------- ------- ------- ------- ------- ------ ------- ------- Total $91,674 $90,937 $98,292 $98,469 $25,971 $24,152 $25,453 $25,665 ======= ======= ======= ======= ======= ======= ======= =======
- - ------------ (1) Securities available for sale as of March 31, 1996 and December 31, 1995 are marked to market with an adjustment to stockholders' equity, net of income tax, in accordance with SFAS No. 115. The securities available for sale portfolio increased to $98,469,000 at December 31, 1995 from $24,152,000 at December 31, 1994. The large increase is due primarily to the purchase of securities utilizing repurchase agreements. Securities available for sale are held for indefinite periods of time and may be sold due to changing market and interest rate conditions as part of the Company's asset/liability management strategy. As of December 31, 1995 available for sale securities represented 73.6% of the entire portfolio. This portfolio is principally comprised of mortgage-backed securities issued by Federal agencies, U.S. Treasury and other agency securities, providing a secondary source of liquidity for the Company. The followng table represents the book and market values of the Company's securities portfolio classified as held to maturity at March 31, 1996 and at December 31, 1995 and 1994.
March 31, December 31, -------------------- ----------------------------------------------------------------- (in thousands) 1996 1995 1994 1993 -------------------- ------------------- ------------------ --------------------- Amortized Market Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value Cost Value --------- ------ --------- ------ --------- ------ --------- ------ Obligations of State and political subdivisions $ 8,623 $ 8,552 $8,630 $ 8,659 $ 8,392 $ 7,777 $ 7,410 $ 7,503 Mortgage--backed securities 25,953 25,229 26,754 26,378 30,691 27,972 35,675 35,193 Federal Reserve Bank Stock -- -- -- -- -- -- 132 132 ------- ------- ------- ------- ------- ------- ------- ------- Total $34,576 $33,781 $35,384 $35,037 $39,083 $35,749 $43,217 $42,828 ======= ======= ======= ======= ======= ======= ======= =======
Investment securities classified as held to maturity totaled $34,576,000 at March 31, 1996 and $35,384,000 at December 31, 1995 compared to $39,083,000 at December 31, 1994. This portfolio is comprised of mortgage- backed securities and state and municipal securities. The average balance of tax-exempt securities amounted to $8,624,000 for the three months ended March 31, 1996, an increase of 3.6% from the average for the year ended December 31, 1995. The average balance of tax-exempt securities amounted to $8,321,000 for the year ended December 31, 1995, as compared to $8,237,000 for the year ended December 31, 1994. The Company's profitability has increased the value of owning tax-exempt securities. 24 The following table shows the maturities and weighted average yields for the securities available for sale portfolio at amortized cost at March 31, 1996. Yields on tax-exempt securities are presented on a tax equivalent basis assuming a 34% Federal tax rate.
March 31, 1996 ------------------------------------------------------------------- After one After five Within but within but within After one year five years ten years ten years Total ---------- ------------ ------------ ----------- --------- (Dollars in thousands) U.S. Treasury Securities and obligations of other government agencies .......... $5,750 $ 9,001 $ -- $ -- $14,751 Mortgage-backed securities ............. 6 2,698 8,967 62,727 74,398 Federal Reserve Bank Stock ............. -- -- -- 550 550 Federal Home Loan Bank Stock ........... -- -- -- 1,975 1,975 ------ ------- ------ ------- ------- Total ................................. $5,756 $11,699 $8,967 $65,252 $91,674 ====== ======= ====== ======= ======= Weighted average yield, computed on a tax equivalent basis ...................... 5.95% 5.76% 7.00% 7.16% 6.89% ====== ======= ====== ======= =======
Investments in mortgage-backed securities involve prepayment and reinvestment risk. In a period of decreasing interest rates, the underlying mortgages which collateralize the mortgage-backed securities have a tendency to prepay more rapidly, resulting in an accelerated payback of principal to the Company. Reinvestment risk is a resultant risk to the Company as the Company is required to reinvest the cash proceeds into lower yielding instruments which in turn can compress the Company's net interest margin. In periods of increasing interest rates, the underlying mortgages which collateralize the mortgage-backed securities have a tendency to prepay more slowly, resulting in longer security average lives and less cash available from paydowns to reinvest in a higher interest rate environment. The Company attempts to minimize these risks by diversifying the coupons of the mortgage-backed securities, buying seasoned securities with consistent and predictable prepayment histories and adhering to strict pricing policies when purchasing mortgage-backed securities. Collateralized mortgage obligations ("CMOs") totaled approximately $5,900,000 at March 31, 1996. The CMOs in the investment portfolio are agency named and were generally purchased with original average lives of two to four years. At March 31, 1996, the Company held no private label or corporate CMOs. Stress tests are performed on a semi-annual basis to assess prepayment speeds and their impact on the average lives and yields on those securities. All CMO's at March 31, 1996 were held in the available for sale category. 25 The maturities and weighted average yields for investment securities classified as held to maturity were as follows at March 31, 1996.
March 31, 1996 ------------------------------------------------------------------- After one After five Within but within but within After one year five years ten years ten years Total ---------- ------------ ------------ ----------- --------- (Dollars in thousands) Obligations of State and political subdivisions ....................... $-- $ 3,100 $4,988 $ 535 $ 8,623 Mortgage-backed securities .......... -- 17,382 -- 8,571 25,953 --- ------- ------ ------ ------- Total ............................... $-- $20,482 $4,988 $9,106 $34,576 === ======= ====== ====== ======= Weighted average yield, computed on a tax equivalent basis ............... -- 5.23% 4.69% 6.53% 5.50% === ======= ====== ====== =======
LOAN PORTFOLIO The continued growth in the Company's loan portfolio is a result of management's emphasis on establishing relationships, service, and taking advantage of opportunities associated with consolidation in the banking industry, particularly in the Company's markets. Total loans, net of unearned discounts, increased by $17,864,000, or 7.3%, to $262,918,000 at March 31, 1996 from $245,054,000 at December 31, 1995. During 1995, total loans increased by $48,144,000, or 24.4% to $245,054,000 at December 31, 1995 from 196,910,000 at December 31, 1994. The Company's loan portfolio represented 62.3% of assets at March 31, 1996, 60.8% of assets at December 31, 1995, and 70.2% of assets at December 31, 1994. The following table sets forth the components of the Company's loan portfolio for the periods indicated.
December 31, March 31, -------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 --------------- --------------- ---------------- ------------- -------------- ------------- Amount % Amount % Amount % Amount % Amount % Amount % -------- -- --------- --- -------- --- -------- --- -------- --- -------- --- (Dollars in thousands) Real estate -- mortgage: Residential . $ 75,196 28.6% $ 73,076 29.8% $ 60,156 30.5% $ 35,283 26.1 % $37,632 35.2 % $41,375 44.4 % Commercial . 91,947 35.0% 73,164 29.8 49,186 25.0 32,517 24.1 13,559 12.7 9,219 9.9 Home equity . 25,343 9.6% 26,951 11.0 29,388 14.9 30,107 22.3 28,648 26.8 26,427 28.4 Commercial and agricultural 34,310 13.0% 33,218 13.6 26,626 13.5 17,642 13.1 14,822 13.8 1,612 1.7 Real estate -- construction 17,748 6.8% 19,353 7.9 15,560 7.9 9,742 7.2 5,250 4.9 7,741 8.3 Consumer ..... 11,656 4.4% 12,386 5.1 10,934 5.6 7,440 5.5 6,287 5.9 6,063 6.5 Other loans .. 6,718 2.6% 6,906 2.8 5,060 2.6 2,252 1.7 795 0.7 737 0.8 ------- ------ -------- ----- -------- ------ -------- ------ -------- ----- ------- ----- Total loans . $262,918 100.0% $245,054 100.0% $196,910 100.0% $134,983 100.0 % $106,993 100.0 % $93,174 100.0 % ======= ====== ======== ===== ======== ====== ======== ====== ======== ===== ======= =====
The Company's lending focus over the past few years has been centered on commercial loans, owner- occupied commercial mortgage loans and tenanted commercial real estate loans. In underwriting such loans, the Company first evaluates the cash flow capability of the borrower to repay the loan. In addition, a substantial majority of commercial loans are also secured by real estate, business assets and guarantees. The Company makes commercial loans primarily to small to medium sized businesses and professionals. 26 The Company showed positive results throughout its loan portfolio for the three months ended March 31, 1996 as a result of management's emphasis on customer service and relationships and taking advantage of opportunities associated with consolidation in the banking industry, particularly in the Company's markets. On a component basis, for the three month period ended March 31, 1996, commercial loan balances increased 3.3%. Real estate -- commercial mortgages and real estate -- residential mortgages increased 25.6% and 2.9%, respectively, for the first quarter of 1996. The increase in actual dollars in these loans since year end 1995 is $18,744,000 and $2,179,000, respectively. The increase in real estate-mortgage loans in the first quarter was reflective of lower mortgage rates early in 1996. Consumer loan balances decreased 6.0% through the first three months of 1996. Real estate-residential loans are primarily comprised of residential mortgage loans and business loans secured by residential real estate. This portion of the loan portfolio totaled $75,196,000 at March 31, 1996 and $73,076,000 at December 31, 1995. Residential mortgage loans represented $49,335,000, or 65.6%, of the total at March 31, 1996. The Company's residential mortgage loans are secured by first liens on the underlying real property. At March 31, 1996 approximately 32.5% of the residential mortgage loan portfolio had fixed interest rates and 67.5% had adjustable interest rates. The home equity portfolio totaled $25,343,000 or 9.6% of the Company's loan portfolio at March 31, 1996. The home equity portfolio totaled $26,951,000 or 11.0% of the Company's loan portfolio at December 31, 1995. The home equity portfolio has provided significant operating income to the Company with controllable delinquencies and minimal losses. Real estate-commercial loans increased $18,783,000, or 25.7%, to $91,947,000 at March 31, 1996 from $73,164,000 at December 31, 1995. Real estate commercial loans increased by $23,978,000 or 48.7%, in 1995 from $49,186,000 at December 31, 1994. The Company's lending policies require an 80% or lower loan-to-value ratio for commercial real estate mortgages. Collateral values are established based upon independently prepared appraisals. Generally these loans are secured by owner-occupied properties and are part of a broader commercial lending relationship. Commercial and agricultural loans increased by $1,092,000, or 3.3%, to $34,310,000 at March 31, 1996 from $33,218,000 at December 31, 1995. Commercial and agricultural loans increased by $6,592,000, or 24.8%, at December 31, 1995 from $26,626,000 at December 31, 1994 . Real estate construction loans declined $1,605,000 to $17,748,000 at March 31, 1996 from $19,353,000 at December 31, 1995 after increasing by $3,793,000 from $15,560,000 at December 31, 1994. Real estate construction loans represented 6.8% of the total loan portfolio at March 31, 1996 . The Company makes loans to finance primarily the construction of residential and, to a limited extent, non-residential properties. Construction loans generally are secured by first liens on real estate and have floating interest rates. These loans are closely monitored with advances made only after work is completed and independently inspected and verified by qualified professionals. The Company makes automobile, motorcycle, personal and other loans to consumers. Consumer loans decreased to $11,656,000 at March 31, 1996 from $12,386,000 at December 31, 1995. Consumer loans totaled $10,934,000 at December 31, 1994. 27 The following table provides information concerning the maturity and interest rate sensitivity of the Company's commercial and agricultural loan and real estate-construction loan portfolios for the periods presented. March 31, 1996 ------------------------------------------------- After One After Within But Within Five One Year Five Years Years Total ---------- ------------ -------- --------- (in thousands) Maturities: Commercial and agricultural ....... $22,427 $10,263 $1,620 $34,310 Real estate -- construction ....... 17,748 -- -- 17,748 ---------- ------------ -------- --------- Total .............. $40,175 $10,263 $1,620 $52,058 ========== ============ ======== ========= Type: Fixed rate loans ..... $ 240 $10,263 $1,620 $12,123 Floating rate loans .. 39,935 -- -- 39,935 ---------- ------------ -------- --------- Total .............. $40,175 $10,263 $1,620 $52,058 ========== ============ ======== ========= December 31, 1995 ------------------------------------------------- After One After Within But Within Five One Year Five Years Years Total ---------- ------------ ------- ---------- (in thousands) Maturities: Commercial and agricultural ....... $ 22,449 $ 9,888 $ 881 $33,218 Real estate -- construction ....... 19,353 -- -- 19,353 ---------- ------------ ------- ---------- Total .............. $ 41,802 $ 9,888 $ 881 $52,571 ========== ============ ======= ========== Type: Fixed rate loans ..... $ 770 $ 9,888 $ 881 $11,539 Floating rate loans .. 41,032 -- -- 41,032 ---------- ------------ ------- ---------- Total .............. $ 41,802 $ 9,888 $ 881 $52,571 ========== ============ ======= ========== The loan maturity table is based upon original loan terms and is not adjusted for "rollovers." In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount, at interest rates prevailing at the date of renewal. As of March 31, 1996, there was no concentration of loans to any one type of industry exceeding 10% of total loans, except for loans to non-residential builder operators (which represented 12.3% of total loans), nor were there any loans classified as highly leveraged transactions. 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 real estate market. NONPERFORMING ASSETS Nonperforming assets consist of nonperforming loans and other real estate owned. In accordance with the adoption of SFAS No. 114, loans previously classified as insubstance foreclosures have been reclassified to nonperforming loans for all periods presented. Nonperforming loans are composed of (1) loans on a nonaccrual basis, (2) loans which are contractually past due 90 days or more as to interest and principal payments but have not been classified as nonaccrual and (3) loans whose terms have been restructured to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. The Company's policy with regard to nonaccrual loans varies by the type of loan involved. Generally, commercial loans are placed on a nonaccrual status when they are 90 days past due unless they are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal and interest is in doubt. Consumer loans are generally charged off after they 28 become 90 days past due. Mortgage loans are not generally placed on a nonaccrual basis unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists. Subsequent payments are credited to income only if collection of principal is not in doubt. The Corporation adopted the provisions of SFAS No. 114 and SFAS No. 118 effective January 1, 1995. All loans receivable have been evaluated for collectibility under the provisions of these statements. The Corporation has defined the population of impaired loans to be all nonaccrual commercial loans. Impaired loans are individually assessed to determine that the loan's carrying value is not in excess of the fair value of the collateral or the present value of the loan's expected cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, including residential mortgage and consumer loans, are specifically excluded from the impaired loan portfolio. The recorded investment in loans receivable for which an impairment has been recognized and the related allowance for loan losses were $1,320,000 and $175,000, respectively, at March 31, 1996, and $1,291,000 and $184,000, respectively at December 31, 1995, of the total investment in impaired loans of March 31, 1996, $1,280,000 had related allowance for credit losses of $175,000 and the remaining $40,000 had no related allowance for credit losses. The average recorded investment in impaired loans during 1995 was $1,322,000. There was no interest income recognized on impaired loans in 1995 or for the quarter ended March 31, 1996. At March 31, 1996 nonperforming loans, totaled $2,413,000. Nonperforming loans totaled $2,819,000 at December 31, 1995, an increase of 36.4% or $753,000 from the $2,066,000 amount reported at December 31, 1994. The increase is primarily attributable to the increase in the Company's loan portfolio. The following table sets forth nonperforming assets and risk elements in the Company's loan portfolio by type for the periods indicated.
December 31, March 31, ----------------------------------------------------- 1996 1995 1994 1993 1992 1991 ----------- -------- -------- -------- -------- -------- (unaudited) (in thousands) Nonaccrual loans: Commercial and agricultural $ -- $ -- $ -- $ -- $ 34 $ 101 Real estate -- mortgage .. 1,728 1,395 1,203 1,764 2,651 3,037 Real estate -- construction 66 142 521 480 1,514 2,798 Consumer ................. -- 30 -- 17 17 65 ----------- -------- -------- -------- -------- -------- Total .................. $1,794 $1,567 $1,724 $2,261 $4,216 $6,001 ----------- -------- -------- -------- -------- -------- Restructured Loan ............. $ -- $ 612 $ -- $ -- $ -- -- Loans 90 days or more past due: Commercial and agricultural 2 -- -- -- 1 95 Real estate -- mortgage .. 586 588 326 209 388 1,644 Real estate -- construction -- -- -- -- -- -- Consumer ................. 31 52 16 3 14 151 ----------- -------- -------- -------- -------- -------- Total .................. 619 640 342 212 403 1,890 ----------- -------- -------- -------- -------- -------- Total nonperforming loans ..... 2,413 2,819 2,066 2,473 4,619 7,891 ----------- -------- -------- -------- -------- -------- Other real estate ........ 659 625 314 1,393 1,107 1,229 ----------- -------- -------- -------- -------- -------- Total nonperforming assets .... $3,072 $3,444 $2,380 $3,866 $5,726 $9,120 =========== ======== ======== ======== ======== ========
Total nonperforming assets decreased to $3,072,000 at March 31, 1996 compared to $3,444,000 at year end 1995. Nonperforming assets as a percentage of total loans were 1.17% at March 31, 1996. The decline in nonperforming assets is reflective of an active strategy to reduce those assets and improve asset quality. Management remains committed to improving asset quality. Nonperforming assets increased $1,064,000, or 44.7%, to $3,444,000 at December 31, 1995 compared to $2,380,000 at December 31, 1994. The increase in nonperforming assets is primarily attributable to one loan 29 totaling approximately $1,000,000 moved into nonaccrual status in 1995. This loan is currently in the process of being restructured. Nonperforming assets represented 0.85% of total assets at December 31, 1995 and 1994. Nonaccrual loans were $1,794,000, or 0.7% of total loans, at March 31, 1996. Nonaccrual loans were $1,567,000, or 0.6% of total loans, at December 31, 1995, a decrease of 9.1% from $1,724,000, or 0.9% of total loans, at December 31, 1994. Had interest income on nonaccrual loans at March 31, 1996 and 1995 and December 31 of each year been paid in the manner and at the rate and time contracted at the time that each loan was made, the Company would have earned additional interest income of $35,000 and $45,000 during the three months ended March 31, 1996 and 1995, respectively, and $143,000, $183,000 and $226,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Loans that were 90 days or more past due but still accruing interest at March 31, 1996 totaled $619,000, or 0.2% of total loans. At December 31, 1995, loans that were 90 days or more past due but still accruing interest totaled $640,000, or 0.3% of total loans, compared to $342,000, or 0.2% of total loans, at December 31, 1994. Management's decision to accrue income on these loans was based on the level of collateral and the status of collection efforts. The Company's restructured loan totaled $612,000 at December 31, 1995. Prior to 1995 there were no restructured loans for the years presented. This represents one loan, which is being paid in compliance with restructured terms and conditions. At March 31, 1996 Other Real Estate (O.R.E.) totaled $659,000, $625,000 at December 31, 1995 and $314,000 at December 31, 1994. O.R.E. represented 0.3% of total loans at March 31, 1996 and 0.3% of total loans at December 31, 1995 and is reflective of an active strategy to liquidate these assets and re-employ the proceeds in the Company's loan portfolio. 30 ALLOWANCE FOR LOAN LOSSES Management utilizes a systematic and documented allowance adequacy methodology for loan losses that requires specific allowance assessment for all loans including residential real estate mortgage and consumer loans. This methodology assigns reserves based upon credit risk ratings for specific loans and general reserves for all other loans. The general reserves are based on various factors including historical performance and the current economic environment. On a quarterly basis, management reviews all criticized credits as reported by the loan review officer and monitors weekly all commercial loan and mortgage, residential and consumer delinquencies. Management continually reviews the process utilized to determine the adequacy of the allowance for loan losses. The following table presents, for the periods indicated, an analysis of the allowance for loan losses and other related data.
Three Months Ended March 31, Year ended December 31, --------------------- -------------------------------------------------------- (unaudited) 1996 1995 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ ------ ------ (Dollars in thousands) Allowance balance, beginning of period ... $ 3,677 $ 2,912 $ 2,912 $ 2,703 $ 2,940 $ 3,310 $ 1,812 Charge offs: Commercial, financial and agriculture . -- -- -- (47) -- (291) (1,567) Real estate -- mortgage ............. -- -- (26) (51) (222) (42) (175) Real estate -- construction ......... (34) -- (30) (25) (45) (270) -- Consumer ............................ (62) (24) (153) (83) (84) (101) (204) -------- -------- ------- -------- -------- ------- -------- Total charge offs ................. $ (96) $ (24) $ (209) $ (206) $ (351) $ (704) $ (1,946) ======== ======== ======= ======== ======== ======= ======== Recoveries: Commercial, financial and agriculture . $ -- $ -- $ -- $ 20 $ 21 $ 135 $ 23 Real estate -- mortgage ............. -- 37 64 43 37 20 5 Real estate -- construction ......... -- -- -- -- -- -- -- Consumer ............................ 12 16 45 47 56 129 177 -------- -------- ------- -------- -------- ------- -------- Total recoveries .................. 12 53 109 110 114 284 205 -------- -------- ------- -------- -------- ------- -------- Net recoveries (charge offs) ............. (84) 29 (100) (96) (237) (420) (1,741) Provision charged to operations .......... 265 180 865 305 -- 50 3,239 -------- -------- ------- -------- -------- ------- -------- Allowance balance, end of period ......... $ 3,858 $ 3,121 $ 3,677 $ 2,912 $ 2,703 $ 2,940 $ 3,310 ======== ======== ======= ======== ======== ======= ======== Loans, end of period ..................... $262,918 $216,297 $245,054 $196,910 $134,983 $106,993 $ 93,174 Average loans outstanding ................ $256,001 $205,914 $221,232 $157,411 $117,671 $ 93,245 $103,590 Ratio of allowance for loan losses to total loans, end of period ................... 1.47% 1.44% 1.50% 1.48% 2.00% 2.75% 3.55% Ratio of net charge offs (recoveries) to average loans outstanding ...................... 0.03% (0.01)% 0.05% 0.06% 0.20% 0.45% 1.68% Nonperforming loans to total loans ....... 0.92% 0.98% 1.15% 1.05% 1.83% 4.32% 8.47% Nonperforming assets to total loans and other real estate owned (period end) ......... 1.17% 1.12% 1.40% 1.21% 2.83% 5.30% 9.66% Ratio of allowance for loan losses to nonperforming assets, end of period .... 125.59% 128.70% 106.77% 122.35% 69.92% 51.34% 36.29% Ratio of allowance for loan losses to nonperforming loans, end of period ..... 159.88% 147.98% 130.44% 140.95% 109.30% 63.65% 41.95%
The Company provides for possible loan losses by a charge to current operations to maintain the allowance for loan losses at an adequate level determined according to management's documented allowance adequacy methodology. The provision for loan losses for the three months ended March 31, 1996 was $265,000, reflective of the continued substantial growth in the loan portfolio. The provision for loan losses for 1995 was $865,000. This compares to a provision of $305,000 in 1994 and no provision in 1993. It is management's assessment that the allowance for possible loan losses is adequate in relation to credit risk exposure levels. The allowance for loan losses increased to $3,858,000, or 1.47% of total loans and 125.6% of nonperforming assets, at March 31, 1996. At December 31, 1995, the allowance for loan losses totaled $3,677,000, an increase of $765,000, or 26.3%, from $2,912,000, at December 31, 1994. The ratio of allowance for loan losses to total loans was 1.50% and 1.48% at December 31, 1995 and 1994, respectively. Another measure of the allowance for loan losses is the ratio of the allowance to total nonperforming loans. This ratio was 159.9% at March 31, 1996, 130.4% at December 31, 1995, and 140.9% at December 31, 1994. 31 The Company had net charge offs of $84,000 for the three months ended March 31, 1996. The Company's gross charge offs in 1995 totaled $209,000, compared with $206,000 in 1994 and $351,000 in 1993. Losses on loans and loans which are determined to be uncollectible are charged against the allowance and subsequent recoveries, if any, are credited to it. The Company's gross recoveries totaled $109,000 in 1995 compared with $110,000 in 1994 and $114,000 in 1993 as a result of collection efforts. The balance of the allowance for possible loan losses is determined by an overall analysis of the loan portfolio and reflects an amount which, in management's judgment, is adequate to provide for potential loan losses. Management has established the necessary steps to identify potential credit problems in its loan portfolio by strengthening lending policies and improving loan and credit administration. Management reviews all criticized loans on a quarterly basis. Allocations to the allowance for loan losses, both specific and general, are determined after this review. Loans are classified as "satisfactory, special mention, substandard, doubtful and loss." Loan classifications are based on internal reviews and evaluations performed by the lending staff. These evaluations are, in turn, examined by the Company's internal loan review officer. The following tables describe the allocation for loan losses among various categories of loans and certain other information as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future loan losses may occur. The total allowance is available to absorb losses from any segment of loans.
March 31, 1996 December 31, 1995 December 31, 1994 ---------------------------------- ---------------------------------- ------------------------------- Percent of Percent of Percent of Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans ------- ---------- ------------ ------- ---------- ----------- ------- ---------- ----------- (Dollars in thousands) Domestic: Commercial, financial and agricultural $ 653 16.9% 13.0% $ 983 26.7% 13.6% $1,137 39.0% 13.5% Real estate -- mortgage ... 2,186 56.7 73.2 1,816 49.4 70.6 1,152 39.6 70.4 Real estate -- construction 784 20.3 6.8 664 18.1 7.9 398 13.7 7.9 Consumer ...... 156 4.1 4.4 132 3.6 5.1 141 4.8 5.6 Other loans ... 79 2.0 2.6 82 2.2 2.8 84 2.9 2.6 ------ ----- ----- ------ ----- ----- ------ ----- ----- Totals ....... $3,858 100.0% 100.0% $3,677 100.0% 100.0% $2,912 100.0% 100.0% ====== ===== ===== ====== ===== ===== ====== ===== ===== December 31, 1993 December 31, 1992 December 31, 1991 ---------------------------------- ---------------------------------- ------------------------------- Percent of Percent of Percent of Reserve Percent of Loans to Reserve Percent of Loans to Reserve Percent of Loans to Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans ------- ---------- ------------ ------- ---------- ----------- ------- ---------- ----------- (Dollars in thousands) Domestic: Commercial, financial and agricultural $ 933 34.5% 13.1% $1,002 34.1% 14.1% $ 351 10.6% 1.8% Real estate -- mortgage ... 1,415 52.3 72.5 1,443 49.1 75.2 1,712 51.7 84.2 Real estate -- construction 237 8.8 7.2 204 6.9 4.0 1,112 33.6 6.5 Consumer ...... 86 3.2 5.5 73 2.5 6.0 99 3.0 6.7 Other loans ... 32 1.2 1.7 218 7.4 0.7 36 1.1 0.8 ------ ----- ----- ------ ----- ----- ------ ----- ----- Totals ....... $2,703 100.0% 100.0% $2,940 100.0% 100.0% $3,310 100.0% 100.0% ====== ===== ===== ====== ===== ===== ====== ===== =====
32 DEPOSITS The Company's deposit base is the principal source of funds supporting interest earning assets. The Company offers a full range of deposit products, including demand deposits, savings deposits, insured money market accounts and certificates of deposit. The Company's overall philosophy of building and maintaining long-term customer relationships is the key to further expanding the Company's deposit base, which, in turn, presents opportunities for the Company to cross-sell its services. Total deposits amounted to $310,482,000 at March 31, 1996 compared to $302,972,000 at December 31, 1995, an increase of 2.5%. The amount at December 31, 1995 represented an increase of 16.8% from $259,296,000 at December 31, 1994. In 1995, the Company's deposit base grew primarily through the competitive pricing of certificates of deposit to help fund loan growth. Growth in the deposit base through March 31, 1996, continued in certificates of deposit and premium money market accounts, both higher cost funding sources. The following table provides information concerning average rates and average balances of deposits for the periods indicated:
Year Ended December 31, Three Months Ended -------------------------------------------------------------------------- March 31, 1996 1995 1994 1993 ------------------- ----------------------- ---------------------- ----------------------- (Dollars in thousands) % of % of % of % of Balance Rate Total Balance Rate Total Balance Rate Total Balance Rate Total ------- ---- ----- ------- ---- ----- ------- ---- ----- ------- ---- ----- Non-interest bearing demand deposits ....... $ 46,390 -- % 15.19% $ 42,321 -- % 14.88% $ 36,634 -- % 16.43% $ 31,082 -- % 15.84% Interest bearing demand deposits . 21,759 2.61 7.12 21,236 2.77 7.46 16,346 2.01 7.33 14,827 2.01 7.55 Savings deposits . 107,481 3.09 35.20 101,793 3.46 35.78 96,893 2.92 43.45 90,351 2.80 46.03 Time deposits ... 129,742 5.61 42.49 119,158 5.60 41.88 73,103 4.25 32.79 60,029 4.17 30.58 -------- ---- ------ -------- ---- ------ -------- ---- ------ -------- ---- ------ Total .......... $305,372 3.66% 100.00% $284,508 3.79% 100.00% $222,976 2.81% 100.00% $196,289 2.72% 100.00% ======== ==== ====== ======== ==== ====== ======== ==== ====== ======== ==== ======
The average balance of non-interest bearing demand deposits for the three months ended March 31, 1996 was $46,390,000, an increase of $4,069,000, or 9.6%, from $42,321,000 during 1995. The 1995 amount represented an increase of $5,687,000, or 15.5%, from $36,634,000 during 1994. Non-interest bearing demand deposits represent a stable, interest free source of funds. The increase in demand deposits is a contributing factor in the growth of net interest income. Average interest bearing demand, savings and time deposits increased 2.5%, 5.6% and 8.9%, respectively, from December 31, 1995 to March 31, 1996. Average interest bearing demand, savings and time deposits increased 29.9%, 5.1% and 63.0%, respectively, from 1994 to 1995. Total average time deposits, which consists of certificates of deposit and individual retirement accounts, increased $10,584,000, or 8.9%, to $129,742,000 for the three months ended March 31, 1996 as compared to $119,158,000 in 1995. Total average time deposits increased $46,055,000 to $119,158,000 from $73,103,000 in 1994. The "Always Win CD" was introduced in early 1995 to help fund loan growth, particularly commercial mortgages. Competitively priced, this product offered a two or three year maturity with automatic increases in the interest rate at the midpoint to maturity if the current rate is higher. This product accumulated approximately $34,400,000 in funds by year-end 1995. The average rate paid on the Company's deposits decreased to 3.66% at March 31, 1996. The average rate paid on the Company's deposit balances in 1995 was 3.79%, a 34.9% increase from the 2.81% average rate for 1994. Reflective of 1995's higher interest rate environment, depositors shifted their funds to higher-yielding certificates of deposit and premium money market accounts, both higher cost funding sources, resulting in the increase in the average rate paid on deposits. 33 The following table details amounts and maturities for certificates of deposit of $100,000 or more for the periods indicated: March 31, December 31, ---------- ----------------------- 1996 1995 1994 ---------- --------- --------- (in thousands) Maturity Range: Within three months .......... $ 3,473 $ 3,095 $13,178 After three but within six months 2,658 3,323 1,232 After six but within twelve months 5,820 5,890 6,029 After twelve months .......... 3,161 2,713 1,735 ---------- --------- --------- Total ...................... $15,112 $15,021 $22,174 ========== ========= ========= Certificates of deposit of $100,000 or more totaled $15,112,000 or 4.9% of deposits, at March 31, 1996 compared to $15,021,000, or 5.0% of deposits, at December 31, 1995 and $22,174,000, or 8.6% of deposits, at December 31, 1994. Approximately $11,000,000 of the growth experienced in 1994 was in short term certificates of deposit issued to a local municipality in the fourth quarter of 1994. From time to time the Company will bid on short term municipal certificates of deposit for liquidity purposes. The Company has not purchased deposits through wholesale deposit brokers, preferring to rely on more stable core deposits to support growth. Core deposits, which exclude deposits of $100,000 or more, represented 95.1% of total deposits at March 31, 1996, 95.0% of total deposits at December 31, 1995 and 91.4% at December 31, 1994. BORROWED FUNDS Borrowed funds consist of securities sold under agreements to repurchase, Federal Home Loan Bank of New York (FHLB) advances, Federal funds purchased, treasury tax and loan deposits and other forms of short-term borrowings. Management utilizes, from time to time, two unsecured Federal funds lines of credit with two of its correspondent banks for daily funding needs. Borrowed funds totaled $75,270,000 at March 31, 1996 compared to $65,221,000 at December 31, 1995 and 1,215,000 at December 31, 1994. The growth in the first quarter of 1996 was due to the increase of $4,225,000 in repurchase agreements and an additional $5,000,000 in FHLB advances to strengthen short term liquidity and support core deposits in funding balance sheet growth. At March 31, 1996 the Company had $15,000,000 outstanding in FHLB advances all with a maturity of less than 1 year. The Company used FHLB advances in 1995 in order to meet particularly strong commercial loan demands. Repurchase agreements totaling approximately $55,000,000 during 1995 were used as part of a strategy to increase net interest income through the investment portfolio. Borrowed funds averaged $33,339,000 in 1995, an increase of $31,091,000 from the average reported in 1994 of $2,248,000. At year-end 1995 there was $10,000,000 in outstanding borrowings with the FHLB and no outstanding borrowings from the Company's correspondents. Management will continue to strategically utilize borrowed funds to meet short-term liquidity needs and as an additional source of funding for the loan and investment portfolios. LIQUIDITY The Company has an Asset/Liability Committee (ALCO) whose function is to monitor and coordinate all activities relating to the maintenance of liquidity and protection of net interest income from fluctuations in market interest rates. Liquidity management refers to the Company's ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality and availability of funding affect a bank's ability to meet its liquidity needs. Principal sources of liquidity are deposit generation, maturities and repayment of loans, Federal funds sold and securities available for sale. 34 The Company has the availability to borrow up to $16,000,000 from the FHLB through its line of credit program. In addition, the bank is eligible to borrow up to 30% of assets under the FHLB advance program subject to FHLB stock level requirements, collateral requirements and individual advance proposals based on FHLB credit standards. Yardville also has the ability to borrow at the Federal Reserve discount window along with agreements to use two unsecured federal funds lines of credit with two of its correspondent banks for daily funding needs. Management's strategy, however, is to further build the bank's core deposit base to fund asset growth and use borrowed funds to meet short term liquidity needs and as an additional source of funding for the loan and investment portfolios. At March 31, 1996 and December 31, 1995, the Company had a total of $57,967,000 and $58,554,000, or 13.7% and 16.7%, respectively, of total assets (excluding securities purchased utilizing repurchase agreements) in cash and cash equivalents, interest bearing deposits, and marketable government and government agency securities available for sale. This compares to a total of $35,099,000 or 17.5% of its assets, in such assets at December 31, 1994. Securities provide cash flow through maturities and periodic repayments of principal. The available for sale portfolio is of high credit quality which enhances marketability and therefore liquidity. The Company's security credit quality remained a source of strength, as government and agency obligations, with their about triple A rating represented 84.9% of the entire securities portfolio (excluding securities purchased utilizing repurchase agreements) at March 31, 1996. These assets represent the Company's primary source of liquidity. The Company's liquidity position is enhanced by a stable core deposit base, built on management's philosophy of establishing and maintaining long-term customer relationships, which totaled 95.1% of total deposits at March 31, 1996, 95.0% of total deposits in 1995, and 91.4% of total deposits in 1994. There were approximately $22,000,000 in lines of credit available for general corporate purposes, at March 31, 1996. FEDERAL FUNDS At March 31, 1996 Federal funds sold totaled $7,470,000, an increase of $4,675,000 as compared to $2,795,000 at December 31, 1995. Federal funds sold levels reflect management's desire to maintain adequate short term liquidity funds. INTEREST RATE SENSITIVITY The objectives of interest rate risk management are to reduce, minimize, and, to the degree possible, control the effect of interest rate fluctuations on net interest income. The ALCO manages the interest rate sensitivity or repricing characteristics of the Company's assets and liabilities. A traditional form of asset/liability management is the static gap report. The static gap categorizes interest bearing assets and liabilities by repricing or maturity characteristics. These static measurements do not reflect the results of any projected activity. On a cumulative basis, as of March 31, 1996 and December 31, 1995, more of the Company's liabilities than assets repriced in the three month, six month and one year periods. 35 As shown below interest rate sensitivity to interest rate fluctuations is measured in a number of time frames.
March 31, 1996 ----------------------------------------------------------------------------------------------- After six After Within After three months one year three months but but within but within After five Non-interest months within six months one year five years years sensitive(1) Total --------- ----------------- ------------ ------------ ---------- ------------ ------- (Dollars in thousands) INTEREST EARNING ASSETS: Federal funds sold and interest bearing deposits ............... $ 11,624 $ -- $ -- $ -- $ -- $ -- $ 11,624 Available for sale securities(2) . 14,665 2,169 16,260 11,700 44,356 2,524 91,674 Investment securities ........... -- -- -- 20,482 14,094 -- 34,576 Loans, net of unearned income ... 102,852 3,803 11,076 107,202 36,326 1,659 262,918 -------- -------- -------- -------- ------- ------- -------- Total interest earning assets .. $129,141 $ 5,972 $ 27,336 $139,384 $94,776 $ 4,183 $400,792 ======== ======== ======== ======== ======= ======= ======== INTEREST BEARING SOURCES: Portion of non-interest bearing funding sources used to fund earning assets ................. $ -- $ -- $ -- $ -- $ -- 64,071 $ 64,071 Savings and interest checking ... 131,618 -- -- -- -- -- 131,618 Certificates of deposit of $100,000 or more ........................ 3,473 2,658 5,820 3,161 -- -- 15,112 Other time deposits ............. 20,963 23,974 16,854 52,843 87 -- 114,721 Borrowed funds .................. 34,470 5,000 12,000 23,800 -- -- 75,270 -------- -------- -------- -------- ------- ------- -------- Total funding sources .......... $190,524 $ 31,632 $ 34,674 $ 79,804 $ 87 $ 64,071 $400,792 ======== ======== ======== ======== ======= ======= ======== Interest rate sensitivity gap ... $(61,383) $(25,660) $ (7,338) $ 59,580 $94,689 $(59,888) Ratio of rate sensitive assets to rate sensitive liabilities ..... 0.68 0.19 0.79 1.75 -- 0.07 Cumulative interest rate sensitivity gap ............................ $(61,383) $(87,043) $(94,381) $(34,801) $59,888 $ -- Ratio of cumulative rate sensitive assets to rate sensitive liabilities .................... 0.68 0.61 0.63 0.90 1.18 1.00
- - ------ (1) Non-interest sensitive includes assets and liabilities that do not earn or pay interest, such as nonaccrual loans, overdrafts and demand deposits. (2) Available for sale securities are included in the above table at amortized cost. Note: No effect is given to prepayments in the amounts included above. 36 At March 31, 1996, the Company's twelve month cumulative gap position was negative $94,381,000. Over the next twelve months, $94,381,000 more liabilities are eligible to reprice than assets, indicating a liability sensitive position. A liability sensitive gap may indicate an exposure to earnings if interest rates increase. However, the Company's deposits that reprice within one year are predominantly core savings, NOW and money market deposits that are bank administered. Historically, these accounts have been much less volatile than the prime and Fed funds rates, which to a large degree effect earning asset yields. Therefore, management believes the gap position may overstate the actual risk to earnings over the next twelve month period. To analyze the potential future effect on earnings of its market sensitive assets and less rate sensitive core deposit accounts, management utilizes a simulation model to project levels of net interest income under various interest rate environments and balance sheet structures. The "base case" scenario uses the current balance sheet strategy and tests the income effects of flat interest rates, rising rates of 3% and falling rates of 3% over a twelve month period. Management has established guidelines to limit the amount that net interest income can vary within these rate ranges. An analysis of the Company's gap position at March 31, 1996 indicates that the Company's net interest income will not be materially negatively affected under this base case scenario. The use of simulation models assists management in its continuing effort to develop strategies to produce consistent earnings growth in changing interest rate environments.
December 31, 1995 ----------------------------------------------------------------------------------------------- After six After Within After three months one year three months but but within but within After five Non-interest months within six months one year five years years sensitive(1) Total --------- ----------------- ------------ ------------ ---------- ------------ ------- (Dollars in thousands) INTEREST EARNING ASSETS: Federal funds sold and interest bearing deposits ............... $ 3,828 $ -- $ -- $ -- $ -- $ -- $ 3,828 Available for sale securities(2) . 50,625 5,123 2,663 10,973 27,136 1,772 98,292 Investment securities ........... -- -- -- 21,026 14,358 -- 35,384 Loans, net of unearned income ... 101,957 5,462 10,162 99,478 26,497 1,498 245,054 -------- -------- -------- -------- ------- ------- -------- Total interest-earning assets .. $156,410 $ 10,585 $ 12,825 $131,477 $67,991 $ 3,270 $382,558 ======== ======== ======== ======== ======= ======= ======== FUNDING SOURCES: Portion of non-interest bearing funding sources used to fund earning assets ......................... -- -- -- -- -- 61,047 61,047 Savings and interest checking ... 127,490 -- -- -- -- -- 127,490 Certificates of deposit of $100,000 or more ........................ 3,095 3,323 5,890 2,713 -- -- 15,021 Other time deposits ............. 19,700 20,373 21,221 52,410 75 -- 113,779 Other borrowed funds ............ 29,421 -- 17,000 18,800 -- -- 65,221 -------- -------- -------- -------- ------- ------- -------- Total funding sources .......... $179,706 $ 23,696 $ 44,111 $ 73,923 $ 75 $ 61,047 $382,558 ======== ======== ======== ======== ======= ======= ======== Interest rate sensitivity gap ... $(23,296) $(13,111) $(31,286) $ 57,554 $67,916 $(57,777) Ratio of rate sensitive assets to rate sensitive liabilities .......... 0.87 0.45 0.29 1.78 -- 0.05 Cumulative interest rate sensitivity gap ............................ $(23,296) $(36,407) $(67,693) $(10,139) $57,777 $ -- Ratio of cumulative rate sensitive assets to rate sensitive liabilities .................... 0.87 0.82 0.73 0.97 1.18 1.00
- - ------ (1) Non-interest sensitive includes assets and liabilities that do not earn or pay interest, such as nonaccrual loans, overdrafts and demand deposits. (2) Available for sale securities are included in the above table at amortized cost. Note: No effect is given to prepayments in the amounts included above. 37 STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY Total stockholders' equity increased $646,000, or 2.0%, to $32,363,000 at March 31, 1996 from $31,717,000 at December 31, 1995. This increase resulted primarily from earnings of $992,000 (less dividends of $258,000). Warrants to purchase 526,950 shares of Common Stock were outstanding at March 31, 1996. 8,259 shares of Common Stock were issued upon exercise of Warrants during the first quarter. The exercise price of the Warrants is calculated at 120% of consolidated book value ($16.21 until June 13, 1996) as defined and as determined as of the calendar quarter immediately preceding the notice of exercise. All Warrants will expire on June 13, 1996. Stockholders' equity at December 31, 1995 totaled $31,717,000 compared to $18,451,000 at December 31, 1994. This represents an increase of $13,266,000 or 71.9%. This increase resulted from (i) earnings of $3,403,000 (less dividend payments of $738,000) and a positive equity adjustment of $1,198,000 for the unrealized gain on securities available for sale, (ii) net proceeds of $7,918,000 for the Company's underwritten public offering, (iii) proceeds of $202,000 from exercised options and (iv) proceeds of $1,283,000 from warrants exercised that were issued in connection with the Company's 1993 Private Placement Capital Offering and 1994 Shareholders' Rights Offering. Coinciding with the Company's underwritten public offering on June 14, 1995, the Common Stock began trading in the NASDAQ National Market under the symbol "YANB," increasing liquidity for the Company's stockholders. As a result of the Company's performance, the common stock cash dividend was increased from $0.09 a share to $0.10 per share for the last two quarterly dividend payments in 1995 and to $0.11 for the two dividend payments made in 1996. The Company is subject to minimum risk-based and leverage capital guidelines issued by the Federal Reserve Board and Comptroller of the Currency. The measurement of risk-based capital takes into account the credit risk of both balance sheet assets and off-balance sheet exposures. These guidelines require minimum risk-based capital ratios of 4% for Tier 1 capital and 8% for total capital (Tier 1 plus Tier 2). In addition, the current minimum regulatory guideline for the Tier 1 leverage ratio is 3.0%. The Company continues to meet the regulatory requirements as shown by the chart below for the periods indicated: December 31, ------------------------------ March 31, 1996 1995 1994 1993 --------------- ------ ------ ------ Tier 1 leverage ratio .... 7.8% 7.8% 7.0% 6.4% Tier 1 risk-based ........ 11.4% 12.0% 9.6% 9.4% Total risk-based ......... 12.7% 13.2% 10.8% 10.6% The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) established five capital level designations ranging from "well capitalized" to "critically undercapitalized." A bank is considered "well capitalized" if it has minimum Tier 1 and total risk-based capital ratios of 6% and 10%, respectively, and a minimum Tier 1 leverage ratio of 5%. See Supervision and Regulation -- Capital Rules RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ", was issued by the FASB in March 1995. SFAS 121 requires that a review for impairment be performed whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. In performing the review for 38 recoverability, the Corporation should estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Management believes that the implementation of SFAS 121 will not have a material impact on the consolidated financial statements of the Corporation. Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights," was issued by the FASB in May 1995. This statement amends SFAS 65, "Accounting for Certain Mortgage Banking Activities." This statement eliminates the accounting distinction between originated and purchased mortgage servicing rights. In addition, guidance is provided for a consistent structure in measuring impairment of mortgage servicing rights. SFAS 122 is effective for fiscal years beginning after December 15, 1995. Management believes that the implementation of SFAS 122 will not have a material impact on the consolidated financial statements of the Corporation. Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," was issued by the FASB in October 1995. SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion 25, Accounting for Stock Issued to Employees. Entities electing to remain with accounting in Opinion 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in this Statement has been applied. SFAS 123 is effective for fiscal years beginning after December 15, 1995. Management anticipates that it will elect to remain with the accounting of Opinion 25 for the employee and director stock option plans and provide the pro forma disclosures required by SFAS 123. 39 MANAGEMENT The Company's Board of Directors presently consists of twelve directors, one-third (as nearly as practicable) of whom, under the Company's Restated Certificate of Incorporation and By-Laws, are to be elected annually to serve for a term of three years. The following table sets forth the name, age and term of office of each director and executive officer of the Company and the Bank and the business experience of these individuals during the past five years. The executive officers are appointed to their respective offices annually. All directors of the Company also serve as directors of the Bank. Unless otherwise indicated, the principal occupation listed for a director has been his principal occupation for more than the past five years.
Director or Year Term Name, Age and Principal Occupations Officer as Director Position with Company During Past Five Years Since Expires ------------------------------- --------------------------------------------- --------------- --------------- C. West Ayres, 68 Director ..................... President, Ayres Pontiac-Cadillac Company, Inc. (car sales) 1978 1999 Jay G. Destribats, 61 Chairman ..................... Partner, Destribats, Campbell, DeSantis, Magee and O'Donnell (counselors at law) 1990 1999 Gilbert W. Lugossy, 60 Director ..................... Member, New Jersey State Parole Board (April 1990 to present); formerly, Mercer County, New Jersey Sheriff (1977-1990) 1991 1999 Weldon J. McDaniel, Jr., 69 Director (1) ................. Technical Assistant-Engineering, USX Corporation (March 1993 to present); formerly Designer, Orbital Engineering, Inc. (March 1990 to March 1993) 1986 1999 Lorraine Buklad, 60 Director ..................... Funeral Director, President of Buklad Memorial Homes, Hamilton Township and Yardville, New Jersey 1988 1997 Edward M. Hendrickson, 84 Director ..................... Retired for more than five years; formerly self-employed farmer 1961 1997 William J. Steiner, Jr., 71 Director .................... Retired for more than five years; formerly Educator with Pemberton Township Board of Education 1985 1997 John C. Stewart, 85 Vice-Chairman (1) ............ Retired for more than five years; formerly self-employed real estate developer and insurance broker 1966 1997 Anthony M. Giampetro, 59 Director ..................... Physician, private practice 1994 1998
- - ------ (1) John C. Stewart is Weldon J. McDaniel, Jr.'s father-in-law. 40
Director or Year Term Name, Age and Principal Occupations Officer as Director Position with Company During Past Five Years Since Expires ------------------------------- --------------------------------------------- --------------- --------------- Elbert G. Basolis, Jr., 34 President, CFO and Owner of Aqua Control Inc.; 1996 1998 Executive Vice President of Garrison Enterprises, Inc.; Vice President, CFO and owner of South Jersey Wiping Cloth Co.; CFO and owner of Trans Continental Trading Patrick M. Ryan, 51 President and Chief President and Chief Executive Officer of the Company 1992 1998 Executive Officer ............ and the Bank, October 1992 to present; employed by the Bank since November 7, 1991; previously a bank officer with Howard Savings Bank (April 1989 to October 1991) F. Kevin Tylus, 41 Director ..................... Vice-President and CEO for Prudential HealthCare 1992 1998 Group (July 1995 to present) Formerly Vice President and Chief Operating Officer for Eastern Mercy Health System (September 1992 to July 1995); formerly, Management Consulting partner with Deloitte & Touche (November 1984 to September 1992) Stephen F. Carman, 39 Secretary and Treasurer ...... Secretary and Treasurer of the Company and Executive 1992 -- Vice President and Chief Financial Officer of the Bank (December 1992 to present); employed by the Bank since February 1979 James F. Doran, 52 First Senior Vice President .. First Senior Vice President and Senior Loan Officer 1992 -- of the Bank (December 1994 to present); officer of the Bank (December 1992 to December 1994); Vice President of Howard Savings Bank (April 1989 to December 1992) Frank Durand, III, 45 Senior Vice President ........ Senior Vice President and Bank Administrator 1988 -- Richard A. Kauffman, 49 Senior Vice President ........ Senior Vice President and Controller of the Bank 1989 -- (March 1995 to present); Senior Vice President and Auditor of the Bank (April 1991 to March 1995); Senior Vice President of Operations of the Bank (January 1989 to April 1991)
41
Director or Year Term Name, Age and Principal Occupations Officer as Director Position with Company During Past Five Years Since Expires ------------------------------- --------------------------------------------- --------------- --------------- Mary C. O'Donnell, 48 First Senior Vice President .. First Senior Vice President, Credit 1992 -- Administration, of the Bank (September 1992 to present); Vice President, Credit Administration, of the Bank (November 1991 to September 1992); Vice President, First Fidelity Bank (May 1991 to September 1991)
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS Directors' Compensation For fiscal year 1995, Jay G. Destribats was paid $90,000 as a retainer salary for his services as Chairman. Mr. Destribats will be paid a salary of $120,000 in 1996 for his service as Chairman pursuant to a two-year employment contract. Under the employment agreement, Mr. Destribats will devote a substantial amount of time to the Company and the Bank as Chairman of the Board of each. The Bank also has entered into a Salary Continuation Plan for the benefit of Mr. Destribats on terms comparable to the plan for Mr. Ryan discussed below, but with a normal retirement date at age 70 on March 27, 2005. Non-employee directors of the Company (which includes all directors other than Mr. Destribats and Mr. Ryan) are paid $100 for each Company Board of Directors meeting attended which is not held on the same day that a Bank Board meeting is held. Non-employee directors are paid a fee of $600 per Bank Board meeting. Non-employee directors are also paid $150 for attending each committee meeting of the Board of Directors of the Company or the Bank ($200 in the case of the chairman of such meeting). When committee meetings are held on the same day, only one fee is paid to each such director who attends such meetings. In addition, the Company in 1995 paid premiums in the amount of $6,743 for health insurance for Ms. Buklad and Messrs. Hendrickson and Stewart. The aggregate compensation paid to non-employee directors in 1995 was $80,243. In 1996, non-employee directors will be paid an annual retainer fee of $1,600 in addition to normal Board and committee fees. Director fees and retainers for the Company and the Bank are not paid to directors who are also full time officers of the Bank or the Company. Pursuant to a deferred compensation plan that became effective on January 1, 1995, non-employee directors are allowed to defer all or a portion of their annual fees and retainers. The Company matched each director's deferral at a rate $0.25 per dollar deferred. Effective January 1, 1996, the Company will match each director's deferral at a rate of $0.50 per dollar deferred. The cost to the Company for 1995 was approximately $7,800. If a participant ceases to be a director for any reason, such participant will at that time be entitled to receive from the Company the aggregate amount of his or her deferred fees and retainers and the Company's matching contributions, plus earnings on such amount at an annual rate which may vary from year to year. The rate is based upon the prime rate and is adjusted annually. The total amount to which any participating director will be entitled will depend upon several factors, including the number of years of participation and the amount of fees and retainers earned and deferred. In 1994, the Company's Board of Directors adopted the Yardville National Bancorp 1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan is to be administered by a committee (the "1994 Plan Committee") of not less than two employee directors of the Company. Presently, Mr. Destribats and Mr. Ryan constitute the 1994 Plan Committee. Under the 1994 Plan, the 1994 Plan Committee may grant options to purchase up to 40,000 shares of Common Stock in the aggregate to non-employee directors of the Company. The purchase price per share under each option shall be determined by the 1994 Plan Committee but may not be less than 100% of the fair market value of a share of Common Stock on the date of grant. The 1994 Plan provides for adjustment of the number of shares subject to the 1994 Plan and the number of shares that may be purchased and the purchase price under each outstanding option in the event of any changes in the outstanding Common Stock by reason of 42 stock dividends, stock splits, mergers, recapitalizations and similar events. The 1994 Plan Committee has discretion to establish the term and vesting schedule for each option, although the term may not exceed ten years and the 1994 Plan provides that options generally will vest during a period of up to five years after the date of grant. On April 27, 1994, the 1994 Plan Committee granted to each non-employee director of the Company an option to purchase up to 3,200 shares of Common Stock (32,000 shares in the aggregate) at a purchase price of $8.75 per share. Each option was exercisable in full immediately upon the grant. At the time of grant, the number of shares that could be purchased by exercise of each option would be reduced in installments of up to 800 shares in each of the twelve-month periods ending on April 26 in 1995 through 1998 if and to the extent that the option had not been exercised to purchase such installment of 800 shares by the end of such period. In addition, on June 12, 1996, a director was granted options to purchase 3,200 shares at $15.75 per share. Each option was exercisable in full immediately upon the grant. At the time of the grant the number of shares that could be purchased by exercise of each option would be reduced in installments of up to 800 shares in each twelve-month period ending on June 11, 1997 through 2000 if and to the extent that the option had not been exercised to purchase such installment of 800 shares by the end of such period. Options to purchase 13,714 shares were outstanding and exercisable as of July 15, 1996. Executive Officers' Compensation Summary Compensation Table. The following table sets forth compensation paid or allocated with respect to the years ended December 31, 1995, 1994 and 1993 for services rendered in all capacities to the Company and its subsidiaries by the President and Chief Executive Officer of the Company, the only executive officer whose aggregate salary and bonus exceeded $100,000 in any of such years:
Long Term Compensation Annual Compensation Awards ---------------------- --------------------- Name and Principal Securities Underlying All Other Position Year Salary($) Bonus($)(1) Options(2) (#) Compensation($)(3) -------------------------- ------ --------- ---------- ---------------------- ----------------- Patrick M. Ryan, President 1995 150,000 68,060 0 2,250 and CEO of the Company 1994 133,330 50,665 40,000 2,007 1993 130,000 19,380 0 1,500
- - ------ (1) Paid in the fiscal year following the fiscal year for which they are reported. (2) Represents options to acquire Common Stock granted to Mr. Ryan pursuant to the Yardville National Bancorp 1988 Stock Option Plan. (3) Represents the Company's contribution under its 401(k) plan for Mr. Ryan's benefit. Employees of the Company and the Bank are eligible to receive options to purchase Common Stock pursuant to the Yardville National Bancorp 1988 Stock Option Plan (the "1988 Plan"). The 1988 Plan is to be administered by a committee (the "1988 Plan Committee") of not less than two directors of the Company, none of whom may be granted options under the 1988 Plan while they serve on the 1988 Plan Committee. Under the 1988 Plan, the 1988 Plan Committee may grant options to purchase up to 164,000 shares of Common Stock in the aggregate. The purchase price per share under each option shall be determined by the 1988 Plan Committee but may not be less than 100% of the fair market value of the Common Stock on the date of grant (110% in the case of options granted to a person who on the date of grant owns more than 10% of the Common Stock). The 1988 Plan provides for adjustment of the number of shares subject to the 1988 Plan and the number of shares that may be purchased and the purchase price under each outstanding option in the event of any changes in the outstanding Common Stock by reason of stock dividends, stock splits, mergers, recapitalizations and similar events. The 1988 Plan Committee has discretion to establish the term and vesting schedule for options, although the term may not exceed ten years (five years in the case of an option granted to a person who owns more than 10% of the Common Stock on the date of grant) and the 1988 Plan provides that options generally will vest during a period of up to five years after the date of grant. Options to purchase 85,579 shares were outstanding and exercisable as of July 15, 1996. Employment Contracts The Company employs Patrick M. Ryan as President and Chief Executive Officer of the Bank and as President and Chief Executive Officer of the Company under an employment contract that became effective as of 43 October 28, 1994. Mr. Ryan is employed for the period of 27 months commencing October 28, 1994, and the contract automatically renews for successive 12-month periods thereafter unless either of the parties gives notice to the contrary. The employment contract provides for an annual base salary of $150,000, which salary will be reviewed and may be adjusted annually by the Board of Directors. In addition, Mr. Ryan will receive a cash performance bonus equal to 2% of profits of the Company, after taxes, when such profits are $2,000,000 or higher. Mr. Ryan is also entitled to participate in any employee benefit plan established by the Company or the Bank and is eligible for the use of an automobile. Mr. Ryan has also been granted certain stock options under the employment contract. The employment contract may be terminated with or without cause (as defined in the employment contract). In the event the employment contract is terminated by the Company, other than for death, disability or cause, within three years after a Change in Control (as defined below), or by Mr. Ryan, other than for death or disability, within six months after a Change in Control, Mr. Ryan will be entitled to receive an amount equal to three times his annual salary at the time of such termination in a lump sum promptly after the occurrence of such termination. If the Company terminates the employment contract other than for disability, death or cause, and in the absence of a Change in Control, Mr. Ryan will be entitled to receive a lump-sum payment upon termination equal to the amount that would have been payable to him at his then current annual salary for the remainder of the contract term. For purposes of the Mr. Ryan's employment contract, the term "Change in Control" means: (i) the acquisition by any person or group acting in concert of the beneficial ownership of 40% or more of any class of equity security of the Company, or (ii) the approval by the Board of Directors of the Company of the sale of all or substantially all of the assets of the Bank or the Company, or (iii) the approval by the Board of Directors of the Company of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i) or (ii) above. The Bank has entered into a Salary Continuation Plan for the benefit of Mr. Ryan, dated October 28, 1994, whereby the Bank has agreed to make monthly payments to Mr. Ryan or his designated beneficiary upon the termination of his employment in certain circumstances and subject to certain conditions, as described below, based upon the amount of his annual salary at the time of termination (the "Final Annual Salary"). If Mr. Ryan continues to be an employee of the Bank until his normal retirement date upon the attainment of age 65, which date is June 21, 2009, Mr. Ryan may thereafter retire and he or his designated beneficiary will be entitled to receive a monthly payment equal to (i) 50% of the Final Annual Salary divided by (ii) 12 (the "Monthly Retirement Payment"), payable for a period of 180 months or for his life, if longer. In addition, during the 180 month period following retirement, Mr. Ryan has agreed to be an independent contractor/consultant to the Bank for a reasonable fee to be mutually agreed upon and paid by the Bank to Mr. Ryan for his consulting services. During this 180 month period, Mr. Ryan has also agreed to be subject to certain prohibitions on competition with the Bank. If Mr. Ryan becomes totally disabled, as determined by the Bank, while he is an employee of the Bank, and his employment terminates, the Bank will continue to pay Mr. Ryan for six months. Thereafter, if Mr. Ryan remains disabled, the Bank will continue his final salary in equal monthly installments until Mr. Ryan attains age 65. Any amount paid by the Bank after the initial six month period will be reduced on a dollar-for-dollar basis by any payment received by Mr. Ryan under the Bank's long-term disability insurance policies. This disability payment will commence the first month after such termination and continue until Mr. Ryan recovers from such disability, reaches the age of 65, or dies, whichever occurs first. If such disability continues beyond June 21, 2009, Mr. Ryan will then be entitled to the Monthly Retirement Payment as described above. If Mr. Ryan terminates his employment with the Bank or if the Bank terminates Mr. Ryan's employment for any reason other than disability prior to June 21, 2009, the Bank will make 180 monthly payments to Mr. Ryan commencing June 21, 2009. Each payment will be in an amount equal to one-twelfth of the product obtained by multiplying (a) 50% of the Final Annual Salary by (b) a fraction, the numerator of which is the number of full years between the date of the Salary Continuation Plan and the date of termination of Mr. Ryan's 44 employment and the denominator of which is the number of full years between the date of the Salary Continuation Plan and June 21, 2009. The foregoing will not apply, however, if the Bank terminates Mr. Ryan's employment because he has committed an act which exposes the Bank to economic harm or damages the reputation or good will of the Bank. In the event of a change of control of the Bank, (i.e., acquisition of at least 40% of the Bank by an entity or individual that is not currently a stockholder of the Company), if Mr. Ryan either resigns from his position with the Bank or if his employment is terminated for any reason, which termination shall be deemed to have occurred if Mr. Ryan's responsibilities are diminished or assumed by another individual, then Mr. Ryan or his designated beneficiary will be entitled to receive the Monthly Retirement Payment as described above without reduction on account of termination prior to June 21, 2009. If Mr. Ryan dies before June 21, 2009, commencing with the first month following his death and continuing for 179 months thereafter, the Bank shall pay the Monthly Retirement Payment to Mr. Ryan's named beneficiary as described above. Option Exercises in Last Fiscal Year and Year-End Option Values. The following table sets forth the aggregate stock options exercised by the Chief Executive Officer during the fiscal year ended December 31, 1995:
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at FY-End (#) FY-End ($) ----------------- ------------------ Shares Acquired Value Exercisable(E)/ Exercisable(E)/ Name on Exercise(#) Realized($) Unexercisable(U) Unexercisable(U) ---------------- --------------- ----------- ----------------- ------------------ (E) (U) (E) (U) Patrick M. Ryan . 7,350 87,998 50,000 0 376,500 0
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION The Organization and Compensation Committee of the Company's Board of Directors is responsible for establishing annual compensation and long-term compensation plans for executive officers of the Company. In 1995, the Organization and Compensation Committee consisted of Mr. Destribats, who is an employee director and Mr. Ryan, who is an officer of the Company and Messrs. McDaniel Jr. and Hendrickson. Samuel E. Proctor served as a member of the Organization and Compensation Committee in 1995 from January 1, 1995 to August 31, 1995. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Destribats, the Chairman of the Board of the Company and Chairman of the Organization and Compensation Committee, is a partner in the law firm of Destribats, Campbell, DeSantis, Magee and O'Donnell. The firm performed general legal services for the Bank during 1995 and continues to perform such services in 1996. In 1995, Destribats, Campbell, DeSantis, Magee and O'Donnell was paid $36,724 by the Bank for its services. In 1994, Destribats, Campbell, DeSantis and Magee were paid $27,600 by the Bank for its services. Certain directors and officers of the Company and their associates are or have been in the past customers of and have had transactions with the Bank, and it is expected that such persons will continue to have such transactions in the future. The aggregate extension of credit to directors, officers, and their associates as a group was approximately $3.6 million as of December 31, 1995. All deposit accounts, loans, and commitments comprising such transactions were made in the ordinary course of business of the Bank on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and, in the opinion of management of the Company and the Bank, did not involve more than normal risks of collectibility or present other unfavorable features. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Section 14A:3-5 of the New Jersey Business Corporation Act, as amended, and the Restated Certificate of Incorporation of the Company provide for indemnification of the Company's directors and officers against 45 claims, liabilities, amounts paid in settlement and expenses in a variety of circumstances. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth the beneficial ownership of the Common Stock as of July 15, 1996 by each person who is known by the Company to beneficially own 5% or more of the Common Stock, each director and the Chief Executive Officer of the Company and all directors and executive officers of the Company and the Bank as a group. All shares of a named person are deemed to be subject to that person's sole voting and investment power unless otherwise indicated. Shares subject to stock options are excluded except to the extent such options are exercisable within 60 days. All directors and the Chief Executive Officer have an address c/o Yardville National Bancorp, 3111 Quakerbridge Road, Trenton, New Jersey 08619.
Number of Shares Percent of Beneficially Common Stock Name of Beneficial Owner Owned(1) (2) ----------------------------------------------------------------- -------------- -------------- C. West Ayres ................................................... 39,225(3) 1.62% Elbert G. Basolis, Jr. .......................................... 8,200(4) * Lorraine Buklad ................................................. 63,178(5) 2.60 Jay G. Destribats ............................................... 26,316(6) 1.08 Anthony M. Giampetro ............................................ 34,326(7) 1.41 Edward M. Hendrickson ........................................... 91,198(3)(8) 3.76 Gilbert W. Lugossy .............................................. 5,371(3) * Weldon J. McDaniel, Jr. ......................................... 42,604(3)(9) 1.75 Patrick M. Ryan ................................................. 63,525(10) 2.62 William J. Steiner, Jr. ......................................... 13,732 * John C. Stewart ................................................. 28,813(3) 1.19 F. Kevin Tylus .................................................. 7,300(3) * Anthony J. Filiti and A.B. Management Services of New Jersey, Inc. 147,000(11) 6.05 Directors and Executive Officers of the Company as a group (17 persons) ................................................... 461,138(12) 18.98
- - ------ * Less than 1%. (1) The number of beneficially owned shares includes shares over which the named person, directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, has or shares (1) voting power, which includes the power to vote, or direct the voting of, such security; or (2) investment power, which includes the power to dispose, or to direct the disposition of, such security. It also includes shares owned by any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership of a security or preventing the vesting of such beneficial ownership. It also includes shares subject to options that are exercisable within 60 days after July 15, 1996. (2) The number of shares subject to options that are held by each person and are or will be exercisable within sixty days after July 15, 1996 are deemed outstanding for purposes of computing the percentage ownership of such person. The number of shares subject to options that are held by directors and executive officers as a group and are or will be exercisable within sixty days after July 15, 1996 are deemed outstanding for purposes of computing the aggregate percentage ownership of such persons. (3) Includes in each case 1,600 shares issuable upon exercise of options held by the person named which were granted pursuant to the Company's 1994 Stock Option Plan (the "1994 Plan"). (4) Includes 3,200 shares issuable upon exercise of options held by Mr. Basolis under the 1994 Plan. 46 (5) Includes 914 shares issuable upon exercise of options held by Ms. Buklad under the 1994 Plan. (6) Includes 10,000 shares issuable upon exercise of options held by Mr. Destribats under the Company's 1988 Stock Option Plan (the "1988 Plan"). (7) Includes 13,126 shares held in the name of Anthony M. Giampetro, M.D., custodian for Anthony Giampetro, John Giampetro and Celeste Giampetro, under Pennsylvania Uniform Gift to Minors Act, 8,000 shares held in the name of Bellarmino-Giampetro Profit Sharing Fund, 11,800 shares held in the name of Bellarmino-Giampetro Pension Voluntrary Contribution, and 1,400 shares issuable upon exercise of options held by Mr. Giampetro under the 1994 Plan. (8) Includes 5,860 shares held by Mr. Hendrickson's spouse (as to which Mr. Hendrickson disclaims beneficial ownership) and 11,356 shares held by the Maryanna Hendrickson Residual Trust, under which Mr. Hendrickson is a co-trustee and a beneficiary. (9) Includes 12,114 shares held in the name of Mr. McDaniel's spouse, as trustee (as to which Mr. McDaniel disclaims beneficial ownership) and 2,000 shares issuable upon exercise of Warrants held by Mr. McDaniel's spouse, as trustee (as to which Mr. McDaniel disclaims beneficial ownership). Also includes 1,050 shares issuable upon exercise of Warrants held by Mr. McDaniel. (10) Includes 30,000 shares issuable upon exercise of options held by Mr. Ryan under the 1988 Plan. (11) Includes 71,000 shares held by A.B. Management Services of New Jersey, Inc. ("A.B. Management"), one hundred percent (100%) of the stock of which is owned by Anthony J. Filiti. Also includes 5,000 shares beneficially owned by Mr. Anthony J. Filiti. (12) Includes 81,176 shares issuable upon exercise of options held by such persons as a group under the 1988 Plan and the 1994 Plan. 47 SUPERVISION AND REGULATION SUPERVISION AND REGULATION OF THE COMPANY Bank holding companies, banks and their operations are extensively regulated under both Federal and state laws. Bank holding companies and banks may be subject to potential enforcement actions by the Board of Governors of the Federal Reserve System ("FRB"), the Office of the Comptroller of the Currency ("OCC") or the Federal Deposit Insurance Corporation ("FDIC") for unsafe or unsound practices in conducting their businesses, or for violations of any law, rule or regulation, any cease-and-desist or consent order, any condition imposed in writing imposed by the agency or any written agreement with the agency. Because the Company is a "bank holding company" under the Bank Holding Company Act of 1956 (the "Bank Holding Company Act"), the FRB, acting through the Federal Reserve Bank of Philadelphia ("FRBP") is the primary supervisory authority for, and examines, the Company and any non-bank subsidiaries which are not subsidiaries of the Bank. Because the Bank is a national bank, the primary supervisory authority for the Bank and its subsidiaries is the OCC, which regularly examines the Bank. The FDIC and the FRB (because the Bank is a member of the Federal Reserve System) also regulate, supervise and have power to examine the Bank and its subsidiaries. Enforcement actions may include the imposition of a conservator or receiver, additional cease-and-desist orders and written agreements, the termination of insurance on deposits, the imposition of civil money penalties and removal and prohibition orders. If any enforcement action is taken by a banking regulator, the value of an equity investment in the Company could be substantially reduced or eliminated. BANK HOLDING COMPANY ACT The Bank Holding Company Act requires a "bank holding company" such as the Company to secure the prior approval of the FRB before it owns or controls, directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank. Subject to changes recently enacted in the Interstate Banking Act (see discussion below), it also prohibits acquisition by any bank holding company of more than 5% of the voting shares of, or interest in, or all or substantially all of the assets of, any bank located outside of the state in which a current bank subsidiary is located unless such acquisition is specifically authorized by laws of the state in which such bank is located. A bank holding company is prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities unless the FRB, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making this determination, the FRB considers whether the performance of these activities by a bank holding company would offer benefits to the public that outweigh possible adverse effects. Applications under the Bank Holding Company Act and the Change in Control Act (see discussion below) are subject to review based upon the record of compliance of the applicant with the Community Reinvestment Act of 1977 ("CRA") as discussed below. The Company is required to file an annual report with the FRB and any additional information that the FRB may require pursuant to the Bank Holding Company Act. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or provision of any property or services. The so-called 'anti-tie-in' provisions state generally that a bank may not condition the pricing or provision of certain products and services on a requirement that the customer provide certain products or services to the bank holding company or bank, or that the customer not obtain certain products or services from competitors, or that the customer also obtain certain other products or services from the bank or bank holding company. There is an exception to the tie-in prohibition for "traditional" banking products and services. The FRB permits bank holding companies to engage in non-banking activities so closely related to banking or managing or controlling banks as to be a proper incident thereto. A number of activities are authorized by FRB regulation, while other activities require prior FRB approval. The types of permissible activities are subject to change by the FRB. FRB regulations require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. The FRB has, in some cases, entered orders for bank holding companies to take affirmative action to strengthen the finances or management of subsidiary banks. 48 CHANGE IN BANK CONTROL ACT Under the Change in Bank Control Act of 1978 ("Change in Control Act"), no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire "control" of any federally insured depository institution unless the appropriate Federal banking agency has been given 60 days' prior written notice of the proposed acquisition and within that period has not issued a notice disapproving of the proposed acquisition or has issued written notice of its intent not to disapprove the action. For this purpose, "control" is generally defined as the power, directly, or indirectly, to direct the management or policies of an institution or to vote 25% or more of any class of its voting securities. In addition, a person will be presumed to have acquired "control" of an institution or holding company upon most acquisitions of power to vote 10% or more (but less than 25%) of any class of voting securities if the institution or holding company has registered securities under Section 12 of the Securities Exchange Act of 1934 or if no other person will own a greater percentage of that class of voting securities immediately after the transaction, but this presumption may be rebutted upon a formal finding by the appropriate Federal banking agency that the acquisition will not result in control. The period for the agency's disapproval may be extended by the agency. Upon receiving such notice, the Federal agency is required to provide a copy to the appropriate state regulatory agency if the institution of which control is to be acquired is state chartered, and the Federal agency is obligated to give due consideration to the views and recommendations of the state agency. Upon receiving a notice, the Federal agency is also required to conduct an investigation of each person involved in the proposed acquisition. Notice of such proposal is to be published and public comment solicited thereon. A proposal may be disapproved by the Federal agency if the proposal would have anticompetitive effects, if the proposal would jeopardize the financial stability of the institution to be acquired or prejudice the interests of its depositors, if the competence, experience or integrity of any acquiring person or proposed management personnel indicates that it would not be in the interest of depositors or the public to permit such person to control the institution, if any acquiring person fails to furnish the Federal agency with all information required by the agency, or if the Federal agency determines that the proposed transaction would result in an adverse effect on a deposit insurance fund. In addition, the Change in Control Act requires that, whenever any federally insured depository institution makes a loan or loans secured, or to be secured, by 25% or more of the outstanding voting stock of a federally insured depository institution, the president or chief executive officer of the lending bank must promptly report such fact to the appropriate Federal banking agency regulating the institution whose stock secures the loan or loans. SUPERVISION AND REGULATION OF THE BANK The operations of the Bank are subject to Federal and state statutes applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System and to banks whose deposits are insured by the FDIC. Bank operations are also subject to regulations of the OCC, the FRB and the FDIC. The primary supervisory authority of the Bank is the OCC (also its primary Federal regulator), which regularly examines the Bank. The OCC has the authority to prevent a national bank from engaging in an unsafe or unsound practice in conducting its business. Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, loans a bank may make and collateral it may take, the activities of a bank with respect to mergers and consolidations and the establishment of branches. All nationally and state-chartered banks in New Jersey are permitted to maintain branch offices in any county of the state. National bank branches may be established only after approval by the OCC. It is the general policy of the OCC to approve applications to establish and operate domestic branches, including ATM's and other automated devices that take deposits, provided that approval would not violate applicable Federal or state laws regarding the establishment of such branches. The OCC reserves the right to deny an application or grant approval subject to conditions if (1) there are significant supervisory concerns with respect to the application or affiliated organizations, (2) in accordance with CRA, the applicant's record of helping meet the credit needs of its entire community, including low and moderate income neighborhoods, consistent with safe and sound operation, is less than satisfactory, or (3) any financial or other business arrangement, direct or indirect, involving the proposed branch or device and bank "insiders" (directors, officers, employees and 10%-or-greater stockholders) involves terms and conditions more favorable to the insiders than would be available in a 49 comparable transaction with unrelated parties. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") the FDIC's prior approval is also required for any new branch applications of a bank which is ranked in any of the three "undercapitalized" categories established by FDICIA. Under the Federal Deposit Insurance Act, the OCC possesses the power to prohibit institutions regulated by it (such as the Bank) from engaging in any activity that would be an unsafe and unsound banking practice and in violation of the law. Moreover, recent Federal law enactments have expanded the circumstances under which officers or directors of a bank may be removed by the institution's Federal supervisory agency, restricted and further regulated lending by a bank to its executive officers, directors, principal stockholders or related interests thereof and restricted management personnel of a bank from serving as directors or in other management positions with certain depository institutions whose assets exceed a specified amount or which have an office within a specified geographic area, and restricted management personnel from borrowing from another institution that has a correspondent relationship with their bank. As a member of the Federal Reserve System, the Bank is subject to certain restrictions on transactions with "affiliates" such as the Company and any other subsidiaries of the Company pursuant to Sections 23A and 23B of the Federal Reserve Act. In summary, Section 23A (i) imposes individual and aggregate percentage of capital limits on the dollar amount of a wide variety of affiliate dealings coming within the definition of a "covered transaction"; (ii) establishes rules for ensuring arms' length dealings between a bank and its affiliates; (iii) precludes the acquisition of "low quality" assets by a bank from its affiliates; and (iv) imposes detailed collateralization requirements for affiliate credit transactions. For purposes of Section 23A a "covered transaction" includes the following (with certain exceptions and exemptions): (A) a loan or extension of credit to an affiliate; (B) a purchase of, or an investment in, securities issued by an affiliate; (C) a purchase of assets (including assets subject to an agreement to repurchase) from an affiliate, with certain exceptions; (D) the acceptance of securities issued by an affiliate as collateral security for a loan or extension of credit to any person or company; and (E) the issuance of a guarantee, acceptance, or letter of credit, including an endorsement or standby letter of credit, on behalf of an affiliate. Section 23B requires a wide range of transactions between must be on terms which are at least as favorable to the bank as would apply to similar transactions with non-affilated companies. The transactions covered by section 23B include "covered transactions" that are subject to section 23A, as well as (I) a sales of securities or other assets to an affiliate including assets subject to an agreement to repurchase; (II) a payment of money or the furnishing of services to an affiliate under contract, lease, or otherwise; (III) any transaction in which an affiliate acts as an agent or broker or receives a fee for its services to the association or to any other person; or (IV) any transaction or series of transactions with a third party if an affiliate has an interest in the third party or participates in the transaction. The Federal Reserve Act and FRB regulations also place certain limitations and reporting requirements on extensions of credit by the Bank to principal stockholders of its parent holding company, among others, and to related interests of such principal stockholders. Such legislation and regulations may affect the terms upon which any person becoming a principal stockholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. In addition, as a bank whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default of any assessment due to the FDIC. The Bank is not in default under any of its obligations to the FDIC. The FDIC also has authority under the Federal Deposit Insurance Act to prohibit an insured bank from engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or unsound practice in conducting its business. It is possible, depending upon the financial condition of the Bank and other factors, that the FDIC could claim that the payment of dividends or other payments might, under some circumstances, be an unsafe or unsound banking practice. Under the Bank Secrecy Act ("BSA"), the Bank is required to report to the Internal Revenue Service currency transactions of more than $10,000 or multiple transactions of which the Bank is aware in any one day that aggregate in excess of $10,000. Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information required by the BSA or for filing a false or fraudulent report. Under CRA, the record of a bank holding company and its subsidiary banks must be considered by the appropriate Federal banking agencies in reviewing and approving or disapproving a variety of regulatory applications including approval of a branch or other deposit facility, office relocation, a merger and certain acquisitions of bank shares. Federal banking agencies have recently denied applications more frequently based on 50 unsatisfactory CRA performance, and news reports indicate that community groups have begun to focus more closely on CRA compliance of small institutions such as the Bank. Regulators are required to assess the record of the Company and the Bank to determine if they are meeting the credit needs of the community (including low and moderate neighborhoods) they serve. Regulators make publicly available an evaluation of banks' records in meeting credit needs in their communities, including a descriptive rating and a statement describing the basis for the rating. In addition, the Bank is subject to a variety of banking laws and regulations governing consumer protection (including the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the Real Estate Settlement Procedures Act), FDIC deposit insurance regulations, and FRB regulations governing such matters as reserve requirements for deposits, securities margin lending, collection of checks and other items and availability of deposits for withdrawal by customers, security procedures, and prohibitions of payment of interest on demand deposits. Under the Americans With Disabilities Act ("ADA"), certain bank facilities are identified as "public accommodations" and are subject to regulation to promote accessibility of their facilities for disabled persons. CAPITAL RULES Federal banking agencies have issued "risk-based capital" guidelines, which supplement other capital requirements. In addition, the FRB imposes certain "leverage" requirements on member banks such as the Bank. Banking regulators have authority to require higher minimum capital ratios for an individual bank or bank holding company in view of its circumstances. The risk-based guidelines require all banks and bank holding companies to maintain two "risk-weighted assets" ratios. The first is a minimum ratio of total capital ("Tier 1" and "Tier 2" capital) to risk-weighted assets equal to 8.00%; the second is a minimum ratio of "Tier 1" capital to risk-weighted assets equal to 4.00%. Assets are assigned to five risk categories, with higher levels of capital being required for the categories perceived as representing greater risk. In making the calculation, certain intangible assets must be deducted from the capital base. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Pursuant to FDICIA, the Federal banking agencies proposed in 1992 to revise the risk-based capital rules to account for interest rate risk. Under the proposed rules, institutions with interest rate risk exposure above a normal level would be required to hold extra capital in proportion to that risk. Under the proposals, the threshold for normal risk is defined as a 1% or less decline in the net economic value of an institution based on a 100 basis point upward or downward shift in interest rates. Effective September 1, 1995, the federal banking agencies adopted a final rule to implement minimum capital standards for interest rate risk exposures in a two-step process. The 1995 rule implements the first step of that process by revising the capital standards of the banking agencies to explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor that the banking agencies will consider in evaluating a bank's capital adequacy. The rule uses information and exposure estimates collected through a new proposed supervisory measurement process as one quantitative factor used by examiners to determine the adequacy of an individual bank's capital for interest rate risk. Under the rule, examiners also will consider qualitative factors, including the adequacy of the bank's internal interest rate risk management. The 1995 rule does not codify an explicit minimum capital charge for interest rate risk, based on the level of bank's measured interest rate risk exposure, but the banking agencies announced that they will implement this second step at some future date, through a subsequent and separate proposed rule after the banking agencies and the banking industry have gained more experience with the proposed supervisory measurement and assessment process. Federal law requires the banking agencies to coordinate the development of interest rate risk capital standards with the Bank for International Settlements and members of the Basle Committee on Banking Supervision. However, the timing and nature of any international standard for monitoring and assessing capital for interest rate risk is uncertain. The Bank currently monitors and manages its assets and liabilities for interest rate risk, and management believes that the interest rate risk rules which have been implemented and proposed will not materially adversely affect the Bank's operations. The OCC "leverage" ratio rules require national banks which are rated the highest by the OCC in the composite areas of capital, asset quality, management, earnings and liquidity to maintain a ratio of "Tier 1" capital 51 to "adjusted total assets" (equal to the bank's average total assets as stated in its most recent quarterly call report filed with the OCC, minus end-of-quarter intangible assets that are deducted from Tier 1 capital) of not less than 3.00%. For banks which are not the most highly rated, the minimum "leverage" ratio will range from 4.00% to 5.00% and is required to be at a level commensurate with the nature of the riskiness of the bank's condition and activities. For purposes of the capital requirements, "Tier 1" or "core" capital is defined to include common stockholders equity and certain noncumulative perpetual preferred stock and related surplus. "Tier 2" or "qualifying supplementary" capital is defined to include a bank's allowance for loan and lease losses up to 1.25% of risk-weighted assets, plus certain types of preferred stock and related surplus, certain "hybrid capital instruments" and certain term subordinated debt instruments. The Bank is in compliance with each of these capital rules and as of December 31, 1995 and December 31, 1994 the required ratios and the Bank's actual ratios are as follows: December 31, ------------------ Capital Required Rule Ratio 1995 1994 - - ------- ---------- ------- ------- Tier 1 Risk-Based Capital ............... 4.00% 12.0% 9.6% Total (Tiers 1 and 2) Risk-Based Capital . 8.00% 13.2% 10.8% Leverage Ratio .......................... 5.00% 7.8% 7.0% The FRB leverage ratio rules also require bank holding companies to maintain a minimum level of "primary capital" to total assets of 5.5% and a minimum level of "total capital" to total assets of 6%. For this purpose, "primary capital" includes, among other items, common stock, contingency and other capital reserves, and the allowance for loan and lease losses, "total capital" includes, among other things, certain subordinated debt, and "total assets" is increased by the allowance for loan and lease losses. The Company is in compliance with each of these capital rules, and as of December 31, 1995 and December 31, 1994 the required ratios and the Company's actual ratios are as follows: December 31, ------------------------- Capital Required Rule Ratio 1995 1994 - - ------- ---------- ------ ------ Primary Capital ........ 5.50% 8.7% 8.1% Total Capital ......... 6.00% 8.7% 8.1% DEPOSIT INSURANCE ASSESSMENTS Deposits of the Bank are insured by the FDIC through the Bank Insurance Fund ("BIF"). Deposits of certain savings associations are insured by the FDIC through another fund known as the Savings Association Insurance Fund. The FDIC sets deposit insurance assessment rates on a semiannual basis and will increase deposit insurance assessments whenever the ratio of reserves to insured deposits in a fund is less than 1.25. The insurance assessments paid by an institution are to be based on the probability that the fund will incur a loss with respect to the institution. The rate at which institutions pay assessments is based principally on two measures of risk. These measures involve capital and supervisory factors. For the capital measure, institutions are assigned semiannually to one of three capital groups according to their levels of supervisory capital as reported on their call reports: "well capitalized" (group 1), "adequately capitalized" (group 2) and "undercapitalized" (group 3). The capital ratio standards for classifying an institution in one of these three groups are total risk-based capital ratio (10 percent or greater for group 1, and between 8 and 10 percent for group 2), the Tier 1 risk-based capital ratio (6 percent or greater for group 1, and between 4 and 6 percent for group 2), and the leverage capital ratio (5 percent or greater for group 1, between 4 and 5 percent for group 2). Within each capital group, institutions are assigned to one of three supervisory risk subgroups--subgroup A, B, or C depending upon an assessment of the institution's perceived risk based upon the results of its most recent examination and other information available to regulators. Subgroup A will consist of financially sound institutions with only a few minor weaknesses. Subgroup B will consist of institutions that demonstrate weak- 52 nesses which, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the BIF. Subgroup C will consist of institutions that pose a substantial probability of loss to the deposit insurance fund unless effective corrective action is taken. Thus, there are nine possible classifications to which varying assessment rates are applicable. The regulation generally prohibits institutions from disclosing their subgroup assignments or assessment risk classifications without FDIC authorization. An institution's semiannual assessment is computed primarily by multiplying its "average assessment base" (generally, total insurable domestic deposits) for the prior semiannual period by one-half the annual assessment rate applicable to that institution depending upon its category. On August 8, 1995, the FDIC adopted a new assessment rate schedule for deposits subject to assessment by BIF. The new schedule provided for an assessment-rate range of 4 to 31 basis points and became effective retroactively on June 1, 1995, the beginning of the month following the month in which the BIF reached its designated reserve ratio of 1.25 percent of total estimated insured deposits. At the same time the FDIC adopted the new rate schedule, it also amended the assessment regulations to permit the FDIC to make limited adjustments to the schedule without notice-and-comment rulemaking. Any such adjustments can be made as the FDIC Board deems necessary to maintain the BIF reserve ratio at the designated reserve ratio, but any such adjustment must not exceed an increase or decrease of 5 basis points and must be uniform across the rate schedule. On November 14, 1995, the FDIC Board adopted a resolution to reduce to a range of 0 to 27 basis points the assessment rates applicable to deposits assessable by the BIF for the semiannual assessment period beginning January 1, 1996. The reduction represents a downward adjustment of 4 basis points from the revised BIF assessment rate schedule which was in effect for the second semiannual assessment period of 1995. While reducing the BIF assessment rate, the FDIC maintained the SAIF assessment rates at current levels because the FDIC does not project the SAIF fund to reach the required reserve level of 1.25% of SAIF-insured deposits. Legislation has been introduced in Congress which may cause the merger of the BIF and SAIF funds. It is not possible to predict with any assurance if, or when, legislation might be enacted to merger the two insurance funds or, if such legislation is adopted, what impact the merger of the funds and the legislation would have upon future FDIC deposit insurance assessments on the Bank. Regulators have predicted that a failure to merge the SAIF and BIF funds will result in an increased incidence of conversions of deposits from SAIF to BIF as institutions attempt to reduce their costs of funds. One impact of the entry of new deposits into the BIF fund is to dilute the proportion of coverage the BIF fund gives to existing BIF-insured deposits, which in turn could, over time, increase the cost of BIF deposit insurance. PROMPT CORRECTIVE ACTION Federal law mandates certain "prompt corrective actions" which Federal banking agencies are required to take, and certain actions which they have discretion to take, based upon the capital category into which a Federally regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not adequately capitalized. Under the regulations, an institution will be deemed to be "adequately capitalized" or better if it exceeds the minimum Federal regulatory capital requirements. However, it will be deemed "undercapitalized" if it fails to meet the minimum capital requirements, "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0 percent, a Tier 1 risk-based capital ratio that is less than 3.0 percent, or a leverage ratio that is less than 3.0 percent, and "critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent. The regulations 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 53 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 law requires, with certain narrowly limited exceptions, that the institution be placed in receivership. LIMITATIONS ON PAYMENT OF DIVIDENDS; REGULATORY AGREEMENT Under national banking laws, a national bank must obtain the approval of the OCC before declaring any dividend which, together with all other dividends declared by the national bank in the same calendar year will exceed the total of the bank's net profits of that year combined with its retained net profits of the preceding 2 years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Net profits are to be calculated without adding back any provision to the bank's allowance for loan and lease losses. These restrictions will not prevent the Bank from paying dividends from current earnings to the Company at this time. FDICIA prohibits FDIC-insured institutions from paying dividends or making capital distributions that would cause the institution to fail to meet minimum capital requirements. The FDICIA restrictions would not prevent the Bank from paying dividends from current earnings to the Company at this time. The Bank in 1991 entered into a written agreement with the OCC (the "Regulatory Agreement") to, among other things, create a Compliance Committee, implement a plan to correct any compliance deficiencies, and reduce its classified assets and to maintain the Bank's common stockholders' equity at not less than 5% of total assets. In 1991, in connection with the Regulatory Agreement and at the recommendation of the FRBP, the Board of Directors of the Company adopted a resolution, under which the Board could not declare a dividend to the Company's stockholders except with 10 days' prior written notice to the FRBP. The Regulatory Agreement was terminated on October 18, 1993, and on December 21, 1994, the Board of Directors of the Company rescinded its resolution with the permission of the FRBP, which was granted on November 30, 1994. NEW JERSEY BANKING LAWS Provisions of the New Jersey Banking Act of 1948 with supplements (the "New Jersey Banking Act") may apply to national banking associations with their principal offices in New Jersey, subject to preemption by applicable Federal laws. The New Jersey Banking Act permits branches anywhere in New Jersey subject to limitations on branches outside of the municipality in which the principal office of a bank is located, and subject to prior approval of the OCC as mentioned elsewhere herein. The merger of a national bank into a state bank requires approval of the New Jersey Commissioner of Banking; however, a state bank may merge into a national bank without such prior approval. The New Jersey Banking Act also purports to regulate certain aspects of bank business, including small loans and certain deposit accounts. With certain exceptions, and subject to the limitation on reciprocity discussed below, any entity which owns more than 25% of the stock of a bank located outside of New Jersey cannot own or acquire ownership of more than five percent of the stock of a bank located in New Jersey. In that regard, an entity that owns the stock of a bank holding company located in New Jersey is deemed to own the stock of each bank subsidiary, if such entity owns 25% or more of the stock of the bank holding company. The New Jersey Banking Act authorizes bank holding companies to own banks located in New Jersey and banks located in other eligible states. An eligible state is: (1) any state in the Central-Atlantic Region (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, Wisconsin and the District of Columbia), when at least three of those states, in addition to New Jersey, each of which have $20,000,000,000 in commercial bank deposits, have reciprocal legislation in effect, or (2) any state or territory of the United States, when at least 13 states in addition to New Jersey have reciprocal legislation in effect and at least four of those are among the ten states (other than New Jersey) with the largest amount of commercial bank deposits. Under New Jersey law, a corporation is not permitted to pay dividends on its capital stock if, following the payment of the dividend, (i) the corporation would be unable to pay its debts as they become due in the usual course of business or (ii) the corporation's total assets would be less than its total liabilities. Determinations under clause (ii) above may be based upon (i) financial statements prepared on the basis of generally accepted accounting principles, (ii) financial statements prepared on the basis of other accounting principles that are reasonable under the circumstances, or (iii) a fair valuation of other method that is reasonable in the circumstances. 54 RECENT BANKING LAWS AND REGULATIONS 1994 Interstate Banking Legislation. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), enacted on September 29, 1994, permits bank holding companies to acquire banks in any State one year after enactment of the legislation. State laws which require the acquiror to have been in existence for a specified minimum period of time are preserved, but only up to a maximum existence requirement of 5 years. Except for initial entry into a state, after an acquisition the acquiror may not control more than 10% of total insured deposits in the United States or more than 30% of insured deposits in the acquiror's home state. Stricter state deposit concentration caps apply if they are nondiscriminatory. Effective June 1, 1997, acquired banks in different states may be merged into a single bank, subject to any necessary regulatory approvals and provided the banks are adequately capitalized. Once a bank has established branches in a host state through an interstate merger transaction, it may establish and acquire additional branches anywhere in the host state where the acquiror could have branched. States may enact laws opting-out of interstate mergers during the period before June 1, 1997, but if so, domestic institutions will also be prohibited from merging interstate. States may also enact laws permitting interstate merger transactions and interstate de novo branching before June 1, 1997. In contrast to interstate acquisitions and mergers, the Interstate Banking Act permits acquisition of less than all of the branches of an insured bank only if the state's laws permit it. Unless expressly determined to be preempted, state laws regarding community reinvestment, consumer protection (including applicable usury ceilings), fair lending, and establishment of intrastate branches apply to local branches of interstate organizations to the same extent they apply to a branch of a domestic state bank. In evaluating applications, Federal banking agencies must consider CRA performance in each state in which an acquiring institution maintains branches, as well applicable State community reinvestment laws. Bank management anticipates that the Interstate Banking Act will increase competitive pressures in the Bank's market by permitting entry of additional competitors. New Jersey Interstate Banking Legislation. New Jersey's Act 17 of 1996 (Senate Bill No. 307) (the "NJ Intestate Banking Act"), approved and effective April 17, 1996, was adopted to harmonize New Jersey banking laws with the Federal Interstate Banking Act. The NJ Interstate Banking Act permits interstate mergers and branch acquisitions, but does not permit de novo interstate branching. Until June 1, 1997, mergers involving New Jersey institutions and out-of-state banks are subject to a requirement that the laws of the home state of the out-of-state bank expressly permit interstate merger transactions with all out-of-state banks. After June 1, 1997, the laws of the home state of the out-of-state bank must not prohibit mergers involving out-of-state banks. Under the NJ Interstate Banking Act, an "out-of-state bank" is defined as a banking institution which (in the case of state banking institutions) is chartered, or (in the case of a national bank) whose main office is located, in another state. The NJ Interstate Banking Act prohibits acquisitions which would result in an institution or holding company controlling more than 30% of total deposits in New Jersey, but this limitation may be waived by the New Jersey Banking Commissioner for good cause. The NJ Interstate Banking Act also authorizes an institution located in New Jersey to accept deposits and conduct other business as an agent for any "affiliate" (a company which controls, is controlled by, or is under common control with the institution), without being required to obtain a license as a branch office of the affiliate. OTHER LAWS AND REGULATIONS The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking organizations. In lending to commercial and consumer borrowers, and in owning and operating its own property, the Bank is subject to regulations and risks under state and Federal environmental laws. COMPLIANCE While the expense of compliance is increasing and has an adverse effect on the net income on all regulated institutions such as the Bank, management believes the Company and the Bank are in compliance with applicable laws and regulations in all material respects. LEGISLATION AND REGULATORY CHANGES Legislation and regulations may be enacted which increase the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial services providers. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on the Company and its subsidiary bank. 57 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 bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. DESCRIPTION OF SECURITIES The following summary description of the Company's capital stock is qualified in its entirety by reference to the Company's Restated Certificate of Incorporation and By-Laws, copies of which have been filed as exhibits to the Registration Statement. CAPITAL STOCK The Company is authorized to issue 7,000,000 shares of stock, consisting of 6,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, no par value per share, with presently unspecified rights ("Preferred Stock"). As of July 15, 1996, 2,428,754 shares of Common Stock were issued and outstanding. No shares of Preferred Stock have been issued. PREFERRED STOCK Under the terms of the Company's Restated Certificate of Incorporation, the Board of Directors may, without stockholder approval, issue shares of Preferred Stock from time to time and determine the relative rights, preferences and limitations of the Preferred Stock including, without limitation, stated value, dividend rights, rights to convert such shares into shares of another class or series (such as Common Stock or another class of series of Preferred Stock), voting rights, liquidation preference, redemption rights, division into classes and into series within any class or classes, sinking fund provisions and similar matters, and generally to determine all the characteristics of such Preferred Stock other than the total number of shares of Preferred Stock which the Board has authority to issue. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions, financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a controlling interest in the Company. The Company has no present plans to issue any shares of Preferred Stock. RIGHTS OF HOLDERS OF COMMON STOCK Dividend Rights. Subject to the rights of holders of shares, if any, having preferences with respect to dividends, the holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors of the Company out of funds legally available therefor. The only statutory limitation is that such dividends may not be paid when the Company is insolvent and may be paid only out of statutory surplus. In addition, because funds for the payment of dividends by the Company must come primarily from the earnings of its subsidiaries (primarily the Bank), as a practical matter any dividend restrictions on the subsidiaries of the Company act as restrictions on the amount of funds available for the payment of dividends which can be paid by the Company. For a description of the regulatory restrictions on dividend payments by the Bank, as well as regulatory guidelines which could limit the amount of dividends which the Company may pay, see "Supervision and Regulation -- Limitations of Payment of Dividends." Voting Rights. Each holder of Common Stock is entitled to one vote per share. The quorum for stockholders' meetings is a majority of the outstanding shares entitled to vote represented in person or by proxy. 56 Provisions Regarding Certain Business Combinations. Article VIII of the Company's Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors ("Voting Stock") to approve mergers and certain other business combinations ("Business Combinations") involving the Company and any holder of 10% or more of the Voting Stock (an "Interested Stockholder"), unless (1) the transaction is approved by a majority of the members of the Company's Board of Directors who are unaffiliated with the Interested Stockholder and who were directors before the Interested Stockholder became an Interested Stockholder or (2) certain minimum price, form of consideration and procedural requirements are met. As of July 15, 1996, the current directors and executive officers of the Company possessed sole or shared voting power with respect to approximately 16% of the outstanding Common Stock. In addition, as of July 15, 1996, the Company's current directors and executive officers had the right to acquire an additional 81,176 shares of Common Stock under options that were then exercisable which would if exercised increase their ownership to approximately 19% of the issued and outstanding Common Stock. See "Security Ownership of Principal Beneficial Owners and Management" and "Market for Common Stock and Related Stockholder Matters -- Outstanding Stock Options; Shares Available for Resale." Consequently, the directors and executive officers possess sufficient voting power to significantly effect the vote on, and perhaps prevent, Business Combinations. Election, Classification and Removal of Directors. The Company's Restated Certificate of Incorporation provides for a classified Board of Directors, with approximately one-third of the entire board being elected each year and with directors serving for terms of three years. Directors are elected by a plurality of votes cast. Holders of Common Stock do not have cumulative voting rights. The Company's Restated Certificate of Incorporation also provides that any director, or the entire Board of Directors, may be removed at any time by the Company's stockholders, with or without cause, but only by the affirmative vote of the holders of at least 80% of the shares of the Company entitled to vote for the election of directors. The effect of these provisions, coupled with the Board's authority to issue Preferred Stock, may be to deter hostile takeovers, to enhance the ability of current management to remain in control of the Company, and generally to make more difficult the acquisition of a controlling interest in the Company. Approval of Major Transactions. Except for Business Combinations with Interested Stockholders, the Company is able to effect amendments to its Restated Certificate of Incorporation (except as otherwise stated therein), to merge or consolidate with other corporations, to make a bulk sale of its assets not in the regular course of business and to dissolve, if the majority of the votes cast at the stockholders meeting (at which a quorum is present) called for the purpose of considering any such action are cast in favor of the proposal. Liquidation Rights. In the event of liquidation, dissolution or winding up of the Company, holders of its Common Stock are entitled to receive equally and pro rata per share any assets distributable to stockholders, after payment of debts and liabilities and after the distribution to holders of any outstanding Preferred Stock or any other outstanding shares hereafter issued which have prior rights upon liquidation. Other Matters. Holders of Common Stock do not have preemptive rights or conversion rights with respect to any securities of the Company. Except in connection with certain Business Combinations and except as noted below, the Company can issue new shares of authorized but unissued Common Stock and/or Preferred Stock without stockholder approval. The bylaws of the National Association of Securities Dealers, Inc. governing the NASDAQ National Market System, on which the Common Stock is quoted, require issuers to obtain stockholder approval for the issuance of securities in connection with the acquisition of a business, company, assets, property, or securities representing such interests where the present or potential issuance of Common Stock or securities convertible into Common Stock could result in an increase of 20% or more in the outstanding shares of Common Stock. Accordingly, the future issuance of Common Stock (other than upon exercise of the Warrants or options granted under the 1994 Plan or the 1988 Plan) or a series of Preferred Stock convertible into Common Stock may require stockholder approval under those rules. Transfer Agent. Midlantic National Bank serves as the transfer agent of the Company's issued and outstanding Common Stock. 57 LEGAL MATTERS The validity of the shares of Common Stock being offered hereby has been passed upon for the Company by Stradley, Ronon, Stevens & Young LLP, Philadelphia, Pennsylvania. EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995 consolidated financial statements refers to a change in the method of accounting for certain debt and equity securities in 1994 and a change in method of accounting for income taxes and postretirement benefits other than pensions in 1993. 58 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page -------- Independent Auditors' Report ..................................................................... F-2 Consolidated Statements of Condition as of March 31, 1996 (unaudited), December 31, 1995 and December 31, 1994 ............................................................................... F-3 Consolidated Statements of Income for the Three Months Ended March 31, 1996 and March 31, 1995 (unaudited) and Each of the Years in the Three Year Period Ended December 31, 1995 .............. F-4 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 1996 and March 31, 1995 (unaudited) and Each of the Years in the Three Year Period Ended December 31, 1995 ............................................................................... F-5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and March 31, 1995 (unaudited) and Each of the Years in the Three Year Period Ended December 31, 1995 ......... F-6 Notes to Consolidated Financial Statements ....................................................... F-8
The unaudited data have been prepared on the same basis as the other consolidated financial statements of the Company and, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results for the unaudited periods have been made. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of results that may be expected for any other period. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Yardville National Bancorp: We have audited the accompanying consolidated statements of condition of Yardville National Bancorp and subsidiary as of December 31, 1995 and 1994, 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, 1995. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yardville National Bancorp and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, Yardville National Bancorp and subsidiary changed their method of accounting for certain debt and equity securities in 1994. Additionally, as discussed in notes 1, 8 and 9 to the consolidated financial statements, Yardville National Bancorp and subsidiary changed their method of accounting for income taxes and postretirement benefits other than pensions in 1993. KPMG PEAT MARWICK LLP Princeton, New Jersey January 29, 1996 F-2 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CONDITION
December 31, March 31, ------------------------- 1996 1995 1994 ----------- ---------- ----------- (in thousands, except (unaudited) share data) Assets: Cash and due from banks (Note 2) .............. $ 9,689 $ 10,040 $ 9,096 Federal funds sold ............................ 7,470 2,795 2,004 ----------- ---------- ----------- Cash and Cash Equivalents .................... 17,159 12,835 11,100 ----------- ---------- ----------- Interest bearing deposits ..................... 4,154 1,033 1,094 Securities available for sale (Note 3) ........ 90,937 98,469 24,152 Investment securities (market value of $33,781 in 1996, $35,037 in 1995 and $35,749 in 1994) (Note 3) ..................................... 34,576 35,384 39,083 Loans ......................................... 262,918 245,054 196,910 Less: Allowance for loan losses .............. (3,858) (3,677) (2,912) ----------- ---------- ----------- Loans, net (Note 4) .......................... 259,060 241,377 193,998 Bank premises and equipment, net (Note 5) ..... 4,964 4,026 3,935 Other real estate ............................. 659 625 314 Other assets (Note 8) ......................... 10,408 9,366 6,874 ----------- ---------- ----------- Total Assets ................................. $421,917 $403,115 $280,550 =========== ========== =========== Liabilities and Stockholders' Equity: Deposits Non-interest bearing ........................ $ 49,032 $ 46,682 $ 39,875 ----------- ---------- ----------- Interest bearing ............................ 261,450 256,290 219,421 ----------- ---------- ----------- Total Deposits (Note 6) ..................... 310,482 302,972 259,296 Borrowed funds Securities sold under agreements to repurchase ............................... 59,055 54,830 -- Other .................................... 16,215 10,391 1,215 ----------- ---------- ----------- Total Borrowed Funds (Note 7) ............ 75,270 65,221 1,215 ----------- ---------- ----------- Other liabilities ............................. 3,802 3,205 1,588 ----------- ---------- ----------- Total Liabilities ............................ $389,554 $371,398 $262,099 ----------- ---------- ----------- Commitments and Contingent Liabilities (Notes 9 and 12) Stockholders' equity (Notes 9 and 10) Preferred stock: no par value Authorized 1,000,000 shares, none issued . Common stock: no par value Authorized 6,000,000 shares .............. Issued and outstanding 2,395,171 shares in 1996, 2,349,592 shares in 1995 and 1,548,080 shares in 1994 ............... 16,870 16,409 7,006 Surplus ..................................... 2,205 2,205 2,205 Undivided profits (Note 13) ................. 13,731 12,997 10,332 Unrealized gain (loss) -- securities available for sale ....................... (443) 106 (1,092) ----------- ---------- ----------- Total Stockholders' Equity ............... 32,363 31,717 18,451 ----------- ---------- ----------- Total Liabilities and Stockholders' Equity . $421,917 $403,115 $280,550 =========== ========== ===========
See Accompanying Notes to Consolidated Financial Statements. F-3 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, Year Ended December 31, -------------------- ----------------------------------- 1996 1995 1995 1994 1993 -------- -------- --------- ---------- --------- (in thousands, except per share (unaudited) amounts) Interest Income: Interest and fees on loans (Note 4) ........... $5,887 $4,842 $21,080 $14,168 $ 9,985 Interest on deposits with banks ............... 34 5 36 23 34 Interest on securities available for sale ..... 1,403 380 3,592 1,347 -- Interest on investment securities: Taxable ..................................... 410 468 1,792 2,079 3,750 Exempt from Federal income tax .............. 96 94 372 335 189 Interest on Federal funds sold ................ 57 89 464 52 97 -------- -------- --------- ---------- --------- Total Interest Income ........................ 7,887 5,878 27,336 18,004 14,055 -------- -------- --------- ---------- --------- Interest Expense: Interest on savings account deposits .......... 972 1,007 4,107 3,156 2,832 Interest on certificates of deposit of $100,000 or more ..................................... 203 263 883 299 168 Interest on other time deposits ............... 1,617 1,083 5,792 2,810 2,338 Interest on borrowed funds (Note 7) ........... 975 173 2,059 95 17 -------- -------- --------- ---------- --------- Total Interest Expense ....................... 3,767 2,526 12,841 6,360 5,355 -------- -------- --------- ---------- --------- Net Interest Income .......................... 4,120 3,352 14,495 11,644 8,700 Less provision for loan losses (Note 4) ....... 265 180 865 305 -- -------- -------- --------- ---------- --------- Net Interest Income After Provision for Loan Losses ...................................... 3,855 3,172 13,630 11,339 8,700 -------- -------- --------- ---------- --------- Non-Interest Income: Service charges on deposit accounts ........... 290 270 1,069 932 943 Gains on sales of mortgages, net .............. -- (1) 19 92 354 Security gains (losses), net .................. (21) -- (91) (124) 294 Other non-interest income ..................... 241 205 858 654 599 -------- -------- --------- ---------- --------- Total Non-Interest Income .................... 510 474 1,855 1,554 2,190 -------- -------- --------- ---------- --------- Non-Interest Expense: Salaries and employee benefits (Note 9) ....... 1,581 1,387 5,693 5,028 4,325 Occupancy expense, net (Note 5) ............... 220 164 726 611 539 Equipment (Note 5) ............................ 177 113 513 466 488 Other non-interest expense (Note 11) .......... 840 854 3,328 3,180 3,071 -------- -------- --------- ---------- --------- Total Non-Interest Expense ................... 2,818 2,518 10,260 9,285 8,423 -------- -------- --------- ---------- --------- Income before income tax expense and cumulative effect of the change in accounting principle ...................... 1,547 1,128 5,225 3,608 2,467 Income tax expense (Note 8) ................... 555 372 1,822 1,085 733 -------- -------- --------- ---------- --------- Income before cumulative effect of the change in accounting principle ........................ 992 756 3,403 2,523 1,734 Cumulative effect of the change in accounting principle (Note 8) .......................... -- -- -- -- 191 -------- -------- --------- ---------- --------- Net Income ................................... $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925 ======== ======== ========= ========== ========= Earnings Per Share: Primary: Income before cumulative effect of the change in accounting principle ........................ $ 0.40 $ 0.40 $ 1.61 $ 1.58 $ 1.70 Cumulative effect of the change in accounting principle ................................... -- -- -- -- 0.16 -------- -------- --------- ---------- --------- Net primary .................................. $ 0.40 $ 0.40 $ 1.61 $ 1.58 $ 1.86 ======== ======== ========= ========== ========= Fully Diluted: Income before cumulative effect of the change in accounting principle ........................ $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.70 Cumulative effect of the change in accounting principle ................................... -- -- -- -- 0.16 -------- -------- --------- ---------- --------- Net fully diluted ............................ $ 0.40 $ 0.40 $ 1.60 $ 1.56 $ 1.86 ======== ======== ========= ========== =========
See Accompanying Notes to Consolidated Financial Statements. F-4 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996 (unaudited) and Years Ended December 31, 1995, 1994 and 1993 ----------------------------------------------------------------------- Unrealized gain (loss) Common Undivided securities stock Surplus profits available for sale Total --------- --------- ----------- ------------------- ---------- (in thousands, except share amounts) BALANCE, December 31, 1992 ................ $ 2,360 $2,205 $ 6,264 $ -- $10,829 Net income ................................ 1,925 1,925 Common stock issued: Exercise of stock options (650 shares) 1 1 Shares sold (217,566) ................... 1,453 1,453 --------- --------- ----------- ------------------- ---------- BALANCE, December 31, 1993 ................ $ 3,814 $2,205 $ 8,189 $ -- $14,208 Net income ................................ 2,523 2,523 Cash dividends ............................ (380) (380) Common stock issued: Exercise of stock options (2,100 shares) 6 6 Proceeds from issuance of common stock, net of related expense (401,492 shares) 3,186 3,186 Unrealized loss -- securities available for sale, net of tax ................. (1,092) (1,092 --------- --------- ----------- ------------------- ---------- BALANCE, December 31, 1994 ................ $ 7,006 $2,205 $10,332 $(1,092) $18,451 Net income ................................ 3,403 3,403 Cash dividends ............................ (738) (738) Common stock issued: Exercise of stock options (27,663 shares) 202 202 Exercise of warrants (83,849) ........... 1,283 1,283 Proceeds from issuance of common stock, net of related expense (690,000 shares) 7,918 7,918 Unrealized gain -- securities available for sale, net of tax ........................ 1,198 1,198 --------- --------- ----------- ------------------- ---------- BALANCE, December 31, 1995 ................ $16,409 $2,205 $12,997 $ 106 $31,717 Net income ................................ 992 992 Cash dividends ............................ (258) (258) Exercise of warrants ...................... 134 134 Exercise of stock options (37,320 shares)... 327 327 Unrealized loss -- securities available for sale, net of tax ........................ (549) (549) --------- --------- ----------- ------------------- ---------- BALANCE, March 31, 1996 ................... $16,870 $2,205 $13,731 $ (443) $32,363 ========= ========= =========== =================== ==========
See Accompanying Notes to Consolidated Financial Statements. F-5 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------------- 1995 1994 1993 ----------- ---------- ---------- (in thousands) Cash Flows from Operating Activities: Net Income ................................................... $ 3,403 $ 2,523 $ 1,925 Adjustments: Provision for loan losses .................................. 865 305 -- Depreciation ............................................... 474 411 384 Amortization and accretion ................................. 368 320 222 (Gain) loss on sales of securities available for sale ...... 91 124 (221) Gain on sales of investment securities, net ................ -- -- (73) (Gain) loss on sale of other real estate ................... -- 8 (25) Loss on disposal of bank equipment ......................... -- 16 -- Proceeds on sale of bank equipment ......................... -- 5 -- Writedown of other real estate ............................. 66 174 274 (Increase) decrease in other assets ........................ (3,289) (4,017) 325 Increase in other liabilities .............................. 1,617 344 17 ----------- ---------- ---------- Net Cash Provided by Operating Activities ................. 3,595 213 2,828 ----------- ---------- ---------- Cash Flows from Investing Activities: Net (increase) decrease in interest bearing deposits ....... 61 328 (461) Purchase of securities available for sale .................. (100,065) (15,408) -- Maturities, calls and paydowns of securities available for sale ...................................................... 17,000 5,450 -- Proceeds from sales of securities available for sale ....... 10,481 9,380 36,380 Proceeds from maturities and paydowns of investment securities ................................................ 4,148 4,859 32,869 Proceeds from sales of investment securities ............... -- -- 6,559 Purchase of investment securities .......................... (646) (1,109) (66,595) Net increase in loans ...................................... (48,962) (62,353) (29,626) Expenditures for bank premises and equipment ............... (565) (518) (390) Proceeds from sale of other real estate .................... 353 1,301 868 Capital improvements to other real estate .................. (12) (74) (4) ----------- ---------- ---------- Net Cash Used by Investing Activities ..................... (118,207) (58,144) (20,400) ----------- ---------- ---------- Cash Flows from Financing Activities: Net increase in non-interest bearing demand, money market, and saving deposits ...................................... 19,044 12,128 11,609 Net increase in certificates of deposit .................... 24,632 40,480 2,856 Net increase (decrease) in borrowed funds .................. 64,006 (83) 83 Proceeds from issuance of common stock ..................... 9,403 3,192 1,454 Dividends paid ............................................. (738) (380) -- ----------- ---------- ---------- Net Cash Provided by Financing Activities ................. 116,347 55,337 16,002 ----------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ...... 1,735 (2,594) (1,570) Cash and cash equivalents as of beginning of year ......... 11,100 13,694 15,264 ----------- ---------- ---------- Cash and Cash Equivalents as of End of Year .................. $ 12,835 $ 11,100 $ 13,694 =========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest expense ........................................ $ 11,432 $ 5,979 $ 5,657 Income taxes ............................................ 1,908 1,744 -- ----------- ---------- ----------
Supplemental Schedule of Non-cash Investing and Financing Activities: During 1993, the Corporation transferred $61,612,000 of investment securities to securities available for sale. The Corporation transferred $454,000 in 1995 and $220,000 in 1994 net of charge offs, from loans to other real estate. See Accompanying Notes to Consolidated Financial Statements. F-6 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ------------------------ 1996 1995 ---------- ---------- (in thousands) Cash Flows from Operating Activities: Net Income ......................................................... $ 992 $ 756 Adjustments: Provision for loan losses ........................................ 265 180 Depreciation ..................................................... 173 105 Amortization and accretion ....................................... 130 43 Securities losses, net ........................................... 21 -- Writedown of other real estate ................................... 25 1 Increase in other assets ......................................... (676) (1,175) Increase in other liabilities .................................... 597 923 ---------- ---------- Net Cash Provided by Operating Activities ....................... 1,527 833 ---------- ---------- Cash Flows from Investing Activities: Net decrease (increase) in interest bearing deposits ............. (3,121) 651 Purchase of securities available for sale ........................ (28,153) (6,685) Maturities, calls and paydowns of securities available for sale .. 10,612 305 Proceeds from sales of securities available for sale ............. 24,049 -- Proceeds from maturities and paydowns of investment securities ... 767 718 Net increase in loans ............................................ (18,008) (19,346) Expenditures for bank premises and equipment ..................... (1,111) (247) Capital improvements to other real estate ........................ -- (12) ---------- ---------- Net Cash Used by Investing Activities ........................... (14,965) (24,616) ---------- ---------- Cash Flows from Financing Activities: Net increase in non-interest bearing demand, money market, and saving deposits................................................. 6,477 7,820 Net increase in certificates of deposit .......................... 1,033 9,940 Net increase in borrowed funds ................................... 10,049 21,143 Proceeds from issuance of common stock ........................... 461 8 Dividends paid ................................................... (258) (139) ---------- ---------- Net Cash Used by Financing Activities ........................... 17,762 38,772 ---------- ---------- Net increase in cash and cash equivalents ....................... 4,324 14,989 Cash and cash equivalents as of beginning of period ............. 12,835 11,100 ---------- ---------- Cash and Cash Equivalents as of End of Period ...................... $ 17,159 $ 26,089 ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest expense ................................................ $ 3,789 $ 2,047 Income taxes .................................................... 150 130 ---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: During the three month period ended March 31, 1996 the Corporation transferred $60,000, net of charge offs, from loans to other real estate. See Accompanying Notes to Unaudited Consolidated Financial Statements. F-7 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 AND YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Yardville National Bancorp through its subsidiary, Yardville National Bank (the Bank) provides a full range of services to individuals and corporate customers in Mercer County. The Bank is subject to competition from other financial institutions. The Bank is also subject to the regulations of certain Federal agencies and undergoes periodic examinations by those regulatory authorities. BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. A. Consolidation -- The consolidated financial statements include the accounts of Yardville National Bancorp and its sole subsidiary, the Bank, and the Bank's wholly owned subsidiary, The Yardville National Investment Corporation (collectively, the Corporation). All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements as of March 31, 1996 and for the three months ended March 31, 1996 and 1995 are unaudited and, in the opinion of management, include all adjustments necessary (which consist of only normal recurring adjustments) for a fair presentation of the financial position and results of operation for the interim periods. 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 -- On January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities". This pronouncement requires the Corporation's securities portfolio to be classified into three separate portfolios: held to maturity, available for sale and trading. The Corporation currently has no securities classified as trading. Securities classified as available for sale may be used by the Corporation as funding and liquidity sources and can be used to manage the Corporation's interest rate sensitivity position. These securities are carried at their estimated market value with their unrealized gains and losses carried, net of income tax, as adjustments to stockholders' equity. Amortization of premium or accretion of discount are recognized as adjustments to interest income, on a level yield basis. Gains and losses on disposition are included in earnings using the specific identification method. Investment securities are composed of securities that the Corporation has the positive intent and ability to hold to maturity. These securities are stated at cost, adjusted for amortization of premium or accretion of discount. The premium or discount adjustments are recognized as adjustments to interest income, on a level yield basis. Unrealized losses due to fluctuations in market value are recognized as investment security losses when a decline in value is assessed as being other than temporary. D. Loans -- Interest on loans is recognized monthly based upon the principal amount outstanding. Loans are stated at face value, less unearned income and net deferred fees. Interest is not accrued on loans where a F-8 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 1. Summary of Significant Accounting Policies - (Continued) default of principal or interest exists over a period of ninety days, or earlier if management considers collection of principal or interest to be doubtful. Exceptions are made only when loans are well secured and in the process of collection. Generally, when a loan becomes nonaccrual all previously accrued but uncollected interest is reversed against the appropriate income and statement of condition accounts. Loan origination and commitment fees less certain costs are deferred and the net amount amortized as an adjustment to the related loan's yield. E. Allowance for Loan Losses -- For financial reporting purposes, 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 the borrower's ability to repay the loan. This provision is based on management's estimates, and actual losses may vary from these estimates. These estimates are reviewed and adjustments, as they become necessary, are reported in the periods in which they become known. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans and other real estate, future additions to the allowance may be necessary based on changes in economic conditions, particularly in New Jersey. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses and the valuation of other real estate. Such agencies may require the Corporation to recognize additions to the allowance or adjustments to the carrying value of other real estate based on their judgments about information available to them at the time of their examination. The Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118. "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" on January 1, 1995. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or fair value of the collateral. Impairment losses are included in the allowance for loan losses through provisions charged to operations. In accordance with the adoption of SFAS No. 114, insubstance foreclosures have been reclassified to nonperforming loans for all periods presented. The adoption of SFAS No. 114 and SFAS No. 118 did not materially affect the 1995 financial statements. F. Bank Premises and Equipment -- Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on straight-line and accelerated methods over the estimated useful lives of the assets (buildings 25 to 50 years, furniture and fixtures 7 to 10 years). Charges for maintenance and repairs are expensed as they are incurred. G. Other Real Estate (O.R.E.) -- O.R.E. comprises real properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of problem loans. The properties are recorded at the lower of cost or fair value less estimated disposal costs at the date acquired. When a property is acquired, the excess of the loan balance over the fair value is charged to the allowance for loan losses. Any subsequent writedowns that may be required to the carrying value of the property are included in other non-interest expense. Gains realized from the sales of other real estate are included in other non-interest income, while losses are included in non- interest expense. H. Federal Income Taxes -- Effective January 1, 1993, the Corporation adopted SFAS No. 109 "Accounting for Income Taxes" and reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of income. F-9 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 1. Summary of Significant Accounting Policies - (Continued) SFAS No. 109 required a change from the deferred method of accounting for income taxes of previously applicable accounting principles to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period of the enactment date. I. Earnings Per Share -- Earnings per share are based on the weighted average number of shares outstanding including common stock equivalents (2,530,000 shares and 2,047,000 shares in the first quarter of 1996 and 1995, respectively and 2,192,000 shares in 1995, 1,757,000 shares in 1994 and 1,036,000 shares in 1993) utilizing the modified treasury stock method in the first quarter of 1996, 1995 and 1994 and the treasury stock method in 1993. 2. CASH AND DUE FROM BANKS The Corporation maintains various deposits with other banks. As of March 31, 1996, December 31, 1995 and 1994, the Corporation 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:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- (In thousands) March 31, 1996 U.S. Treasury securities and obligations of other U.S. government agencies and corporations ............... $14,751 $ 21 $ (119) $14,653 Mortgage-backed securities .......................... 74,398 74 (713) 73,759 Federal Reserve Bank stock .......................... 550 -- -- 550 Federal Home Loan Bank stock ........................ 1,975 -- -- 1,975 ----------- ------------ ------------ ----------- Total .............................................. $91,674 $ 95 $ (832) $90,937 =========== ============ ============ =========== December 31, 1995 U.S. Treasury securities and obligations of other U.S. government agencies and corporations ............... $17,795 $ 63 $ (35) $17,823 Mortgage-backed securities .......................... 78,725 320 (171) 78,874 Federal Reserve Bank Stock .......................... 512 -- -- 512 Federal Home Loan Bank Stock ........................ 1,260 -- -- 1,260 ----------- ------------ ------------ ----------- Total .............................................. $98,292 $383 $ (206) $98,469 =========== ============ ============ =========== December 31, 1994 U.S. Treasury securities and obligations of other U.S. $ government agencies and corporations ............... $ 6,366 -- $ (216) 6,150 Mortgage-backed securities .......................... 18,358 -- (1,603) 16,755 Federal Reserve Bank stock .......................... 173 -- -- 173 Federal Home Loan Bank stock ........................ 1,074 -- -- 1,074 ----------- ------------ ------------ ----------- Total .............................................. $25,971 $ -- $(1,819) $24,152 =========== ============ ============ ===========
F-10 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 3. Securities - (Continued) The amortized cost and estimated market values of investment securities are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ------------ ------------ ----------- (in thousands) March 31, 1996 Obligations of state and political subdivisions... $ 8,623 $16 $ (87) $ 8,552 Mortgage-backed securities ...................... 25,953 -- (724) 25,229 ----------- ------------ ------------ ----------- Total .......................................... $34,576 $16 $ (811) $33,781 =========== ============ ============ =========== December 31, 1995 Obligations of state and political subdivisions... $ 8,630 $56 $ (27) $ 8,659 Mortgage-backed securities ...................... 26,754 -- (376) 26,378 ----------- ------------ ------------ ----------- Total .......................................... $35,384 $56 $ (403) $35,037 =========== ============ ============ =========== December 31, 1994 Obligations of state and political subdivisions... $ 8,392 $-- $ (615) $ 7,777 Mortgage-backed securities ...................... 30,691 -- (2,719) 27,972 ----------- ------------ ------------ ----------- Total .......................................... $39,083 $-- $(3,334) $35,749 =========== ============ ============ ===========
The amortized cost and estimated market value of securities available for sale and investment securities as of March 31, 1996 and December 31, 1995 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities available for sale:
Estimated Amortized Market Cost Value ----------- ----------- (in thousands) March 31, 1996 Due in one year or less ......... $ 5,750 $ 5,730 Due after 1 year through 5 years . 9,001 8,923 Due after 5 years through 10 years -- -- Due after 10 years .............. 2,525 2,525 ----------- ----------- Subtotal ....................... 17,276 17,178 Mortgage-backed securities ...... 74,398 73,759 ----------- ----------- Total ........................... $91,674 $90,937 =========== =========== December 31, 1995 Due in 1 year or less ........... $ 9,595 $ 9,574 Due after 1 year through 5 years . 8,200 8,249 Due after 10 years .............. 1,772 1,772 ----------- ----------- Subtotal ....................... 19,567 19,595 Mortgage-backed securities ...... 78,725 78,874 ----------- ----------- Total ........................... $98,292 $98,469 =========== ===========
F-11 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 3. Securities - (Continued) INVESTMENT SECURITIES:
Estimated Amortized Market Cost Value ----------- ----------- (in thousands) March 31, 1996 Due in one year or less ........... $ -- $ -- Due after 1 year through 5 years.... 3,100 3,069 Due after 5 years through 10 years.. 4,988 4,941 Due after 10 years ................ 535 542 ----------- ----------- Subtotal ......................... 8,623 8,552 Mortgage-backed securities ........ 25,953 25,229 ----------- ----------- Total ............................. $34,576 $33,781 =========== =========== December 31, 1995 Due after 1 year through 5 years.... $ 3,102 $ 3,089 Due after 5 years through 10 years.. 4,988 5,014 Due after 10 years ................ 540 556 ----------- ----------- Subtotal ......................... 8,630 8,659 Mortgage-backed securities ........ 26,754 26,378 ----------- ----------- Total ............................. $35,384 $35,037 =========== ===========
There were no sales of investment securities during 1995 or 1994. Proceeds from sales of investment securities during 1993 were $6,559,000. Gross gains of $73,000 were realized on those sales. Proceeds from sales of securities available for sale during 1995, 1994 and 1993 were $10,481,000, $9,380,000 and $36,380,000, respectively. Gross gains of $27,000, $23,000 and $323,000 and gross losses of $118,000, $147,000 and $102,000, respectively, were realized on those sales. Proceeds from sales of securities available for sale during the three months ended March 31, 1996 were $24,049,000 (gross gains and losses). Securities with a carrying value of approximately $68,944,000 as of December 31, 1995 and $73,111,000 as of March 31, 1996 were pledged to secure public deposits and for other purposes as required or permitted by law. As of December 31, 1995 Federal Home Loan Bank (FHLB) stock with a carrying value of $1,260,000 was held by the Corporation as required by the FHLB. 4. LOANS AND ALLOWANCE FOR LOAN LOSSES The following table shows comparative detail of the loan portfolio:
December 31, March 31, ------------------------ 1996 1995 1994 ----------- ---------- ---------- (in thousands) Commercial and agricultural loans . $ 34,310 $ 33,218 $ 26,626 Real estate loans -- mortgage .... 192,486 173,191 138,730 Real estate loans -- construction . 17,748 19,353 15,560 Consumer loans ................... 11,656 12,386 10,934 Other loans ...................... 6,718 6,906 5,060 ----------- ---------- ---------- Total loans ...................... $262,918 $245,054 $196,910 =========== ========== ==========
F-12 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 4. Loans and Allowance for Loan Losses - (Continued) Residential mortgage loans held for sale amounted to $3,132,000, $2,979,000 and $3,167,000 as of March 31, 1996, December 31, 1995 and 1994, respectively. These loans are accounted for at the lower of aggregate cost or market value and are included in the table above. The Corporation has extended credit in the ordinary course of business to directors, officers and their associates on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other customers of the Corporation. The following table summarizes activity with respect to such loans:
Three Months Ended Year Ended December 31, March 31, ----------------------- 1996 1995 1994 ------------------ -------- -------- (in thousands) Balance as of beginning of period . $3,581 $2,633 $1,066 Additions ....................... 256 1,400 2,040 Less amounts collected .......... 617 452 473 ------------------ -------- -------- Ending balance .................. $3,220 $3,581 $2,633 ================== ======== ========
The majority of the Corporation's business is with customers located within Mercer County, New Jersey and contiguous counties. Accordingly, the ultimate collectibility of the loan portfolio and the recovery of the carrying amount of real estate are subject to changes in the region's real estate market. A portion of the total portfolio is secured by real estate. The principal areas of exposure are construction and development loans, which are primarily commercial and residential projects and commercial mortgage loans. Commercial mortgage loans are completed projects and are generally owner-occupied, creating cash flow. Changes in the allowance for loan losses were as follows:
Three Months Ended March 31, Year Ended December 31, -------------------- --------------------------------- 1996 1995 1995 1994 1993 -------- -------- -------- --------- --------- (in thousands) Balance as of beginning of period $3,677 $2,912 $2,912 $2,703 $2,940 Loans charged off .............. (96) (24) (209) (206) (351) Recoveries of loans charged off . 12 53 109 110 114 -------- -------- -------- --------- --------- Net charge offs ................ (84) 29 (100) (96) (237) Provision charged to operations . 265 180 865 305 -- -------- -------- -------- --------- --------- Balance as of end of period .... $3,858 $3,121 $3,677 $2,912 $2,703 ======== ======== ======== ========= =========
The detail of loans charged off is as follows:
Three Months Ended March 31, Year Ended December 31, ---------------- ------------------------- 1996 1995 1995 1994 1993 ------ ------ ------ ------ ------ (in thousands) Commercial and agricultural ..... $-- $-- $ -- $ 47 $ -- Real estate loans -- mortgage ... -- -- 26 51 222 Real estate loans -- construction . 34 -- 30 25 45 Consumer loans .................. 62 24 153 83 84 ------ ------ ------ ------ ------ Total ........................... $96 $24 $209 $206 $351 ====== ====== ====== ====== ======
F-13 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 4. Loans and Allowance for Loan Losses - (Continued) Nonperforming assets include nonperforming loans and other real estate. The nonperforming loan category includes loans on which accrual of interest has been discontinued with subsequent interest payments credited to income as received and loans 90 days past due or greater on which interest is still accruing. Nonperforming loans as a percentage of total loans were 0.92% as of March 31, 1996, 1.15% as of December 31, 1995 and 1.05% as of December 31, 1994. A summary of nonperforming assets is as follows:
December 31, March 31, ---------------------- 1996 1995 1994 ----------- -------- -------- (in thousands) Nonaccruing loans: Real estate loans -- mortgage $1,728 $1,395 $1,203 Real estate loans -- construction ............. 66 142 521 Consumer loans ............. -- 30 -- ----------- -------- -------- Total nonaccruing loans ......... 1,794 1,567 1,724 ----------- -------- -------- Restructured loan ............... -- 612 -- Past due 90 days or more: Commercial and agricultural ..... 2 Real estate loans -- mortgage ... 586 588 326 Consumer loans .................. 31 52 16 ----------- -------- -------- Total past due 90 days or more .. 619 640 342 ----------- -------- -------- Total nonperforming loans ....... 2,413 2,819 2,066 Other real estate ............... 659 625 314 ----------- -------- -------- Total nonperforming assets ...... $3,072 $3,444 $2,380 =========== ======== ========
The Corporation adopted the provisions of SFAS No. 114 and SFAS No. 118 effective January 1, 1995. All loans receivable have been evaluated for collectibility under the provisions of these statements. The Corporation has defined the population of impaired loans to be all nonaccrual commercial loans. Impaired loans are individually assessed to determine that the loan's carrying value is not in excess of the fair value of the collateral or the present value of the loan's expected cash flows. Smaller balance homogeneous loans that are collectively evaluated for impairment, including residential mortgage and consumer loans, are specifically excluded from the impaired loan portfolio. The recorded investment in loans receivable for which an impairment has been recognized and the related allowance for loan losses were $1,320,000 and $175,000, respectively, at March 31, 1996, and $1,291,000 and $184,000, respectively at December 31, 1995, of the total investment in impaired loans of March 31, 1996, $1,280,000 had related allowance for credit losses of $175,000 and the remaining $40,000 had no related allowance for credit losses. The average recorded investment in impaired loans during 1995 was $1,322,000. There was no interest income recognized on impaired loans in 1995. Additional income before income taxes amounting to approximately $35,000 for the three months ended March 31, 1996 and $143,000 in 1995, $183,000 in 1994 and $226,000 in 1993 would have been recognized if interest on all loans had been recorded based upon original contract terms. There was $9,858 of interest income recorded on the restructured loan during 1995. There is no commitment to lend additional funds to the borrower whose loan has been restructured. The Corporation originates and sells mortgage loans to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). Generally, servicing on such loans is retained update for March by the Corporation. As of March 31, 1996, December 31, 1995 and 1994, loans serviced for FHLMC were $46,754,000 and, $49,097,000 and $51,596,000, respectively. Loans serviced for FNMA were $1,618,000 and $1,503,000 as of March 31, 1996 and December 31, 1995, respectively. F-14 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 5. BANK PREMISES AND EQUIPMENT The following table represents comparative information for premises and equipment:
December 31, March 31, ----------------------- 1996 1995 1994 ----------- -------- --------- (in thousands) Land and improvements ........... $ 525 $ 524 $ 508 Buildings and improvements ...... 3,916 3,874 3,650 Furniture and equipment ......... 4,564 3,496 3,188 ----------- -------- --------- Total ........................... 9,005 7,894 7,346 Less accumulated depreciation ... 4,041 3,868 3,411 ----------- -------- --------- Bank premises and equipment, net . $4,964 $4,026 $3,935 =========== ======== =========
6. DEPOSITS Total deposits consist of the following:
December 31, March 31, ------------------------- 1996 1995 1994 ----------- ---------- ----------- (in thousands) Non-interest bearing demand deposits ....... $ 49,032 $ 46,682 $ 39,875 Money market deposits ...................... 58,499 56,759 44,822 Savings deposits ........................... 73,115 70,731 70,431 Certificates of deposit of $100,000 and over . 15,112 15,021 22,174 Other time deposits ........................ 114,724 113,779 81,994 ----------- ---------- ----------- Total ...................................... $310,482 $302,972 $259,296 =========== ========== ===========
7. BORROWED FUNDS Borrowed funds include securities sold under agreements to repurchase and FHLB advances. Other borrowed funds consist of Federal funds purchased and Treasury tax and loan deposits. The following table presents comparative data related to borrowed funds of the Corporation at and for the three month periods ended March 31, 1996 and 1995 and the years ended December 31, 1995 and 1994.
March 31, December 31, ------------------- -------------------- 1996 1995 1995 1994 -------- -------- -------- ------- (in thousands) Securities sold under agreements to repurchase .$59,055 $12,000 $54,830 $ -- FHLB advance ................................. 15,000 10,000 10,000 -- Other ........................................ 1,215 358 391 1,215 ------- ------- ------- ------- Total ........................................ $75,270 $22,358 $65,221 $1,215 ------- ------- ------- ------- Maximum amount outstanding at any month end .. $75,270 $22,358 $65,221 $7,264 Average interest rate on period end balance .. 5.53% 6.64% 6.01% 4.50% Average amount outstanding during the period . $66,718 $11,288 $33,339 $2,248 Average interest rate for the period ......... 5.85% 6.13% 6.18% 4.23% ======= ======= ======= =======
F-15 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 7. Borrowed Funds - (Continued) The following is a summary of securities sold under agreements to repurchase and their maturities as of March 31, 1996:
(in thousands) ------------- Up to 30 days ............................................. $19,785 30 to 90 days ............................................. 13,470 Over 90 days .............................................. 25,800 ------------- Total ..................................................... $59,055 =============
The Corporation, at March 31, 1996, had $15,000,000 outstanding in FHLB advances all maturing within one year. Each advance totalling $5,000,000 will mature on September 6, 1996, March 6, 1997 and March 29, 1997, respectively. 8. INCOME TAXES Income taxes reflected in the consolidated financial statements are as follows:
Three Months Ended March 31, Year Ended December 31, ------------------- ------------------------------- 1996 1995 1995 1994 1993 -------- ------- -------- --------- ------- (in thousands) Statements of Income: Federal: Current .................. $ 543 $ 426 $1,881 $1,238 $ 726 Deferred ................. (95) (101) (400) (129) 88 State: Current .................. $ 130 $ 10 $ 253 $ 34 $ 34 Deferred ................. (23) 37 88 (58) (115) -------- ------- -------- --------- ------- Total tax expense .................. $ 555 $ 372 $1,822 $1,085 $ 733 -------- ------- -------- --------- ------- Statements of Condition: Deferred tax on securities available for sale ............................. $(220) $ 181 $ 798 $ (727) $ -- ======== ======= ======== ========= =======
The Corporation adopted SFAS No. 109 as of January 1, 1993 and the cumulative effect of this change is reported in the 1993 Consolidated Statement of Income. The favorable cumulative effect at January 1, 1993 was $191,000. F-16 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 8. Income Taxes - (Continued) Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts will change as measured by tax laws. These temporary differences are determined in accordance with SFAS No. 109 and are more inclusive in nature than "timing differences" as determined under previously applicable accounting principles. Temporary differences which give rise to a significant portion of deferred tax assets and liabilities are as follows:
December 31, March 31, ------------------- 1996 1995 1994 ----------- -------- ------- (in thousands) Deferred tax assets: Deferred loan fees .............................. $ 136 $ 119 $ 141 Allowance for loan losses ....................... 1,247 1,174 838 Writedown of basis of O.R.E. properties ......... 36 36 46 Deferred income ................................. 1 1 5 Nonaccrual loans ................................ 40 40 59 Net state operating loss carryforward ........... -- -- 124 Unrealized loss on securities available for sale . -- -- 727 Deferred compensation ........................... 194 183 -- Other ........................................... 26 26 93 ----------- -------- ------- Total deferred tax assets ....................... 1,680 1,579 2,033 ----------- -------- ------- Valuation allowance ............................. (78) (78) (78) ----------- -------- ------- Deferred tax liabilities: Unrealized gain on securities available for sale . (71) (71) -- Unamortized discount accretion .................. (83) (76) (39) Depreciation .................................... (222) (227) (304) ----------- -------- ------- Net deferred tax asset .......................... $1,226 $1,127 $1,612 =========== ======== =======
The Corporation has established the valuation allowance against certain temporary differences. The Corporation is not aware of any factors which would generate significant differences between taxable income and pre-tax accounting income in future years except for the effects of the reversal of current or future net deductible temporary differences. Management believes, based upon current information, that it is more likely than not that there will be sufficient taxable income through carryback to prior years to realize the net deferred tax asset. However, there can be no assurance regarding the level of earnings in the future. F-17 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 8. Income Taxes - (Continued) A reconciliation of the tax expense computed by multiplying pre-tax accounting income by the statutory Federal income tax rate of 34% is as follows:
Three Months Ended March 31, Year Ended December 31, ---------------- ------------------------------- 1996 1995 1995 1994 1993 ------ ------ -------- --------- ------- (in thousands) Income tax expense at statutory rate ... $526 $384 $1,776 $1,227 $839 State income taxes, net of Federal benefit, before change in valuation reserve .... 71 31 226 151 (53) Changes in taxes resulting from: Tax exempt interest ............... (29) (30) (117) (117) (57) Tax exempt income ................. (23) (19) (93) -- -- Non-deductible expenses ........... 10 6 30 76 37 Other ............................. -- -- -- -- -- Change in Federal valuation reserve. -- -- -- (252) (33) ------ ------ -------- --------- ------- Total ............................. $555 $372 $1,822 $1,085 $733 ====== ====== ======== ========= =======
9. BENEFIT PLANS RETIREMENT SAVINGS PLAN The Corporation has a 401(K) plan which covers substantially all employees with one or more years of service. The plan permits all eligible employees to make basic contributions to the plan up to 12% of base compensation. Under the plan, the Corporation provides a matching contribution of 25% up to 6% of base compensation. Employer contributions to the plan amounted to $18,000 for the three months ended March 31, 1996 and $36,000 in 1995, $31,000 in 1994, and $56,000 in 1993. Effective January 1, 1996, the corporation will provide a matching contribution of 50% up to 6% of base compensation. POSTRETIREMENT BENEFITS The Corporation provides additional postretirement benefits, namely life and health insurance, to retired employees who have completed 15 years of service, regardless of age, and retired employees over age 55 who have completed 10 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. During the fourth quarter of 1993, the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS 106), retroactive to January 1, 1993. SFAS 106 requires an employer to recognize the cost of retiree health and life insurance benefits over the employees' period of service. Prior to 1993, expense was recognized on a "pay as you go" basis. The transition obligation is being amortized over a twenty year period. The periodic postretirement benefit cost for 1995, 1994 and 1993 under SFAS 106 was as follows:
1995 1994 1993 ------ ------- ------ (in thousands) Service cost ......................... $ 50 $ 46 $ 43 Interest cost ........................ 68 47 42 Amortization of transition obligation . 30 30 30 ------ ------- ------ Net postretirement cost .............. $148 $123 $115 ====== ======= ======
F-18 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 9. Benefit Plans - (Continued) The actuarial present value of benefit obligations were as follows:
1995 1994 ------- ------- (in thousands) Actuarial present value of benefit obligations: Retirees ..................................... $ 325 $ 143 Fully eligible active plan participants ...... 299 212 Other active plan participants ............... 582 274 ------- ------- Accumulated postretirement benefit obligation . 1,206 629 Unrecognized transition obligation ........... (510) (540) Unrecognized actuarial gain .................. (350) 137 ------- ------- Accrued postretirement benefit obligation .... $ 346 $ 226 ======= =======
The assumed annual rate of future increases in per capita cost of health care benefits was 11% for 1995 and 12% for 1994. The rate was assumed to decline gradually to 5% in 2001 and remain at that level thereafter. Increasing the health care cost trend by 1% in each year would increase the accumulated postretirement benefit obligation by $300,000 and the service, interest and amortization costs by $29,000. The weighted average discount rate used in determining the accumulated benefit obligation was 8.5% in 1995 and 8% in 1994. STOCK OPTION PLAN In March 1988, the Stockholders approved an incentive stock option plan for the purpose of assisting the Corporation in attracting and retaining highly qualified persons as employees of the Corporation and to provide such key employees with incentives to contribute to the growth and development of the Corporation. In general, the plan allows the granting of up to 44,000 shares of the Corporation's common stock at an option price to be no less than the fair market value of the stock on the date such options are granted. The vesting schedule of the stock options is set by a committee appointed by the Board of Directors. In April 1994, the stock option plan was amended and approved by the Board of Directors to increase the maximum number of shares subject to grant to 164,000. F-19 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 9. Benefit Plans - (Continued) The Board of Directors anticipates that the stock options will vest during a period of up to ten years after the date of grant. The status of the plan for the three-month period ended March 31, 1996 and the years ended December 31, 1995, 1994 and 1993 is as follows:
Options Outstanding ------------------------------------- Price Shares Per Share --------- -------------- Balance, December 31, 1992 . 33,490 $3.10 - $16.31 --------- -------------- Options: Granted .............. 11,000 $ 8.00 Exercised ............ 650 $ 3.10 Cancelled ............ 3,990 $16.31 --------- -------------- Balance, December 31, 1993 . 39,850 $3.10 - $8.00 --------- -------------- Options: Granted .............. 122,480 $ 8.75 Exercised ............ 2,100 $ 3.10 --------- -------------- Balance, December 31, 1994 . 160,230 $3.10 - $ 8.75 --------- -------------- Options: Granted .............. 3,520 $14.75 Exercised ............ 16,720 $3.10 - $14.75 Expired .............. 2,350 $8.00 - $ 8.75 --------- -------------- Balance, December 31, 1995 . 144,680 $8.00 - $14.75 --------- -------------- Options: Exercised ............ 34,777 $8.75 - $14.75 Balance, March 31, 1996 ... 109,903 $8.00 - $14.75 ======== ==============
1994 STOCK OPTION PLAN In April 1994, the Board of Directors approved a non-qualified stock option plan for non-employee directors for the purpose of assisting the Corporation in attracting and retaining highly qualified persons as non- employee members of the Board of Directors and to provide such directors with incentives to contribute to the growth and development of the business of the Corporation. In general, the plan allows for the granting of up to 40,000 shares of the Corporation's common stock at an option price to be no less than the fair market value of the stock on the date such options are granted. The vesting schedule of the stock options are to be set by a committee appointed by the Board of Directors. The options granted in 1994, under this plan, vested immediately. The status of the plan is as follows:
Options Outstanding ----------------------------------- Price Shares Per Share -------- ----------- Balance, December 31, 1993 . -- -- -------- ----------- Options granted ........... 32,000 $8.75 -------- ----------- Balance, December 31, 1994 . 32,000 $8.75 -------- ----------- Options: Exercised ............... 10,943 $8.75 Expired ................. 3,200 $8.75 -------- ----------- Balance, December 31, 1995 . 17,857 $8.75 -------- ----------- Options: Exercised .............. 2,543 $8.75 Balance, March 31, 1996 ... 15,314 $8.75 -------- -----------
F-20 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 10. COMMON STOCK In connection with the 1993 private placement capital offering, the Corporation issued 217,566 units consisting of one share of common stock and one warrant to purchase one share of common stock for proceeds of $1,453,000, net of offering expenses. On September 23, 1994, the Corporation completed its Rights Offering. This offering, available only to stockholders of record on August 8, 1994, raised $2,901,000, net of offering expenses. In connection with the 1993 private placement capital offering, the Corporation agreed, subject to limits on total ownership of common stock, to offer up to 21,000 units to two accredited private investors ("Additional Units Offering"). On October 11, 1994 each private investor purchased the additional units. The Corporation issued 401,492 units, from the Rights Offering and the Additional Units Offering, consisting of one share of common stock and one warrant to purchase one share of common stock. The proceeds from these offerings were $3,186,000, net of offering expenses. The exercise period of the warrants commenced on June 14, 1995 and expired on June 13, 1996. During 1995, 83,849 warrants were exercised with proceeds of $1,283,000. During the first quarter of 1996, 8,259 warrants were exercised with proceeds of $134,000. On June 14, 1995, the Corporation completed an underwritten public offering by issuing 690,000 shares of common stock. The proceeds from this offering were $7,918,000, net of offering expenses. 11. OTHER NON-INTEREST EXPENSE Other non-interest expense included the following:
Three Months Ended March 31, Year ended December 31, ---------------- --------------------------------- (unaudited) 1996 1995 1995 1994 1993 ------ ------ -------- --------- --------- FDIC insurance premium . $ -- $137 $ 290 $ 464 $ 488 O.R.E. expenses ....... 8 36 166 306 386 Stationery and supplies. 101 87 300 229 208 Computer services ..... 116 70 285 270 295 Insurance (other) ..... 21 27 93 119 169 Marketing ............. 117 117 479 415 280 Other ................. 477 380 1,715 1,377 1,245 ------ ------ -------- --------- --------- Total ............... $840 $854 $3,328 $3,180 $3,071 ====== ====== ======== ========= =========
12. OTHER COMMITMENTS AND CONTINGENT LIABILITIES The Corporation enters into a variety of financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit and letters of credit, both of which involve, to varying degrees, elements of risk in excess of the amount recognized in the consolidated financial statements. Credit risk, the risk that a counterparty of a particular financial instrument will fail to perform, is the contract amount of the commitments to extend credit and letters of credit. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies to all activities with credit risk. Collateral is obtained based on management's credit assessment of the customer. The contract amounts of off-balance sheet financial instruments for commitments to extend credit and standby letters of credit were $59,074,000 and $5,361,000, respectively, as of March 31, 1996, and $63,531,000 and $6,720,000 respectively, as of December 31, 1995. F-21 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 12. Other Commitments and Contingent Liabilities - (Continued) Many such commitments to extend credit may expire without being drawn upon, and therefore, the total commitment amounts do not necessarily represent future cash flow requirements. The Corporation maintains lines of credit with the FHLB and two of its correspondent banks. There were approximately $22,000,000 in lines of credit available as of December 31, 1995. At March 31, 1996 there were approximately $25,000,000 in lines of credit available with no outstanding balances. At March 31, 1996, there were $15,000,000 in outstanding borrowings with the FHLB and no outstanding borrowings from the Corporation's Correspondents. The Corporation leases its banking offices in Ewing Township, East Windsor Township and Trenton. Total lease rental expense was $26,950, $103,002 and $42,678 for the three months ended March 31, 1996, and the years ended December 31, 1995 and 1994, respectively. Minimum rentals under the terms of these leases for years 1996 through 2000 are $106,367, $106,518, $106,518, $108,198, and $108,758, respectively. The Corporation and the Bank are party, in the ordinary course of business, to litigation involving collection matters, contract claims and other miscellaneous causes of action arising from their business. Management does not consider that any such proceedings depart from usual routine litigation, and in its judgment, the Corporation's consolidated financial position will not be affected materially by the final outcome of any pending legal proceedings. 13. REGULATORY MATTERS In January 1989, the Federal Reserve Board issued risk-based capital guidelines applicable to member banks and bank holding companies and in March 1989 the FDIC issued comparable guidelines applicable to state nonmember banks. The guidelines, which establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures, require a minimum total risk-based capital ratio of 8% with at least half of the total capital in the form of Tier 1 capital. The Federal Reserve Board and FDIC have also adopted leverage or core capital requirements specifying the minimum acceptable ratios of Tier 1 capital to total assets. Under these requirements, banks are required to maintain minimum leverage ratios of at least 4% or 5%, depending on the condition of the institution. As of March 31, 1996 and December 31, 1995, the Corporation is in compliance with all regulatory capital requirements. Permission from the Comptroller of the Currency is required if the total of dividends declared in a calendar year exceeds the total of the Bank's net profits, as defined by the Comptroller, for that year, combined with its retained net profits of the two preceding years. The retained net profits of the Bank available for dividends are approximately $5,323,000 as of March 31, 1996 and $4,586,000 as of December 31, 1995. On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act") became law. While the FDIC Improvement Act primarily addresses additional sources of funding for the Bank Insurance Fund, which insures the deposits of commercial banks and saving banks, it also imposes a number of new mandatory supervisory measures on savings associations and banks. The FDIC Improvement Act requires financial institutions to take certain actions relating to their internal operations, including: providing annual reports on financial condition and management to the appropriate federal banking regulators, having an annual independent audit of financial statements performed by an independent public accountant and establishing an independent audit committee composed solely of outside directors. The FDIC Improvement Act also imposes certain operational and managerial standards on financial institutions relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits. F-22 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following fair value estimates, methods and assumptions were used to measure the fair value of each class of financial instruments for which it is practical to estimate that value: CASH AND CASH EQUIVALENTS: For such short-term investments, the carrying amount was considered to be a reasonable estimate of fair value. SECURITIES AND MORTGAGE-BACKED SECURITIES: The carrying amounts for short-term investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. The fair value of longer-term investments and mortgage- backed securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. LOANS: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of performing loans, except residential mortgage loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. DEPOSIT LIABILITIES: The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, and NOW accounts, and money market and checking accounts, is equal to the amount payable on demand as of December 31, 1995 and 1994. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. BORROWED FUNDS: For securities sold under agreements to repurchase, fair value was based on rates currently available to the Corporation for agreements with similar terms and remaining maturities. For other borrowed funds, the carrying amount was considered to be a reasonable estimate of fair values. F-23 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 14. Fair Value of Financial Instruments - (Continued) The estimated fair values of the Corporation's financial instruments as of December 31, 1995 and 1994 are as follows:
December 31, 1995 ---------------------------------- Carrying Fair Value Value ---------- --------- (in thousands) Financial Assets: Cash and cash equivalents $ 12,835 $ 12,835 Interest bearing deposits 1,033 1,033 Securities available for sale ................. 98,469 98,469 Investment securities .. 35,384 35,037 Loans .................. 241,377 249,848 Financial Liabilities: Deposits ............... 302,972 304,039 Borrowed funds ......... 65,221 64,333
December 31, 1994 ---------------------------------- Carrying Fair Value Value ---------- --------- (in thousands) Financial Assets: Cash and cash equivalents $ 11,100 $ 11,100 Interest bearing deposits 1,094 1,094 Securities available for sale ................. 24,152 24,152 Investment securities .. 39,083 35,749 Loans .................. 193,998 198,466 Financial Liabilities: Deposits ............... 259,296 258,480 Borrowed funds ......... 1,215 1,215
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, and as the fair value for these financial instruments was not material, these disclosures are not included above. LIMITATIONS: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabili- F-24 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 14. Fair Value of Financial Instruments - (Continued) ties include the deferred tax assets, bank premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. 15. PARENT CORPORATION INFORMATION The condensed financial statements of the parent company only are presented below: YARDVILLE NATIONAL BANCORP (PARENT CORPORATION) CONDENSED BALANCE SHEETS
December 31, March 31, ------------------------ 1996 1995 1994 ----------- ---------- ---------- (in thousands) Assets: Cash ................................. $ 798 $ 342 $ 595 Investment in subsidiary ............. 31,524 31,336 17,854 Other assets ......................... 41 39 3 ----------- ---------- ---------- Total Assets ....................... $32,363 $ 31,717 $18,452 =========== ========== ========== Liabilities and Stockholders' Equity: Other liabilities .................... $ -- $ -- $ 1 Stockholders' equity ................. 32,363 31,717 18,451 ----------- ---------- ---------- Total Liabilities and Stockholders' Equity ........................ $32,363 $ 31,717 $ 18,452 =========== ========== ==========
CONDENSED STATEMENTS OF INCOME
Three Months Ended March 31, Year Ended December 31, ---------------- ------------------------------- 1996 1995 1995 1994 1993 ------ ------ -------- -------- -------- (in thousands) Operating Income: Dividends from subsidiary .............. $258 $139 $ 843 $ 580 $ 48 ----- ------ -------- -------- -------- Total Operating Income ............... 258 139 843 580 48 ----- ------ -------- -------- -------- Operating Expense: Other expense .......................... 5 2 115 11 10 ----- ------ -------- -------- -------- Total Operating Expense .............. 5 2 115 11 10 - ----- ------ -------- -------- -------- Income before income taxes and equity in undistributed income of subsidiary ........ 253 137 728 569 38 Federal income tax expense (benefit) ........ (2) (1) (41) (3) 3 ------ ------ -------- -------- -------- Income before equity in undistributed income of subsidiary ............................. 255 138 769 572 35 ------ ------ -------- -------- -------- Equity in undistributed income of subsidiary . 737 618 2,634 1,951 1,890 ------ ------ -------- -------- -------- Net Income .............................. $992 $756 $3,403 $2,523 $1,925 ====== ====== ======== ======== ========
F-25 Yardville National Bancorp and Subsidiary Notes to Consolidated Financial Statements - (Continued) (Information as of March 31, 1996 and for the three months ended March 31, 1996 and March 31, 1995 is unaudited) 15. Parent Corporation Information - (Continued) CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, Year Ended December 31, ------------------ --------------------------------- 1996 1995 1995 1994 1993 ------- ------- --------- --------- --------- (in thousands) Cash Flows from Operating Activities: Net Income .................................. $ 992 $ 756 $ 3,403 $ 2,523 $ 1,925 Adjustments: Decrease (increase) in other assets .... (2) -- (36) 96 (99) Equity in undistributed income of subsidiary (737) (618) (2,634) (1,951) (1,890) Increase (decrease) in other liabilities . -- (1) (1) (5) (12) ------- ------- --------- --------- --------- Net Cash (used in) provided by Operating Activities 253 137 732 663 (76) ------- ------- --------- --------- --------- Cash flows from investing activities: Investing in subsidiary ................ -- (500) (9,650) (2,902) (1,362) ------- ------- --------- --------- --------- Net Cash used by Investing Activities ....... -- (500) (9,650) (2,902) (1,362) ------- ------- --------- --------- --------- Cash flows from financing activities: Proceeds from shares issued ................. 461 8 9,403 3,192 1,454 Dividends paid .............................. (258) (139) (738) (380) -- ------- ------- --------- --------- --------- Net Cash provided by (used in) Financing Activities (203) (131) 8,665 2,812 1,454 ------- ------- --------- --------- --------- Net increase in cash and cash equivalents ... 456 (494) (253) 573 16 Cash and cash equivalents as of beginning of period 342 595 595 22 6 ------- ------- --------- --------- --------- Cash and cash equivalents as of end of period . $ 798 $ 101 $ 342 $ 595 $ 22 ======= ======= ========= ========= =========
F-26 ============================================================================= No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any date subsequent to the date hereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. ------ TABLE OF CONTENTS
Page -------- Available Information ......................... 2 Prospectus Summary ............................ 3 Summary Financial Data ........................ 5 Investment Considerations ..................... 6 The Company ................................... 7 The Offering .................................. 9 Market for Common Stock and Related Stockholder Matters .......................... 11 Selected Historical Consolidated Financial Data 13 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ........................ 15 Management .................................... 40 Security Ownership of Principal Beneficial Owners and Management ........................ 46 Supervision and Regulation .................... 48 Description of Securities ..................... 56 Legal Matters ................................. 58 Experts ....................................... 58 Index to Consolidated Financial Statements .... F-1
============================================================================= ============================================================================= 206,566 SHARES LOGO COMMON STOCK ------ PROSPECTUS ------ August 2, 1996 ============================================================================= YARDVILLE NATIONAL BANCORP PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Statutory Indemnification. Reference is made to Section 14A:3-5 of the New Jersey Business Corporation Act, as amended, which sets forth the extent to which a corporation may indemnify its directors, officers and employees. More specifically, such law empowers a corporation to indemnify a corporate agent against his or her expenses and liabilities incurred in connection with any proceeding (other than a derivative law suit) involving the corporate agent by reason of his or her being or having been a corporate agent if (a) the corporate agent acted in good faith or in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and (b) with respect to any criminal proceeding, the corporate agent had no reasonable cause to believe his or her conduct was unlawful. For purposes of such law the term "corporate agent" includes any present or former director, officer, employee or agent of the corporation, and a person serving as a "corporate agent" at the request of the corporation for any other enterprise, or the legal representative of any such director, officer, trustee, employee or agent. For purposes of this section, "proceeding" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit, or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding. With respect to any derivative action, the corporation is empowered to indemnify a corporate agent against his or her expenses (but not his or her liabilities) incurred in connection with any proceeding involving the corporate agent by reason of his or her being or having been a corporate agent if the agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. However, only a court can empower a corporation to indemnify a corporate agent against expenses with respect to any claim, issue or matter as to which the agent was adjudged liable to the corporation. The corporation may indemnify a corporate agent in a specific case if a determination is made by any of the following that the applicable standard of conduct was met: (i) the Board of Directors, or a committee thereof, acting by a majority vote of a quorum consisting of disinterested directors; (ii) by independent legal counsel, if there is not a quorum of disinterested directors or if the disinterested quorum empowers counsel to make the determination; or (iii) by the stockholders. A corporate agent is entitled to mandatory indemnification to the extent that the agent is successful on the merits or otherwise in any proceeding, or in defense of any claim, issue or matter in the proceeding. If a corporation fails or refuses to indemnify a corporate agent, whether the indemnification is permissive or mandatory, the agent may apply to a court to grant him or her the requested indemnification. In advance of the final disposition of a proceeding, the Board of Directors may direct the corporation to pay an agent's expenses if the agent agrees to repay the expenses in the event that it is ultimately determined that he is not entitled to indemnification. Indemnification Pursuant to Restated Certificate of Incorporation of the Registrant. In accordance with the foregoing statutory provision, Article VI of the Registrant's Restated Certificate of Incorporation provides as follows: "The Corporation shall indemnify its officers, directors, employees, and agents and former officers, directors, employees and agents, and any other persons serving at the request of the Corporation as an officer, director, employee or agent of another corporation, association, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees, judgements, fines, and amounts paid in settlement) incurred in connection with any pending or threatened action, suit, or proceeding, whether civil, criminal, administrative or investigative, with respect to which such officer, director, employee, agent or other person is a party, or is threatened to be made a party, to the full extent permitted by the New Jersey Business Corporation Act. The indemnification provided herein shall not be deemed exclusive of any other II-1 right to which any person seeking indemnification may be entitled under any by-law, agreement, or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity, and shall inure to the benefit of the heirs, executors, and the administrators of any such person. The Corporation shall have the power to purchase and maintain insurance on behalf of any persons enumerated above against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions under this Article." ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth costs and expenses payable by the Registrant in connection with the sale and distribution of securities registered hereunder. All amounts are estimated. The Company shall not pay any fees and expenses incident to sales by security holders pursuant to this Registration Statement, other than the fees and expenses incident to the preparation and filing of this Registration Statement.
Legal Fees and Expenses $10,000 Accounting Fees and Expenses 5,000 Printing Expenses 16,000 Miscellaneous 1,500 --------- Total Offering Expenses $32,500* =========
- - ------ * Does not include expenses incurred and paid by the Registrant in connection with the Registration Statement on Form SB-2 (Registration No. 33-78050) (the "Registration Statement") filed by the Registrant with the Commission on August 3, 1994 and the offering of Units by the Company pursuant thereto and the registration of shares of Common Stock held by certain selling security holders named therein nor the expenses incurred and paid by the Registrant in connection with Post-Effective Amendment No. 1 to the Registration Statement filed with the Commission on July 28, 1995. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES On August 31, 1993, the Registrant closed an offering of Units (as hereinafter defined) to "accredited investors" (as defined in Regulation D under the Securities Act of 1933). The offer and sale of Units was exempt from registration under the Securities Act of 1933 under Section 4(2) thereof and Regulation D thereunder. The offering was conducted by the Registrant without any underwriter or broker. In the offering, the Registrant sold 108,783 Units (each unit consisting of one share of the Registrant's Common Stock, no par value, and one Class A Warrant to purchase one share of the Registrant's Common Stock, no par value) and received $1,740,528 in proceeds, before offering expenses. From January 1, 1992, through July 14, 1995, the Registrant issued and sold from time to time an aggregate of 15,248 shares of Common Stock to directors of the Registrant upon exercise by them of stock options granted pursuant to the Registrant's stock option plans. The aggregate consideration received by the Registrant from such sales is $112,686.25. The offers and sales of shares of Common Stock were exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. ITEM 27. EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant. 3.2 By-Laws of the Registrant. 4.1 Specimen of Share of Common Stock. 5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP 10.1 Employment Contract between Registrant and Patrick M. Ryan. 10.2 Employment Contract between Registrant and Jay G. Destribats. 10.3 Employment Contract between Registrant and Stephen F. Carman. 10.4 Employment Contract between Registrant and James F. Doran.
II-2
10.5 Employment Contract between the Bank and Richard A. Kauffman. 10.6 Employment Contract between the Bank and Mary C. O'Donnell. 10.7 Employment Contract between the Bank and Frank Durand III. 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan. 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats. 10.10 1988 Stock Option Plan. 10.11 1994 Stock Option Plan. 10.12 Directors' Deferred Compensation Plan. 10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993. 10.14 Lease between Richardson Realty Company and the Bank dated November 14, 1994. 10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October, 1994. 10.16 Survivor Income Plan for the Benefit of Stephen F. Carman. 10.17 Lease Agreement between Dean, Inc. and the Bank dated April 1, 1996. 11.1 Statements re Computation of Per Share Earnings. 21.1 List of Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor). 23.2 Consent of Stradley, Ronon, Stevens & Young, LLP (included in Exhibit 5.1).
ITEM 28. UNDERTAKINGS 1. The undersigned Registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to (i) Include any prospectus required by Section 10(A)(3) of the Securities Act of 1933 (the "Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) Include any additional or changed information on the plan of distribution. (b) That, for the purpose of determining liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and that the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. 2. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a diretor, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Trenton, State of New Jersey on August 6, 1996. YARDVILLE NATIONAL BANCORP By: /s/ PATRICK M. RYAN ------------------------------ Patrick M. Ryan, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities stated on August 6, 1996.
Signatures Title ---------- ----- /s/ JAY G. DESTRIBATS Chairman of the Board and Director ----------------------------- Jay G. Destribats /s/ PATRICK M. RYAN Director, President and ----------------------------- Chief Executive Officer Patrick M. Ryan /s/ STEPHEN F. CARMAN Treasurer, Secretary, Principal Financial ----------------------------- Officer and Principal Accounting Officer Stephen F. Carman /s/ C. WEST AYRES Director ----------------------------- C. West Ayres /s/ ELBERT G. BASOLIS, JR. Director ----------------------------- Elbert G. Basolis, Jr. /s/ LORRAINE BUKLAD Director ----------------------------- Lorraine Buklad Director ----------------------------- Anthony M. Giampetro /s/ GILBERT W. LUGOSSY Director ----------------------------- Gilbert W. Lugossy /s/ WELDON J. MCDANIEL, JR. Director ----------------------------- Weldon J. McDaniel, Jr. /s/ WILLIAM J. STEINER, JR. Director ----------------------------- William J. Steiner, Jr. /s/ JOHN C. STEWART Director ----------------------------- John C. Stewart /s/ F. KEVIN TYLUS Director ----------------------------- F. Kevin Tylus Director ----------------------------- Edward M. Hendrickson
II-4 INDEX TO EXHIBITS
No. Exhibits --- -------- ++3.1 Restated Certificate of Incorporation of the Registrant +3.2 By-Laws of the Registrant +4.1 Specimen of Share of Common Stock +4.2 Form of Class A Warrant +5.1 Opinion of Stradley, Ronon, Stevens & Young ++10.1 Employment Contract between Registrant and Patrick M. Ryan ++10.2 Employment Contract between Registrant and Jay G. Destribats ++10.3 Employment Contract between Registrant and Stephen F. Carman ++10.4 Employment Contract between Registrant and James F. Doran ++10.5 Employment Contract between the Bank and Richard A. Kauffman ++10.6 Employment Contract between the Bank and Mary C. O'Donnell ++10.7 Employment Contract between the Bank and Frank Durand III 10.8 Salary Continuation Plan for the Benefit of Patrick M. Ryan 10.9 Salary Continuation Plan for the Benefit of Jay G. Destribats ++10.10 1988 Stock Option Plan ++10.11 1994 Stock Option Plan ++10.12 Directors' Deferred Compensation Plan +10.13 Lease Agreement between Jim Cramer and the Bank dated November 3, 1993 ++10.14 Lease between Richardson Realty Company and the Bank dated November 14, 1994 ++10.15 Agreement between the Lalor Urban Renewal Limited Partnership and the Bank dated October, 1994 +++10.16 Survivor Income Plan for the Benefit of Stephen F. Carman +++10.17 Lease Agreement between Devon, Inc. and the Bank dated February 9, 1996 11.1 Statements re Computation of Per Share Earnings +21.1 List of Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP (Independent Auditor) +23.2 Consent of Stradley, Ronon, Stevens & Young LLP (included in Exhibit 5)
- - ------ + Previously filed. ++ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the Fiscal Year Ended December 31, 1994, as amended by Form 10-KSB/A filed on July 25, 1995. +++ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the Fiscal Year Ended December 31, 1995. EX-10.8 2 EXHIBIT 10.8 YARDVILLE NATIONAL BANK SALARY CONTINUATION PLAN FOR THE BENEFIT OF JAY DESTRIBATS This agreement is made and entered into effective the 31st day of December, 1994, by and between YARDVILLE NATIONAL BANK, a corporation organized and existing under the laws of the state of New Jersey hereinafter called "Company", and JAY DESTRIBATS, hereinafter called "Executive." WITNESSETH: WHEREAS, the Executive has been in the employ of the Company for one (1) year and is now serving the Company as Chairman of the Board; and WHEREAS, the services of the Executive have been an invaluable contribution to the prior success of the Company; and WHEREAS, the Company wishes to retain the services of the Executive to insure the continued success and future growth of the Company; and WHEREAS, the Executive is willing to continue in the employ of the Company provided the Company agrees to provide certain benefits in accordance with the terms and conditions hereinafter set forth: NOW THEREFORE the parties agree as follows: ARTICLE ONE Employment. The Company will employ the Executive as Chairman of the Board of Directors or in such other positions as may be determined from time to time by the Company and at such rate of compensation as may be so determined. The Executive will devote his full energy, skill and best efforts to the affairs of the Company on a substantially full-time basis. It is contemplated that such employment will continue until the Executive's normal retirement date upon the attainment of age 70 which date is March 27, 2005. ARTICLE TWO Retirement. If the Executive shall continue in the employment of the Company until his normal retirement date he may retire on his normal retirement date. If he shall become disabled (as defined under Article Three) prior to his normal retirement date, and if such disability continues to his normal retirement date, he will be considered to have retired on his normal retirement date. In such event, commencing with the first month following his normal retirement date, the Company will pay the Executive fifty percent (50%) of his final annual salary on a monthly basis for a period of at least 180 months or for his life, if longer. If the Executive so retires, but dies before receiving 180 monthly payments, the Company shall continue to make such payments to such individual or individuals as the Executive may have designated in writing and filed with the Company until 180 payments have been made. In the absence of any effective designation by the Executive, any amounts becoming due and payable upon the death of the Executive shall be paid to his executor or administrator. ARTICLE THREE Disability. If, while employed by the Company, the Executive becomes totally disabled and his employment terminates, the Company will continue to pay the Executive for six months. Thereafter, if the Executive remains disabled, the Company will continue to pay the Executive's final salary to the Executive in equal monthly installments until the Executive attains age seventy (70). Any amount paid by the Company pursuant to the preceding sentence will be reduced on a dollar-for-dollar basis by any payment received by the Executive under the Company's long term disability insurance policies. Upon attaining his normal retirement date, the Company will pay to the Executive an amount equal to the retirement benefit that would have been paid under the terms of this Plan had the Executive continued his employment until his retirement at his then current salary. For purposes of this Agreement, "disability" shall mean the inability of the Executive to engage in his position with the Company, as it exists at the date that this Agreement becomes effective, for a period of at least six (6) months, by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long continued and indefinite duration. ARTICLE FOUR Termination of Employment and Change of Control. (a) (1) Subject to subparagraph (2) of this paragraph (a), if the Executive terminates his employment with the Company or if the Company terminates the Executive's employment for any reason other than disability or prior to the Executive's normal retirement date, the Company will pay the Executive monthly, commencing with the first month after the Executive's normal retirement date and continuing for 180 months thereafter, an amount calculated by multiplying the amount payable at normal retirement specified in Article Two by a fraction the numerator of which is the number of full years between the date of this agreement and the date of termination of the Executive's employment and the denominator of which is the number of full years between the date of this agreement and the Executive's normal retirement date. 2 (2) If the Company terminates the Executive's employment because the Executive has committed an act which exposes the Company to economic harm or damages the reputation or good will of the Company, then any payment otherwise due to the Executive under this Agreement shall be forfeited. (b) In the event that a change in control of the Company has occurred (which shall be deemed to have occurred if a company or individual that is not currently a shareholder acquires at least forty percent [40%] of the Company), and if the Executive either resigns his position with the Company or if his employment is terminated for any reason, which termination shall be deemed to have occurred if the Executive's responsibilities are diminished or assumed by another individual, then the Executive shall be entitled to receive the amount payable at normal retirement as provided for under Article Two without reduction for the period of employment that ended prior to his normal retirement date. ARTICLE FIVE Death. If the Executive dies before his normal retirement date, (but either before or after his termination of employment), commencing with the first month following death and continuing for 180 months thereafter, the Company shall pay the Executive's named beneficiary (designated in Article Seven of this agreement and hereinafter referred to as the Beneficiary) a monthly amount equal to the amount the Company would have paid the Executive had he lived to his normal retirement date, which, in the case of death during employment or after termination resulting from disability, shall be the amount specified in Article Two and, which in the case of death after termination of employment for reasons other than disability, shall be the amount determined pursuant to Article Five. ARTICLE SIX Small amounts. In the event the amount of any monthly payments provided herein shall be less than $100.00, the Company in its sole discretion may, in lieu thereof, pay the commuted value of such payments to the person entitled to receive such payments. ARTICLE SEVEN Beneficiary. The Beneficiary of any payments to be made after the Executive's death, shall be the spouse of JAY DESTRIBATS or such other person or persons as JAY DESTRIBATS shall designate in writing to the Company. If no beneficiary shall survive the Executive, any such payments shall be made to the Executive's estate. 3 ARTICLE EIGHT Source of payments. The Executive, the Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of the Company set forth herein, and nothing in this agreement shall be construed to give the Executive, the Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve account or property of any kind whatsoever owned by the company or in which it may have any right, title or interest now or in the future. The Executive or his Beneficiary or successor shall have the right to enforce his claim against the Company in the same manner as any unsecured creditor. ARTICLE NINE Insurance. If the Company shall elect to purchase a life insurance contract to provide the Company with funds to make payments hereunder, the Company shall at all times be the sole and complete owner and beneficiary of such contract and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without the knowledge or consent of the Executive or the Beneficiary or any other person, it being expressly agreed that neither the Executive nor the Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. If the Company purchases a life insurance contract on the life of the Executive, the Executive agrees to sign any papers that may be required for that purpose and to undergo any medical examination or tests which may be necessary. This article shall not be construed as giving the Executive or the Beneficiary any greater rights than those of any other unsecured creditor of the Company. ARTICLE TEN Amendment. This agreement may be amended at any time or from time to time by written agreement of the parties. ARTICLE ELEVEN Assignment. Neither the Executive, nor the Beneficiary, nor any other person entitled to payment hereunder shall have the power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance; or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. 4 ARTICLE TWELVE Binding effect. This agreement shall be binding upon the parties, their heirs, executors, administrators, successors and assigns. The Company agrees that it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Company to discharge the Executive or restrict the right of the Executive to terminate his employment. IN WITNESS WHEREOF the parties have executed this agreement this 31st day of December, 1994 /s/ Jay Destribats Patrick M. Ryan - - -------------------------- --------------------------------------- JAY DESTRIBATS YARDVILLE NATIONAL BANK Pres./CEO By_____________________________________ Attest Ingrid Jawonowski -------------------------------- 5 EX-10.9 3 EXHIBIT 10.9 Exhibit 10.9 YARDVILLE NATIONAL BANK SALARY CONTINUATION PLAN FOR THE BENEFIT OF PATRICK M. RYAN This agreement is made and entered into effective the 28th day of October, 1994, by and between YARDVILLE NATIONAL BANK, a corporation organized and existing under the laws of the state of New Jersey hereinafter called "Company", and PATRICK M. RYAN, hereinafter called "Executive." WITNESSETH: WHEREAS, the Executive has been in the employ of the Company for four (4) years and is now serving the Company as Chief Executive officer; and WHEREAS, the services of the Executive have been an invaluable contribution to the prior success of the Company; and WHEREAS, the Company wishes to retain the services of the Executive to insure the continued success and future growth of the Company; and WHEREAS, the Executive is willing to continue in the employ of the Company provided the Company agrees to provide certain benefits in accordance with the terms and conditions hereinafter set forth: NOW THEREFORE the parties agree as follows: ARTICLE ONE Employment. The Company will employ the Executive as Chief Executive Officer or in such other positions as may be determined from time to time by the Company and at such rate of compensation as may be so determined. The Executive will devote his full energy, skill and best efforts to the affairs of the Company on a substantially full-time basis. It is contemplated that such employment will continue until the Executive's normal retirement date upon the attainment of age 65 which date is June 21, 2009. ARTICLE TWO Retirement. If the Executive shall continue in the employment of the Company until his normal retirement date he may retire on his normal retirement date. If he shall become disabled (as defined under Article Three) prior to his normal retirement date, and if such disability continues to his normal retirement date, he will be considered to have retired on his normal retirement date. In either event, commencing with the first month following his normal retirement date, the Company will pay the Executive fifty percent (50%) of his final annual salary on a monthly basis for a period of at least 180 months or for his life, if longer. If the Executive so retires, but dies before receiving 180 monthly payments, the Company shall continue to make such payments to such individual or individuals as the Executive may have designated in writing and filed with the Company until 180 payments have been made. In the absence of any effective designation by the Executive, any amounts becoming due and payable upon the death of the Executive shall be paid to his executor or administrator. ARTICLE THREE Disability. If, while employed by the Company, the Executive becomes totally disabled and his employment terminates, the Company will continue to pay the Executive for six months. Thereafter, if the Executive remains disabled, the Company will continue to pay the Executive's final salary to the Executive in equal monthly installments until the Executive attains age sixty-five (65). Any amount paid by the Company pursuant to the preceding sentence will be reduced on a dollar-for-dollar basis by any payment received by the Executive under the Company's long term disability insurance policies. Upon attaining his normal retirement date, the Company will pay to the Executive an amount equal to the retirement benefit that would have been paid under the terms of this Plan had the Executive continued his employment until his retirement at his then current salary. For purposes of this Agreement, "disability" shall mean the inability of the Executive to engage in his position with the Company, as it exists at the date that this Agreement becomes effective, for a period of at least six (6) months, by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long continued and indefinite duration. ARTICLE FOUR Termination of Employment and Change of Control. (a)(1) Subject to subparagraph (2) of this paragraph (a), if the Executive terminates his employment with the Company or if the Company terminates the Executive's employment for any reason other than disability or prior to the Executive's normal retirement date, the Company will pay the Executive monthly, commencing with the first month after the Executive's normal retirement date and continuing for 180 months thereafter, an amount calculated by multiplying the amount payable at normal retirement specified in Article Two by a fraction the numerator of which is the number of full years between the date of this agreement and the date of termination of the Executive's employment and the denominator of which is the number of full years between the date of this agreement and the Executive's normal retirement date. 2 (2) If the Company terminates the Executive's employment because the Executive has committed an act which exposes the Company to economic harm or damages the reputation or good will of the Company, then any payment otherwise due to the Executive under this Agreement shall be forfeited. (b) In the event that a change in control of the Company has occurred (which shall be deemed to have occurred if a company or individual that is not currently a shareholder acquires at least forty percent [40%] of the Company), and if the Executive either resigns his position with the Company or if his employment is terminated for any reason, which termination shall be deemed to have occurred if the Executive's responsibilities are diminished or assumed by another individual, then the Executive shall be entitled to receive the amount payable at normal retirement as provided for under Article Two without reduction for the period of employment that ended prior to his normal retirement date. ARTICLE FIVE Death. If the Executive dies before his normal retirement date, (but either before or after his termination of employment), commencing with the first month following death and continuing for 180 months thereafter, the Company shall pay the Executive's named beneficiary (designated in Article Seven of this agreement and hereinafter referred to as the Beneficiary) a monthly amount equal to the amount the Company would have paid the Executive had he lived to his normal retirement date, which, in the case of death during employment or after termination resulting from disability, shall be the amount specifed in Article Two and, which in the case of death after termination of employment for reasons other than disability, shall be the amount determined pursuant to Article Four. ARTICLE SIX Small amounts. In the event the amount of any monthly payments provided herein shall be less than $100.00, the Company in its sole discretion may, in lieu thereof, pay the commuted value of such payments to the person entitled to receive such payments. ARTICLE SEVEN Beneficiary. The Beneficiary of any payments to be made after the Executive's death, shall be the spouse of PATRICK M. RYAN or such other person or persons as the Executive shall designate in writing to the Company. If no beneficiary shall survive the Executive, any such payments shall be made to the Executive's estate. 3 ARTICLE EIGHT Source of payments. The Executive, the Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of the Company set forth herein, and nothing in this agreement shall be construed to give the Executive, the Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the company or in which it may have any right, title or interest now or in the future. The Executive or his Beneficiary or successor shall have the right to enforce his claim against the Company in the same manner as any unsecured creditor. ARTICLE NINE Insurance. If the Company shall elect to purchase a life insurance contract to provide the Company with funds to make payments hereunder, the Company shall at all times be the sole and complete owner and beneficiary of such contract and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without the knowledge or consent of the Executive or the Beneficiary or any other person, it being expressly agreed that neither the Executive nor the Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. If the Company purchases a life insurance contract on the life of the Executive, the Executive agrees to sign any papers that may be required for that purpose and to undergo any medical examination or tests which may be necessary. This article shall not be construed as giving the Executive or the Beneficiary any greater rights than those of any other unsecured creditor of the Company. ARTICLE TEN Amendment. This agreement may be amended at any time or from time to time by written agreement of the parties. ARTICLE ELEVEN Assignment. Neither the Executive, nor the Beneficiary, nor any other person entitled to payment hereunder shall have the power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance; or be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. 4 ARTICLE TWELVE Binding effect. This agreement shall be binding upon the parties, their heirs, executors, administrators, successors and assigns. The Company agrees that it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Company to discharge the Executive or restrict the right of the Executive to terminate his employment. IN WITNESS WHEREOF the parties have executed this agreement as of the 28th day of October, 1994. /s/ Patrick M. Ryan - - --------------------------- ----------------------------------- PATRICK M. RYAN YARDVILLE NATIONAL BANK By /s/ Jay Destribats -------------------------- Attest Ingrid Jawonowski -------------------------------- 5 EX-11.1 4 COMPUTATION OF EARNINGS EXHIBIT 11.1 YARDVILLE NATIONAL BANCORP AND SUBSIDIARY COMPUTATION OF EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
March 31, 1996 1995 1994 1993 ----------- -------- -------- -------- (unaudited) Primary Earnings Per Share (in thousands, except per share amounts) Reconciliation of net income, per consolidated statements of income to amount used in primary earnings per share computation: Net income ........................................ $ 992 $3,403 $2,523 $1,925 Add: Interest on long-term debt and interest on investment securities, net of income tax effect, on application of assumed proceeds from exercise of options and warrantsin excess of 20% limitation 19 120 247 -- ------ ------ ------ ------ Net income, as adjusted ........................... $1,011 $3,523 $2,770 $1,925 ------ ------ ------ ------ Reconciliation of weighted average number of shares outstanding to amount used in primary earnings per share computation: Weighted average number of shares outstanding ..... 2,357 1,964 1,255 1,020 Add: Equivalent shares issuable from assumed exercise of options and warrants in excess of 20% limitation 173 228 502 -- Equivalent shares issuable from assumed exercise of dilutive options ................................. -- -- -- 16 ------ ------ ------ ------ Weighted average number of shares outstanding, as adjusted ...................................... 2,530 2,192 1,757 1,036 ------ ------ ------ ------ Primary earnings per share ........................ $ .40 $ 1.61 $ 1.58 $ 1.86 ------ ------ ------ ------
EXHIBIT 11.1, CONT. YARDVILLE NATIONAL BANCORP AND SUBSIDIARY COMPUTATION OF EARNINGS PER SHARE FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
March 31, 1996 1995 1994 1993 ----------- -------- -------- -------- (unaudited) Fully Diluted Earnings Per Share (in thousands, except per share amounts) Reconciliation of net income, per consolidated statements of income to amount used in fully diluted earnings per share computation: Net income ....................................... $ 992 $3,403 $2,523 $1,925 Add: Interest on long-term debt and interest on investment securities, net of income tax effect, on application of assumed proceeds from exercise of options and warrants in excess of 20% limitation 18 101 223 -- ------ ------ ------ ------ Net income, as adjusted .......................... $1,010 $3,504 $2,746 $1,925 ------ ------ ------ ------ Reconciliation of weighted average number of shares outstanding to amount used in fully diluted earnings per share computation: Weighted average number of shares outstanding .... 2,357 1,964 1,255 1,020 Add: Equivalent shares issuable from assumed exercise of options and warrants in excess of 20% limitation 173 228 502 -- Equivalent shares issuable from assumed exercise of dilutive options ................................ -- -- -- 16 ------ ------ ------ ------ Weighted average number of shares outstanding, as adjusted ........................................ 2,530 2,192 1,757 1,036 ------ ------ ------ ------ Fully diluted earnings per share ................. $ .40 $ 1.60 $ 1.56 $ 1.86 ------ ------ ------ ------
EX-23.1 5 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors Yardville National Bancorp: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Prospectus. Such report refers to a change in the method of accounting for certain debt and equity securities in 1994 and a change in the method of accounting for income taxes and postretirement benefits other than pensions in 1993. KPMG Peat Marwick LLP Princeton, New Jersey August 2, 1996 -----END PRIVACY-ENHANCED MESSAGE-----